With the fourth anniversary of the September 11, 2001 attacks having recently passed us by, the question of "what ails the Arab world?" remains at the top of the global agenda. Most of the high-profile prognoses, including those of Western governments, the United Nations Development Fund, and numerous Western and Arab think tanks, focus on three crucial ills: the lack of democracy, poor education, and the lack of women's rights. All are correct, but any road to more vibrant, free and dynamic societies and governments must begin with dramatic, far-reaching economic transformation.

Before laying the first stone, we first must understand a fundamental aspect of the Middle East landscape: its dramatic economic underperformance. The numbers are grim: The 260 million people of the 22 Arab countries combined have a GDP nearly the level of Spain's; some 25 percent of Arabs live below the poverty line; some 20 million are out of work. The region's economic growth--an insipid 0.5 percent over the past 30 years--is the lowest in the world. Surveys indicate that more than half of all young Arabs want to emigrate.

These underperforming economies not only create hopes of departure in youth, but stifle generations of Arabs, especially women, whose widespread economic exclusion perpetuates the region's sluggish growth. Of course, all Arab economies are not the same. The oil-rich Gulf Cooperation Council countries have larger cushions to shield the blows from bad policy, and some--notably Dubai, Qatar and Bahrain--are getting their policies right too. But for the most part, the largely untold story of Arab lands is one of economic potential squandered, lives stifled, and middle classes weakened.

In my own extensive travels and work stays across the region, I've met far too many Arabs lacking economic dignity, continually treading water amid the swirling waves of inflation, instability and stagnant wages. For those of who us have donned a rucksack and traveled far beyond five-star hotels and meetings with intellectual, political, and business elites, we know the sense of economic pain felt across the Arab world and Iran. We also know that this economic pain can be all-consuming and creates wells of resentment easily tapped into by Islamists or populist demagogues. In a Casablanca slum not long ago, a young man told me: "I have nothing. No job, no future, no hope. The government doesn't care about me, the world doesn't care about me, and the only money I've ever received is from Al-Adl wal-Ihsan (a banned Moroccan Islamist party)."

This ongoing economic drift represents the largest obstacle to democratization. History has shown that economic transformation often leads to political transformation. In 18th century Europe, the wealth generated by the commercial classes through advances in trade posed the first direct challenges to the aristocracy and monarchy, to name just one example. The later widespread distribution of this wealth created the middle classes necessary for mass politics. Economic modernization tends to strengthen middle-classes and increase urbanization--two key elements of political change.

In many countries of the Middle East, urbanization has increased, but middle classes have weakened. The result has been large pockets of disaffected, unemployed urban residents living on the edge of major cities in grim suburbs or shantytowns, forming a ready proletariat for revolutionary messiahs; or, alternatively, forming a weakened mass of voters vulnerable to ruling elites' politics of patronage and populist promises. For example, newly urbanized, disoriented and weakened middle classes played a key role in Iran's 1979 revolution.

The region's demography exacerbates the problem. In places like Saudi Arabia, Iraq and Yemen, nearly two-thirds of the population are under 25. All told, there are some 130 million Arabs and Iranians under the age of 15. If we add Pakistan to the mix, the number exceeds 200 million. Large youth populations disrupt the social and political equilibrium, inflicting potentially destructive stresses on societies and governments. Large youth bulges combined with autocratic governments, stagnant economies, and restrictive social structures create a potentially explosive mix.

Throughout the region, education levels have risen, but job opportunities have not. The communications revolution has opened up new worlds to the Middle East's first wired generation, but it has also highlighted to them the inadequacies of their own world. Today's Middle Eastern youths are economically stifled, increasingly globalized, more educationally advanced than previous generations, politically shackled, and torn by a struggle between modernity and tradition.

Harnessing the energies and unleashing the potential of these youths in positive ways could lead the region toward greater freedom, prosperity, human dignity and political democracy. Simply put, if the world wants a democratic Middle East, it will first need a more prosperous one.

Some of the usual prescriptions are on target: banking reform, capital markets expansion, liberalized trading regimes, and small- and medium-sized enterprise development. Still, there is no one size-fits-all model for every country. Each must learn to exploit its own comparative advantage and, indeed, erect a protectionist barrier or two if deemed necessary to build up industrial or intellectual capital. China would not have succeeded in lifting 200 million people out of poverty if it followed neoliberal "Washington consensus" prescriptions. It succeeded because one man, Deng Xiaoping, turned the rusting ship of state away from its command and control past toward the general direction of a market economy, and the state tread cautiously but methodically down this path.

Whole forests have been felled to publish economic models that lead to growth, but the most important factor remains something less tangible: leadership. The real crisis of the Middle East is a crisis of governance. With few exceptions, the region's political elites have either destroyed or mismanaged their economies and have failed to achieve their potential levels of growth.

Take Egypt, for example. It is a country that might have been the economic locomotive of the region. Instead, it remains a slumbering giant (though recent macro reforms by able technocrats seem to be jolting the giant.) In 1950, Egypt's GDP per capita roughly equaled South Korea's; today it is one-tenth. The rising attraction of Islamist groups regionally--especially in Egypt--often has more to do with the state's economic failure than a lack of secular education. The secular nationalist military dictatorships of the late 20th century failed to produce meaningful material gain for average Egyptians, and Islamists have taken to weaving narratives of economic redemption in their calls to resistance. Once in power, however, they're not much better at running a modern economy (after all, there is no such thing as an "Islamic job"). Iranians' real per capita income is one-fourth of what it was before the Islamic revolution and, as a result, Iranians are more anti-clerical than they've ever been. They're also more prone to the sort of populist promises that led to the victory of Mahmoud Ahmadinejad in the June presidential election.

At the end of the day, most regional governments face a tough choice: they must find ways to achieve sustainable, job-creating growth or face the inevitable disruptions of large, unemployed youth populations (the World Bank estimates that the Middle East-North Africa region will require 80 to 100 million new jobs simply to keep up with new entrants to the labor market). Neither the World Bank nor the White House will be able to spur regional economic transformation. Only regional leaders in concert with the private sector can deliver the economic dignity regional residents deserve. Their young populations will not wait forever.