Posted by: Jeff | February 22, 2011

Libya is Not Egypt

Media reports from Libya are scarce, but there seems little doubt that Col. Qaddafi has plunged the country into an inferno of violence.  Unlike even his most autocratic of colleagues in the Middle East, such as Hosni Mubarak, Qaddafi and the Libyan regime have startlingly little allegiance to their own people.  One of the reasons for this callousness is the economic situation of Libya – an economy dependent entirely on resource extraction, the Qaddafi regime has long siphoned off profits from oil reserves to make the rich wealthy and dole out political favors.  The regime is thus built on rentierism and not on any civic engagement.

This will make it doubly difficult for democracy to truly take root once Qaddafi is gone (and we all hope that will be very soon).

Avrind Subramanian in the Financial Times:

Even if the people of Libya and Bahrain join those of Egypt and Tunisia in overcoming their cursed political systems, the economic manifestations of their rent curses will remain. Even if they become more democratic, because these countries benefit from substantial rents they will have less need to tax their peoples. This precludes the need to reform state controlled industries to create private sector wealth. It also will stop the development of genuine democratic systems, the usual basis for the legitimate taxation of citizens.

…On this reading the long-term economic prospects for these nascent Middle Eastern democracies remain gloomy. The economic challenge they face is much more fundamental than the often-heard prescription of greater globalisation and more markets. A decisive break with their own national histories is needed, and this means ending their reliance on rents as a first step.

…Venezuelan politician Pérez Alfonzo once said that oil’s effect on development should see it labelled the “devil’s excrement”. This counts double for economic rents in general. Political change in the Middle East is well under way, but the economic clean-up job is barely begun.

Hat tip Chris Blattman.

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