The Modern Middle East - A Political History Since World War I (Third Edition)

by Mehran Kamrava

  Other businesses in the semiformal sector offer a variety of services, including but not limited to lending money, selling cars or real estate, operating as general contractors, and importing industrial or automobile spare parts. Because such businesses tend to be more capital intensive and to require some technical or bureaucratic know-how, many of these enterprises are partnerships of two or more investors and businesspeople. Often an individual has investments or other types of involvement in several such businesses. Unlike shops and stores that sell goods and products, service businesses tend not to be concentrated inside the bazaar. Instead, many line the streets and the neighboring areas around the bazaar and are also found in other hubs of economic activity throughout the city.

  Despite their often unassuming storefronts, semiformal entrepreneurs tend to be affluent and have substantial capital at their disposal. In this they differ from the middle classes, which throughout the Middle East, except in the oil monarchies, have difficulties in making ends meet. The regional recession that started in 1986 and lasted into the 1990s, compounded by the slowdown of the 2000s, did not help matters: many have had to take second or even third jobs to be able to afford their rents or mortgages or the modern appliances that have become essential to middle-class living (washing machines, refrigerators, TVs and VCRs, and, more recently, computers, satellite television, and cell phones). More and more families find it necessary to have two incomes, and more wives have had to join the ranks of the formally employed.73 Members of the semiformal sector also differ from the professional technocrats and other wealthy members of the upper classes—physicians, industrialists, high-ranking bureaucrats—in that they seldom engage in conspicuous consumption. Despite their wealth, their purchasing habits and lifestyle more closely resemble those of the middle classes. Most important, they do not owe their station in life to the state and are not directly or even indirectly dependent on the government for their continued economic well-being.

  Like those in most developing states, Middle Eastern governments often see the private sector as weak, likely to engage in speculation and profiteering, and prone to selling out the national good through alliances with foreign capital.74 The state tries to regulate what goes on in the semiformal sector as much as possible and to collect its share of tax revenues generated by the sector’s economic activities. But it is inherently weak when it comes to pursuing its goals and agendas. Its contacts with the semiformal sector are irregular and sporadic. Its ability to collect taxes and other fees from members of the sector is highly limited and inconsistent, depending on factors such as the cleverness of entrepreneurs in evading state institutions and its personnel, the effectiveness of the state’s own agents, the whims of policy makers, and the zealotry or apathy of bureaucrats charged with implementation.75 Thus the state’s penetration of the semiformal sector and its ability to extract resources from it are uneven and often minimal. In short, in the Middle East one finds what one scholar calls “limited states” both in general and in specific relationships to the semiformal sector.76

  The state’s inability to firmly establish its authority over the semiformal sectors is due to complex interactions and processes. Both in its stated policies and in actual practice, the state wants to bring the semiformal sector under its control, at least financially if not bureaucratically. It thus creates bureaucratic institutions and agencies for this purpose (e.g., the Ministry of Economy, the Chamber of Commerce). But midlevel merchants and entrepreneurs often simply ignore state agencies and their functionaries. Their successful snubbing of the state is partly due to the state’s own inherent limitations: the state needs to preserve its available resources for the pursuit of larger economic goals, as it does not have, despite pretensions to the contrary, the omnipresence that its policies would require. Equally important are the dispositions and the capabilities of the merchants themselves. Members of the semiformal sector often perceive the state to be an obstacle to their desired economic goals, and this perception tends to be more accurate than not. Like the middle classes, they tend neither to trust the state’s intentions nor to agree with its overall ideological, political, or economic agendas, and their relation to the bureaucracy is especially adversarial.77 They have at best a utilitarian approach toward state institutions and officials: best avoided at all costs unless they somehow further one’s own benefit, which happens only rarely. Consequently, although the state has often created highly elaborate procedures aimed at regulating the operations of businesses, the semiformal sector seldom binds itself by state regulations in such crucial matters as hiring or firing employees, lending or borrowing money, setting the price of goods and services, observing child labor laws, and remaining open or closed on certain days. Frequently, business proprietors in the semiformal sector consider government regulations in these and similar matters intrusive and ill informed, tedious, and cumbersome, designed to maximize the benefits accrued to the state and thus ultimately harmful to business. In an attempt to derive revenues from society in forms other than what may appear as taxes or levies, many Middle Eastern states collect “fees” from businesses. To the merchants and businessmen who bear the brunt of these fees, they often appear as arbitrary and unfair, wasted at best on misguided state projects or at worst on corrupt officials. Even banks and other official lending agencies are viewed with suspicion: they enable the state to keep track of one’s assets, to tax hard-earned savings, and, in times of crisis or instability, to seize one’s assets. Unofficial moneylenders, especially those with a history of doing fair business, are often held in much higher esteem than formal banks and other institutions affiliated with the state. Thus evading the state and its multiple layers of institutions and officials is central to the economic vitality of the semiformal sector.

  Sometimes a mutually beneficial relationship develops between the state and the semiformal sector that reinforces both the political and the economic status quo. This type of relationship appears to have developed in the mid- to late 1970s in Egypt, when many entrepreneurs benefited from, and in turn vigorously supported, President Sadat’s infitah policies.78 Throughout the oil monarchies, also, there is a wealthy and influential class of merchants, often situated just below the ruling family, with whom the rulers maintain extensive familial, clientelistic, political, and economic ties.79 And, in Iran, in the early years of the Islamic Republic at least, there appeared to be substantial support for the new regime and its policies in the bazaar and in other segments of the semiformal economy.80 In these and in other countries of the Middle East, the pursuit of clientelist politics and rentier economics by the state has kept the semiformal sector content and politically quiescent for relatively lengthy periods. Clearly, favorable conditions for growth, prosperity, and high levels of consumer spending, as fostered and encouraged by the state, go a long way toward alleviating the potential irritations of the semiformal sector with the state and, over time, may even turn entrepreneurs into one of the state’s main sources of financial support.

  The political liberalizations of the 1980s and 1990s, and the economic difficulties that precipitated many of these changes, slowly chipped away at the powers of the Middle Eastern states, eventually leading to the uprisings of 2011. However, in the decades preceding the Arab Spring, neither the semiformal sector nor others socially positioned to articulate popular demands—such as the educated elites, the clergy, and technocratic professionals—witnessed meaningful rises in their level of influence on state matters. The experiences of the decades leading up to the Arab Spring left almost all Middle Eastern states weaker than before and in need of new justifications, new slogans, and even new institutional devices. But the substance of “new” political formulas differed little from the old. If anything, preoccupation just with surviving and weathering internal political and economic contradictions made the state even less meaningfully attentive to, and even more disconnected from, various social actors.

  The informal and semiformal sectors have been divorced from and large
ly untouched by the political and economic machinations of the state. Neither of these sectors had much to do with the state’s formal institutions or procedures to begin with, and the cosmetic institutional changes of the past decade have done little to change things. Even more substantive changes have not in any meaningful way involved either of these two sectors politically. The formal sector has received the bulk of the state’s attention, and the state has tried the hardest to placate its members, especially the wealthier and more influential ones.81 Factory owners and other industrialists, members of the bureaucracy, and professionals such as engineers and physicians, along with clerics and intellectuals, have been the main targets of the state’s attempts at making itself more presentable. But the basic economic disconnect between the state and the informal and semiformal sectors of the economy persists. By and large, the economic lives of these two sectors go on as if the political dramas of the past few years had not occurred at all. The merchants of the suq (bazaar) still sell their wares or services free of most state regulations, and, as always, those in the informal sector simply struggle to make a living.

  The semiformal and informal sectors’ “exit” from interactions with the state can have consequences that go beyond economics. Not only do state agendas become harder to implement, but society’s own abilities to mobilize around political goals become somewhat compromised. By virtue of their cultural dispositions and their social status, members of the semiformal sector are likely to harbor politically oppositional sentiments. By the same token, however, when the general political environment is conducive to earning high profits, they have no reason to engage in overtly oppositional activities. Thus the autonomy that the semiformal sector enjoys from the state does not automatically make it a natural agent for demands for political change or accountability. In the final analysis, the semiformal sector is a commercial class that is likely to put its economic interests above political ideals. Even more likely to do this are members of the informal sector, for whom earning a livelihood is a matter of survival. It is little wonder, then, that despite highly adverse economic conditions throughout the Middle East in recent years, political activism in both the semiformal and informal sectors has at best been episodic and rare.

  THE RIDDLE OF GLOBALIZATION

  On the basis of the analysis presented so far, it should come as no surprise that the Middle East and North Africa lag behind most other parts of the world when it comes to globalization. “Globalization” itself is a contested phenomenon, and there is no universal agreement over its precise meaning or its consequences.82 For the purposes of this discussion, I focus on the economic aspects of globalization. Globalization is seen here as the substantive integration of national economies into international and global economic forces, and the establishment of multidimensional linkages between them. Broadly, globalization entails the global expansion of capitalism, whereby capitalist economic dynamics traverse national political borders, thus creating institutional and financial linkages and interdependencies between national economies and international economic forces. One frequently used index for measuring economic globalization is the level of foreign direct investment (FDI) into the national economy.83 While attracting FDI might be a viable mechanism for fostering national economic development, by itself it is not a sufficient indication of levels of economic globalization. Globalization requires the existence of sufficient institutional and infrastructural depth (such as politically independent banks and other financial institutions, investment mechanisms, and manufactured exports) to allow for a national economy’s integration and active participation into the global markets, rather than its mere penetration by powerful and resource-rich multinational corporations. This distinction becomes particularly relevant in relation to the Middle East, where in specific sectors of the economy—such as the automobile and petroleum industries—there may be high levels of FDI while overall levels of economic globalization continue to remain comparatively low.

  Globalization’s economically derived linkages do not develop in a vacuum and are bound to have manifold and often far-reaching political and cultural consequences. Given the pervasive patterns of political development and legitimacy across the Middle East, it is precisely these political and cultural dimensions of globalization that have proved most problematic for the region’s states. Not surprisingly, most states of the Middle East have at best an uneasy and unsettled posture toward globalization, welcoming some of its benefits while fiercely seeking to fend off some of its other aspects.

  Figure 39. Skyscrapers of Sheikh Zayed Road, Dubai, at night. Corbis.

  In the remaining pages of this chapter, I will focus on two specific aspects of globalization insofar as it relates to the Middle East. First, I will empirically demonstrate that compared to most other regions of the world, the Middle East has experienced relatively low, or at best uneven, levels of globalization. Although in certain instances FDI levels may be high by global standards, overall indices of economic globalization in the Middle East remain low. Second, I will explore the economic and political reasons that underlie the uneasy relationship between most states in the Middle East and globalization, analyzing why some states in the region are more welcoming toward globalization, while others keep it at arm’s length, and still others fiercely fight it on every front. Throughout, the analysis is informed by a theme introduced earlier, namely, that insofar as the region’s political economy is concerned, political forces and considerations all too frequently trump the influence and significance of economic ones.

  Insofar as net inflows of FDI are concerned, the Middle East has consistently ranked near the bottom in comparison to other regions of the world, followed only by South Asia (table 8).84 Similarly, as table 8 further demonstrates, the countries of the Middle East rank at the bottom of the global scale when it comes to another key index of economic globalization, namely, the volume of high-technology exports as a percentage of total manufactured exports.85 In fact, the Middle East as a whole tends to be one of the world’s top importers and bottom exporters of manufactured goods (table 9). Within the region, although trade in merchandise far outweighs trade in services almost everywhere except in Lebanon—whose small economic base and concentration of wealth among a narrow elite have spurned the growth of the services industry—only a small percentage of manufactured exports tend to be high-technology goods. Moreover, across the region FDI as a percentage of the gross domestic product remains very low (table 10). This is further supported by the available data for the region’s Arab countries, for whom, unsurprisingly, petroleum is the biggest export, while manufactured goods, especially machinery and transportation equipment are the biggest imports (table 11).

  Table 8.Global Levels of Foreign Direct Investment

  SOURCE: World Bank, Development Indicators Database, “Foreign Direct Investment, Net Inflows” and “High-Technology Exports (% of Manufactured Exports,” under “Data,” “Indicators,” http://data.worldbank.org/indicator.

  Table 9.Share of Manufactures in Total Merchandise Trade by Region, 2010 (%)

  SOURCE: World Trade Organization, International Trade Statistics, 2011 (Washington, DC: World Trade Organization, 2011), p. 61.

  Another key index of economic globalization is intraregional trade and the establishment of economic linkages among regional trading partners. In many ways, regional economic integration is both a by-product and a smaller scale of globalization, expanding markets and transportation networks, enhancing investment and trade opportunities, facilitating labor mobility, and deepening linkages between local enterprises and those abroad. The European Union and the North American Free Trade Agreement (NAFTA) represent two of the world’s largest regional trading partnerships, with the Association of Southeast Asian Nations and the Mercado Comun del Sur (MERCOSUR) having also made significant strides toward fostering regional economic linkages and integration in Southeast Asia and South America, respectively.86 In the Middle East or even only its Arab subregion, however, discernib
le patterns of regional economic or trade linkages have yet to emerge. In fact, as table 12 demonstrates, overall, the Arab countries tend to trade less with each other than with other regions of the world. From 2006 to 2010, only 9.1 percent of exports and 12.4 percent of imports by Arab countries were the result of intra-Arab trade. The Middle East has yet to witness meaningful regional economic integration.

  Table 10.Trade Indicators in Selected Middle Eastern Countries, 2009

  SOURCE: World Bank, World Development Indicators, 2011 (Washington, DC: World Bank, 2011).

  Table 11.Commodity Structure of Arab International Trade, 2006–10 (%)

  SOURCE: Arab Monetary Fund, The Joint Arab Economic Report, 2011 (Abu Dhabi: Arab Monetary Fund, 2011), p. 125.

  Table 12.Arab World Trade Partners, 2006–10 (direction of foreign trade of Arab states)

  SOURCE: Arab Monetary Fund, The Joint Arab Economic Report, 2011 (Abu Dhabi: Arab Monetary Fund, 2011), p. 124.

  Such low levels of regional integration are not for lack of trying, nor, in fact, have they always been the case. World War II, for example, saw increased levels of intraregional trade, largely because the Middle East was used so extensively by the United States and Britain as a supply route to the Soviet Union.87 Beginning in the late 1950s there was an attempt to establish an Arab Common Market, although the effort was abandoned in the mid-1960s as a combined result of internal political bickering and the advent of the Nasserist state across the region. By the end of the 1980s, with the region more divided than before, rhetorical declarations and promises of increased intraregional trade flew in the face of mutual mistrust and bitter acrimonies.88 Hopes for increased regional integration were once again rekindled in the 1990s with three major developments: the signing of the Oslo Accords and the promises of peace and economic trade with Israel that it entailed; the unveiling of the Euro-Mediterranean Association’s agreement to establish a free-trade area in manufactured goods between a number of European and Arab countries by 2010; and, after much delay, substantive moves by the states of the Gulf Cooperation Council to give meaning to their promises of monetary and economic union.89 As the statistical evidence presented above indicates, such hopes have yet to come to fruition.