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"Getting at the Roots of Arab Poverty"--A Commentary by Prof. Alan Schwartz


(This essay originally appeared in the December 1, 2001, edition of the "New York Times.")

Getting at the Roots of Arab Poverty
By Alan Schwartz, Sterling Professor of Law

Since the terrorist attacks, Americans have learned that in many Arab and Muslim nations there are large numbers of angry young men with time on their hands, unable to find jobs--or jobs that make use of their education--because of their countries' poverty. We've also learned that many Muslims blame us for their poverty. But in fact they are not poor because we are rich; they are poor because of the policies their countries pursue.

What matters for economic growth is what a country does, not what it has. Japan, Switzerland, the Netherlands, and Israel have no natural resources, yet they have successful, developed economies; Nigeria and the Congo, with abundant resources, do not. Nor is the availability of capital, by itself, the answer. In many Arab nations, the local rich invest their money outside their own countries and may have good economic reasons for doing so.

Perhaps the most important cause for some countries' continuing to fall behind is the monopolies that many of them tolerate or even create. The bin Laden family, for example, is rich because it was given a monopoly over much construction activity in Saudi Arabia. A recent estimate for sub-Saharan Africa estimated that the growth rates in all but a few countries could triple with no infusion of additional resources if state-created monopolies were dismantled in businesses like buying and selling grain or exporting textiles.

Not only does the absence of competition in a business lead to inefficiency, but monopolies also sustain an elite class that may block new technology and new industries--or permit them and tax them heavily--as it guards its own power and wealth. In some Arab countries, state-protected monopolies distribute part of their profits to people in the government, creating a powerful coalition against change.

Some Muslim and Arab countries also fail to provide the basic certainties that investors receive from the rule of law. Without an independent, noncorrupt judiciary and transparent laws, the ability of an investor to reap the rewards of a good idea turns on the discretion of the ruler and his favorites of the moment. Where whims rule, investors vanish.

Then there is trade. Generally, income for each citizen grows by 0.5 percent to 2 percent whenever the amount of total national income that comes from trade grows by 1 percent. Yet many Muslim nations discourage trade with import duties, as well as with their broader economic policies.

And there is human capital. A modern economy cannot grow without a population able to do its work. A good measure is the skill of a nation's young people in science and mathematics. Since most Arab nations do not give the usual standardized tests, it is not easy to see how well their students are doing. But it is deeply disturbing that countries like Egypt, Saudi Arabia and Pakistan have either turned their national schools over to Muslim clerics or underfunded education so that the clerics' schools fill the gap. Because they seldom teach math and science or other modern skills, the ascent of these schools may retard economic growth for decades. And of major importance is the failure of many Muslim countries to invest at all in the human capital of half the population--that is, women.

Even though the poverty of Muslim countries is not America's doing, the United States may be able to help these nations work their way out of it. We can push them toward more constructive economic policies with free-trade treaties, like the one we have with Jordan, and through our influence with the International Monetary Fund and the World Bank. We can explain, loudly and often, the link between local economic performance and local political institutions. We should support local democratic movements not only because of the intrinsic merits of democracy, but because it is more difficult to pursue bad economic policies when one's citizens can openly criticize them.

Sept. 11 has taught us anew how important it is for the United States to take this kind of active interest. If we do not promote economic growth in Muslim nations, we will by default promote growth in the supply of potential terrorists.

Alan Schwartz is a professor of law and management at Yale.