[VIEWPOINT]Lessons for the Middle East

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[VIEWPOINT]Lessons for the Middle East

As Korea grieves the tragic loss of Kim Sun-il, murdered in Iraq by hostage-takers demanding withdrawal of Korean troops, the Middle East is prominent in the thoughts of Koreans today. The Korean economy is highly dependent on Middle Eastern oil, and Koreans form the third-largest contingent of foreign troops in Iraq.
Forty years ago, when Korea began its rapid development, it would have been hard to foresee this outcome. At the time, Korea had a level of income and a volume of exports similar to that of Egypt, the largest country in the Middle East. Today Egypt lags a generation behind Korea economically, and Korea exports more manufactured goods in two days than Egypt does in an entire year.
Fundamental to Korea outstripping its former contemporaries has been its outward economic orientation. And, indeed, successful globalization is a central challenge facing the Middle East today.
Put simply, the Middle East is a demographic time bomb: The region’s population is expected to increase by around 25 percent between 2000 and 2010 and by 50 to 60 percent by 2020 ― or by perhaps 150 million people, a figure equivalent to two Egypts.
These figures imply that the region will experience labor force growth of more than 3 percent for the next 15 years or so, even without increases in female labor force participation. To absorb this labor, the Middle East will have to create 100 million jobs.
The cost of failure could be colossal. In the 2002 Zogby poll of Arab attitudes, Saudi males stand out as uniquely dissatisfied and pessimistic about their children’s future. These feelings are rooted in dwindling employment prospects, the 40 percent decline in per capita income from its peak in 1982, and the lack of political voice. The data reveal that the youngest, most advantaged sections of society have the bleakest appraisal of the future. It goes without saying that 15 of the 19 Sept. 11 hijackers were Saudis.
It is virtually impossible to imagine generating rapid employment growth without cross-border economic integration that occurred in Korea. Yet a litany of indicators relating to trade, investment and technology transfer documents the Middle East’s weak links to the world economy.
It is unlikely that the region will be able to compete successfully against China or India on the basis of low wages, as wage rates in most Middle Eastern countries are already far higher than those prevailing in the Asian giants; rather, the possible competitive advantage of the Middle East instead lies in its proximity to Europe and its potential to service the European market in a timely fashion.
This means integrating into cross-border supply chains in which a premium is put on reliability, flexibility, and fast delivery. Korean firms’ longstanding expertise in operating such integrated production networks could be enormously useful in this regard.
This close integration requires cross-border investment and frequent physical contact, which immediately raises issues relating to security risk. In addition to localized turbulence in Palestine and Iraq, the region has experienced other dramatic incidents, such as attacks by militants in Yanbu and Khobar, Saudi Arabia that left both locals and expatriates dead.
More prosaically, the pattern of responses elicited in last year’s Pew survey reveal broadly held reservations throughout the region about globalization and the role of foreigners in local economies. Yet it is precisely this type of cross-border economic integration that the region needs to boost employment.
Insecurity in both economic and cultural dimensions presumably relates to actual economic performance, embodying possibilities of both virtuous and vicious circles. In this regard, the recent experiences of Saudi Arabia could be read as a cautionary tale: weak economic performance leading to pessimism about the future, possibly counterproductive “Saudi-ization” policy interventions, and bouts of political extremism. The stakes are high: Rumored plans by militants to attack Saudi oil facilities could disrupt the world oil markets on which Korea relies.
The good news is that Saudi Arabia is the extreme case, and fertility in the region is now dropping quickly, implying that the current demographic bulge will eventually begin to diminish. Yet if the Middle East is to avoid catastrophe in coping with tens of millions of underemployed and increasingly alienated young males, it will have to rapidly create jobs.
As a non-Western country, Korea’s successful experience could hold both lessons and hope for the countries of the Middle East. And, in fact, if the region can successfully surmount its admittedly tall challenges, the future could yield a “demographic dividend” as this generation enters its most productive working years, similar to what Korea has experienced over the past generation. For many reasons, it is in Korea’s interest that the Middle East repeat the Miracle on the Han.

* The writer is a senior fellow at the Institute for International Economics in Washington D.C.

by Marcus Noland
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