Discussions of “modernity” are back in style. Ever since 9/11, we have been inundated with commentary on the “failure of modernization” in the Middle East. Implicitly, and often explicitly, we hear statements such as “the Middle East is backward”; “they are stuck in the past”; “they have been by-passed by globalization”; “they cannot develop themselves”; “we need a plan to develop the region.” In June, the Bush administration endorsed anti-regime demonstrators in Iran as people who “are asking to join the modern world.”1 Pundits with views as otherwise diverse as Bernard Lewis and Anatol Lieven seem to agree that “modernization has failed in the Middle East.”2 Such a “failure” has become the totem of explanation for all manner of political ills and pathologies.

The questions, “What is modernity?” and “What is economic development?” have, of course, many different answers. Each, in turn, arises from a particular perspective on societies, economies and polities. Each perspective also typically implies various policy and political prescriptions. Unsurprisingly, each is also highly contested.

Many challenges face the Middle East. I pay particular attention to estimates of poverty, since, whatever definition of “economic development” we use, reduction in poverty must, surely, be central to the concept. I then offer a few skeptical observations on the reigning orthodox policy prescriptions for managing the “economic development process.” (Many of which I have often advocated myself). I conclude with some brief considerations of the concept of “development as freedom,” paying particular attention to the often asked question, “Why is there so little democracy in the region?” using a well known simple political-economy model of the transition process. It immediately appears that the United States has been, and remains, an important force blocking the transition, neoconservative rhetoric notwithstanding.

 

“MODERNITY”? “MODERNITES”?

Modernization Theory, a Crude View

A crude view would hold that “modernity” is the endpoint of a process called “modernization.” Such a perspective arises from the, often refuted, yet still vigorous discourse of “modernization theory.” Such a term has as many definitions as it has proponents, with “modernity” measured by such things as “urbanization,” “industrialization,” “literacy,” and so on. Ever since Daniel Lerner (or Max Weber), the “image of the modern” has been one of “literate people living in cities making a living by manufacturing.”

Such a crude perspective provokes (at least) four objections. First, why are these specific “markers” of “modernity” (e.g., urbanization, literacy, industrial output) particularly privileged? Second, what, exactly, is being measured? For example, if “industry” is the critical category, what percentage of output must be “industrial” for a society to be counted as “modern”? What constitutes “industrial” production these days? Are transgenetic crops “agricultural” or “industrial”? Does a large “industrial” sector always matter? What about “services”? Does “urban” mean “an agglomeration of settlements with more than 100,000 people”? Why that number? And so on.

Third, particularly when the modernization theorist uses not just one indicator but a set of them, what is the justification for any particular “weighting schema”? If “modernity” means some combination of urbanization, literacy and industrial production, what weight is assigned to each of these three variables in constructing an index of “modernity”? What is the theoretical justification for such weighting?

Finally, and perhaps most tellingly, many of us object that the entire concept reeks of teleology: history is here conceived as an ineluctable process, a “progress” toward a predetermined goal. All societies, in this view, move inexorably toward an “end-point” of “modernity,” which, mirabile dictu, very closely resembles the current society of the United States or Western Europe. All humanity marches toward the same shining goal, the End of History. Since the inception of modernization theory, many have wondered who the agents of this process were, what they themselves wanted, how they saw their situation, and whether it could really be true that differences would, inevitably, be replaced by sameness. We doubted that the industrialization process, or urbanization, or the spread of literacy, would, by themselves, erase deep, historically conditioned perspectives. And we noted that older, so-called “pre-modern” views (especially religious views) often stubbornly persisted, regardless of other sociological changes.

Yet, modernization theory – even of this crude sort – is alive and well along the Potomac and elsewhere in the republic. The conjuncture of overwhelming American power, centuries-old currents of American thought (e.g., belief in “progress” and “American exceptionalism”) and grave economic, social, cultural and political challenges in the Middle East make a return to modernization theory irresistible for many. Clad now in the proud clothing of neo-conservatism, Americans’ unshakable belief in the unique rectitude of our own cultural perspectives – particularly our faith in “progress” and in the power of “democratic capitalism” – now strides to center stage, proclaiming the Second Coming of Woodrow Wilson.

Much of this is simply nonsense. Utopian projects, including grand schemes to remake the Middle East in the image of outsiders, typically end badly. The delusion of American triumphalism too often now masquerades as political-economic analysis of the region. But before I turn to the challenges facing reformed governance in the Middle East, let me consider a second, more nuanced answer to the question, what is “modernity”?

 

A Sophisticated View

A more sophisticated definition of “modernity “may be found in (among many other places)3 the work of the philosopher and historian of science Stephen Toulmin. In a number of works,4 he has argued that “modernity “consisted (note the past tense) of a set of interrelated propositions and beliefs, all dating from the late seventeenth century. These elements include a belief in a “universal method” (Descartes), a search for a “perfect language” (Leibniz), and faith in the existence and discoverability of a “unitary system of nature” (Newton). These philosophical beliefs accompanied and complemented the new arrangements of states codified by the Treaty of Westphalia (1648) and a formula for regulating church-state relations (religion determined by the sovereign,5 taken over from the Treaty of Augsburg, 1555). In short, modernity contained three elements: a concept of rational thought, a new system of states, and a formula for church/ state relations.

At the philosophical level, key elements of modernity include the “Quest for Certainty” (as John Dewey put it): the notion that Truth existed and was discoverable, in its entirety, by the application of a Universal Method. Such a perspective led, in eighteenth-century England, to

 

an alliance of Anglican Religion with Newtonian Mechanics and Constitutional Monarch, . . . a unitary Ideology whose attractions only reinforced the sense of God-given superiority that seemed to justify the English in their imperial mission and provided a model for all other countries – a stance that would be taken over in the late twentieth century by the United States.6

 

The problem, of course, with this definition of “modernity” is that many, perhaps most, scientists and philosophers do not believe in Universal Methods, are skeptical of naïve philosophical realism, and reject the notion that certainty is possible. I need not remind readers of Middle East Policy of the widespread view that the Westphalian state system, although not exactly in shreds, is by now thoroughly tattered, worn through by the forces of globalization, the emergence of the United States as a “hyperpower,” and the rise of “asymmetric warfare.”7 On both the philosophical and state-system facets, in this view, “modernity” is something that happened but is now over. It was a historical period, a mind-set and configuration of institutions that has been overtaken by events and experience.

Nevertheless, as the above quote and a reading of any day’s newspaper suggest, belief in such a concept of “modernity” retains considerable force. Particularly when pundits and policy analysts combine the crude with the more sophisticated view of modernity, the Wilsonian political project of remaking the Middle East becomes irresistible. In this view, Middle Eastern societies are “backward” not only because they lack, say, industry or suffer from high unemployment, but also because they exhibit “primitive mind-sets:” “They refuse to employ Universal Reason, they spurn logic and evidence, they embrace dogmatic religious views – they are, in short, ‘not modern,’ unlike us. We must then help them (or force them) to become like us. It’s for their own good.” To be sure, religious dogmatists are not in short supply in the Muslim world. The late Shaikh Abdulaziz Bin Baz, former grand mufti of the Saudi ulema, reportedly believed that the earth is flat, because (he is said to have insisted) it says so in the Quran.8 Many find this appalling. However, we find it equally appalling that 47 percent of Americans, and 25 percent of American college graduates, believe that “Man (sic) was created by God pretty much in his present form at one time within the last 10,000 years” (Gallup poll of 11/2124/1991). And just how “modern” is it that several of America’s highest elected officials (e.g., the speaker of the House of Representatives and the president of the United States) are on record as not “believing” in the theory of evolution? There is no question that obscurantist thinking remains distressingly widespread; there is much doubt that its elimination proceeds linearly or that its existence is correlated with other indicators of “modernity,” such as urbanization, GNP per capita, etc. No culture has a monopoly on dogmatic imperviousness to reason and evidence.

Much of the “discourse of modernity” will not withstand serious intellectual scrutiny and stands revealed as political ideology.9 Too often it simply becomes a justification for the exercise of arbitrary, unilateral power, relieving us of any possible guilty conscience that our ignorant meddling in the affairs of others might otherwise stimulate. Relying on the “modernization” perspective to think about the Middle East (or anywhere else) will lead to serious analytical – and political – errors. If we are to use this idea at all, we must be very careful.

I would suggest that we can use the concept of “modernities” very cautiously if (and only if) 1) we recognize that the word should be plural – “modernities,” not “modernity” – particularly in cultural, and therefore institutional, matters, 2) we jettison teleological thinking entirely; apart from death and taxes, nothing is “inevitable,” 3) we eschew all discourses of “certainty,” and 4) we reject all linear thinking, including our cherished American belief in “progress.”

 

ECONOMIC DEVELOPMENT

Income or Wealth?

One way to do this is to use the concept of “economic development.” Although it is also fraught with difficulties of definition and measurement, this concept is (somewhat) more flexible than notions of “modernity.” Of course, the Ur-Indicator commonly used here is growth of GNP (or GDP) per capita. When we hear statements like “the Arab region has failed economically,” the usual evidence submitted begins by citing sluggish growth rates of income (or output) per capita (Table 1). This provides, at best, only an approximation of performance. Some analysts prefer other measures, such as the Human Development Index.10 Such data are often combined with additional numbers purporting to describe conditions of “unemployment” or “poverty” (Tables 3 and 4). Numbers of this sort are then used to talk about “development,” and the usual story is that the NESA region is “falling behind” or is “stagnant.”11

The standard story is well-known: per capita growth of output in the region has lagged behind that of the rest of the Global South. This is true even when the high growth rates of the oil boom are factored in. From 1970 to 2000, real GDP growth averaged 3.5 percent in the region, compared to 5 percent in the rest of the Global South.12 Since population growth rates in the NESA region are higher than those of the Global South, per capita GDP growth performance looks still worse.

The decade of the oil-price collapse was the grimmest period. From 1985 to 1995, per capita GNP fell at a rate of some 0.3 percent per year. Given the data deficiencies, one could simply say: “Per capita incomes have stagnated during that decade.” The good news is that growth improved during the 1990s: real GDP grew at 3.1 percent, while population growth is estimated to have fallen to 2 percent. The best performance was during the last half of the decade – until political developments once again intervened. It remains true that, regardless of time period, per capita GDP growth rates for the region remain below the norm for the Global South. This, at least, is the conventional wisdom, based on the conventional indicators of the national income accounts.

As with “modernity,” however, so with “development”: the closer you look at it, the less meets the eye. Any serious economist knows that all national-income accounts are highly imperfect. Conventional national-income accounts ignore two very important phenomena: 1) the informal or underground economy, whose inclusion would make the above picture look better, and 2) the costs of resource depletion and environmental degradation, whose inclusion would make the situation look even worse. As an example of the latter, note that the World Bank has estimated that the yearly costs of environmental destruction in the region in the 1980s were approximately equal to 3 percent of GDP. Assuming that this situation has not been reversed, it follows that, when properly measured, the real economies of the region are shrinking in per capita terms.

Lest we leap to conclude, however, that the Middle East’s performance in this regard is somehow uniquely awful, consider the work of the formidable economist Partha Dasgupta, professor of economics at Cambridge University and past president of the Royal Economic Society. In his presidential address, published in the Economic Journal, Professor Dasgupta noted that conventional measures of development like GNP and HDI are “flow concepts” dealing only with “welfare today.” As such, they entirely ignore the trade-off between present and future. They do little to assuage our fears that measured gains in national welfare (as in growth of GNP) have been purchased by depleting national capital, whether physical, human or natural. As Dasgupta puts it, “It should be no surprise that Adam Smith inquired into the wealth of nations, not the Gross National Product of nations nor the Human Development Index of nations.”13 His empirical estimate, shown in Table 5, reveals that, if the wealth of the NESA region is stagnating or even shrinking, it is hardly alone. “Development” is something of a chimera in many parts of the Global South.

 

Development as Poverty Alleviation14

Any definition of “economic development” must include “reduction of poverty” as a component. How has the Middle East fared here? Much has gone wrong, but one big thing has gone right. Unsurprisingly, only sketchy, contradictory data are available on the subject. After all, “poverty” is the modern equivalent of classical political economy’s “subsistence”: some set of commodities without which a person or household is thought to be sufficiently deprived as to be defined as “poor.” Reasonable people will differ sharply over the definition of the “necessary basket of commodities.” Serious issues also bedevil the selection of an appropriate price vector for the commodities in the basket (e.g., do the poor actually pay the “national average” price? How do we know?). Different studies often use quite different poverty lines. Further, these difficulties are limited to an estimate for a single time period. In the MENA region, strong rainfall variability and recurring political and economic turmoil make it difficult to draw conclusions about long-term trends from data for a few years. As with so many concepts, the closer we look, the more opaque the picture.

Since the World Development Report of 1990, the World Bank has used the “$1 PPP” or “$2 PPP” measures of poverty. Data from two World Bank sources – World Development Indicators and van Eeghen15 (1995) – are summarized in Table 4. They suggest that, at the international poverty line of $1 PPP in expenditure per person per day, the poverty rates are low except for Yemen, a country with one of the lowest per capita income levels in the Middle East. Compared to other regions in the developing world, poverty in the Middle East appears to be relatively limited (Compare Table 4A with 4B). From this perspective, the answer to the question, “What went wrong?” is: “Nothing!” 

However, when we use a poverty line of $2 PPP, the incidence of poverty rises sharply, indicating that many people live with expenditures between $1 and $2 per person. When applying his data to the $2 line, van Eeghen generates an aggregate poverty rate of around 25 percent. National poverty lines vary widely; on average they tend to be closer to the $2 line. The $1 PPP poverty line is far below average per capita incomes for most countries: the ratio of per capita GNP to the poverty line, both in PPP dollars, is unreasonably high when compared with a similar calculation for the United States. American GNI per capita is about 6.5 times greater than the poverty line, whereas corresponding MENA figures are: Egypt (9.9), Jordan (11.4), Morocco (8.8) and Tunisia (13.8).16

Still, in international comparative perspective, even when using the $2 line, Middle Eastern countries are doing better than many Latin American countries, for example, and far better than India or sub-Saharan Africa (Table 4). It is notable that the incidence of poverty is typically not significantly greater, and often much lower, in many Middle Eastern countries than in countries whose “economic-development success” is often highly touted (e.g., Thailand, Indonesia). If “modern” or “underdeveloped” means “low rates of poverty, relatively speaking,” the claim that the region is “pre-modern” or “underdeveloped” is very dubious indeed.

Trends are, however, disturbing. There is something approaching a consensus on poverty trends (as opposed to head-count levels). Most analysts agree that aggregate poverty rates in the Middle East fell during the years of the oil boom (mid-1970s – early to mid-1980s) but started to rise after that.17 Such an observation is compatible with the decline in growth in per capita household consumption (cf. Figure 1) and empirical research on the Middle East, which shows negative growth elasticities of poverty.18 Empirical research attests that this relationship holds across most developing countries.19

Studies of specific countries20 are consistent with the results of such regional analysis. A Ford Foundation review of the debate over poverty trends in Egypt concludes that there was a large rise in the poverty headcount from 1981-82 to 1990-91 (from 29.7 percent to 42.4 percent) and that, although the rate of poverty increase slowed down during the 1990s, by 1995-96 (the last year for which there is data) the poverty headcount stood at 48 percent of households. A study of poverty in Yemen found that the number of families suffering from malnutrition rose from 9 percent to 27 percent between 1992 and 1999. An IDRC report concludes that “the proportion of people living in poverty appears to be rising in most of the region’s middle and lower income countries.” In Jordan, analysts have found a reduction in poverty in the late 1990s, but the level remains above that of 1988. Finally, some of the countries for which data are missing – most important Iraq and Sudan – have large populations and relatively high poverty rates (although the exact magnitudes are not known).

Three factors are plausibly the key drivers of the rise in poverty.21 First, unemployment, whose measurement is also subject to many difficulties, is not only high but rising in many countries. Second, most job creation has occurred in the low-wage informal sector, not in higher paying formal-sector employment. Finally, real wages in formal-sector urban employment are falling. One might add that in some countries, including Egypt, real wages in agriculture have also fallen.

But, once again, the picture is murkier than it may at first appear. For example, per capita calorie consumption per day has risen in many countries during the past generation.22 In the absence of strong distributional shifts (a topic about which little is known), this indicator can serve as a proxy for changes in calorie consumption across all households, including those that are food-insecure. The high level of average calorie consumption indicates that deficiencies in this area are not a serious problem. For the period as a whole, the value increased in all countries except the UAE, where throughout the period it remained at a very high level by international standards. For the countries with the lowest levels in 1993-97 (Iraq, Sudan and Yemen, all below 2500 calories), growth in per-capita consumption was below average for the period as a whole.

Similarly, FAO data suggest that the share of undernourished people in the total population declined over time, from 8.8 percent in 1979-81, to 7.2 percent in 199092 and 6.9 percent in 1997/99. This decline was not sufficient to reduce the absolute number of undernourished, which grew from 20.9 million in 1979-81 to 26.7 million in 1997-99. In 1997-99, the rates of undernourishment were relatively high in three countries: Iraq (13.8 percent), Sudan (21.1 percent) and Yemen (33.7 percent) – with 18 percent of the total population, they recorded an undernourishment rate of 21 percent and accounted for as much as 56 percent of the undernourished. The aggregate undernourishment rate for the other countries was 4 percent.23

How can an increase in poverty coexist with a reduction in undernourishment and increased per capita calorie consumption? The likely answer is simple: food-subsidy programs. Such policies have protected the food security of many at-risk households whose poverty (as conventionally measured) has increased. Some of these programs have been modified, but the commitment of Middle Eastern countries to protecting the nutritional levels of their (substantial) disadvantaged populations is striking, particularly in an international comparative perspective. Many things have gone wrong with development in the region. However, one very important thing – prevention of outright hunger among the poor – has gone very right.

 

The Washington Consensus and Its Discontents24

The standard remedy for sluggish growth is, of course, the policy prescription of the “Washington Consensus.” It is argued that only an outward-oriented and private-sector-led economy can provide the growth, jobs and exports needed to cope with challenges such as providing jobs for the rapidly growing labor force, alleviating poverty and providing food security. Now, if Professor Dasgupta is right, elementary economics will tell you that such a prescription may be seriously flawed. Every introductory textbook points out that markets do a poor job of allocating resources in the face of negative externalities. Increased reliance on markets, without a simultaneous strengthening of incentives for environmental protection, will do little to raise the “wealth of nations” in the Middle East – or anywhere else.

The Washington Consensus prescription of swift liberalization of capital markets has likewise come under scathing attack, in this case most prominently by Nobel Prize laureate Joseph Stiglitz.25 As he showed repeatedly in his theoretical work (for which he received the Nobel), standard policy prescriptions often produce perverse results in the presence of asymmetric and imperfect information. This is especially true in financial markets or in any other market that allocates resources over time. Those countries that rejected the urgings of the U.S. Treasury to liberalize their capital markets, such as Malaysia and the countries of the Middle East, were largely spared the trauma of the Asian financial crisis.26

There are additional grounds for skepticism concerning the Washington Consensus. From a specific regional perspective, even one that ignores the environment (the height of folly), the chances of this strategy either being adopted or providing growth and jobs are not particularly good. If we divide the countries of the region into three groups: the newly industrialized countries (NICs), the very poor Fourth World states and the states of the GCC, Washington Consensus policies are unlikely to work in the last two groups and face significant obstacles to adoption in the first.

Washington Consensus policies presumably have the best chance of working in the NICs, where the potential for labor intensive exports would be greatest. But there are serious problems even here. First, the needed policy shifts may themselves be politically destabilizing, not only because the necessary changes involve austerity, but also because those special interests that constitute the major props of regime support and who occupy important subsidized positions within the bureaucracy would plausibly be adversely affected by “economic reform.” Examples of the latter range from East Bank Jordanians to Egyptian workers in state-owned enterprises. It is hardly obvious that one can “square the circle” of creating the kind of economic institutions (rule of law, level playing field for investors) that most economists think are necessary for sustained growth while at the same time preserving the “core support” of the regimes (see more on this below). To say the least, regimes are most unlikely to weaken their political base; they have not done this, and it seems politically naïve to expect that they will. In that case, however, the chances that conventional economic reform will raise incomes, employment and foreign exchange seem modest.

Over the longer haul, the needed changes are also likely to be destabilizing in another way: attracting the necessary volume of investment in the region will almost certainly require greater governmental accountability and more transparent rules of the economic game. This is not to say that democracy is needed for growth. It is merely to suggest that it is very unlikely that regimes will attract the necessary private capital from their own citizens or from foreigners if they persist in their arbitrary, authoritarian practices. Whether regimes are willing to take such risks is unclear.

From an investment perspective, the precise form of government is much less important than the presence of a) predictability and b) accountability. In the short or medium term, autocracy can, in theory, provide such public goods. Whether this is possible over the longer run seems unlikely. Experiences in Indonesia and South Korea strongly suggest, for example, that when “crony capitalism” (based on opaque, unaccountable deals between private investors and government officials) falters, successfully reviving investment requires institutional reforms that enhance accountability and predictability. Such reforms have occurred in South Korea but not in Indonesia. South Korea’s dramatic recovery from the Asian financial crisis of 1997 and Indonesia’s continued floundering are, at least in part, plausibly related to the marked differences in the changes that each made in response to crisis. So far, the record in the Middle East with enhancing accountability and predictability has been weak. This is a variant of the larger problem of limited (or non-existent) transitions to democracy, discussed below.

Finally, the chances of Washington Consensus policies actually succeeding are reduced because these countries suffer from significant weaknesses in international export markets compared with major competitors from Eastern Europe and South and Southeast Asia. In particular, they lack adequate infrastructure and skilled labor, particularly the “sergeants of industry” (e.g., foremen) that are necessary for modern industrial production. Despite the falls in wage levels and standards of living, efficiency wages (wages deflated by labor productivity) remain high relative to their international competitors. Oil rents have deeply infected wage levels, and labor productivity remains constrained by institutional, infrastructural and human-capital difficulties.

The situation in very poor countries like Yemen is far worse, of course. So, too, are the chances of success of Washington Consensus policies. For example, exports are highly unlikely to provide adequate food security or sufficient numbers of jobs (what would Yemen export that was not agriculturally based, other than its own people?) At the same time, domestic productive capacity has been damaged by population growth and property-rights issues (e.g., for groundwater); natural resource degradation may have gone so far as to be very difficult to reverse. Depleted aquifers, denuded hillsides and over-grazed steppes are poor foundations for any growth strategy. Further, thanks to past population increases, the labor force is growing so rapidly that provision of sufficient jobs via the “private-sector-led export model” is simply not credible. Infrastructure is far too poor, and the labor force is overwhelmingly illiterate.

The ugly facts are that, at best, economic development, however defined in such countries, is mainly a “holding action” designed to prevent further deterioration and the consequent breakdown of social order. The danger is that of collapse into the anarchy of a Somalia or an Afghanistan and the concomitant risks of the blossoming of terrorist safe-havens. It is possible to imagine a human-needs-based approach, which stresses equally education, health and environmentally sustainable agricultural production. The chances of being able to do this are not particularly good, and the Washington Consensus policy mix will do little to advance them. The situation, socially, economically and politically, is very grim indeed.

Finally, consider the case of the countries of the GCC. Such reforms as have been implemented there have been largely driven by fiscal problems. Despite the relief of relatively high oil prices in the last several years, the “rent ceiling,” given by alternative-energy production costs, is perhaps about $25 per barrel. Even at this maximum price, which is unlikely to be sustained over the long run, revenue will be short. Since 9/11, prices of around $30 per barrel have been the result of political fears; they are unlikely to be sustainable. It does not seem entirely plausible to expect continued high oil prices, and therefore high revenues, over the medium run.

On the other side of the ledger, the imperatives of spending have (at least) three proximate causes: 1) maintaining defense postures, 2) supporting consumer subsidies, and 3) providing jobs for the rapidly growing local labor force. Although governments have repeatedly tinkered with each, no government has a plausible plan for dramatically reducing any of them. GCC states (except Bahrain) continue to spend large sums on military hardware. Many locals (particularly in Saudi Arabia) question the utility of such spending. Nevertheless, spending remains high, which is quite understandable in view of the profound regional political tensions. Second, the GCC states have local populations that are thoroughly dependent upon, and expect to receive, a wide variety of consumer subsidies. Governments’ ability to meet their side of the social contract is increasingly in doubt. Some cuts have been made, but the threat to (already often well eroded) regime legitimacy, which such changes threaten, forces governments to move very carefully and slowly here.

Finally, and most important, the large majority (in Kuwait, some 80 percent) of nationals are employed by the state. Consequently, shortfalls in government revenue translate quickly into difficulties with employment creation. It has proven very difficult to change people’s expectations; repeated attempts to force private firms to hire more locals have foundered on the greater energy and lower wage expectations of expatriate labor at lower skill levels, while the difficulties with educational systems sketched above make it hard to replace highly skilled expatriates with local workers. Since the labor forces are growing at one of the highest rates in the world, it is not plausible to imagine that the public sector can greatly reduce its wage bill. In summary, since revenues will be squeezed and costs are inflexible downwards, fiscal problems are likely to persist. Washington Consensus policies are largely irrelevant here.

The need for job creation is particularly acute, given the weakness of the “demographic transition” in the GCC states. Mortality rates have fallen sharply, but fertility rates have fallen only moderately and remain very high by international standards. High rates of population growth fifteen to twenty years ago translate into very rapidly growing labor supplies today. For fiscal reasons, governments cannot provide the new jobs required to absorb this labor. But neither can the private sector currently take up the slack in employment creation, because a) this sector is too dependent on state largesse, and b) it is relatively too small to do so.

Finally, the countries of the Gulf have limited comparative advantages in non-oil goods or services. Wage rates, seriously inflated by past oil rents and current consumer subsidies, are far too high for earners to compete in low-wage activities, but skills are too low for them to compete in more sophisticated activities. This problem has been noted earlier for countries like Iran and Egypt, but it is far more serious for the GCC states.

In short, the countries of the Middle East face grave economic challenges in the coming decade(s). It is certainly sensible to advocate reform of sclerotic economic bureaucracies, stifling regulations and lumbering public-sector industries. One can make a strong case that a (modified) Washington Consensus strategy to stimulate growth, provide jobs, provide foreign exchange to buy food and thus import “virtual water” constitutes a faute de mieux strategy.

The success of this strategy in most countries of the region is, unfortunately, quite dubious. Mounting economic problems are likely to continue to pose challenges to governance. But, so long as regimes continue to have access to a) enough money for internal and external security, and b) support from at least some relatively united subsection of the population, they may continue to survive. As the example of the former Soviet Union shows, however, when a regime lacks the support of most of its people, contingent events and mistakes by the top leadership can lead to rapid disintegration and regime change. We are very far from the End of History in the region.

 

“Development as Freedom”

One final perspective on development needs to be addressed: the view of “development as freedom” articulated by the Nobel laureate Amartya Sen.27 Here development means, roughly, “development of human capabilities,” or “broadening the possible choices people can make in their daily lives.” This perspective has been utilized in the recently issued Arab Human Development Report, 28 with its discussion of the “three deficits”: “1) the freedom deficit, 2) the women’s-empowerment deficit and 3) the human-capabilities/ knowledge deficit relative to income.” By all of these measures, the Report argues, the region is underdeveloped.

In common with other visions of “development,” this view likewise argues that the Arab region has “fallen behind” the rest of the world, a world increasingly driven by knowledge, markets and democracy. The Report echoes the widespread (and reasonable) view that the Arab world has not participated in the so-called Third Wave of democratization that spread across Latin America, Eastern Europe and parts of sub-Saharan Africa during the past 15 years. The region, in short, suffers from a “democracy deficit.”

Here the discourse of “development” seems to have merged with the discourse on “modernity.” Regardless of how development is conceived and measured, most analysts agree that 1) the region has not done very well, 2) resulting social problems such as unemployment and poverty are serious, and 3) governance problems lie at the root of many of these difficulties.29 The prescription, typically, is for more accountable governance. Today, the argument is, increasingly, that democracy is necessary to bring development and modernity to the region. In today’s intellectual and policy climate, all good things go together.

 

DEMOCRACY TO THE RESCUE?30

There is little doubt that the “democracy deficit” in the Arab world is an empirical fact. There is far less agreement on 1) whether its removal would necessarily contribute to the demise of the other three deficits, 2) why this fourth deficit persists, or 3) how best to effect a transition away from authoritarian rule. Nor is there universal assent that the rise of democracy will necessarily generate “development.” There are reasons to suppose that more accountable governance would help, and there are certainly reasons to support transitions to more democratic governance simply for their own sake. But, once again, the more closely one looks, the murkier it all appears.

Consider the first issue. A “democracy deficit” contributes very strongly to the “freedom deficit,” although, as we all know, democracies can also repress dissent and behave intolerantly. The Report suggests, again plausibly, that authoritarian family structures and patriarchal ideologies have retarded the empowerment of women in the Arab world. No one familiar with Western feminist writing, however, would argue that democracy is a sufficient condition for female empowerment. Nor does the recent historical record of the Arab world suggest that tyranny necessarily retards women’s advancement. The case of Baathist Iraq, which largely eliminated female illiteracy and greatly expanded women’s employment opportunities, provides a counterexample. Nor, finally, does democracy automatically guarantee the greater generation and wider dissemination of knowledge. Citizens of democracies may elect to spend their time watching television game shows and attending sporting events, and may be unable to locate any foreign country on a map. Such is often the case in the USA. We have known for many centuries that providing opportunities and freedom offers no guarantee they will be wisely used.

In short, democracy is unlikely to offer a panacea for any of the Report’s three major deficits. One might still remain convinced that democracy is the worst form of government except for all the others. As Samuel Huntington has (rightly, in this case) observed, democracy is a solution to only one problem: the problem of tyranny.31 And that is quite enough. A transition to democracy throughout the Arab region would greatly reduce the freedom deficit. That alone would be a huge contribution to the welfare of Arab peoples and to everyone else in the world. It may also be the case that democracy is a necessary, rather than sufficient, condition for further reducing the other deficits. But the fact that it would reduce the freedom deficit provides ample justification to hope for a successful transition to democracy. And clearly, such a transition would make a huge contribution to “development as freedom.” By enhancing accountability, it would also very plausibly improve economic governance and stimulate investment. It could, for the same reason, improve environmental protection and the sustainable growth of the “wealth of nations.” It would almost certainly be an improvement over the current scene, in which corrupt elites enrich themselves while plundering natural capital, neglecting human-capital formation by the poor, and impeding physical-capital formation by less privileged economic agents.

What, then, has impeded democratization in the region, and how can more accountable governance be enhanced? Several key points emerge from the literature on democratic transitions. One prominent analysis32 distinguishes between two phases of the transition: “extrication from authoritarian rule” and “constitution of a democratic one.” When the repressive powers of the state are intact during the transition (e.g., Chile, South Korea), the first process dominates. When these institutions have shattered, typically thanks to either military defeat (e.g., Argentina, Greece) or strong civilian-party control of the repressive apparatus (Eastern Europe), the second process is “unencumbered by extrication,” which removes at least one barrier to success.

Especially for the first process, it is essential that 1) a sufficiently large number of reformers within the existing regime forge an alliance with moderate opponents of the regime, 2) the reformers can persuade military/security “hardliners” within the regime to cooperate with institutional change, and 3) moderates can control the radical opponents of the regime. Only if all three conditions are met will it be possible for a large enough set of social actors to believe that a “credible commitment” has been made by both current power wielders and their opponents to follow a set of “rules of the game” in which defeat does not mean annihilation. The literature describes such coalitions and their fruits as “pacted transitions,” so called because a tacit alliance between moderates inside and outside the government is necessary for a transition toward democratic rule.

Many historical forces have conspired to impede such transitions in the Arab region. One is obvious: The dominant position of the military and security apparatuses in Arab polities, many of whose members are “hardliners.” This is very much the product of the nature of the struggle against European colonialism and the intersection of that struggle with the Cold War between the United States and the USSR. It was highly plausible to Arabs for at least the first two-thirds of the twentieth century that their governments needed to be militarily strong to protect their often hard-won independence. The continued conflict with Israel was understandably perceived as an extension of this struggle. And an authoritarian military regime could always count on support from one superpower, provided that such an Arab regime made suitable political moves against the other superpower. In short, the fact that the often violent struggle for independence was followed by a half century of conflict with Israel, in a context of global Cold War, greatly strengthened authoritarianism.

A political-economy perspective on the history of the last 50 years in the region suggests that a critical barrier to transition has been the “low dependence of states on citizens.”33 This is a variant, of course, of the “rentier state” argument.34 Although it was first formulated in the context of oil rents, it has and should be extended to include what we might call “strategic rents,” as the preceding paragraph suggests. So long as authoritarian governments have sufficient resources, whatever their other failings, they may have little incentive to reform. Oil and strategic location from a superpower perspective have provided important barriers to “pacted transitions” away from authoritarian rule in the region.

A further barrier to such transitions is what John Waterbury35 has called “the pursuit of great quests,” such as liberation from foreign domination, resistance to Zionism and economic development. Waterbury argues that society has been harnessed to these quests. And, although current regimes have failed to accomplish their stated goals, many of their opponents seem to offer not “democracy as an alternative to authoritarianism, but rather an untarnished instrument to pursue the same cause.” In this view, so long as both civil society and the state believe in and pursue such quests, the emergence of genuine pluralism is difficult. One of the keys, of course, is the willingness of reformers within the state to trust that moderate reformers will both “play by new rules” and control their more radical allies. The problem is symmetric: moderate reformers need to know that reformist elements within the state apparatus can and will restrain hardliners. Understanding the conditions under which such a situation can come about would seem, then, to be essential to understanding the potential for transitions toward democracy in Arab countries.

In many Arab countries, the best organized opposition forces are those loosely described as “Islamist.” The movement is huge and diffuse, with many national and local variations. The logic of transition to democracy would imply that “moderates” within the Islamist camp must be willing to play by democratic rules, convince reform elements within the state of their sincerity, and maintain control over their radical friends. It seems highly probable that such a process will be a protracted and complex one, with advances as well as reversals along the way.

Nowhere in the world has the transition from authoritarianism toward democracy been simple; the Arab region is likely to be no exception. Vibrant debates over the relation between cultural authenticity and democracy have been going on for some time. Yet precisely because Arab authoritarians have remained stronger than their counterparts in some other Muslim majority countries, an even livelier debate has emerged in Indonesia, Iran, Malaysia, Pakistan and Turkey. Friends of Arab democracy have much to learn from these discussions.

These debates are particularly revealing concerning questions of the relationship between interpretations of Islam and various forms of democracy. There is no doubt that for Islam, as for other faiths (e.g., Roman Catholicism), religious texts may be interpreted to prohibit democracy. The fact that some prominent Islamic opposition movements (e.g., some Salafists) oppose democracy as an alien importation is unsurprising, but hardly decisive. After all, the Roman Catholic Church vociferously opposed democracy throughout the late nineteenth and early twentieth centuries, yet Catholic Europe is today entirely democratic, and most of largely Catholic Latin America is also.

Muslim thinkers are now finding ways to ensure that democracy in Muslim-majority countries is culturally authentic. In short, despite the deplorably belligerent rhetoric now fashionable in some American circles, there is little reason to suppose that the “culture” of the Arab region constitutes a decisive barrier to the transition toward democracy. The political-economy model sketched above seems far more parsimonious, and therefore to many of us far more persuasive, an explanation of the absence of democracy in the region than ponderous pontifications on “what went wrong with Muslim culture.”

Nor is it reasonable to argue that Arab countries are somehow “not ready” for democracy thanks to their current “level of development.” The correlation between democracy and economic development was always rendered suspect by the fact that the world’s largest democracy, India, was also desperately poor. Current levels of literacy, education and urbanization in the Arab region are certainly high enough to guarantee a vibrant democracy if the critical political barriers can be overcome.

The critical point is that the barriers to a transition away from authoritarianism toward democracy in the Arab region are fundamentally political. Current developments are far from encouraging here. The increasingly brutal Israeli occupation of the West Bank and Gaza has not only destroyed whatever nascent democracy may have been emerging in Palestine, but has also greatly increased the nervousness of Arab security services and militaries everywhere. The fact that the world’s sole superpower simply refuses to restrain the Israeli government helps to ensure that the conflict will get worse, not better. Such a situation, in addition to being a grave and on-going human disaster, impedes “pacted transitions” toward democracy by encouraging both hardline authoritarians within governments and extremists in opposition.

The understandable American reaction to the events of September 11, 2001, has also provided a poor environment for “pacted transitions.” In political-economy terms, the main result of the post-9/11 policy shifts in the United States has been to ensure that any authoritarian who resolutely pursued violent enemies of the United States could depend upon U.S. support. Such an environment only strengthens hardliners within authoritarian regimes, giving them fewer reasons than before to seek accommodation with opposition elements.

This, then, constitutes the final barrier to a transition to democracy in the Arab region: the world’s sole superpower does not really want it to happen, pious neoconservative rhetoric on “democratic dominoes” notwithstanding. As Tallyrand famously remarked, “Nations do not have friends, they have interests.” So long as American interests are defined as they are currently, 1) support for continued Israeli occupation of the West Bank and Gaza, 2) opposition to any single state having even short-run market power over oil prices, and 3) opposition to any regime that might harbor terrorists – U.S. policy actions (as opposed to rhetoric) are likely to thwart “pacted transitions.”

This is fundamentally the case because the opposition in nearly all Arab countries is dominated by the forces of political Islam. Would the United States really welcome a “pacted transition” in which, say, moderate Muslim Brothers and reformist generals in Egypt agreed to share power? Even assuming that the thorny internal problems of “credible commitment to the democratic rules of the game” had been surmounted, wouldn’t Washington oppose such a government – a government that would certainly oppose American policy in Palestine and very likely elsewhere in the region? And, given the current balance of forces in the world, wouldn’t that opposition endanger the transition?

The situation in the Arab region today may resemble that of Latin America during the Cold War, when American paranoia about Marxism undermined existing democracies and blocked nascent “pacted transitions.” As in the Arab region now, the internal and external obstacles to a democratic transition helped to create and reinforce one another: the United States strengthened hardliners (and, therefore, also radicals in opposition), partly because it feared that Marxists would not play by the democratic rules of the game if they won elections. Moderates in opposition were weakened because radicals could plausibly argue that winning an election would be meaningless; the hardliners, with U.S. help, would just engineer a coup to overthrow an opposition government. Substitute “Islamist” for “Marxist,” and you have a reasonable picture of the key barriers to a transition to democracy in the Arab region.

Friends of such transitions, in the Arab world and in the United States, will have much work to do in the months and years ahead. Some of us are hopeful that the recent Turkish election may set a standard of an elected, truly democratic, Islamist government. If hardliners in the Turkish military, radicals in the Turkish opposition and the U.S. government can all refrain from undermining the current regime, the Turkish case could set an important precedent for the Arab region. If so, progress toward closing the “democracy deficit” may accelerate.

 

CONCLUSION

However “economic development” is measured, the performance of the Middle East has been disappointing, above all to its residents. Whether our definition of development is growth of per capita GNP, a measure of human development such as the HDI or a concept of “development as freedom,” the region’s performance has been mediocre. The one relatively bright spot is that, despite the many difficulties, the poor have not been permitted to starve, as they have been in other regions of the Global South. It is equally clear that unaccountable, corrupt, authoritarian governance structures bear at least part of the blame for this relatively poor record. It is entirely appropriate to recommend increased accountability and greater democracy, and to support all measures that may enhance “development as freedom.” More accountable governance would very plausibly promote more sustainable poverty alleviation.

What is not at all clear, however, is the utility of the currently fashionable discourse asserting that the region is somehow “not modern” and displays uniquely serious development deficiencies. I have argued that the concept of “modernity” is a chimera, at best, a description of an institutional matrix and mind-set that have passed from the scene. It is not a useful guide to policy and should be avoided. Despite the many development deficiencies of the region, other parts of the world (e.g., sub-Saharan Africa, Latin America) also face serious development challenges. For example, it would be the height of folly to assume that the massive problems of forging a strategy for sustainable growth of the wealth of the world’s largest nation, China, have been “solved.” The Middle East is hardly alone in facing serious problems of providing “development as freedom” or for enhancing “the wealth of nations.” A remarkable feature of the hysteria following 9/11 is that such an obvious point needs to be made.

It is equally helpful to remember that some of the barriers to sustainable development or to “development as freedom” in the region are the direct product of “modernity.” First, it is hardly possible to understand the current state of regional governance without reference to Europeans, Americans and Soviets pursuing their own national interests, with little regard for the impact of their decisions on development as conceived by either Sen or Dasgupta. Second, if we Westerners are “modern,” we became so while substituting the energy of hydrocarbons, especially oil, for human energy to perform our work. Our development for at least a half-century has been fueled by oil. It is a commonplace of policy analysis that oil has been a barrier to development in the Middle East, thanks to problems such as the Dutch Disease, the rentier-state phenomenon, the impact on work ethics and so on. We in the United States are heavily implicated in erecting many of the barriers to “development as freedom” in the Middle East.

The current revival of modernization theory, the new militant Wilsonian religious revival now sweeping America, and other variants of utopianism suffer from many of the same problems as the Washington Consensus of the 1990s. If we have learned anything about improving development policy, we know that institutions matter greatly and that institutions can only be crafted from within a society. (Russian experience in the 1990s is telling here.) Outsiders can do little to reform legal systems, enhance accountability and (above all) improve the chances of success of a pacted transition to democracy. The notion that the United States can “impose democracy,” simply because we have the world’s most powerful military, is a singularly fatuous idea. If we are lucky, this latest enthusiasm will soon fade, more sober counsels will soon prevail, and more thoughtful work will be done to promote development as freedom and to sustain the wealth of nations in the region. A reader of The Washington Post will, however, perhaps be forgiven for heeding the old Spanish saying, “You can wait sitting down for this.”

 

Table 1

Economic Growth Performance: The Conventional Wisdom:

Per Capita GDP Growth Rates (percent per year)

Selected Countries in the NESA Region

 

	1975-99	1990-99
UAE	-3.7	-1.6
Lebanon	---	5.7
Saudi Arabia	-2.2	-1.1
Oman	2.8	0.3
Turkey	2.1	2.2
Jordan	0.4	1.1
Tunisia	1.9	2.9
Iran	-0.9	1.9
Syria	0.8	2.7
Algeria	-0.4	-0.5
Egypt	2.9	2.4
Morocco	1.4	0.4
Pakistan	2.9	1.3
Yemen	---	-0.4
Global South (LDCs)	2.3	3.2
Arab Countries	0.3	0.7
East Asia	6.0	5.9
Latin America	0.6	1.7
South Asia	2.3	3.4
Sub-Saharan Africa	-1.0	-0.4
Middle Income	1.8	2.3
Low Income	1.7	1.2
World	1.3	1.1

Source: World Bank.

 

 

Table 2

 

Human Development Indicators (1998)
HDI Rank36	Country	LEB37	AL38	ER39	HDI
23	Israel	77.9	95.7%	81%	0.883
36	Kuwait	76.1	80.9%	58%	0.836
45	UAE	75.0	74.6%	70%	0.810
72	Libya	70.2	78.1%	92%	0.760
75	Saudi Arabia	71.7	75.2%	57%	0.747
82	Lebanon	70.1	85.1%	77%	0.735
85	Turkey	69.3	84.0%	61%	0.732
86	Oman	71.1	68.8%	58%	0.730
92	Jordan	70.4	88.6%	69%	0.721
97	Iran	69.5	74.6%	69%	0.709
101	Tunisia	69.8	68.7%	72%	0.703
107	Algeria	69.2	65.5%	69%	0.683
111	Syria	69.2	72.7%	59%	0.660
119	Egypt	66.7	53.7%	74%	0.623
124	Morocco	67.0	47.1%	50%	0.589
126	Iraq	63.8	53.7%	50%	0.583
135	Pakistan	64.4	44.0%	43%	0.522
143	Sudan	55.4	55.7%	34%	0.477
147	Mauritania	53.9	41.2%	42%	0.451
148	Yemen	58.5	44.1%	49%	0.448
	Arab States	66.0	59.7%	60%
	MICs40	68.8	87.8%	73%
	World	66.9	78.8%	64%

Source: UNDP, Human Development Report, NY and Oxford: Oxford University Press, 2002.

 

Table 3

Unemployment in the Middle East: A Compendium of Estimates
Country	Unemployment Rate	Remarks
Algeria	30%	1999
Egypt	12%	2000. Some estimates show 20%
Iran	20-25%	2001
Jordan	15%	Official rate. Others give 25-30% (1999)
Lebanon	18%	1998
Libya	29%	2000
Morocco	15-22%	2000
Saudi Arabia	14-18%	Higher among graduates
Syria	12-15%	CIA gives 20%
Tunisia	16%	1999
Yemen	35%	1999

Sources: Saudi Arabia, US Embassy, Riyadh; and The New York Times, August 26, 2001; Iran, Eric Rouleau, Le Monde Diplomatique, www.en.monde-diplomatique.fr/2001/06/05iran; all others: MEDEA Institute (European Institute for Research on Mediterranean and Euro-Arab Co-operation), and CIA World Fact Book.

 

Table 4

 

Poverty Estimates: A. Selected NESA Countries
	International Poverty Line			National Poverty Line
	<$1/day	<$2/day	Year	National	Year
Algeria	1.8%		1985	12.2	1988
	1.2%		1990	22.6	1995
	1.6%		1994
	<2.0	15.1	1995
Egypt	7.5%		1985	22.9	1995-96
	5.6%		1990
	5.7%		1994
	3.1%	52.7	1995
Iran	6.5%		1985
	8.9%		1990
	6.9%		1994
Jordan	4.2%		1985	15.0	1991
	12.6%		1990	11.7	1997
	13.8%		1994
	13.9%		<2.0	7.4	1997
Morocco	7.1%		1985	13.1	1990-91
	2.5%		1990	19.0	1998-99
	1.6%		1994
	2.0%		1990-91
Pakistan	31.0%	84.7	1996	34.0	1991
Tunisia	4.6%		1985	19.9	1985
	2.9%		1990	14.1	1990
	1.6%		1994
	<2.0%	10.0	1995
Turkey	2.4%	18.0	1994
Yemen	15.7%	45.2	1996	19.1	1992
		35.5	1998

 

Poverty Estimates: B. Selected Comparator Countries
		International Poverty Line
		<$1/day	<$2/day	Year
Latin America:
	Chile	4.2%	20.3%	1994
	Costa Rica	9.6%	26.3%	1996
	Mexico	17.9%	42.5%	1995
	Venezuela	14.7%	36.4%	1996
Asia:
	China	18.5%	53.7%	1998
	India	44.2%	86.2%	1997
	Indonesia	15.2%	66.1%	1999
	Sri Lanka	6.6%	45.4%	1995
	Thailand	<2%	28.2%	1998
Sub-Saharan Africa
	Botswana	33.3%	61.4%	1985-86
	Kenya	26.5%	62.3%	1994
	Nigeria	70.2%	90.8%	1997
Former East Bloc
	Romania	2.8%	27.5%	1994
	Russia	7.1%	25.1%	1998

Source: World Bank, World Development Report, 2000/2001, pp. 280-81; and W.van Eeghen, “Poverty in the Middle East and North Africa,” World Bank, 1995.

 

Table 5

Changes in Wealth vs Conventionally Measured Growth
	Average Annual Percentage Yearly Change in:
	Wealth per capita (1970-93)	GNP per capita 1965-96)	HDI (1987-97)
Bangladesh	-2.6	1.0	3.3
India	-0.1	2.3	2.2
Nepal	-3.0	1.0	5.3
Pakistan	-1.9	2.7	1.8
Sub-Saharan Africa	-3.4	-0.2	0.9
China	0.8	6.7	-0.2

Source: Partha Dasgupta, “Valuing Objects and Evaluating Policies in Imperfect Economies,” Economic Journal, 111, May 2001, C1-C29.