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Have the Arab revolutions definitively rebuked the so-called Arab exceptionalism—the notion that Arab nations would somehow be immune to economic modernization and democratization? After the massive popular uprisings in Tunisia, Egypt, Libya, Syria and other parts of the Arab world, it would be tempting to say yes. Far from any exceptionalism, what the Arab streets are demanding is what everyone reaching a minimum standard of living eventually demands: dignity and freedom.  This call for dignity has been a major departure from the post-independence Arab social contract made of subsidies, public employment, and various rents and privileges at the price of freedom. To use an economic terminology, the Arab revolutions happened because the “exchange rate” between entitlement and freedom became unsustainable and had to be corrected. “Dignity before bread” was the slogan of the Jasmine revolution.

But what the Arab people and  their leaders, and to some extent the international community, have yet to fully contemplate is that the social contract has to be seen as a whole, and modified as a whole.  With one side of the contract gone (hopefully for good), the other side–i.e., the various social entitlements, privileges and rents—must also go. These are the conditions for the emergence of a genuinely new social contract fulfilling the aspiration of the Arab youths.   Pretending that the newfound freedom could coexist with the past coercive state paternalism is a self-contradiction; it can only lead to populism, militarism or Islamism.  Similar to Central and Eastern Europe 20 years ago, the Arab Spring is raising some fundamental questions about the place of freedom and entitlement in development. The opportunity for the young Arab generations to learn, work, save, own, invest, trade, protect, and eventually prosper will critically depend on how the “new” Arab countries strike the balance between freedom and coercion in the new social contracts.

New evidence from the review of economic performance of more than 100 countries over the past 30 years tends to support the idea that economic freedom and civil and political liberties are the root causes of why certain countries achieve and sustain better economic outcomes. For a given set of exogenous circumstances, the respect for and promotion of economic freedom and civil and political rights are, on average, strongly associated with a country’s per capita income growth over the long run.

Yet, very few local actors in post-revolution Tunisia and Egypt seem to show awareness that the newly acquired freedom comes as a whole and should be embraced as a whole. Many would like to have it both ways—to have one's cake and eat it. Yet, to be free is to be empowered and responsible, not assisted through subsidies, public employment, trade and other barriers to entry, and various other small and large entitlements.  Continuing to prescribe handouts as opposed to addressing the root causes of the lack of economic freedom and civil and political liberties in the region can only undermine the character and ethic of these revolutions (as rightly pointed out by Edmund Phelps in a recent column). The risk is that, in the end, freedom loses and an inferior social contract looking very much like the old one persists. 

What is at stake is that the opportunity presented by the Arab Spring is gone for another generation. There will be resistance, and the social fabric may simply not be ready. Yet, one lesson of these Arab revolutions so far is that one should not underestimate the power of ideas and the willingness of the Arab youth to challenge the status quo. Let’s help them make the glass full.

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