By Edmund S. Phelps

The young protesters of the Jasmine Revolutions of Tunisia and Egypt, many of them university graduates, overthrew the old regime because it impeded or blocked them from careers that would offer engaging work and the chance for personal growth.
The protesters did not demand more creature comforts or better infrastructure; they demanded opportunities to make something of themselves.

These young Arabs were being stymied in two ways. To get any good job required connections with insiders, something that ordinary young people could not acquire. And securing some type of self-employment, such as selling fruit and other goods on the street, required licenses, which were limited.

These restrictions resulted in widespread over-qualification, or under-employment, but most of all unemployment. The struggling fruit and vegetable vendor Mohammad Bouazizi in Tunisia set himself on fire – triggering the country’s popular uprising – because he could not get anywhere in this system.

Obviously, some changes in the economic system are needed. An open letter by mostly European economists proposed to G-8 leaders an economic “plan” for Tunisia. Their diagnosis is that Tunisia suffers from a “closed” economy, “authoritarian” governance, and “poor infrastructures.” Their prescription is immediate “food and energy subsidies,” a five-year plan for “investment” in transport infrastructure and the technology sector, and the creation of special “industrial zones.”

This is a terrible diagnosis. The wrong committed by President Zine al-Abedine ben Ali’s regime was not that it did not subsidize food or invest in infrastructure (in fact, the regime did both). The wrong was that it deprived masses of citizens of the opportunity to achieve their potential. The prescription, then, is pointless. Handouts of food and fuel in lieu of jobs and investments to raise the productivity of work to which only the privileged have access, would do nothing to enable outsiders to compete for good jobs, or to remove the barriers, such as licenses, to self-employment.

In fact, the prescription may even do harm. Prescribing handouts alongside the existing barriers to inclusion yields a noxious mixture that could undermine Tunisians’ work ethic, which is so precious at this crucial time. And the vast investment plan, by offering projects for Tunisia’s elite, might actually widen the gulf between insiders and outsiders – thus worsening oppression.

The needed restructuring in Tunisia and Egypt must begin with two critical steps. The first is to end political control of the business sector by the privileged elite. In Tunisia, they are the relatives and friends of Leila Trabelsi, Ben Ali’s wife; in Egypt, they are the army’s upper echelons, appointed by former President Hosni Mubarak. The second step is to end bureaucratic control of self-employment through licenses and other barriers. Only then could modernization of the economic system proceed.

The system that would be most appropriate for Tunisia and Egypt is basic capitalism – capitalism 1.0 – such as the United Kingdom and the United States developed in the first half of the 19th century on their way to having highly successful economies. The bedrock of this system are civil liberties, property rights, secure contracts, courts empowered to uphold the rule of law, local banks linked with local entrepreneurs, financial firms that supply venture capital, ease of market entry by new companies, and so on.

Unfortunately, Tunisia and Egypt will face serious hazards as they rely on democratic forces and mechanisms to mitigate the oppressive features of the rightist corporatism under which they suffered. One hazard is a leftist corporatism, in which labor unions and well-placed cronies replace the ruling families and army officials, but political control of the economy and bureaucratic control of entrepreneurship are maintained. After all, parts of Europe in the late 1960s began to construct a leftist corporatism to replace the rightist corporatism that ruled, with some interruption, from the 1880s to the 1940s.

This hazard should trouble reformers. Under Ben Ali and Mubarak, a company run by insiders had to worry only that the president might someday demand a cut of their profits or assets. But, in a democracy lacking the safeguards of a strong culture of individual rights and a constitution to protect them, companies might be even more fearful of a predatory state. If so, business investment and job creation will remain quite weak.

Success for these countries will depend on respect for individual rights and the rule of law – including rights to one’s property and one’s profits. It will also depend on a popular willingness to tolerate differences and accept competition – you could lose your job to someone judged more promising.

The religious intolerance that has flared up in Egypt is a warning flag that the spirit of toleration – of “so be it” and “mind your own business” – is underdeveloped in the country. Violence and discrimination against minorities and competitors could distract the region from what should be its main priority: economic rebirth.
It is not clear that Tunisia and Egypt can carry out the economic transformation that they need. For that reason, it is all the more important that foreign help for the region be technical and aimed at removing barriers to jobs and rewarding careers.

Edmund S. Phelps, the 2006 Nobel laureate in economics, is the founding director of the Center on Capitalism and Society at Columbia University. This article first appeared in Le Monde. THE DAILY STAR publishes this commentary in collaboration with Project Syndicate © (www.project-syndicate.org).