by Bonine, Michael E. ; Amanat, Abbas; Gasper, Michael Ezekiel
As a result of their shabby treatment in the past, and skepticism about meaningful change in the attitudes of the rich, the countries of the Third World are unlikely to recant quickly the policies based on that new power which has so sharply boosted their pocketbooks and prestige. Indeed, it may be impossible to persuade them to do so even with the most forthcoming measures....
The United States must therefore prepare to defend itself through new national policies, including efforts to break up the solidarity of the Third World itself, and seek to coordinate those policies with the other industrialized countries to reduce the threat of increasing tension with them.34
In place of a NIEO, Bergsten asserted, the industrialized nations should work to reform the international system in a manner that would facilitate the exchange between raw material producers and raw material consumers for the benefit of both:
The basic issue of international relationships for the foreseeable future is the tension between the imperatives of international interdependence and the quest to retain adequate degrees of national autonomy. The overriding goal is to make the world safe for interdependence, by protecting the benefits which it provides for each country against the external and internal threats to those benefits which will constantly emerge from those willing to pay the price of more autonomy for individual nations. This may sometimes require slowing the pace at which interdependence proceeds, and checking some aspects of it. More frequently, however, it calls for checking national intrusions into the international exchange of both economic and non-economic goods.35
In other words, the liberal order was to be preserved and those who were “willing to pay the price of more autonomy for individual nations”—economic nationalist/developmentalist regimes that refused “to take systemic concerns into account in formulating their own national policies”36—would be marginalized. For most of Europe, this meant preserving the embedded liberalism aspect of the Bretton Woods system. The new buzzword became “global interdependence.”37 The Americans, however, crossed the line separating “interdependence” from a (proto-) neoliberal “globalization” early.
THE EMPIRE STRIKES BACK
Bergsten’s reading of the problem and its solution was, of course, no more or less unreasonable than the Third World’s reading of the problem and its solution. Proponents of the NIEO had looked at the growing gap between rich and poor and diagnosed the problem as one of systemic failure. Increasingly, opponents of the NIEO looked at the growing gap between rich and poor and diagnosed the problem as one of paradigmatic failure—the development strategy itself was flawed, meaning, of course, the developmental state was flawed as was the social compact on which that state rested. Symptomatic of this new line of attack was the abandonment by donor governments and aid agencies of the developmental model they had embraced since the 1950s, citing problems with its urban/industrial bias, its so-called trickle-down premise (i.e., the assumption that an expanding industrial sector would eventually raise the living standards of the entire population), and its rising GNP yardstick. In its stead, they embraced the “basic needs” approach to aid delivery, adopted as World Bank policy in 1972, which focused instead on the direct targeting of poverty and hunger, particularly among the rural populations of the Third World. Earlier developmental models, it was argued, had not only failed to alleviate poverty, they had increased “absolute poverty” by as much as 20 percent to 40 percent. Even worse, development strategies were thinly disguised delivery systems to reward those included in the social compact—bureaucrats, industrial workers, “consumers,” and so forth—at the expense of the truly poor.38 Thus, in a bizarre and ironic twist, proponents of the new approach advocated for it in the name of “equity,” the very term developmentally minded economic nationalists had used to argue against the injustices of domestic liberalism since the 1950s.39 And just as the World Bank’s existence had ensured that development would be enshrined as an international norm in the early days of the Bretton Woods system, the bank’s imprimatur ensured the same for the basic needs approach after the system’s collapse.
The adoption of the basic needs model was but one manifestation of what might be termed a counterattack against both the NIEO and the policy assumptions and paradigm of political economy on which the developmentalist state rested. Some states in the industrialized world had initially been prepared to adopt a conciliatory stance toward the Third World, an approach later endorsed by the Brandt Report.40 Others attempted to temporize with its demands through bilateral arrangements.41 The American reaction, however, was confrontational. As the former American ambassador to the United Nations, Daniel Patrick Moynihan, put it, the time was ripe for the United States to “go into opposition.”42 Henry Kissinger was even more direct. “The United States, better than almost any other nation, could survive a period of economic warfare,” he warned the Third World leaders in 1976. “We can resist confrontation and rhetorical attacks if other nations choose that path. And we can ignore unrealistic proposals and peremptory demands.”43
Ultimately, the United States could turn the tables on the Third World and play the major role in defining the international economic agenda for years to come for a number of reasons. First, there was the international economic crisis of 1979–82 which was, in reality, two crises that erupted in tandem: the first as a result of a second round of oil price hikes; the second as a result of the so-called Volcker shock of 1979, when Paul Volcker, then the chairman of the U.S. Federal Reserve, decided that fighting inflation was more important than assuring high rates of employment and hiked interest rates to unprecedented levels.44 America’s tight monetary policy simultaneously raised the value of the dollar and precipitated a global liquidity shortage. In the West, the economic downturn of the 1980s replaced the “stagflation” of the 1970s. In the Third World, states faced higher debt servicing costs, collapsing commodity prices, and diminishing markets—the result of the global recession sparked by the liquidity crisis.45 More than at any previous time since the establishment of the Bretton Woods System, Third World states found their economic fate in the hands of “creditor clubs.”46
The United States launched a series of initiatives as well, designed to splinter Third World solidarity and shift the international economic agenda away from the NIEO (and out of the United Nations). The United States wielded its influence successfully in international institutions, such as the IMF and World Bank, and in international venues where it confronted Third World claims and succeeded in dividing what turned out to be a fragile coalition.47 It also used its weighted voting powers to encourage the transformation of the Bretton Woods institutions, expanding the breadth and scope of their operations, rendering them such effective enforcers of the “Washington consensus” through the application of conditionalities and structural adjustment programs that even the official historian of the IMF would later write, “By the turn of the century, the phrase ‘Washington Consensus’ had become a synonym for a narrow-minded and excessive zeal for laissez faire market economics.”48 American-trained economists of the Chicago school not only dominated these institutions, but came to dominate ministries throughout the Third World as well, replacing those with more dirigiste inclinations. Finally, the United States could turn the tables on the Third World and play the major role in defining the international economic agenda for years to come through just plain bullying, such as by withdrawing or threatening to withdraw from international treaties or agencies, cutting assistance, or tying American assistance to “policy-dialogues,” described by one analyst as “coercive diplomacy.”49
The combination of oil price hikes, the Volcker Shock, and policy decisions made in Washington, D.C., took the wind out of the sails of the NIEO. The international economic agenda was not to be set by what the Reagan administration dismissed as the “so-called Third World,” nor would that administration engage with what Secretary of State Alexander Haig called “sterile debates and unrealistic demands.”50 There would be a new order, for sure, but it would
not be like the one envisioned by advocates of the NIEO; instead, it would be an order that extended the realm of the liberal in “embedded liberalism” into the domestic economies of states. Within a decade, this new order had replaced the NIEO at the top of the international economic agenda.
In 1987, C. Fred Bergsten wrote another article for Foreign Affairs titled “Economic Imbalances and World Politics.”51 Just a few years prior, it might logically have been assumed that the “imbalances” referred to in the title were those that fed North-South friction, as well as Bergsten’s apocalyptic vision of a South triumphant. But by this time Bergsten had moved on, as had his audience; instead of the South, it was now America’s debt obligations to the rest of the world that was the stuff of apocalyptic economic visions.
THE MIDDLE EAST PIECE IN THE THIRD WORLD PUZZLE
This, then, provides the context for understanding the fate of the civic order among states in the Middle East, as well as the fate of the economic nationalism that was to support it. Some Middle Eastern states—Algeria, Libya, Iraq, and even Iran52—had played key roles in designing and promoting the NIEO; others—Algeria, Egypt—had provided models of state-led economic development, centralized economic planning, and import substitution industrialization emulated elsewhere. Nevertheless, they, like states throughout the world, found themselves enmeshed in the same three-part dialectical process:1944–71, when the global economic system created an environment conducive to economic nationalism in the South; 1971–80, when the South deployed the power derived from economic nationalism to challenge the system; and 1980–2008, when a reinvigorated system effectively vanquished economic nationalism in the South—through which the present order achieved dominance and the civic order of those states was put to the test.
The decade of the 1970s was a time of prosperity for most states in the Middle East, as it was for many states in the developing world.53 From 1973 to 1982 about $400 billion flooded into the coffers of OPEC. About half of that went to Saudi Arabia and another quarter to Kuwait and the UAE. Anywhere from $96 billion to $124 billion found its way to the Eurodollar market, where it was “recycled” for investment in public industries and development banks of “credit-worthy”—hydrocarbon exporting, newly industrializing, or both—developing nations. About $76 billion in oil money went to less credit-worthy nations, mostly in the form of grants.54 It is here that the trajectory of states in the Middle East veers slightly from that of states in other parts of the world: During the same period, most OPEC grants went to Muslim states, with the largest sum going to states in the Middle East. Thus, OPEC money played a significant role in underwriting the civic order in Egypt (until 1979), Syria, Jordan, Lebanon, and the Yemen Arab Republic.55 In addition, non-oil exporting states in the region benefitted indirectly from oil wealth through remittances sent home by their expatriate citizens working in the Gulf. Remittances enabled some beleaguered governments in the region to at least partially fulfill the promise of full employment, and it acted as a safety valve for others. In addition, remittances added to states’ coffers by increasing the amounts they collected through import duties and provided states with the foreign exchange necessary for industrial expansion. The export of labor to the Gulf was not negligible: at its peak, Gulf countries provided employment for 5 million Arab workers, contributing anywhere from an estimated $5.2 billion to $7.2 billion to the Egyptian economy alone.56
When the rug was pulled out from under the international economy in 1979, states in the Middle East found themselves left with some of the highest ratios of debt obligation to GDP in the Third World.57 In addition, the stagflation in the North, induced by the oil price revolution of 1973–74, along with conservation and competition, wreaked havoc on the overheated economies of the oil producers, who passed their shortfalls along to those states dependent on earnings from remittances and financial aid. Producers found no relief from the 1980–81 price hike, whose effect was short lived.58 The economies of the states in the Middle East, already reeling from the inherent contradictions of import substitution industrialization, never recovered from the Volcker shock. As summed up by one observer:
Economic decline has plagued the Middle East since the mid-1980s. . . . Overall growth rates have stagnated. In most countries of the region, gross national product (GNP) has barely kept pace with population growth, and in some, such as Saudi Arabia and Iran, per capita GNP has registered an absolute decline. Unemployment continues to climb. The jobless rate is officially estimated at 25 percent regionwide, and the failure of job creation to keep pace with demographic trends projects even higher levels of unemployment in the years ahead. Investment levels have declined. Fiscally strapped states have dramatically cut back on public investment, and the private sector has not stepped in sufficiently to pick up the slack. Capital flight is endemic. Middle East residents hold an estimated $100–500 billion in savings abroad, and the region has been unsuccessful in attracting foreign direct investment (FDI) in sectors other than tourism and petroleum. Productivity levels are down. Middle East products and labor have become progressively less competitive in the global market and this has spelled worsening trade imbalances, rising international indebtedness, and increased debt overhang. Finally, poverty remains a challenge. More than 30 percent of the population is estimated to live below the human poverty line despite the MENA’s reputation for admirably extensive family-sponsored and state-sponsored safety nets. Overall, the Middle East and North Africa is a region of deteriorating living standards and persistent economic anemia—a pale shadow of the promise it held in the 1960s and 1970s.59
This bleak environment has been apposite for IMF-induced stabilization and structural adjustment programs, which have been applied from Morocco to Jordan. States not compelled by IMF conditionalities—Algeria, Iraq, Syria, Saudi Arabia, Iran—followed many of the same policy prescriptions as those that were, to greater or lesser effect. In some of these cases, governments viewed neoliberal policy prescriptions as a quick fix to economies ravaged by the recession of the 1980s, or, in the case of Iran and Iraq, as the means to relieve the stresses induced by war mobilization. For Syria and Saudi Arabia, however, institutional reform was made a prerequisite for participation in the Euro-Mediterranean Free Trade Area and the World Trade Organization, respectively.60 The neoliberal agenda thus became virtually ubiquitous in the region, although its application remained spotty in practice.
At first, the introduction of neo-liberal policies was met with resistance on the street, particularly when those policies entailed cuts in consumer subsidies—a concrete example of the unilateral attempt on the part of states to redefine the civic order.61 The first “IMF riot” took place in Egypt in 1977, when the government, at that time in negotiations with the IMF, announced plans to cut subsidies for a number of basic goods, an act that would have raised their overall price by 50 percent. After two days—during which time seventy-nine protesters were killed—the government backed down (ultimately, the IMF advised the government to withdraw the subsidies but to do it gradually). Comparable IMF riots took place in Turkey (1980, 2000), Morocco (1983), Tunisia (1984), Sudan (1982, 1985), Algeria (1988), Jordan (1989, 1996), and Lebanon (1987).62
By the decade of the 1990s, however, it appeared that the austerity-induced riot in the Middle East was mostly a thing of the past.63 More effective repression and a slower, more judicious application of structural adjustment policies certainly played a role in this.64 But other factors were at work as well, especially the dismantling of the structures and institutions with which the post–World War II civic order had articulated. This altered social and political practice and, it might be argued, the moral economy such practice validated.
Throughout much of the Middle East, for example, the state had created categories of collective identity—peasants, workers, syndicates, and so forth—for both functional and symbolic reasons. In terms of function, it was through these categories of collective identity that organized interests were represented to governmen
ts. At the same time, states laid out a framework of rights and privileges of citizenship which, for all its inherent biases, operated as the playing field for those organized interests.65 The functionalist categories that states had used to define those with claims to rights and privileges are now gone or empty, as are the guarantees for those rights and privileges. For example, the Egyptian constitution of 1971 defined the state as a “socialist democracy,” described employment as “a right, a duty, and an honor guaranteed by the state,” promised education and health care to all, and gave the state “the lead role in managing and allocating resources.” In 2007, the constitution was amended: no longer was it the responsibility of the state to allocate resources, ensure equity, and guarantee outcomes; rather, the market was to take the lead, with the state merely taking responsibility for regulating the market.66 The beneficiaries of the contemporary state’s munificence—members of the ruling cohort or their cronies—are linked to the government through privileged ties of access, not through shared ideology or corporatist structures as they had been.67 Mobilizational parties, where they still exist, have been severed from their populist/developmentalist context, are functionally anachronistic, and have also ceded ideological space to groupings representing so-called primordial bonds, such as religion or sect. At the same time, smaller service-providing associations have colonized abandoned spaces in the urban economy.68