Political economy of development in the Arab republics: The state and socio-economic coalitions

ABSTRACT

The question of socio-economic underdevelopment in the Arab region has been a perennial theme in development studies. While some scholars highlight the long durée effect of the Ottoman institutional legacy, others place the blame on the legacy of exploitation and expropriation of the colonial practices in the region. The article reaches beyond the two accounts (albeit departing from the colonial economic basis) and brings out the agency of the post-colonial elites who altered the socio-economic foundation of the political class and transformed processes of capital accumulation and labour commodification. I argue that the processes of state-building accompanied by social engineering measures represented a ‘critical juncture’ that impinged on state autonomy and its bureaucratic capacity and left an indelible imprint on development strategies. The article unpacks three mechanisms that proved consequential for economic policy outcomes: (1) the degree of elite autonomy to formulate policies, (2) the power of social classes to contest economic policies, and (3) the capacity of state bureaucracy to implement policies and allocate resources. A critical political economy perspective, that reaches beyond the reification of the state and examines the interaction between ‘elite deals’ and ‘social bargains’, offers a nuanced account for varied development records across the region.

KEYWORDS:

• Ottoman legacy
• colonial legacy
• state capitalism
• cronyism
• path-dependent development
• Middle East
• Nasserism

Introduction

The question of the socio-economic development of the Middle East and North Africa (MENA) region has been a recurring theme in development studies. The growth rate in gross domestic product (GDP) per capita has been stagnant in non-oil Arab countries for decades. It decreased from 13% in 1990 to 4.9% and 2.3% in 2016 and 2018, respectively. The percentage of the population living below the income poverty line in 2018 reached nearly 25%, and the ratio of education and health expenditure to military spending continued to be at the lowest levels in 2018 (1.7), in comparison to other developing regions such as Latin America (10.8) or sub-Saharan Africa (7) (HDR 2019, 321, 346). What accounts for social and economic underdevelopment in the region? Why did the state capitalism model of the 1950s and 1960s not give way to an East Asian type of ‘developmental state’? Why did economic liberalization measures not result in the integration of the region into the world economy? Why has the region remained disjointed from the global production chain and out of the surge of foreign capital inflows into the developing countries?

The dismal development records in the region have been investigated through the prism of the long durée institutional legacy of the Ottoman Empire or various proximate factors such as colonial policies, authoritarianism, crony capitalism, and rentier economies. The MENA region, however, has gone through large-scale political transformations since the disintegration of the Ottoman Empire, and the colonial rule altered or dismantled the vestiges of the Ottoman rule. In addition, the colonial rule left a legacy of a weak bureaucratic apparatus, sluggish agriculture sector, low-skilled workforce, and technological backwardness that hindered economic progress, but post-colonial elites transformed the state institutions and introduced different patterns of accumulation of physical and human capital. Post-colonial regimes in many non-oil republics embarked on ambitious policies of import-substitution industrialization (ISI), and invested in state-owned enterprises (SOEs), prioritized public investments, fostered the position of the local industrial working class, curtailed the domestic private sector, and gave rise to a new bourgeoisie class from military–bureaucratic elites and private entrepreneurs who benefited from public industrialization policies (Cammett and Posusney 2010; Cammett et al. 2015, ch. 4). The fiscal and external payment crises that afflicted the region in the 1970s pushed the populist regimes to veer towards economic liberalization policies. The neoliberal turn, however, did not result in more effective economic policymaking or better economic performance. The politics of economic reforms precluded the structural transformation of the productive bases of the economies and barred industrial transformation, innovation, and economic integration into the global market.

I argue that the processes of state-building accompanied by social engineering measures represented a ‘critical juncture’ that impinged on state autonomy and its bureaucratic capacity. In this region, the state has been the preeminent player and initiated broad-gauged policies that altered the socio-economic foundation of the ruling elites and transformed processes of capital accumulation and labour commodification. I unpack three mechanisms that affected economic policy outcomes from the formation of the post-colonial state through the enactment of the structural adjustment programmes (SAPs): (1) the degree of elite autonomy to formulate development policies; (2) the power of social classes to contest economic policies, and (3) the capacity of state bureaucracy to implement policies and allocate resources. The article thus reaches beyond evaluating particular economic policies and brings out legacies of state-building and coalition formation that left an indelible imprint on development strategies.

Next, I offer a critical review of different streams in the extant literature that focus on the enduring effect of the Ottoman legacy on underdevelopment. The third section shows how colonial policies reshaped social and economic structures, altered the relics of the Ottoman Empire, and perpetuated the predominant agricultural structure and low-skilled workforce. Fourth, I dwell on the argument and show how state formation and the ascension of military elites to power transformed the socio-economic basis of the political authority as well as the capacities of state bureaucracy and the quality of its intervention in the economy. In this section, I limit the geographical scope to non-oil republics and offer empirical examples that demonstrate the plausibility of the argument in particular contexts. Fifth, I examine the neoliberal turn and illustrate how the state has reproduced its power and autonomy from private business elites. In the conclusion, I show how the state proved its tenacity and overpowered society after the popular uprisings of 2010/11. I also point to different research areas that have not been addressed adequately or conclusively in the available political economy literature.

The historical antecedents of the Islamic institutional foundation of development: A critical review

The literature on the long-running institutional effect of the Ottoman rule on economic underperformance centres the analysis on either the centralization of power or the Islamic legal infrastructure that inhibited fast-track economic growth. Some writings examine the highly centralized power of the Ottoman Empire that precluded the emergence of autonomous market actors to push through economic modernization and institutional innovation. Funnelling public investment into infrastructural projects to serve the dual strategy of military expansion and tax-farming extraction, Ottoman sultans had obviated the need to modernize and diversify economic activities across the empire. In addition, the fiscal autonomy of Muslim sultans to finance military operations and recruit mamluk slaves imported from non-Muslim territories had insulated rulers from social pressures and limited the bargaining leverage of local notables vis-á-vis the Sultan.¹ The Sultan, therefore, had not been forced to negotiate with the landed aristocracy to raise armies for defence matters, which retrenched his tyrannical power to formulate economic policies not necessarily favourable for longer-term development (Goldstone 2012; Blaydes and Chaney 2013; Cammett 2018).

Most recent political economy research that analyses the impact of long durée factors on economic development falls within the realm of institutional political economy. One of the most prominent streams examines the causal connection between legal and Islamic institutions under the Ottoman rule and economic performance. According to these studies, Islamic legal infrastructure shaped the legal framework of economic exchanges and ‘unintendedly’ created a self-enforcing rigidity that hindered wealth accumulation, eroded possibilities of emergence of the entrepreneurial capitalist bourgeoise, and stifled the development of large enterprises and joint-stock corporations (Kuran 2003, 2004, 2011; Rubin 2010, 2011; Kuran and Rubin 2018).² The emphasis on the long-term implications of Islamic institutions for economic stagnation, however, not only offers a static account of the ever-changing institutional arrangements within the empire but also overlooks the incentives of the key players and the political equilibrium that forestalled demands for new legal regulations and organizational innovation (Malik 2012). Some works address this lacuna and show how the nexus between political rulers on the one hand and religious dignitaries (‘ulama) and cavalry elites on the other created a rentier class embedded in the Sultan patronage networks, staved off reformist pressures from economic players, and delegitimized demands for economic modernization (Kuru 2019; Rubin 2017, ch. 1 and 2). However, zeroing in on the incentive structure that hindered the emergence of game-changers to transform the institutional infrastructure of the empire continues to gloss over the far-reaching institutional transformation within an empire that spanned six centuries (Eibl, Hatab, and Hertog 2022, 136–137). The reordering (or Tanzimat) reforms between 1839 and 1876, for example, undermined the traditional authority of both the ‘ulama (by introducing secular education) and Mamluks (by modernizing the military and introducing modern transportation and communication networks that strengthened the central control over provinces) (Salzmann 1993; Kasaba 1994; Pamuk 2006). Moreover, the institutional political economy does not offer an independent account for either the strategic choices of economic interests that undermined challenging social forces or the structural economic determinants that kept economic actors from acting collectively to achieve economic modernization. First, finance had been the Achilles’ heel of the empire. Budget restraints and the service of the debt had forced sultans to change the land-tenure taxation system that allowed for lifetime tax-farm holdings and purchasing bonds and shares in auctions. The fragmentation of provisional elites, however, enabled the central authority to pre-empt collective resistance, and thereby maintain the empire’s well-entrenched ‘hub-and-spoke’ network pattern that governed its relations to the periphery (Barkey 2008, 10). Second, at the turn of the nineteenth century, the intensification of commercial ties with European powers, rising demands for cash crops, and the Capitulation that granted Europeans economic concessions (e.g. tax exemption, low tariffs, separate jurisdiction of foreign consular corps) and allowed them to trade freely in Ottoman ports had left little chance for local merchants and manufacturers (especially in textiles) to flourish and forced some economic players out of the market (Issawi 1982, ch. 8 and 10; Owen and Pamuk 1998, ch. 5–7; Fieldhouse 2006, 9–20).

At the same time, commercial ties had created local classes (mainly landowners) who aligned with imperial interests and fought to introduce or maintain low tariffs that decreased state revenues from the trade ties with the metropolitan. The comprador class contributed to inhibiting industrial transformation, surpluses accumulation, and/or investment in extensive social programmes. In contrast, social and political dynamics in Turkey, for instance, had put it along a divergent development pathway. In Anatolia, the political dynamics in 1908, before the dismembering of the Empire, enabled soldiers and bureaucrats to seize power. They formed a political class that ‘owed [its] position [more] to their official connections than their landed wealth’. Additionally, investments in agricultural sectors were operated by the government or foreign enterprises, which hindered the emergence of a class of landed oligarchy (Owen 1981, 289).

Pivoting the focus, therefore, towards social and economic dynamics that altered class structure and state apparatus before the collapse of the empire calls into question the causal effect of the historical institutions on contemporary economic outcomes. Turkey, which fell heir to the empire, ushered in an export-led industrialization strategy and created enclaves of economic efficiency in the global division of labour. In the wake of its independence and the restoration of full control over its territories in 1936, Kamal Atatürk embarked on a modernization project that broke with the Ottoman past. European colonization of the remnants of the empire and the failure of the ‘Arab Revolt’ of 1916 stalled the creation of the modern nation-state in the rest of the region (Hurani 1981; Muslih 1987; Gelvin 1994). The colonial authority further represented a rupture with the Ottoman legacy and the colonizers transformed or dismantled inherited political and social organizations, which had long-term ramifications for state formation and the social composition of the ruling elites. The divergent development trajectories that stemmed from the interaction between pre-colonial Ottoman institutions and the colonial policies show that the causal effect of the long durée factors (even after the formal abrogation of Islamic legal institutions and the transformation of the land regime and private finance in the nineteenth century) has remained empirically underexplored or underspecified.³

Colonial rule and development politics

After the dissolution of the Ottoman Empire in the early twentieth century, almost all of the Middle East (except Turkey and Iran) fell either under European mandate or protectorate.⁴ Although there is a common agreement that the region fell prey to colonial power due to the economic stagnation of the Ottoman Empire, the colonial rule had its implications for development trajectories and, especially, the patterns of industrialization and capital accumulation. Contrary to Japan in East Asia, British and French colonizers did not aim at investing in local economies, public goods, infrastructural development, and welfare programmes. Italian authority in Libya even dismantled inherited Ottoman administration, recast tribal identities, and revived kinship ties, creating conditions for anti-bureaucratic tendencies in the post-colonial period. As former Ottoman provinces, the Arab units were competent to run their local affairs with administrative and judicial control. They were not, however, well equipped to ‘form viable nation-states’ with infrastructure and penetrative power over extended territories (Fieldhouse 2006, 342). Moreover, European colonizers tended to govern either directly through the well-established agencies or indirectly by creating alliances with tribal elites and large landowners (Boone 1994), but they did not invest in establishing effective bureaucratic apparatuses and extensive governing institutions.

Although European investors in some countries tended to dominate manufacturing and financial sectors, local economies remained predominantly agrarian and vulnerable to global market vicissitudes. Egypt was portrayed as a typical case of the role of foreign capital in accelerating economic development centred on the reclamation of farmlands (liquidated by the British and facilitated by mortgage credits) and the expansion of cotton cultivation. The British gained effective control over Egypt after 1881 which undermined the Khedivate autonomy over fiscal policies and allocation of resources. The British high commissioner was concerned mainly about payments of debt service and increasing cotton exports (Hunter 1998; Reid 1998). The British policies transformed Egypt into a profitable site for banking business and a ‘gigantic cotton plantation’ and contributed to the creation of economies of scale (with the less costly credit, investment in infrastructure and agriculture technologies, and lower land prices that paved the way to the formation of large tracts of arable land – ‘izbas) (Davis 1983, 45). At the turn of the twentieth century, an unprecedented influx of foreign capital poured into the country and gave way to a proliferation of joint-stock companies, new banks, and other credit institutions.

Nevertheless, the contradictions of the colonial rule did not transform the economic structure into capital-intensive industries (using increased agricultural productivity and wage labourers), and it also subjected the sale of a single cash crop to the fluctuations of cotton prices in the global market. Moreover, the institutionalization of private ownership of lands and the lowering of land tax to placate large landowners prevented the state from accumulating any sizable surpluses for investment in industrial or social programmes. In fact, active support of the state (in the forms of financial subsidies, protective tariffs, and monopolistic concessions) is the sine qua non for industrial development in the periphery (Davis 1983, ch. 3; Vitalis and Heydemann 1999, 101, 111; Jakes 2020, Introduction). The imposition of state tariffs in the 1930s to protect the infant national spinning and weaving industry antagonized the agrarian bourgeoisie, who aligned themselves with the metropolis to resist imposing tariffs on Egyptian cotton exports and maintain the competitiveness of the British textile manufacturers in the global market by reducing the cost of production. The conflict between the industrial domestic bourgeoisie and landlords divided the national liberation movement and kept it from developing a cohesive national project of economic development (Vitalis 1995, ch. 1; Yousef 2000, 320).

In North Africa, the colonial authority transferred military technology to the region and developed modern administrative and bureaucratic apparatuses to facilitate tax collection and protect the private property of the French settlers after the excessive expropriation of local properties (Henry and Springborg 2010, 17). The French offered public education for a limited number of natives and created a new middle class from educated, white-collar, and salaried professions, especially in Algeria, and to a lesser extent in Tunisia; this was not very noticeable in Morocco, which exhibited continuity with the state’s tradition (Waterbury 1973, 548–555; Ben Ali 1997). The preferential policies of the settlers in Algeria and Tunisia and the continuity of traditional authority in Morocco precluded the development of an autonomous class of domestic entrepreneurs or far-flung bureaucratic apparatuses to herald a transformative development strategy after the independence. In Algeria, the French destroyed the authority of the chief and tribal cohesion, confiscated large tracts of lands and religious waqf properties, and introduced an education system to subsume the Arab-Muslim identity. The French economic and educational policies created a class of wealthy businessmen and landowners among the settlers (the colons or ‘black feet’) and prevented the formation of a qualified indigenous bureaucratic class to run the country after the departure of the colonizer. The violent struggle against the French authority gave rise to new elites from belligerent mujahidin and National Liberation Army (ALN) officers who had to solve their ideological disputes and reshape the country’s bureaucratic apparatuses after the independence (Entelis 1986, ch. 2 and 3; McDougall 2017, ch. 3). Contrary to Algeria, the French plan in Tunisia did not pursue immediately drastic policies. The colonial authority followed a ‘peaceful penetration’ strategy to mute tribal resistance in 1881. The patronage system in the rural areas as well as the class and agricultural structures remained intact. The patronage system was even consolidated and developed into the organizational basis of the nationalist movement in the 1930s, comprising an alliance between the provincial administrative class, commercial landowners, and rural popular forces (Anderson 1986, 31, 32).

In the eastern part of the region, the British and French colonial authorities did not own land, nor did they establish settler communities. In Greater Syria, the French favoured Maronites and other Christian groups, which strengthened the position of the merchant class, but the colonial policies did not develop local economies to benefit wider segments of the population. Syrian businessmen had autonomous room to run their own businesses in the 1930s. But French policies of pegging the Syrian lira to the French franc and the establishment of a customs union with Lebanon kept the Syrian bourgeoisie from expanding their production capacity and barred capitalist reproduction from taking root in society. The state lacked the institutional capacity to impose a legal and regulatory framework, pour resources into public investment, and encourage investors and domestic entrepreneurs to expand their operations (Waldner 1999, ch. 4).

In Iraq, tribal leaders, who blocked the Ottomans’ attempts to create modern administrative structures and local councils to increase revenues from land taxes, continued to assert their control over large estates of land and sustained the tribal agrarian system (iqta’) (Haj 1997; Owen 1981, 60, 61). The British reestablished the traditional authority of tribal shaykhs and accredited them absolute judicial authority to reduce the cost of peacekeeping in the countryside and secure tax diminutions to the central administration under the reign of the Faysal oligarchical monarchy. The fiscal constraints, the liquidation of the Iraqi liabilities, the dependence on the Iraqi Petroleum Company (IPC) for ‘dead payment’ (up-front payment against future royalties),⁵ and poor British investment in infrastructure stifled industrial development and cut back public spending on health, education, agriculture, and irrigation. Furthermore, the fierce struggle for power after the death of Faysal in 1933 stalled the creation of efficient institutions to mediate social conflict, which continued to preclude the efficient use of land to lead a national project of capital-intensive industrial transformation (Batatu 1981; Dodge 2005, ch. 2; Abu El-Haj 1961; Sluglett 2007, 75, 88, 89).

In Libya, the brutal Italian colonial authority destroyed the embryonic pre-colonial political administration. The colonial authority tended to pit tribes against each other and incited regionalist tendencies among provincial leaders and families (before undertaking the military operation of 1922 that cleared the country of patrons and local leaders and unified the competing provinces of Cyrenaica and Tripolitania into one colony). The expropriation of lands and the establishment of agricultural settlements absorbed large segments of local labour into the colonial economy. In addition, the lack of colonial educational policies impeded the incorporation of Libyans into colonial administrative structures. Tribal areas were left under the control of shaykhs, and Italians monopolized the top positions of provincial administrations.⁶ The end of the Italian occupation, therefore, revived kinship identities, and the post-independence state tended to function as an alliance of ‘extended family’ rather than as a coherent administrative structure (Anderson 1986, ch. 12).

Despite the differing colonial context in the region from that of the seventeenth and eighteenth centuries in Spanish America, the capitalist political economy of the colonizers in the Arab countries brought about the same effect that the mercantilist pattern of short-term capital accumulation produced (Mahoney 2010, ch. 1).⁷ The colonial capitalist economy relied primarily on extractive industries (oil in Mesopotamia) or agricultural specialization (cotton in Egypt), which precluded open market investment and restricted trade exchanges. Colonial settlers even had a devastating impact on colonized societies, rather than creating complex bureaucratic apparatus and indigenous cadres to persist into the post-independence period and boost long-run capital accumulation (Zu’bi 1984; Seikaly 2016, Introduction).⁸

The varied patterns of colonial administration and investment across the region produced distinct and divergent starting points for the post-colonial states in the region. The colonial economic policies left a mark on state bureaucratic capacity and human capital (especially the presence – or lack thereof – of a domestic entrepreneurial bourgeoisie, skilled labour force, and advanced agricultural or expansive industrial sectors). Furthermore, the colonial rule divided social elites in much of the region (except in Tunisia) until nationalist movements and Pan-Arabism gained ideological momentum with the rise of Gamal ‘Abdel Nasser to power in Egypt in 1952. Nasser ushered in a socio-economically transformative phase across the region, with the state establishing control over almost all economic sectors and embarking on far-reaching redistributive programmes.

The domineering and interventionist role of the post-colonial state represented a ‘critical juncture’ that proved consequential for economic policy outcomes in the Arab republics. Therefore, arguing that colonial policies carried over into the post-independence period (although offering a springboard for post-colonial elites) strips populist military rulers of their agency, conceals their role in formulating and shifting development strategies, and hinders understanding of the elite’s motives and choices. Nasserism and its corollary of ‘Arab Socialism’ radically altered development orientations in several republics and enabled military elites to reconceptualize the values and interests of multiple social and economic actors.

The post-colonial state, populist military elites, and class structure

The processes of post-colonial state formation that brought the military elites to the helm of power had an impact on elite autonomy, the balance of power between social classes, and the capacity of the state bureaucracy. Most of the region’s post-independence states – but not the Gulf monarchies, Jordan, Lebanon, and Morocco⁹ – ushered in authoritative modernization policies from above and broke links with the national bourgeoisie. The ideological force of pan-Arabism in the 1950s and the 1960s served as an engine to (re)establish the state’s ‘despotic power’, secure elite autonomy, and carry out expansionist socio-economic policies that outstripped the state’s fiscal capacity and altered the balance of forces between classes (Kerr 1968; Ayubi 2001). The new political class of military technocrats enjoyed a high degree of autonomy to expand state bureaucracies, empower popular classes, mobilize scarce resources, and accumulate capital through nationalization measures and protective trade policies.¹⁰

First, elite autonomy in the wake of state formation and/or transformation offered unprecedented autonomous policy space to the state to intervene in economic policy formulation. The ideological force of ‘Arab nationalism’ provided the new political elites with sufficient financial and coercive resources to implement developmental policies and mobilize resources (in some cases, such as Syria and Iraq, it allowed political elites to constitute a ‘Bonapartist’ moment to terminate the fierce power struggle and overpower different ideological stripes in society) (Mufti 1996, 1–16 and ch. 8). The state embarked on structural economic transformation and played a preeminent role in capital formation and accumulation. The state invested in infrastructure development and transferred cheap raw materials or surpluses of its operations to incentivize private sectors to invest and mitigate potential risk (before sequestering private assets after the ‘socialist transformation’ in the mid-1960s). The patterns of state intervention and the expansionist monetary policies, however, did not aim at achieving rapid industrial transformation, promoting exports, and/or incentivizing private investors to pump money into growth-led and technological innovation sectors. The state grew inimical to the private sector, and its policies of expropriation hindered the formation of institutionalized relationships with the private sector and kept domestic entrepreneurs from leading efforts at industrial expansion and upgrading. The state relied instead on the popular sectors and carried out extensive distributive policies to garner their political support. The political use of ‘side payments’ raised economic costs and turned public spending away from economic efficiency purposes. Political clientelism was barely accompanied by provision of services and technical training to achieve the dual objectives of eliciting political loyalty and increasing economic productivity (Kohli 2004, ch. 1; Cammett et al. 2015, ch. 7).

Ultimately, the politicization of economic policymaking enervated the public budget, caused domestic demands to falter, and left a legacy of poorly performing public investment and rigid industrial structure. Although post-colonial elites introduced radical state-led development policies and far-reaching redistributive measures, they did little to transform the inherited colonial economic structures mired in cheap agricultural commodities, low-skilled labour, and weak integration into the global market. The state decreased the private sector’s share in industrial investment, transformed all private assets into public ownership, and steered the public spending priorities away from vocational training and new skills acquisition.

Second, the fragmentation of national liberation movements and the rising tide of the military elites shifted the balance of forces between social classes. The populist proclivity of the new military groups and exigencies of regime consolidation behooved new elites to forge cross-class coalitions with popular classes, by doling out material rewards and economic privileges to shore up the support of workers and peasants and to prevail over their political rivals. The development strategy and economic outcomes were predicated chiefly on patronage and clientelism of one-party rule, and the fiscal policies depended on high ‘side payments’ for distributive (rather than production and capital accumulation) purposes (Waldner 1999, ch. 1 and 2; Kadri 2018, 97). In a similar vein, capitalist bourgeoise (landowners and merchants) who had been aligned or cooperated with previous colonial regimes were either edged out or co-opted through state-mediated rewards. As Chaudhry (1993, 255) put it:

The ‘weak bourgeoisie’ hypothesis, which codifies the idea that the state was a substitute for an underdeveloped capitalist class, obscures the extent to which the promotion of the old bourgeoisie often conflicted with the broader and more pressing political goals of state-building and national integration of late developers [to create a] national bourgeoisie that would support the state, if not mirror the ethnic, religious, [and] sectarian characteristics of the new political and military leadership.

On the pretext of its weak planning and recourse allocation capacity, the new populist regimes had shrunk the private sector’s share in industrial investments before the state seized once and for all the commanding height of the economy.

Third, active fiscal and redistributive policies led to the expansion of the bureaucratic apparatus and the number of civil servants. The increasing role of the state in the economy and extensive asset confiscations led to the creation of new agencies to manage state-owned assets and plan economic investment and resource allocation. Thus, the post-independence state overhauled the civil and military administration and infiltrated its supporters into the bureaucratic apparatus. With the absence of a well-educated bureaucratic class in much of the region on the one hand, and the fragmented jurisdictions between planning and executive agencies and the struggle over the final authority of implementation on the other, the capacity of state bureaucracy to formulate and implement efficient development strategy had gradually eroded (Waterbury 1983, ch. 4). Furthermore, political appointments and rapid turnovers deprived state bureaucracies of accumulating experienced cadres and administrative and technical expertise. After an initial period of economic boom, the poor-quality bureaucracy, the growing need for financial resources to support expanding public employment (with the incorporation of the urban middle class into the state bureaucracy), and the mismanagement of assets and inefficient allocation of resources led to financial crisis and external borrowing in the early 1960s to finance the balance-of-payment deficit.

Before dwelling on the empirical corroboration of the argument, it is worth noting that the geographical scope of the argument is the Arab republics that embarked on ISI policies amidst the vehement boost of ‘Arab Socialism’ in the 1950s and 1960s. Oil republics and non-oil monarchies do not neatly fall into the analytical framework of the post-independence experiment of state capitalism. I therefore excluded Libya, due to its peculiar development trajectory. Libya remained a monarchy until Qadhafi took over power in 1968. King Mohammed Idris and his Sanussiyyan family, supported by the British authority against rival families, arranged a confederation between the three provinces of Cyrenaica, Tripolitania, and Fezzan under his rule in 1951. The post-independence state lacked a coherent administrative structure. Idris’ state depended on oil revenues and wide distributive policies of regime largesse without creating bureaucratic structures that would support a productive economy or revenue extraction. Qadhdhafi’s coup in 1969 that put an end to Idris’ rule did not alter the state structure. Qadhdhafi replaced kinship allegiances with populist and revolutionary ideals to instil anti-modern state, anti-bourgeoisie, and anti-bureaucrat sentiments (Anderson 1986, ch. 12).

For non-oil monarchies, I excluded Morocco and Jordan, which followed a non-populist and non-socialist pathway to development, albeit with an extensive role of the state in the economy. First, Morocco exhibited continuity with the political authority of the royal court (Makhzen) and his entourage. The Makhzen had preserved sovereignty from Ottoman rule for four centuries since the sixteenth century. The long historical evolution of the Makhzen helped the state to maintain its legitimacy and reinforce its authority. In the post-independence period, the monarch recast the existing patrimonial structure and subjected administrative organizations and recruitment systems to his direct control. The state also controlled the process of transferring the French assets and created a new loyal middle class of landowners (kulaks) through the seizure and sale of lands of the French colonizers. Morocco, the world’s leading phosphate exporter, had a similar experience of state capitalism, but the experience was detached from the ideological proclivity of ‘Arab Socialism’. Hassan II enacted the ‘Morocconization’ policy in 1973 that transferred privately owned assets to state ownership and ensured the dependence of domestic private capital on the state. Unlike the socialist ideology that provided new elites of civilian and military bureaucrats in Arab republics with financial and coercive resources to decimate private ownership and incorporate popular classes, the interventionist policies in Morocco did not have socialist components. Morocconization enhanced state control over the emerging local business environment, curbed the rising power of the national trading bourgeoisie, re-integrated private capital into the monarch patrimonial structure, redefined the relations of domestic private capital with foreign capital, and created a class of loyal bureaucrats who ran the state-owned assets (Ben Ali 1997, 192–194; Waterbury 1970, ch. 5).

Second, Jordan has a small economy and depends on external rents (foreign aid in form of ‘budget support’ and workers’ remittances) to control the economy. Unlike the populist republics and similar to Morocco, the Jordanian monarch ‘professed liberal economic credos in which the private sector was to be the leading force … and the role of the state was, once again, that of handmaiden to the private sector’ (Cammett et al. 2015, 250). Legal and organizational frameworks that secured the economic activities of the private sector – along with the state interventionist role and increasing share of the public sector in the economy – have been in place since the inception of the state in 1949 (Sha'sha 1991, 71). As a small market in terms of population size and resource abundance, Jordan did not undergo the state capitalism policy experiment. The economy has a meagre resource base driven mainly by phosphate and agricultural exports, and the reliance on external rents made the economy vulnerable to market shocks (as happened with the end of the oil bonanza in the 1980s and the expulsion of Jordanian workers from the Gulf after the king declared his support for Iraq in the first Gulf War) (Harrigan and El-Said 2010, 15, 16; Cammett et al. 2015, 253).

The empirical corroboration of the three-pronged argument

In Egypt, the Free Officer’s regime abolished the monarchy and eroded the socio-economic basis of agrarian notable classes, merchant bourgeoisie, and petty commercial groups. The new military elites gave rise to small landowners, small-scale capitalist farmers, domestic private entrepreneurs from public industrialization, and a new well-educated middle class and bureaucrats. The state established its control over the banking and financial sector, all strategic and medium-heavy industries, construction, the transportation sector, and agricultural credit and input (Ayubi 1980; Waterbury 1983, ch. 1, 4, 7). With Egypt under Nasser leading the statist-nationalist policies, other Arab republics followed suit. In Syria, Arab nationalism offered new state elites a unifying and mobilizing device to break the autonomy of powerful interest groups (landed oligarchy and capitalist bourgeoisie), centralize economic decision-making, and assert state autonomy. The powerful, albeit divided, bourgeoisie (commercial and industrialists) aborted several attempts to create inclusive social pacts after the independence in 1946 to refract social tension (by accommodating labour and capitalists’ interests and introducing land reform and market relations in the countryside). The defection of the capitalist bourgeoisie from the pacts between 1946 and1958, and their opposition to the socialist policies that contributed to the collapse of the United Arab Republic (UAR), pushed Ba’thist elites to use popular counter-mobilization of urban masses to assert state control over capital accumulation and distribution. Although the Ba’th’s iron fist loosened up after Hafiz Al-Assad’s ‘corrective coup’ in 1970 (as the state reached a détente with private capitalists), the regime remained reluctant to institutionalize its relations with business groups in mutually reinforcing arrangements and thwarted the organizational or autonomous capacity of capitalists vis-à-vis the state (Heydemann 1999, ch. 1 and 4).

In both Egypt and Syria, the transformation of the political economy pushed military elites to reconfigure state bureaucracies and create new agencies. Inexperienced in the mundane responsibilities of national administration and riven by factional disputes, military-technocratic elites changed the social composition of state bureaucracy and redefined the identity of the state and its institutions, enmeshing them into populist norms and developing government machinery to serve the expansionist social and economic programmes. The Arab Socialist Union (ASU) in Egypt and the Ba’th Party in Syria extended their branches to urban districts and the countryside. The state secured the appointment of its proteges to key positions through streams of civil service laws and large-scale dismissals or rotations of top personnel of key agencies or ministries that kept the bureaucrats under state surveillance (Heydemann 1999, 167–175; Brown, Hatab, and Adly 2021, ch. 4).

In Iraq, the post-independence regime, after abolishing the monarchy in the 1958 coup, capitalized on the ideological impetus of pan-Arabism to put an end to the iqta’ system and erode the old social basis for producing ruling elites from landowners. However, the weak administrative and infrastructural capacities continued to preclude the efficient use of land and water to usher in capital-intensive agriculture and industrial transformation policy (Haj 1997, 28–37). Moreover, the violent jockeying for power among groups of civilians (communists, national bourgeoisie, Kurds, Shi’a, radical nationalists) and officers continued through the late 1960s, which impeded the emergence of political institutions to mediate social struggles and ensure social order. When the tide turned in favour of radical nationalists who led a coup coalition in 1968, the Ba’thists established their politically dominant position and militarized Iraqi society. The ideological orientation of the Ba’th regime pushed the ruling circle to vest the economic priority in modernizing and expanding the agricultural sector to secure domestic demands for food and fend off international pressures on food imports. Therefore, ‘the Iraqi government [re-allocated] funds away from industry and into agriculture’ from the mid-1970s through the mid-1980s (Springborg 1981, 191). The highly centralized authority in the State Organization for Soil and Land Reclamation or the Ministry of Agriculture and the lack of training of mass peasants in the use of modern capital-intensive machinery, however, deteriorated the productivity of the agricultural sector (Springborg 1981, 203). The involvement in external wars further drained the state’s fiscal capacity and hindered the transformation of the economy.

The victorious military leaders in Algeria, with no prior administrative experience in formulating policies, implemented a ‘socialist’ development strategy. After a short experiment of self-managed cooperative businesses that drew popular classes into politics to serve as a bastion against elite rivals throughout the 1960s, hard-core military elites of mujahidin veterans of the war, the ALN officers, and a class of young technocrats consolidated the military power (1968–72). The new technocratic elites projected a petit bourgeoisie spirit that prevented the creation of anti-popular bureaucratic apparatus and embarked on a bold national development project that expanded the public sector. In the early 1970s, the new military-technocratic elite proceeded with extensive nationalization of foreign enterprises, took control over the supply of hydrocarbon reserves, and absorbed large parts of self-management sectors into the state-directed enterprises (Entelis 1986, 51–66, 112, 117). The regime made headway with the ‘industrialization first’ strategy, thanks to the natural gas reserves. It then turned to the countryside to mobilize rural masses and peasant confederation in support of national politics. The military led the construction work of socialist villages, communal farming cooperatives, and transportation networks. Nonetheless, the lack of technical and managerial expertise to modernize the agricultural sector and the fluctuations of gas prices in the global market exacerbated the state’s dependency on food imports and the balance-of-payment deficit and pushed state elites to enact structural reform measures (Entelis 1986, 143, 145, 153).

Unlike the ‘developmental state’ in East Asia that was founded on an active partnership between the state and private sector, the highly centralized power of the state, and the relative autonomy of the entrepreneurial class (Evans 1979; Amsden 1992; Woo-Cummings 1999; Wade 2018), the post-colonial state in the Arab region and its predatory tendencies curtailed any potential autonomy of private capitalists and embedded labour in vertical patronage networks. The hierarchical integration of market actors degenerated positive-sum social arrangements into zero-sum conflict with private enterprises and exhausted public spending with overtures to popular sectors.

Furthermore, the legacy of the dominant public sector cast a long shadow on the poor accumulation of physical and human capital. First, the post-colonial state took on simultaneous processes of regime consolidation and national economic development, which gave way to contradictory logics of capital accumulation and capital formation. The ISI strategy, which aimed initially at building a base of national power, increased dependency on both imports of machinery necessary for rapidly expanding domestic industry and external borrowings to finance the balance-of-payment deficits without developing a strong export-led state sector (Hinnebusch 1995). The financial performance of the public sector was burdensome. The public sector prioritized volume of production over profitability, and its surpluses became insufficient to finance major upgrading and build new industrial plants. Furthermore, insufficient national savings and low labour productivity and wages not only limited resources for investment and inhibited access to foreign exchange and spare parts, but also reduced consumption with no open international markets for domestic manufactured exports to outweigh insufficient domestic demand (Dawisha 1976; Waterbury 1983; Hinnebusch 1995). The exhaustion of state capitalist development, therefore, stemmed from the incomplete process of capitalist relations of production and reproduction (with capital accumulation and labour commodification never taking firm roots in the Arab republics). Second, although the populist regimes exhibited good track records on access to education with the rapid expansion of universal primary enrollment in the 1950s and 1960s, this was not translated into good records in education attainment. The region was ‘catching up from a late start, so the average education stock changed slowly between 1960 and 1985’. In addition, high drop-out rates (especially amongst girls in some countries) decreased average years in schools, which further undermined investment in human capital (Page 1998, 135).

In sum, the imperatives of state formation and the ruthless pursuit of power outdid economic efficiency and tightened the state’s control over society. After the first phase of statist economic expansion, local economies could not support the populist far-reaching expenditures that aggravated cumulative macro-economic imbalances in the 1970s. Although external rents (foreign aid and workers’ remittances¹¹) mitigated the destabilizing effect of the external payment constraints and sustained expansionist domestic policies through the second half of the 1980s, the former populist regimes had to implement stabilization and SAPs to cut public spending and liberalize trade and financial sectors in the late 1980s and early 1990s. The market economic policies shifted regimes’ coalitions towards business groups. Ruling elites, however, retained a considerable degree of autonomy in the economic policy domain and did not face the urgency of reconfiguring the distributional coalition to empower ‘winners’ of entrepreneurial elites and neutralize ‘losers’ of former public sector managers (Schamis 1999). The state reproduced its power, using a combination of legal engineering and cooptation measures to fragment popular sectors (that never amassed sufficient or autonomous mobilizing capacity to impose credible political threat) on the one hand, and to integrate business groups into a mutually collusive political settlement on the other.

Economic liberalization: Market actors and state power

In the late 1970s and early 1980s, populist regimes tried half-heartedly to push through stabilization and structural reform policies before expediting market liberalization measures in the 1990s. Although the structural reform policies exhibited discontinuities with the planned economy, patterns of state–society relations, and states’ fiscal and budgetary practices, former populist regimes and their informal networks of bureaucratic and security agencies continued to control investment opportunities and set the parameters and regulations of market transactions.

First, the state continued to control financial sectors and access to credit through public banks or connected private banks, which gave it leeway to retain the upper hand in economic governance and avert the emergence of independent capitalist elites. The state elites have staved off the emergence of an autonomous business class by empowering trustworthy groups and closing off business opportunities to those deemed politically threatening. The state has maintained control over licensing, regulating, and providing economic privileges (subsidies, credits, protective tariffs, procurement contracts) necessary for doing business. Therefore, it has offered a slight chance for unconnected private businesses to grow in size by shielding crony capitalists from the competition, not only through providing economic provisions or a favourable regulatory framework but also through either preventing aspiring entrepreneurs from entering or driving small or medium-size businesses out of the market (Heydemann 2004; Haddad 2011; Malik, Atiyas and Diwan 2019; Adly 2020).¹²

Second, the state did not face fierce resistance from bureaucrats and did not have to neutralize managers of public assets as the ‘losers’ of the market reform policies. The rapid turnover and continual rejuvenation of bureaucratic cadres kept them from acquiring an ‘objective basis of identity’ (as a class, or economic and regional interests) (Moore 1970, 71). Furthermore, bureaucrats became the backbone of the new coalition between business groups, security interests, and foreign investment. The state accommodated the interests of both public managers and private entrepreneurs and traded economic efficiency for mitigating political risks of losing control over employees in the public sector and thus kept the large bureaucratic apparatus in place (Waterbury 1993; Cammett et al. 2015, 264, 265).

Third, the decay of the state corporatist arrangement after carrying out neoliberal policies undermined the bargaining power of trade unions across the region and created short-tenure jobs and a large informal sector that became, by and large, depoliticized.¹³ The informal economy and the cooptation of the top echelon of national trade unions and their detachment from the rank-and-file debilitated the organizational capacity of workers to act collectively to change state regulations or to push for investment in vocational training (Hinnebusch 1995). In addition, existing national unions have had a stake in maintaining the unorganized informal sector to serve as ‘a default safety net for default laid-off workers’ and pre-empt organized pressures for low turnover of job tenure and investment in vocational education, which perpetuated a ‘low skill trap’ across the region (Schneider and Karcher 2010, 625).

The neoliberal shift, therefore, did not alter the composition of regime elites or the productive base of the economies. The politicization of economic policymaking, the labour market structure, and crony behaviour reproduced problems of the low-skilled workforce, curtailed the autonomy of the business sector, and undermined the growth potential of private sectors by disincentivizing connected firms to innovate and preventing medium-sized enterprises from entering the market or expanding their businesses. In Syria, for example, the Asaad regime forged an alliance with the ‘old’ Sunni merchants. The partnership between Alawi money and regime-allied Sunni tycoons benefited both sides (by giving the Sunni bourgeoisie access to economic privileges and offering Alawis access to the Western market and Gulf investment money) and increased entry barriers to business outsiders (Hinnebusch 1995). In Egypt, there has been a visible tendency of concentration of state favouritism in non-tradable sectors, such as real estate, tourism, and telecommunications, as well as in services and manufacturing sectors oriented towards the domestic market (i.e. food, textiles, steel, and motor vehicles). The state facilitated the opening and operations of these sectors through discretionary or exclusive licences and privileged access to subsidies, credit, and land that created monopolistic domains of influence (Diwan, Keefer, and Schiffbauer 2019). In Tunisia, the Ben Ali family dominated inward-oriented sectors and the state manipulated regulations to restrain competition and regulate entry to specific sectors. Ben Ali’s cronies had access to fast-track regulatory services without waiting long for government approval on enterprise operations (Rijkers, Freund, and Nucifora 2017). In Algeria, the fiscal constraints in the 1980s pushed the ruling elites to take decentralization measures and loosen state control over the economy. Instead of undertaking measures that increase the productivity and competitiveness of private sectors, military elites used decentralization to their advantage by marginalizing the technocratic class and ensuring the dominant position of the army (Entelis 1986, 126). The state also controlled the transfer of public assets to private capital throughout the 1990s ‘in a process described as a shift from public monopolies to private oligopolies. [And] many of these oligopolies were run by groups and individuals close to the army’. The army and its political allies in the government shielded their cronies from competitors by controlling bureaucratic and financial facilities in the lucrative import and construction sectors (Willis 2022, 141).

Although cronyism has been prevalent in the region, it is hardly the only cause of poor economic performance. Corruption and rent-seeking were productive in other regions such as East Asia and did not inhibit fast-tracking economic growth. Bates (1988) links different dynamics of ‘rent-seeking’ behaviour to particular coalition strategies and regulatory capacities of state institutions. In Taiwan and South Korea, for example, the state’s ‘guided intervention’ offered a range of carrots (such as tax incentives, research and development subsidies, and home market protection) that helped allocate recourses and invest in sectors that have positive externalities for overall economic performance. Moreover, the symmetrical power relations between the state and business associations created a ‘mutual hostage’ pattern of crony behaviour that reduced transaction costs and propelled economic growth, industrial transformation, and skills upgrading (Kang 2002). Cronyism can thus be a ‘second-best solution’ to a commitment problem that facilitates growth through ‘particular rather than universal rights to the private sectors’ (Malik, Atiyas and Diwan 2019, 28). As Haber 2002 notes:

Any government that is ‘strong enough’ to protect asset holders can also predate on these assets. In the absence of strong political institutions that could tie the hands of governments, cronyism can guarantee a subset of asset holders that their property rights will be protected. (cited in Malik, Atiyas and Diwan 2019, 27).

The state’s interference to control private capital can thus be productive for growth. The state capacity to strike a deal ‘with rent-seeking groups [for performers and spoilers alike] who could throw a spanner in the works’ is central to promoting development (e.g. the Anatolian Tigers in Turkey and Chaebols in South Korea) (Malik, Atiyas and Diwan 2019, 28).

In the Arab region, however, cronyism is more rigid and inexorably intertwined with ‘crude market closure’, exclusionary and subordinating practices towards the private sector, and economic inefficiencies to provide shelter from market competition. Cronyism created a ‘segmented market’ structure with politically connected businesspeople being shielded from competition and getting access to financial facilities and regulatory privileges, and ‘outsiders’ being forced out of the market or denied entry in the first place (Hertog 2019, 42, 43; Malik, Atiyas and Diwan 2019, 29, 30). Private sectors did not evolve from the dictates of market transactions, and the balance of power between economic and political elites is, therefore, heavily skewed in favour of the latter. The unequal exchanges between the state and private business in the region enabled the state to shape business opportunities and determine the scale of operating sectors.¹⁴

The sheer scale of economic exclusion hindered innovation in growth-led sectors dominated by firms with a large and exclusive cost advantage (Diwan, Keefer, and Schiffbauer 2019, 83–85). According to Aghion et al. (2001), market competition incentivizes firms to invest in innovation to reduce costs by lowering prices and gaining a large market share. With crony capitalists enjoying a substantial cost advantage and reserved market share, the payoffs of investment in innovation and vocational training of the workforce are low. Beneficiaries also work to reproduce the exclusionary pattern of development with low-skilled employment to defend their local market niche. These exclusionary patterns not only preclude innovation and upgrading but also decrease efficiency and hinder integration into the global market (Diwan, Keefer, and Schiffbauer 2019; Malik, Atiyas and Diwan 2019; Saadi 2019; Hertog 2020). Low absorption capacities of technology and a low-skilled workforce (possibly with wage labour growth) have kept the region out of the surge of foreign capital flows into the developing countries and prevented it from achieving a comparative advantage in the global trading system (Sadik and Bolbol 2001).

Conclusion

To examine the role of the post-independence state in economic policy formulation in the Arab region, the article developed a three-pronged argument centred on the degree of elite autonomy, the collective capacity of social classes, and the implementation capacity of the state bureaucracy. To substantiate the argument, I offered a critical survey of the extant studies that focus primarily on the institutional legacy and legal infrastructure of the Ottoman Empire and showed how relics of colonial rule transformed the Ottoman institutions and contoured boundaries of economic choices of post-colonial elites. The article showed how the socialist-populist ideological orientation of the post-colonial military-technocratic elites changed the pattern of capital accumulation and eroded the entrepreneurial capacity of domestic private investors from the mid-1950s through the late 1970s. Although the neoliberal turn brought about changes to the socio-economic coalitions that undergirded former populist regimes, state elites retained their autonomy and neither capitalists nor popular forces gained bargaining leverage to impose a credible threat on the established power structures.

The popular uprisings that cascaded through the region in 2010/11 and the protests that erupted in 2019 produced unprecedented existential threats to former populist regimes (Tunisia, Egypt, Syria, Algeria). A multi-vocal mass movement sustained protest campaigns and showed the flimsiness of autocratic regimes. Although the popular movement forced the autocratic leaders from office in Tunisia, Egypt, and Algeria and survived the heavy-handed strategy of the Syrian regime, long-entrenched power centres proved their tenacity and overpowered society. The movement failed to build a broad-based reformist coalition to capitalize on the mobilization momentum and alter development policy orientation. For example, in Egypt, the hardliners in the military prevailed, emphasizing a populist nationalist discourse, and heralding a new era of repressive and exclusionary policies. The new regime under Al-Sisi’s reign formed a narrow social coalition (mainly from the security and military apparatuses and a segment of businesspeople) and rehabilitated old cronyism, especially with the military-related firms that implemented a wide range of megaprojects in real estate, energy, and infrastructure sectors (Rutherford 2018, 190, 191; Diwan 2019, 413–418; El-Haddad 2020, 8).

In analysing the reproduction of the state’s domineering position in the Arab region, a large corpus of the comparative political economy literature tends to reify the state and separate it from domestic social contexts by reducing its power to coercive capacity. A critical political economy perspective, that examines the interaction between state elites and social classes, offers a nuanced account of varied development and socio-economic records in the region. Although the article offers a good point of departure to interrogate the role of the state in the Arab economy, there exist some areas that merit further investigation. Further systematic and rigorous cross-national and cross-regional comparisons will specify conditions under which ‘elite deals’ and ‘social bargains’ were(re)produced and/or transformed over time.

First, conducting inter-and intra-regional comparisons will establish how authoritarianism perpetuated exclusionary development patterns and inhibited reforming social coalitions in the region. The populist movements in Latin America that led ISI strategy in the 1940s and the 1950s proved to be reversible in the 1980s after establishing institutions of political competition that restructured partisan alignments (Roberts 2012, 53–56). As Przeworski (1991, 19) posits, the institutions of electoral competition lengthen the time horizons of political actors and provide a great deal of latitude in devising economic reform strategies that alter old socio-economic coalitions. Political elites thus might be more willing to run the risks inherent in drastic reform measures, knowing that if they lose in the present, ‘the institutional framework that organizes the democratic competition will permit them to advance their interests in the future’. In much of the Arab region, economic policy choices are directed by the imperative of regime security and political priorities rather than the economic necessities of efficiency and growth.

Second, integrating geopolitical factors and expanding the boundaries of international political economy to include the MENA region will offer a better understanding of the historical complexities that account for the poor development records in the MENA. Doner, Ritchie, and Slater (2005) argue that the economic miracle and the high economic growth in South Korea and Taiwan cannot be attributed only to national factors of coalitional commitment. Political leadership in South Korea and Taiwan also faced severe existential threats and scarce resource endowments that pushed them to carry out ambitious developmental projects of industrial transformation, export promotion, and technological upgrading to finance military-related industries and fend off possible domestic threats. A thorough and systematic investigation of geostrategic variables would answer why the same level of existential threats and regional wars with Israel between 1948 and 1973 did not offer a similar impetus to establish a ‘developmental state’ in the region. External rents and easy money allowed Arab political leaders in the 1950s and 1960s to uphold coalitions and retain power with much fewer ambitions in economic diversification and industrial deepening or upgrading.

Third, examining the ideational and ideological forces of pan-Arabism that had long-run implications for the development trajectories would deepen our understanding of the perceptions of political leadership in the 1960s and how rulers made policy choices, and for what purpose. Investigating the role of ideology, however, entails a daunting methodological problem to marshal evidence for historical questions, particularly for perceptions and ideas of policymakers on the one hand, and to disentangle geopolitical factors and domestic organizational sources at their disposal, on the other (Haggard 1990, ch. 2). Cross-regional comparisons will thus help unravel political dynamics and the endogeneity of politics in a period during which the global economy was more open to manufactured exports from developing countries (when countries came to be ruled by military dictators or one-party rule took advantage of such global opportunities and prioritized an export promotion strategy, as in Taiwan, South Korea, and Brazil).

Fourth, constructing cross-sectoral and longitudinal data and conducting intra-regional comparisons will help investigate conditions under which cronyism would be conducive to economic growth and offer a solution to the commitment problem. Introducing measurements of state capacity, the balance of forces between the state and business groups, and investment decisions of private capital are central to probing the diverse economic outcomes of cronyism across the region. That is, why do some businesspeople incline to cope with market competition while others do not? Why do some states offer strategic rents to performers and share rents with spoilers while others follow a heavy-handed strategy and blatant forms of market closure or exclusion? Does the breadth of the socio-economic coalition that supports the regime affect economic policy orientation? To what extent is the concentration of cronies in particular sectors responsible for development promotion (or the lack thereof)?

Acknowledgements

I am thankful to the reviewers for their insightful comments and careful reading that added to the article.

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Notes on contributors

Shimaa Hatab

Shimaa Hatab is a lecturer in Middle East and global affairs at King’s College London. She uses qualitative and quantitative methods to explore issues in the politics of development in the Middle East and Latin America. Her work has appeared in Democratization, Comparative Politics, and Critical Sociology. She is also a co-author of Lumbering State and Restless Society: Egypt in the Modern Era (Columbia University Press). She is currently engaged in research on durable regime change, comparative democratization, and comparative political economy in the Middle East and Latin America.

Notes

1 To be sure, Ottoman rulers had faced serious challenges, but the high level of adaptability of sultans and their elite factionalism strategy mitigated serious challenges to their rule. Ottoman rulers had to financially induce Mamluks, which helped them to accumulate capital and pass it on to their heirs. Wealth accumulation changed the social dynamics between military slaves and the sultan, and a similar kind of association formed around tax farms, but the Ottoman rulers limited their scale and dissolved their organizational basis.

2 Kuran (2003, 2004, 2011) focuses on the Islamic inheritance law that divides up assets among a long list of family members and complicates estate settlements amongst heirs of deceased partners; the Islamic waqf that locks vast resources into inefficient organizations and impedes their channelling into productive investments; and the Islamic court system that historically denied business enterprises legal personhood and thus obstructed the institutionalization of contract enforcement and the establishment of financial corporations and large partnerships. Rubin (2010, 2011) and Kuran and Rubin (2018) further bring out the negative effect of the usurious ban (riba) that disincentivized capital-rich merchants and the wealthy to lend on a large scale and establish a credit network, handicapped commercial productivity, and limited credit supply.

3 A notable exception is Grosjean (2011).

4 Palestine, Algeria, and to some extent Tunisia and Libya are exceptions, where the Zionists, French, and Italians established extensive settler communities.

5 It was not until the early 1950s that oil contributed to the Iraqi economy and helped the government to balance its budget and introduce social and agricultural development programmes.

6 Libyans took on administrative tasks as advisors to local administrators or mukhtars in urban quarters or rural districts.

7 Regardless of the causes of varied patterns of the level of colonialism, contrary to what Mahoney (2010) argued for in Spanish America, it was not only the economic calculations and complexity of pre-colonial institutions that determined colonial settlement policies. In the Arab region, some other cultural and religious elements fed into settlement policies (such as the French’s ‘civilizing mission’ to eradicate barbarianism in Algeria, and the Balfour declaration and the promise of the Zionist movement to create the Jewish state in Palestine). In addition, colonial settlers did not create complex institutions to ensure capital accumulation or industrial development in North Africa, Libya, or Palestine.

8 In Palestine, in addition to the expropriation of miri lands, the large scale of land purchase by Jewish settlers in the 1920s and 1930s led to the destruction of the rural domestic industry – especially in the olive oil sector – and the deterioration of the livelihoods of small cultivators who became unable to compete with Jewish industries of olive oil. The partition resolution of 1948 resulted in capital flight and relocation of Palestine’s capital in the Arab region, which further undermined the development potential in Palestine.

9 While the region’s conservative monarchies did not formally incorporate workers and peasants into a nationalist-corporatist alliance, most of them nonetheless provided fiscally costly ‘side payments’ for a growing national middle class in form of consumer subsidies and state employment to offset the revolutionary nationalist zeal that prevailed the region in the 1950s and 1960s (Kerr 1968; Mufti 1996). Morocco and Lebanon alone eschewed rapid expansion of middle-class benefits; the former potentially due to the power and cohesion of traditional elites and weakness of Arab nationalism, the latter because of the dominance of the consociational elite cartel that collapsed in a civil war in 1975 (Henry and Springborg 2010).

10 Across the region’s republics (Egypt, Syria, Iraq, and Algeria), the military became part of the national liberation narrative. In Egypt, for example, it gained and retained considerable mass support due to the reproduction of the saviour narrative as the protagonist of the anti-colonial struggle, its mandatory conscription policy, and the fairly meritocratic access to its ranks. The immigration wave to the Gulf countries after the oil boom in 1973 came at a social and cultural price, partly because of the ‘return migration’ effect. Socialized into conservative norms in the Gulf, returned immigrants tended to instil similar ideas in society that created a recruitable pool – inter alia – for Salfi movements (or what became known as Islamic Revival) in the 1970s (Cammett et al. 2015, 509). The Salfis harshly criticized the military – especially after the ratification of the peace accord with Israel in 1979 – and committed violent operations against some military targets. The conflict reached its zenith after the assassination of Sadat in 1981, but his successor deployed anti-terrorist discourse to legitimize the military base of the regime. The anti-terrorist and nationalistic discourse enabled high-ranked military elites to sustain the social support base of the army that perpetuated its saviour mission of restoring stability and order, and that became increasingly obvious during the uprising of 2011 and its aftermath (Lauzière 2015). Contrarily, the position of the Tunisian military in the anti-colonial narrative is different. Tunisia stood out for its protracted struggle against the French colonial power which enabled local elites to forge an alliance with wide mass constituencies, form the Destour party prior to the independence, and create a new middle class. The party gained wide social support from its national liberation narrative that enabled it to carry out far-reaching redistributive policies and state-led development strategies in the post-independence period (King 2009, 46–48; Henry and Springborg 2010, 6–8).

11 This is potentially due to two main aspects of the ‘net social benefits’ of the immigration flow (especially amongst low-skilled workers): ‘people out’ (emigration) and ‘money back’ (remittances). The large immigration wave and the rising demands for foreign labour in oil-rich countries in the early 1970s served as a ‘safety valve’ for sending countries that arguably relocated large supplies of unemployed workers. Also, workers’ remittances provided an essential source for foreign exchange that balanced the book and deferred market liberalization measures until the mid-1980s (Cammett et al. 2015, 506).

12 Although Adly (2020) distinguishes between cronyism and plurality of market regulations that worked unintendedly against small and medium-size enterprises, the literature on crony capitalism considers the ‘missing middle’ a derivative of crony tendencies. The state’s preferential treatment and selective or discriminatory enforcement of laws either prevent these enterprises from entering the market and accessing credit or undermine their growth potential. The distinction between barriers to entry and barriers to growth is thus arbitrary.

13 Some trade unions have remained active in organizing erratic and sporadic strikes in some countries, such as Egypt, Tunisia, and Algeria.

14 In the Arab region, rich businessmen never controlled the political system. Economic power is granted by political power rather than created by organized lobbying pressures from market actors. For further details on concepts of ‘vertical’ and ‘horizontal’ integration of economic power into political systems in Latin America, see Haber, Razo, and Maurer (2003).