ECONOMY-MIDDLE EAST: Fresh Conflicts Brewing In The Middle East

By IPS Correspondents Reprint | | Print |

Dipankar De Sarkar

LONDON, May 7 1998 (IPS) - Away from the frantic efforts to resolve the Israel-Palestine issue, another kind of conflict is bubbling away in the Middle East — that between economic reforms, favoured by the elite, and the common people of the region.

Though governments are not expected to tumble because of it and wars are not about to happen, it’s a trend that has the potential to spark sharp civil conflicts in the short term, according to Middle East analysts.

These academic experts — convening in London even as an Israel- Palestine peace conference broke up in discord this week — spoke about the new challenges posed by the changing role of the state in the Middle East and North Africa (MENA) region.

“The social cost of economic reform is certain and is going to be felt in the short term,” Professor Mostafa Kamal al-Sayyid of Cairo University told the meet, organised by the School of Oriental and African Studies (SOAS) and the World Bank in London.

“The reaction of the poor is very much present in the minds of policy-makers,” he added.

The effects of economic reforms, and the accompanying shrinkage in the role of government, implemented with the support and advise of international financial institutions such as the World Bank, is being felt right across the MENA region, experts say.

A series of so-called ‘bread riots’ hit Egypt, Jordan, Yemen, Morocco and Tunisia after their governments either slashed or ended subsidies on bread. And sporadic protests have broken out over other economic issues, according to al-Sayyid.

“The role of the state is the single most important issue in the region after the elusive peace process,” Tim Lankester of SOAS added.

According to Kemal Dervis, World Bank vice-president for the Middle East and North Africa, attempts to establish “strong nation- states is still the dominant trend” in the region, unlike some other parts of the world.

“Yet history is moving on. A major generational change is about to happen in the Middle East. New leaders are going to come up. If broad peace can be achieved, there is a fantastic growth potential early in the next century. But the role of the state ha s to be clarified,” Dervis said.

The use of the term ‘state’ in these — and other academic — discussions is usually very different from the sense in which it is normally used.

The World Bank, for instance, defines ‘state’ as a set of institutions that possess the means of legitimate coercion, exercised over a defined territory and its population, which is society. “The state monopolises rule making within its territory throug h the medium of an organised government,” the Bank says.

The role of the state has gone through many changes in the more than 50 years since the end of World War II. Large ‘statist’ governments that sought to deliver all public utilities to the people, gave way to principles of ‘minimal governance’ in the earl y 1990s — immediately after the collapse of the Soviet Union, perhaps the ultimate ‘statist’ model.

But as poor people, particularly in developing countries, but also in affluent nations, continued to suffer as governments rolled back subsidies, the activist state fall back into fashion.

“Development without an effective state is impossible,” says the World Bank. “It is increasingly recognised that an effective state — not a minimal one — is central to economic and social development, but more as partner and facilitator than as dire ctor.”

Countries in the MENA region, in recent years, have increasingly turned towards economic reforms. Almost half of the 1.59 billion dollars committed by the World Bank and its soft-loan window, the IDA, to MENA countries in 1995 was devoted easy through ec onomic reforms.

These include a 300 million dollar Structural Adjustment Loan to Algeria, supporting the government’s “determined efforts to turn towards a market-oriented economy.” Such loans have also been made to Yemen, Morocco, Tunisia, Egypt and Jordan.

Middle East and North African countries, in common with countries elsewhere, too started off with large government models in the 1950s and 1960s with a stress on government planning. In the 1970s, this model was denounced in several countries but not ent irely rejected.

“There was a redefinition of the role of the state, rather a than withdrawal,” al-Sayyid said. One of the effects of this change was the marginalisation of organised labour in countries such as Egypt, Tunisia and Jordan, he says.

Al-Sayyid, who has made a case-study of economic reforms in Egypt, Tunisia and Jordan, says all three countries believe the short-term social costs will be covered by the long-term benefits of reforms.

“But they are not 100 percent sure, so they are trying to retain some part of their social responsibility with themselves,” he added.

The World Bank, however, still believes that even wealth accrued by a small group of people will eventually ‘trickle down’ to the masses. “Economic reforms will benefit the poor through employment and cheaper imports,” Dervis says. “Governments are u sing the argument to protect the upper middle-class rather than the poor. The press too is using this argument dishonestly.”

But Al-Sayyid argued that reforms will only draw transnational corporations that will increasingly use capital-intensive technologies and create huge unemployment problems for the MENA region.

Tunisia has entered into 1,500 joint ventures in recent years, but they have not led to any increases in employment, he said. “We may well have jobless growth in the region,” he added.

According to some analysts, the MENA region should set up its own trading pacts to protect against the harsher effects of liberalisation and market reforms, drawing a lesson from the East Asian financial crisis.

“Since the liberalisation of capital economies has led to an increased volatility in capital markets,” said Hassan Hakimian, a SOAS Reader in economics. “MENA should develop regional cooperation. Risks for individual countries in the globalised world may not be affordable unless we set up monetary unions and currency blocs.”

Though the quality of foreign investment was as important as its quantity, he pointed out that foreign direct investment in the entire North Africa added up to only 60 percent more than tiny Bermuda received in the mid-1990s.

Many experts hold that the key to further growth in the MENA region lies in agricultural development, but this requires more, not less, government intervention.

Despite petroleum income’s prominence in the MENA region, agriculture remains important to most of the region’s economies, according to a policy research working paper presented to a World Bank conference in September 1996.

Its author, Dean DeRosa of the World Bank, argues that more robust and dynamic agricultural growth could significantly boost economic growth and rural development in MENA countries. This, he says, could be pursued through regional economic cooperation.

Similarly, Massoud Karshenas of SOAS pointed out that the MENA region has abundant good quality agricultural land with a comparatively small population (unlike Asia for instance, where the labour-land ration is four times higher.

“MENA is unlikely to be able to compete with Asian economies once the preferential treatment ends in garments and textile industries. In 2001, Indian textiles will take over the exports market,” he said.

Preferential trade treatment by the European Union so far has protected MENA countries from the tougher challenge posed by the Asian textiles industry. But at the same time, there is new impending competition from Central and Eastern European countries t hat have a similar labour to land ratio as MENA, but much higher skill-levels.