Egypt And Israel: A New Economic Future On The Horizon?

Ready to move out of the fields? i i

Ready to move out of the fields? Khaled Desouki /Getty Images hide caption

itoggle caption Khaled Desouki /Getty Images
Ready to move out of the fields?

Ready to move out of the fields?

Khaled Desouki /Getty Images

I too wept on February 11, 2011 as a wise youth movement in Egypt swept toward democracy. We all know we may be at a historic turning point, both in the Middle East and, perhaps, beyond.

But that high hope may totter and fail in the face of the 30 percent of the Egyptian population living in poverty. Should Egypt achieve the democracy many of them hope for, it will not alone suffice to erase poverty. Bitterness and instability may result.

This is a seizable moment, and the seizing needs to be done by Egypt and Israel together to move towards a joint supracritical regional economy that may then flower in the Middle East and lift the entire region.

There is small help in looking to the World Bank and International Monetary Fund. These institutions, whose theory of economic growth remains persistently based on a SINGLE SECTOR model of the economy and a macroeconomic theory of human capital, capital, savings and investments, are stubbornly blind to the fact that a SUPRACRITICAL ECONOMIC WEB — hence far beyond the conceptual reach of any single sector model — is almost certainly a necessary condition for autocatalytic economic growth with a new eye towards sustainability.

To review: I lived in Alberta while at the University of Calgary for five years, ending in 2010. Alberta is the richest province in Canada, thanks to oil. Alberta exports oil, wheat, beef and lumber products. Despite its wealth, it DOES NOT create a supracritical, autocatalytic, ever-growing diversity of goods, services, and production capacities. The global economy IS supracritical and drives the supracritical growth of the world's economic web that sustains us, albeit with wobbles.

The existence in reality of sub and supracritical economies is not imagination, it is a fact of the world not to be ignored.

In my previous post I discussed a simple two dimensional coordinate system. On the X axis plot the diversity of goods that are renewable resources of an economy. On the Y axis plot the diversity of production technologies. Ignore imports for the moment that can augment renewable resources and production technologies. Intuition and now theorems establish that an hyperbolic curve in this space separates regions below that curve — hence on the side of the curve that includes the Origin of the X,Y coordinate system, where the economy is subcritical. Alberta is an example. Its wealth alone will not do the job of creating autocatalytic growth of its economic web. It is trapped subcritical, exporting oil, beef, wheat and timber products.

Above the curve, the economic web CAN grow in an autocatalytic self-generating supracritical diversity of goods, production functions, and self-generated wealth. Education and capital are needed among additional factors that need to be understood.

Ricardo Hausmann, now at Harvard's Kennedy School and past Finance Minister of Venezuela has, as I posted before, shown in cross country comparisons, that these ideas are almost certainly right.

There is a critical implication of the X,Y plot. Each of two countries can be subcritical, but if they unite their diversity of renewable resources and production capacities they can make the magical transition to supracritical growth. The EU is supracritical. Wales alone would not be.

The two regional economic powers in the Middle East most likely to make this transition are Israel and Egypt. (Israel may already be supracritical, Egypt may be nearly so.)

Israel, living with the memory of the Holocaust, fears an Egypt tipping to Islamic fundamentalism. The youth movement in Egypt, Tunisia, and forming acrss the Middle East even now, wants democracy. They also care about the Palestinians. It is morally, economically and politically in the interest of Israel to help drive economic growth in Egypt. Were the 30 perecent of the Egyptian population in poverty to become embittered, movement towards an Islamic theocracy like that in Iran would be more, not less, likely.

It is in the interest of Egypt to build on a chilly 30 years of peace with Israel under Mubarak, to genuine human and economic co-creativity. What wonders the two together might do for themselves and the Middle East, economically and politically.

But there is a further deep cultural issue. Israel was born of European roots and is still Western in its culture. Egypt has a 4,000 year culture of its own. As we move towards a poly-centric interacting world of our diverse civilizations, Egypt and the Arab world almost surely wish to enter the 21st Century, but by evolving and inventing their own ways, not that of the West.

As the Middle East may do so, co-mingled with Western Israel, what marvels may they create with one another that we too can share?

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