Middle East Research and Information Project: Critical Coverage of the Middle East Since 1971

The field of Middle East studies likes to tell itself that the region is an anomaly within the global South. One peculiarity attributed to the region is a relatively low level of income inequality, purportedly due to a combination of redistributive traditions within Islam, large public sectors and welfare systems, cross-border remittances from Arab labor migration and official aid by oil-rich countries.

Enter economist Thomas Piketty. In September 2017, Piketty and his colleagues released a stunning report on income inequality in the Middle East. [1] By estimating the top incomes of wealthy individuals, which tend not to be captured in household surveys, Piketty’s team produced an alarming set of numbers. The region, they argued, is “the most unequal in the world.” The report defines the Middle East as a regional unit of roughly 410 million people, “going from Egypt to Iran, and from Turkey to the Gulf countries,” rather than a discrete set of national economies. Within this region-wide unit, the top 10 percent of income earners collect 61 percent of total income. [2] To put that figure in perspective, compare this estimate to similarly sized regions in the global North: the top 10 percent of Western Europe (420 million people) garners 36 percent of income, while the top 10 percent of the United States (320 million) receives 47 percent.

Piketty and his colleagues also compared their inequality estimates for the Middle East to similarly derived figures in Brazil (population 210 million), where the top decile’s share of income was estimated at around 55 percent in 2017. In other words, one of the most unequal countries in the world, Brazil, is still a little more equal than the Middle East, when the latter is taken as a single unit.

Moving higher up the income distribution ladder, the inequality estimates grow even starker. According to Piketty’s team, the top 1 percent of income earners in the Middle East collect 27 percent of total income. This concentration at the top surpasses the income shares of the 1 percent in Western Europe (12 percent), the United States (20 percent), South Africa (18 percent), China (14 percent) and India (21 percent). Once again, the main competitor in their report is Brazil, where the top 1 percent of income earners receive 28 percent of the income distribution.

What conclusions can be drawn from Piketty’s account of inequality in the Middle East, especially in relation to more thoroughly documented inequalities in Latin America? After all, previous studies note that inequality within any particular country in the Middle East tends to be low in comparison with other parts of the world. Surveys measuring the inequality of household expenditures provided lower estimates in countries such as Egypt, Jordan and Tunisia. In the wake of the 2011 Arab uprisings, World Bank economists claimed that these figures presented an “Arab inequality puzzle,” given that perceptions of high inequality expressed by protesters did not seem to match up with the data. [4]

The contradiction between low inequality within particular countries in the Middle East and high inequality across the region as a whole is not really a contradiction, however, once the processes which have produced one or the other over time have been unpacked. A historical comparison between Latin America—albeit a much larger region by population and size with its own internal variations—and the Middle East reveals similarities and differences in regional politics and the generation of inequality. On the surface, both regions appeared to jointly slide from state-led policies of industrialization down into the caprices of market-led policies of neoliberalism. Underneath, however, in the characteristics of industrial projects, the pathways of neoliberalization and the outcomes of social upsurges, there were distinct divergences between Latin America and the Middle East which led, through separate routes, to the high regional inequalities of the present.

Common Concepts, Divergent Histories

From the 1940s until the 1970s, scholars and activists across Latin America and the Middle East often saw their respective regions as sharing a common fate and facing similar prospects. There is a reason why by the 1970s these intellectuals held a set of concepts in common. They had been talking to each other for decades within and across the institutions of the international order, many of which contained spaces like the Non-Aligned Movement that were dedicated to an idea of the linked fortunes of the Third World. [5] They argued that the playing field of the world economy was tilted against the formerly colonized world. The global values of the products and resources of these countries, from agricultural commodities to minerals, were declining over time in relation to the industrial goods produced in North America and Europe. Furthermore, the structures of regional economies in Latin America and the Middle East were not traditionally mired in primary commodity production but rather had been forced into that role through interactions with colonial powers. As a result, Latin America and the Middle East were both in a dependent relationship with the First World. This common condition implied a set of common strategies to reverse the process and enable participation in the world economy on a more equal footing.

Strategies to remedy this shared legacy included a government-led push for domestic industrialization, often by expanding infrastructure to link internal markets, protecting export sectors to diversify trade and creating or subsidizing companies to produce manufactured goods at home. Indeed, this was already beginning to happen from the 1920s through the 1930s in countries with manufacturing experience such as Mexico and Brazil. Countries could also coordinate the production and pricing of primary commodities via regional or global cartels so that the terms of trade for resource-dependent states did not continue to decline in volatile fashion. This strategy was not solely limited to the well-known example of the Organization of Petroleum Exporting Countries (OPEC), although no other collective organization had such a lasting impact on commodity prices. Lastly, countries could collectively insist on the sovereign rights of their states to determine internal affairs while at the same time call for a restructuring of the postwar institutions that set the rules of the international economic order. [6]

So far, so anti-imperialist. By the mid-1970s, the model of state-led development seemed similar in both regions. Each had a strong tradition of leftist oppositional politics. Not coincidentally, partly due to such opposition, both regions had shifted from a cluster of popular-nationalist states toward authoritarian rule by military regimes. Ultimately, however, the different histories of the two regions contributed to a divergence in paths.

Compared to the Middle East, large countries in Latin America historically had lengthy experience with manufacturing and more access to technological inputs from American and European firms. These countries had been independent for over a century, after all, though their elites tended to be linked to conservative, landowning classes. While land redistribution was carried out over the mid-twentieth century in countries such as Mexico, Bolivia, Peru and Chile, counter-reform and lack of support for small-scale production limited its positive impacts on rural inequality. [7]

Many Middle Eastern states, conversely, engaged in extensive programs of land reform soon after independence, with varying levels of success in decreasing poverty and inequality in the countryside. This process broke the hold of landed notables on elite politics in countries such as Egypt, Iran and Syria, but did not result in increased agrarian surpluses, which could be funneled into a growing manufacturing sector (the approach in East Asia during the 1960s and 70s). Nevertheless, as a major component of inequality was driven by differences in rural living standards, land reforms in the Middle East and state investment in the countryside did contribute to a social leveling of sorts, albeit one where rural citizens were now freed to search for higher paying jobs in large cities across the region, including in the city-states and growing urban centers of the Persian Gulf.

The drive to industrialize varied between these regions as well. By 1974, manufacturing made up 31 percent of Brazil’s GDP and 23 percent of Mexico’s GDP. At the same time, in Egypt—after two decades of economic nationalization and state-protected industry under Nasserism—17 percent of GDP came from manufacturing activities. In Iraq the figure was even lower (10 percent of GDP in 1972, before major oil price hikes). [8] The “oil revolution” from price increases in the 1970s did not spur a great manufacturing push in the Middle East. Instead, it motivated a push for the expansion of financial institutions and urban infrastructure in Persian Gulf countries, which had too many petrodollars to spend, and a military spending spree among larger states.

In sum, after a period of state-led development across both regions with common goals of reversing a historical dependency on primary commodities and fighting to gain access in the world market for their domestic production, a divergence had taken root. Parts of Latin America were impressively specializing in industrial goods that stood a chance of competing in Northern markets, but the inherited inequalities of colonial rule and the lack of land reform meant that stark inequalities remained in the region, often manifested in the continued exclusion of indigenous or Afro-descendent citizens from populist-era social contracts. [9]

In the Middle East, manufacturing zones remained small and state-protected with limited linkages to Northern markets. Large public sectors, which employed a sizable minority of the population, an expansion of access to primary education and health care and universal subsidies of basic food staples and fuel, however, reduced inequality between households during the postwar decades through the 1970s.

The Uneven Geography of Neoliberalism

Asserting that the Middle East’s main dilemma was neoliberalism tout court—that this master process was the cause of the 2011 Arab uprisings, for instance—tells us little about the key dynamics of recent decades. From the 1970s onwards, the Middle East as a region was not subject to external or internal pressures of neoliberalization to the same extent as Latin America. As an umbrella term that has entered the vernacular of everyday politics, the word neoliberalism means many things to many people. At times, the term has too many meanings to function as a standalone concept for capturing social change across the entire global South over the past four decades. Take, for instance, the privatization of public sector companies, often held up as a telltale sign of neoliberal policy during the 1990s. As seen in Table 1, the two regions with the highest absolute levels of privatization during the 1990s were Latin America and post-socialist Eastern Europe and Central Asia. Even taking into account the larger size of the Latin American economies compared to the Middle East, states in the latter region privatized relatively little during the same period. In smaller countries such as Lebanon, Tunisia, Jordan and Morocco, of course, the size of public sectors had been historically more limited. Along with Egypt during the 2000s, these countries did selectively sell off state-owned firms across oil, gas, banking, manufacturing and telecom sectors. Yet, the pace and degree of privatization was not evenly shared across the region.

Several factors help explain why large parts of the Middle East were less subject to the economic dictates of the neoliberal wave of the 1970s to 2000s. After the Sino-United States détente and end of the Vietnam War, the main global theater of military build-up, geopolitical conflict and mass warfare shifted from East Asia to the Middle East. Dating back to the mid-1960s, political elites in the region found that war and war preparation served as useful excuses to fight off technocratic efforts to shrink the state’s budget and privatize national “mother” industries (such as banking, oil and gas, mining, petrochemicals and power generation). When state elites did eventually engage in neoliberal adjustments from the 1970s onwards, such as reduction of trade barriers, removal of price controls and allowing for foreign investment, they did so dragging their feet, a half-hearted neoliberalism at best.

Social welfare contracts across the region frayed, and even stagnated in some countries, but they did not precipitously collapse as in Latin America. Austerity protests across several Middle Eastern countries also alarmed autocratic state elites and contributed to their weak embrace of neoliberal policies. Although many Middle Eastern states were not oil producers, the commodity bubbles of the 1970s generated sufficient intra-regional transfers of capital to keep segments of the state-led welfare systems in place. These capital flows, coupled with new sources of external finance for Middle Eastern states, prevented the deep balance-of-payments crises that Latin America experienced in the 1980s and 90s, and allowed for the continued use of the public sector as a provider of employment and status attainment. Jordan’s public sector employed more people in the 2000s than in the 1980s. Egypt’s public sector salaries rose, not fell, over the same period. [10] Flows of military and development aid were also significant and buffered political elites in US-friendly states such as Egypt and Jordan.

Neoliberal-sounding intellectuals abound in the Middle East and are well received among the chattering classes of Northern countries. Yet they never held the reins of power for an extended period anywhere except Turkey. There were no crises deep enough to allow the takeover of Arab states and purging of old guards until the 2011 protests. In the late 1980s and early 1990s, it did seem that limited democratization-cum-liberalization might take hold in the Middle East, as was occurring in Latin America. Political councils were established in Jordan and Kuwait and regular elections were held in Iran and Turkey. Moves toward liberalization proved transient, in the Arab cases at least, when neoliberal upstarts were selectively grafted into the state by political veterans, from Egypt to Syria, without radical changes to governance. Crony-style arrangements for regime allies replaced corporatist organizations for labor and professionals. As a result, economic growth across the region during the 2000s benefited the top strata. Nevertheless, compared to the United States’ punitive approach to Latin American economies, the special relationship between Washington and the region remained distinctive. In the most blatant example, the United States repeatedly intervened to prop up the Egyptian economy from the 1980s to the present without demanding severe structural adjustments. As Martyn Indyk, the director of Near East and South Asian Affairs on the Clinton administration’s National Security Council, recalled, “the Egyptians dictated the pace.” [11]

This soft landing into the neoliberal era contrasts with the experience of Latin America from the early 1980s onwards, where public debt crises mounted as a byproduct of rapid increases in US interest rates. The United States sneezed and Latin America caught the plague. A rupture in economic and social policy took place across the region, justified by the technocratic magical realism of the Washington Consensus. The standard package of liberalizing economic reforms attached to loans from Washington-based financial institutions might have been reasonable if selectively applied across a longer time frame. But instead, they were swiftly enforced in concert and held in place even as the reality of collapsing social development indicators in the wake of economic austerity belied the theoretical expectations of rapid adjustment. The industrial policies of the previous decades, which stood a chance—however slim—of facilitating a Latin American equivalent to the East Asian manufacturing boom, were torn up by the region’s politicians and rebuked by in-house intellectuals.

The upside of the Latin American debt crises of the 1980s, if any, was the de-legitimization of the region’s military dictatorships and their claims to superior authoritarian handling of the economy. Consequently, also unlike the Middle East, most states in Latin America underwent democratization at the same time as neoliberal transformation. The transition to more democratic forms of mass politics widened the civil space for popular mobilization against ensuing economic austerity and the rapid unraveling of social welfare compacts across the region.

The Political Outcomes of Social Upsurges

The starkness of Latin American inequality was politicized by new social movements from the 1980s to the 2000s, eventually contributing to the Pink Tide of left-leaning governments that appeared across the region. Yet underneath this tide was a notable variation in political outcomes. In countries where conservative-run political party systems (inherited from the pre-neoliberal era) provided room for leftist mobilization, such as in Brazil or Uruguay, the outcome of popular upsurges tended to result in left-wing party success within the recently democratized institutions of the state. Social democratic forces, finally victorious at the polls—such as Brazil’s Workers’ Party or Uruguay’s Broad Front—implemented inequality-reducing packages of social investments while also benefiting from increased prices for commodities in global demand. Where more oligarchic parties backed by military elites dominated the democratic transition and its aftermath, such as in Honduras or Paraguay, even liberal politicians from the business sector or Catholic priests running on populist platforms encountered severe pushback through impeachment or coups. This form of oligarchic restoration arguably presented a model for the counterpunch against social democratic parties over the past several years in Brazil and Argentina.

Lastly, where recurring popular mobilization paralyzed the inherited party systems of the pre-neoliberal era, such as in Bolivia or Ecuador, social movement-spawned parties outflanked the ruling elites through plebiscitary power. Constitutions were re-written and policies geared towards reductions in poverty and inequality were funded through increased state taxation of domestic resource extraction. [12] Impressive gains in social development notwithstanding, the re-founding of these countries’ constitutional orders, often through referenda, could prove as unstable as their Venezuelan cousin has shown in dismal fashion, as old elite coalitions engage in investment strikes and capital flights. In sum, the rising social unrest from neoliberal adjustment interacted with the divergent legacies of Latin American dictatorships to induce different political outcomes.

In the Middle East, inherited political structures also mattered once a tide of popular uprisings swept across the region in 2011. Where leaders had previously entrenched dynastic or hereditary methods of succession, as in Syria, Jordan or the Gulf monarchies, nonviolent protestors found that autocrats and security forces were difficult to wedge apart due to the increased loyalty of the organs of repression to regime coteries. In states with ambiguous succession prospects, as in Tunisia, Egypt and Yemen, ruling heads were successfully ousted when nonviolent mobilization pushed their security apparatuses into abeyance. In Libya, however, a leader without institutional succession had enough resources to violently hold off popular rebellion, but foreign intervention cut off Qaddafi’s gambit for survival. [13] The counterrevolutions of 2011 and the ensuing collapse of large swaths of the Middle East into civil war, population migration and inter-state rivalries exacerbated the main contributors to region-wide inequality.

In crude terms, the high inequality estimates for the Middle East region as a whole reported by Thomas Piketty and his colleagues stem from two main processes. First, average incomes have been stagnating in larger Middle Eastern countries, given middling growth rates and large population increases. Second, however, and far more significant for Piketty’s estimates, is the concentration of income at the top levels of the Persian Gulf states. In Piketty’s regional sample, Gulf countries represent only 15 percent of the Middle East’s population but receive 47 percent of the total regional income (measured at market rates). Within the Gulf countries themselves, whether in majority-national states like Saudi Arabia or minority-national city-state archipelagos such as the United Arab Emirates, the influx of cyclical migrant labor over the past three decades has brought down the average incomes in each country, but the ratio of income between Gulf nationals and foreign labor has increased over time.

In other words, as Piketty points out, even if within-country inequality had not changed at all over the past three decades in the Middle East, the “evolution of total inequality at the level of the Middle East taken as a whole would have been virtually the same.” [14] The inequality dynamics of the Middle East—relatively low inequality inside large states, glaringly high inequality across the region—is largely due to accumulation of income in the garrison states of the Gulf, with restricted and tiered social contracts benefiting small shares of the population in these territories.

The concentrated accumulation of Gulf incomes is rooted in the rest of the Middle East’s sorrowful trajectory. The outcome of four decades of cascading war across the region was to push the political and economic leadership of Middle East and North African states toward the Gulf monarchies. The Gulf model advertises a costless, codified capitalism: social citizenship for elite kinship minorities, imported professional and working classes and territorial security subcontracted to the American superpower. Celebrated by sycophants and chimerically held up as an obverse to Nasserist state-led development of the 1960s, the model is under strain on all three fronts. Young Gulf Arabs are growing tired of being cloistered and pampered without career trajectories, leading the monarchies to pursue a half-hearted policy of “nationalization” of the workforce, with increased costs in tow. The long-term circulation of South Asian and North African labor throughout the Gulf has built up local communities with their own resources of social solidarity. Hidden resistance is still the norm, but the costs of containing labor unrest are growing. The US protection umbrella, as royals now grumble, is looking more like a protection racket. But if the Gulf monarchies had to protect themselves, they would also have to enter into a more ordinary balance of power arrangement in the region where Iran, Turkey and other possible competitors could claim a veto, irrespective of US or Israeli wishes. This quivering in the balance of power has occurred to some extent anyway, signaled by the recent split in the Gulf Cooperation Council over Qatar, making the Gulf model even more precarious. There is no equivalent in Latin America of this form of garrison capitalism.

Present Convergences

This idiosyncratic historical route to Middle East inequality makes the high inequality levels in Brazil, a democratic country with open internal migration and at peace with its neighbors, perhaps even more alarming. In addition to startling inequality, however, after a half century of divergence, the Middle East and Latin America now have much else in common.

After the recent commodity booms and busts of the 2000s to the present, both regions are chiefly exporters of primary commodities (such as soy, oil, meat or gas) and people (as desperate economic migrants and refugees as well as labor inputs into low-wage goods) rather than high value added goods. The fortunes of both regions rest on the temperature of the world economy. If the US economy tanks, slumping China in turn, then the niche specializations of Latin America and the Middle East will have little use for the world economy.

At the top of both regions, a conglomerate form of capitalism reigns supreme, where large business groups such as Odebrecht (Brazil), Grupo Carso (Mexico), SABIC (Saudi Arabia) and Etisalat (UAE) operate in a grey zone of state-linked contracts, kinship networks of ownership, speculative linkages to global finance, webs of subsidiaries across numerous industries and powerful influence on regional politics and capital flows. [15]

Lastly, both regions share a common experience in the rupturing of social fabrics through intense violence indiscriminately directed at marginalized or disempowered social groups, abstracted as “crime” in one region and “war” in the other. Upon closer examination, there is less difference between the two than presumed, as both forms of violence operate with the complicity of state institutions and depend on the toil of everyday laborers who cannot acquire their livelihood through other means. Previous exit valves of migration are increasingly closed off in the United States and Europe.

The inclusively authoritarian path of Middle East state-led development arguably contributed most to the reduction of inequality during the postwar era among large states. The programmatic social democratic parties of Latin America girded by popular mobilization, however, proved the main route for inequality reduction at the turn of the twenty-first century. Neither model seems attainable at the regional level today. As a similar fate looms across both regions, however, new opportunities for reimagining the future are also present. After all, the two regions have far more in common today than a century ago. A sense of linked fortunes and shared horizons could provide the stirrings for collective political strategies once again, this time on firmer historical ground.

Endnotes

[1] Facundo Alvaredo, Lydia Assouad, Thomas Piketty, “Measuring Inequality in the Middle East 1990–2016: The World’s Most Unequal Region?” WID.world Working Paper, 2017/15, September 2017.
[2] The countries included in the Middle East region for this report, which utilizes household surveys, income tax data, and national accounts to extrapolate estimates of top incomes, are Turkey, Iran, Syria, Egypt, Iraq, Jordan, Lebanon, Palestine, Yemen, Saudi Arabia, Oman, Bahrain, the UAE, Kuwait and Qatar. The report contains numerous caveats on the reliability of these inequality estimates over time, especially within countries, due to the limitations of the data gathered, but the authors maintain that their main conclusion of high regional inequality is robust. Nevertheless, their exact figures should be reported cautiously, as they will likely be revised after refinement and collection of new data.
[3] Distribution of national income (before taxes and transfers, except pensions and unemployment insurance) among adults. Corrected estimates combining survey, fiscal, wealth and national accounts data. Equal-split series (income of married couples divided by two), except for the Middle East (household per capita). Latest years available (2012–2016). Source: WID.world. [this endnote corresponds to a graphic in the print edition] [4] Shantayanan Devarajan and Elena Ianchovichina, “A Broken Social Contract, Not High Inequality, Led to the Arab Spring,” The Review of Income and Wealth, Forthcoming 2018 (published online February 20, 2017).
[5] See the mapping of these networks in Chris Dietrich, Oil Revolution: Anticolonial Elites, Sovereign Rights, and the Economic Culture of Decolonization (Cambridge, UK: Cambridge University Press, 2017).
[6] Christy Thornton, “A Mexican International Economic Order? Tracing the Hidden Roots of the Charter of Economic Rights and Duties of States,” Humanity: An International Journal of Human Rights, Humanitarianism, and Development 9/3 (Winter 2018).
[7] Cristobal Kay, “Rural Poverty and Development Strategies in Latin America,” Journal of Agrarian Change 6/4 (2016).
[8] World Bank national accounts data.
[9] James Mahoney, Colonialism and Postcolonial Development: Spanish America in Comparative Perspective (Cambridge, UK: Cambridge University Press, 2010).
[10] Oliver Schlumberger, “Opening Old Bottles in Search of New Wine: On Nondemocratic Legitimacy in the Middle East,” Middle East Critique 19/3, 2010; also see the essays in Tim Niblock and Emma Murphy, eds, Economic and Political Liberalization in the Middle East (London: British Academic Press, 1993).
[11] Jason Brownlee, Democracy Prevention: The Politics of the US-Egyptian Alliance (Cambridge, UK: Cambridge University Press, 2012) p. 67.
[12] This tripartite typology of “dual transitions to democracy and market liberalism” comes from Kenneth Roberts, “Democratic Divergence and Party Systems in Latin America’s Third Wave,” Parties, Movements, and Democracy in the Developing World, ed. by Nancy Bermeo and Deborah Yashar (Cambridge, UK: Cambridge University Press, 2016).
[13] This typology borrows from Jason Brownlee, Tarek Masoud and Andrew Reynolds, The Arab Spring: Pathways of Repression and Reform (Oxford, UK: Oxford University Press, 2015).
[14] Piketty et al, 2017, p. 24.
[15] Adam Hanieh, Capitalism and Class in the Gulf Arab States (New York: Palgrave-Macmillan, 2011).

How to cite this article:

Kevan Harris "Divergent Histories and Converging Inequalities in the Middle East and Latin America," Middle East Report 284/285 (Winter 2017).
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