External capital and political liberalizations: a typology of Middle Eastern development in the 1980s and 1990s.

• Author: Glasser, Bradley L.
• Position: Continuity and Transformation: The Modern Middle East

Recent scholarship has emphasized that issues of state and regime are critical determinants of the scope and timing of economic reforms in the developing world. This approach, by and large, attributes the success and failure of such reforms to the nature of the state and its elite. By contrast, in surveying reformist developments in the Middle East in the 1980s and 1990s, this article contends that state access to external capital has been critical in shaping the scope and timing of economic reforms of third world states. At the same time, the availability of external resources has played a crucial role in shaping Middle Eastern political liberalization. Throughout the region, many regimes have structured their political openings in ways that legitimate their economic development models. This article offers a resource-based typology of economic and political reforms in Middle Eastern countries in the 1980s and 1990s.

Current development literature focuses on the ability of a state elite to impose neo-liberal economic reforms on uncooperative or hostile social groups, to forge effective alliances with pro-reform private-sector groups and the international donor and creditor community and to gather economic intelligence and formulate a coherent reformist strategy.(1)

The availability of nonconditional finance and external capital is an alternative - albeit somewhat neglected - explanation for the failure of some Third World states to implement substantive economic reforms. Though such an approach has not been used to present a systematic appraisal of the reforms of Third World states, a few analysts have suggested that the availability of exogenous resources has played a critical role in current developments. For example, John Waterbury has argued that Egypt and Turkey had roughly comparable statist development projects in the 1960s and 1970s. Crippling foreign-exchange crises compelled Turkey to engage in sweeping neo-liberal reforms in the early 1980s. In contrast, Egypt averted such reforms, largely because its considerable exogenous resources (particularly oil revenues and foreign aid) enabled it to maintain its statist and populist projects in the 1980s.(2)

Likewise, Miles Kahler has noted that some states have relied on infusions of external capital to postpone and mitigate their implementation of economic reforms demanded by international donors and creditors. Often, he argues, "alternative sources of finance" enable Third World countries to avoid - or renege on - International Monetary Fund (IMF) or World Bank agreements:

The availability of nonconditional finance was a disincentive for

compliance with IFI [International Financial Institution] conditionality ....

By reducing the need for future conditional finance (or even the

expectation of such a need), financial windfalls, such as recurrent

commodity booms, no-questions-asked aid, or private credit reduce the

likelihood of continued cooperation with the IFIs. Typically, the

borrower will exploit the conditional lender, agreeing to policy

changes only to obtain a seal of approval that will increase its access

to other sources of finance.

Kahler argues that Bolivia in the late 1970s, and the Philippines in the late 1970s and 1980s, exemplified this process of backsliding on agreements with international agencies.(3) But as Waterbury suggests, the availability of unusually large amounts of exogenous resources may well enable a state to preserve a statist development model and to avoid substantive reforms altogether.(4)

Indeed, by building on Waterbury's notion, one can speak volumes about economic and political reforms in developing countries. The contention here is that Middle Eastern states lacking substantial exogenous resources (especially oil revenues and foreign aid) have experienced severe economic crises and accordingly have created neo-liberal parliamentary majorities. By contrast, those states with greater exogenous resources have had milder economic crises and have developed more populist electoral coalitions. Thus, the availability of external resources not only conditions economic reforms, but shapes political participation and the nature of regimes. Windfalls such as oil revenues and foreign aid are vital in this process because they enable developing countries to avoid or mitigate dependence on the conditional finance of the IMF and World Bank.

This analysis uses a resource-based model to illuminate the central development trajectory in the Middle East in the 1980s and 1990s. The cases studied are Morocco, Turkey, Egypt and Kuwait, though other important regional economic and political developments are referred to. Of particular interest is state access to various forms of external capital, or what scholars of the Middle East usually call exogenous revenues. These "rents" - for example, bank loans, oil revenues and foreign aid - accrue directly to the state and account for almost all of the foreign-exchange inflows in the Middle East.

The Impact of Exogenous Revenues on State Development

Policies: The Quest for Populism

In the 1950s and 1960s, Middle Eastern countries used foreign aid and bank loans to finance the construction of statist and import-substituting development projects. Of course, these expansive policies reflected the drive toward interventionist economic development occurring throughout the Third World during the post-war era. But in the 1970s, as the growth of state intervention and welfare accelerated in the region, Middle Eastern states became extraordinarily dependent on external revenue sources.(5)

After the 1973 Arab-Israeli War, oil prices quadrupled and foreign-aid flows within and into the region increased dramatically. These exogenous revenues funded a massive expansion of the distributive policies and bureaucracies of Arab states - their budgets, infrastructures, subsidies, social services and public sectors. Of course, the composition of the ruling coalitions varied markedly from country to country, as did their professed ideologies. Relatively broad and inclusive ruling coalitions in Egypt and Tunisia, for example, contrasted sharply with the Syrian regime and its narrow sectarian base, and with the Jordanian monarchy's traditional Bedouin orientation. But in the 1970s, the thrust of economic development in all of these countries was toward a dynamic expansion of state intervention in the economy, and a sharp increase in consumption and distributive policies, as fueled by exogenous revenues.(6)

In sum, in the 1970s and early 1980s, oil-related wealth and other kinds of foreign aid preserved and, in important respects, enhanced the distributive and interventionist capacities of Middle Eastern states. These exogenous revenues did what all such revenues tend to do, other things being equal: enhance and preserve forms of populist consumption and distributive bureaucracies. In all cases, exogenous revenues helped to free the states from the burdens of direct taxation. In turn, existing regimes were able to mitigate political conflict through their distribution of patronage, and to secure the political acquiescence of their populations through the provision of social welfare.

Authoritarian rule thus became more durable in the Arab world, as the massive exogenous revenues of the 1970s worked to stabilize regimes.(7) Further, scholars have shown how exogenous revenues enabled the relatively poor Arab countries to sustain their statist projects.(8) In short, Middle Eastern rulers have tended, whenever possible, to use significant exogenous revenues to pursue distributive economic policies. In the 1980s and 1990s, the relatively rent-poor states turned reluctantly to austerity and neo-liberal orthodoxy only after the evaporation of their exogenous resources triggered severe budgetary gaps. Thus, while exogenous windfalls tended to strengthen regional regimes in the 1970s and early 1980s, drops in these revenues caused a destabilization of the regimes by the mid- to late- 1980s.

Exogenous Revenues and the Era of Neo-liberal Reform

in the Middle East

The two following sections describe how levels of exogenous revenues have shaped the process of economic crisis, stabilization and reform in Middle Eastern countries during the 1980s and 1990s. Three hypotheses are considered. First, other things being equal, state access to significant exogenous resources tends to generate statist, populist and expansionary macroeconomic policies. Second, a drastic decline in such revenues usually forces states to implement some kind of economic reform. Third, other things being equal, those states consistently receiving low levels of exogenous revenues (roughly 30 percent of total revenues or less) are likely to be the most vigorous and consistent economic reformers in the region. Finally, the timing and scope of regional economic reform are typologized. Instead of arguing, like other authors, that global reform patterns reflect issues of state strength, stability, capacity and autonomy, this article contends that the availability of exogenous revenues has created a distinct pattern in the economic reforms of the relatively stable and cohesive authoritarian states of the Middle East.

A conceptualization of state access to exogenous revenues in the early 1980s is presented in the four tables below, which also serve as the bases for the typology of Middle Eastern political development presented in the final section of this essay. With some modifications, that access is measured using an approach developed by World Bank analysts and by scholars working with the rentier-state paradigm. Quite simply, this approach examines the level of exogenous resources as a percentage of total economic resources. Some analysts prefer to measure exogenous revenues as a percentage of state revenues; others assess the role of exogenous resources in the economy as a whole. Following the approach of several contributors to The Rentier State volume...