Rebuilding Devastated Economies in the Middle East

Overview by Professor Leonard Binder, Director of the Center for Near Eastern Studies

It is my pleasure to welcome you to UCLA on behalf of the Center for Near East Studies and to thank you for your participation in this second meeting of the research workshop on the problem of rebuilding devastated economies in the Middle East. The Workshop will revisit a number of specific cases, and it will also consider some regional issues, such as petroleum and rentierism, in the paper by Mary Ann Tetreault, explanations of endemic poverty in the paper by Kiren Chaudhry, illicit profiteering on development contracts in the paper by Bradford Dillman, and the implications of the US sponsored Greater Middle East Initiative—lately renamed as a "partnership." Last May, at our first meeting, we began by exploring the cases of Lebanon, Algeria, Palestine, Yemen and Afghanistan. We are going to reconsider these cases in the light of the workshop discussions and the revisions to be presented by Samir Makdisi, Miriam Lowi, Karen Pfeiffer and Marvin Weinbaum.  In addition, we have new papers on Yemen by Sheila Carapico, on Sudan by Ibrahim el-Badawi, on Palestine by Jennifer Olmsted, and on Iraq by Bassam Yousif.

At the end of our first workshop, several participants suggested that our collective efforts would be more successful if we paid more attention to both the political and the regional dimensions of the obstacles to development in the selected countries. It was also noted that the international or global context has been greatly impacted by the invasion and occupation of Iraq and by the implications of a continuing global war on terror. 

While it may seem that profound changes have transformed the region in response to the attacks of 9/11/2001, we can, with the aid of hindsight, discern the beginnings of a profound regional and global transformation with the coincidence of the eruption of the Kuwait war in 1990 and the winding down of the Cold War. During the Cold War, regional politics were dominated and equilibrated, if not frozen by the coordination of American and Soviet policies. Major political transformations, such as the rise and fall of Bureaucratic-Authoritarian regimes (or Nasserist regimes), even when they occasioned economic crises, were not permitted to transform the status quo. Even the transformation of the structure of the petroleum industry, despite the sudden enrichment of some countries, was not permitted to alter the regional balance of power. There was a similar bilateral coordination to prevent the frequent episodic recurrence of the Arab-Israeli War (1956, 1967, 1969, 1973, 1982, plus the 1987 intifadha) from either spreading or extending. The Iranian revolution reaffirmed the defects of the Kemalist-Nasserist model while offering a premonitory indication of the political weaknesses of rentierism; but the full ideological and geopolitical consequences of that revolution were contained throughout the prolonged Iran-Iraq War. Both the prolongation of that war and its failure to produce any immediate change in the regional balance of power were products of the influence of the Cold War.

With the end of the Cold War, the global mechanism for the maintenance of regional equilibrium was dismantled, and it may have appeared to Saddam that there would be little incentive for the US to expend the resources necessary to maintain the regional status quo on its own. In fact, the US did not formally adopt the principle of maintaining the regional status quo in the post Cold War period until the adoption of the DOD quadrennial report of 1992. But since that time, the US has been committed to a policy of preventing the emergence of a regional hegemon, while Saddam's policy was equally committed to seeking hegemonic domination of the Gulf region and its petroleum. It is now obvious that both our European allies in the Cold War and the powers seeking to prevent the US from asserting global hegemony (China, Russia, India) were and remain unsympathetic to the US goal of preventing profound change in the Middle East.

While the crucial underlying factor in this emergent realignment of global forces remains petroleum, the situation has become greatly complicated by the rise of the neo-salafi/neo-wahhabi/jihadi movements among the Sunnis, and by the significant enhancement of Iran's strategic advantages as a consequence of the US involvement in Iraq. Nationalism, or what some social scientists call ethno-nationalism, is not dead, it is merely dormant in the Middle East. State based nationalism has not succeeded in strengthening the legitimacy of authoritarian regimes, nor do contemporary Islamic ideologies strengthen the legitimacy of traditional monarchies, emirates, and shaykhdoms. Nor does close cooperation with the US help either type of regime.

Faced with these challenges, it appears that the US has adopted five lines of response, though with differential emphasis on each:

1. Global realignment via direct pressure on EU and ad hoc accommodation with Russia, China and India
2. Redefining the war on terror as the assertion of an ideology of diffusing freedom and democracy globally (via force or otherwise) rather than a response to specific acts of violence
3. Regional realignment by supporting Middle East allies, sanctioning opponents, and in the absence of alternatives, using preemptive military strikes to punish or overthrow recalcitrant regimes
4. Support Islamic moderates and the redefinition of Islam in terms of democracy, human rights, civil rights, and non-violence
5. Develop a regional program linking economic assistance and the promotion of capitalism along with pressure to democratize and lend support for liberal versions of Islam within the framework of the Greater Middle East Initiative or Partnership (GMEI)

The fifth response is of greatest relevance to the problem of rebuilding devastated economies in the Middle East and it involves a more complex form of political and strategic thinking. The first and third responses call for restructuring the global and regional systems, respectively; and thus entail calculations of power and of the availability of strategic options. The second and fourth responses are simpler still because they are presented as moral imperatives to be obeyed regardless of cost. But the GMEI alternative alone is based on the projected convergence of several theoretical arguments. 

The central theme of GMEI is that democratic political development and the parallel development of a stable capitalist economy are mutually reinforcing processes. It is also argued that both may be gradually achieved by the reform and adaptation of undemocratic regimes and by public sector dominated economies. The adaptive process can be facilitated by means of foreign economic assistance, and authoritarian legitimacy can be transformed into democratic legitimacy without violence. When properly achieved, Middle Eastern autocracies will become integrated into the global capitalist system, property ownership will be diffused throughout these societies, and political power will be distributed in an egalitarian manner. Radical religious preachers expounding jihad and suicide attacks will have no appeal to ambitious and well educated young men, women will enjoy equal rights, and personal security will be protected by civil society rather than by tribe, clan, sect, and family. Moreover, the promise of GMEI has been sustained by the recent trend toward the devolution of some traditional autocratic power to parliaments. A number of recent political studies, have made much of such trends in Jordan, Morocco, Kuwait, Saudi Arabia and Qatar, but critics have argued that such devolutions of symbolic power are meant to further protect the supra-legal status of kings and amirs [B. Korany, Rex Brynen, and P. Noble, eds., Political Liberalization and Democratization in the Arab World, Vol 2, Comparative Experiences, Boulder, Rienner, 1998; L. Diamond, M. Plattner, and D. Brumberg, eds., Islam and Democracy in the Middle East, Baltimore, Johns Hopkins, 2003].

Despite the obvious ideological stigmata linking the GMEI to the Bush administration, there is little evidence that it was ever considered a serious instrument for achieving a major foreign policy goal. The earliest reference to a "U.S.-Middle East Partnership Initiative" that I have been able to find is a State Department announcement dated December 12, 2002; but that announcement indicates that 97% of the funds allocated to the Partnership Initiative were already committed to Arab countries. [Welcome to Ankara: Homepage of the U.S. Embassy Ankara - Turkey] The partnership projects were not primarily dedicated to either political or economic reform except in the most general of terms.

The next word I have on the GMEI is from al-Hayat of 2/13/2004, which published a lengthy US "working paper" intended to be presented to the G-8 meeting at Sea Island planned for June of last year [ 2004/05/23]. That draft rehearsed the baleful findings of the UN Arab Human Development Reports of 2002 and 2003 and concluded that reform was absolutely necessary in order to avoid disaster which would pose a grave threat to the national interests of the G-8 countries themselves. The working paper called upon the G-8 to agree on a joint program that would

• Promote democracy and good governance
• Build a knowledge society; and
• Expand economic opportunities

The theory behind the initiative was put in a single sentence:

"These reform priorities are the key to the region's development: democracy and good governance form the framework within which development takes [place?], well-educated individuals are agents of development, and enterprise is the engine of development." 

Democracy was to be encouraged by holding free elections and by further developing civil society organizations [NGOs]. The paper further noted that elections at various levels were being planned in Afghanistan, Algeria, Bahrain, Iran, Lebanon, Morocco, Qatar, Saudi Arabia, Tunisia, Turkey and Yemen between 2004 and 2006.

Economic development was to be encouraged primarily by unleashing the region's "private sector potential" and by integrating the region's financial services into the global financial system. More generally, the paper declared that "Closing the Greater Middle East region's prosperity gap will require an economic transformation similar in magnitude to that undertaken by the formerly communist countries of Central and Eastern Europe."

Soon after the publication of the draft in al-Hayat, a chorus of objections was raised from a variety of directions. Zbigniew Brzezinski criticized the fact that the President had presented his initiative first at the American Enterprise Institute (in November of 2003) [, Middle East, "How Not to Spread Democracy: Bush's Greater Middle East Initiative," by Zbigniew Brzezinski, March 9, 2004, 11:54]. He wondered whether the premature imposition of democracy might bring Usama bin Ladin to power in Saudi Arabia or Hamas in Palestine. He cited the suspicion that the initiative was simply a device to postpone an Israeli-Palestinian agreement until the Palestinians passed some sort of democracy test to be applied by Dick Cheney. Above all, he objected to the fact that the idea was being presented to the Arab states without first consulting with them, but he did not note, as many others did, that the Bush "democracy initiative" simply threatened the positions of several Arab leaders who are considered reliable American allies.

Nevertheless, Tamara Cofman Wittes of the Saban Center [Middle East Memo #2, May 10, 2004] wrote that "The initiative is part of President Bush's 'forward strategy of freedom,' by which the expansion of political rights and political participation in the Muslim world is meant to combat the appeal of Islamist extremism. In November 2003, with the mission in Iraq 'accomplished,' the President said, 'For 60 years Western Governments excused and accommodated the lack of freedom out of a misguided belief that this was the best way to ensure stability. But it was precisely the lack of democracy, the lack of economic opportunity and development or respect for personal freedoms which are causing, I think, the discontent to grow in the region'." 

Wittes also takes seriously the administration's argument that the forward strategy of freedom is a response to a variety of civil society based democratic initiatives which recently surfaced in the Arab world, of which the Alexandria Library Conference is the most celebrated. It is, nevertheless, important to bear in mind that the administration's justification for the invasion of Iraq included the assertion that democratization in Iraq would have a domino effect throughout the region.

As was well reported, the GMEI proposal generated a split within the Arab League over whether to welcome the forward strategy of freedom or to ignore it. The split led to an embarrassing deferral of the Arab League Summit scheduled for March 29, 2004 [New York Times, May 22, 2004, p. A3]. When held on May 22-23, a vaguely worded resolution supporting the continuation of responsible political reform was quite overshadowed by criticism of US policies in Iraq and regarding the Israeli-Palestinian peace process. It is well known that Egypt, Saudi Arabia, and Syria strongly oppose the American initiative.

The ambivalence of the Arab League Summit toward the GMEI was echoed by the response of the G-8 Summit of June 2004 and the subsequent high level US-EU and NATO meetings. The G-8 response was to adopt a declaration titled "Partnership for Progress and a Common Future with the Region of the Broader Middle East and North Africa" [Völker Perthes, "America's 'Greater Middle East' and Europe: Key Issues for Dialogue," Middle East Policy, vol. 11, Fall 2004, n. 3, pp. 85-97]. The declaration allows for cooperation between the US and the EU, but it leans more toward coordination between their respective approaches, it emphasizes treating each country on its own terms, it prefers taking small incremental steps, and it places greater emphasis on the importance of solving the Arab-Israeli and Israeli-Palestinian conflicts. 

Moreover, since June we have not heard much of the GMEI as attention turned to the US elections, to the demise of Yasser Arafat, and to the elections in Iraq. In the coming days, we are likely to hear, and possibly come to believe that the Iraqi elections have been a success—in the sense that they reveal that the number of Iraqis willing to take a chance on ruling themselves without American protection is larger than anticipated. It may be hoped that the election turnout in Iraq signals the culmination of a tipping process whereby at least the Shi'a and the Kurds have decided to isolate the insurgents and to support the emergent elected authorities. But the events in Iraq appear to be far more dramatic than have been the results of isolated, more or less fair, elections in other Middle East countries. But, then, the situation in Iraq is far more desperate than it was in Egypt, or Jordan, or Iran, or Kuwait, or Morocco.

This brief and confusing history suggests that the US does not have a grand strategy for the development of Middle East economies other than the vague hope that democratization breeds private enterprise. The political side of the GMEI far outweighs the significance of the micro-economic perspectives which dominate the proposed economic reforms. Thus, to the extent that the Iraqi elections succeed in reducing the American burden in Iraq, the more likely is it that attention will be paid to the problem of building a political regime capable of securing Iraq's oil production and export capacity rather than to incentives for small cap entrepreneurship and the micro-financing of cottage industries.

More generally, we can conclude that the developmental initiatives of the US, the EU, the UN, and the Arab League will continue to be scattershot and uncoordinated, with each concentrating on their preferred countries and projects and none seeking responsibility for regional development. But, of course, the regional powers themselves are divided over whether they want international actors to take such responsibility, with the weaker economies fearing domination and the stronger regional economies fearing contamination via migration and pressure to share the wealth. Both stronger and weaker economies are concerned that both regional and extra-regional powers may seek or maintain hegemonic relationships with some of the most vulnerable states, such as Lebanon, Jordan, Qatar or Kuwait.

Because the international community is unlikely to act collectively to develop a comprehensive regional development policy, a great deal of the responsibility for rebuilding devastated economies in the region will devolve onto the political and diplomatic skills of those who have inherited political authority in these countries. The rulers of Yemen, Sudan, Lebanon, Iraq, Afghanistan and Palestine will themselves have to become the most valuable economic assets of their respective countries in order to elicit from the international community the resources necessary to rebuild their economies—but they are no more likely to do anything that will diminish their hold on power than the leaders of the wealthier states. The rulers of these states are well aware of the fact that economic devastation has been the consequence of civil strife, often aided and abetted by external influences, ideological, financial, and military. They know full well, that some segment of their societies was willing and able, at whatever cost to themselves, to impose unbearable economic costs on their fellow citizens, to destroy the infrastructural unity of the country, and to replace markets with banditry. Consider, if you will, why some Iraqis compare Saddam's law and order favorably with the chaos prevailing in some parts of occupied Iraq. At the same time, it remains quite clear that there can be no successful rebuilding of devastated economies, nor any reform of more robust economies, without some significant regime change.

When we examine the regimes in power in the seven cases that we have selected as examples of economic devastation, we see that they are a strange bunch. None of these regimes, except for the Palestinian state in waiting, have come into power via popular choice. None represents a consensual agreement  which can provide the substrate for long-term compromise. In Lebanon, Afghanistan and Iraq, the regime is sustained by foreign force, so it has a kind of hybrid character. In Sudan, Algeria, Yemen, Afghanistan and Iraq, the regime has little or no stable control over large parts of the national territory, though it is capable of inflicting great damage in those places. All of these states, or would-be states, are sustained by foreign financial sources or by the sale of petroleum, so all share the characteristics of rentierism.

Many observers openly argue that none of these states enjoy the prerequisites of stable democracy, so that precipitous democratization may produce radical Islamic governments. And others, yet, warn that the continued suppression of popular political participation will lead to terrorism and the sort of anarchy that destroyed the economy. All of these countries have experienced, or are experiencing, civil war or something like it. In some cases (Algeria?), economic decline preceded the breakdown of state authority, but in all cases, violence has deepened the economic crisis and prevented economic recovery. State failure or frailty has opened the political arena to religious extremism which presents both political and ideological obstacles to economic recovery. It is, moreover, debatable whether economic recovery is a prerequisite for political recovery or vice versa—or whether both can be pursued simultaneously. Including Palestine, all of these countries have recently achieved a modicum of stability. All, except for Lebanon, have a tradition of centralized state control of the economy, albeit not very efficient. Algeria, Iraq and Sudan can benefit to some extent from oil production; but it is clear that all will depend on external assistance—if they can convince the international community that they are worth the risk.

But what strategies, guarantees, commitments, and collective arrangements should be adopted in order to bring back these devastated economies? There is little doubt that the structure of national economies, the ethnic division of power, the external sources of assistance, capital and advice will all play a significant role in what now appears to be a long slow process. It appears that the indigenous economic obstacles to political stabilization may have received too little attention, while the effects of a generalized globalization are expected to impact, whether for good or ill, on all peripheral economies in the same way. It would seem prudent to examine both sides of the development equation, when considering how best to rebuild the devastated economies of the Middle East as part of a global effort to achieve regional peace. The purpose of this workshop will be to explore these alternative perspectives and to suggest preferred methods of approaching these problems from practical as well as theoretical points of view.

Published: Monday, February 28, 2005