A Note on Development Under Risk in the Arab World, Part 2

Ali Kadri

Politics, Economics, Industry, and Trade

(Part 2 in a Four-Part Series)

It is true, but more so a truism, to assert that reviving the debilitated economies of the Arab World requires an end to conflicts and the creation of a politically stable environment, conducive to both domestic and foreign investment—investment of the higher output to capital ratio type—along with rising internal demand. Yet, as true as this assertion may seem, the regional security/insecurity arrangement is now anchored in a bellum americanum, or continuous war condition, emerging from more acute international divisions over regional control. The spinoffs of war on the political and economic side are regressive. On the national political scene, a process of “selective democracy” similar to the one practiced in ancient times—as opposed to universal or popular democracy—enshrines the right of the few at the expense of the many. On the macroeconomic side, policies may have taken a turn into a sort of extreme neoliberalism, as in lifting subsidies on essential commodities in countries that already experience a high rate of child malnutrition (Everington 2014).

Politics and Economics

The current policy interface between external shocks/conflicts and the national economy is based almost entirely on the unrealistic assumptions of an even playing field, a risk-free environment, and a market that works best with little government intervention. Not that demanding a limited role for the government in the economy would be necessarily functional anywhere, but to propose a small government under war or war-like conditions, as did the international financial institutions (IFIs), is beyond the pale. When the elephants in the room–the wars or their resonances and the lopsided institutional context–are overlooked, then it is no longer myopia which is causing the past errors to be repeated, it is rather its marked lack of will to carry out development.

Decline of Industry

Moving from the public to the private sector and from closed to open economies did not shift resources into more competitive areas. According to the World Bank, the share of manufacturing in investment is declining almost everywhere in the Arab World, and the share of manufacturing in GDP is lower than that in all other developing regions except Sub-Saharan Africa (World Bank 2011; World Development Indicators various years). The share of high-technology exports from total manufactured exports in the Arab World is around 1 to 2 percentage points, below the rank of Sub-Saharan Africa—including South Africa, which is around 5 per cent (World Development Indicators various years; World Bank 2011).

Because of limits on indigenous industrial supply capacity, or the type of production that issues from a multi-layered and nationally based supply chain, Arab countries had to remain dependent on raw material exports (UNIDO 2014). For fast neoliberal reformers and slow reformers alike, the present condition of low oil prices, steep deficits, and low output growth is telling of how past and present policies have failed to identify the principal conduit of regional development: Development in the Arab World is overdetermined by integration with the global economy through the intertwined channels of oil and war. Not that there are meaningful exceptions to the rule of development failures, but in case there is an odd or sporadic achiever, the explanation of developmental success rests on geopolitical grounds or geopolitical rents rather than “indigenous economic performance.” The shifting regional cordon sanitaire is a primary explanatory variable of development, or mostly, underdevelopment.

Wrong Way to Liberalise Trade

A putative case can be made that some Arab countries may have needed to liberalise trade, but not willy-nilly as they have. Trade liberalisation could have been selective and conditional and within their own respective regions first, such that their negotiating position and accession into the global economy would not come at the expense of national industry and food security. But, it was not. Arab countries import more than half their food consumption and some food-dependent and cash-strapped countries have to borrow to meet their basic food needs (Bush 2015). More so than in the run-of-the-mill circumstance, in a war-tense atmosphere, even the United Nations thinks it may be wise to be choosy about what to liberalise and only in relation to developing national industry and to respond to the strategies of the big trading partners and the demands of their markets (UN 2008).

Surrogate Colonialist

Deindustrialisation, or the shift from industry- to commerce-based growth in the neoliberal era, also shifted the social structure, its class formation and the entrepreneurial mind-set. Just as in the days of colonialism, the leading strata are re-confined to the practice of commercial undertakings; but of course, this time around without military colonial presence. In a sense, the new merchant class in charge, a subordinate partner of international financial capital, acted as the surrogate colonialist. For such a class, short-term profits from commerce and finance outstripped the prevailing slow-growing profit rates of national industry.

In the neoliberal era, the bonds of the merchant class to international financial circles grew over time, and its reproductive base has come to depend more on the safety of the international financial markets than the capacity of the national economy to produce. As a result of the shifting ties of the national governing structure from the national to the international base, disciplining profit rates for the sake of industrialisation—as was done in East Asia, for instance—was not tabled in development considerations and practice.

Public and Private

Argumentatively, it may have been valid that there need be a boost to the environment for the growth and development of the private sector, but such position need not view the public/private investment relationship as antagonistic, as does conventional wisdom. In practical terms, for public investment to crowd out private investment is nearly impossible (Weeks 2014). When the risks to private returns are high, and potential resources are plenty, a better-managed public sector acts as a quasi-insurer of private interests. The downgrading of the public sector in terms of size and quality performance could only be attributed to unfettered short-term profiteering around the deconstruction of state functions and is partly responsible for the overall slack in economic performance. The social consequences of such measures could at times buttress the real conditions for war-making or compare with the baleful effects of war.

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