November 16, 2011
The Free Market Secret of the Arab Revolutions
Hernando de Soto, Financial Times, November 8, 2011
A few weeks ago I met Salem, the younger brother of the brave Tunisian fruit vendor whose self-immolation triggered the Arab uprising. When I asked him what his brother in heaven would say if we asked what he hoped his sacrifice would bring to the Arab World, Salem did not hesitate: “That the poor also have the right to buy and sell.”
It is worth remembering these words as experts busily debate the challenges for the future of the Arab revolution as countries balance the quest for democracy, fidelity to Islam, with secularism and tribal power.
In the wake of the overthrow of three autocrats, not enough credit has been given to the mighty consensus that triggered the uprising – the desire of a vast, underclass of people to work in a legal market economy. In the culturally diverse Middle East and north Africa, the one common thread is its informal economy. This is the key to future growth and indeed stability.
This huge shift began after all when the 26-year-old Tarek Mohamed Bouazizi, immolated himself in front of the governor’s offices in the town of SidiBouzid last December, after his merchandise was confiscated.
One day after he set himself alight, thousands of people in his town and neighbouring villages took to the streets. Before a few weeks passed, many of the 180 million Arabs who work in and around the informal markets in the Middle East and north Africa were identifying with his disempowerment and sending their shouts to heaven.
Millions marched under banners for reform. According to research by colleagues of mine, at least 35 businessmen followed his desperate example and set themselves on fire (13 more in Tunisia, 17 in Algeria, four in Egypt, three in Morocco and so on).
People identified with his dire situation: like 50 per cent of all working Arabs, he was an entrepreneur, albeit on the margins of the law, who died trying to gain the right to hold property and do business without being hassled by corrupt authorities.
If the region’s new leaders want to make a difference, they have to appreciate the underclass of such aspirant capitalists, a supranational movement that spans Arab cleavages, different languages, political environments and cultures. That will be the driving force in the months ahead.
If Marx taught us anything, it is that the powerless can crystallise into a revolutionary class when they become conscious that they share a common suffering –and especially when a martyr embodies that suffering. There is no doubt that millions of Arabs see Bouazizi as their icon. “We are all Mohamed Bouazizi,” Mehdi Belli, a university IT graduate working as a merchant in L’Ariana market in Tunis, told me.
To understand this you have to appreciate the details: Bouazizi flicked his lighter on at 11.30am, one hour after a policewoman, backed by two municipal officers, had expropriated his two crates of pears ($15), a crate of bananas ($9), three crates of apples ($22) and an electronic weight scale ($179, second hand). While a total of $225 might not appear to justify suicide, the fact is that, as a businessman, Bouazizi had been summarily wiped out.
Without those goods, Bouazizi would not be able to feed his family for more than the next month. Since his merchandise had been bought on credit and he couldn’t sell it to pay his creditors back, he was now bankrupt. Because his working tools were confiscated, he had lost his capital. Because the customary arrangement to pay authorities three dinars daily for the property right to park his vendor’s cart on two square yards of public space had been terminated, he lost his informal access to the market. Without property and trade, his reputation as a reliable administrator of goods was now undermined in the only market he knew.
He was not on a salary. He was a budding entrepreneur. According to his mother and his sister, his goal was to accumulate capital to grow his business. But this was impossible as we discovered when we investigated the records and the laws he had to comply with.
To get credit to buy the truck he so needed, he needed to demonstrate he had some kind of legally recognised collateral. The only legal collateral he had access to was the family house in SidiBouzid. However, he had never been able to record a deed in the property registry, an indispensable requirement for using the house as a guarantee. Compliance requires 499 days of red tape at a cost of $2,976.
To create a legal enterprise he would have had to establish a small sole proprietorship. This would require taking 55 administrative steps during 142 days and spending some $3,233 (12 times Bouazizi’s monthly net income, not including maintenance and exit costs). Even if he had found the money and the time to create a sole proprietorship firm the law did not enable him to pool resources by bringing in new partners, limit liability to protect his family’s assets, and eventually, issue shares and stocks to capture new investment.
The forces of the market have come to the Arab world – even if governments didn’t invite them in. Political leaders must realise that, since Bouazizi went up in flames and his peers rose in protest, poor Arabs are no longer outside but inside, in the market, right next to them.
The Arab consensus ahead is undoubtedly about more than just emancipating the entrepreneurial poor. But Middle Eastern and African leaders cannot afford to forget what the industrial revolution was about: if their agenda does not include tackling the nitty-gritty institutional deficiencies that make most Arabs poor, they will eventually open the doors to the anti-democrats and enemies of modernity who fight democracy and modernity in their name.
Originally appeared in the Financial Times.
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