Is Governance a Prerequisite for Democracy? Insights from the Middle East

Democracy in the Middle East has been in the spotlight of the world media for a number of years now. Along with the ever growing international debate on the importance of democratizing political systems around the globe, questions such as how seriously the Arab countries take the calls to adopt real democratic practices and how far they have gone in implementing political reforms continue to arise. While some signs of change have apparently emerged, these questions remain difficult to answer, even for practitioners in the field. In a broad sense, democratic societies are defined by the adoption of political practices such as public debate, expression, freedom of speech, elections, representation, transparency and accountability, as well as consensus building and active decision making. However, a broader definition of democracy also encompasses attributes of economic democracy such as economic justice, property rights, freedom of contract, broad access to information and education and poverty reduction (Norris, 1999). This view is strengthened by the correlation between political democracy, economic freedom, governance, and the private sphere. In fact, it is said that the institutionalization of economic reform and corporate governance around the world is one of the fundamental challenges of promoting democracy and economic stability. A link has also been identified between democracy and economic growth, especially when proper governance mechanisms are prevalent (Doucouliagos and Ulubasoglu, 2008; Rivera-Batiz, 2002). Focusing on the economic, financial market development and governance aspects of these issues, this paper further explores and endeavors to identify and shed light on some of the reforms being introduced in the region that are expected to pave the way to deeper democratic reforms. In particular, the paper attempts to answer the following questions: (1) What types of reforms are being undertaken? ; (2) How do these reforms relate to democratization? ; and (3) How would they eventually trigger the need for reforms at the political level? The answers to these questions take into consideration that the transition to democracy is not easy or fast and that the road chosen to introduce and implement democratic and political reform varies across countries. However, certain prerequisites, such as a strong will at the authority level and awareness of the need for and the importance of such reforms at both the ruling and public levels, remain the common ground for any move in this direction anywhere in the world. The commitment of politicians and policymakers, the motivation of government employees, the introduction of entrepreneurship and dynamism by profit-seeking risk takers and the implementation of a democratic process for citizens are crucial for reform implementation (Laurila and Singh, 2000). In fact, a closer look at the Arab countries suggests that many of their ruling elite show a will to forego some of their power over economic interests and encourage the participation of the private sector and citizens in the process of wealth creation, consequently alleviating poverty problems. This is being progressively achieved through both the privatization programs that are currently in progress in a number of the Arab countries and the continuous development of the region's financial markets. The countries of the region also seem eager to liberalize and expand their economies and markets and attract international capital flows. As much as these markets appeal to international investors, the achievement of these ends and the ability to sustain them place regulators under pressure to establish well-governed financial markets. Consequently, a culture of sound corporate governance, where shareholders ensure that they are treated equally, their rights are respected, their best interests are pursued by directors and managers and transparency and disclosure rules are imposed, will gradually emerge among all market participants. Citizens will come to realize that their rights as shareholders in companies are to a large extent equivalent to their rights as nationals in their countries. This is in line with Gompers, Ishii, and Metrick's (2003) description of companies as republics where the rights of shareholders mirror those of citizens in their nations and where the fiduciary duties of boards of directors and managers, respectively, resemble to a great extent those of parliamentary members and ministers. Thus, citizens will learn to adopt an active, rather than a passive, role in their countries. Consequently, an awareness of democratic practices will become prevalent among the communities of the Arab countries. These include the right to elect representatives who are accountable for acting according to the will of the people and responsible for delegating decisions to ministers and examining the performance of the government. In reference to Gompers, Ishii and Metrick's (2003) argument, an environment in which citizens have the power to hold ministers and governmental authorities accountable and to replace them when necessary is regarded as a democracy. In such a setting, citizens would also press to be allowed to express their opinions freely; have access to transparent information on the activities of the authorities, the government and the public institutions; and impose disciplinary actions on corrupt behaviors. In the Gulf Cooperation Council (GCC) countries, improvements at the public level have already started to take effect. According to the World Bank, regulatory quality and control of corruption are two aspects of public governance that have particularly improved. Over the past decade (1996-2006), the two measures respectively increased from averages of 0.44 and 0.11 to averages of 0.54 and 0.69 for the GCC countries (Kaufmann, Kraay and Mastruzzi, 2007). The paper is organized as follows: the next section starts by presenting the factors that have slowed the transition to more democratic regimes in the Middle East; section III sheds light on the political reforms undertaken in the recent past. Section IV provides insights into the drive towards economic reform and financial market development and presents arguments on the relation between these moves and democratic change, while section V focuses on the impact of liberalization and corporate governance. In section VI, we present arguments on the need to introduce democratic reforms in order to sustain economic growth, and section VII concludes the paper.