Human Rights, the Global Economy, and the Arab World, Part 1

Ali Kadri

This is the first part of a five-part series by regular Triple Crisis contributor Ali Kadri, Senior Research Fellow at the Middle East Institute, National University of Singapore, and author of Arab Development Denied: Dynamics of Accumulation by Wars of Encroachment (Anthem Press).

Dr. Kadri is an affiliate of the Laboratory for Advanced Research on the Global Economy at the London School of Economics (LSE). The series is based on an interview he granted to the Center for the Study of Human Rights at LSE. The remaining parts will appear once a week for the next four weeks. The full interview is available here.

Part 1: What role do oil prices play in the global economy and why might it matter to human rights?

If one were to consider the sensationalised view of oil or the opinion that holds that oil is an uniquely suitable source of energy, then the case may be that the expansion of the world’s population—from around 2 billion in 1925 to 7 billion (currently)—could not have been possible without the energy that oil had provided. However, that is a perspective that bestows upon oil, the commodity itself, a life of its own.

In fact, our dependence on oil is ordained by a set of social relationships that necessitates the use of oil for profit making as opposed to alternative sources of energy that respect social and environmental concerns. When our way of reproducing society (maintaining the needs of society from one period to the next by social measures) shifts from being dictated by the profit criterion to the social value criterion (as in goals which are common to society as a whole), research into the employment of other sources of energy may lead to equal or maybe better sources of energy.

Nevertheless, oil and fuels represent the foremost traded commodity globally. Oil is also important because variants on the initial commodity make up the inputs of nearly all the manufactured commodities. But oil is a strategic commodity because countries that depend on oil imports for their energy and have no immediate sources to replace oil become extremely vulnerable on the security front, if and when oil shortages arise. Hence, for the hegemonic powers, especially the U.S., controlling the sources of oil in the Arab world, by subjugating or subverting the governments of oil-rich countries, can become a source of immense power and/or a weapon of strategic value. For the U.S., the power emanating from hegemony over oil resources underwrites the issuance of the world reserve currency, the dollar, and many other imperial rents wrought as a result of its imperial status.

Oil is relevant to human rights because it provides the energy with which many rights-based essentials for sustaining life are produced. Food, shelter, water, and health, etc. require energy and oil by-products as inputs. If the price of oil and fuels rises, then the price of these right-endowed services and commodities rises. Fuel prices could also rise as a consequence of subsidy removal. When the World Bank demands lifting subsidies on fuels, the cost of these essential services and commodities also rises. As such, many in the poorer strata will be deprived of their right to food and other basic needs for a decent life. Energy is necessary to grow food, and most of the energy comes from oil (irrigation, electricity, machine operation, etc.). These subsidy-lifting or austerity measures, as happened in Egypt recently, dissipate the wealth of society and violate many human rights principles.

The already-poor rural areas usually bear the brunt of these contractionary policies (fiscal austerity and subsidy removal). UNICEF, for instance, reported in 2009 that one in three Egyptian children suffers from malnutrition, hence, the annulment of subsidy further deprives needy children of food. Not only that, the policy of subsidy removal on essentials in poorer countries is also wasteful from the purely “positive-science” point of resource allocation. Because the institutions that allocate resources are commandeered by the wealthier class, which stands to benefit from rent grab and national resource divestiture, the supposed welfare gains that would ensue from removing price distortions (subsidies)—had they existed at all—would not be imparted to the poorer working strata. In any case, welfare gains cannot ensue from this policy because it is fiscally contractionary.

Moreover, in an Arab de-industrialising and open capital and trade accounts context, the globally integrated ruling class, through the channels of finance uses every means possible to usurp the social product of the national economy. Foremost in these are the stance of the dollar-pegged exchange rate, which draw down the reserves of central banks to stabilise the national currency in the dollar, so that the wealth of the national ruling class may hold its stable dollar-value in the international markets.

There are two clarifications to note here: a) the ruling classes’ earnings are safer abroad when held in so-called “risk free” assets like the dollar, so naturally, investors seek the safer broader international markets, and; b) when the central banks expend dollars to prop up the national exchange rate vis-à-vis the dollar (keeping it pegged to the dollar), the working class benefits as the price of imported dollar-priced wheat, for instance, becomes indirectly subsidised. However, the monetary policy stance that channels credit into speculation on national assets like real estate, which pushes its price up, allows the financially integrated ruling class to convert its rising gains from liquidating national assets at guaranteed dollar prices. In the end result, the subsidy provided to the richer class, as a result of the peg, ends up eroding national funds and forcing a removal of subsidy to the poorer working class.

This is not in any way a pro- or anti-peg argument, in the sense that the Arab world (AW) exports anything other than oil and primary commodities in significant proportions and that devaluation would boost their exports. A cursory look at manufacturing’s share of value added to GDP in Arab countries reveals that, on average, most of them are low, around the 10% mark (LAS, Joint Arab Economic Report 2011, 79). According to the World Bank, the share of manufacturing in investment is declining almost everywhere, and the share of manufacturing in gross domestic product (GDP) is lower than that in all other developing regions except sub-Saharan Africa (World Bank 2011). However, the share of high-technology exports from total manufactured exports in the AW is at around 1-2 percentage points, below the rank of sub-Saharan Africa—including South Africa, which is around 5% (WDI, various years). The real culprit here is not the type of exchange rate, but the willy-nilly openness, especially capital-account openness in insecure and troubled areas. Prior to the eighties, most countries enjoyed a higher level of national and joint regional security and adopted multiple interest and exchange rates that kept wasteful flows to a minimum and calibrated savings with investment by borrowing from national sources.

Oil, however, is very crucial to human rights because it is a principal reason for war making. Oil violates the right to security of person and communal security, especially in the Arab World. As early as the seventies, the late Saudi novelist Abdul Rahman Munif, had beautifully captured the way oil had torn asunder the old social relationships of Arab society, disengaged women from village type agricultural production, and left open the ideological space for Wahhabism to act as spiritual repository for parasitism. He had also laid down the equation that in the dialectic of oil, each drop of oil equals a drop of blood. Strategic oil interests justify the existence of brutal monarchies and despotic Arab regimes that serve as suzerains of American empire. Oil control feeds into the other two most relevant channels of the global economy, militarisation and financialisation.

Together, the threesome, oil, weapons and the dollar, represent the tripod upon which the signal of the profit rate signals the death tolls from wars. It is not oil the commodity itself that has to change—as a commodity or any alternative energy source that would replace oil as a commodity would also have to change. It is the criterion that organises the relationships by which societies reproduce themselves, by commodifying the basic goods that are required to sustain life, that has to change. When humanity and nature are organised around more common social goals, other than profiteering by privatising water, air and vital medication, to name a few, one may possibly see the oil addiction getting kicked.

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