GETTING POORER : Why Islamic nations are falling behind.

The relatively well-educated men responsible for the September 11 terrorist attacks against the United States were citizens of Muslim-dominated "failed states." They came from nations that possess neither a modern politics responsive to public pressures nor a prosperous economy. It is important that we understand the economic facts behind those failures. Economic conditions contributed not only to the terrorism itself but also to the distressing degree of support for the attacks evident in the Islamic world.

About 70 percent of the global Muslim population lives in fifteen countries. I want to examine the economies of those countries by considering them in three groups. The first group is composed of the six oil-rich nations bordering the Persian Gulf: Qatar, the United Arab Emirates, Kuwait, Bahrain, Oman, and--the largest of this group--Saudi Arabia. The countries in the second group are also petroleum-rich, but are not geographically concentrated. They include Libya, Iran, Syria, Yemen, and Nigeria. In my third category are the large Muslim-dominated societies that stand outside of the club of oil producers--for example, Egypt, Pakistan, Indonesia, and Bangladesh.

Rankings of Selected Islamic Countries
by Gross Domestic Product (GDP) per capita
& the Human Development Index (HDI)

                        GDP per capita rank   HDI rank

Persian Gulf States

Qatar                           24               48
United Arab Emirates            26               45
Kuwait                          29               43
Bahrain                         37               40
Oman                            38               71
Saudi Arabia                    42               68

Non-Gulf Petroleum
  Producers

Libya                           54               59
Iran                            69               90
Syria                           83               97
Yemen                          149              133
Nigeria                        147              136

Non-Petroleum
  Producers

Egypt                           97              105
Pakistan                       122              127
Indonesia                      105              102
Bangladesh                     128              132

Source: Calculated from United Nations Development Program,
Human Development Report 2001, Table 1.

It is not a surprise to learn that the gross domestic product (GDP) per capita of the oil-rich Gulf states averages $12,390, far higher than the global average of about $7,000. But what comes as a shock is that between 1975 and 1999, four of the five Gulf states for which data are available experienced decreases in their per-capita GDP, a comprehensive measure of economic output. What is particularly important in this regard is what has happened in Saudi Arabia. According to UN sources, Saudi Arabia's economy declined by an average of 2.2 percent per year over this twenty-four-year period.

No matter how wealthy a country is, such a decline is bound to mean a drop in living standards. This is even truer where wealth is hoarded at the top, as is typical of these Gulf states. A reliable indicator of the extent of such hoarding is provided by the United Nations Human Development Report. The report ranks nations according to per-capita GDP and then by the UN's Human Development Index (HDI), a standard designed to measure the ability of people to attain long and healthy lives, substantial education, and adequate standards of living.

An HDI ranking higher than its GDP per capita ranking means that a country is using its wealth well in benefiting its citizens. Where the GDP ranking is higher than the HDI ranking, the opposite is the case.

By this standard, the performance of the Gulf states is very weak. Each of the six countries listed has a GDP per capita ranking far above its HDI rank. In some cases this difference is very large. Thus Oman ranks thirty-eighth in the world in GDP per capita but seventy-first in HDI. Saudi Arabia is not much better with a per-capita GDP that stands at forty-two and an HDI of sixty-eight. In other words, all of these nations have the resources but not the political will to significantly improve the lives of their citizens.

In sum, the recent economic and human development performance in the Gulf states has been poor. To be sure, because they possess petroleum, they remain wealthy societies. But Saudi Arabia, Kuwait, the United Arab Emirates, Oman, and Bahrain have neither experienced economic growth nor used their oil wealth to the widespread benefit of their populations.

Unhappily, the experiences of the second group of petroleum-producing Muslim countries are no better. With the exception of Libya, all have per-capita GDP levels lower than the world average, with Iran and Nigeria experiencing decreases in this measure since 1975, while Syria's economy has stagnated. Growth-rate data for Yemen are unavailable except for the years after 1990, but are negative for that period as well, no such data are available for Libya at all.

With regard to the GDP per capita-HDI relationship, the pattern is also negative. Libya, Iran, and Syria all have lower HDI rankings than their GDP per capita levels. The HDI of Nigeria and Yemen rank higher than their GDP per capita standing, but against the latter's low level, this is not much of an achievement: Nigeria's HDI ranks 136 in the world of 162 countries, and Yemen's 133.

Elsewhere in the Muslim world--in the third grouping of countries--the economic situation is no better. Despite experiencing economic growth since 1975, Indonesia, Egypt, Pakistan, and Bangladesh all are desperately poor, with GDP per capita levels far below the world average. The UN reports the GNP per capita at less than $1,500 for Bangladesh and below $1,900 in Pakistan. Furthermore, in both these countries, as well as in Egypt, the HDI ranking is worse than the GDP per capita level. A slightly more favorable impression emerges in Indonesia, where the nation's GDP per capita ranking stands at 105, and its HDI a slightly better 102.

What this review suggests is that the Islamic countries have failed to achieve increased living standards for their people. During these same years, substantial advances in well-being were achieved in other poor countries--Korea, China, Thailand, Malaysia, and even India. The last, for example, though still very poor and with its own significant Muslim minority, has experienced a rapid growth rate in GDP per capita of 3.2 percent per year since 1975, while maintaining parity in its HDI and GDP rankings. By contrast, with the exception of the Gulf states, the Islamic countries are low-income nations in which economic growth has not been experienced at all in recent years. Furthermore, among all these nations, human development ranks either at a low level or at a level substantially below its ranking in wealth. That means the economic failures of these Islamic countries cannot be wholly attributed to outside factors.

All of these countries demonstrate some combination of national poverty, economic stagnation, and the failure of governments to use the resources in their possession efficiently to advance human well-being. As a result, it has been difficult for their citizens to live productive and useful lives. In such circumstances people become desperate to find a reason for their plight. Television and other modern means of communication have made it easy for the world's poor to observe Western living standards. Resentment and hostility often follow. It is not hard to imagine that such anger would turn against the United States, the symbol of successful modernity.

The United States shares some responsibility for the economic failures of the Muslim world. As the dominant voice in organizations such as the World Bank and the International Monetary Fund, we are largely responsible for the damaging policies of free-market austerity imposed on the third world. Nevertheless, the primary responsibility for failing to improve living standards rests with the domestic leaders and institutions of the Islamic countries. The fact that poor countries like China and Malaysia have found avenues to economic growth suggests that the internal structures and policies of the Islamic nations, not external forces, have blocked economic progress.

The absence of a democratic politics is what underlies the failure of the oil-producing countries to use their wealth to benefit their populations. Economic opportunity and benefits there are dispensed by elites, and for that reason are less than generous. Furthermore, oil-rich states create lopsided economies that are not easy to change. Economic development will inevitably result in the creation of new sources of wealth, and it is not at all clear that the groups in power will be willing to risk the challenges of such dynamism. Islamic states that do not depend on oil face similar problems of political oligarchy and economic rigidity. Elites invariably resist change.

Our moral concern for reducing poverty, our belief in the value of open government, and our need to safeguard our own security all overlap in our relationship with the Islamic world. Terrorism will not flourish in an environment in which standards of living rise and people can pursue productive lives. For the United States the lesson should be clear. Rather than tie our interests to current antidemocratic regimes, we should encourage greater economic dynamism and greater political participation. More than anything else, success in these areas will deprive the terrorists of their political base.

In this regard, we should remember that no societies have, over the long run, experienced substantial advances in their standard of living by curtailing their access to overseas consumers or direct investment from abroad. Seen in this light, the problem in Islamic countries has been not globalization but insufficient globalization. The economies of Islamic nations have been either one-sided (as in the petroleum countries), flawed (as evidenced by relatively low HDI scores), or not developed enough (as in Egypt, Pakistan, and Bangladesh).

Economic growth requires effective participation in global trade and financial markets. Providing access to U.S. consumers and investment from U.S. corporations, as we have done recently in Pakistan, is the first step. To the extent that underdevelopment is at the root of terrorism (and it is by no means the only root), increasing the opportunity for Islamic nations to sell their products in this country and to work for our corporations is vital. Still, such efforts are only a partial response to the problem. The ability both to compete successfully and to use the resulting wealth to enhance human well-being depends on the democratization of Muslim countries and institutions. Although it is true that U.S. policies have not always paid sufficient attention to Muslim interests or sensitivities, there remains little hope for progress, let alone peaceful coexistence, unless Muslim nations themselves come to understand the connection between democracy and prosperity.

Jay R. Mandle is the W. Bradford Wiley Professor of Economics at Colgate University.