Across the Arab world, revolts are toppling not just tyrants but economic systems. Tunisia, Egypt, probably Libya and Yemen, and possibly others will now have a chance to start with a clean slate, just as the former communist bloc did 20 years ago. So what should they do?
Though it may be tempting to introduce wholesale changes in policies and personnel, these new governments should use stability in business to underpin political change. Sudden moves in economic policy introduce uncertainty and disrupt long-term commercial relationships, discouraging investment and hampering exports. Shifting policies gradually and with forewarning – especially when these policies affect consumers directly, as in the case of subsidies for food or energy – minimises dislocations.
For example, when Luiz Inácio Lula da Silva, a trade unionist, became president of Brazil, he quieted market fears by signalling continuity in economic policy. In much the same way a country like Tunisia, which by some measures has better economic policies than several European Union nations, can ensure investment continues to flow by showing that these policies will be largely preserved.
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