Human Rights, the Global Economy, and the Arab World, Part 2

Ali Kadri

This is the second 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).

The series is based on an interview he granted to the Center for the Study of Human Rights at the London School of Economics (LSE). The full interview is available here.

Part 2: How would you define neoliberalism? What effect has it had on the Arab world?

The neoliberal policy package depends primarily on the creation of an enabling environment for the private sector, freeing the goods and capital markets and implementing “good governance.” The story goes: If price distortions are removed, capital-gains taxes that inhibit the wealthy from investing are removed, labour laws that make the market “rigid” (enabling labour stability on the job instead of being precarious) are removed, and financial regulations that impede the flows of capital are removed—at some immense pain to the working class in the short term—then after a period of welfare retrenchment, the market spurs into action delivering much needed capital stock, rising productivity, and rising wages in the long term. One ought to note in passing that despite the dismal record of this “trickle-down” story, it remains central to mainstream policies. When these conditions prevail, the neoliberal “theory” says, development prevails. However, this is not much of a theory.

Social theory, narrowly defined, is a system of thought that explores the laws of transformation of society. What these supposed deregulatory measures do is not to deregulate, but to shift the power to regulate the flow of resources in society from the working class to the ruling class. As such, these are recalibrations of the accounting parameters that allow value, signified in the money form, to wash back and forth (within certain limits) between labour and capital. In the neoliberal case, it is capital that takes the bigger share. What is missing in this story is the identity of the social forces that better their conditions time and again through the control of value or wealth creation and transfers, in order to promote their expanding interests, because they are caught in a game of competition. There simply is not a fuller conception of the “who, why and how” that are rudimentary to theory.

In fact, this neoliberal set-up distorts reality and selectively abstracts ideas that support its ideological thesis, which is that the private sector’s wealth necessarily improves social welfare. But when the markets are freed in poorer, less secure countries—with weak production capacity and a ruling class whose interests are integrated in the safer international financial markets—the national resources, capital and labour, all flee the national market. It is not nationalist zeal or charitable inclinations that allocate resources; it is the profit rate. Wealth making is not a matter of buying and selling alone, separate from power structures; wars of encroachment in the third world, austerity and union busting in the first world are part and parcel of profit making. The cheapening of resources (people and natural resources) as inputs by expropriation and violent means is never separate from capitalist history. Thus, to exclude violence, power, and contradictions in general from the mainstream hypotheses is to exclude reality itself. At any historical moment, the competition for more profits implies short-changing labour (paying less and less in wages) and grabbing by expropriation the resources of less-secure developing nations. The kernel of the profit-driven wealth making process lies in depriving labour of its rights and, therefore, the rights agenda is a labour agenda.

Upon a closer look, these “free” policies are not really free. Because the minute the money market is freed and the national currency comes to depend on foreign dollar savings to remain stable, it becomes chained to the lenders. This vulnerability to external financial markets and loss of credibility further erode the capacity of national governments to issue their own debt instruments (bonds) in order to finance their own economic expansion. They literally become nations without national currencies. Furthermore, to keep the outside balance of payments steady, national governments resort to fiscal austerity, spending less on health and education, in order to pay off the foreign held debts or to keep enough in reserves to pay for imports. After opening up, imports from abroad tend be cheaper (mass produced), so with openness the import bill also rises. Roughly, for the Arab world, imports rose from around 20% of GDP to nearly 50% of GDP between 1970 and 2010. So, the national governments themselves get locked into a vicious cycle from which their moneys are only valuable if measured against the dollar and their governments are only reliable if they collect enough of the national currency to stabilise the exchange rate with the dollar. This is anything but freedom.

The contraction in fiscal and monetary policies at home demobilise resources, people and physical capital (by demobilise, I mean to disengage from production because development is best defined as the mobilisation of real resources, as in putting people to productive work). To make matters worse, the freedom to move people, money and resources abroad ensures that both capital and people leave their countries year after year. Certainly, the backlog of tremendous pools of idle labour and forced refugees keeps up the downward pressure on wages. Throughout this process of usurpation, one sees no measures taken by governments to arrest the drainage. This implies that the ruling class in control of national resources is benefiting from the way neoliberal policies are channelling resources. It also means that the neoliberal policy package itself is not an unbiased interface between agent and policy framework; it is a premeditated framework that serves as the conveyor belt for the vested interests of the ruling classes and their international alliances, albeit to the detriment of the national economy.

This takes us to the next level of exploration into neoliberalism. How do societies come to emit a ruling class whose commitment to its international counterparts is more solid than its commitment to its own working class at home? The answer to this varies according to particular histories and/or the material basis upon which a ruling class reproduces itself (does it earn from its own national industry or from abroad?); but as of 1990 and the rise in financialisation, the historical momentum has been one where international finance pushes the reproduction of capital outside its national boundaries.

Against the overriding historical forces that are bringing about financialisation, the case I make is that the Arab world lost wars to Israel and the United States, and in the global retreat in internationalist socialist ideology, Arab society had restructured. Its own ruling class underwent a volte face into a fully comprador class as it had to adjust to the terms of defeat, which had deindustrialised it and stripped the state of its sovereignty. One ought to note in passing that the Arab bourgeoisie was at ease with the defeat, because the defeat itself had removed the populist state regulation of the sixties and seventies that inhibited its growth. That sovereignty of which I speak is not an abstract ideal, but a real state of working class security and working class power within the state.

Therefore, neoliberalism in an African or Arab context (generally defeated, security-exposed or insecure working classes in the periphery) is the tribute-transfer channel to empire. No relatively cohesive social entity represented in a state would tolerate recurrent surplus drain under neoliberalism unless it was in a condition of surrender. Military defeats imposed neoliberal wealth-draining policies by restructuring national classes to consent to the imperialist terms of capitulation.

In terms of the Arab world, despite the immediate post-independence aggression of imperialism against leading Arab countries, state-led development with regulated markets, capital, and trade accounts had demonstrated a better welfare and developmental model than the neoliberal one. When the populist, state-led development model collapsed, the rates of poverty, hunger and repression rose under neoliberalism. The market that neoliberalism aimed to free was non-existent not only in the Arab world, but anywhere. No society is free of contradictions and the uncertainties of history cannot be lodged into a probabilistic equilibrium framework. The principal Arab market was state-guided and industry protected—financed mainly by internal government borrowing. Multiple interest rates regulated internal money supply, hedged against illicit capital outflows, and afforded credit to industry and agriculture via state owned banks at concessional rates. Dual exchange rates set against a controlled capital account implied in reality a dual currency system. The first exchange rate (often dubbed the official rate) was overvalued to indirectly subsidize the import of machine tools and technology to support import-substitution policies and the price of imported consumable commodities when there were shortfalls in national production. This rate protected the price of the necessary consumption bundle of the working class. The second rate was the world market rate set against other more powerful states and their currencies. An abrupt fall in this rate usually implies a breach in the regulation protecting the national currency from the vagaries of the international market and/or an increase in the activity of the black market.

This populist model performed so long as there were no drastic declines in national production, no unnecessary rise in affluent consumption and, most importantly, no illegal national currency transfers abroad.  As the Arab economy became private sector-led, its industry was exposed to superior competition and its national production fell,  its financing depended more and more on borrowing from foreign sources and its single interest rate could not halt capital outflows, its exports fell and no matter how low the exchange rate would fall, it did not boost exports and it did not protect the necessary consumption bundle of the working class from rising world prices. Just prior to the Arab uprisings, around half the population in the Arab world was spending more than half of its income on purchasing food,[1] and when speculation reached the commodity market and basic food prices rose, scuffles for bread before bakeries in Egypt resulted in several fatalities.[2] In the transition to neoliberalism, the economy mutated from an even-distribution, public sector-led economy to a highly uneven economy led by the private sector and a privately owned “public” sector.

The neoliberal obfuscation peaked in the years just prior to the Arab uprisings, as the World Bank spewed out a litany of literature ludicrously recommending “good governance” to Arab rulers. Advising absolute despots to govern in “good” ways was no error of ignorance or naïveté of idealism; it was measured. Entreating “good governance” from bad governors was how a phantasm was transmuted into a reality by the power of free-market ideology. If the success of any development policy hinges on an a priori set of “good” governance rules, then who could have possibly entertained the thought that those Arab ruling classes—which had clasped state and economy, had filled prisons with prisoners of conscience, and had allied themselves to international financial capital—would even remotely govern in “good” ways? The World Bank was colluding with Arab despots. No one could possibly be that ill-informed.

[1] World Bank.

[2] Fifteen deaths around the bread queues were reported.

Triple Crisis welcomes your comments. Please share your thoughts below.