It’s Time for Tunisians to Take the Next Big Step
Serious economic reform is long overdue in the country that launched the Arab Spring.
The March 18 terrorist attacks at the Bardo National Museum in Tunis have once again focused the world’s attention on Tunisia, the birthplace of the Arab Spring. While the other Arab countries whose people rose up in 2011 have since devolved into violence and repression or achieved only halting, marginal reforms, Tunisia seemed to have emerged from its revolution victorious. Indeed, the tiny Mediterranean country has been branded a beacon of hope in a region ravaged by terrorism and turmoil, a real success story achieved through compromise and inclusiveness.
But it is important to remember that the Arab Spring protests were driven by economic grievances. The revolution’s fundamental goals included not just political freedom — which in Tunisia has been mostly, if tentatively, achieved — but also an end to economic domination by sclerotic bureaucracies and well-connected elites. Thus far, this side of the equation has been largely neglected. Unemployment has inched down but remains staggeringly high at 15 percent, especially for young people, who account for 40 percent of the unemployed population. The economy is growing, but only slowly, and the impact of the attacks on the crucial tourism sector won’t help. Perhaps most importantly, the red tape that stifled small business under the old regime still hasn’t been dismantled.
Time is of the essence: Tunisians have waited four years for economic progress. If political squabbling delays or weakens reform efforts, democracy will have failed to deliver on its promises, and the country may well lose faith in the democratic process. Tunisia’s disgruntled youth already form the largest pool of foreign recruits for ISIS, and rising disillusionment could lead to even more openings for radicals like those who attacked the Bardo.
So Tunisia needs immediate action on economic reform. The aim should be to build a more open and fair economy, one no longer dominated by government patronage and regime-connected crony capitalism, and where private businesses are supported, not squeezed for profits or manipulated for political gain. In short, the state and the business community together need to harness the popular will for reform to reshape the role of the state in Tunisia.
These reforms cannot be left to the government alone. The last thing Tunisia needs is another government job creation scheme that will only perpetuate the false promise of state employment for every citizen. Throughout the Arab world, this model has led only to unsustainable and inefficient bureaucracies and soaring youth unemployment. Rather, both the public and the private sectors will need to commit to a serious overhaul of the system, coupled with nationwide outreach to win over the population and ensure they remain committed to the effort.
Employment is the main area where rapid reforms are required. Tunisians need jobs — but new employment should come from an unleashed private sector, not from the government creating superfluous jobs, as it has in the past. The best thing Tunisia’s government can do for its fragile but growing economy is to clear away the hurdles that are preventing private businesses from expanding, increasing productivity, and hiring more workers.
So far this hasn’t happened. Since the revolution, Tunisia has actually hired 90,000 new public workers — permanent civil service jobs, not temporary make-work positions. That ill-advised move brings the total of state employees to more than 600,000. Spending on compensation has gone up even faster, increasing by 44 percent as the new regime has also hiked wages and allowances. This is an employment model that was already failing before the revolution: a study of university graduates in 2008 showed that just 26 percent had found a job within 18 months of graduation, and more than half of these were in the public sector. A Tunisia where the government is still seen as the only source of secure, middle-class jobs will simply not be able to sustain its democratic revolution.
Small and medium enterprises are the bread and butter of job creation in a market economy, but in Tunisia they face prohibitive bureaucratic hurdles. Even compared to a highly-regulated developed country like France, establishing a business in Tunisia requires twice as many procedural steps and costs almost 5 times as much (as a percentage of per-capita income). Each of these steps is an opportunity for corrupt officials to demand a bribe — and to hold up the process until they are paid. This helps explain why so many Tunisian businesses — representing more than a third of the country’s GDP — operate informally. When enterprises are not formally registered, they don’t pay taxes and have trouble accessing capital and hiring workers. Still, in Tunisia, many business owners would rather operate underground than face the thicket of opaque and contradictory laws and regulations stacked against formalized businesses.
These regulations were not designed to protect the public, but to protect the old regime’s business interests — what economists call “rent seeking.” Companies connected to the Ben Ali family employed just 0.8 percent of the workforce and produced only 3 percent of economic output, but reaped 21 percent of all corporate profits. Overly complex regulations, and the inefficient bureaucracy that administered them, did not just give the ruling elite a way to hand out patronage jobs. They also made it virtually impossible for competitors to enter lucrative economic sectors like hotels, air transport, telecoms, and banking that were dominated by the Ben Ali family. Even McDonald’s famously couldn’t penetrate the Tunisian market, despite a costly seven-year effort, because they chose the “wrong” franchise partner.
A modern economy obviously requires some rules and regulations, but they must be implemented fairly and serve the public interest. The Ali-era regulatory structure needs a complete overhaul — with input from labor, civil society groups, and, most importantly, the private sector. Tunisia’s economy cannot and will not thrive without strong advocacy and democratic participation from the business community.
To achieve this, representative business associations should consolidate their membership and develop strong mechanisms for propelling reform openly and transparently. Only these organizations can bring all the key groups that drive economic growth — from small and medium businesses to micro entrepreneurs to informal street vendors — into a conversation about how to overhaul the cumbersome regulatory environment so as to facilitate access to opportunity, replacing the old, corrupt system with fair rules that apply the same way to everyone.
Tunisia also suffers from a broken labor supply chain. In a 2013 Gallup poll, more than half of employed Tunisians said that they were unhappy and unproductive at work. Tunisian graduates are not equipped with the critical thinking skills or job training that enable them to effectively contribute to the labor force, and the hurdles facing small and medium-sized enterprises suppress hiring. Tunisia needs to take steps to ensure that it is producing qualified candidates and that those candidates can find jobs that take advantage of their skills. Education reform that emphasizes critical thinking over rote memorization, from grade school through universities, is urgently needed. Curricula and teachers that encourage creativity and integrity rather than obsession with social status will empower a cadre of young Tunisians to join a labor market driven by innovation, ethics, and competition.
More fundamentally, the country needs stronger property rights. Without property rights, contracts are hard to enforce, access to capital is limited, trust in one’s economic future disintegrates and incentives for improving and expanding businesses dwindle. After all, it was the casual destruction of Mohamed Bouzazi’s property — his livelihood — that resonated so strongly with protesters in Tunisia and throughout the Arab world in 2011. The government must take serious steps to ensure that laws are enforced fairly and that businesspeople, workers, and foreign investors are confident their contracts can be enforced in court. Simplifying and clarifying laws and regulations will help, but the government needs to make sure ministers and top civil servants understand that old authoritarian habits will no longer be tolerated in a democratic Tunisia.
Finally, to succeed at any of these reforms, Tunisia must take serious steps to tackle corruption, which is endemic. Not only does this affect the economy on a macro level, discouraging foreign investment, for example, but small bribes demanded at the lowest levels of society keep entrepreneurs from formalizing and entering the real economy.
Civil society can act as a watchdog by establishing whistleblower programs and holding corrupt officials and institutions accountable. The private sector, for its part, must address its own bribery culture through robust corporate governance programs. Due to anti-corruption laws like the U.S. Foreign Corrupt Practices Act, Tunisian companies cannot engage with multinational companies without demonstrating a vigorous anti-corruption compliance program. Tunisian firms will have a hard time attracting investment or participating in the global economy until they get their corruption problems under control.
Each of these issues feeds into the next: educational reform will not bear fruit without deregulating the environment for small enterprise growth; entrepreneurship cannot be encouraged without educational reform and lowering barriers to formality; and reform will be stifled if corruption continues to flourish. It is worth noting that none of these reforms require an enormous influx of outside funding. Rather, they allow Tunisian resources — mostly human capital — to reach their full potential.
The government must now send strong signals, especially in light of the recent flare-up of violence. Even symbolic measures would help rally support and achieve immediate gains. Examples include standing up to corruption with campaigns against all forms of graft, deregulating foreign investment requirements, and creating incentives for small and medium enterprise development — all of it accompanied by heartfelt communications encouraging all Tunisians to pitch in, do their part, and work for a better future.
Demonstrating the government’s willingness to undertake structural reforms would speak volumes — particularly if advanced by Nidaa Tounes, the governing political party that is widely perceived as the party of continuity. This would help to create political space to make more difficult decisions about the privatization of state-owned enterprises or the gradual reduction of targeted subsidies. In a volatile environment with such high expectations, it is worth wondering whether the ruling party can in fact afford to do anything less.
Those not in the government must act as both catalysts and watchdogs, advocating sound policies as well as cajoling their representatives into responsible behavior and good management. The old promise of government-provided employment is dead. Tunisia needs a new social contract between a government that creates conditions for economic growth and a private sector that strives to reach its full potential, thereby creating the jobs and opportunities that Tunisians first took to the streets for.
Doing so will not only carry the country forward economically but also help to entrench its fragile democratic gains: the same institutions that enable Tunisians to register their property will protect them from exploitation by government officials. The same regulations that facilitate entrepreneurship will create new economic opportunities for women and unemployed, educated young people. The same reforms that improve public education will create a cadre of youth willing and able to demand political rights and freedoms.
Tunisia has a progressive history and strong economic fundamentals: an educated population, a tradition of women’s involvement in the economy and politics, and a vibrant civil society. It can become the economic hub that it aspires to be in the region. But without economic progress and a new social contract between the state, the population, and the businesses that drive economic growth, Tunisia will lose steam and the objectives of the revolution will be in jeopardy. Tunisians must not allow the violent actions of a few to distract them from their goals.
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