150619 ISNIE by FBA Final Version - Fahmi Ben Abdelkader

A popular uprising within an “economic miracle”: An institutional analysis of the Tunisian spring. 7/8/2015 10:23 PM. 1. Claude Ménard. Centre d'Economie de la ...
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ISNIE June 18-20, 2015

A popular uprising within an “economic miracle”: An institutional analysis of the Tunisian spring

Claude Ménard Centre d’Economie de la Sorbonne Fahmi Ben-Abdelkader ESCP Europe

7/8/2015 10:23 PM

1

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Why Tunisia? Tunisia as a laboratory for understanding the logic of limited access orders The regime of Ben Ali provides an illustration of the limited access order

Tunisia has been - and remains - at the forefront of the “Arab Spring” Can help to understand institutional systems in other Arab countries and the difficulties that transition from limited access to open access engenders

An opportunity to explore data that was previously inaccessible to the public

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

2

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

A popular upsurge within an “economic miracle”

Paradox: A popular uprising that happened in what was considered an “economic miracle”

« The economic policy adopted here is a sound policy and is the best example to follow by several developing countries » Dominique Strauss-Kahn, Managing Director of the IMF Tunis, November 18, 2008

« Thanks to the sound policies implemented over the years, Tunisia will face the economic crisis with solid fundamentals » IMF (2009)

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

3

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

The economic miracle under Ben Ali: myth or reality ? (1) GDP per capita (US $) of 8 MENA countries (non-oil producing countries, middle income) 5000 Tunisia 4500

Egypt

4000

Ben Ali 1987

Jordan

The annual average growth rate close to 5% from 1987 to 2010

Mauritania

3500

Morocco 3000

Sudan

Moubarak 1981

Syria

2500

Yemen

Al-Assad 1970

2000 1500 1000

0

1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

500

Source : Authors’ calculations based on WDI database (US $) 7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

4

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

The economic miracle under Ben Ali: myth or reality ? (2) Poverty and Inequality Measures Comparatively very low rate of population under threshold of poverty (absolute: 0.4 %; relative: 1.14% in 2010) Gini coefficient index: from 43.4 in 1985 to 36 in 2010 Country

Gini coefficient

Year estimation

Spain

35

2000

Tunisia

36

2010

Italy

36

2000

USA

41

2000

Mexico

47

2010

Nigeria

49

2010

Chile

52

2009

Brazil

54

2009

South Africa

63

2009

Source : WDI database (US $) 7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

5

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

The Tunisian economic miracle under Ben Ali: myth or reality ?

Yémen

Algérie

Arabie Saoudite

0,46

0,71

0,77

0,79

0,81 0,74 0,57 0,78 0,77 0,72 0,827 0,71

IDH non monétaire Espérance de vie à la naissance, total (années)

0,74 0,69 0,76 74,6 70,5 73,4

0,76 79,3

0,60 70,2

0,69 74,9

0,47 62,5

0,75 70,6

0,77 75,1

0,80 76,3

0,78 0,76 0,61 0,72 0,78 0,69 0,759 0,72 76,6 73,1 68,8 74,2 74,8 76,0 78,1 73,5

Santé

Taux de mortalité infantile (pour 1 000 naissances vivantes)

15,0 19,6 17,3

8,7

28,8

13,1

49,2

18,4

8,5

8,6

7,5 16,5 29,7 9,7 14,5 10,3

6,9 16,6

Dépenses en santé, publiques (% des dépenses du gouvernement)

13,3

5,6 19,5

9,1

6,5

5,6

4,3

8,9

5,7

9,1

9,3 13,4 4,8 5,2

4,2

6,7

5,1

8,0

1,9

5,7

2,8

2,1

1,6

1,3

3,3

2,6

3,0

2,2 2,8 2,3 2,2

2,3

2,3

1,6

2,6

79,1 72,0 92,6

..

..

..

..

..

..

94,6

92,2

94,4

99,1

82,4

99,0

91,9

..

29 678 265 333

..

Dépenses en santé, publiques (% du PIB)

3,8

Taux d’alphabétisation, total des adultes (% des personnes âgées de 15 ans et plus) Total des inscriptions à l’école, primaire (% net) Enfants n’allant pas à l’école primaire Inscription à l’école, primaire, privée (% du total d’élèves au primaire) Education Inscription à l’école, secondaire, privée (% du total d’élèves au secondaire) Inscriptions à l’école, primaire (% net) Population active avec une éducation supérieure (% du total) Dépenses publiques en éducation (% du PIB) Dépenses publiques en éducation, total (% des dépenses du gouvernement) Ratio de jeunes filles/garçons alphabétisés (% des 15 à 24 ans) Egalité Ratio femmes/hommes des inscriptions dans l’enseignement Homme supérieur. femme Rapport femmes/hommes dans le taux de participation à la population active (%) (estimation modélisée OIT) 7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

99,8 1 981

.. 97,4 ..

21 409

34 930 197 977 18 600 656 001

Iraq

Iran ..

Oman

Syrie 0,64

Libye

Maroc 0,58

Koweït

Liban 0,74

Bahreïn Émirats arabes

Jordanie

0,71 0,66 0,69

Egypte

Indicateur de développement humain (IDH)

Tunisie IDH

Qatar Moyenne MENA

(3) Human Development Indicators

..

..

..

.. 86,9 96,3 86,9

96,0 99,8

..

..

..

..

.. 95,2

..

..

..

..

..

11 699

11 891

2,1

.. 33,1

72,7

10,8

4,2

4,0

0,1

9,2

31,1

71,7 7,2

.. 39,2

..

.. 55,5 26,2

4,8

.. 18,6

59,6

..

3,9

3,5

0,1

..

21,2

56,2 10,5

.. 31,5

..

.. 38,6 22,6

99,1

.. 97,4

90,6

93,9

93,1

81,8

97,3

91,9

..

88,0 99,7

..

..

..

..

.. 93,3

18,2 18,8 26,3

..

9,1

..

8,3

..

..

9,8

..

..

..

..

..

.. 15,1

..

6,2

..

..

1,7

..

..

..

..

..

..

.. 4,3

..

..

..

..

..

20,1

..

..

5,5

..

..

..

..

..

..

.. 17,1

..

..

..

..

.. 14,2

97,8 93,1 100,0

..

..

..

..

..

..

98,9

..

..

..

..

.. 100,8 102,0 98,8

150,0 90,8 112,8 103,7

89,1

88,1

43,8 144,4 116,6 157,5

.. 99,2

..

..

.. 142,5 549,5 145,2

34,2

18,2

34,8

35,5 31,4 23,0

31,4

20,5

23,6

45,1

4,0

51,6 22,3 20,9 52,0 39,2 34,8 52,8 33,6

Source : WDI database ISNIE, Harvard Law School, June 18-20, 2015

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Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

The Tunisian economic miracle under Ben Ali: myth or reality ?

To sum up: The Tunisian economic miracle is not a myth Economic and human indicators have been inadequate neither to anticipate nor to explain the popular uprising The determinants of the popular uprising can not be exclusively based on economic factors We need to extend our analysis to political liberties as well as social and economic opportunities

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

7

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Research question and hypothesis

Research question Puzzle # 1: A limited access society compatible with sustained growth: How is it possible? Puzzle # 2: If it so, why the brutal change?

Hypothesis The popular uprising in Tunisia cannot be explained by an economic crisis nor by shocking inequalities with respect to monetary or human development indicators such as level of absolute poverty or access to education and health Sources are to be found in institutional arrangements that explain simultaneously the economic success and the political failure of the Ben Ali regime A clan-based structure of the political power

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

8

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Social order and the key problem of violence North et al., 2013: tow major types of regulation of human interactions within societies:

Limited access orders (LAO)

Open access orders (OAO)

Control of violence

Controlled by the dominant coalition of elites: creation and distribution of rents

Controlled by perpetual lived organizations: legitimate capacity of violence

Access to power & organisations

Limited access and discretionary allocation of resources and rents

Open access, with competition (erosion of rents)

Nature of institutional arrangements

(preponderance of ) Personal-based arrangements

Impersonal-based Institutions (not attached to individual or to exclusive group)

Most developing countries are LAO (North et al., 2013) Development process = institutional transition from limited to open social order 7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

9

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Social order and violence: the Tunisian case The institutional foundations of Tunisian social order

Limited access orders (LAO)

Control of violence

Controlled by the dominant coalition of elites: creation and distribution of rents

Access to power & organisations

Limited access and discretionary allocation of resources and rents

Tunisian social order under Ben Ali

Powerful security apparatus built and captured by Ben Ali Political and economic bargaining Institutional barriers and neutralization of governance systems Tailored competition

Nature of institutional arrangements

(preponderance of ) Personal-based arrangements

Clan-based structure of economic and political power But existence of the rule of law

Tunisia is a mature LAO

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

10

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 1: LAO compatible with sustained growth: How is it possible? Key factor 1: Political stability (control of violence) No credible political competitor threatening the Ben-Ali regime (repressive policy, weak collective action/organizations, monopoly over information, etc.) A solid clan-based structure of the power at the highest level of the hierarchy Weak political risk Key factor 2: Favorable business environment (access to rents/economic opportunities) Access limited to coalition members, but extended incentives and facilities (administration, taxes, etc.) Rules of law (security of transactions and contracts, property rights) although with restrictions for political reasons Highly educated workforce Incentives to invest and sufficient conditions for markets to work Key factor 3: Proactive state capitalism (relationships among actors) Usage of state institutions to create and distribute rents Highly trained civil servants and relatively efficient administration ‘Liberalization’ tailored according to political goals Resilience to economic shocks 7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

11

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 1: LAO compatible with sustained growth: How is it possible?

Institutional arrangements that, notwithstanding inefficiencies, create a level of confidence for a selected but relatively large number of investors

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

12

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 2: Why the brutal change? The key determinants of the collapse Dynamic perspective of the Tunisian social order: From largely inclusive (1987-2004) to predatory (2004-2010) LAO

1987

1992

The “medical” coup d’Etat of Ben-Ali

Marriage with Leila Trabelsi

1994

2002

Liberalization program

A constitutional referendum: unlimited number of five-year terms and amended upper age limit

2004 Ben Ali re-elected for a forth term (94% of the vote)

Ben-Ali has a monopoly and exclusive power over the creation and distribution of economic and political opportunities

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

2009

ISNIE, Harvard Law School, June 18-20, 2015

2010

Ben Ali re-elected The popular for a fifth term uprising (89% of the vote)

Ben-Ali has lost the exclusive power in favor of newly powerful members of the TrabelsiBen-Ali family

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Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 2: Why the brutal change? The key determinants of the collapse From largely inclusive (1987-2004) to predatory (2004-2010) LAO 1987

2004

Ben Ali I

Ben-Ali has a monopoly and exclusive power over the creation and distribution of economic and political opportunities

Ben Ali II

2010

Ben-Ali has lost the exclusive power in favor of newly powerful members of the Trabelsi-Ben-Ali family

Ben Ali: sole supplier of rents

Multiplication of suppliers: the emergence of a multi-polar clan

Discretionary allocation of rents based on allegiance to the dominant clan

Weakening of redistributive capacity

A relatively large and inclusive coalition: generalized bargaining system (rents in exchange of political support)

Narrowing of the coalition and exclusion of an increasing number of members

Ben-Ali as coordinator of private interests with a national development perspective

Uncoordinated interests and personal strategies: aggressive competition among family members to capture rents

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

14

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 2: Why the brutal change? The key determinants of the collapse From rent-seeking to spoliation: some key mechanisms as perceived by the business community

Menard and Chekir (2013) Barriers to private firm dynamism in Tunisia: a qualititaive approach. Workd Bank mimeo.

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

15

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 2: Why the brutal change? The key determinants of the collapse Evidence of state capture and tailored liberalization Under Ben-Ali II, 25 decrees introduced obliging preliminary authorization for 45 different sectors and imposing extra-restrictions for FDI in 28 sectors, all sectors under the control of the Ben-Ali—Trabelsi clan.

Source : Rijkers et al. (2014), All in the Family. State Capture in Tunisia. Policy Research Working Paper 6810: The World Bank.

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

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Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 2: why the brutal change? The key determinants of the collapse Evidence of rent capture 220 connected firms (‘Commission de Confiscation’)

Source : Rijkers et al. (2014), All in the Family. State Capture in Tunisia. Policy Research Working Paper 6810: The World Bank.

In 2010, connected firms represented less than 1 % of private employment but captures over 20 % of net profits 7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

17

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Puzzle # 2: Why the brutal change? The key determinants of the collapse The bottom line: The exacerbation of clan-based arrangements and spoliation during Ben Ali II has gradually destroyed the confidence generated under Ben-Ali I The logic of rent-seeking impacted economic competitiveness Spoliation destroyed incentives for investment « Remain small to remain out of the radar of predators »

Misappropriation of a substantial chunk of national resources (est. 5 billion Tunisian dinars = ~ $ 3 bn)

Generalized perception of unfair rules of the game, with the exclusion/disengagement of an increasing number of members of previous “grand” coalition From coordination to fight: VIOLENCE became a viable option

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

18

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Main conclusions

Ben Ali maintained social equilibrium, creating stability and minimum conditions for economic growth Economic success was the cornerstone of the Ben-Ali strategy to perpetuate itself

Nevertheless, given the absence of systematic guarantees on property rights and contracts, markets will generate fewer investments and economic opportunities than they would if every actor had confidence in the long-term security of its contracts and rights

The solution to violence provided by the LAO (creation and allocation of rents) is part of the development problem

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

19

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Theoretical implications

A powerful and stable government could create “some” confidence and conditions for economic growth Nevertheless, for sustainable economic development to occur, the power of government must be restrained to preclude an abuse of power and the repeal of individual rights

Personal-based arrangements are likely to produce stability only for a short period and confidence only at a limited scale … only impersonal-based institutions can generate sustainable stability and confidence

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

20

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

What is to be done?

There is no magic formula Development remains a complex process Every country needs to create its own model

Our perspective: create conditions for: Perpetual state + monopoly of legitimate coercive power Political and economic competition to erode rents and privileges Impersonal institutions (→ stable expectations and systematic confidence)

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

21

Motivation & Stylized facts Question & Hypothesis Theoretical background Analytical framework Conclusions & implications

Practical implications and avenues for future research

The current challenges to Tunisian transition from limited to open access order

The persistence of rent-seeking practices The persistence of institutional barriers that protected the few at the expense of many The omnipotence of the state administration in the economy

Hypothesis: The persistence of the Ben-Ali legacy and the perverse effects of the bargaining system which involved a substantial part of the population in the “rent market”

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

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We welcome your suggestions and comments

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

23

Additional comments about the Tunisian uprising

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

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Loss of monopoly over information –the ‘internet’ factor in the case of Tunisia and more generally the “Arab spring” – and the development of alternative collective actions

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

25

(Relatively) Peaceful popular uprising

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

26

The key role of women

7/8/2015 10:23 PM

Claude Ménard & Fahmi Ben Abdelkader

ISNIE, Harvard Law School, June 18-20, 2015

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