Democracy is the best way we know to choose leaders. Where individuals offering alternative visions or policies compete fairly and honestly for leadership, governments are regularly refreshed and cleansed of corruption. And of course, true democracy is about much more than elections. It involves the rule of law, political pluralism, and respect for civil rights.

The lack of democracy in the Middle East, and the problems that causes, are well-documented. Hereditary monarchs and military dictators dominate governments throughout the region. Their non-democratic governments tend to abuse human rights and suppress fundamental freedoms that Americans regard as unalienable rights. In the Middle East, only Israel is a democracy in the way that word is understood and practiced in the West.

It is no surprise, then, that citizens of Tunisia and Egypt have taken to the streets demanding more democratic forms of government. That demand is one that we, as Americans, cannot fail to support. Still, we need to be clear that while the lack of democracy in the Middle East is a serious problem, it is not the only—or even the most serious—problem. The real issue in the Middle East is the relationship between the rulers and the ruled. Replacing Hosni Mubarak with Mohammed ElBaradei or any other leader, whether democratically elected or not, will do little to improve the lot of ordinary Egyptians. As long as Egypt has an economic system in which citizens depend on the government to provide food, shelter, and other basic commodities, it will make little difference who is distributing the meager handouts government can provide. Replacing one “father figure” with another does not constitute real change.

In the annual Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal, Egypt ranks only 96th out of 179 countries and just 11th out of the 17 Middle Eastern countries graded in the Index. Its economy is considered mostly unfree. It’s hard to start a business, the labor market is rigid, the government controls the prices of most commodities, inflation is high, property rights are widely ignored, and corruption is rampant. Government expenditures account for more than a third of all economic activity, and unemployment remains high.

Democratic elections will not change these facts of life for Egyptians.
Economic Freedom Is the Real Agent of Change

Americans are keen to promote democratic principles around the world these days, and there is nothing wrong with that, but in countries like Egypt and Tunisia, it is our capitalist, free enterprise system that would do more to liberate average citizens. Democracy empowers citizens once a year to vote for new leaders. Economic freedom, by contrast, empowers citizens every day of the year to decide where and how much to work, to trade as they wish, and to freely undertake those activities of commerce they deem best to improve their lives.

Democracy may help make people secure in their basic human rights (though there are far too many examples of despotic regimes installed via a free electoral process). Economic freedom, by contrast, helps make people more secure in their livelihoods and, most significantly, reduces the overall power and influence of governments on their lives. Citizens who need little from their governments are far more capable of standing up for themselves than those whose very survival may depend on a daily ration or a monthly welfare payment.

Much of the debate about developments in Egypt has emphasized the difficulty of charting a proper course for American diplomacy. Much of that difficulty arises because we are debating various ways to influence political developments, something that, ultimately, we have little ability or even right to do. A surer policy would be to promote economic openness and free enterprise. The very concepts of economic freedom lack any element of the coercion that can make political interference so obnoxious. We have a great model in our own capitalist economy, already envied throughout the world. When we offer economic engagement, we are offering economic opportunity, and that, even more than democratic elections or new government leaders, is what will bring positive change to the Middle East.

“Confronting Egypt is a festering economic crisis that threatens to shatter that nation’s [already] fragile social peace and alter political orientation. For too many years Cairo has postponed sorely needed structural economic reforms.” These words are a somber assessment given to Egypt’s lack of institutional reform by The Heritage Foundation 25 years ago.

Echoing a similar message, Hernando De Soto, one of the furthermost authorities on analyzing the critical linkage between property rights and economic development, has compellingly articulated in his powerful op-ed:

Bringing the majority of Egypt’s people into an open legal system is what will break Egypt’s economic apartheid. Empowering the poor begins with the legal system awarding clear property rights to the $400 billion-plus of assets that we found they had created. This would unlock an amount of capital hundreds of times greater than foreign direct investment and what Egypt receives in foreign aid.

Leaders and governments may change and more democracy might come to Egypt. But unless its existing legal institutions are reformed to allow economic growth from the bottom up, the aspirations for a better life that are motivating so many demonstrating in the streets will remain unfulfilled.

Indeed, property rights anchored in the independence, transparency, and effectiveness of the judicial system are a key determinant of economic growth and development. In other words, capital accumulation over long periods of time can occur only where effective protection of property rights is provided. This relationship is confirmed in The Heritage Foundation’s Index of Economic Freedom. As shown in the chart, property rights and economic prosperity go hand in hand. On average, GDP per capita is over 10 times higher in nations with the strongest property rights than in those with the weakest property rights.

The facts are clear: Strong protection of property rights has proven to be the most effective means for unlocking “economic growth from the bottom up.”