This paper examines the state’s role in economic development for several Arab countries in comparison with the state’s active and effective role in Europe and East Asia.
The European Experience and Gerschenkron’s Thesis
According to Alexander Gerschenkron, the first industrialized nation, Britain, gradually developed a set of institutions able to support industrialization. Most important of these was a market economy within a unified state. Property rights were protected in law; feudal restrictions on trade, transport, construction and production had been removed by the early nineteenth century (1).
Other European countries had a somewhat different pattern of development. There were variations in factor and product mixes designed to cope with relative scarcities such as those of skilled labor. More hierarchical decisionmaking structures substituted for a market less developed than in Britain. British firms were financed by mobilizing existing wealth, reinvesting profits, and through well-organized short-term credit markets. German financial markets were much less developed than in Britain and so banks played a larger role in funding industry. Germany’s relative backwardness explained its reliance on the banking sector to finance industry. This is one of the explanations for the involvement of banks as owners of industry there today.
In Russia the state was the only body with the power to mobilize savings. Only large firms could engage in the political relationships with the state that made it possible for them to get access to that financing. Russia’s relative backwardness explained both the role of the state, the scale of investment, and even the choice of technology there. (2)
The fact that Britain was the first country to industrialize also explained its adherence to free markets, from the Corn Laws’ repeal in 1846, to its abandonment of free trade with the signing of the Ottawa Preferential Agreement of 1932. It also explains why Germany, the United States and other countries were far more protective of their home markets: unlike Britain in its early industrialization phase, they had to compete with the first industrial nation.
Gerschenkron used the idea of relative backwardness to explain the policies and institutions used in Europe to further industrialization. He made no claims to a theory which could be applied worldwide, but his ideas are useful in explaining trends elsewhere.
Each country, as it industrializes, faces different conditions in the international economy. Over time these markets have become increasingly competitive. One of the most important implications here is that the state must compensate for relative backwardness in developing countries. This was already apparent in Japan after the 1868 Meiji restoration. The Japanese state began to mobilize the country in a race for economic growth after realizing that the West’s technological and economic lead threatened its independence. Issawi has pointed out how much more interested the Japanese were in foreign technology, production processes and even culture than the Arabs have been in recent times (3). This willingness to look abroad selectively also characterized development in other East Asian countries.
In recent years there has been a major debate about the causes of growth in East Asia (especially in Japan, South Korea and Taiwan). In 1993, the World Bank, one of the most important sources of free market ideology today, issued a report entitled “The East Asian Miracle” which came closer to recognizing the importance of the state’s role in economic development than any other major document it has published (4). According to the World Bank, in each of the high-performing Asian economies, new leaders faced an urgent need to establish their political viability before economic take-off. South Korea was threatened by invasion from North Korea, Taiwan from China, and Thailand from Vietnam and Cambodia. In Indonesia, Malaysia, Singapore and Thailand, leaders faced formidable communist threats. In addition, those in Indonesia, Korea and Taiwan, having taken power, needed to prove their ability to govern. Others in Malaysia and Singapore had to contend with ethnic diversity and attendant questions of political representation. Even in Japan, leaders had to earn public confidence after the debacle of World War II. In all cases, leaders needed to answer a basic question: why should they, rather than others, lead their countries. They hoped that rapid, widely shared improvement in economic welfare would bring legitimacy (5).
The Hard State in South Korea and Taiwan
The concept of the soft state was developed by Gunnar Myrdal in the 1960s in his “Asian Drama: An Inquiry into the Poverty of Nations,” which dealt with the problems of development in South Asia. The soft state was defined as one which demanded very little of its citizens (6).
The East Asian states have been called “hard states” because they have been effective in carrying out their economic objectives. Soft states register demands by different groups but are unable to do much more. Hard states not only resist private demands but enforce their will. These are states which “penetrate” their societies, regulate social relations, extract resources and then use them effectively (7).
Taiwan and South Korea went through massive dislocation in war, were threatened from outside and suffered (and benefitted) from colonization. Those factors provided symbols for unity and incentives for the leadership to succeed. The same was true for Japan in the second half of the nineteenth century (8). These changes were, according to Migdal, preconditions for the creation of strong states that concentrated social control in the government’s hands. War and/or revolution swept away existing systems of social control, enabling new regimes to mobilize the country behind programs designed to stimulate economic development (9).
A second factor present in so-called hard states was an independent, skilled bureaucracy successfully isolated from excessive politicization or association with private sector interest groups.(10). These factors were, however, present in other countries which did not experience such fast rates of economic growth. India provides an excellent example of a merit-based, professional civil service with highly selective entry. This did not guarantee fast growth. Conversely, South Korea and Taiwan have not been immune to corruption (11).
A regime interpreting its survival in terms of a need to provide economic results is highly motivated. When it has sufficient power and an effective bureaucracy to carry out its instructions, it is able to succeed. The combination of these factors are key components of a hard state.
The State in Taiwan
Taiwan has had strong, effective central government. The ruling Nationalist Party’s origins were in the Chinese mainland where its predecessor had overthrown the dynasty that had ruled China for 250 years. It faced the task of consolidating a huge country which had been ruled by local warlords, requiring many years of fighting against warlords, communists and the Japanese. The leader of the mainland Nationalists, Sun Yat-Sen, believed that the history of foreign domination over China required a strong state as the only way the Chinese would be able to develop the country. His economic philosophy involved a mix of private and public activity, market and government guidance.
As a result of China’s defeat in the mid-nineteenth century opium wars, Sun Yat-Sen was suspicious of capitalists, even Chinese capitalists. He advocated a form of market socialism, having looked at Bismarck’s Germany, Meiji Japan and the USSR’s New Economic Policy of the early 1920s for guidance in constructing a Chinese development model. These examples suggested to him that state ownership of key sectors was feasible and could form the basis for industrialization in China. Although there would be a role for private capital, it would be subject to limitations. In agriculture, private ownership would be permitted but landlordism ba. These ideas, which formed Sun’s Three Principles of the People were followed after his death in 1925 by his successor, Chiang Kai-Shek, until the Nationalists’ defeat on the mainland in 1949 (12).
The Communist victory in 1949 forced the Nationalist leadership’s retreat to Taiwan. While they ruled there based on their claim to power over the whole country, the immigrant leaders’ had to legitimize their rule over that alien and beleaguered province. This was done by force and by emphasizing the threat from the Communist regime. In addition, however, during the early 1950s, the nationalists concluded that future control over Taiwan would depend on economic development and its strategy was based on Sun Yat-Sen’s economic philosophy. (13)
Nationalist economic policy in Taiwan also took into account the factors which, the leadership concluded, had brought their defeat on the mainland. These included the rebellion of agricultural tenants against exploitative landlords, labor unions that ran out of control; bankers and financiers who failed to maintain control over credits and the money supply, thus feeding hyperinflation; and a close association between the government and vested interests (14). The Nationalists in Taiwan were determined to learn the lessons of history in order to retain control.
The Taiwanese government was quite explicit both about the importance of private property and the limits of its role. It was also clear about the need for equality in land ownership and restrictions on private capital where appropriate for the national interest. The fourth four-year plan, issued in 1965, stated that the government must be involved in all sectors of the economy but that it would not adopt a controlled economic system or even central planning (15).
Korea was ruled by the Yi dynasty from 1392 until it was overthrown by the Japanese in 1910. This extraordinary longevity and stability was, according to Pallais, a result of the balance between different social forces. But this was not a system that could respond effectively to the foreign challenges facing Korea in the twentieth century. The Yi relied on their Chinese counterparts both to supply luxury goods and to help it suppress a peasant uprising in 1894. In 1910 Japan formally annexed Korea after declaring it a protectorate, and Japan’s rule continued until 1945 (16). The Japanese abolished slavery, codified civil law and introduced a tax system based on cash payments rather than those in kind. They created an independent court system and separated the judiciary from the executive branch of government (17). They also reformed the land ownership system and taxed landlords collecting rents from tenants. Although the system was highly exploitative, it introduced market relations in agriculture.
After the Japanese forces were expelled, the U.S. occupation forces extended the land reforms, further reducing the landlords’ power, influence and wealth; encouraging funds to move from land speculation to investment in manufacturing; and helped increase food production. During the first republic, 1948-60, sales of confiscated Japanese property and U.S. aid provided benefits for those with connections to the regime. They obtained subsidized loans and were allowed to import commodities in scarce supply. This allowed industrialization and rapid economic growth but was unsustainable. In 1959 the economy went into recession.
South Korea in the 1960s
General Park Chung Hee, who ruled South Korea from his 1961 coup until his assassination in 1979, was influenced by the Meiji reform in Japan, Sun Yat Sen’s modernization of China, Ataturk’s policies in Turkey and Nasser’s in Egypt. He put a high priority on economic growth (19). Within 100 days of assuming power, the military government announced a five-year plan emphasizing large enterprises and long-term planning but the latter would not be allowed to stifle creativity or private enterprise. The United States, South Korea’s main aid donor, favored policies aimed at stabilizing the economy as a precondition for economic growth. The military realized that only growth would provide stability (18).
The military were able to play a dominant, almost “entrepreneurial” role in the economy because of the weakness of other social classes. Workers were few and capitalists relied on the state for finance and other forms of assistance. A month after the 1961 coup, a law against illicit wealth accumulation was passed and a number of profiteers were arrested. They were threatened with the confiscation of their assets but instead they were allowed to play a central role in the economy by having to invest sums in industry equal to those they allegedly gained through corruption under the previous regime. In this way an alliance was formed between industrialists and the military government that was the foundation for the investment boom that followed (20).
The student movement acted as a watchdog helping to keep the military government honest (21). U.S. policy also pushed the Korean military toward a policy of developmentalism, as a means of reducing reliance on U.S. aid. Strong and effective government did not mean there was no corruption or favoritism. According to Amsden:
“for all the venality…beginning in the 1960s, the government’s favorite pets–the big business groups that came to account for so large a share of GNP–were outstanding performers. What with export targets–an objective, transparent criterion by which firm performance is easily judged –price controls, restrictions on capacity expansions, limits on market entry, prohibitions on capital flight, restraint on tax evasion, and a government control over the banking system, the big business groups had to deliver (22).
Discipline in Korea, and its absence elsewhere, was due to differences in state power rather than among policymakers (23). To this should be added the effects of the Confucian tradition with its emphasis on discipline. According to the World Bank, in each of the high-performing Asian economies, new leaders faced an urgent need to establish their political viability before economic take-off (24).
Egypt Under Nasser
The contrast between the way Egyptian and Korean capitalists were treated is most significant. The Egyptian regime saw them as hostile, even as enemies. The Korean regime, viewing them as the key to its own future survival and success, succeeded in transforming this class and making it very productive for national development.
In 1952, Egypt’s new regime was determined that the state play a major role in the economy, promising to build the infrastructure and mobilize capital but without discouraging either the private sector or foreign investment. A major land reform was implemented to end feudal ownership patterns and encourage landowners to invest in industry. Funds would come from the forced sale of land holdings over the limit. In practice, the agricultural reform achieved only limited redistribution or investment in industry. Political tensions between the regime and civilian political parties damaged private sector investment. In 1953, parliament was disbanded, the constitution suspended and political parties banned. In this environment, private industrial investment declined. The nationalization of the Suez Canal company in 1956 and other foreign assets–including banks and insurance companies–thereafter raised assets and income to fund the public sector and government programs. But the private sector felt even more threatened by the growing power of the state and public sector.
The government’s Five-Year Plan for 1960-65 was seriously at odds with the actual situation in the country. For example, the Plan projected 55% of locally funded investment as coming from the private sector. This would have meant a doubling of private sector savings from 1959/60 to 1960/61 and another 40% increase by 1964/65, in constant price terms (25). The plan projected a marginal savings rate for households of 16%, compared with an actual rate of 3% in 1959/60. There was virtually no consideration about how these changes might be achieved (26). The plan’s to mobilize investment led to massive nationalization as an attempted solution (27).
In 1959, new laws forced joint stock companies to invest 5% of their net distribution to stockholders into state banks and to limit profit distribution to 10% of the nominal value of company shares. This caused a collapse of share prices (28). When the five-year plan was launched in 1961, remaining banks, insurance and shipping companies, public utilities, foreign trade, and industries were nationalized. Many firms were forced to sell half their shares to the public sector.
The period 1960-65, did see a number of accomplishments. Analysts estimate the economy grew by an average annual rate of 5.5%, though this figure was partly inflated by growing civil service and public sector payrolls (29). One million jobs were created (30). A total of LE. 1.7 billion was invested, between 25% and 28% of it in industry. About 94% of planned investment was carried out, although industrial investment fell 10% below target, electricity 22% and housing 20%.
There were several main problems with the plan which left the economy in crisis by 1965:
First, imports rose much faster than had been planned and exports grew much more slowly. Instead of falling by 6% between 1960/61 and 1964/65, imports rose by 80%, mainly because agriculture failed to grow as planned and because imports of intermediate goods for industry were much higher than expected (31). As a result, as early as 1962, there was a balance of payments crisis. Indeed, the plan’s import substitution strategy actually created industries which reduced imports of one kind only to increase those of others. The new industries needed imports to function but could not finance them through experts since they lacked the economy of scale and expertise to do so profitably.
Second, reliance on private sector investment came a time when private sector activity was being strongly discouraged.
Third, the employment drive creating a million jobs made the public sector and the civil services dumping grounds for graduates guaranteed employment. This severely damaged the efficiency of enterprises.
Fourth, Egyptian planners were too ambitious, simultaneously seeking heavy industry and increasing consumer goods; import substitution projects and increased exports; full employment and efficiency; financing the Aswan Dam and trying to expand agricultural land (32). Unable to meet all the demands, the economy ground to a halt.
Fifth, military spending also overstrained the economy. The war in Yemen was expensive. Defense spending as a share of GNP rose from 8% to 12% in the crucial years, 1963 to 1965.
Sixth, politics overrode development considerations. Officials and public sector managers were chosen based on political loyalty above competence. A politico-bureaucratic web stifled the economic role of investors, managers, and workers alike (33).
Finally, political stability was not achieved either domestically–where there were constant rumors of plots and institutional conflicts–or international. In 1961, a union with Syria collapsed when an army-business alliance took power in Damascus. Nasser feared the Syrian example might be taken up in Egypt. The United States suspended wheat supplies. The Saudi king announced an Islamic Alliance aimed against Nasser. Fighting in Yemen intensified.
In 1965, imports fell as there was no way to finance them. Factories began to close. An austerity program, worked out with the IMP, involved devaluation, reduced public investment, price and tax increases. The Nasser rejected this though even the USSR, which increased aid, urged austerity measures (34). The First Five-Year Plan was abandoned before it ended; the second was abandoned before it even started. The 1967 defeat plunged the country into gloom and further economic difficulties.
Most of Egypt’s problems–doctrinaire development strategies, commandist attitudes, strangling the private sector, excessive military spending and losses from political crises, and a focus on subsidies and providing employment which damages efficiency–characterize the other socialist-style states like Iraq, Syria, and Libya. Those countries having some oil income, of course, can better survive these policies though development remains slower and more uncertain.
Jordan has a small economy with a GDP of about $6 billion and a population of about 4.7 million. Phosphates and potash account for over half of its exports (35). The economy, which runs a large trade deficit, is heavily reliant on emigrant remittances and foreign aid. A key factor is that Jordan’s geopolitical situation as a moderate Arab state located between Israel, Iraq and Syria, has helped it extract a kind of rent in the form of aid coming at various times from Arab oil-producing states, Western Europe, and the United States.
King Hussein and his government responded belatedly to the economic crisis of the late 1980s. Despite rapid growth between 1973 and 1985, there were persistent deficits throughout the 1980s, growing sharply by 1987. The cause was the declining transfers from Jordanian workers in the Gulf and Arab oil states due to declining international oil prices. In 1989, the government devalued the dinar, liberalized the foreign exchange system and introduced a package of measures to reform trade, agriculture and the public sector.
Deteriorating economic conditions in the Gulf–and especially Iraq–caused Jordan’s merchandise exports to fall in real terms in the mid-1980s. As a result, government income declined and it had to borrow at home and abroad. Jordan’s external debt rose from $3.5 billion in 1984 to $3.8 billion in October 1986 (36). Debt servicing, except for IMF loans, rose from $389 million in 1984 to $698 million in 1985 (37) and to $959 million in 1988 (38).
Whereas in 1980, foreign exchange reserves covered nearly six months of imports, they were steadily reduced to maintain living standards through a high level of imports. By mid-1988, reserves had fallen to $18.7 million, equal to less than four days of imports (39).
As a result of its strong reserves position in the early 1980s, Jordan found it relatively easy to raise funds on international markets and used the money to cover current as well as capital spending. The ratio of foreign debt to GDP and to exports rose sharply. Repayment was bunched in the late 1980s and as a result 20% of spending in the 1989 budget was allocated for servicing civilian debt (40). By the spring of 1989, the burden had become too large and IMF assistance was required to reschedule these payments.
In February 1989, drastic action was announced against money lenders as the dinar fell against foreign currencies following rumors that the central bank was running out of reserves. Jordan had to withdrew a $150 million Euroloan that it was trying to float because of the poor response from international markets (41). It also called for tight credit policies and ceilings on borrowing by the public sector. Inflation was to be used and the IMF agreed to loan Jordan $150 million to help fund economic restructuring (42).
In April 1989, riots broke out after the announcement of price rises designed to cut the budget deficit. Professional associations successfully urged a change in government and even the Crown Prince criticized the arbitrary way economic decisions were being made (43). Thus, only a deep, prolonged crisis stirred the authorities to action. Since then, gradual reforms have been enacted, though little privatization has been carried out.
Jordan is the non-oil rentier state par excellence. It continues to adjust its foreign policies pragmatically, moving from support for Iraq in the 1990-91 Gulf crisis to signing a peace treaty with Israel in 1994. King Hussein walks a tightrope and achieves varying degrees of success and economic benefits for Jordan. Development philosophy is pragmatic, if not energetic. Jordan began to liberalize its economy in order to secure IMF support in the late 1980s and is contemplating privatization. These were responses to the economic crisis and a need to swim with the tide of internaeconomic opinion. Although the Jordanian royal family was not involved in business and did not fill cabinet posts, it relied on support from the army and what can be called the East Bank elite. Given this, it was unable and unwilling to contemplate radical solutions to the problems of poverty that affect large sections of the population, even if it wanted to.
King Hassan of Morocco, on the throne since 1961 (44), has used divide and rule tactics to play off the political parties, trade unions and interest groups (45). Corruption is an important element in this system. Land and business opportunities are distributed to private sector entrepreneurs or army officers in ways designed to maintain loyalty to the King. As in Egypt, a huge public sector has been created to have this effect among middle class elements, while large subsidies of basic products do the same for poor sectors of the population.
In 1973, Waterbury wrote that corruption was manipulated, guided, planned and even desired by the regime (46). Since the palace considered successful entrepreneurs as politically dangerous because they could buy influence and create a political power base, they were kept dependent on the regime (47). “The preoccupation of all sectors of the elite with governmental spoils has made competition for access to the administration the major form of politics in the country (48).
The King “is a lawyer, not an economist, a tactician, not a planner, and his largest looks are backwards, to his legitimizing history, not forward, towards a long-term development or restructuring strategy” (49). Thus, economic choices were directed by short-term political needs. In 1972 the King instituted economic reforms in response to a coup attempt, nationalizing some lands, Moroccanizing the service sector and launching a five-year plan involving large-scale public investments. (50). In the late 1970s he moved toward opening the economy and reduced public sector investment. But, as the World Bank pointed, the resulting huge, expensive state bureaucracy did not produce better public services (51).
Economic issues are only top the national agenda when national stability is clearly menaced. In the 1970s the Sahara war damaged the economy. (52). Then the collapse of international phosphate prices forced revisions austerity measures and riots in 1981 (53).
Since 1980, the King has become the largest private sector entrepreneur, with holdings throughout the economy including a holding company with interests in vehicle importing, trucking, fish and food canneries, cheese and other dairy food manufacturing, printing and mines employing 15,000 workers (54). Not only is the economy manipulated to serve his own interests, but businessmen can only play an important role in the private sector with his permission. The extent of his influence created dependence and limited private sector initiative.
As in Jordan and other non-oil Middle East states, the early and mid-1980s were years of economic crisis in Morocco. In 1973, the world price of phosphates quintupled. Phosphates were Morocco’s major export and on the basis of increased revenues, large increases in public sector investment were implemented. Commodity subsidies were raised as was military spending for the conflict in the former Spanish Sahara (55).
But by 1976, the real price of phosphates fell to its former level. Since public spending was not reduced accordingly, the external account went into deficit (equal to 16.5% of GDP in 1977), as did the state budget (18.1% of GDP in 1976). These deficits were financed by large increases in foreign borrowing. The second oil shock of 1981 came before Morocco had fully adjusted to that of 1973. Despite efforts to stabilize the economy, foreign debt by the end of 1982 had risen to the equivalent of 68% of GDP, compared with about 18% at the end of 1979 (56). Foreign exchange reserves fell from $218 million in January 1983 to $36 million at the end of June 1983 and were inadequate to service external debt and pay for vital imports (57). Morocco turned to the IMF and World Bank for help and embarked on a program of structural adjustment.
One characteristic of Moroccan economic policy was the frequency of its zigzags. In 1976-77, attempts were made to reduce domestic demand using restrictive monetary policies and increased taxing of imports. In 1978, public investment was reduced, import restrictions tightened and import taxes increased further (58). In 1980, the emphasis was on increasing internal taxes. The anti-export (and anti-import) bias in economic policy weakened but pressure for public sector investment to meet social policy objectives, continued. The 1983 budget was, as a result, expansionary and brought on a financial crisis in March. Then import taxes were reduced and the exchange rate depreciated in order to increase exports and reduce imports.
In March 1983, strict import controls were introduced and then eased because they were damaging the economy. The government resisted attempts to reduce the investment budget but then had to do so in order to obtain IMF support. A revised budget was issued in July with a 12.5% expenditure cut and a 27.3% cut in the investment budget and promises of further cuts in the 1984/85 budget (59). Subsidy cuts were announced and the prices of many items and state-provided services rose sharply. (60). But price rises led to riots in January 1984 in which up to 600 people were killed. The king then canceled the increases (62) and added another $187 million to the budget for subsidies (63). Going further, he then froze prices of basic commodities and increased subsidies to nearly double their 1983 level. (64).
Morocco’s economic development is also constrained by the king’s octopus-like control. Calls by the World Bank and others for economic reform are paralleled by domestic calls for political reforms. On the other hand, Morocco’s reliance on a narrow range of products (including agriculture, which is subject to vagaries of the weather), leave it vulnerable to economic disruption. This is despite the diversification and liberalization programs which Morocco introduced and continued in the last 15 years with strong IMF and World Bank support.
Still, Morocco has, in many respects, been one of the most developed economies in the Middle East. A key measure of development is the relatively high share of manufacturing industry in GDP. The King has no economic ideology but emphasized Moroccanization in the 1970s, liberalization in the 1980s and contemplates privatization in the 1990s. The approach has been a pragmatic outcome of other concerns. As elsewhere in the Arab world, the economy does not come first.
This paper’s purpose has been to show how important leadership of the state is in late twentieth-century development. Ideas developed by Gerschenkron suggest that, over time, the state must substitute for missing factors and its role has become more important for later starters. This does not imply that Soviet-style planning, state ownership and control are the answer to the problems of development. The lessons of South Korea and Taiwan suggest that success lies in governing or guiding the market, with dual systems of public and private ownership.
The role of initial conditions is vital. As has been shown, positive demographic trends during the 1960s, high educational levels, and relatively strong agricultural performance were present in South Korea and in Taiwan. The absence of these initial conditions in Egypt may, in itself, be a sufficient explanation for the economy’s failure to take off or move into sustained growth.
The second, more controversial, set of conclusions relates to factors identified in the so-called endogenous growth models that emphasize imperfect information, increasing returns to scale and other factors. The conclusion would be that there is no single explanation for economic growth. The new growth models stress the link between macro-economic variables and their micro-economic foundations, the institutions which support them. Savings, for example, are a function of the financial business systems existing in an economy. All banks in South Korea and Taiwan during the 1960s and 1970s were in the public sector. The implication for other countries is that the institutions serving growth so well in East Asia need to be analyzed along with the economy’s performance in macro-economic terms (65). The general implication is that markets do not work automatically to maximize benefits or produce fast growth and therefore the government has an important role in economic development.
The final conclusion is that leadership of the East Asian states gave priority to economic growth while those in the Middle East did not. The Egyptian regime, for example, failed to create an effective civil service. Given Egypt’s long history as a centralized state this is perhaps surprising. Neither did the regime see economic success as vital to its own survival. This is not to say that Nasser and others in leadership did not want the best for their people, rather they tried to do so by using the economy to provide services and political support, rather than requiring short-term sacrifices to build productivity. But the result was to leave the country in severe difficulties in the mid-1960s, even before the 1967 war broke out.
The work of Nazih Ayubi also outlines some reasons why Arab states have not concentrated on economic issues, why they might be called `fierce’, rather than `hard’ (66). Both Arab nationalist and Islamic movements historically gave relatively little weight to the state, regarding existing national borders, populations, and markets as artificial or superficial. (67).
The modern state’s potential role was not appreciated. It was seen as alien to society and would be judged on how well it fulfilled nationalist, Pan-Arab, Arab Socialist or Islamist ideals rather than development goals. Moreover, there was much more resistance to borrowing institutions, attitudes, and methods from a West seen as both antithetical and hostile to Arab or Islamic aspirations.
What are this analysis’s implications for Middle East policymakers today? First, until so-called initial conditions are right, a country cannot successfully embark on an industrialization drive. This means it must concentrate on education, health and income equality and only then move toward investment in industry.
This may, however, be too literal an interpretation of history. In 1960, the South Korean population growth rate was high and the transition to slower growth only came during the 1960s, suggesting that efforts to industrialize can go on at the same time as initial conditions are improved. Jordan and Morocco have been more energetic, consistent and successful in the structural reform programs than the republican regime in Egypt but less successful than that in Tunisia (68).
Another important difference between East Asian and Middle East states has been in their international relations. South Korea, Taiwan and other East Asian states have been willing to learn from the experience of their former colonial master, Japan. The Japanese model was one of adaptation and absorbing Western technology). Many Arab states, in contrast, rejected the model of Western economic development and turned to the USSR for inspiration and assistance. Soviet aid was provided on a turn-key basis and while many Arab engineers were trained in the Soviet Union, technology was not adapted to the needs of recipients in the Middle East. Nor was a corps of engineers and technicians created which was capable of adapting it.
In East Asia, regional tensions provided incentives for leaders to adopt an “economy first” policy. In the Middle East, regional tensions, the lack of legitimacy, and the tight-knit Arab system tended to distract leaders and consume needed resources. The presence of so much rental income (oil, external aid from outside the region, aid from Arab oil states, and remittances) let leaders live beyond their means and ignore economic issues until the system began to break down.
1. Alexander Gerschenkron, Economic Backwardness in Historical Perspective, (Cambridge, Harvard University Press, 1962).
2. C. Knick Harley, “Substitution for Prerequisites: endogenous institutions and comparative economic history,” in Richard Sylla and Gianni Toniolo, eds., Patterns of European Industrialization’ (London, Routledge, 1991), p. 32.
3. Charles Issawi, The Middle East Economy: Decline and Recovery, Markus ( Princeton, Wiener Publishers, 1995) p. 181.
4. The World Bank, The East Asian Miracle (Oxford, Oxford University Press, 1993).
5. Ibid, p. 157.
6. Gunnar Myrdal, “Asian Drama: An Inquiry into the Poverty of Nations,” Vol. 11, (New York , Pantheon, Random House, 1968), p. 895-896.
7. Joel S. Migdal, “Strong Societies and Weak States”, (Princeton, Princeton University Press, 1988), p. 4.
8. Robert Wade, “Governing the Market: Economic Theory and the role of Government in East Asian Industrialization”, (Princeton, Princeton University Press,1990), p. 328.
9. J. Migdal, p. 262 and pp. 269-271.
10. R. Wade, pp. 338-339 and the World Bank, The East Asian Miracle, Chapter 4.
11. Dani Rodrik, “King Kong meets Godzilla. The World Bank and the East Asian Miracle”, London, Centre for Economic Policy Research Paper 1994, no. 944, pp. 32-33.
12. R. Wade, pp. 257-258.
13. Ibid, p. 246.
14. Ibid, p. 260.
15. Ibid, p. 261.
16. A. Amsden, “Asia’s next Giant: South Korea and Late Industrialization.” (Oxford, Oxford University Press, 1989), pp. 29-31
17. Ibid, p. 32.
18. A. Amsden, p. 49.
19. Park 1962, p. 224, quoted by Amsden 1989, p. 49.
20. A. Amsden, p. 72.
21. Ibid, p. 52.
22. A. Amsden, 1989, pp. 146-7.
23. Ibid, p. 147.
24. The World Bank, The East Asian Miracle” (New York, Oxford University Press, 1993), p. 157.
25. Patrick O. Brien “The Revolution in Egypt’s Economic System, OUP London 1966, p. 333.
26. Donald Mead “Growth and Structural Change in the Egyptian Economy” Richard D. Irwin Inc. 1967, p. 242.
27. Alan Richards and John Waterbury “A Political Economy of the Middle East,” Westview Press, Boulder Co. 1990, p. 195.
28. J. Waterbury p. 72.
29. J. Waterbury, p. 89.
30. A. Richards and J. Waterbury, p. 196.
31. D. Mead, pp. 242-243.
32. J. Waterbury p. 84.
33. J. Migdal, pp. 230-232 and J. Waterbury, p. 75 and p. 122.
34. Ibid, p. 97.
35. The World Bank, Peace and the Jordanian Economy, Washington DC, 1994 p. 23.
36. Middle East Economic Survey, 2 March 1987.
37 Middle East Economic Survey, 20 July 1987.
38. Economist Intelligence Unit, Country Profile Jordan 1990/91, p. 32.
39 Ibid, p. 29.
40. Ibid, p. 31.
41. Middle East Economic Digest, 7 February 1987.
42. Economist Intelligence Unit, 1990/91 Country Profile Jordan, p. 11-12.
43. Middle East Contemporary Survey 1989, pp 448-457.
44. Alan Richards and John Waterbury, p. 319.
45. William Zartman, “King Hassan’s New Morocco,” in William Zartman ed. The Political Economy of Morocco, Praeger, Westport, 1987 p. 1.
46. John Waterbury “Endemic Corruption in a Monarchical Regime” World Politics Vol XXV July 1973 no 4, (Princeton, Princeton University Press), pp.533-535.
47. Ibid, p. 545.
48. Ibid, p. 554.
49 Zartman in Zartman p. 7.
50. Peter Sluglett and Marion Farouk Sluglett, Modern Morocco: Political Immobilism, Economic Dependence, in Zartman ed. pp. 84-89.
51. Economist Intelligence Unit, Country Report, Morocco, 2nd Quarter, pp. 8,10.
52. Zartman, p. 9.
54. Ibid, p. 39.
55. Brendan Horton “Morocco: Analysis and Reform of Economic Policy”, Economic Developments Institute of the World Bank, Analytical Case Study no 4, the World Bank, Washington DC 1990, p. 5.
56. Ibid, p.6.
57. Economist Intelligence Unit, Quarterly Economic Review, Morocco, no. 4 1983 p. 9.
58. Horton, p. 31.
59. Economist Intelligence Unit, Quarterly Economic Review, Morocco, no. 4 1983 p. 9.
60. Economist Intelligence Unit, Quarterly Economic Review, Morocco, no. 2, 1984, p. 6-8.
61. Ibid, p. 6.
62. Ibid, p. 10.
63. Ibid, p. 17.
64. Economist Intelligence Unit, Quarterly Economic Review, Morocco, no.3, 1984.
65. Alice H. Amsden “Why Isn’t the Whole World Experimenting with the East Asian Model to Develop? A Review of The East Asian Mirac”, World Development, Vol. 22, no. 4, pp. 627-633 and Joseph Stiglitz “Comment on “Towards a Counter-Counterrevolution in Development Theory” by Paul Krugman”, Proceedings of the World Bank Annual Conference on Development Economics 1992. The World Bank, Washington DC 1993, pp. 39-49.
66. Nazih. N. Ayubi, “Over-stating the Arab State” (I.B. Tauris, London 1995).
67. Ibid, p. 97.
68. Paul Rivlin in “Middle East Contemporary Survey, 1994” and The World Bank, Claiming the Future.
Paul Rivlin is an economist and senior research fellow at the Moshe Dayan Center for Middle Eastern and African Studies, Tel Aviv University. He is the author of books on economic policymaking in Egypt and on the Israeli economy. He is a regular contributor to the Dayan Center’s “Middle East Contemporary Survey” and is author of a number of papers on Middle Eastern economics. He is currently working on a project about the role of oil in the Middle East strategic balance.