“In this world,” wrote the left economist Doug Henwood in these pages in 1993, “the only thing worse than being part of the evolving economic hierarchy is being excluded from it. So far, the Middle East is largely excluded.” Amid the downturn in the global economy inaugurated by the Wall Street meltdown in mid-2008, these words may appear to require some revision. It may be better, just now, for the Middle East to be on the outside looking in upon the dynamics of globalization, as conventionally understood. But the question is also wrongly framed: It is not whether the Middle East is “globalized,” but rather whether the modes of its integration into the world economy can deliver the broader-based prosperity and improved life chances that globalization’s prophets continue to foretell.
1993 came at the tail end of a global recession, one far shallower than the trough that opened up in the fall of 2008, but one that introduced the lexicon with which the world economy would henceforth be discussed. The Soviet Union was defunct, and its proclaimed alternative to liberal capitalism was in disrepute. Those nations in the Third World that had embraced socialism, or state-led development under socialism’s name, were bereft of ideological defense against the swiftly emerging “Washington consensus”: There was no alternative to liberal capitalism, a maxim that the United States seemed to underscore with its effortless military victory in the 1990-1991 Gulf war and its ever expanding influence upon global consumer culture. Much of this influence was spread through the products and services of corporations that, though often American in origin, were multinational in staffing and scope of operations. Commentators were increasingly apt to describe these corporations as richer and more powerful than many states, this demonstrable fact sometimes glibly interpreted to mean that the era of the nation-state was drawing to a close. To survive in this “new world order,” the consensus held, the countries of the Third World would have to swallow whole the medicine cabinet prescribed by the World Bank and International Monetary Fund since the 1980s: Open nationalized industries to multinational corporations’ investment and protected markets to imported goods; sell off other state-owned enterprises to local entrepreneurs; slash public-sector payrolls and welfare expenditures; put repayment of debt above repaving of roads. This regimen, for most people in the world, was what globalization meant.
For its champions, of course, globalization meant interconnectedness, and even they have not missed the irony that the current downturn became so severe precisely because everywhere is connected to everywhere else. The 2008 financial crisis on Wall Street was, to repeat a commonplace, the worst since the Great Depression. But the effects abroad were more dire than in Wall Street’s home country. As Henwood noted in the July Left Business Observer, IMF statistics in April 2009 showed the US ranking a mere forty-fourth on the list of the economies projected to be hardest hit by the aftershocks of the Wall Street earthquake. Countries like Latvia and Iceland that traded freely in the big investment banks’ baroque securities — essentially, bets on bets of future gains on bad mortgages — will be smacked with double-digit declines in gross domestic product. Europe’s economy as a whole is predicted to contract by 4.2 percent in 2009. As in the US, the irrational exuberance of the captains of high finance in wealthy countries worldwide took a heavy toll on the real economy, in the form of factory closures, higher unemployment and thinner pocketbooks for consumers. Overall consumer demand in the advanced economies is forecast to shrink by 3.3 percent in 2009, and the International Energy Agency believes that demand for oil will fall by 2.4 million barrels per day, mostly due to stingier energy use in the US, Europe and Japan.
The recession is devastating poorer countries that dismantled state sectors with alacrity in the 1990s. According to the IMF’s April numbers, the former Soviet satellites in Eastern Europe will experience, on average, economic contractions of 3.7 percent in 2009 (as opposed to 2.9 percent growth in 2008). Russia will lose 6 percent of GDP; Ukraine will lose 8 percent; even tiny Armenia will see 5 percent of its economic activity vanish. In the Middle East, by contrast, the average GDP will still grow in 2009, 2.5 percent as opposed to 5.9 percent in 2008. The IMF attributes this relative health to the “buffering” effect of the huge surpluses accumulated by oil-rich states in the 2000s, but when viewed next to Eastern Europe’s numbers, it seems equally likely that less globalization has translated into less exposure to global risk. Most states in the Middle East have only fitfully gulped down the IMF’s bitter pills, and partly as a result, foreign direct investment remains low. There is little foreign capital — at least, little Western capital — to flee when the going gets tough. And macroeconomic measures aside, the citizens of many Middle Eastern countries are still shielded from recessionary pressures by state subsidies on staple goods, though these are smaller than they once were.
Yet the Middle East is not immune from the ills of interconnectedness, for its reputation as a globalization laggard is exaggerated. The region is highly integrated into the world economy, primarily because of its fabulous deposits of fossil fuels. In the post-World War II era, the Middle East has been the chief supplier of cheap internal combustion, first to the industrial engines of Europe and Japan, and then to the consumer motors of US and the rest of East Asia, particularly China. Notwithstanding the periodic fretting about “Middle Eastern oil” in the West, there is no prospect that this link will soon be broken. To the contrary, as Prince Turki al-Faisal of Saudi Arabia rather acidly remarked in the August 24 issue of Foreign Policy, the “energy independence” of which US politicians speak is a “fable.” The Saudis’ kingdom alone is home to about one quarter of the proven petroleum reserves on the planet; taken together, the states along the Persian Gulf own two thirds of the oil yet to be extracted from below ground. Recessions aside, and barring quantum leaps forward in both alternative fuels and energy conservation, the clear long-term trend is that demand for this oil in the US and other advanced economies, not to speak of rapidly growing ones like China’s, will continue to climb. There is a downside, however, to the dependence with which Prince Turki is so satisfied: Historically, the region has been very vulnerable to downturns and debt crises abroad — with declines in oil prices packing a particular wallop. The Middle Eastern countries projected by the IMF to endure losses of GDP in 2009 are Kuwait, Saudi Arabia and the United Arab Emirates.
But oil is not the whole story. The most lucrative natural resource possessed by most non-oil producers in the Middle East is the working-age population. Since the 1950s, North African countries and Turkey have provided cheap labor for the post-war European economic miracle, and starting in the 1960s, Egyptians, Lebanese, Palestinians, Syrians and Yemenis have performed a great deal of the blue- and white-collar labor in the petro-princedoms of the Gulf. Recessions in the global north exact penalties upon labor exporters as well — directly, as guest workers in Europe lose jobs and are forced to spend savings, and indirectly, as depressed oil demand compels Gulf employers to send their guest workers home. Even if workers’ remittances stay fairly constant during the present downturn, they do little more than stanch the economic bleeding in labor-exporting countries because, as Sameera Fazili writes in this issue, most remitters’ families must spend the money to meet basic needs. The signal economic realities in these countries are crushing poverty and endemic unemployment amid deepening inequality, a condition exacerbated by the accelerated (if still partial) adoption of IMF remedies following the end of the Cold War. Those middle-income countries that depend on tourism, like Egypt and Lebanon, have welcomed fewer visitors from the West, Eastern Europe and the Gulf states, though this sector may be recovering in some places.
The advent of high finance and other economic diversification in select Gulf states has added another wrinkle to the weathered face of Middle Eastern global integration. When the world economy was booming, roughly from 2001 to early 2008, the Gulf boomed along with it, banking the windfall of high oil prices but also the profits of investment in real estate and the fees for newly competitive services like those of Dubai Ports World and construction firms like Emaar and Nakheel. When Wall Street’s bubble suddenly imploded, however, the smaller air pockets in the Gulf also began to leak. The pace of urban expansion in Dubai, the stuff of legend only a year before, slowed to the ordinary. The city-state’s rulers blacked out information on tourism, presumably to disguise higher vacancy rates in luxury hotels. On August 31, South Asian laborers in Dubai blocked traffic demanding salary hikes to compensate for the disappearance of the overtime to which they were accustomed. There are reports that Emaar and Nakheel projects outside of Dubai, in Egypt and Morocco, for example, are likewise on hold. The army of young professionals recruited from Arab and South Asian countries to carry the Gulf technocrats’ dreams to fruition is now being demobilized, a blow to countless individual families and also to the plans of technocrats in the labor-exporting states, where there is a persistent shortage of job opportunities commensurate to higher education.
One should not forget, finally, that the Middle East has long been tied to the global economy by war. During World War II, the US and Britain sponsored the Middle East Supply Center, a government-funded commercial entity that sought to regulate trade in civilian goods in Egypt and the Levant in order to facilitate rationing schemes and maximize the space available on cargo ships for war materiel. The Arab-Israeli conflict and rivalries in the Gulf have lent perpetual bustle to an arms bazaar that entices the weapons manufacturers of the US and France, in particular, but others as well. At present, as Pete Moore notes in this issue, the biggest customer for Jordanian foodstuffs in Iraq is probably the US military. Iraq’s decades of war, dictatorship, sanctions and occupation have fostered markets in various shades of black and gray that stretch from the Mediterranean Sea to the Indian Ocean and are doubtless crucial to the livelihoods of millions of Iraqis, even as they concentrate Iraq’s wealth in the hands of a venal few.
The growth of smuggling networks under sanctions in Iraq highlights the fact that this instrument of economic warfare — though intended to exclude — can perversely work to include the targeted nation in the world market. Sanctions of the type that the UN Security Council, led by the US and Britain, imposed on Iraq for 13 years foreclose the possibility of regulated integration, built on existing industries, and substitute ad hoc wheeling and dealing by the well-connected, well-armed and lawless. This question is once again vital because, despite their plainly deleterious consequences for Iraq, such sanctions are apparently being contemplated in Washington to deal with the problem of Iran’s nuclear research program. The scenario is sadly familiar: A puffed-up local leader, ever ready with anti-American quips to rally domestic hardliners and tickle the foreign tiermondiste left, defies Security Council demands on the basis of national sovereignty. In the West, this leader is easily demonized in public opinion and falsely portrayed as the only face of his nation that matters. Hawks in Washington sell the line that only intensified external pressure can motivate the system this leader heads to change from within. In the aftermath of the stolen June 12 presidential election in Iran, as President Mahmoud Ahmadinejad and his backers in the Iranian security state strip the Islamic Republic of its republican traits, the allure of the hawks’ logic is considerably enhanced. It is imperative that the Obama administration spurn this thinking, which seduced its three predecessors with respect to Saddam Hussein’s Iraq.
Extensive sanctions on Iran, as in Iraq in the 1990s, will immiserate Iranians and spill over to afflict the entire region. They will encourage the enrichment of criminal (and possibly violent) elements in both Iran and neighboring countries at the expense of the suffering majority. Perhaps most fatefully, they will further strengthen the ascendant arch-conservatives within the Islamic Republic, allowing them to pose more credibly as defenders of Iranian honor, and fatten the wallets of the Revolutionary Guard and other men with guns. After Saddam was overthrown, the Revolutionary Guard commenced a patient expansion of their business ventures, part in homage to the epaulet-wearing entrepreneurs in Pakistan and Turkey. Some of this business took the form of infrastructure and development projects the Guard was contracted to implement in Iraq and Afghanistan. Some of it, however, was simple off-the-books commerce in Iran. Ironically, much of this illicit trade grew out of the sanctions on Iraq, and now that the Guard’s allies among the Iraqi Shi‘i Islamist parties hold sway in Baghdad, the smuggling has exploded, often under the cover of legitimate companies. Several members of the Revolutionary Guard’s officer corps, including the infamous Sadeq Mahsouli, who as interior minister oversaw the theft of the presidential election, have gotten rich quick in the process.
Is it better or worse to be excluded from globalization? The finance ministers of the Middle East would certainly answer that it is worse, pointing not to beleaguered Eastern Europe but rather to East Asia, where the IMF projects an average 2009 growth rate of 4.8 percent. To be sure, the countries that rely on exports of inexpensive manufactures — Cambodia, Malaysia, Thailand — will be badly hurt by collapsing consumer demand in the affluent world. But that average is buoyed by China’s expected 6.5 percent growth. China is a model for Middle Eastern states because its leaders have opened up the economy without relaxing their grip upon the political domain and because its economic opening has largely protected domestic industries from outside competition. In both instances, the Chinese model bucks trends the Washington consensus presents as irresistible tides of history. Yet, because of how the Middle East is intertwined with the global economy, and because of the dependence of most of its regimes upon the gradually reviving global hegemon in Washington, the Chinese example can only be partly emulated. The peoples of the Middle East, like Americans in 1993 and 2009, are mostly in for a “joyless recovery” from the most serious recession in memory.