The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) - The uprisings in Libya, Egypt, Yemen, Algeria, Tunisia, Sudan, Jordon, Bahrain, Oman and Saudi Arabia are rooted in corruption and have incendiary effects on business growth, foreign investment, employment, literacy, per capita incomes, human rights and more. Without tackling corruption, these countries will remain flash points.
It's difficult to get reliable information on corruption because self-reporting on illegal acts is uncommon. According to Transparency International's (TI) 2010 Corruption Perceptions Index, the US ranked 22nd out of 178 countries. Sudan ranked 172nd, Libya 146th, Egypt 98th, and Saudi Arabia 50th. To put this in perspective countries that rank above 130 are generally considered kleptocracies, where leaders exploit their economies to enrich themselves
The same countries with high levels of corruption have limited press freedoms. Suppressing the media keeps corruption healthy and the masses in the dark, while making a mess of business decisions. All of the countries with uprisings scored abysmally on Reporters without Borders press freedoms index, which places Libya 160th out of 178 in terms of press freedom. Saudi Arabia 178th, Sudan 165th, Egypt 127th, and the U.S. 20th.
Even without completely accurate reporting, we still know corruption is a huge drag on economic growth. Corruption slows progress, raises the costs of doing business on average 20%, inspires incomplete record keeping, results in the misallocation of capital, and undermines trade and foreign direct investment (FDI).
Slow-growth economies lag on job creation, which is particularly damaging in economies like those in the Middle East and North Africa (MENA) where populations are relatively young and growing fast. In the U.S. and most developed countries the median age is between 35 and 45. In MENA it's 20 to 25, an age range where unemployment averages 20%.
Population growth in MENA may be in part responsible. While the U.S. is expected to grow more than 1% per year for the next 20 years, including immigration, in MENA projected growth is nearly double this. By 2030 MENA will need to provide jobs and services for an additional 150 million people.
Employment is also hindered by high rates of illiteracy. Corrupt rulers have a tendency to manage education since it's easier to control people with little education. However it makes a mess for creating a skilled workforce. Literacy rates in all of the countries with uprisings are low. Of the group, Jordon, at 91.1% has the highest literacy rate, still ranks only 92nd among nations. Libya is 86.8%, Egypt 66.4%, and Sudan 60.9%.
Employment is reduced even further by the difficulty of doing business. Corrupt countries have arduous approval processes because they create opportunities to exchange bribes for preferential treatment. On average getting a construction permit approved in MENA takes 152 days and will cost 410% of per capita income. In the U.S. it takes on average 40 days and will cost 12.8% of PCI.
The need to bribe to obtain approvals and services presents an enormous problem for American business people. Not only is it against the law to bribe a public official, but the United States has become the world's most vigilant anti-bribery enforcer. In MENA on the other hand, as long as corruption starts at the top, there's little hope to enforce anti-bribery regulations, except as a tool for selective suppression.
Corruption and limited information also hinders efficient allocation of resources which limits trade and FDI, , which lowers PCI and directly affects living standards, employment and the general satisfaction among their citizenship. In the US, PCI by purchasing power parity is $47,123. Oil-rich Libya, has the second highest PCI in Africa at $14,878. Oil-poor Yemen and the war-torn Sudan are less than $3000. Oil-rich Bahrain, Oman and Saudi Arabia are between $23,000 and $27,000.
Corruption needs to be endemic to keep corrupt leaders in power. Soon after protests erupted in Egypt, Saudi Arabia and Yemen, government employees were granted generous pay raises. In many corrupt countries the military also controls lucrative businesses, which weds them closer to the country's master. Some have been perplexed at the military's support of Gaddafi, but who bites the hands of those that feed them?
With the exception of the monarchies of Jordon, Bahrain, Oman and Saudi Arabia, the autocratic leaders of Yemen, Algeria, Tunisia, Egypt, Sudan and Syria were all elected. In the constitutional monarchy of Bahrain the legislature was elected. How free and fair the elections were is another matter.
Still, according to the
's democracy index every one of these countries, elected or not, ranks at the very bottom in a separate category called "authoritarian regimes" in which leaders focus on repression, not freedoms. Of this group Saudi Arabia is ranked as the most authoritarian (159th out of 167 countries) with Libya, Syria and the Sudan close behind.
Why have the people of these countries accepted corruption and repression from their leaders? In some cultures there can be an affinity to "big men," a term which refers to highly corrupt autocrats in Africa. Equal rights and freedom can often be interpreted as the signs of a leader's weakness.
Putting MENA on a footing where free and fair multi-party elections result in the election of leaders committed to democratic principles, like freedom of opinions, basic human rights and good governance is not something that will be occurring anytime soon. Even with democratic elections, corrupt "big men" leaders can often return. They arrive like Gaddafi (who was not elected), promising an end to corruption, but they too become corrupted. Gaddafi is estimated to have plundered $160 billion.
There are no quick solutions to solving the instability in North Africa and the Middle East. The problems are too vast. Step one is breaking the cycle of corruption and then focusing on building better business practices to attract foreign investment and support entrepreneurialism.
This will require skilled government leaders focused on building strong institutions and the rule of law. These leaders must accept that their main objective is not as it has been -- to hang on to power and wealth-- but to deliver security and higher standards of living for their people. With growing populations the challenge will only become more intense. No-fly zones and condemnation may be step one of a thousand to follow.