Much has been written about the Cairo demonstrations and the attempt to remove long-serving President Hosni Mubarak. Pundits focus on rising democratic impulses, anti-Americanism and radical Islam. In past blogs, I have pointed out a number of trends which create governmental instability, especially in the third world. The confluence of these trends is at the center of the current turmoil in Tunisia, Yemen, Egypt and Jordan, and threatens to spread to other countries.
Before we begin, we must also remember the personal affront to their peoples perpetrated by the leaders of these countries. In his thirty years in power the Mubarak family has accumulated a fortune estimated between $40b and $70b. Contrast that with the average Egyptian family income of $2070 per year. In Tunisia, the Ben Ali family was forced to flee the country for Saudi Arabia, but they took with them a family fortune estimated at 3.5 billion British Pounds. So, on its face, a dictatorial power structure, which enriches a ruling family at the expense of an impoverished and disenfranchised citizenry, is an irrational structure doomed to fail.
Regime-Disrupting Technology
- Costs of obtaining information have declined drastically. Populations can widely and cheaply use the internet, computers and wireless communication.
- Information now travels seamlessly between borders without central state control.
- Social media such as Facebook and Twitter permit anti-government groups to organize quickly and outmaneuver government agents.
- Wikileaks released documents showing cooperation between pro-Western Arab regimes and Israel.
- Technology also permits the movement of work to the cheapest locations with the best-trained work force and developed infrastructure. Thus, countries like Tunisia and Egypt are at a disadvantage in the game of global work force arbitrage. The small but vocal college educated middle class becomes more disaffected as they watch jobs migrate elsewhere.
- Technology adds to structural unemployment. As we have discussed in the past it requires fewer people to operate a modern factory. See Why This May be Worse than the Great Depression. Jobs available are highly specialized, eliminating much of the work force from hiring consideration.
- As evidence of the above points, note that the first thing that the Egyptian government did was shut down cell phone and internet service.
All of these technologies operate in concert to fuse anti-government sentiment in autocratic, impoverished countries.
The Decline and Fall of the US Dollar
The US government’s response to the 2008 financial crisis has been to devalue the dollar. This has been accomplished through a zero interest rate policy and money printing (quantitative easing). The effect has been dramatic. Basic food stuffs such as wheat, corn, rice, metals, cotton and energy have skyrocketed in price since the Jackson Hole, Wyoming, Federal Reserve Board announcement that QE2 would be instituted. See 1984 in 2010. In countries such as Tunisia and Egypt these necessities constitute 40-50% of a family’s budget. A jump in inflation is felt immediately and triggers riots, protests and civil disobedience.
How ironic that in order to save the US economy we are exporting inflation and destabilizing long standing allies in the Arab world such as Egypt, Yemen, Jordan and Tunisia.
Anti-Americanism and Decline of Western Power
The Global Europe Anticipation Bulletin (GEAB) report (January 16, 2011) catalogues the decline of the international system and the diminishing power and influence of the West:
Just look at the inability of the international community to effectively help Haiti over the past year, the United States to rebuild New Orleans for six years, the United Nations to resolve the problems in Darfur, Côte d’Ivoire for a decade, the United States to progress peace in the Middle East, NATO to beat the Taliban in Afghanistan, the Security Council to control the Korean and Iranian issues, the West to stabilize Lebanon, the G20 to end the global crisis be it financial, food, economic, social, monetary, … to see that over the whole range of climatic and humanitarian disasters, like economic and social crises, the international system is now powerless. GEAB No.51 (subscription required)
The West (and especially the United States) lacks the vision or willingness to shape events. The corollary result of this vacuum is the failure of Arab leadership amicable to the West:
Tunisia and Algeria were rocked by riots and Jordan, Egypt and Lebanon are experiencing serious problems. Beyond the reactions to higher prices for basic necessities, it is the first political shock of the “fall of the Dollar Wall”. The regimes in question are typically powers supported at arm’s length by Western money, that’s to say basically the US Dollar. The rapid erosion of Western credibility and financial resources especially US is already beginning to make itself felt, just like European impotence outside its borders. These countries’ elite are accustomed to feel “untouchable” thanks to their US and European protectors: their fall will be brutal as they realize only now that the “West” can’t really protect them. GEAB No.51 (subscription required)
The Rise of Radical Islam
We read all the time about Al Qaeda but pay less attention to the Muslim Brotherhood movement in Egypt. I must believe that the rise of radical Islam, fanned by Al Jazeera attacks on the ‘corrupt,’ pro-Western Arab dictatorships, has had a major role in the civil disturbances in Tunisia, Egypt, Yemen and Jordan.
Implications
The United States and Europe have missed the opportunity to reform their own financial and political systems. Instead, we have implemented only palliative solutions such as zero interest rates, “extend and pretend” accounting, stimulus programs, currency devaluation and meaningless reform such as Dodd-Frank.
American policy makers have not made the connection that our weak financial system has endangered our Arab allies. Perhaps we are at a historic turning point where technology, irrational political structures, radical Islam, a weakened international system and a financially weak United States combine to effect revolutionary change. Maybe these changes were inevitable, but maybe not. Perhaps it is time that American leadership becomes more self-critical and globally focused, examines the unintended international consequences of our economic and political policies, and effects real reform before it is too late.
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