Economic Liberalization and Its Tradeoffs in Ben Alis Tunisia - Essay Example

November 24, Capitalism and Cronyism: Economic Liberalization and its Tradeoffs in Ben Ali’s Tunisia A produce seller undercut the image of a developing economy and started the Arab Spring, when he set himself on fire in front of a government building. Mohamed Bouazizi, a 26-year-old vendor, died after self-immolation, in protest against the extortion of and humiliation from police and government officials. After his hospitalization, thousands of protestors demonstrated against Ben Ali’s inability to improve their economic conditions. Tunisia, under Ben Ali’s time resembled a peaceful and developing economy, as far as the mainstream media goes. After reading most economic reports accessed, they tended to emphasize the positive economic changes that Ben Ali conducted, although the range of protests that launched the Arab Spring signified innermost systemic problems. Because of Ben Ali’s economic liberalization policies and crony capitalism that developed only the uppermost class, Tunisia suffered and still suffers from cronyism’s hold on capitalism, and so the country continues to experience high unemployment and inflation rates, lower tourism revenues and capital inflows, and risky financial conditions. Most economic reports from America and other international institutions focused on the achievements of Ben Ali because of his adoption of World Bank (WB) and International Monetary Fund (IMF) economic policies of market liberalization, deregulation, and privatization. In other words, they commended Ali for his acceptance and promotion of free market economics in Tunisia. Business Middle East reports in 2007 that GDP growth was to improve under Ben Ali’s economic policies. It stated that after the real GDP growth of 4.9% in 2006, “stronger investment and government consumption” could result to moderate GDP growth rate to 5.4 in 2007 and 5.7% in 2008 (11). The same reference remarks on the authoritarian ruling of Ben Ali, but it focuses more on how he faithfully adheres to IMF liberalization policies. Business Middle East underscores that the capital structure reforms, which encourage private activity and foreign direct investment (FDI), would enhance economic competitiveness and growth (Business Middle East 11). The Political Risk Yearbook emphasized the openness of the economy during Ben Ali’s ruling. It states: “The Tunisian government actively encourages selected foreign direct investment (FDI), particularly for export-oriented industries” (Political Risk Yearbook 1). This source advocates greater trade liberalization. In addition, though it comments on corruption, it does not forcefully criticize it: “Anecdotal reports from the Tunisian business community and U.S. businesses with regional experience suggest that corruption exists, but is not as pervasive as that found in neighboring countries” (Political Risk Yearbook 9). This paper infers that these reports undermine the poverty and corruption problems of Tunisia, since Ben Ali applies most of IMF-based economic policies. One of the effects of economic liberalization is the liberalization of the financial services sector, which did not help individual local banks, and which must have affected the ability of people to secure loans for their business activities. In “Financial Liberalization and Banking Fragility within Tunisian Financial Sector,” Mohamed and Bechir studied the impact of financial liberalization on the fragility of Tunisian banking sector. Using panel data, findings showed that liberalization increased banking risks, which augmented banking fragility. They report: “… financial liberalization process increases the banking deposits, which are negatively correlated to the probability of banking failure. [Their] results provide strong evidence of negative relationship between return on banking assets and the probability of failure” (Mohamed and Bechir 174). This report shows that the IMF and WB are wrong to say that liberalization improves the competitiveness of the sector being liberalized. Instead, without proper supporting resources and knowledge and skills, among other factors, liberalization can only expose sectors to risks and greater fragility. When this happens, this paper infers that people might find it hard to acquire loans and to start businesses, thereby forcing them to work for low wages that are not enough to satisfy their basic needs and demands for quality living. Economic liberalization improved GDP and other economic factors, but other economic indicators showed that Tunisia has stalled in attaining equal economic development because of the former causes, as well as corruption through cronyism,. Tunisia might have a growing GDP and higher inflow of FDI, but the greater majority are poor, jobless, or working in underemployed conditions. Chedly Ayari, an economist and previous head of the Arab Bank for Economic Development of Africa, notes that the burning of Bouazizi demonstrates the widespread unemployment rate of the youth: “Two-thirds of these strikes are by young people who were promised during the campaign for the Constituent Assembly that they would get jobs. They never got jobs” (Erlich). Bouazizi did not have a college degree, but like other college and high-school graduates, they could not find reliable jobs in Tunisia. As a result, he is forced to sell fruits and vegetables, which he has done for seven years. Without a legal permit, he goes through a humiliating experience that compels him to kill himself, where this act is interpreted as understanding that life is meaningless in an authoritarian regime. Indeed, during this time, while GDP is growing, more and more of the educated masses cannot find jobs, and if they do have jobs, they get marginal and low-paying ones in the informal sector (Erlich). Moreover, cronyism capitalism deepens the economic woes of the country. Ben Ali favors his cronies, which has made them rich, and which continue to be the economic practices up to now (Erlich). One of the reasons why the economy has not improved, despite the absence of Ben Ali, is the persistence of the same families that control key industries and businesses (Erlich). In other words, cronyism is still alive and hardly dismantled, thereby disillusioning people and reducing the pace of economic growth (Erlich). Chossudovsky is one of the active critics of globalization and how it affected Tunisia through the interference of the IMF and WB in his online article, “Tunisia and the IMF’s Diktats: How Macro-Economic Policy Triggers Worldwide Poverty and Unemployment.” He explains how the IMF and WB dictated the economic reforms in Tunisia through Ben Ali’s economic policies and programs, which led to the hike of food prices and structural reforms. He argues that aggressive free market economic policies worsen poverty in Tunisia and the rest of the world: It is worth noting that the IMF’s insistence on fiscal austerity and the removal of subsidies coincided chronologically with a renewed upsurge in staple food prices on the London, New York and Chicago commodity exchanges. These price hikes are in large part the result of speculative trade by major financial and corporate agribusiness interests. (Chossudovsky). When unstable economies are put into liberalization, this paper believes that the economy is ill prepared to handle the shock of foreign competition and the loss of government subsidies to local industries. Thus, through these economic policies, Ben Ali created a form of development that showed market and infrastructure development, but not equal development for the majority. Ben Ali applied market liberalization, privatization, and deregulation policies that aligned with the demands of the WB and the IMF. When these policies are combined with cronyism, corruption, and poor support for the preparation of people as entrepreneurs and future knowledge workers, these policies did nothing to improve employment rates and livelihoods. Instead, these policies increased the gap between the rich and the poor and made the educated and non-educated equally frustrated in a country where they cannot find jobs nor have the capital to start and sustain their businesses. These problems accumulated and led to the people’s revolution, a revolution that cries for sustainable development for all, and not for the few. Works Cited Achy, Lahcen. “Tunisia’s Economic Challenges.” The Carnegie Papers, Dec. 2011. Web. 20 Nov. 2012. < http://carnegieendowment.org/files/tunisia_economy.pdf>. Business Middle East. “Tunisia: Country Conditions: Investment Climate.” Business Middle East 15.8 (16 Apr. 2007): 11. Business Source Complete. Web. 20 Nov. 2012. Chossudovsky, Michel. “Tunisia and the IMF’s Diktats: How Macro-Economic Policy Triggers Worldwide Poverty and Unemployment.” Global Research, 20 Jan. 2011. Web. 20 Nov. 2012.< http://www.globalresearch.ca/tunisia-and-the-imf-s-diktats-how-macro-economic-policy-triggers-worldwide-poverty-and-unemployment/22867> Erlich, Reese. “For Most Tunisians, Little Has Changed.” Global Post (29 Apr. 2012). Web. 20 Nov. 2012. . Political Risk Yearbook. Tunisia Country Report. Political Risk Yearbook (2006): 1-10. Business Source Complete. Web. 20 Nov. 2012. Sami, Ben Ali Mohamed, and Changuel Mohamed Bechir. “Financial Liberalization and Banking Fragility within Tunisian Financial Sector.” International Journal of Business & Management Science 2.2 (2009): 161-176. Business Source Complete. Web. 20 Nov. 2012. Read More