A Note on Development Under Risk in the Arab World, Part 1

Conflict, Policy, Resources, and Development

(Part 1 in a Four-Part Series)

Ali Kadri

Of the countries that are off-track on the road to sound development, many are situated in the Arab World. The worst hit are either in-conflict, near-conflict, or post-conflict zones. Even when not undergoing the war disaster, the fragility of their development is further compounded by the prospects of war. In addition to the actual or potential woes of conflict, their slow rate of progress is characteristic of small risky markets or capital scarce structures that have adopted unconditional liberalisation measures. (Real capital is scarce, not financial capital.) For the most part, these countries still depend for their economic growth on export earnings from a primary product: namely oil. When oil prices fall, economic growth stumbles, and an already poor development showing suffers yet another setback.

Yesterday’s accomplishments are frequently erased by a combination of war dislocation or anti-developmental macroeconomic policies. The latter are policies whose interface with reality does not sufficiently mobilise idle resources, as in putting the unemployed into decent work. For the group of risk-laden and underachieving Arab countries, which comprises the overwhelming majority, the crunch on their course of development happens to be fourfold.

First, the determining moment in their development lies in the fact that the decision-making circles often involve a cross-national class alliance for which another small country—developing its productive capabilities in a world that is already consumed by a crisis of overproduction—is unwanted. Furthermore, U.S.-led imperialism, for which militarisation is not only a domain of accumulation, but the gyroscope that steadies its course of development, stands to benefit from war and its social, political and financial impact.

Second, in addition to the calamity of war, the prospects of spreading conflict dampen investment and impose a drag on economic, social, and institutional development. In many cases, war acts as a massive primitive accumulation measure expropriating labour and de-nationalising resources, after which the newly socialised working people (people thrown into the job market in search of wage jobs) and denationalised resources are only selectively re-engaged back into production. In the Arab World, once uprooted as a result of war or development-supressing macro policy, more of the dislocated people remain jobless or (per the necessity for survival) engage in informal poverty employment.

Third, although economic growth, rapid industrialisation and technological advancement are indispensable conditions for development, they are pointless when governments restrain popular participation or, to use the phraseology of the right development from the Cold War era, constrain the capabilities of people to achieve valuable human “functionings.” Cold War competition for social development raised the ceiling and the resources needed to achieve socially desirable targets (UN convention on the right to development 1986).

Fourth, the Arab World is a region that exhibits acute income inequality (UTIP 2011). The labour share of total income declined significantly between 1980 and 2010, and reached rates of around 25 percent (Guerriero 2012; ILO 2014). Without more evenly distributed income and wealth among different sections of society, the demand component that drives the momentum for auto-generated growth slows down.

Since the beginning of the neoliberal era (circa 1980), most Arab economies have come to increasingly grow from “without” by the incongruity of oil prices, geopolitical rents, and war-like tensions. The fact that so far they have not harnessed their internal resources for the purpose of development implies that the goal of development was not a constituent part of the national security structure. It also implies that such departure of security from development concerns is a product of an internal social class disarticulation and, hence, a serious crisis not only of governance but also of the state. The schismatic social contract, including its attendant non-autonomous legislative and judicial functions, blocks the intermediation of the interests of various strata in society.

Moreover, in spite of hollow growth and a low elasticity of growth to unemployment reduction over the past three decades, macroeconomic policies dictating resource allocation remained unchanged. (The jobs I am speaking of are always in the “decent work” category of the ILO, unless otherwise indicated.) In a sense, one can safely say that the historical agency in charge of development has reproduced pretty much the same policies and the same meagre development outcomes time and again.

Another characteristic of Arab economies is the slow dynamic rise in labour productivity or, the often observed, negative productivity growth rate. Labour productivity growth is the nucleus of wealth creation and, when missing, it demonstrates the slow progress of indigenously based growth—growth from within derived by national capabilities—or growth that is based on the development of national R&D and knowhow in production. One is aware of the rising technical composition of capital from technology imports displacing labour; however, in the Arab world, there are no significant positive linkages between the spill over of imported modern technology and local capacity. At any rate, in the composition of growth, the elements of nationally based production, consumption, and the policy designated automatic stabilisers cannot steady the business cycle in the face of even minimal external shocks. The oil price drops and the business cycle follows suit. Only a decade or so ago, budgets were formulated on the basis of around 20 US$ a barrel. In 2015, the budgets required roughly 80 US$ per barrel to be balanced. Dependency on oil grew at very high rates and most Arab economies became more vulnerable still.

The positive developmental impact resulting from a transient rise in oil prices is either a stabilisation measure, which does not filter into the sphere of production (it mostly boosts consumption), or is sapped by poorly conceived macro policy, which does not redress the most pressing economic concern: the often negative productivity growth rate. Moreover, without the synergy of productivity-based growth with rising income (including wages) driving the demand for the infusion of knowledge in production, the cultural spinoffs that would spur progressive institutional change would be missing (UNHCHR 2004). Tangentially, the goal of “nationalising” jobs (replacing foreign by national labour) or synchronising labour to capital’s requirement is pointless when the virtuous circle of productivity growth and economic growth has not taken root or when growth largely depends on oil revenues. There are no significant decent jobs in the technical skills category being created by the national economy; these qualitative jobs pertain to the industrial culture of the more advanced countries. The conditions for the brain drain are therefore objective. By the standard definition of development, which is economic growth, with expanding output and employment, institutional transformation and technological progress, Arab countries have been experiencing lumpen development.

In times of high oil prices, growth of output per worker (a proxy of labour productivity) appears positive and somewhat astronomically high, but when oil revenues are deducted from total income, growth of output per worker is more often negative than positive. The productive capital stock per worker, or equipment of the modern technology type that grows from the nationally-induced need to capitalise both capital and labour in order to meet demand, is not rising (Kadri 2014).

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