How Arab Economies Cope With Globalization

For example, it takes a very long time in Egypt for businesses to get permits to do a variety of things. It takes a very long time to get a telephone connection. And while it is fashionable to say that this is a result of being an Islamic country, as we point out in the book, it take ten times as long in Egypt as it does in another Islamic country -- Tunisia. So Islam, by itself, does not provide an explanation.

Knowledge@Wharton:Are some countries doing things better than others, which might offer lessons to the rest of the region?

Pack: Dubai seems to have a lot of things going for it. The quality of the people in Dubai is really quite astounding. We had an Executive Education program in Philadelphia over the last year and a half were officials from Dubai, and they were spectacularly good and spectacularly well plugged into the international economy. I think that's less true in other countries. Dubai cannot provide an easy template for the other countries because it has very specific circumstances in terms of oil revenues and other things per capita. Tunisia and Morocco have done okay.

None of the Middle Eastern countries have done spectacularly well, which is very interesting. In Latin America, Chile has done extremely well. Asia for a long time had Korea and Taiwan and then were joined by a host of other countries such as China and India, and now, interestingly, Vietnam. But there have been no champions of economic growth in the Middle East. This is disappointing, and therefore, there is not a sense of confidence that if they change policies they will succeed. There is no [one] country that has done spectacularly well.

On the other hand, one has to notice that Morocco, Tunisia and Egypt have not done that badly. They look remarkably like Columbia, which has not had spectacular growth. Columbia doesn't look like Korea and Taiwan, but it has done okay. At the current rates of per capita income growth -- until this recent oil price spike which may or may not last -- they were growing 2% to 2.5% per year per capita, which means that it will take roughly 30 years, a little bit more, for their incomes per capita to double. If you contrast that to countries where growth has been 5% to 6% per year and where it takes 12 years for income per capita to double, then you will see that they have not done well.

Knowledge@Wharton: In fact, your book says that "The neural synapses that would link the latent productive possibilities of the Arab people with the goods and services demanded by the rest of the world appear to be weak or non-existent." How can that problem be overcome?

Pack: That sentence and the "neural synapses" phrase have drawn a lot of attention. We gave several presentations in Washington at The Peterson Institute and people brought this question up very frequently.

Currently, the big issue for most of the developing countries is that they want to become part of the world trading system. A large part of this system is dominated by production and buyer networks. A production network might be thought of as Dell (DELL Quote - Cramer on DELL - Stock Picks) assigning individual products -- such as keyboards, monitors and a motherboard -- to a variety of its sites throughout the world and putting them all together on the UPS (UPS Quote - Cramer on UPS - Stock Picks) truck in the U.S. You also have buyer-led networks such as Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks), which orders a lot of products and knows a great deal about how and where these are produced. These networks are now exceedingly important. It's arguable that 60% to 80% of international trade is now accounted for by these buyer and seller networks.

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