TO SUCCEED in its Middle East policy of promoting democracy, peace and regional stability, the U.S. government (with the support of America's private sector) must bring economic prosperity to this troubled region. After years of dismal economic performance and high population growth, unemployment in many of these countries is around 20 percent. As things stand, there is little hope for a better economic future for the youth of the region. Unemployment and economic despair have become the order of the day, and this, along with rampant corruption, breeds resentment and extremism. To turn the unemployment picture around, most countries will need sustained annual growth in excess of 7 percent.
Foreign financial assistance and oil revenues will not translate into economic growth. The Middle East has been the world's worst economic performing region over the last 25 years. This is all the more surprising because a number of countries in this region have received an enormous transfer of wealth in the form of oil revenues. While the natural resource endowment should have enhanced economic development prospects, vast oil and gas deposits have in practice done the opposite in the Middle East.
Between 1975 and 2000, Middle Eastern oil exporters received well over $2.3 trillion in aggregate oil export revenues. One would expect the Middle East to have enjoyed an economic boom. Yet most countries in the region have had poor economic performance with low and even negative real GDP per capita growth rates over the last thirty years--Bahrain at 3 percent, Iran at -16 percent; Kuwait at -30 percent; Saudi Arabia at -31 percent and the United Arab Emirates (UAE) at a whopping -105 percent. Oil has been a crutch for the region, enabling governments to put off painful but necessary economic decisions.
