Amid the sell-off Friday there was one common theme: Egypt.
In the short run global stock markets were down as the situation unfolds. Uncertainty is the bane of economic growth. When people don’t know what’s going to happen next, they tend to stay home. Companies pull back on investment plans.
But democratic reform in the Middle East would be good for the world economy. Hundreds of millions have lived in abject poverty, as elite leaders have maintained their power through patronage and corruption. Inevitably, the inefficiency of such a system cannot be sustained.
In Tunisia a generous educational system produced degreed professionals who had to work as street vendors. Education without opportunity yields frustration and unrest. Video cell phones allowed millions to view uncensored footage and social media allowed spontaneous political organizations that the authorities could not repress. The result was the “Jasmine Revolution.”
In Egypt the situation is at once more suppressed and more dire. A dictatorial government has done a poor job managing the economy, but there are more opportunities in Egypt. At the same time, political and religious factions are much stronger. The Muslim Brotherhood, after all, originated in Egypt in the 1920s. And Egypt is the most populous country in the Middle East, with 80 million people. The risk of Islamic fascism is real.
But if this region reforms and its entrepreneurial energies are unleashed, its economy will grow much faster, lifting a region of over 200 million and contributing significantly to the world’s economy. This, as they say, is a good thing.
Douglas R. Tengdin, CFA
Chief Investment Officer
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