The next few years are likely to be challenging and disruptive for countries like Tunisia and Egypt, but the popular movement towards democracy in Arab countries will ultimately be of great benefit to the citizens of these countries.   It will also benefit us here in New Zealand.

Democracy is not the panacea for all ills, but generally speaking economies with well-functioning democratic institutions outperform autocratic regimes.   A key reason for this is that in democracies it is in the self-interest of elected governments to implement policies that are to the benefit of a larger proportion of the population.   Elected officials, who face the challenge of re-election within a stipulated period, will be focused on delivering policies that are in the interests of their constituency.   The need for a popular mandate means that leaders need to be both mindful of popular opinion and more open about the policies that they implement.   If something is not obviously popular, they need to explain why the policy should be supported.

In the absence of a popular mandate, leaders’ retention of power is likely to be focused on the interests of a smaller group of strategic interests, such as the army and/or a clique of powerful people such as rich landowners or party stalwarts.   It is far more likely in this situation to have circumstances where what is best for the leader is at odds with what is best for the population in general.

Democracy is not the total answer.   It also needs to be supported by an independent justice system, by institutions that discourage corruption, and by limits on the political power of strategic institutions such as the army, the police, and sectarian groups such as religious orders.   Democracy without these supports is often a sham.   Hence, despite regular elections in countries like Russia and Iran, political control over the judiciary has allowed a disproportionate amount of power to be retained by powerful cliques.

The recent ousting of long standing dictators are steps in the right direction for both Tunisia and Egypt, but the challenge before these societies remains very tough.   Groups that have held a privileged status in the dictatorships will resist change and will be tempted to circumvent moves towards full democracy.   The key advantage these groups have is that they are typically concentrated (and so are better placed to co-ordinate their activities) and they begin from a position of power, influence and affluence.  Despite their numbers, the odds are still heavily stacked against the popular movements.

However, the social benefit of political reform is profound.  The biggest influence on one’s lifetime prospects is the country that one live-in.   According to the CIA World Factbook, the average per capita GDP in the World’s 228 nations in 2010 was $US15,750.   Yet the range is immense from just$US300 in the Congo and Burundi to $US122,100 in Liechtenstein and $US145,300 in Qatar.   New Zealand is measured as $US28,000 and Egypt is measured at$US6,200.

A standard measure of inequality is the Gini coefficient.  If all countries had identical per capita GDP of $US15,750, the Gini coefficient would be zero.   In fact, the Gini coefficient for between nation’s per capita GDP is 56, an extremely high measure of inequality.   To provide some comparison, the Ministry of Social Development, currently measures a Gini coefficient of 33 for income inequality within New Zealand.   Even in the US, a place often criticised for its income inequality, its Gini coefficient of 38 is well below the between country measure of income inequality.

Improving economic performance in the world’s poorer countries will have the most meaningful impact on human welfare.   Strategies based on institutional changes within nations, such as the promotion of democracy, are likely to be more sustainable sources of economic development than strategies that are dependent on external benevolence.   Steady and sustained economic growth can deliver profound improvements in wellbeing.  Steady growth averaging 3% per year would be sufficient to raise real per capita GDP in Egypt up to the current level of New Zealand’s within fifty years.   Such a pace of growth would be a challenge, but it is feasible and below the 5% plus rates sustained by Asian countries in recent decades.

The political developments in the poorer Arab nations in the next few years could have a profound effect on the prospects of the next generation of people living in these countries.   Growth in the economic power of the south Mediterranean nations is something that should not be feared but welcomed by the western world.   Greater global wellbeing is probably the only sustainable solution to the threat of terrorism.   Also, as has been aptly demonstrated by economic growth in Asia, the expansion of a global middle class provides considerable economic benefits for the rest of the world, both through export opportunities and through reduced costs of imported consumption goods.