American Elephants

What’s Next for Egypt and the MENA Countries? by The Elephant's Child
February 11, 2011, 4:00 pm
Filed under: Capitalism, Economy, Islam, Middle East | Tags: , , ,

Mubarak has departed. Cairo is celebrating.  It has been 15 days of dramatic protest.  British Prime Minister David Cameron made an appropriate speech, very brief, in which he said “we stand by, ready to help in any way we can.” What comes next remains to be seen.  The military has promised to move toward elections in September.

Westerners have been inclined to view the protesters as demanding liberty and democracy. It is probably more accurate to say they are demanding a jobs and an economy.  Daniel Henninger of the Wall Street Journal outlined the problems in his column yesterday. “In Egypt, the percentage of the working population employed by the state is 35%.”  Think about that.

Everyone points out the example of Turkey. Turkey got Ataturk and free market economist Turgut Ozal as prime minister in the 1980s. Turkey’s percentage of the working population employed by the government is 13%.

Mr. Henninger relies on the work of the Swiss business school IMD. They produce a comparison of public-sector employment as a percentage of total population for their Competitiveness Yearbook. They show a striking correlation between economic success in emerging economies and relatively low populations of public employees. The public sector, everywhere, is non-productive, high benefit and a drag on an economy.

Korea, Indonesia, India, Malaysia, Taiwan, Thailand and even China (8.3%) have low public employment as a percentage of total population.  In Singapore it is under (3%).  In South America, Columbia, Peru and Chile are all under 15%.  A small public sector is not a guarantee of strong growth, but a high percentage probably kills growth.

In Tunisia, many of the rioters were unemployed college graduates, as they were in Egypt.  All of the Middle East/North African (MENA) countries have large public sectors.  Jordan’s is nearly 50%.  The MENA countries have used public work as a form of social security and a tool of political stability.  The armies are public sector employees.

Hernando de Soto, the Peruvian economist, has been a tireless advocate for private property.  If you have a little business, but cannot borrow, build wealth or establish a real business, there is not going to be any growth.  In America, risk-taking entrepreneurs often get their ideas out of the garage and on to the next stage of growth by taking out a second mortgage and cashing in their nest-egg.  Where does the capital come from when you don’t even own the property where you live or the fruit of your own labor?

Dan Henninger suggests that there may be a tipping point in the percentage of the population employed by the public sector, and at a certain point the economy starts to choke.  It is a vast misallocation of public energy, and much of the energy of the public sector is necessarily dedicated to controlling a restive private sector population. When an economy is reduced to depending on tourism, they’re in trouble.  It will be a while before tourists are once again coming to see the pyramids.

California, New York and New Jersey are drowning under the weight of their public sectors. Our country is taking notice of the ideas of  Chris Christie and Andrew Cuomo, but they haven’t yet solved anything.

Ronald Reagan noted the phenomenon many years ago.  “Man is not free unless government is limited. As government expands, liberty contracts.” It is apparently a hard lesson to learn.

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