Arab uprisings set in motion forces of creative destruction

By Frank-Jürgen Richter

The National, October 14, 2011

The Austrian economist Joseph Schumpeter once rued: “Economic progress, in capitalist society, means turmoil.” We are certainly witnessing a great deal of turmoil and a new era of change in the Arab world. Since the uprisings began in Tunisia last December, they have swept across large parts of the Middle East, including Egypt, Libya, Syria, Yemen and Bahrain.

Change comes in a form that Schumpeter called “creative destruction”. This apparently spontaneous change is in effect nothing but the most creative of destructions that could give birth to an Arab world based on diversity and freedom. The 2011 Global Arab Business Meeting earlier this week in Ras Al Khaimah, convened by my own organisation Horasis, reflected on this process of change, facilitating engagement and dialogue among business leaders and governments from the Arab world and beyond.

The Arab Spring seems to have hardened into an autumn of stagnation as the challenge of changing regimes becomes clearer. While many considered the Tunisian and Egyptian revolutions moments of hope, Libya, Syria, Yemen and Bahrain have to some extent countered the revolutionary fervour. Libya’s road to freedom, in particular, was bloody.

The country where the Arab Spring began, Tunisia, has been shaken by unrest ahead of planned elections to empower an assembly that will write a new constitution. Egypt, meanwhile, is questioning when – or if – the ruling military council will surrender power.

Participants attending the Global Arab Business Meeting were asking: what will be the new post-revolutionary reality of the Arab region? What are the dynamics that will shape our political and economic choices? And what is the expected effect of this political transformation on business?

The observations and expectations that emerged echoed the preoccupations that lie at the heart of the Arab and global agenda.

First, the Arab Spring is unfinished. The process of change that has come to the Arab world is neither neat nor easy. The priority for governments across the regions is to define the economic social and policy frameworks that best suit their respective countries, in consultation with the various factions of their societies.

Second, given the complexity of the post-crisis financial and social landscape in Arab countries, short-term solutions to create a sustainable economic framework are not appropriate. The Arab world must encourage and implement the measures that will be needed to enact long-term visions.

And third, we might witness a “corporate Arab Spring”. At the cornerstone of Arab economies, the increase of competitiveness of its corporate sector is of foremost importance as a factor in collective development.

The current upheavals are the beginning of a cultural and economic revolution in the Arab world, which will express itself in all aspects of business and daily life. Arab regimes need serious reform or else the street will move towards this kind of reform on its own initiative. The new generation that has taken its place in Egypt and other Arab countries is now moving faster than the political parties and the society elites, towards true political, societal and economic reforms.

Participants at the Ras Al Khaimah summit also debated what kind of economic model would prevail in the region. The global economy is moving towards a recovery after the moral crisis of capitalism. Despite all the recent volatility – and Schumpeter’s maxim is instructive here – capitalism is to remain the economic model of the Arab world.

The question, then, is not whether or not there is another, more suitable system for our economies, but rather how capitalism can be tailored to fit the economic environment of the region – which could trigger a similar revolution in the Arab corporate structure.

The Gulf states are premier practitioners of state capitalism, yet the Dubai crisis showed that state capitalism cannot avoid the potential inefficiencies of government control. We need to nurture more and broader entrepreneurial and innovation-embedding initiatives. The right mix of state capitalism and western-style market capitalism might be the answer.

Business leaders are candid about the priorities the region must pursue. In the closing plenary session, participants called for fundamental shifts in business models and government policies to address the local priorities and regional imbalances and – first and foremost peoples’ needs – and in order to make the corporate Arab spring blossom.

The key to economic growth is innovation and entrepreneurship – the Arab world has to turn into a hotbed of creative destruction, to use Schumpeter’s words. The theory argues that entrepreneurial capitalism “revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.

Arab companies need to reduce their dependency on the state and focus on their core competencies – and innovate. Something better might come along and destroy what came before. This corporate Arab Spring, if it manifests, would bestow more competitive Arab firms upon us, finally.

Frank-Jürgen Richter is the founder and chairman of Horasis, a Zurich-based global business community