A Note on Development Under Risk in the Arab World, Part 4

The Construction and Destruction of Sovereignty

Ali Kadri

To what extent is the problem of unemployment in some countries of the Arab World an outcome of monetary policy that targets low rates of inflation with no regard to unemployment? To what extent is the problem of stagflation in some countries an outcome of the policy mix of raising short term interest rates while devaluing national currencies? To what extent has the adverse impact of a chronically high rate of unemployment aggravated the contraction triggered by an external shock (falling oil price), and thus created a debilitating path dependence?

The mechanisms that answer these questions are like irrigation valves channelling income flows between various nationally based working strata and internationally based financial interests. They are about who (which class) has enough power to get a higher share of income and how much. As the labour share from total income fell, in the Arab World, to the lowest global ranks—a result of the absence of politically organised labour, inflation, and wage compression—the steadying of the national currency against the dollar (pegged rate) channelled wealth not only up within the same society, but also abroad. Countries with balance of payments constraints are short-leashed by institutional lenders who can wreak havoc on nation states by simply delaying disbursements that support the national currency (if the national currency devalues, inflation rises and so on.). In a sense, this policy, like many other neoliberal measures, makes corruption legal. If corruption is defined as the diversion of public wealth to private use, the exchange rate and monetary policy under open capital account regimes, which was not only legal but also supported by major international financial institutions, is corruption writ large.

But to go back to our questions, the answer to all three problems may be drawn from any standard second-year macroeconomic textbook: a country cannot peg to the dollar under an open capital account and still maintain an independent monetary policy. However, it is not the effectiveness of monetary policy that comes first, it is the ownership of policy (or policy autonomy) emanating from the margin of state sovereignty. The sovereignty qua security of Arab states—in the sense of the region’s developmental capabilities, knowledge assets, human well-being, and freedoms—has become less substantiated. In times of war or war-like conditions, in the Arab World, the ultimate sovereignty comes from the inscription on the side of Louis XIV’s artillery: ultima ratio regum (the final argument of kings). The military balance of forces, in which imperialist intervention holds sway, has become the broker of sovereignty. Along with the ideological avalanche of neoliberalism, this explains much of the lost policy autonomy since 1980.

Regaining development means regaining policy autonomy under conditions of popular sovereignty. The positive relationship between policy space and positive developmental outcomes is so straightforward that, in spite of being so politically sensitive, it was addressed by the UN: “[T]he idea of policy space refers to the freedom and ability of governments to identify and pursue the most appropriate mix of economic and social policies to achieve equitable and sustainable development” (UN 2014). Yet, in the typical half-truth type positioning resulting from the UN’s subordination to the dominant imperialist power, it attributes loss of autonomy to “various legal obligations emerging from multilateral, regional and bilateral agreements” (UN 2014).

It appears that, in the UN’s view, the loss of state sovereignty is only a by-product of a universally democratic international law, in which agreements must be honoured as part of the gentlemanly code. In reality, for significant swaths of the Third World, violent forms of class power determine the scope of autonomy to a great degree. Class power is not the person or group in executive office, exercising individual agency; it is the full weight of history, ideology, and institutions into which Arabs and Africans are born.

The higher rate of value extraction and resource dislocation resulting from the violence of war has been overriding the covenants of international law and the Charter of the UN since 1945. Under hierarchical class structures, fusing together with finance and cutting across national boundaries, the consumption of humans and nature, often by brutal means, is the historical precursor to global economic growth. The Arabs and the Africans are not the “wretched of the earth” (to recall Fanon) by historical coincidence. They are so as a result of systemic imperialist assault. The order of causal determination, whose recognition is the litmus test of independent scholarship, begins with the dominant class’s aggression against the weakest spots in the developing world.

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