The underlying causes of the Arab Spring included a distorted development model and an unraveling social contract in which Arab citizens traded political freedoms for public sector jobs, public services and various subsidies. However, while the revolutions that broke out across the Arab world at the end of 2010 promised better economic conditions and dignity for all, they have so far delivered more challenges for the populations of these countries. Since early 2011, most Arab economies have been dramatically impacted by social unrest, a surge in commodity and energy prices for oil importers, recessionary impacts affecting the private and public sectors, increased uncertainty for investors, and greater demands for expansionary expenditure for economic recovery and social justice. These things have translated into a decline in economic activity and increased unemployment. Since 2010, unemployment has increased across the region, with the largest hikes registered in Tunisia of about seven per cent, Egypt at 3.5 per cent, and Syria with a more than 10 per cent surge in the number of unemployed people. A report released two days ago tries to assess how the distorted economic reforms of the last two decades have led to low-quality growth that has been reflected in the structure of employment in the region. The report, part of a United Nations mandate to the International Labour Organisation (ILO) and entitled “Rethinking Economic Growth: Towards Productive and Inclusive Arab Societies,” highlights policies to contain the negative effects of the uprisings on the region's labour markets. According to the ILO report, post-revolutionary economic woes will continue, and the projected annual rates of population growth up to 2050 show that the rate of growth of the working age population is almost one third that of elderly people. This will weigh on the region's expected growth rates, with the report expecting these to be among the lowest of all the world's regions, except Latin America, up to 2015. North Africa is likely to have the lowest economic growth rates of 3.8 per cent as compared to 4.5 for the Middle East. Such growth rates will be barely adequate to reduce unemployment at any significant rate in the future, the report says. Another worrying factor is that recent evidence has shown that youth unemployment in the region is likely to persist even after growth resumes. Looking for a way out of these problems, the report sheds light on why the Arab economies are in their present state. Over the past two decades, the increase in Arab incomes has been among the lowest in the world on a per capita basis. The Arab region also continues to have the lowest rates of citizen participation and government accountability. The 1990s witnessed a slew of pro-market reforms aiming at tackling declining per capita GDP, slow productivity growth, and low competitiveness. The structural adjustment aimed to tackle debt and inflation, and growth rates averaged five per cent between 2000 and 2010, which were high by regional standards but low compared to other world regions. However, the structural adjustment measures reduced the ability of the state to play its role as an employer of last resort. The adjustments lowered the incomes of public sector employees and reduced public expenditure on social services. Furthermore, the private sector was still saddled with a weak and unaccountable system of economic governance, including non-transparent business and investment climates and very low competitiveness. As a result, productivity growth has lagged behind in the region as a whole. Between 2000 and 2010, the Arab region had the lowest productivity growth rates of any region except Latin America. The wage share of GDP declined by one-fifth in the Middle East and one-third in North Africa, and household consumption's share of GDP across the region fell by nine per cent, suggesting that only a small part of apparently substantial GDP increases was transferred to workers and their households. While the regional unemployment rate declined, mainly due to a decline in North Africa by nearly 30 per cent between 1990 and 2010, any increases in employment were distorted. Most employment gains have been in the service sector, with a 10 per cent increase in the employment share of services in the last 20 years. The bulk of employment opportunities have also been in the public sector. Youth unemployment in the region is the highest globally at 23.2 per cent, compared to a world average of 13.9 per cent. The Arab female youth unemployment rate is the highest in the world. Moreover, there is an oversupply of educated job-seekers in Arab labour markets, as indicated by the region having the highest rate of emigration of skilled labour worldwide. While most governments in the Arab region adopted various labour-market and social-protection measures following the uprisings, these were more reactive than the result of a vision for sustainable and shared economic and social development. They may have led to some redistribution and have provided relief in the short run, but they could come under the same pressures that have prevailed in the past, leading to their reform or abandonment. The ILO report makes a number of recommendations to realise higher growth rates with better labour conditions. The most important of these recommends macroeconomic policy coherence that is aimed at economic growth and shared benefits. This policy package, the report says, should not just aim at the fastest possible rate of economic growth, but should also take into account the quality of growth and its social impacts. For example, moves towards a private sector-led model need to take into account synergies between the public and private sectors, the report says. Exploring complementarities between them, through the right public-private partnerships, could increase production and citizen welfare. The private sector should also operate in a competitive and transparent environment, unlike in the past when those who were willing to strike deals with the elites and in certain economic activities, such as real estate, telecommunications, tourism, and the financial and banking sectors, were favoured. The report also calls for more participatory and inclusive social dialogue. Governments should devise policies to move the economy towards more equitable outcomes, and greater social dialogue could provide institutionalised mechanisms for conflict resolution, for example in determining the right balance of employment protection regulations and a socially acceptable level of wages. A fundamental reform of labour relations in the region is needed in order to enable social dialogue to take place, the report says. The wider movement towards involving political parties, social movements and civil society organisations in the democratic process should include free and effective dialogue between employers and workers. Another recommendation is to widen the coverage and increase the effectiveness of social protections. Following the Arab Spring, many states in the region, and not only those directly affected by the uprisings, introduced, expanded or re-introduced measures to expand employment in the public sector and increase salaries and pension benefits. However, wider reform is needed, where social insurance coverage, currently restricted to public sector workers or private sector workers with contracts, should be extended to include all workers, even the self-employed. The report also encourages well-designed cash-transfer systems that will encourage children's education and increase access to healthcare. Unlike in the past, food subsidies could be better designed and implemented, particularly in view of rising international prices and since economic conditions are likely to deteriorate in the future, the report concludes.
