Are weak governments going to make Arab labor markets better?

I find Arab economies depressing because the amount of mismanagement is staggering and because institutions are very ill-conceived. Part of it comes from the influence of religion, and part form the legacy of the Ottoman empire. It is unclear how corrupt and incompetent governments fit into this history, but they are certainly to blame, too.

Ragui Assaad shows that the labor markets in Arab countries are seriously messed up and finds the governments as the main culprits. Government employment is particularly important and is used as a political tool. The result is a lot of nepotism and cronyism, bloated administrations doing nothing, and large sectors of the economy depending on the government's largesse. Few businesses thrive without these handouts, there is thus very little healthy competition that tries to innovate. The competition is only in getting favors from agencies. As a consequence, there is little accumulation of human capital. While there is a boom in education, not much useful is concretely learned: the education sector is just as corrupt and diplomas do not mean much. I may add that the fields of study are also driven by the corrupt environment, as rent-seeking is everyone's goal.

Is this a hopeless situation? Assaad thinks Arab economies are stuck in this equilibrium. But I think there may be a way out. Indeed, the Arab Spring has considerably weakened governments. This is usually a bad outcome, but in this case this is an opportunity. While this may lead to some chaos, this may be better than counter-productive order. We'll see.