Tuesday, February 8, 2011

Where Will This Middle Eastern Upheaval End?

Tunisia has transformed. Egypt appears to be on the brink. Jordan, Syria, and Yemen could be next. The wave of revolution looks to be spilling across the Arab world. Where will it stop?

The simple answer and the correct answer in this case are the same. While short term the answer may well by Egypt, long term this revolutionary wave stops as soon as it reaches an oil producing country.

Algeria, Iran, Saudi Arabia, Kuwait, Libya, Qatar, and the United Arab Emirates will either be unaffected by this protest movement, or will have a unique ability to crush it.

Yes, the governments of many of the above countries (all
OPEC members) have governments that are as inefficient and corrupt as the countries experiencing protests. However, the dependence of these economies on oil gives these governments several advantages that Tunisia and Egypt lack.

Outside of oil production, there are almost no other significant sources of revenue for these governments. In fact, several don’t have income taxes due in part to the high revenue from oil and the low level of income from most the country’s people.

Additionally, oil production doesn’t require much in terms of manpower, and most oil producing facilities are fairly easy to secure. The governments of these countries do not depend on their people at all economically, making violent repression a feasible option for them governments.

Iran’s elections in 2009 provide the best manifestation of this theory. The people protested the results of a rigged election and made demands similar to those in Tunisia and Egypt. The outcome? The Iranian government overtly puts down the unrest with whatever means necessary while the United States and the ‘Allies of democracy’ sit on their hands. A year and a half later, the West has all but forgotten about what transpired in 2009, and the Iranian regime is still as strong as ever.

If similar protests were to erupt in Saudi Arabia, the government would move swiftly to crush the demonstrations. It would be an ugly scene that would be covered by CNN with anecdotal stories coming in from Twitter, 140 characters at a time. The governments of the West would issue strongly worded statements, but take no real action.

When governments have unlimited resources (as Saudi Arabia and others have) with legitimately don’t require their people to attain said resources, oppression is an option. A national general strike would have a minimal impact on the production of oil and could be overcome. These countries will only democratize if a foreign power forces it upon them (see Iraq, 2003), or after the oil runs out and the money reserves from oil production start to dwindle.

Saturday, February 5, 2011

So... Lets Build a Country. Step 2A: Infrastructure

-Advice for creating a strong economy where one doesn’t currently exist

Let’s assume that after a year or two of pursuing the plan outlined in
Step 1, some multi-national corporations (MNCs) have built a few factories (probably in coastal areas) and are employing a bunch of your citizens. The inside of these factories probably looks like this, while naïve American college kids create political cartoons that look like this. These workers are probably making between $.45 and $1.30 an hour.

Compared to Western standards, these wages are… well… slavery. However, the factories built by MNCs are providing real incomes to thousands of your people that are reportable (unlike ‘wages’ from agricultural work) and higher than what they would’ve otherwise been making (if they weren’t, these people wouldn’t have left whatever ‘career’ they had previously). Even if you aren’t yet collecting any sort of fee or tax from the MNC, the fact that these people are working is going to be somewhat of a boon for your revenue via income taxes.

In addition to creating a working class (however pathetic it may seem at this point), you’ve also created a meager consumer class. The money they spend on their groceries, clothes, rent and other goods is going to disperse their income throughout your economy to everyone’s benefit (as they won’t yet be able to afford the luxury of saving money), including yours in the form of increased sales tax revenue.

Before getting any money directly from the investing MNC, you’ve already made a ton of money (relative to what you had before) in taxes. You have fiscal choices now.

If you’re smart, you’re not going to upgrade your palace quite yet. Rather, you’re going to invest in infrastructure (like roads, rail, communications networks, etc.) and in educational facilities.

The investment in infrastructure will at first be directed to areas where MNCs have already built facilities. With improved roads and rail assisting manufactured goods going from factories to ports (if you’re not landlocked), or from factories to the next country over (if you are landlocked), the cost of MNCs doing business in your developing country decreases, improving your business image overseas.

Chances are, MNCs will invest some of their own money in developing early necessary infrastructure; an often overlooked benefit to encouraging foreign firms to invest in developing countries.

New roads and rail lines in your country can spread the economic benefit of your efforts of plugging in to the international economy to the interior of the country. If the cost of moving goods from your country’s middle to points of export is cheap, MNCs won’t hesitate to build factories away from coastal areas.

The Internet has become a staple of international trade and business throughout the world. Expanding the Internet’s reach inside your borders as much as possible opens more of your country to international investment. The Internet is now as necessary to the modern business world as electricity, ocean travel, cars and rail. Without it, there will be no investment, no wealth, and no income taxes on those $.45/hour wages.

If you can properly provide security for foreign investments and build infrastructure to ease the costs of doing business in your country, foreign dollars will pour in to your economy and eventually the national treasury. Local business will benefit from the increase in domestic consumer spending. From this point forward, growth becomes exponential, assuming these new revenues get reinvested into future growth and not into a Swiss bank account.