Jew-free crony capitalism has failed the Arab world

The economist Friedrich Hayek, author of 'The road to serfdom'

By driving out Jews and the merchant class, Arab regimes impoverished their economies, replacing them with 'crony capitalism'. Ruling families made massive fortunes plundering state wealth. But the system has failed to provide food and jobs to a sky-rocketing population - hence the 'Arab Spring'. Thought-provoking article by Fouad Ajami in the Wall Street Journal (with thanks: Lily):

The late great Austrian economist F.A. Hayek would have seen the Arab Spring for the economic revolt it was right from the start. For generations the Arab populations had bartered away their political freedom for economic protection. They rose in rebellion when it dawned on them that the bargain had not worked, that the system of subsidies, and the promise of equality held out by the autocrats, had proven a colossal failure.

What Hayek would call the Arab world's "road to serfdom" began when the old order of merchants and landholders was upended in the 1950s and '60s by a political and military class that assumed supreme power. The officers and ideologues who came to rule Egypt, Syria, Iraq, Libya, Algeria and Yemen were men contemptuous of the marketplace and of economic freedom. As a rule, they hailed from the underclass and had no regard for the sanctity of wealth and property. They had come to level the economic order, and they put the merchant classes, and those who were the mainstay of the free market, to flight.

It was in the 1950s that the foreign minorities who had figured prominently in the economic life of Egypt after the cotton boom of the 1860s, and who had drawn that country into the web of the world economy, would be sent packing. The Jews and the Greeks and the Italians would take with them their skills and habits. The military class, and the Fabian socialists around them, distrusted free trade and the marketplace and were determined to rule over them or without them.

The Egyptian way would help tilt the balance against the private sector in other Arab lands as well. In Iraq, the Jews of the country, on its soil for well over two millennia, were dispossessed and banished in 1950-51. They had mastered the retail trade and were the most active community in the commerce of Baghdad. Some Shiite merchants stepped into their role, but this was short-lived. Military officers and ideologues of the Baath Party from the "Sunni triangle"—men with little going for them save their lust for wealth and power—came into possession of the country and its oil wealth. They, like their counterparts in Egypt, were believers in central planning and "social equality." By the 1980s, Saddam Hussein, a Sunni thug born from crushing poverty, would come to think of the wealth of the country as his own.

In Libya, a deranged Moammar Gadhafi did Saddam one better. After his 1969 military coup, he demolished the private sector in 1973 and established what he called "Islamic Socialism." Gadhafi's so-called popular democracy basically nationalized the entire economy, rendering the Libyan people superfluous by denying them the skills and the social capital necessary for a viable life.

In his 1944 masterpiece, "The Road to Serfdom," Hayek wrote that in freedom-crushing totalitarian societies "the worst get on top." In words that described the Europe of his time but also capture the contemporary Arab condition, he wrote: "To be a useful assistant in the running of a totalitarian state, it is not enough that a man should be prepared to accept specious justification of vile deeds; he must himself be prepared actively to break every moral rule he has ever known if this seems necessary to achieve the end set for him. Since it is the supreme leader who alone determines the ends, his instruments must have no moral convictions of their own."

This well describes the decades-long brutal dictatorship of Syria's Hafez al-Assad, and now his son Bashar's rule. It is said that Hafez began his dynasty with little more than a modest officer's salary. His dominion would beget a family of enormous wealth: The Makhloufs, the in-laws of the House of Assad, came to control crucial sectors of the Syrian economy.

The Alawites, the religious sect to which the Assad clan belongs, had been poor peasants and sharecroppers, but political and military power raised them to new heights. The merchants of Damascus and Aleppo, and the landholders in Homs and Hama, were forced to submit to the new order. They could make their peace with the economy of extortion, cut Alawite officers into long-established businesses, or be swept aside.

But a decade or so ago this ruling bargain—subsidies and economic redistribution in return for popular quiescence—began to unravel. The populations in Arab lands had swelled and it had become virtually impossible to guarantee jobs for the young and poorly educated. Economic nationalism, and the war on the marketplace, had betrayed the Arabs. They had the highest unemployment levels among developing nations, the highest jobless rate among the young, and the lowest rates of economic participation among women. The Arab political order was living on borrowed time, and on fear of official terror.

Attempts at "reform" were made. But in the arc of the Arab economies, the public sector of one regime became the private sector of the next. Sons, sons-in-law and nephews of the rulers made a seamless transition into the rigged marketplace when "privatization" was forced onto stagnant enterprises. Of course, this bore no resemblance to market-driven economics in a transparent system. This was crony capitalism of the worst kind, and it was recognized as such by Arab populations. Indeed, this economic plunder was what finally severed the bond between Hosni Mubarak and an Egyptian population known for its timeless patience and stoicism.

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