During the 2000s, inequality in Arab countries was low or moderate and, in many cases, declining. Yet there were revolutions in four countries and protests in several others. This so-called inequality puzzle can be explained by noting first that, despite favorable inequality measures, subjective well-being was relatively low and falling sharply, especially for the middle class and in the countries where the uprisings were most intense. Increased unhappiness was associated with dissatisfaction with the quality of public services, the shortage of formal sector jobs, and corruption. These sources of dissatisfaction suggest that the old social contract, under which the government provided jobs, free education and health care, and subsidized food and fuel in return for a subdued population, was broken. The Arab Spring and its aftermath indicate the need for a new social contract under which government promotes private sector jobs and accountability in service delivery and citizens participate actively in the economy and society.
For decades, the Middle East and North Africa (MENA) had been making steady progress in reducing extreme poverty and inequality. Not only did the region reach the United Nations Millennium Development Goals related to poverty and access to infrastructure services, but it made important strides in reducing hunger and child and maternal mortality and increasing school enrollment (Iqbal and Kiendrebeogo 2016). Inequality of opportunity declined in Egypt and some other countries in the region (Hassine 2011; Assaad and others 2015). Income inequality was either constant or declining in most MENA economies and remained moderate by international standards.
Standard development indicators did not capture the growing discontent. Once the uprisings occurred, however, issues of equity and inclusion caught the public eye. Income inequality was cited as one of the factors behind the Egyptian revolution (Hlasny and Verme 2013; Nimeh 2012; Ncube and Anyanwu 2012; Osborn 2011). The idea that income inequality is linked to revolution can be traced to ancient times (Muller 1985). Today, even though it is understood that tolerance for income inequality varies over time and across countries (Hirschman and Rothschild 1973), high income inequality is considered a threat to political stability and potentially harmful to investment, sustainable growth, and progress in human development (Ostry, Berg, Tsangarides 2014; Burger, Ianchovichina, and Rijkers 2015).
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