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Discussing Economic (and also Political) Freedom in Cairo

By Ronald Meinardus *

This year, we are celebrating the twentieth anniversary of the unification of Germany. Apart from bringing unity and freedom to the people of that country, this epochal event also symbolizes more than anything else the end of the global confrontation between what was then the East and the West. This conflict came to a close with a convincing victory of the liberal paradigm.

Since then, most nations of East and South East Europe have been transformed into politically democratic countries that follow the principles of the market economy in their developmental strategies. The ideological triumph of the liberal paradigm some two decades ago was so pervasive that some even hastened to argue that mankind had reached "the end of history". While not surprisingly this rash assumption has been proven false and "unhistorical" on more than one occasion, the fall of communism, undoubtedly, remains an epochal event with implications and lessons for many other parts of the world.

I was reminded of all this while listening to the presentation of a Polish professor at the Fifth Economic Freedom of the Arab World conference held in Cairo in early November. In his paper titled "Reform Maps of Eastern Europe: Have the Roads to Prosperity Passed Through the Lands of Economic Freedom?" Prof. Andrzej Kondratowicz presented data showing the enormous increases in income in the Eastern European countries over the past years – and this has happened across the board. While social problems persist, the Eastern European societies have moved up in a truly impressive manner. The key to this improvement, the Polish scholar argued, has been deep running "institutional change". In most Eastern European countries these changes have been driven by the desire of the governments to join the European Union, which typically has made accession dependant on compliance with strict economic as well as political criteria. Importantly, Prof. Konratowicz added, those Eastern countries that have seen the greatest developmental leaps are those which today exhibit the highest scores in international statistics measuring economic freedom: Estonia, Slovak Republic, Hungary and Lithuania.

The Eastern European experience substantiates the main assumption of the Economic Freedom Index. This annual report published in Canada by the Fraser Institute asserts – and documents in an empirical manner – the correlation between the degree of economic freedom and development. The message is straight forward: The more economic freedom a country has, the more growth it records. The Index measures the degree of economic freedom in five distinct areas: size of government, legal structure and property rights, access to sound money, freedom of exchange with foreigners and, lastly, regulation of credit, labor and business. On a global level, the countries on the top of the index are also the richest countries, while the poorest nations find themselves at the bottom: Leading the list in 2010 are economic "superstars" Hong Kong, Singapore, New Zealand, Switzerland and Chile, while at the bottom of the table we find Zimbabwe, Myanmar, Angola and Venezuela.

Over the past three years, the Foundation I head in the Middle East and Northern Africa has partnered with the Fraser Institute of Canada and the International Research Foundation of Oman in publishing a regional report dealing exclusively with the state of economic freedom in the Arab world. Our objective is to document in an empirical manner the advancement – or the lack of it - of economic freedom in this part of the world. In this year’s report, once more, Bahrain is ranked first followed by Kuwait and Lebanon. Egypt moved up and now holds position nine. Algeria, Syria, Mauritania and Tunisia were found to have the lowest levels of economic freedom among the Arab nations in the survey.

While some Arab countries have improved their rankings over the years, Egypt being a case in point, the data also show that in an international comparison the development of economic freedom in the Arab world has been more or less stagnant. In a business world that is increasingly globalized, this is an important factor. One explanation for the hold-up may be found in the quality of governance (or the lack of it) in the Arab world, said conference participants in Cairo.

"The rule of law is the infrastructure of economic freedom" explained Fred McMahon of the Fraser Institute. In the ensuing debates it became clear that in this regard not all is well in the Arab world. While the focus of the conference was economic reform and the bulk of the discussions dealt with macroeconomic data and statistics, particularly the many Egyptian participants seemed to concur that economics and politics could not – and should not – be separated. Said one participant: "Political reform is essential. No way will economic freedom come if we do not have political freedom".

The 2010 Economic Freedom Report of the Arab World Report is available online at: http://www.scribd.com/fnfcairo

* Dr. Ronald Meinardus is the Regional Director of the Friedrich Naumann Foundation for Liberty (FNF) for the Middle East and North Africa, Cairo.

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Friedrich Naumann Foundation for Liberty in Egypt : www.fnst-egypt.org