The Arab Economies in the 1970s

by Roger Owen
published in MER100-101

The 1970s were undoubtedly the most dramatic and important years in recent Middle Eastern history. The decade began politically with the death of Nasser, the formal withdrawal of the British from the Gulf and the first sharp increase in the price of oil. Oil -- its production and marketing, its revenues, its social impact -- was at the center of the economic transformation of the region. By the end of the decade, most Arab oil regimes (with the exception of Saudi Arabia) had nationalized their reserves and producing facilities and taken formal control of pricing and rates of production. Huge sums of money accrued to the major oil exporters, encouraging mammoth infrastructural investment and equally massive labor migration to the Gulf states and Libya. And all this took place in a decade of sudden changes within the regional and international environment -- local wars, the Camp David agreement, the Iranian Revolution and the almost complete replacement of the Soviet Union by the US as the main supplier of military and political aid to most of the Arab Middle East. There were, as well, two serious recessions and an unprecedented period of high inflation in the international economy.

In these volatile circumstances it is somewhat surprising to find that all the Arab regimes which had been in power at the end of 1970, with the exception of North Yemen, survived the decade. Successful coups and revolutions were confined to states on the Arab periphery: Ethiopia, Turkey and Iran. This stability of regimes was due in large measure to the vast expansion of the state apparatus and its power to control and coerce, which had occurred in the 1960s and early 1970s. But it also owed something to the ability of individual Arab regimes to deflect from themselves disturbing tensions in the Arab environment, such as those aroused by the Lebanese civil war and by President Sadat’s trip to Jerusalem. There was thus a reasonably stable political environment, except in Lebanon, which permitted most economies to continue to grow at a satisfactory rate per capita (at least according to their national income statistics), in spite of a rate of population increase that sometimes exceeded 3 percent a year and provided for increased demand for consumption and services. But this expansion had a price: increased repression, mounting corruption, growing inequality and policies which ran directly counter to the sporadic efforts to create a more orderly institutional framework within which to manage intra-Arab economic relations. In the case of Egypt, and to a lesser extent Sudan, it was also bought at the expense of political isolation and a much greater financial dependence on the United States and the international monetary agencies. In these and other ways, the decade ended with an accumulation of problems, including Arab disunity, politically dangerous reliance on foreign supplies of food, weapons and technology, and a resurgence of protest movements based on sectarian or regional loyalties. Of these, acts of open insurrection like in Aleppo and Mecca in late 1979 were only some of the more extreme manifestations.

“Socialism” Abandoned

To understand the most important features of the period, it is necessary to look at the effects of the confluence of two distinct and separate trends. The first of these, well symbolized by the death of President Nasser, was the steady abandonment of policies loosely defined as “socialist” -- that is, planned intervention by the state to redistribute wealth downwards and to reduce the degree of political and financial dependence on the advanced capitalist world. The prevailing orthodoxy today is defined, equally loosely, by the term infitah (“opening up,” or liberalization), stressing the need for greater foreign investment, close links with foreign financial institutions and a very much greater tolerance of large differences in income. This shift was most apparent in countries with little or no oil (Egypt, Tunisia, Syria), but it can also be observed towards the end of the decade in a more modified form in Iraq and Algeria.

The reasons for this shift, to speak very generally, can be characterized as largely internal. They represent an orchestrated response of the higher bureaucrats and public sector managers, and their private sector allies, to a series of persistent crises. These include the failure to raise sufficient domestic capital for investment, to obtain a sufficient increase in agricultural production, or to diversify and expand manufacturing output. Those advocating greater access to Western capital and technology and increased economic incentives argued that they were providing technical answers to purely technical questions. But this shift was certainly encouraged by changes in the regional and international environment, notably the rising economic strength of Saudi Arabia and the ascendancy of US power in the region.

The country which carried this liberalization furthest was, of course, Egypt. In 1974, President Sadat elaborated a comprehensive attempt to restructure the Egyptian economy based on the encouragement of foreign investment, the reorganization of the public sector and revitalization of the private sector (including commercial agriculture), and the liberalization of foreign trade. [1] Egypt would then be in a position to reap the rewards of peace with Israel and of its own abundant, cheap, semi-skilled work force.

Seven years later, this policy has produced a further internationalization of Egyptian production, a reduction in the degree of state planning and control over the economy, and a huge import boom in which the adverse commercial balance is only just covered by income from oil, tourism, the Suez Canal and, above all, the remittances of Egyptians working abroad. Different aspects of Sadat’s plan have entailed certain contradictions. The separate peace with Israel interrupted the flow of Arab finance, much of which was public money over which the Egyptian state had a great deal of control. Opposition from state managers and employees, as well as Sadat’s own unwillingness to surrender the political power, slowed down reorganization of the public sector.

Finally, a variety of factors and constraints, deriving directly from Egypt’s further integration within the international economy, greatly influenced Egypt’s industrial capacity. If the liberalization of foreign trade allowed some factories easier access to the spare parts and raw materials they required to work to full capacity, others suffered severely from the increase in foreign competition. Few private capitalists were anxious to invest in Egyptian industry. The 53 new foreign (or joint Egyptian/foreign) banks which opened after 1974 tended to channel funds out of Egypt rather than into it. Nevertheless, by 1980, numerous companies had established themselves in Egypt and were beginning to build plants for the manufacture or assembly of products for both the Egyptian and the foreign market. Rivier’s list of the names of such multinationals tells its own story: Dupont, Crush Co., Coca-Cola, International Paint, Ford, Goodyear, Union Carbide, Colgate-Palmolive, Johnson, Reynolds, Hoechst, Stein-Muller, Siemens, Handel Co., Michelin, Hutchinson, Bonna, Chloride, Massey-Ferguson, Wilkinson, Otovoko Japon, Schindler, Honda, Brown-Bovery, Sheoda and Volkswagen. [2]

Oil and Money

The second trend characterizing the decade was the rapid accumulation of enormous financial resources by eight of the ten Arab oil exporters represented in the Organization of Arab Petroleum Exporting Countries (OAPEC). Between 1970 and 1977, the GDP of Saudi Arabia, measured in money terms, increased by over 1000 percent. That of the United Arab Emirates rose by 800 percent and that of Kuwait and Libya by 400 percent. [3] By 1980, while Egypt and Syria, with over 50 percent of OAPEC’s population, contributed only 11.5 percent to OAPEC’s combined GNP, Algeria and Iraq contributed 19.5 percent and the thinly populated Gulf states, 69 percent. According to their published development programs for the second half of the 1970s, nine oil producers (the Gulf states plus Iraq, Libya and Algeria) allocated nearly $275 billion to domestic investments, more than four times that of all the other Arab states combined. [4] By 1980 they had accumulated a roughly equivalent sum in net foreign assets. At the center of the whole process stood Saudi Arabia, earning and spending about twice as much as its OAPEC partners combined. In 1981, the Saudi regime proposed to spend nearly as much money on security and defense (over $20 billion) as the four most populous Arab states (Algeria, Egypt, Syria and Iraq) had allocated to development expenditures of every type. [5]

Most of the oil money was simply wasted or spent on high cost projects of doubtful value -- this is obvious. It was accumulated much too fast, predominantly by underpopulated desert states with rudimentary administrative systems. These states came under enormous internal and external pressures to create the infrastructure, the armies and the welfare services thought appropriate to a modern state. The cost of these projects was astronomical: One index of the expense involved in such a program is the calculation that in 1975 a particular public works project would cost up to three times as much in Saudi Arabia as it would in California.

Turning to the money saved rather than spent, over half the surplus funds which the OAPEC countries invested abroad were placed in bank deposits and short-term securities in the US and Western Europe. As the critics of this policy now point out, these were neither safe (witness the seizure of Iran’s financial assets) nor secure (their value has been steadily eroded by inflation and the depreciation of the dollar). [6] Only at the end of the decade did some of the smaller OAPEC producers begin to introduce policies aimed at keeping more of their valuable oil in the ground. Such arguments apparently made little headway in Saudi Arabia, far and away the largest producer, which continued to export considerably more oil than it needed to finance its extravagant development projects. Saudi oil prices were lower, much lower, than other producers, allowing huge windfall gains for Saudi agents and foreign companies with permission to sell Saudi oil on the open market.

Dimensions of Integration

The whole of the Middle East in the 1970s must be seen as a case of an oil-dominated economy in which agricultural (as well as industrial) progress is inhibited by structural features connected with the lopsided dependence on the export of this one primary product. For the Arab economies generally, the infitah among the oil-poor states and the profligate expenditures of most of the oil-rich ones worked to accelerate flows of labor and money between them and to deepen the region’s ties with the international economy.

To begin with the pattern of economic integration: By 1980 there were an estimated 3 million Arabs working in neighboring countries -- perhaps 1.5 million Egyptians, upwards of one million Yemenis, up to 300,000 Syrians, 200,000 Jordanians and about the same number of Sudanese. [7] Something like half this number were employed in Saudi Arabia, and another third in Kuwait, Iraq and Libya. Up to a quarter of them were occupied in some aspect of construction. The impetus for this massive shift of humanity lies in the huge labor requirements of the oil-rich states, and the fact that their average per capita income reaches, in some case, ten times that of their neighbors. This tide of labor has been virtually uncontrollable. Countries like Somalia and Sudan have tried in vain to regulate it. It has become a major fact of life which governments have to live with, whether they like it or not.

Labor has moved in one way and money has moved, to a limited extent, in the other. By 1980, the remittances sent home by Arabs working in other Arab countries amounted to an estimated $3 billion. [8] Even larger sums of money were transferred to the oil-poor states by individual oil-rich regimes, intra-Arab development organizations and private institutions. Some of these funds were placed in what Yusif Sayigh has called the “joint Arab development sector” -- a set of joint ventures, joint reserach projects and economic development agencies with capital worth about $22 billion by the end of the decade. [9] The Arab Authority for Development and Agricultural Investment, set up in 1974 to encourage Sudanese agriculture with a nominal capital of over $1 billion, is one such scheme. The Arab Organization for Industry, designed to promote the production of military weapons with a similar capital fund, is another.

Financial flows of this magnitude have spurred the phenomenal growth of organizations like banks and funds for managing these transfers. The multiplication of such organizations has taken place with a minimum of coordination and control, and in the absence of any general intra-Arab economic plan beyond a very broad set of shared priorities, such as the need to increase Arab agricultural production. One must remember that these regimes have often had the greatest difficulty in formulating their own development plans. They have no effective way of evaluating the impact of these massive shifts of money and labor or of managing them to promote their separate, never mind collective, interests. For example, suggestions that the labor importing states help the poorer states to pay for the training of the skilled work force they themselves will require in the 1980s have not, so far, been taken up. The reasons are partly political, involving narrow regime self-interest and intra-Arab fragmentation such as represented by Egypt’s ejection from the Arab Organization for Industry following the Camp David agreement. Another factor has been the sheer novelty of any regional attempt to foster economic integration based not on trade promotion (which lies at the basis of the European Common Market) but on the exchange of capital and labor. This particular mode of integration is, to some extent, unique and unprecedented.

A second feature of the decade is the growing integration of the whole Arab region into the international economy. Between 1972 and 1979, the shares of the Arab countries in total world trade by value more than doubled, from 3.6 to 8 percent. This was mainly on the basis of an exchange of oil for increased imports of food, arms and manufactured goods in general. This was true even for the oil producers with more diversified patterns of economic activity. By the end of the 1970s, oil constituted 93 percent of Algeria’s exports and 98.4 percent of Iraq’s. [10] Only in the case of a very few countries, like Egypt and Jordan, did the proportion of primary exports to total exports fall during the decade. [11]

On the import side, one of the most significant features was the growing dependence on non-Arab sources of supply to meet local demand. By the end of the 1970s, 93 percent of Arab imports came from outside the region. [12] This includes roughly 50 percent of the Arab world’s total food requirements. [13] Even countries like Iraq and Algeria could only produce around 60 percent of the goods they required for consumption and investment, leaving the remainder to be purchased from outside. [14] The importance of the Arab countries as a market for European, American and Japanese goods increased enormously, with Saudi Arabia alone becoming the seventh largest American world market by 1979. With import demand increasing and trade controls being relaxed, Arab countries with little or no oil experienced serious balance of payments crises.

Labor Migration

These are the two major features of Arab economic life in the 1970s -- the partial, unorganized integration of the Arab economies with each other, and their further incorporation into the international economy as suppliers of oil and as markets for both primary and manufactured goods. This framework allows for an understanding of three other, related developments: the economic impact of labor migration, the continued slow progress in agriculture and the failure to diversify industrial structures. Some research has been conducted on the implications of imported labor into host countries, but much less has been attempted on the effects on the economies of the labor exporters, which vary greatly from country to country. The proportion of the working population employed abroad (in other Arab countries and elsewhere) ranged from three percent in Sudan in 1980 to 12 percent in Egypt, and to over 33.5 percent in Jordan, Algeria and, perhaps, North Yemen. The composition of each country’s migrant labor force also varies enormously, particularly its division between skilled and unskilled workers and between those from rural and urban backgrounds.

Nevertheless, it is still possible to suggest a number of general conclusions about the process. First, however small the proportion of workers leaving a particular economy may seem to be, migration has now reached such a pitch that even a country like Sudan, with much rural underemployment, is seriously affected, both in agricultural output and in the availability of skilled and professional personnel. A 1978 survey of Sudanese migrants showed that 90 percent of them were aged between 20 and 39, in other words, from the most active segment of the country’s labor force, the ones least likely to be unemployed. The same survey indicated that 17 percent of Sudan’s doctors and dentists, 20 percent of its university teachers, 30 percent of its engineers and 45 percent of its surveyors were already working abroad. [15] More impressionistic evidence from Egypt suggests that migration from rural areas tends to be heavily concentrated among certain villages, often leaving a particular community almost completely stripped of its young men. This frequently produces a quite significant increase in the degree of social differentiation, in the patterns of income and expenditure and in the type of goods produced between villages within quite small areas. It also pushes up the wage rate for certain types of agricultural activity.

Second, virtually uncontrollable migration makes certain types of work force planning difficult, if not impossible. In Tunisia, for example, the sudden exodus of labor to neighboring Libya disrupted efforts to establish a process of orderly job creation once migration to France halted in the early 1970s. In Jordan, there is a reluctance to extend and improve secondary education if the only result is that the country’s young people, trained locally at great cost, proceed to jobs in the Gulf and elsewhere.

Third, the migrants are mainly men, and this has a great effect on the employment of women. In Saudi Arabia, pressures to reduce dependence on foreign labor is encouraging the training of more Saudi women, though they are presently restricted almost entirely to the “women’s section” of the local economy. In the labor exporting countries such as Jordan, the tide of migration draws more and more women into the labor force to fill gaps. In Egypt, women effectively run more and more households, both urban and rural. [16]

Only a small proportion of the migrants’ remittances is used directly for productive investment. A number of governments, notably Tunisia, have made considerable efforts to encourage this by reducing the duty placed on the import of capital goods by individuals and similar measures. Research into a sample of 500 Sudanese labor migrants suggests that about half the money earned abroad was used to buy either houses and urban land or taxis, trucks and shops. Only about 10 percent was used for purchases related to farms and workshops or for new capital equipment. For 22 percent of the sample, the major use of remittances was to buy consumer durables and non-durables. [17] Such purchases inside the migrant’s own country of origin serve to fuel inflation and to suck in further imports. When purchased outside and shipped home -- witness the piles of fans, television sets and vacuum cleaners at any Arab airport -- they tend to restructure existing consumption patterns and restrict the market for similar goods manufactured locally. In 1980-1981, nearly a quarter of all Egypt’s remittances -- some $900 million -- were sent home in kind rather than cash. [18]

Migration to the oil-rich states or to Europe is, of course, only part of a more fundamental change in the economic character of the region -- movement away from the rural areas, from villages to cities and towns. The Algerian planning ministry estimates that in the late 1970s some 170,000 people left that country’s rural areas each year. This is some 8 percent of the total rural population. Migration in this larger sense has had a marked effect on Arab agriculture. There are labor shortages in many rural districts. The size of urban populations demanding cheap, subsidized bread has mushroomed. In Egypt and Algeria, for example, townspeople are fed almost exclusively by imported foodstuffs. [19] Rising fuel prices have increased rural transport costs and pushed the cost of reclaiming marginal land so high as to make it (for example, in Egypt) virtually uneconomic. [20]

Agriculture: The Achilles’ Heel

The problems of the agricultural sector in most Middle Eastern countries predate the oil boom: the harsh nature of the climate and the terrain, the inefficiencies inherent in the extension of the state’s control into rural areas, the waste of water, and a pattern of land distribution that, even after reform, has left medium landowners in control of significant rural assets. Most Middle Eastern governments have pursued financial policies which favor the urban sector, taxing the agricultural population at a proportionately high rate (through manipulation of relative costs of agricultural inputs as against prices paid for agricultural outputs) and subsidizing prices of imported foods. Taking the Arab world as a whole, agricultural output increased no faster than population between 1960 and 1975, and somewhat less than the demand for better and more nutritious food. Between 1973 and 1977, the value of Arab imports of food increased by something like two thirds in real terms. [21] Add to this the very high cost of creating an enlarged system of warehousing, wholesaling and distribution, now that more and more meat and cereals are reaching the towns not from their rural hinterland but from coastal ports.

Most regimes have invested relatively small sums in their agricultural sectors. Considering all the published Arab development plans for 1976-1981, less than 10 percent of all expenditure has been allocated to agriculture (which still employs nearly half the Arab working population). This is no more than half the amount directed towards industry, which accounts for only 10 percent of the total labor force. Only Syria, of all the major Arab states, was prepared to spend more on agricultural than industrial development. [22] Most regimes have done little to prevent the loss of valuable agricultural land to residential and commercial construction. In Egypt, for example, nearly a sixth of the cultivated land has been lost since 1970 to other purposes. Nor do they enforce existing regulations designed to prevent methods of farming harmful to soil fertility. Only Algeria and Syria demonstrated a sustained effort to improve the system of agricultural cooperatives or to mobilize peasant activity in support of programs designed to improve efficiency.

By and large the main tendency has been for governments to rely increasingly on market forces to stimulate output, permitting landowners a much greater latitude in the types of crops they are allowed to grow and the commercial agreements they are allowed to make. They limit their own efforts to ostensibly technical solutions, such as increased mechanization, improved irrigation and drainage and the introduction of more prolific strains of seed. In this they were invariably supported by the World Bank, the International Monetary Fund (IMF) and other international agencies.

The result, in every case, has been an improvement in the situation of the medium landowners, private moneylenders, tractor owners, labor contractors, and agricultural merchants, whose profits governments have been very slow to tax. In Egypt, there has been a significant return to older methods of exploitation such as crop sharing on land where there remain legal restraints against raising agricultural rents. In Iraq, the government is now prepared to encourage private medium landowners to form state- supported service cooperatives.

The Industrial Sector

The situation in the industrial sector was only a little more hopeful. The oil-rich states attempted to build (or to broaden) the industrial sector, either taking over downstream operations of refining and transport of oil products from the international oil companies or using locally produced oil and its associated natural gas as raw materials for petrochemical factories. By 1980 the OAPEC countries possessed the capacity to refine only 15 percent of the oil they produced, and even this was greatly under-utilized. [23] As for petrochemicals, the low cost of energy and of the oil and gas feedstocks was supposed to offset the capital costs of such high-technology plants, so much higher in the Middle East than in Europe or North America. [24] In the event, transport costs proved to be particularly high, [25] while none of these producers have located the necessary foreign outlets for their petrochemical products once the narrow local market is provided for. Two other industries either begun or expanded in the oil-rich states in the 1970s were basic (mainly aluminum) metallurgy, which uses vast amounts of energy, and cement. These categories of projects consumed two thirds of the money invested in new industrial projects in Algeria and Iraq at the end of the 1970s, and over 83 percent in Saudi Arabia and the other Gulf states. [26] The plants themselves were usually constructed by foreign companies employing little local labor and handed over on a “turnkey” basis.

The basic strategy of most of the oil-poor states was to build up state-owned industries in a program of import substitution. As Mabro and Radwan have shown in the case of Nasser’s Egypt, such policies had been markedly unsuccessful at widening the mix of products produced. By and large, such countries continued to concentrate their manufacturing efforts on textiles, food processing and consumer durables. [27] Where new lines of activity were introduced during the 1970s, this was mainly the work of multinationals which either established local subsidiaries or joint ventures designed to take advantage of government grants and concessions such as tax holidays or exemption from labor regulations. The result, in countries like Egypt, Jordan and Tunisia, was a slow but steady increase in output, in the proportion of industry to total GNP, in the diversification of industrial activity and in the contribution of local industry to exports. Such progress would undoubtedly have been faster but for the growth in foreign imports and frequent foreign exchange crises which, as in Sudan towards the end of the decade, forced many factories to operate at considerably less than full capacity. [28] Figures for the Arab world have been adversely affected by the Lebanese civil war. Before 1975, Lebanon was in a league by itself in the expansion of export industries, exporting nearly 80 percent of its manufactures in the year the war began. [29]

One particular constraint on Arab industrial progress was the continuing shortage of engineers, technicians and skilled workers. For all the emphasis on the expansion of local educational systems, it was obvious that they were not yet capable of providing the type of training which industry required, or of organizing the proper kind of research. Yusif Sayigh noted that the manpower projections in the Saudi Development Plan for 1976-1980 required the services of over 500,000 technicians, roughly equivalent to the whole output of all the Arab secondary-level technical schools. [30] More generally Sayigh also observed that the Arab world still does not possess the capacity to design and manufacture a machine to make a needle or a pin. [31] As C. H. Moore has tried to show in the case of Egypt, the educational system places too high a premium on formal academic qualifications. Moore correctly demonstrates the disrupting effects of purely political factors on attempts to organize proper programs of research and development, even under a regime such as that of President Nasser which asserted its intent to replace politics by sound administration. [32]

Class Formation

The interaction between labor migration, developments in Arab industry and agriculture, and the intensification of links with the world system provides a key to understanding some major developments in the relationship among Middle Eastern classes in the 1970s and between these classes and the state. Consider the changing pattern of employment. To speak very generally, the 1970s saw a small reduction in the proportion of the economically active population employed in agriculture and a growth in employment in services (particularly government services), while the proportion with jobs in industry remained relatively stable. Of Jordan’s urban population working in 1975, nearly 60 percent were employed by the state and only 10.4 percent in industry, defined most broadly. [33] The overall Arab figure for the proportion of the working population employed in manufacturing industry was approximately 10 percent in 1975, compared with 18.6 percent in South Korea.

Industrial workers remained too small in number to present a coherent political force. Larger state enterprises tended to be concentrated in two or three industrial zones, but any advantage of numbers and solidarity was generally much reduced by the very high turnover of workers. [34] Other urban workers were employed either in government or private services, which are notoriously difficult to organize.

Peasant solidarity was undermined by the migration of many villagers out of the countryside and by increasing social differentiation produced by market forces. These differences have become acute not only between various strata but between different districts, different tribes and even different villages. In Egypt, the migration of peasant workers has produced considerable rise in the real wages in certain areas. In Sudan, government and Arab sponsored schemes designed to increase meat production have brought large increases in wealth to certain cattle raising tribes. Developments of this type ensured that the discontent of those suffering from shortages, inflation or falling real wages remained localized, or were expressed under the banner of “Islamic reaction” to Western domination.

Arab labor migrants in the oil-rich states, together with their dependents, may well have numbered some 5-6 million by the end of the decade. [35] Like the Palestinian refugees before them, they have been granted even fewer benefits than local workers and certainly no right to organize themselves. [36] Their own governments cannot maintain regular contact with them as is the case, for example, with the Algerian workers in France. Every effort is made to prevent them from integrating into local social and political life. [37]

The role of other classes within Arab societies and their relationship with the state do not admit of any simple analysis. Concepts such as “state capitalism” or of a “state bourgeoisie” have not been sufficiently elaborated in their Middle Eastern context to give them any particular analytical or explanatory power. Only a few general points can be made. First, given their close links with the high strata of the state administration, many private sector merchants, bankers and entrepreneurs have been able to take great advantage of the growth of public sector investment and of foreign trade to make huge profits which have often been placed abroad or otherwise escaped government taxation. The numbers of middlemen are swelled daily by retired public-sector managers who set themselves up in private business on the basis of their old contacts and by labor migrants returning with enough savings to start their own concerns.

Second, these profits have not been invested productively but used to purchase urban property and obtain services such as private health care and private tuition or other items of consumption. For all their growing wealth, though, these groups have little power to affect the day-to-day political process. They are liable to having their property confiscated and remain almost wholly dependent both on the state and their links with foreign capital for their profits. This explains their reluctance to engage in long-term investments and their preference for joint ventures with foreign companies as a measure of political protection. They can, however, act as an important pressure group, providing the regimes with arguments in favor of the expanded use of foreign capital and technology, and of the need to keep wages low. In this way, they are increasingly able to affect the ideological battle against any return to “socialist” or even egalitarian policies.

Such groups reduce the area subject to direct state planning and control, and blur the distinction between the public and the private spheres. Public sector officials are regularly invited to participate in the rewards which come from cooperation with private business activity: in most Arab countries words like “bribery” and “corruption” seem to be used only in connection with transactions with foreigners. Regulations designed to protect public enterprise are bent or ignored. What makes transactions of this type noteworthy in the Arab world is the absence of any well-elaborated set of definitions of what constitutes the public interest. This leaves all Arab regimes open to the popular criticism that they tolerate -- even encourage -- private individuals to profit at the public expense. Such criticism is obviously worrying to regimes particularly when it is made by Muslim groups or, as in Syria and Iraq, it is made by an organized political force like the Communist Party.

The Decade Ahead

Over the next ten years, the fact that the world relies on oil for about half of its energy needs ensures that the Arab oil states will continue to receive large sums of money. The inclination to use this money to build up each country’s productive assets before the oil runs out will intensify. By 1990, it has been estimated, only four Arab states -- Saudi Arabia, Kuwait, Abu Dhabi and Iraq -- will have sufficient reserves to be able to export more than a million barrels a day. The coming decade will tell the tale of whether the recent infrastructural investment can provide the basis for a viable and competitive industrial sector, or whether the only strategy will be investment in foreign, mainly European and American, industry. The 1980s will also show whether agriculture is destined to remain the Achilles’ heel of Arab development efforts.

An increasingly vocal group of Arab economists and planners will certainly argue that in this situation the proper exploitation of “Arab” oil can only be determined on a cooperative basis. The Arab League’s Committee on Joint Arab Action drew up such a plan, adopted at the Arab summit conference in Amman in November 1980. This set out a series of common targets -- the development of non-oil resources, the establishment of food security and the creation of a range of new industries, notably engineering -- which would require new pan-Arab institutions, mandatory planning, and the expenditure of $15 billion of oil money over the next five years. [38]

The difficulties in the way of the full implementation of such a program are enormous. It runs counter to the political fragmentation of the region in the 1970s, and the fact that economic power is now largely concentrated in the hands of conservative regimes. The political defection of the major oil-poor state, Egypt, has only increased the lack of balance between the rich and poor. There are basic differences in the economic priorities of states with different time horizons when it comes to the longevity of their oil reserves. Apart from the economists and planners, and perhaps the growing number of Arabs working in regional banks and development agencies, there is no organized public pressure which can be mobilized in support of such programs. Few states have democratic institutions or even elected assemblies which can focus discussion on intra-Arab economic relations. Those classes which would clearly benefit from greater economic cooperation -- the peasants and the industrial working class -- have yet to find organized political expression.

It seems likely, therefore, that efforts at planned integration will continue along much the same lines: exceedingly modest economic cooperation among small groups of states, for example those in the Gulf, with similar patterns of political and economic structures. We can also expect the further development of pan-Arab banks and funds which provide services that transcend political boundaries. There will also be continued efforts to reduce the very high degree of reliance on foreign companies and institutions. By 1980, local concerns received something like 20 percent of the total contracts and Arab banks are taking a greater share in investing Arab funds abroad. [39]

There has been some effort to diversify Arab holdings of foreign assets by reducing the proportion of those valued in US dollars or held as short term deposits in the direction of the ownership of real economic resources -- a policy already quite advanced in Kuwait. [40] The oil states may even get around to replacing the dollar as a unit of account by a “basket” of leading currencies. Such policies will certainly be justified or defended in terms of their role in promoting a “national” or “Arab” interest. But in fact they will do no more than intensify the types of links with the international economy which developed in the 1970s. This is the symbolic function of Saudi Arabia’s joining the Board of Management of the IMF.

What is of more practical importance is to attempt to assess the various degrees of autonomy open to different Arab regimes, within the constraints imposed by existing patterns of economic relationships as well as by political factors such as the Iran-Iraq conflict, the Israeli occupation and the return of the Soviet-US cold war to the Middle East. As far as the more populous states are concerned, short of a comprehensive change in the class character of their regimes, the spectrum of strategies will continue to run from that of Egypt, on the one hand, to that of Iraq on the other. What all such states have in common is an inability to generate sufficient domestic savings to finance their own government spending and a consequent reliance either on oil receipts or foreign funds, or both. Oil allows states like Algeria and Iraq a somewhat greater degree of autonomy to affect the terms on which they interact with the world economy, as well as to buy off popular criticism with a higher level of public services and subsidized consumption. This is offset, though, by their decisions to establish high technology industries (petrochemicals and energy-intensive metallurgy) which only the advanced capitalist states can provide and maintain. They should anticipate major problems in the 1980s in managing their internal price structures -- particularly with respect to foodstuffs, defining the relationship between the public and private sector, and meeting inevitable demands for popular participation in government.

For the less populous oil-rich states, the spectrum of strategies runs from that of Saudi Arabia to that of Libya. These states have in common the combination of large oil revenues with limited agricultural possibilities and an unprecedented reliance on foreign labor and technological and professional assistance. They, too, have selected an industrial policy based on high technology industries and a social policy that features a “welfare state” for their own nationals. They differ in the degree of popular mobilization which they seek: Libya has the ideological advantage of being able to maintain that the national resources belong to the people, not to a single ruling family. The main problem of these states for the 1980s is sheer political survival. This, above all else, will color their approach to the enormous problems presented by their almost total dependence on foreign labor, skills and institutions.

Underlying all such speculation about the future is a major question: Have developments of the 1970s established economic interrelationships which will grow stronger in the coming decade? Or have they laid the groundwork for a level of social tension, conflict and imbalance that will demolish present strategies and class alliances? It seems unlikely that the political stability of the 1970s, as measured by the survival of most regimes, can last much longer. But any new ruling group will face the same constraints, and most likely depend on military backing. The underlying forces that could engineer a radical transformation of the region’s socioeconomic structure are building in this period, but the proponents of substantial reform will continue to face an uphill struggle.

Endnotes

[1] F. Rivier, “Politiques industrielles en Egypte: de Nasser a Sadat,” Mahgreb/Machrek 92 (April-June 1981).
[2] Ibid,, p. 57.
[3] Atef Kurbursi, Arab Economic Prospects in the 1980s (Beirut: Institute for Palestine Studies, 1980), pp. 18-19.
[4] Ibid., p. 20.
[5] Times (London), May 4, 1981; Kurbursi, p. 20.
[6] A. Federman, “Flight of the Petrodollar” and M. Anis Salem, “Second Thoughts from Arab Critics,” in South 15 (February-March 1981); H. S. Nuwayhid, “Investment and Protection of the OAPEC Surplus: A Strategy,” OAPEC Bulletin 7/2 (February 1981).
[7] Yusif Sayigh, “The Integration of the Oil Sector with the Arab Economies,” OPEC Review 4/4 (Winter 1980), 34; J. S. Birks and C. A. Sinclair, International Migration and Development in the Arab Region (Geneva: ILO, 1980), pp. 124-125; M. M. Mustafa, “Development Planning and International Migration in the Sudan,” Labour and Society 5/1 (January 1980); “Syria Supplement,” Middle East Economic Digest (March 1980); ”Jordan,” Middle East Annual Review 1980, p. 239. Other estimates are higher and would suggest at least 2.5 million Egyptian migrants, of which some 750,000 might be in Iraq.
[8] Sayigh, “Integration,” p. 34.
[9] Ibid., pp. 39-40.
[10] Kurbursi, p. 9.
[11] James Petras, “A New International Division of Labor?” MERIP Reports 94, (February 1981), p. 29.
[12] Sayigh, “Integration,” p. 311.
[13] Kurbursi, p. 10.
[14] ENI, The Interdependence Model (Rome 1981), Summary report on “Arab petroleum exporting countries’ development,” p. 8.
[15] Mustafa, “Development Planning,” pp. 87-88.
[16] See MERIP Reports 95 (March-April 1981).
[17] Mustafa, “Development Planning,” pp. 87-89.
[18] A. A. Mohsen, “Egypt: The Good News Is the Bad News,” The Middle East (May 1981).
[19] H. Delorme, “L’Algerie: importations de cereales, blocage de la production et developpement de l’etat,” and L. Tubians, “L’Egypte: agriculture, alimentation et geopolitique des echanges,” in Maghreb/Machrek 91 (January-March 1981).
[20] Sarah P. Voll, “Egyptian Land Reclamation Since the Revolution,” Middle East Journal 34/2 (Spring 1980), p. 142.
[21] Yusif Sayigh, “A Critical Assessment of Arab Economic Development, 1945-1977,” Population Bulletin of the UN Economic Commission for Western Asia 17 (December 1, 1979), p. 43.
[22] Kurbursi, p. 20.
[23] "OAPEC Downstream," The Middle East (June 1981).
[24] A. Al-Khalaf, “Comparative Economics of Basic Industries in the Arabian Gulf Region,” OAPEC Bulletin 7/7 (July 1981), pp. 5-13.
[25] Ibid., p. 9.
[26] ENI, Summary report on “Arab petroleum exporting countries’ development,” p. 40.
[27] Robert Mabro and Samir Radwan, The Industrialization of Egypt, 1939-1973 (Oxford: Oxford University Press, 1976), pp. 100-113.
[28] A. Taban, “Black Hole for Sudan Textiles,” The Middle East (June 1981).
[29] A. E. Chaib, “Analysis of Lebanon’s Merchandise Exports, 1951-1974,” Middle East Journal 34/4 (Autumn 1980).
[30] Sayigh, “Integration,” p. 34-35.
[31] Sayigh, “A Critical Assessment,” p. 40.
[32] C. H. Moore, Images of Development: Egyptian Engineers in Search of Industry (Cambridge, MA: Harvard University Press, 1980), chapters 4, 5 and 8.
[33] Salim Nasr, “Les travailleurs de l’industrie manufacturiere au Machrek: Irak, Jordan, Palestine, Liban, Syrie,” Maghreb/Machrek 92 (April-June 1981), pp. 20-21.
[34] Nasr, “Les travailleurs,” pp. 15-17, 22.
[35] Calculation by Janet Abu-Lughod.
[36] Fred Halliday, “Labor Migration in the Middle East,” MERIP Reports 59 (August 1977), pp. 12-13; P. Hallwood and S. Sinclair, Oil, Debt and Development: OPEC in the Third World (London, 1981), pp. 158-9.
[37] Ibid., p. 16; J. S. Birks and C. A. Sinclair, “International Migration in the Arab Region: Rapid Growth, Changing Patterns and Broad Implications,” Population Bulletin of the UN Economic Commission for West Asia (December 1979), pp. 60-65; T. Farah, F. al-Salem and M. K. al-Salem, “Alienation and Expatriate Labour in Kuwait,” Journal of South Asian and Middle Eastern Studies 4 (Fall 1980).
[38] Yusif Sayigh, in paper delivered at Sixth Annual Symposium of the Center for Contemporary Arab Studies, Georgetown University, Washington, DC, April 1981.
[39] Financial Times, March 30, 1981; Middle East Economic Digest, January 16, 1981.
[40] Middle East Economic Digest, February 20, 1981.

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