America's Second Chance and the Arab Spring

The United States has been screwing up the Middle East for 60 years. Obama has a brief window to get it right.

Egyptians went to the polls en masse on Nov. 28 and Nov. 29 to vote in the closest thing that any of them has ever seen to real elections. Although the final word is not in -- either regarding the results or the integrity of the elections -- early reports suggest that the vote was mostly fair and free.

But Egypt is still a long way from stable, functional democracy. As Iraq, Palestine, and Lebanon have demonstrated again and again, elections do not equal democracy.  Egypt's Islamists -- who appear to have garnered as much as 65 percent of the vote -- will dominate the new parliament regardless of the role they play in the new Egyptian government, and we do not yet know whether they will wield that power responsibly. Egypt's armed forces remain the most powerful force in the country by far, and they have shown a Hamlet-like ambivalence -- demonstrating an ardent desire to surrender power to a new civilian government and a similar determination to preserve their own prerogatives from the era of Egyptian autocracy.

The strong showing of Salafi movements, which appear to have captured approximately a quarter of votes, was the surprise of this round of elections. These Sunni extremists are growing in number and, if the system begins to break down, might try to seize control of the government like modern-day Bolsheviks. Some of Egypt's most popular leaders are dangerous demagogues who could plunge the country into all manner of problems. Democracy is a long road, with many perilous intersections, and Egypt has barely started on its way. What's more, Egypt will likely require considerable political, military, and even economic support from the United States and the rest of the world if it is to make that critical, dangerous, transition successfully.

What is true for Egypt today is even truer for the wider Middle East. The events that began in Tunisia in December 2010 -- and spread to Egypt and then Libya, Jordan, Morocco, Bahrain, Syria, and beyond -- shook the political, social, and intellectual foundations of the Middle East. The tremors can still be felt, and no one is quite certain when the aftershocks will end, or when another wave of popular unrest might occur. In some countries, like Egypt and Tunisia, and perhaps Morocco, Libya and Jordan, a move toward real democracy has started. That is difficult enough, but the situation is even more dire in countries such as Syria and Bahrain, where old elites are fighting the popular forces of change with all of their might.

Between these countries lies a dozen other Arab states, where both the unrest and the government responses have been more limited. However, there is no reason to believe that they will remain untouched by the forces of the great Arab Awakening forever, or even for very long. Change is coming to the Middle East, but the ultimate result of that change is impossible to discern.

Unfortunately, the United States does not have the luxury of waiting around to see how things play out and then make sense of what has occurred. Although the shock of the initial events of the Arab Spring has ebbed, many of the miseries that gave rise to it persist and remain compelling motives for many people across the region. For that reason, the storm of unrest that spread from the Atlantic to the Persian Gulf may have subsided, at least in some parts of the region, but its story has just begun.

Whether we like it or not, the changes sweeping the Middle East will affect America's vital national interests as well. We hate to admit it, but we must face the fact that our economy -- and the economy of the wider world, with which we are inextricably intertwined -- is addicted to oil. And the price of oil, and thus the welfare of our economy and that of the rest of the world, is deeply affected by what happens in the Middle East.

We may want to turn inward and concentrate on setting our own house aright -- to focus on nation-building at home, as President Barack Obama put it -- but we cannot afford to ignore the events of the Middle East. The Middle East is not Las Vegas: what happens there, does not stay there.

Elements of a New American Middle East Strategy

In the wake of the earth-shaking events of the past year, and to secure U.S. interests in that part of the world, what U.S. policymakers must do is easily said, but hard to do. Indeed, Americans have determinedly resisted doing it for decades. But now that the events of 2011 have revealed the world as it truly is, and not as Americans have tried to insist that it was, perhaps the United States can finally commit itself to doing them.

To this end, the United States must embrace a long-term commitment to help the countries of the Middle East pursue a process of political, economic, and social transformation. This process should grow from within, rather than be imposed from without. It should reflect the values, traditions, history, and aspirations of the people of the region themselves, not a Western best guess at them. And it should also recognize that change and stability are not mutually exclusive, but mutually reinforcing -- and ultimately mutually essential. This will be a difficult course to pursue, but it is ultimately the only good path to follow.

Defining a New Narrative

While it is unquestionably true that the people of the Middle East want to secure their own futures, it is also true that they want to know that the United States supports them and will help them when they ask for assistance. Many suspect that the United States still backs the region's moribund and repressive regimes. For all of them, the United States must articulate and consistently hew to a new strategy that supports transformation in the Middle East.

But the message is equally important for the extant rulers themselves. Some hope simply to withstand the popular furor and, when passions have cooled, go back to the way things were. If they are going to be brought around to making more meaningful change, they need to understand that this is unacceptable to Washington and will place them squarely at odds with what will become a new, long-term American strategy toward the region.

Other Arab leaders fear that the United States will define its interest in change in such a way that will set the old political elite at odds with Washington. For them, the United States needs to articulate a vision of change that is compatible with their own interests (broadly defined), and that lays out a path forward that they could be persuaded to tread, even if grudgingly at first.

Saudi Arabia is clearly paramount in this area. King Abdullah himself appears to recognize the need for change within his oil-rich kingdom, and has begun a number of initiatives to overhaul the Saudi educational, economic, judicial, and social systems, although Riyadh has been notably slower to introduce reforms in the political sphere. Despite this, the Saudis clearly fear that the Obama administration now plans to throw its support behind revolutionary regime change across the region -- something very frightening to the Saudi ruling family, both in terms of what they believe it would mean for themselves and for their allies. To some extent, they even fear that the United States will go so overboard in embracing transformation that it will forget traditional threats like Iran, and will decide that countries that are not reforming at revolutionary speeds should become the principal target of American pressure instead.

For Riyadh in particular, then, it is vital for the United States to develop a new strategic narrative that paints developments in the region and the future of U.S. policy toward it in terms that are compatible with Saudi interests and fears, and that indicate how the United States will adjust to the changes sweeping the region, continue to address traditional threats like Iran and Salafist terrorism, and will do both in ways that Saudi Arabia and other U.S. allies can accept -- even if reluctantly.

The United States should define the new regional struggle as one based on internal politics and the aspirations of the people of the region. It should accept that the region is now clearly divided. On one side are the states that have acknowledged the desires of their people for a better future and are taking concrete steps to improve their peoples' lives. On the other side are the states that are not, and are employing the failed methods of the old Middle East: repression, violence, fear, totalitarian control over information and expression, and the creation of internal or external scapegoats on which to blame their problems -- all to deny their people the better future they dream of.

Not accidentally, such a framework places the new Egypt, the new Tunisia, the new Libya, and hopefully the new Iraq squarely in the camp of those states in which such a change has begun, even despite the challenges that beset them. Despite their daunting problems, all are trying to democratize, all are responding to the desires of their people for better lives, more or less. It also places Iran, Syria, and groups like Hezbollah -- which is slowly gaining control over Lebanon -- in the camp of those states decidedly on the wrong side of history. In so doing, it should rally popular support for Egypt, Iraq, Libya, and Tunisia and further alienate Iran and Syria from Arab public opinion. Indeed, recent public opinion polls demonstrate that this is already happening: Iran is no longer viewed by the Arab public as championing resistance to the old status quo, and is instead viewed as supporting its repressive clients in Syria and Lebanon and practicing similarly autocratic policies at home.

This strategic framework places a number of other countries exactly where they need to be -- right in the middle. Saudi Arabia, Morocco, Jordan, Oman, Bahrain, Algeria, and others have in the past made mostly half-hearted forays at reform. The United States should convey that it wants to help them move into the first camp. Indeed, all of them have been frightened by the waves of unrest, and this ought to serve as an important motivation to adopt meaningful change. An American willingness to help, if not push, such change should also keep them on the straight path and bring them more fully into the progressive camp farther down the road.

Reconciling Ends and Means

But can the United States actually affect this kind of change? It is clear that, today, the country faces very significant financial problems. Although the foreign aid budget had virtually nothing to do with those problems, the issue of spending cannot be ignored. Today, every nickel the U.S. government spends will be scrutinized, and there is little stomach for disbursing large amounts of new aid.

Part of the answer to this problem is that the United States can and should emphasize providing assistance to Middle Eastern states that costs little or nothing at all. To some countries, the United States can provide technology and know-how at little cost. Another thrifty way to help the Arab states is with diplomatic assistance -- from mobilizing NGOs and inclusive civil society to creating new international institutions, to addressing troublesome international issues. Some assistance can and should come in the form of military aid, such as maintaining training programs with Egypt, Jordan, Morocco and other states, and building a similar relationship with Libya. In most cases, such military assistance could employ forces that already exist, and much could be paid for by the governments themselves. The new Libyan government, for example, might use frozen Libyan assets to pay for U.S. arms and training for new security services and police.

But some commitment of U.S. resources will inevitably be warranted and required to push forward the changes occurring in the Middle East. Even small new aid packages could have an outsized impact on countries struggling to change, especially when they form the kernel of larger packages from U.S. allies and international organizations. Moreover, it is vital to remember the optics of U.S. policy at this crucial juncture: The people of the Arab world believe that the United States gave generously to the bad old regimes. If Washington were to suddenly cut its assistance to the Middle East precisely when the people of the region rose up and threw off their autocratic shackles, they will conclude -- now, and for a very long time to come -- that the United States was only interested in supporting repressive autocrats that did their bidding and had no real interest in helping the Arab people themselves.

Wasthington cannot lose sight of the importance of the changes that have now begun in the Middle East as a result of the Arab Spring. They are too important to the vital national interest to allow a few billion dollars -- an insignificant fraction of the total U.S. budget, let alone the national debt -- to become the difference between success and failure.

Out with the Old

Throughout the Cold War and over the past 20 to 30 years, the United States has seen the Middle East largely through the traditional lens of political power. It was the governments of the region that mattered, and conflicts between states that posed the greatest threat (even if those conflicts manifested themselves in competing attempts at internal subversion). Because the United States had allied itself with those states that largely benefited from the prevailing geopolitical arrangements, Americans saw the status quo as highly beneficial and any threat to it as correspondingly dangerous. Our great Arab allies -- Saudi Arabia, Egypt, Kuwait, the United Arab Emirates, Jordan, Morocco -- all liked things the way they were. The United States -- intent on ensuring that the oil flowed and that Arab states were officially or unofficially at peace with Israel -- also liked the way things were. Even Israel, after its victories in 1967 and 1973 and its failed attempt to rearrange the Levantine status quo in its favor in 1982, had itself become a status quo power.

Consequently, the United States became the great champion of the status quo in the Middle East and defined its adversaries -- Iran, Syria, Hezbollah, Hamas, and Libya (until 2004) -- as those states seeking to overturn the status quo. In some sense this was correct, because those states were attempting to subvert the prevailing geostrategic realities to create new ones, centered on their own interests.

The great problem inherent in this construct was that the people of the Middle East saw the preservation of the status quo as condemning them to eternal misery. Maintaining the status quo against all foreign and domestic threats meant keeping the people of the Arab world down. It meant preserving the stagnant economic, social, and political systems of the region that were the source of their frustration. Thus preserving the status quo meant dismissing the aspirations of the people of the Middle East.

This, more than anything else, is why so many Arabs admired Hezbollah chief Hassan Nasrallah, Iranian President Mahmoud Ahmadinejad, and even Osama bin Laden. They, at least, seemed to be fighting for change -- for overturning the status quo. And although most Arabs did not like what they stood for, they loved what they stood against -- the traditional order that oppressed them.

Because the United States supported the traditional order for geopolitical reasons, this also put it on the wrong side of Arab public opinion. Washington's support for the status quo was based on its focus on the region's geopolitical dynamics, but for the people of the Middle East, whose central concern was the region's stagnant economies and callous autocracies, that same defense of the status quo became a defense of their oppressors. It was a principal (albeit not the only) cause of the region's pervasive anti-Americanism.

Today, this strategy is categorically the wrong one for the United States to pursue, if it ever was the right one. More than anything else, the great Arab Awakening has meant that the people of the region can no longer be dismissed. After the wave of popular upheavals that rolled across the region in 2011, no Arab or external government can ever again afford to ignore the wishes of its people.

The old status quo is gone. Parts of it might be preserved for some time in some places, but it will never be re-created. The only wise path that the United States can take at this point is to accept that change is coming to the region, and to help the people of the region shape that change to their ends. If the United States comes to be seen as a willing partner of the Arab peoples in their quest to build a new kind of Middle East, then over time, we might find a new status quo emerge -- one that is truly peaceful and prosperous, and therefore stable. And if the United States helps in that effort, perhaps it, too, can be transformed, from the most hated and feared foreign power to one of the most beloved.

Certainly, Washington has nothing to lose. The strategy of the past condemned it to endless crises and conflicts in the Middle East, consuming more and more blood, treasure, and time as the years passed. And for what? In return, the United States reaped a volatile oil market and worsening anti-Americanism. It was not a very good deal. The Arab Awakening has offered the United States a second chance. It represents a new opportunity to remake America in Middle Eastern eyes, and become the country it imagines itself to be.



Rise of the TIMBIs

Forget the BRICs. The real economies that will shake up the world over the next few decades need a new acronym.

Nov. 30 marked the 10th anniversary of Goldman Sachs economist Jim O'Neill's anointing of the BRIC economies -- Brazil, Russia, India, and China -- as the future leaders of the global economy. Yet 10 years on, the notion of the BRICs already seems out of date. In China and Russia, demographic patterns have shifted. Their working-age populations are declining, as are exports, while still-rigid political systems stifle free thought and hamper technical advance.

Future trends still look robust in Brazil and India, but these countries should now be in new company -- a group of dynamic and democratic emerging economies. Let's call them the TIMBIs: Turkey, India, Mexico, Brazil, and Indonesia. These countries form more than just a cute acronym. They all share favorable demographics and democracy and are already large economies. Their GDPs combined have already surpassed that of China and will be much faster growing in the coming decades. Their combination of booming labor forces and political openness points to rapid increases in human capital and innovation that will propel these regional powers into global powers in the near future.

Let's take a look at the numbers. The chart below shows the trends in the population aged 15 to 59 in the countries or regions that make up the world's largest economies, using the United Nations' latest projections of future population growth and examining changes from the base level of 1950 up through 2050. 

Figure 1: Growth in the Labor Force (population aged 15-59), Indexed to 1950 level= 100

The chart shows a clear division in trends from 2010 onward, with the TIMBIs enjoying labor-force growth of 10 to 30 percent from now until 2040. Meanwhile, the labor forces of Russia, Europe, Japan, and South Korea will decline by 10 to 30 percent. The United States will continue to grow from 2010 to 2040, but only by about 11 percent.

It is controversial to suggest that China's enormous growth engine may slow down or stall. Some slowing is inevitable, however. From 1980 to 2010, China's labor force grew an average of 1.7 percent per year, reaping the gains of Mao's pro-natalist policies from the 1960s and 1970s. These gains accounted for about one-fifth of China's annual economic growth in these decades. In the same years, urbanization -- a key source of the increase in productivity of China's labor force, as workers moving from farming to urban manufacturing and services brought huge increases in output per worker -- grew at a rate of 4.3 percent per year, as urbanites went from 20 percent to 45 percent of China's population. Education, yet another key element in increasing productivity, underwent a similarly rapid boom. From 1998 to 2004, total undergraduate enrollment increased from 3.4 million to 13.3 million, an incredible annual increase of 25 percent per year. These trends helped underwrite GDP growth rates of 10 percent per year.

Trends cannot continue at this rate, however, and indeed they have already begun to reverse. In response to the success of the one-child policy adopted in 1978, China's labor-force growth ceased in 2010, and its working-age population will decline by 15 percent by 2040. This shift from 1.7 percent annual labor-force growth to an annual contraction of 0.5 percent will, by itself, knock 2.2 percentage points off China's annual economic growth potential over the next three decades. Moreover, urbanization -- perhaps the main driver of productivity increases -- will decline even more. The U.N. Population Division projects that China's urbanization will continue, rising from 45 percent of China's population today to 67 percent by 2040 as an additional 360 million people will be added to China's cities. As an annual rate of urban growth, though, this is only a 1.5 percent annual increase -- a slowdown of about two-thirds from the 1980-2010 rate.

As for educational growth, that too has clearly reached a limit. Twenty percent of China's college-age youth are in colleges and universities today, a remarkable number for what is still a predominantly agrarian and blue-collar economy. China announced this year that it will limit the growth of doctoral programs. The biggest concern of Chinese college graduates is that their numbers have increased much faster than the economy can employ them, as white-collar jobs are proving extremely hard to find. Thus, all the demographic drivers of China's recent productivity increase will be lacking in the future.

With demographic trends no longer so favorable to growth, China's productivity gains will have to come primarily from increasing capital per worker and technological innovation. China's leaders understand this all too well, but the prognosis is not good. A recent report by IBM on international use of the latest business technologies cited China as 83rd out of 134 countries -- India was 43rd and Brazil 58th. Authoritarian countries have never been flourishing centers for innovation; new ideas come from freethinkers who question authorities and existing ways of doing things -- hardly a welcome sight in China. The treatment of Nobel Peace Prize laureate Liu Xiaobo, as well as other artists, scientists, and journalists, indicates that freedom of expression is not on the agenda for China's leaders.

China faces other obstacles as well. Its reliance on exports to richer countries cannot be sustained in the coming decades as the economies of the United States, Europe, and Japan undergo what will likely be sustained slowdowns due to their aging and stagnating populations. Export growth to Europe has already fallen dramatically. Recognizing these changes, China's central planners are taking steps to shift the economy to a domestic consumption-driven model, but this process is unlikely to sustain double-digit growth because today's Chinese are -- relative to their Western counterparts -- much more vigorous savers than consumers. In addition, the raw materials to fuel China's growth will undoubtedly grow more expensive and increasingly have to be imported.

Compared with much-hyped China, Russia's problems are well known. Its population is declining, and its health-care system is a disaster -- indeed the U.N. demographics division projects Russia's 15-59 age population to fall by one-fifth in the next three decades. With that projected labor-force decline, for Russia to sustain 5 percent annual economic growth would require that productivity per worker increase by almost 6 percent per year -- as opposed to the 2007 level of productivity growth, which was 1 percent.

Russia's other drivers of growth also show considerable weakness. First, it is not a diversified economy. Although it is a leader in global arms exports and is making progress in software, its other products are not internationally competitive. Fully 25 percent of Russia's GDP comes from oil and gas revenues. The slowdown in global oil and gas consumption in 2008 and 2009 had a disastrous impact on the Russian economy, and worse consequences were only averted by Russia's wise provision of a stabilization fund accumulated between 2004 and 2007. 

Even Russia's oil output has been stagnant in recent years. Perhaps most worrisomely, Russia's dominant position in the European market for natural gas is now projected to have competition from large domestic reserves of shale gas found in Western Europe.

Russia already has a well-educated labor force; improvements in productivity will have to come mainly from new technology and effective capital investments. Both, however, are lacking in Russia today. The IBM report on use of business technologies placed Russia as 59th out of 70 countries in e-business development, and 98th out of 134 countries in the use of the latest technologies by its companies -- again, like China, well below India and Brazil. Moreover, the lack of legal protections and a transparent justice system is an impediment to increased productivity down the line. Attracting foreign capital, and the efforts of domestic innovators and entrepreneurs, will require that investors be able to control their corporations and their profits, and operate under a state-enforced rule of law. Russia, however, is drifting toward a condition of endemic corruption and state predation. The recent trial and resentencing of former oligarch Mikhail Khodorkovsky will likely reinforce the belief that Russia is not a nation of laws. This development is fatal for generating innovative entrepreneurship.

Russia's government and economy will likely be kept afloat as long as oil and gas prices remain high. Yet that merely will turn Russia into Saudi Arabia with snow, not a center for future economic growth.

It might be time to dump the RC from the BRIC. So which countries would we add?

The potential for growth in Turkey, India, Brazil, Indonesia, and Mexico looks far stronger. All these countries are democratic, have developed strong entrepreneurial cultures, will have continued strong growth in their labor forces, and have great potential to increase education levels. Of course, they face obstacles as well. Turkey risks running aground over internal conflicts regarding the rights of its Kurdish minority, which forms about 20 percent of its population, and issues of press freedom. India faces threats of Hindu-Muslim strife, widespread rural uprisings in the northeast, vast inequalities among regions, and entrenched local corruption. Brazil faces daunting inequality, both between its poorer north and more developed south and within its vast cities. Indonesia must resolve long-simmering regional conflicts, and parts of Mexico are close to being overwhelmed by drug violence. Despite these problems, however, these countries have all turned in strong growth performances over the last decade. Additionally, unlike China and Russia, they have demography and freedom -- a powerful combination -- on their side.

The current obsession with how soon China's economy will overtake that of the United States is absurd. IMF estimates for 2010 place China's GDP at about 40 percent of U.S. GDP. If China's growth rate slows to 5 percent per year from 2010 to 2030, as seems highly likely given the demographic and other obstacles it faces, and the U.S. economy grows at 2.5 percent per year, then in real terms, China's economy will only grow from slightly more than one-third as large as the U.S. economy today to two-thirds as large in 2030. With its workforce plunging (and aging), there is no reason to expect China's relative gains to continue after that date. Even if those growth rates continue, though, China's economy would not catch up with the U.S. economy until after 2050.

The real story of emerging-market growth will occur in the TIMBIs, which will markedly shift their positions in the world economy. The chart below shows the trajectory for the TIMBIs (solid lines) compared with other leading economies (dashed lines). This projection assumes growth rates of 5 percent per year in the TIMBIs and 1.5 percent for Britain, France, Germany, Italy, Russia, and Spain -- all countries where the labor force will be rapidly aging and stagnating or shrinking after 2010. (Note that from 1995 to 2005, the annual rate of productivity growth in Western European countries averaged 1.4 percent and that these countries face substantial austerity cuts and demographic reversals in the immediate future. Thus this prediction may even be optimistic.)

Projected Growth Trends, TIMBI and other countries, 2010-2030

(GDP in Billions* of Real 2000 U.S. Dollars)

The big story here is Brazil, which is projected to overtake Germany around 2025, becoming the world's fourth-largest economy (after the United States, China, and Japan). India will overtake Italy and Britain by 2020 and surpass France and nearly equal Germany in output by 2030, becoming the world's sixth-largest economy. Mexico will overtake Spain and Russia by 2020 and catch up to Italy by 2030. And Indonesia and Turkey will essentially catch up to Russia and Spain, going from less than half their size in 2010 to near equality in 2030.

And it's not just demographics. The TIMBIs have diversified economies -- their manufacturing, agriculture, and service sectors are all growing. Oil exports, which loom so large for Russia and were once crucial to Mexico and Indonesia, no longer play such a central role. Mexico's economy grew 5.1 percent per year from 1995 to 2002, even as oil dropped from 62 percent of exports in 1980 to 7 percent of exports in 2000. Indonesia is now a net oil importer due to surging domestic consumption to fuel its own growth.

Turkey is poised to benefit from its position at the fulcrum of Europe, the Middle East, and Africa, resuming its historic central role in Eurasian trade, while also being a huge supplier of goods and services to Central Asia, the Middle East, and Africa. Brazil not only boasts growing technological skills but a huge lead in global energy competitiveness through its early adoption of sugar-cane ethanol for fuel. India's leap directly to economic growth led by services and white-collar jobs puts it in far better position than China to ward off competition from other low-wage countries moving into manufacturing, such as Vietnam, Bangladesh, and Indonesia.

What's more, as open democratic societies, the TIMBIs are poised to benefit from making the jump to becoming creative, knowledge-driven economies -- a jump that has so far eluded Russia and China despite two decades of trying.

Look also for the TIMBIs to assert themselves in global affairs, not only in the G-20 but in all international forums. If the United States and China will be competing for global influence, with Europe supporting the former and Russia trying to play a balancing role, the critical swing votes in global influence will lie with the TIMBIs. Collectively, they already have a population one-quarter larger than China's, and a roughly equal GDP; they will also likely grow far faster in the future. Regionally, their global influence spans the Middle East, Latin America, South Asia, and the Pacific. Early engagement will be key to getting the TIMBIs into cooperative partnerships with Western democracies. Already, Brazil and Turkey have been experimenting with an independent foreign policy; should the TIMBIs form a bloc on their own, their impact could readily exceed that of China in scale and global reach.

The economic and political history of the next half-century won't be the United States and China competing for dominance of the world stage; it will be the quiet but unavoidable rise of the TIMBIs.

*Corrected from original "millions."