Facebook Pokes The Islamic World: How The New Middle East Revolution Will Change Our Future (6/8/2011)
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Video Transcript:
Welcome to “Facebook Pokes the Islamic World: How the New Middle East Revolution Will Change Our Future.” I’m Michael Dallas.
There is no question that we live in an increasingly globalized world. Instead of just investing blindly, we need to be smart investors and make our decisions in the context of world events. We need to know what is going on.
In this short video, I am going to take you behind the headlines and explain in a simple and easy to follow way, the remarkable events currently occurring in the Islamic World. I am going to provide you with the context of what is happening, why it’s happening, and what this means to you and me. Toward the end, we will ask the Magic Eight Ball how the future will be changed by these events.
The questions we will ask the Magic Eight Ball are:
Freedom - will the Islamic World become democratic or a new Byzantine Empire?
Radicalism - will radicalism increase or decrease in the future.
Mid East Peace - will that region of the world become more or less peaceful?
Oil - Will there be more or less oil produced in that part of the world?
While this video, obviously, will contain some of my opinions, it primarily is based on the work of preeminent Mid East experts and think tank institutions.
So the first question is, where is the Islamic World? Here’s quick glace at the region. It includes primarily the Mid East and North Africa.
The second question is, Why do we “care” about the Middle East and the Islamic World? There are three reasons. The first is population. By some estimates, there are 1.6 billion Muslims in the world today. This represents 22% of the global population and is only ranked second to Christianity in terms of religious followers.
The second reason is terrorism. It is no secret that most of the international terrorism is generated from that region by Islamic groups. If we are going to “fight terror,” then we need to understanding why some people are motivated to join these groups and what might be done to cultivate peace.
We all know the third reason - Oil. I think we all understand why oil is highly prized and sought after. Currently, oil provides 40% of world’s energy. It is particularly important to transportation providing 96% of the energy for planes, trains, and automobiles. In today’s world, without oil, our economy would stop and our military would cease to function.
The problems are that currently, 75% of the United State’s oil consumption is imported and 70% of the world’s oil reserves are in the Muslim World.. In the next ten years, that fraction will grow to 81%.
Let’s talk about or perceptions. When the media shows us pictures and videos of the Islamic World, they usually start with oppressed looking women, graduate to flag burning, and finish with blown up planes, destroyed buildings, and dead families. For most people, this is our impression of Arabs, Muslims, and the Islamic World. In fact, in my first public workshop, I asked people to give me words that described their perceptions. Here is the list:
Strange clothes
Censorship
Oppression of women
Lack of education
Radical ideology and religion
Fear
Government dominance
You can see that these words are negative and paint a pretty bleak picture. And while there are elements of truth in these perceptions, they don’t really reflect who these people are, what they want, and what they are trying to do. We will come back to this.
So what do these people think about you and me? I found a very remarkable question in a recent Brookings Institute survey. The question asked people throughout the Islamic World what was the thing that they liked about the West? The number one answer was “technology.” The number two answer will shock most people. They said, “democratic values.” What you may not realize is that the people in the Islamic World value freedom and democracy, and they desperately want to be free.
So if they value freedom, and the United States stands for freedom, then why do we see so many pictures of Arabs burning flags? It’s simple. These people do not think that our actions in the region reflect our democratic values. Here are the four top “beefs” that the Arab world has with America, in order of important. This is not my opinion. This list comes from high-quality research in the region.
The number 1 beef is the Iraq War. There is almost a consensus in the region that America should not have attacked or occupied Iraq. The hostility over this is very deep and its widespread.
The number 2 beef is the standing forces in region. How would you feel if you looked down your street and saw Chinese soldiers standing guard? Or if you looked up and saw Chinese airplanes flying overhead? You would not feel like you had control over your home. And that’s exactly how they feel about our military being there..
The number 3 beef is our support Israel. I won’t go into detail. But everyone realizes that there is widespread dissatisfaction with America’s support of Israel in the region.
(break)
The number 4 beef is our “Deals with the devils.” Over the last few decades, the United States has made deals and provided support to a wide variety of dictators who promise to keep the oil flowing. How these dictators behaved or treated their peoples was much less important to us than whether they maintaineda stable flow of oil.
Case in point is Sadaam Hussein. Three decades again, he was a “devil” that we made a deal with. We provided money, arms, intelligence and a whole range of support. In fact, we were more than happy to see him go to war with our so-called “enemy” at the time, Iran. In that war, millions of young Iraqi and Iranian soldiers were killed. We even looked the other way when Iraq used poison gas on the battlefield. It was only after he attacked Kuwait in an attempt to control the world’s oil reserves that Sadaam Hussein became our enemy. And he’s just one example. There are many others.
So let’s look at the governments in the Islamic World. Here is a map which shows the level of freedom for each country around the world. The map goes from freest countries - dark green - to the least free countries - deep maroon. You will notice the Islamic World represents the least free region of globe. In fact, virtually all Islamic countries, except Turkey, are dictatorships. And even though it’s not a perfect match, you can generally see that the countries that have the most oil production are the least free of all.
So how do these dictators keep control of these countries? Well, we usually imagine dictatorship countries as being under marshal law with heavy handed troops patrolling the streets and beating the citizens. While there may an element of this, this is not really the way these dictatorships work. Instead, most of these dictators have “social contract” with the population, which is commonly referred to as “The Bargain.”
“The Bargain” is really quite easy to understand. The dictator promises to provide the population with a wide array of benefits including good jobs, free education, subsidized food, affordable housing, free health care, and other entitlements. In exchange, the population agrees to give up its right to participate in the political life of the country.
The Bargain worked for a long time. But over the last twenty years, two shocks destroyed The Bargain in many countries. The first shock was the plunging oil prices in the late 1980’s early 1990’s. Revenues in the region collapsed. If this were the only shock, things would eventually return to normal as prices returned.
However, the second shock is far more difficult to deal with. Over the last ten years, the Islamic World has experience a huge demographic shift. There has been a massive number of youths entering workforce. If you don’t remember anything else in this video, you need to remember this one thing. The Islamic World is primarily a bunch of hungry kids.
There is a phenomenon that has occurred in almost every region around the world. It happened in the Americas, it happened in Europe and it happened in Asia. It’s easier to understand the phenomenon if we use and example. Let’s go back in time to 1800 in the United States. During that time, the child mortality rate - the rate at which children died before five years old - was about 40%. In other words, the chances that a child died before turning five years old was slightly better than the flip of a coin. To compensate for this high mortality, women would have a lot of children in the hopes that some of them would survive to child bearing age. It was not uncommon for women to have five or six children and to lose three or four.
If you want to see evidence of this mortality rate for yourself, go to an old grave yard and look at the headstones. You will find a lot of headstones for children. Many of them unnamed and just say “Baby” with a date.
But, over time, something very interesting happened. The mortality rate of children dropped significantly. We had better nutrition, vaccines, and better prenatal care. Instead of half of the children dying, virtually all of them survived. However, even though the child mortality rate dropped, the fertility rate remained high - for a while. It’s during this time that you see extremely large families and a huge boom in the population. In every culture that has experienced this, the fertility rate begins to drop until you see smaller families and a leveling off of the population.
Right now, the Islamic World is in a phase where the child mortality rate is low, but the fertility rate is sky high. As a result, the population is booming.
Let me show you the data. Let’s look at type of chart called a “population pyramid.” A population pyramid shows the population of a particular region at a particular time. For example, here is a population pyramid of the United States. It has two sides. On this side is males. On this side is females. The pyramid is organized into age bands starting with the youngest and going to the oldest. For example, this first bar on the bottom left shows the number of girls ages 0-5. The next bar up is 6-10. The next is 11-15 and so on. You will notice that there is a bulge in the pyramid in the 50 to 65 range. These are the “baby boomers.” Also notice that the pyramid is rather straight toward the bottom. This means that the population is growing at a slow rate.
Now let’s look at the population pyramids of five Arab countries - Yemen, Saudi Arabia, Samolia, Iraq, and Pakistan. The pyramids show three different time periods - the years 2000, 2025, and 2050.
Notice that the pyramids have steeply sloping sides. This means that an increasing number of babies are being born each year. If we look at the pyramids over these three time periods, we can see that the population is swelling. Notice how much bigger the pyramids get over time. I also want you to see something very important. Notice how many people there are under 25 years old. If you cover up the ages over 25, you can see the majority of the population is kids. These numbers have some very serious real world implications.
The biggest implication to these numbers is “who” we are dealing with. When we deal with the Arab world, we are not dealing with a bunch of rich, old, bearded guys. We are dealing with a bunch of hungry kids. Here are the statistics:
60% of the workforce under 25 years
A huge fraction of these kids are unemployed - 25% to 30%.
Educational opportunities are extremely limited. Schools and universities are stressed to their limits.
Even for those who are working are not paying the bills. Most youths live on less than $2 per day.
In other words, for a large part of the population, The Bargain is Dead.
The next thing we need to understand is that there are two kinds of countries in the Islamic World - Oil exporting and Non-oil exporting. Here is a list of the exporting countries. And here is list of the non-exporting countries. Now, on the Oil Exporting list, I included all countries that export oil. In reality, most of the countries on this list produce so little oil, that you could move them to the Non-Oil Exporting list. In fact, the top five Oil Exporting Countries sell more oil than all the other countries combined.
So what are some of the important differences between Oil Exporting and Non-Oil Exporting countries?
First, Oil Exporting countries are “eating at the table.” They are the primary beneficiaries of the revenue coming out of the ground. Non-oil Exporting countries are “eating the crumbs.” They benefit from the oil in a secondary fashion. The provide goods and services to the exporting countries but their benefit is only secondary.
Second, the governments of Oil Exporting countries are funded by oil revenues while non-exporting countries fund their governments through taxes. As we know, governments who rely on taxes for their funding tend to be more responsive to the tax paying public.
Third, Oil Exporting countries have far more ability to keep The Bargain than non exporting countries.
Fourth, Oil Exporting countries have more ability to keep the loyalty of the population, the military, their allies, their “friends” such as their oil customers.
This means that the rulers of Oil Exporting countries are more likely to “fight back” against any movements to change the government. Together, these mean that the population is far less likely to topple a dictator in an Oil Exporting country than a Non-Oil Exporting country.
Let’s compare two recent examples - Egypt and Libya. Egypt experienced a relatively peaceful change of government. On the other hand, Libya’s experience has been a violent one. At the time of this video, the conflict is still raging. While there are many factors that cause this difference. Let’s look at the economics. An important issue is the amount of oil exports in relation to the size of the population.
Egypt produces 3.7 mbd. It has a population of 79 million people, which, when divided out equates to a production of about ½ of a barrel of oil per person per day. If we assume that oil is $100 a barrel, that works out to a little less than $50 per person per day.
On the other hand, Libya produces 79 mbd - almost 20 fold more, but has a population of 6.5 million - less than one tenth as many people. If we do the division, we find that Libya produces 12 barrels per person per day. At $100 per barrel, Libya brings in $1200 per per per day.
If we understand these numbers, we might not be as surprised to find that Mubarak left in relative peace while Kadaffi is putting up a vicious fight.
There was a time, not so long ago, that America experience a surge in the twenty-something year old population of young, hungry, and angry people. Do you remember it? We call them “the baby boomers.” Their youthful activism gave us enormous social, political, and cultural changes. It is not unreasonable to think that the youth culture of the Islamic World will do the same for that part of the world. The Beatles sang about Revolution so let’s look at this one.
It’s been said that Revolution = anger + organization + inspiration. We’ve established the anger. However, modern technology has completely changed the opportunities for organization. Historically, social organization in the Islamic World was through religious organizations. Generally, political opposition organizations were not allowed. Imagine what would happened if you tried to start an organization with the purpose of throwing out the local dictator. After a few days, someone would come get you. After you came back beaten or didn’t come back at all, everyone else would learn that political organizations and political discourse were not good for your health.
In that part of the world, gathering at the mosque is a part of daily life. This monopoly on the ability to gather made the religious centers the de facto locations for political discourse. I believe this is why most of the opposition and terrorist groups tend to have a heavy religious overtone.
However, over the last few years, the Internet and social media have completely changed in the model. For example, in Egypt in 2004, there was virtually no Internet use. By 2009, over 25% of the population used the Internet on a daily basis. Sites like Facebook and Twitter allowed many people, for the first time, to freely talk about politics and organize without the threat of violence. While Facebook and Twitter did not cause the revolution, it certainly gave people a way to organize like never before.
The last piece needed for a revolution - inspiration - came from Tunesia on December 17, 2010. A 26 year old college graduate named Mohammed Al Bouazizi set himself on fire in front of a government building. Al Bouazizi set himself on fire in utter desperation after govenment officials continually thwarted his efforts to support his family by selling fruit. The story of his desperation resonated so strongly with the Tunesian people’s frustration, that rioting broke out across the country. A few weeks later, the 24 year regime of President Al Abidine Ben Ali was gone. Here, the president visits the young man in a desperate bid to calm the Tunesian people. The collapse of the Tunesian dictatorship provided additional inspiration and lit the spark for the other protests across the Islamic World.
The next question is, “Is US ready to embrace democracy in the Islamic World?” Well, let’s look at what’s going on. After 9-11, the administration began making a push to democratize the Mid East. One of the results of this effort was the Palestinian elections of 2006. To the chagrin of the United States, a terrorist organization, Hammas, was elected into power. As a result, the world began to believe that democratic rule in the Mid East was not possible. The fear that radical groups would take the election and then never release power. The saying was, “one man, one vote, one time.” However, these fears may not be justified. Recent surveys and public opinion poles in the Middle East show that when religious and radical groups participate in an open political process, they lose their support. In essence, when the politics becomes open, radical groups become obsolete.
As a matter of fact, do yo know why Al Queda was formed in the first place? It was not to attack America. It was to remove Mabarak from power in Egypt. And what Al Queda could not do in twenty years through violence, a peaceful political movement accomplished in a matter of weeks. The fact is that the current revolution in the Mid East is Al Queda’s worst nightmare. The movement highlights the fact that terrorism doesn’t work and the organization is obsolete.
Okay. So back to the question, “Is the U.S. ready to embrace a democratic Islamic World?” Well, in its day-to-day operation, our elected officials have to meet with all kinds of people asking them for favors. Let’s look at who is “talking to the White House.”
The first set of people we see are “kings and princes.” kings and prices of Arabia, kings and princes of Jordan, kings and prices from all over the region. Do you think that any of these people are interested in having elections? Of course not. They have money and power and they are in control.
Who else visits the White House. Well we have the CIA, the military, big oil companies, and big auto companies to name a few. All of these people have an interest in the Middle East. Now do you think the CIA has an interest in elections in the Arab world? Of course not. They have spent decades putting what they call “assets” - or what you and I would call contacts and spies -in place. Having the governments change every few years would make their job a lot harder.
Do you think that the military wants democracy in the Mid East. I would say, “probably not.” The military has positioned ships, planes, equipment, and troops all over the chess board. It is highly likely that if the top leaders of the Mid East were elected by the population, they probably would ask the U.S. to remove its bases, equipment, and troops.
Let’s look at big oil. What does it want? Open oil routes. It’s not interested in dealing with the dynamic change and uncertainty that democracy brings.
The American public? What do they want? They want cheap gasoline. Keep the cheap oil flowing.
All of these people visit the White House on a regular basis.
Now. Who does not visit the White House? This lady doesn’t. This guy doesn’t. In other words, the average citizen living in the Islamic World does not visit the White House. They have little power or few groups representing their interests. Powerful interests put enormous pressure on the United States government is to keep the “status quo” and resist change.
What outcomes are possible or likely? Let’s ask the “Magic Eight Ball.”
Okay. The first question is about Freedom. If you listen to the media, you hear all kinds of predictions. Some people say that the Middle East will quickly democratize. Other people say that the region will reemerge into a new Byzantine Empire.
Does the Magic Eight Ball think there democracy or Byzantine Empire?
The Magic Eight Ball says:
No Byzantine Empire
No full blown democratic reform
Some new democracies
Some reformed dictatorships
In all probability, most of the new democracies will be those countries who are not the major oil exporters. The dictators who do retain control will be those who are able to reduce the “anger” in their populations. They probably will work on ways to share power and to sharpen The Bargain.
The next question is about radicalism. Does the Magic Eight Ball think there will be more radicalism or less? The Magic Eight Ball thinks that radicalism will decrease. As venues such as Facebook open up freedom of speech, people with moderate political views can come forward. As this “silent majority” get a voice, extremism will become more and more marginalized. The oppression of speech and free government has been the catalyst of the extremist movement.
The next question is about Mid East Peace. Does the Magic Eight Ball think the Middle East will be more peaceful or less peaceful? The Magic Eight Ball thinks the Middle East will be more peaceful. This is tricky question. Just because the Islamic World is moving toward democratic values and institutions doesn’t automatically mean more peace. Remember, our nation went to civil war because of an election and Adolf Hitler came to power in an election. Nevertheless, there is a tremendous amount to be gained for everyone if peaceful solutions can be found.
The next questions is about oil. Does the Magic Eight Ball think there will be more oil production or less oil production. The Magic Eight Ball thinks there will be more oil production. Whether a country goes democratic or stays a dictatorship, there is pressure on all Mid East countries to provide more benefits to the citizens. This is going to take increased revenues. That means there will be tremendous pressure to open the taps and produce as much oil as possible.
So what are my opinions about America’s role in the Middle East?
First, we should not make the movement toward freedom “from America.” Bush’s push for democracy failed not because they were against democracy, but because they just didn’t want America meddling in their affairs.
Second, we should avoid trying to “engineer the outcome.” We cannot and should not lead or try to nullify election results. Let me ask you a question. Has America ever elected crummy leaders? They most certainly will do the same. We need to let them make their own mistakes.
Third, we should support all peaceful movement toward freedom and democracy.
Fourth, we need to embrace “the new generation.” Remember that 60% of the population is under 30.
So much for the politics, let’s get down to what we need to be doing. How should we invest?
First, we need to expect foreign oil supplies to become more volatile and less reliable. Even if oil supplies are not disrupted outright, the possibility of disruption will continue to increase. In the very short term, oil may be more or less expensive than it is now. However, as these countries democratize and reorganize, our ability to tap these supplies will be much less certain.
Second, we need to realize that there are other energy alternatives to basing our economic growth on imported oil. Taping domestic energy sources will require large capital investment and may be more expensive in the short term. But ultimately, our economy will adjust and continue to grow without relying on imported oil. We need to invest our portfolio so that we maximize our returns during this transition phase.
Third, don’t worry. They sky is not falling. The world is changing but everything will be okay.
We’re in this together. I’m Michael Dallas.