Source: Al Ahram Weekly

There is much emphasis in the media and public debates today on the staggering political and security challenges that face the Middle East. These include the long-standing Arab-Israeli conflict, the occupation of Iraq, Iran's nuclear ambitions, and repercussions of the recent war on Lebanon. Certainly these challenges deserve all the attention they get, and more. However, they should not be used as excuses to avoid addressing the urgently pressing socio-economic problems that the countries of the region face. These problems are expected to become intense and complicated in the coming years.

First and foremost is the pandemic problem of unemployment, especially among young men and women, and the urgent need to create millions of jobs during the coming years. The labour force of the region is growing very quickly. It is projected to rise from some 100 million at the beginning of this decade, to about 145 million in 2010 and 185 million in 2020. With unemployment now at about 15 per cent, job creation has to be far more ambitious, if it is to absorb the current number of unemployed, in addition to new entrants to the labour force. More than 100 million new jobs must be created by 2020 , if we are to avoid severe dislocations.

Despite the significant advances in health and education services, and in basic infrastructure, poverty has continued to spread, and standards of living have continued to decline in many countries in the region. In Jordan, for instance, a recent national survey reveals that about 60 per cent of the people surveyed said that their economic situation had worsened over the past 12 months; 23 per cent reported it had remained the same; and only around 17 per cent responded that it had improved.

With the exception of oil-exporting countries, most Arab economies suffer from high public debt. A series of reform policies have been implemented, designed to repay this debt, and to reduce deficits in government budgets. These "reform packages" have included, on the one hand, reducing or removing subsidies from basic goods and services such as petrol products and bread and, on the other hand, increasing income taxes, along with the introduction of high sales taxes. These policies have directly and negatively affected the poor, because they have not been matched with any serious plan to create jobs or spur real growth. Thus far, these policies have resulted in little more than protests against ineffective governments, and in hostility against economic reformers.

To a large extent, the oil states can use oil revenue, land holdings and public sector employment to buy loyalty as well as ease social and economic pressures. The situation for non-oil states, however, is much more serious. On the one hand, foreign aid, which has been used to cover a significant portion of public sector expenditure (both productive and unproductive) is not sustainable. It has in many casessignificantly declined. On the other hand, labour migration -- which was very large in the 1970s and early 1980s -- has diminished. Remittances from abroad can no longer be relied upon as a large source of revenue for many Arab countries, including Lebanon, Syria and Egypt. Up until now, many regimes in the Middle East have been somewhat successful at dealing with socio- economic pressures by political manipulation, superficial reforms and cosmetic initiatives. However, states are not proving able to keep up with people's needs and expectations related to economic opportunities, job creation, service delivery and quality of life. This tension will continue to rise sharply in the coming years.

The issues of poverty, unemployment and public debt need to be addressed urgently, not only by governments, but also by the private sector, civil society and international institutions. Failure to address these challenges will lead to a further rise in social tension and frustration -- especially among the young -- and to more political instability.

Given this daunting prognosis, and contrary to the prevailing mood in which economic reform is rarely a high national priority, countries and societies in the region must move quickly and urgently to undertake significant, far-reaching and rapid economic reform. Economic reform must move from being a technocratic concern to being a national concern -- from the back pages to the front pages, as it were. Governments, business leaders and civil society must agree upon common principles, develop an urgent work plan and work together to implement it without delay.

To be sure, there might be some obstacles to this process. First, despite consensus among governments, business leaders, civil society and international financial institutions that economic reform is an urgent need, there is no common understanding of what reform means and entails, nor a common agreed upon plan of action.

Second, there is no clear understanding of the connection between economic and political reform. Here there are two schools of thought: the first argues that political reform ought to precede economic reform, and that democracy, rule of law and transparency must be introduced first in order to create the enabling environment for economic reform and growth. The second school argues that authoritarian regimes are better equipped to implement dramatic and successful economic reform.The examples of Singapore and China are cited to support such arguments. I would agree with the former school: the failure of economic transformation in the Middle East has been due, not to a lack of resources or opportunities, but to prevailing governance structures. The political architecture in most of the region reinforces elite resistance to economic reform, and strengthens those groups who are protected within -- and benefit from --current economic arrangements. But that only means that economic and political reform should move ahead together, not that economic reform should be postponed until all political reform is accomplished.

Third, state and institutional capacities to implement economic reform programmes are limited. Economic reform programmes proposed for the region have not taken into account the state's limited institutional capacity to carry them out. Hence, the region has been unable to implement even those programmes it has agreed to. In addition, states have not been able to mitigate the negative side effects of these programmes on a wide cross-section of low and middle income groups.

The dangers of domestic instability and regional tension as a result of sluggish growth, insufficient job creation and low standards of living must be taken very seriously. Governments, the business community, civil society and international financial institutions must work in partnership to move the region in a new direction.

Countries in the region should pool the mineral, capital and human resources of the region in a coordinated and complimentary way. This is needed in order to make up for the lost and wasted opportunities of past decades, and to put the region on the road to catching up with other regions such as Asia. The latter which started off with much less has quickly become an industrial and export powerhouse.

The Arab world has a proud economic and trading history. However, mired in authoritarianism and regional disputes, and lulled by oil revenues and foreign aid, our states have become unable, or unwilling, to lead an economic revival. The 20th century ended in increasing stagnation and decline; let us not let the 21st century begin in the same way.

* The writer is an economist specialist in Middle Eastern affairs. He is an associate at the Carnegie Middle East Centre in Beirut.