All across the Middle East, authoritarian leaders’ legitimacy has been eroded by their inability to provide what their people need and want. The uprising that erupted in Tunisia a year ago and swept across the region took most governments, experts, and international organizations by surprise. The former rulers of Tunisia, Egypt, and Libya have been deposed. Syria and Yemen are embattled. And the remaining Arab countries, in response to mass protests and dissatisfaction, and in the hopes of avoiding the revolutionary winds, are making political concessions and offering handouts to their people.

 All of this reflects a fundamental breakdown of the authoritarian model. Rulers must revamp their systems’ incentive schemes and source of legitimacy if they hope to survive.

For a long time, the authoritarian bargain model explained the dynamics in the region and its resilience to change. Authoritarian regimes, according to the model, split state resources between repressing opponents and rewarding supporters. They implemented economic and social policies through which they channeled benefits to their constituencies. The people would accept authoritarianism in return for political stability and economic and social well-being.

Some policies, such as land reform, the nationalization of private assets, or the privatization of state-owned assets, altered the social balance of power by changing the structure of property rights. Other policies granted recurrent flows of benefits to the whole population (such as universal consumption subsidies and free public health and education) or to specific segments (through welfare programs, trade protections, guaranteed lifetime jobs to civil servants, cheap credits to industries, and subsidies for farmers). To deliver benefits to the educated elite and urban dwellers, and to secure their loyalty to the authoritarian rulers, the regimes created a large bureaucracy and adopted explicit or implicit job guarantee schemes with generous wages and other nonwage benefits. This led to substantial expansion of public sector employment.

Such policies long offered a strong social base of support for authoritarian regimes in the Arab region. Whenever budget constraints came into sight, the regimes would make careful trade-offs to preserve their resilience. Austerity measures were targeted at specific segments of the population, generally the weakest economically and the least vocal. Sporadically, the regimes granted some degree of freedom and political rights to avert radical uprisings and secure their own survival.

Yet, from its early days, the authoritarian bargain faced opposition. It was challenged both by those who never accepted the terms of the “agreement” and refused to trade freedom for bread and by the crowds that occasionally took the streets to express their anger and dissatisfaction with their government. In response, the authoritarian rulers developed repressive strategies to deter potential dissidents, contain their influence, and punish them. They employed exceptional procedures and legal provisions stipulated by emergency and antiterrorism laws and regulations.

Until recently, this system worked, by and large. The Arab regimes seemed to maintain a significant level of political stability and secure sufficient support. Over the past six years, their economies expanded at relatively higher economic growth rates compared to the 1990s, and most of them seemed to have had curbed the impact of the international economic crisis.

The recent uprisings, however, have shown that the stability was merely a facade and have called the foundations of the prevailing authoritarian bargain into question. Two nonexclusive arguments seem to plausibly explain this historical shift.

First, the authoritarian regimes violated the terms of the old bargain and did not offer any credible or viable alternative. It all started when authoritarian rulers slashed or stopped providing economic benefits to large segments of their traditional supporters. The regimes gradually shifted their core social base from the masses of workers, peasants, and civil servants to a minority of influential urban rent-seeking bourgeoisie and rural landed elite. They built new networks of patronage through privatization and other private-sector-related policies.

Rapid demographic growth and massive increases in the educated jobless over the past decade have posed severe dilemmas for the regimes. Although the rulers managed to achieve some economic growth in recent years, inequality and social exclusion have been on the rise.

The inability of the authoritarian regimes to buy loyalty and obedience of large segments of their populations or to offer any viable alternative has eroded their legitimacy. In the end, they too chose to rebel against the status quo.

In all countries in the region, the regimes’ first reaction after the uprising began was to increase wages in the public sector and expand subsidies and other social transfers to mend the old bargain and put an end to the radical political demands. An oil-producing country such as Algeria has been able, so far, to inject a large amount of public money in the form of transfers and wage increases to keep the regime alive. Morocco, with much more limited financial resources, has instead made political concessions by reforming its constitution. In Egypt and Tunisia, the rulers attempted a combination of repression, economic benefits, and political concessions. But both countries failed to weather the storm, and their authoritarian regimes collapsed.

Second, the authoritarian model is not valid anymore because the majority of citizens no longer accept the terms of the bargain. Fundamental changes occurred in the Arab societies since the authoritarian regimes first took power. Populations became larger, younger, more educated, and urbanized. Unlike their parents, the new generations, which account for almost two-thirds of the total population, challenge the legitimacy of their rulers and are more comfortable pointing their failures out. They also value “freedom,” “dignity,” and “social justice” more than any economic benefits they can get from an authoritarian regime. The political rights and economic gains offered under the old authoritarian bargain are no longer enough.

The authoritarian bargain is clearly unsustainable. The transition away from authoritarianism—either orderly or through mass protests and toppling of the incumbent rulers—should lead to more inclusive political systems with space in the decisionmaking process for political diversity and civil society participation (labor unions, private sector organizations, and youth organizations).

But the real change runs deeper than just ensuring political openness. Reforming economic and social policies should be the goal, the effects of which will trickle down to middle and poor segments of the population. By moving from co-optation and clientelism to merit-based mechanisms of appointment and promotion in the public sector, more opportunities should be available for underrepresented segments of the population, such as the young and women.

There must be a clear shift from patronage-based legitimacy to rational legitimacy built on constitutional principles and performance-based economic and development agencies. Instead of rents for patronage, the governments in the region need to design appropriate incentive schemes based on economic efficiency and social justice considerations. To be effective, policymakers need to focus on four pillars:

First, they should review their fiscal policies and aim for a more equitable system that has more direct taxation than indirect taxes, includes progressive income taxes, combats fraud and evasion, and does away with unjustified exemptions.

Second, policymakers should design an appropriate industrial policy with a comprehensive medium- to long-term economic strategy. The countries of the region need to reform existing distortions in their trade policies and streamline their incentive schemes. There are lessons that they can learn from the Turkish and South Korean experience.

Third, to absorb educated labor, they should design adequate incentives to channel resources toward selected high value-added and knowledge-intensive sectors. The contribution of the most export-oriented sectors to economic growth has been limited due to their low value added and weak integration into the rest of the economy.

Fourth, policymakers in the region should strengthen market mechanisms and reinforce transparency for an efficient allocation of resources. To this end, they need to reinforce competition authorities and the implementation of pro-competitive regulations.

The new political leaders in the Arab world must take these steps if they hope to regain any semblance of legitimacy in the eyes of their people and the international community.