PUBLIC RADIO'S MARKETPLACE COMMENTARIES:

Broadcast April 7, 2004

A Failure of Intelligence and Economics

Attention is focused this week on Condoleza Rice’s testimony about what she knew and when she knew it. But more important information about what America could have done -- and could do to prevent future terrorist attacks – may emerge from elsewhere tomorrow. That’s when the International Monetary Fund begins a conference examining the economies of the Middle East – a topic the United States has basically ignored for decades.

In fact, for a quarter century now, the Arab nations of the Middle East have steadily withdrawn from the global economy. Yes, they supply a large portion of the world’s oil. But over the last 25 years the region’s share of global trade has dropped by 75 percent, even as its population has doubled. The 22 nations of the Arab League, with 260 million people, receive half as much direct investment from the rest of the world as Sweden, with a population of 9 million. And foreign equity investment in the region is about the same as foreign equity investment in Indonesia.

In other words, apart from oil, Arab nations have become more and more disconnected from the rest of the world. With surging populations, the result has been widespread poverty along with yawning gap between a few who have become very rich off oil revenues, and everyone else. It’s a vicious cycle.

Repressive regimes have spawned corruption, vague laws, unpredictable rules, inefficient state-run monopolies, high tariffs, red tape, and other mechanisms designed to maintain political stability through payoffs, favoritism, and outright bribes. But all this has driven foreign investors even further away – plunging the region into greater poverty. And poverty and oppression have been the seedbeds of violence.

For decades now, the United States has viewed the Middle East as a place requiring military and diplomatic attention, at most, but not basic economic reform. And that may have been a huge mistake – a failure of intelligence more fundamental than any intelligence failure preceding 9/11.