Nemat Shafik Interview: Conversations with History; Institute of International Studies, UC Berkeley
Page 3 of 4
Your mission is to address the problems of inequality and poverty in the world. Let's focus on the Arab world as a case in point. I know you've focused on the role of technology in the history of the Arab world and the extent to which the Arab world lost at that game -- in other words, did not match the efforts of other countries. Talk a little about that and how your perspective has changed over time on that problem.
The Arab world is in some ways burdened by a history of enormous technological and economic success in the past. I think part of the malaise in the current period is a sort of bitterness about having lost that. I have come to believe that in some ways one of the biggest problems that the region faces is the fact that it does have oil, and that the existence of that oil has enabled countries to get by by simply extracting resources 
from the ground rather than to having to tap the talents and energies of their population, and so the creation of new knowledge, the creation of new technologies, innovation in terms of production, have taken a back seat to the redistribution of oil rents, which has become the mainstay of many of those economies.
At the heart of your argument in a recent paper you wrote is the notion that society has to be transformed by the introduction of technology. Its politics have to change, its economic institutions, its legal system, its society. And if that doesn't happen, then it will get further and further behind, even though its trade balance might look good because it has a commodity like oil.
Yes, I think that's quite true. The kind of openness to the outside -- in terms of openness to ideas but also to competitive forces that you need to have in a society which is able to effectively use technology -- has not been there for many countries in the region. They still tend to be fairly closed both economically and also in some ways politically. That's changing. One's beginning to see signs of a free press in certain parts of the region. The Internet is a real conundrum, because it's breaking lots of barriers and taboos. But economically the Arab region is still fairly controlled and restricted, so we're not seeing yet the kind of dynamism on the economic side that one would want.
The pillars of the new world are free markets, liberalization, and democratization. If those things don't go together then you get underdevelopment. Now you've pointed out that the Arab world has done pretty well at training the future generation in technology,
in various skills, but there's really a problem of deployment of those resources. Tell us about that.
Yes, it's a great paradox because almost no other region of the developing
world has spent as much on education, in relative terms, as the Arab world,
and so they've made a huge leapfrog in terms of educational attainment levels
in a fairly short period of time, which is a fantastic thing. On the other hand,
because the labor markets have been so distorted, people don't actually get
rewarded for being the most productive. Those talents haven't been used as effectively
as they might. 
And so graduates from many good universities in the region would
rather wait for a civil service job in the government, which will be paid for
by rents and revenues of the state, rather than going out and being entrepreneurial
and doing something outside the public sector. And that has held back a lot
of economic gains in the region.
You also suggested that throughout the history of the region, part of this failure to reach the next plateau in development is related to military expenditures, to the emphasis on national security issues, to external threats which keep the state from moving to the next level in transforming the society.
Very true. Military spending in that part of the world is higher than in anywhere else as a share of GDP, and that eats up resources that could go elsewhere. Perhaps even more troubling, though, is that the consequences of that perpetual fear of conflict, be it regional or internal, in many cases has had a huge negative effect on investment. Private investors, both domestic and foreign, are very reluctant to bank on the future of this region. So the investments that are made tend to be short term and expedient, and no one is willing to commit to the long term because of that perpetual fear of political instability. In some ways, that has imposed an even greater burden on the region than the significant dollars going out to be spent on military hardware.
What is your perspective on how terrorism fits into this equation? It seems to follow logically that if people can't find the roles that a modern society would define for them, given their education, they could fall into the various kinds of traps, with terrorism being one. Is that too simple?
Well it's tough. It's tempting to think that, but I've struggled with this, because one encounters terrorism in fairly rich and open societies like Italy or the UK or France and Germany and so on. Those are all places that have open economies, democratic institutions, and long traditions of tolerance of opposition, and yet you have terrorist groups operating in those countries. So I think it's not so simple.
What economic stagnation and political authoritarianism do create is not so much the terrorists, but the fertile ground on which terrorist seeds can flourish. You'll always have individuals who will have extreme views. But what's really troubling in the region is that there's quite a broad base of society which has some sympathy for the terrorists, not so much because they approve of their methods, but it's a form of protesting against a system which is not delivering for them on the economic or the political front.
How does that argument help you rethink the agenda of the World Bank, or does it? Does it just confirm what you're doing?
In some ways it makes what we do even more important, because unless the world economy can deliver for everybody in the world, we're going to have these kinds of tensions. We recently did a study of the impact of globalization, and it was quite striking. What we found were that countries that had globalized, that had opened themselves up to the world and had increased their share of trade over the last twenty years, grew. Income per capita grew by 5 percent a year over the last twenty years, which is phenomenal. And those countries that had globalized represented three billion of the world's population. But on the other hand, those that hadn't integrated with the rest of the world, who represented two billion of the world's population, had seen their per capita incomes decline by one percent every year. And in some ways that's a wonderful testimony to say, "Ah! You integrate with the world, you're so much better off." On the other hand, it also tells us there are two billion people who are worse off today than they were twenty years ago. Unless we solve that, unless we address that, I think it will not be so much the issue of terrorism but that there are many, many global issues -- be it HIV, be it global warming -- where there will be international spillovers, and the world will not be safe. I think institutions like the World Bank have a critical role to play in making the world system fairer for those who are not benefiting today.
Next page: Lessons Learned