Tuesday, November 08, 2005

A bigger problem

France is engulfed in flames and heated debate continues....

The real problem in the Islamic world is not religious intransigence but economic integration. (It has nothing to do with Islam, either.) And in my infinite wisdom (read: economic reductionism) I suspect that solving the economic problem will solve the rest of their problems. In particular, shouldn't we see a liberalization of society as we've observed in Europe and the United States? (Hopefully.) At the least, if Algeria and Libya had functioning economies would anyone future rioters (or parents of rioters) have immigrated to France in the first place?*

The problem is that most Middle Eastern countries have been cursed with an abundance of oil. Oil does not lend itself to the individual entrepreneurs or small family farms that have comprised the economy of the United States for its first 200 years of economic life. Rather, it encourages centralization. In most of these cases (Iran, Iraq, Saudi Arabia), centralization is not in the "enlightened liberal" style of Western countries. (Though sometimes it is, see the U.A.E. and Kuwait.) Whoever controls the oil has little incentive to share the wealth. Since these countries clearly have a comparative advantage in oil, textiles and other manufactures can't be the source of growth and employment as they have been in so many other countries (a post on this later.)

Note that many of these countries do have quite high real growth rates. For example, Algeria has a real GDP growth rate of 6.1%, but unemployment is 25.4% and 23% of Algerians are below the poverty line. So, if you are, say, the IMF, Algeria looks quite well off. But Algerians are not. Why? Well, oil production accounts for 30% of GDP.

So what's to be done? I don't think anyone really knows, and I think that solving the problem of development in oil-rich countries is probably harder than (or at least independent from) solving the problem of development in sub-Saharan Africa. In sub-Saharan Africa, at least, there are incentives for governments to attempt development. In the Maghreb and Middle East there is much more money available but little incentive to invest outside of petroleum.

In economics, there are plenty of ways to analyze the welfare effects of policy with a benevolent government. But what if the government is indifferent or worse? What does policy even mean?

*I do, however, think that, ceteris paribus, allowing immigration from low- to high- wage countries is a good thing.

3 Comments:

Blogger Isaac said...

But that fails to answer the more pressing question: given that these people have ended up in France, why are they having so much trouble integrating into French society?

And that is a much more difficult question to answer.

3:49 PM  
Blogger henry said...

I think it fails to answer any question, actually. And knowing nothing of French society I won't attempt an answer. But, do you think it is the same reason that blacks had (are having?) so much trouble integrating into American society?

3:56 PM  
Blogger Isaac said...

No. The tired liberal argument for affirmative action gets something right: the difference between having once been enslaved versus not is rather dramatic. Both in how the community is oriented and how the community is viewed and the opportunities made available. Though I may well be wrong. I'd imagine that the second/third generation will do a lot better than this one. But the sheer rigidity of the French labor market will make the improvement less dramatic than other immigrant groups have seen. There are many nice things about having such an economy, but it definitely works to screw over new entrants.

I also think that french society has a hard time handling different identities, particularly when it is so very easy to maintain those identities.

10:11 PM  

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