Chapter 4: Bunker State Capitalism Algeria | Lessons | Syria | Conclusion | References | Table of Contents The countries with the weakest private sectors have the greatest difficulties adjusting to global capitalism. Algeria, Iraq, Libya, Sudan, Syria, and Yemen display the least institutional capacity to manage their respective economies. These countries have the largest informal economies, reflected in the relatively high proportions of their money supply which escape their respective banking systems. Tax revenues outside the petroleum sector are low, and some of the revenues may be siphoned off to ruling factions. Official import monopolies largely escape the official controls of economic decision-makers or planners. The technocrats of these regimes have little opportunity to make or even influence policy, and the clans ruling them may filter and distort economic information. No significant economic establishment, public or private, eludes the predatory rulers although some firms, notably in the petroleum and military industrial sectors, enjoy special protection. Private entrepreneurs may accumulate capital, but only so long as they enjoy the special favor of those who control the military or security services. Indeed, a major difference between bunker state capitalism and its more sophisticated "French" variant may be that the latter’s favored entrepreneurs buy more durable protection.
While indices of domestic violence and disorder mark them off from the others, so also do their underlying financial structures. These are less contingent than episodes of civil violence, since they reflect underlying political economies that are difficult to change. Financial data offer the clue which distinguishes the bunkers from rest of the MENA. Specifically the bunker states fall in the bottom quadrant of Figure 4-1 with respect both to commercial bank credit allocated to the private sector (as a proportion of GDP) and to their respective proportions of "contract-intensive money" (CIM) in the money supply (M2).
CIM, discussed in chapter 3 as a proxy for property rights and institutional credibility, is the proportion of money held inside the banking system, rather than outside it, in the form of currency. As seen in Figure 4-1, the low-CIM countries also have the least visible private sectors underpinning their respective civil societies. Without the shock absorbers of viable political or civic associations, much less the support of private capital, domestic or foreign, adjustment is bound to be rough and the dialectics of globalization less amenable to resolution.
The bunker regimes, however, seem under greater pressure than the others to change their ways. They are peculiarly vulnerable to lower oil prices because their oil revenues, workers’ remittances, and foreign aid (or tribute, in the case of Syria, extracted from the GCC countries) just barely sustained their respective balances of payments before the further collapse of oil prices in 1998. Except for Iraq and Libya, closed to much investment by international sanctions, they lack the abundance of mineral resources needed to attract enough foreign capital to delay the pains of adjustment. Yet economic reform is bound to be more painful than in economies already enjoying more integration with the global economy and its financial markets. The bunker regimes are military outposts manipulating and defending against chronic tides of civil unrest. With or without low intensive warfare, property rights are necessarily insecure, and hence private sectors are marginalized. Whether or not such insecurity explains away the "resource curse" associated with rentier states (Ross 1999: 319-322), it seems intimately associated with a rough pattern of economic adjustment which is occurring in the Middle East and North Africa.
The bunker states still monopolize the oil rents, but any tacit "contract" offering welfare and security in exchange for allegiance has been revised. Their menu of state services has diminished with the decline in oil revenues. Their way of keeping up any tacit contract is to increase the value of security -- by "empowering" a bit of insecurity. Algeria is the most vivid and bloody illustration. Algeria in some respects adjusted far more quickly in the late 1990s than Egypt or other star pupils of the IMF. But Algeria raises the question of whether any bunker regime can adapt to the global economy without massive suffering. The mindless massacres of tens of thousands of civilians has enabled the regime to carry out draconian economic policies. The economy undergoes structural change while a hard core of illegitimate military rulers retain power on the pretext of widespread insecurity. Raw struggles of power between the ruling factions as well as between them and Islamist guerrilla forces divert attention from the economic policies being implemented with advice from the IMF, leaving the policy makers with a relative autonomy of sorts. Further economic adjustment may be accompanied by continued fighting until more of the state’s industrial assets are eventually redistributed in a new capitalist order.
Algeria (back)
Algeria is, to be sure, an exceptional case. It exaggerates and therefore sheds greater light on many of the problems faced by other MENA states. It endured the region’s most protracted and destructive colonial situation. Not only were its indigenous elites suppressed or hopelessly compromised by the French authorities of colonial Algeria; its culture was virtually destroyed. Its own "French" politicians could not negotiate their country’s emancipation as did Lebanon’s or Syria’s urban elites, or even the more intensively colonized Tunisians; guerrilla forces overtook Algerian civil society. Far from refashioning associational life as did the struggle for independence in neighboring Tunisia, Algeria’s protracted military conflict marginalized its small educated elite and destroyed most fledgling organizations, even the Front of National Liberation (whose principal leader inside Algeria was strangled to death). Deprived not only of its intellectuals but of culture as well, Algeria’s civil society was among the weakest and most fragmented in the Arab world. Much of it is still located in France and Switzerland rather than Algeria.
Independent Algeria was militarized from the start, unlike other MENA countries which underwent military coups. The General Staff of the external Army of National Liberation seized power in 1962 and placed a prestigious figurehead, Ahmed Ben Bella, in the presidency. When he in turn tried to develop independent power centers to bring the army under control, Colonel Houari Boumediene removed him from power. Boumediene tried to develop political institutions, but he died suddenly in 1978 before his revised blueprint of the Front of National Liberation and various ancillary bodies could gain real authority. The army command, not the civilian leadership, selected his successor, Chadly Benjedid, more or less on the basis of seniority. His peers then prevented Chadly from consolidating power like his predecessor. As long as the Algerian economy appeared to prosper, the colonels – French-trained professionals as well as former guerrilla commanders – promoted themselves to be generals and derived enough legitimacy from embodying the abstract legacy of the Revolution to stay comfortably in power. Indeed, Algeria was not perceived from the outside as having a particularly militaristic regime. It did not ever appear to be in the same league with Baathist Syria or Iraq, or even Nasser’s Egypt. The most visible military leaders were home-grown guerrilla politicians, and their governments were largely composed of civilians. Boumediene, for instance, appeared to be managing a mildly authoritarian administrative state. Military expenditures amounted on average to barely 3% of GDP, quite low compared to other bunker regimes or to Egypt, Jordan, or Israel. "Algeria today [in the early 1980s] is governed by a complex network of interactive structures that provide institutional stability, direction, and predictability to the political system." (Entelis 1986, 168) Central government budgets continue to convey this impression: the military’s share is lower in Algeria than anywhere else but Tunisia. Table 4-1 presents the available data.
From the inside, however, we have narratives of economic decision-makers who record a very different perception of Algeria’s system. Two of them present the same picture from opposing viewpoints and different positions in the hierarchy. Belaid Abdesselam was Boumediene’s chief architect and manager of the Algerian economy from 1970 to 1977. Ghazi Hidouci was a professional economic planner until 1984, when he was called to head the Department of Financial and Economic Affairs in the presidency and then served as Minister of the Economy in Mouloud Hamrouche’s government from 1989 to 1991. A third narrative is politically less informative but offers evidence of the massive corruption implied by first two accounts. Abdelhamid Brahimi was appointed planning minister in 1979, after Chadly Benjedid became president, and he served as prime minister from 1984 to 1988. He publicly declared in March 1990 that corrupt officials and intermediaries had pocketed some $26 billion, the equivalent of Algeria’s external debt at the time, in commissions and inflated invoices during the Boumediene years (pp. 152-155). The timing of his revelation diverted attention to corruption and helped to undermine Ghazi Hidouci’s efforts to attack its roots with market reforms.
Belaid Abdesselam views Algeria’s industrial technocracy from the summit. He was one of a small number of Algerian university students who joined the maquis in 1956 and thereby had political as well as scholastic credentials. He had studied medicine, not economics, but quickly mastered the oil business after independence and subsequently took charge of Algeria’s entire industrial sector. Like his counterparts in Tunisia, Libya, and Senegal (Belkhodja) he was inspired by the French economist Gestanne de Bernis’ vision of "industrializing industry" and gained Boumediene’s enthusiastic approval. Abdesselam oversaw the accumulation of Algeria’s oil revenues and their reinvestment in natural gas liquification plants, to accumulate more export revenues, and in a heavy industrial base, including iron and steel. The vision of an industrialized Algeria was Boumediene’s legitimating myth, much like the High Dam for Gamal Abdul Nasser. Consequently Abdesselam enjoyed the president’s protection.
From his political memoirs (Bennoune and El-Kenz 1990), however, it is clear that Abdesselam’s authority was seriously constricted by contending military clans and their business extensions – a set of veritable "mafioso," as he calls them. He could sometimes cross one of them, with support from the president, but he dared not set them collectively against him. Abdesselam’s own following consisted of industrial technocrats, not the regime’s core military players. The "turf battles" had a peculiarly Algerian flavor, but they may ring a familiar bell with Syrian or Iraqi insiders. Once, for instance, the oil fields of Hassi Messaoud were surrounded by the Gendarmerie, backed up by some special military units. Everybody working in the fields – most of them just wearing shorts in the hot desert sun -- was asked for identity papers. Many, including oil executives from Europe inspecting their field operations, were carted off to a police station and held for up to 24 hours or more because they had left their passports back at the camp. When Abdesselam protested against this arbitrary and expensive round-up, Bencherif, the minister of the interior and head of the Gendarmerie, primly responded that nobody, not even in the industrial sector, is above the law. Then Abdesselam understood. A few days earlier someone close to "un grand responsible" had asked a European enterprise working with Sonatrach to become the firm’s representative in Algeria. The Europeans responded that they were agreeable, as long as Sonatrach also agreed. Since Sonatrach did not agree, however, the company did not have to hire him. Abdesselam realized that Bencherif was teaching the European companies a lesson. Sonatrach could not protect them. They had to cut other power centers into any deals (pp. 43-44 vol II). Abdesselam concludes of his experiences as minister of Industry and Energy,
One is almost up against a system penetrated by a Mafia type of incrustation! When one is responsible for a sector like industry, which engages enormous interests, evidently it arouses much envy and many people want to profit. I have told you how one can get the profits...First you have the intermediaries, the compradores who want mandates from large foreign companies to get their percentage on every contract. Then there also has to be complicity within the system. These individuals have to show that they have enough influence within the power structure to influence a deal. All of which necessitates support within the system. If you are opposed to such things and wish business to work normally, you become an adversary. Either you go along with them and get some needed peace or you work according to certain rules and counter certain people’s appetites. Then you become an enemy to be shot down. (II, 200-201) Abdessalem enumerated other ways of gaining profits. The basic principle was to serve as intermediary between a foreign firm and one of the military clans in Boumediene’s entourage. The minister associated most of the French firms with colonial rule and preferred the Americans.
From below, Ghazi Hidouci presents a complementary snapshot of economic decision-making during the halcyon years of great industrial projects. Entering the planning ministry as a junior economist at about the time Boumediene seized power, Hidouci had a backstage view of economic policy making in Algeria. In theory his ministry was the brain behind Boumediene’s centralized economy. In practice it sat on the margins, consulted about the budgets of the economic ministries but never empowered to engage in real central planning, much less make other ministries implement a national plan. Inside the planning ministry the macroeconomic planners usually generated three data sets, a relatively prudent one for the president, an "approximately sincere" one for internal usage, and a "highly manipulated" set for dealings with the other ministries. (p. 36) During the 1970s the planning minister, Abdallah Khodja, contested the economic viability of many of Abdesselam’s projects. Once the oil revenues surged in 1974, Abdesellam usually had his way but symptomatically regarded criticism as a sign that Khodja had the support of powerful cliques of officers and their compradores, or finally of Boumediene himself (II, p. 258). Hidouci, loyal to his minister, describes the clandestine operations of the planners to obtain information about the industrial enterprises and other matters.
"In the often empty corridors of the Treasury and Tax [departments of the Ministry of Finance] we developed the habit during these dark years of digging up missing pieces of information on the spot, where the poorly paid, often demoralized bureau chiefs, indifferent to the incongruity of displaying the secrets of prebendal administration, opened up everything to us. It was nevertheless more difficult to penetrate the ministerial cabinets" (p. 39) Subsequently Hidouci gained access to the inner workings economic policy making at the highest levels. He presents a remarkable picture of the climate of mutual suspicion pervading the corridors of power in the mid-1980s. Much of the relevant information was filtered and manipulated; for instance, the personnel files of public sector managers were secrets in the hands of competing security agencies. Part of Hidouci’s job was to gather information that could be used against public sector officials, and he had latitude to build his own channels through the banks and enterprises acquired through his years in the planning ministry. Since he did not have access to the security files, he learned "less about interest networks and people than about the administration of things." (p. 118) Through his own network of former planners and other reform-minded individuals in strategic places, however, he acquired more reliable economic data than the official reports which he quickly learned to file without reading (p. 117).
Algeria’s centralized planning was a myth. The reality, once Boumediene consolidated power, was a centralized system for distributing the rents and prebends, controlled by the presidency and managed by close collaborators in the Ministry of Finance, not Planning. The Ministry of Finance was originally headed by military commanders close to the president. They directly controlled the credit and allocated the grants and subsidies, with little need for administration, much less a banking system. The minister and his personal cabinet made the decisions and left the rest of the ministry in a "shocking state of disrepair." (p. 39) The French settler assets, virtually the entire modern economy, were up for grabs when almost a million settlers departed "on vacation" before July 5, 1962 – Algerian Independence Day -- never to return. Boumediene brought political order to the anarchic appropriations of the Ben Bella years and, like the rulers of other rentier states (Crystal), distributed the loot so as to pacify the numerous guerrilla commanders and their followers excluded from political power by his victorious "Oujda clan" (named after the Moroccan city near the Algerian border where Boumediene had assembled the beginnings of an external army before moving to Tunisia). Once the resources of the European economy were depleted, oil revenues took up the slack. Driven by political considerations, allocations of property, rents, markets, import licenses and the like had little or no economic rationale. By 1972 Boumediene had consolidated control over the allocations and also redistributed some of the patronage to the provinces where the prefects enjoyed similar powers independent of the central ministries, including planning.
Abdallah Khodja, denounced as a rightist by Abdesselam (Bennoune and El-Kenz 1990: II, p. 221), waged a rearguard action until 1974 in favor of a more critical evaluation of industrial projects and greater investment in agriculture. Projects were occasionally stopped or at least delayed, despite pressures from the foreign beneficiaries of the turnkey projects as well as the Ministry of Industry and Energy. Hidouci reports a series of meetings in early 1974 chaired by Boumediene himself to air the differences between the planners and the industrial technocrats (pp. 65-66). But after a few months oil prices again doubled, terminating any critical economic discourse. "The planners picked up their tools, for nobody was disposed any longer to talk about necessity and economic constraints, and everyone was now supporting adventurism and indebtedness. Expenditure is immediate; management deferred." (p. 67) Hidouci is "convinced that Boumediene long believed that progress and modernity could simply be bought from those who had it and that he had no need for entrepreneurs in local markets nor of economic regulation." (p. 55)
First the proceeds of the modern economy abandoned by the settlers and then Algeria’s petroleum revenues made economics, in the sense of allocating scarce resources, superfluous. Algeria was no classic rentier state like those of the GCC. Until 1972 substantial private sectors of "traditional" Algerian agriculture, wholesale commerce, transport, and small-scale industry survived at the periphery of the centrally allocated modern sector. "In contrast to the deserts of the Persian Gulf before petroleum, the least developed, where everything was a new creation, in Algeria one destroyed an economy and a preexisting equilibrium to promote a new myth." (p. 43) The Algerians could then exaggerate their vision of "industrializing industries" well beyond those of other Promethian modernizers like Bourguiba or Nasser because their oil revenues far exceeded the capital available for investment in all but the wealthiest Gulf oil states. And a significant impact of Boumediene’s industrial, agrarian, and cultural revolutions launched in 1972 was to drive much of the private sector underground or across the Mediterranean (p.73). Table 4-2 shows that Algeria’s informal economy shrinks slightly in the early Boumediene years but then expands in the early 1970s and again at the end of decade, with the redistribution of rents after the president’s death.
Even before his death Boumediene had second thoughts about industrializing industry and divided up Abdesselam’s ministry, demoting him to take charge of light industries, which were supposed to arise in the wake of Algeria’s heavy industry. Subsequently Abdesselam’s entire empire, including Sonatrach, was carved up into smaller enterprises. With evidence from the planning ministry, entrusted by Chadly to Abdelhamid Brahimi, the entire industrial experience was attacked and discredited. But after Abdesselam and his technocrats were purged, economic analysis had no further place in Algerian policy-making. Hidouci, who remained in the planning ministry until 1984, claims that it then did little more than issue national accounts statistics – " to illustrate official speeches about growth in this unconstrained period" – and compile routine public investment programs (p. 85). Chadly’s slogan "For a Better Life," generated ever more rent for the import monopolies tied to military clans until the oil revenues sharply plunged in the mid-1980s.
Reform was in the air, but Chadly’s early efforts to cut up the state enterprises and give them greater autonomy amounted to little more than softening them up for the rent-seekers -- "assassinating industry," as one purged technocrat exclaimed. The high military command dramatically expanded – by 1998 Algeria counted 140 generals – and Chadly himself never could become more than their front man. Consequently Prime Minister Abdelhamid Brahimi, despite a PhD from Ohio State as well as previous service as a guerrilla with Chadly (check) inside Algeria, could hardly be Algeria’s Gorbachev. Even when they agreed, neither the president nor the prime minister could take decisive action in the face of collapsing oil revenues. Instead of rescheduling the debt, they resorted to more expensive short-term loans in the hope that oil prices would increase. The scarcity of foreign exchange led to widespread shortages of basic consumer items. It also had the interesting effect of extending the state’s patronage networks, as a growing group of black marketeers thrived under the protection of the military mafioso. Algerian dinars circulating outside the banking system jumped in 1986 from 34 to almost 40% of the money supply (Figure 4-2), and foreign exchange cost about four times more on the black market than at the official rate (my black market book – need table for all the bunker regimes). "Trabendo" (contraband) commerce, already part of Chadly’s "Good Life" in the early 1980s, soared in the late 1980s, further widening the gap between the official and unofficial foreign exchange rates. It would double again – to a factor of 8 and even 9 -- after the October 1988 riots finally shook the regime’s bunkers.
By sending in the tanks to quell demonstrations in 1988, killing over 600 people (Hidouci, p 162) in several cities, the army lost any shreds of revolutionary legitimacy and discredited the single-party regime. The civilian edifice, so carefully erected by Boumediene (1976 Charter) and slightly modified by Chadly (1986 Charter), was now beyond repair. Until 1988 the real leaders remained faceless, extorting favors from officials much as they had constrained Abdesselam in happier years. To their credit, military rule in Algeria had been not only veiled but relatively benign. The very fact that a few urban riots shocked them into major constitutional and economic reform distinguishes them from the military rulers of Syria (who destroyed a major city in 1982) or Iraq. But the riots and their sequels brought them progressively out of the barracks and into the public eye. From 1989 to 1999 they attempted and failed three times to create new civilian cover for themselves. First, after Chadly introduced a new multi-party constitution, Mouloud Hamrouche led a government from 1989 to 1991 committed to democratic political reforms and economic liberalization. Then, after the décideurs made Chadly resign in order to stop the Islamists from winning the legislative elections of 1991-92, they brought Mohammed Boudiaf back from exile in Morocco. He had quit Algerian politics in 1963 but, as one of the "historic" founders of the FLN, now seemed to be a useful figurehead for relegitimating the system. When he became too popular, attacking corruption, he was assassinated. Finally, with one of their own, Liamine Zeroual, the décideurs engineered presidential and parliamentary elections but then obliged their president to resign in 1998 when he and a possible successor, Mohammed Bechtine, seemed to become too independent. The presidential elections of 1999, had they been free, might have preserved at least a fig leaf of legitimacy, but six of the contenders, despite having been screened, withdrew at the last moment in a remarkable display of consensus that the elections were being rigged (Jeune Afrique no.1997 20-26 April 1999). The winner, Abdelaziz Bouteflika (Foreign Minister 1963-79), gained no more legitimacy than the officers who had brought Boumediene’s chief deputy (and orator at his funeral) out of retirement, and the vote rigging has reinforced doubts about the earlier elections of the incumbent parliament and regional assemblies (El Watan 24.5.99). Yet without a cover of legitimate government "les décideurs" become more vulnerable to their own internal divisions as their clans openly compete for economic spoils (Addi LeMDip 3/99). And the spoils keep changing with new reforms, destabilizing the clans.
Under Algeria’s emergency conditions economic reform was hostage to the officers’ hasty efforts to erect political cover. Until 1991, however, reformers still had a chance of extricating Algeria from bunker capitalism without tearing the country apart. The story of its first serious reform effort, while known to Algerian specialists (Corm 1993, Gilles, Hidouci), has not received adequate attention in the political economy literature (Vandewalle but Entelis 1992). Algeria almost succeeded in simultaneously moving to constitutional democracy and a market economy. While its failure illustrates the tenacity of bunker capitalism, it serves also as the rough draft of a dialectics of globalization that may be rewritten elsewhere.
The reform efforts began by stealth, "putting sand" (p.108) into Algeria’s dysfunctional administrative engines by offering new sources of information. With Mouloud Hamrouche’s transfer from the government to the presidency, however, Hidouci’s reform team gained greater leverage. Better informed and weakened by Algeria’s deteriorating economic conditions, the president lent them official support in late 1987, almost a year before the October 1988 riots. Bits of the reforms surfaced in seminars and decrees, and the reform team extended its networks across the country beyond the public sector to include "trade union activists, lawyers and judges, the medical profession, private entrepreneurs, and press and culture circles." (p. 133)
In the reformers’ view it was useless to touch up the economy by administrative decentralization and other partial measures, much less control managers by checking on their uses of public equipment – such as automobiles! Selling off parts of the public sector apparently enjoyed some support in 1987 among the top ruling circles of officers and their intermediaries who might benefit (p. 127), but not among the reform team. Rather, the reformers had a "global institutional and juridical vision" of the necessary changes: to move to "contractual relationships between the administration and the producers of goods and services, including social services, and also to a transparent ‘commercializing’ of economic transactions" within the public sector (Corm 1993, 13). The virtue of this solution in the late-1980s was its perfect fit with the political liberalization to which the décideurs, huddled in the presidential crisis center, had apparently agreed in October 1988 when they called in the Hamrouche team (Hidouci, p. 161). From the presidency the reformers published and disseminated the Cahiers while continuing to draft legislation for almost a year before becoming the official government; meanwhile a transitional government supervised a constitutional referendum and legalized the components of Algeria’s new multiparty system, including the Islamic Front of Salvation (FIS).
The economic reforms were a bold attempt to change the rules governing economic decision-making. Previous efforts under Brahimi to "decentralize" the public sector had not worked because a small number of décideurs, including the dreaded Sécurité Militaire (renamed the Département du Renseignement et Sécurité - DRS), kept the real levers of command. Their powerful clans dominated the state monopolies over foreign commerce, domestic credit, and many lucrative domestic markets as well as the public sector personnel files. Hidouci’s solution was to abolish the monopolies, deregulate prices, and establish a framework for each public enterprise, including the banks, to operate as an independent self-supporting firm responsive to market forces. A flexible system of state holding companies was set up in 1988 to replace the supervision of public sector enterprise by parent ministries. Transparency and open markets would curtail the pervasive rent-seeking by eliminating much of the spoils. A gradual devaluation of the dinar would eliminate the gap between official and parallel rates and with it much of the trabendo commerce. Foreign direct investment, or Algerians repatriating their capital, would be encouraged, and Algeria could become more openly integrated into the global economy.
The reforms predictably enjoyed little support among public sector officials, labor, or even Algeria’s small but protected private sector. Liberal commentators dismissed them as yet another legalistic exercise (Addi). Despite support from the IMF and the World Bank, the reforms did not receive adequate funding from the conservative French banks because Algeria rejected rescheduling, with the external constraints that it would impose, in favor of an informal "reprofiling" to lighten the servicing of its heavy international debt. In their twenty months in office, however, the reformers did succeed in abolishing the foreign commerce monopolies and establishing a strong central bank to replace the Ministry of Finance’s opaque methods of controlling the money supply and credit allocation. Developing a true market economy would inevitably be a slow and painful process. The banks, for instance, could hardly become autonomous agencies overnight when 65% of their loans, almost exclusively to public sector companies, were non-performing (IMF 1998, 36); nor could the latter suddenly become operational economic entities in Algeria’s tangled, partially deregulated markets. Devaluing the dinar also posed problems. The reformers wished to move decisively to reduce the gap between the official and parallel market rates and shared the IMF’s antipathy to inflated official rates. Yet devaluation had to be gradual in order to limit its inflationary impact.
There would appear to be a much deeper contraction between the broad institutional character of the reforms and the narrow political base of the reformers. Their only evident support was the president. The parliament, which had been elected when Algeria was still a single-party system, voted through many of the reforms but was hardly representative of the country’s new political currents. The reformers were gradually achieving some support and understanding among public sector officials, but few had any practical experience of a market economy. Each public enterprise was to be released from its parent ministry and given its autonomy to operate in partially deregulated markets. But the new "participation funds" established as holding companies to supervise the public enterprises had little staff or expertise. The annual report of one of them probably reflected a widespread understanding that they were simply "implementing a new system of economic planning." Obviously it would take many years for new institutions and market-driven behavior to take root in Algeria’s vast bureaucracy. Obstacles to change were far greater than in other bunker capitalist regimes, such as Nasser’s Egypt. Regimented only for a decade or so (1961-74), the Egyptians had active memories of a market economy which could facilitate some reform in the 1970s, whereas the Algerians had none.
Yet the Algerian reformers had one tremendous potential source of support. They enjoyed the tacit blessings of the FIS. The Islamic Front of Salvation has been accused of not having an economic program (Roberts 1994), and indeed its priorities were cultural purification and political power. Their program of March 7, 1989, however, offers an "economic doctrine" calling for a market economy in almost perfect accord with Hidouci’s reform program (excerpts in Al-Ahnag et al. 1991, 179-187). Originally published abroad after the FIS was officially recognized, the FIS Program may have been fabricated after the fact to gain some credit with the reformers. Its official date of publication was the day Abbas Madani assembled a large crowd in an Algiers mosque and, taking other Islamists by surprise, proclaimed the founding of the party (Abed, pp. 39-40). Yet the "economic doctrine" seems consistent with other fragmentary FIS commentaries and with the actions of the party during the reform period. Any formal alliance would have embarrassed both the reformers and the FIS, yet they served each other’s political objectives. By defeating the FLN in the municipal elections of June 1990, the FIS strengthened the reformers’ hold over the FLN parliament and other ruling circles; by pursuing political liberalization, the reformers opened up political opportunities for the FIS. The tacit alliance fell victim to Abbas Madani’s ill considered call for a general strike in May 1991. Top military leaders, embarrassed by the economic reforms, seized the opportunity and prevailed upon Chadly to proclaim a military emergency, even though the strike was fizzling out. The reform government resigned in the face of a virtual coup. (Entelis and ME Policy)
What seems most important in retrospect, however, are not the political tactics so much as the fact that the prescriptions for economic reform were almost identical. Like Hidouci, the FIS attacked Algeria’s centralized state economy as "discouraging the spirit of initiative...in favor of mediocrity and incompetence...penalizing small enterprises...In our country industry is actually make the economy more dependent..." While in favor of "industrializing industries," as long as they were internationally competitive, "the Islamic Front of Salvation insists that industry, crucial as it is, should never be at the expense of agriculture, as it has been in the past." Khodja and Hidouci had made similar arguments in Boumediene’s time. The FIS, too, opposed industrial and commercial monopolies. FIS not only favored limiting state intervention in the industrial sector and protecting private property but also "watching that the latter not be transformed into monopoly infringing on the public interest, for this would be an open door for economic, political and social parasitism." In addition to specifically Islamic economic reforms like legalizing zakat and opening Islamic banks, the FIS joined the reformers in advocating the dismantling of state import monopolies and price controls. "Commercial monopoly should be prohibited except when the State needs to intervene to safeguard major political or economic interests." The FIS advocated export-oriented growth because many of its supporters were in small industry or commerce. Like Hidouci and the International Monetary Fund, the party also specifically favored eliminating the gap between the official and parallel market exchange rates. Hidouci observes that the FIS was happy to let the reformers do the work of economic reform. It did not actively support them but gave them space while focusing its attacks instead on Chadly and the political regime. Observers may claim that the FIS was simply being opportunistic but another interpretation is that the small minority within the party occupied with economic matters actually favored economic liberalization. In Algeria the globalizers, in other words, also occupied the ground of the moralizers.
The defeat of the tacit alliance between the inhouse reformers and a moderate broad-based FIS opposition was by no means inevitable, risky as simultaneous democratic and market reform may be. (would Adam Przeworski agree pp 136-187 Democracy and the Market?) Most of the FIS leadership had opposed Abbas Madani’s call for a general strike and would have preferred to contest the parliamentary elections, originally scheduled for June with new electoral districting designed to contain the Islamist majority by favoring the countryside over the cities. The reformers would have preferred to postpone the elections, and apparently it was Chadly, not the Islamists, who insisted on the earlier date. Once the general strike was called, a stronger Chadly might have supported the reformers, who were regaining control of the streets, rather than call in the military. In retrospect it is easy to argue that the invisible junta behind Chadly was determined to act to save its clandestine rent-seeking from deregulation and more transparent commercial dealings. Chadly himself had been exposed as an illegitimate beneficiary of agricultural lands restored to their owners in 1986. Without the excuse of an insurgent Islamist rabble, however, it is difficult to see how the décideurs might have intervened. Nor is it even clear how implicated the top officers really were in the rent-seeking. Despite campaigns against the "political-financial mafia" launched in 1992 by President Boudiaf and then, after he was assassinated, by Prime Minister Belaid Abdesselam, the only top military leader to be exposed – by a mysterious leak to El-Watan -- was a retired chief of staff, Abdallah Belhouchet. He considered it "curious that in all this ballyhoo noone speaks of markets, because everyone knows I was never involved." (Charef, p. 77) He had been quietly retired in 1986 for having embezzled state funds to build three villas but then was condemned to hard labor when the affair resurfaced. One plausible explanation for his trial in 1993 is that it was "a warning: an isolated individual, without a powerful clan, was given up by the system to signal all its other members, retired or still on duty, that they must stick together and that no defection will be tolerated." (Abed Charef, p. 86) Given more time, the reformers might have complicated their officers’ dilemmas of common interest. The risks of reform were more than offset by the risks of immobilism that came to pass.
The specter of a decisive victory by FIS in the 1991-1992 parliamentary elections gave the military the excuse to terminate Chadly as well as the elections. While some political formations in Algeria’s burgeoning civil society also favored stopping the FIS from victory, the most outspoken of them, such as the RCD, also enjoyed close ties with the décideurs. Again Algeria exaggerates the usage made elsewhere of Islamist opposition to buttress authoritarian rule. Once the military lost its constitutional cover, the opposition’s resort to guerrilla warfare played into its hands. When in January 1995 the major Algerian political parties, including the FLN as well as the FIS, agreed to the San Egidio (Rome) Platform which would have restored constitutional order, the junta rejected the deal. Even more macabre, however, is the way the guerrilla warfare and counter-insurgency have facilitated Algeria’s necessary policies of economic adjustment, now deprived of the buffer of any internal vision of economic reform.
A variety of governments with various economic policies succeeded the reformers. First, Sid Ahmed Ghozali maintained the IMF program of his predecessors while freezing many of the domestic market reforms and replacing some of the public officials identified with the reform team. He also offered prospects of joint upstream oil ventures to attract international, especially American capital. Ghozali preserved some continuity as presidents changed, but he was succeeded by his original patron from the Boumediene years, Belaid Abdesselam, after President Boudiaf’s assassination. The commercial monopolies were restored, even as Abdesselam vigorously but unsuccessfully campaigned against the corruption they engendered. Relations with the IMF soured, and for another two years the reform programs stagnated. While fully servicing its external debt – 80% of its export earnings -- without rescheduling, Abdesselam’s government abandoned any semblance of fiscal discipline, printed money to cover widening deficits, and tightened price controls while keeping subsidies on basic consumption items amounting to 5% of GDP (IMF p 6). All efforts ceased between 1991 and 1993 to realign Algeria’s foreign exchange rate. Despite expansionary fiscal and monetary policies, unemployment increased and there were growing shortages of consumer items. Finally in May 1994, following a drop in oil prices, a balance of payments crisis seemed imminent. Algeria was obliged to embark on another IMF structural adjustment program and finally to engage in formal debt rescheduling. After some quick relief under a one-year Stand-by arrangement with the IMF, followed by public debt rescheduling with the Paris Club, it successfully negotiated a three-year Extended Fund Facility in May 1995 and further rescheduled the public debt in July. It concluded a rescheduling of private commercial banking debts with the London Club in September. President Zeroual fielded a succession of governments of varying political complexions. All of them faithfully implemented the IMF program out of necessity, but none could project any vision of comprehensive economic reform, much less political institutions to sustain it. For instance, Minister Ahmed Ouyahia, whom Zeroual had assigned in 1995 to accelerate the IMF program by imposing greater fiscal austerity, stated in 1998: "We cannot introduce a market economy which is not in working order. If we need it, we will have it but if we do not need it we will abandon it." (FBIS-NES-98-093, 3 April 1998, cited by Bradford Dillman).
The IMF proudly reported, however, that Algeria "has adjusted faster" than MENA’s early starters (Egypt, Jordan, Morocco, and Tunisia) and that its macroeconomic performance had "equaled or even surpassed" them by end of 1996. "Real growth was 4 percent; inflation was declining to single digits, both the budget and the current account posted surpluses; foreign reserves were at five months of imports; and external debt indicators had improved markedly." (IMF 1999, p. 64) But unemployment was increasing, not decreasing, even as government officials, including the security forces, increased between 1985 and 1995 from 4.1 to 4.4 per hundred habitants (IMF, p. 25: "This level is more than the weighted average of less than 3 calculated for Jordan, Morocco, the Syrian Arab Republic, and Tunisia, which in turn is well above the weighted average of about 2.3 calculated for Indonesia, Korea, the Philippines, Singapore, Malaysia, and Thailand."). A new "self-targeted public works program" (p. 42) perhaps mitigated the effects of adjustment for some, but the real minimum wage "fell sharply during 1994-97" (IMF p 44), and the "most vulnerable sectors" now included the middle classes as well. El-Watan (May 9, 1999) reports that they were being "laminated" by the rising cost of living without commensurate salary increases. In purchasing power salaries declined by 35% between 1993 and 1996 (Ghilles in Pouvoirs, p. 103). "Today there is not much difference in standards of living between a worker and a middle-level cadre in the public sector." (Nordine Grim, "La pauvreté touche les cadres," El-Watan, May 9, 1999) All were suffering from the elimination of most subsidies and administered prices. Another reason cited for the rising cost of living were the surcharges added to Algeria’s supposedly liberalized system of import duties. Intended to protect local manufacturing, the "valeurs administrées" on top of customs duties raised prices by 100 to 150% on one hundred consumer products and offered a convenient umbrella for local producers to increase theirs as well.
Middle class "civil society" could be left to stew in its overcrowded tenement buildings while the security forces battled the Islamist guerrillas. Since 1990 between 250,000 and 400,000 Algerians have emigrated, including tens of thousands of professionals and managers (Ghilles, p. 103). Small private businesses have fled to Tunisia to escape extortion by military clans (Dillman), while others went of business for lack of credit, being crowded out by the public sector. The restructuring of Algeria’s public enterprises, attempted since 1982, finally eliminated many of them (after spending 800b DA trying to clean them up-Dillman ch 2 p 35) . The first casualties were local public enterprises. By April 1998 some 800 of them had been privatized or dissolved, with a loss of 35,000 jobs. State enterprises were subjected after 1994 to tighter budgetary contraints, and the construction sector was especially hard hit, shedding 93,000 workers between 1995 and 1997 (IMF 50) At least 76 large public companies out of more than 400 were dissolved, with estimates as of April 1998 running as high as 400,000 of people thrown out of work (Dillman alg2, IMF 65). 250 of the companies were placed in December 1997 on a list to be privatized. Prime Minister Ouayahia, while squeezing Algeria’s budget deficit into a small surplus, also cracked down on the public sector managers. Two thousand of them were jailed after 1995, as much for being on the wrong side of power struggles among military factions as for any alleged wrong doing. (El Kadi, Pouvoirs, p 66) One notorious case involved the top management of SIDER, the iron and steel company. Its crime was to have inexpensively imported large quantities of iron bars for reinforced concrete, upsetting monopolies run by people close to President Zeroual. (Alg confi 72) The brother of the manager, however, was an army general who interpreted the attack on his brother as really aimed at himself for having crossed Zeroual. (Alg confi 76) So many injustices were committed that some of those finally released from prison constituted an "association of incarcerated cadres" in May 1999 (El-Watan, 23 May 1999). Now that Zeroual was out of office, such a civic initiative could be encouraged.
The disindustrialization of Algeria is well underway. Algerian sources cited by the IMF indicate that public sector industry, excluding hydrocarbons, produced only 69.3 percent as much in 1997 as in 1987, when they were already well below capacity. The biggest declines came after 1993 (Algeria: Special Issues and Statistical Appendix, IMF Staff Country Report No. 98/87 (September 1998), Table 10, p 44). Textile production was down by more than half, and even food processing diminished by 17% from 1993 to 1997 despite effective rates of protection in 1996 of respectively 60 and 110 percent in these two sectors (IMF FX 4/99 paper, p. 10). Private industry did not appear to be taking up the slack (IMF Table 3 shows flat private industry but does not break it down). As Bradford Dillman explains, "a liberalized economy [is] operating through a circulation of rent between the military, a deficient public sector and a largely commercial private sector." (p 3) But liberalization also reduces the rents to be gained outside the petroleum sector, by subjecting commercial monopolies to competition. As military rule becomes ever more naked and visible, the officers presumably need more patronage to mitigate their dilemmas of common interest, yet they have less, making it harder to deter defections except by brute force. With the "traffic accident" of General Fodhil Saïdi a certain line may have been crossed, if in fact Zeroual’s rivals did him in before he could be promoted from a field command to a strategic post in the DRS (Alg confi 76 – June 1996, anyone else?) With one exception in 1970, operational military commanders have never experienced accidents. Political assassinations have always been directed at retired officers, dissidents or civilian leaders seeking real power. Lahouari Addi observes that competing clans may be losing some of their mutual solidarity as well as their pecuniary resources. Mohammed Lamari, the chief of staff and major force behind Zeroual’s removal, does not come from the Aures region but rather from a coastal city, and he selects his cronies more on the basis of competence and ideological affinity than regional clannishness (Addi LeMDip 3/99). The clans may be becoming too brittle and exposed to survive much competition over diminishing spoils.
Structural adjustment reduces the spoils and is presumably increasing the competition among the clans. Trade liberalization means fewer rents, although progress remains modest on this front. On a 10 to 1 scale, Algeria’s trade regime loosened up from 10 to 7 during the Hamrouche-Hidouci period, and after some backsliding returned to this level in the mid-1990s. (IMF April 99 FX) Substantial rents remain even after the elimination, for the second time, of the various state import monopolies. As Hidouci explains, deregulation puts foreign commerce "in the hands of those who have the liquidity." (p 32 MM no 149) Despite the leveling effects of more readily available foreign exchange in the late 1990s, certain markets remain reserved for the clans. As in other countries, including Jordan and Tunisia, no importer dares entering certain markets without special protection. Medical instruments and pharmaceuticals remain particularly lucrative "protected" areas despite minimal tariffs (Dillman). The privatization of big public enterprises, if it ever happens, will also be a major source of rent.
Meanwhile the regime depends on violence to stay in power. Not so much the declining rents as their collective conspiracy holds the clans together. The major source of regime cohesion remains the war itself. It is really a collection of local wars, paralleling the divided command structures of the army of clans. The ANP has not fully mobilized to put down the insurgencies. With only 120,000 soldiers, it numbers less one quarter of the French army mobilized in the 1950s to defend "French Algeria" and has not even "manifested any notable determination to buy the sorts of weapons generally used for this sort of war." (Garçon p 54) Keeping the army small may preserve it better from Islamist contagion. By contracting out some of the counter-insurgency to village defense forces and, since 1997, to Islamist militias, it spreads the mayhem. There is no evidence that Algerian generals deliberately order murders of innocent villagers, but they appear either unwilling or unable to prevent atrocities which have become routine, with estimates varying in the tens of thousands of dead since 1992. However, the oil fields and the better neighborhoods of major cities have remained relatively immune from the violence; the insurrections cause no particular problem to the regime but justify its professional functions.
The décideurs apparently prefer the steady, low intensity violence to a political settlement. Not only did they reject the San Egidio Platform in 1995. They also sabotaged Zeroual’s efforts to negotiate with the national leadership of the FIS in 1997. The Lamari clan cut a secret deal instead with two leaders of Army of Islamic Salvation, the FIS militia which the civilian leadership apparently no longer controlled. Their evident intention was to prevent President Zeroual from consolidating his authority at their expense. By subsequently removing him, precipitating new elections, and recalling Bouteflika, they set Algeria’s political clock back to 1992 when Boudiaf had been summoned.
Lower oil and gas revenues and heavy debt servicing requirements probably insure, however, that adjustment will continue this time. The low intensity violence is added insurance because it effectively contains the middle and working classes and their civil society, much of it exiled in Europe. External pressures, coupled with continued reform, may eventually extricate Algeria from bunker capitalism. The external creditors, including the United States, could pose harsher conditions than in 1994 on future debt rescheduling because the specter of an Islamist take-over of Algeria seems less plausible today. They could insist on further liberalization of trade, deregulation of prices, and privatization, ultimately limiting the spoils that contribute to clan solidarity. (Leveau) Carrots may be more persuasive than sticks. The décideurs wished to extract themselves from politics in 1999, by retaining a formally neutral position during the presidential elections. They could perhaps be bought off by opportunities to exchange their rents for more permanent acquisitions in Algeria’s new private sector. With a measure of security reached through a political settlement some of the estimated $35 billion (Ghilles, El Watan 24.5.99out) held by Algerians abroad might return to the country with other foreign direct investment.
Lessons for other bunker regimes (back)
In any bunker regime reform is highly problematic because economic liberalization requires a change of political system. Reformers within such a regime need outside support. In the MENA, as in East Europe and other transitional settings, the softliners need alliances with "moderate" opposition forces that can isolate the hardliners within, while also containing the more radical opposition factions opposed to a political reform process. Under more effective leadership Algeria’s FIS might have played such a role in 1991 and conceivably still can. Algeria’s situation is extreme but not atypical of other bunker regimes in the region. With the exception of Sudan, where Turabi’s National Islamic Front is in command, the principal opposition forces to bunker regimes since the 1970s are Islamist. The Algerian case suggests that they can be allies of political and economic liberalization. The economic policy of the FIS translates into the ten commandments (go back and make a second box to compare to chap 1 box, if possible) preached by the Washington Consensus. "Islamism" obviously has no single blueprint, and most Islamist movements have little to say about the economy. Bunker regimes, moreover, do not promote political moderation among Islamist oppositions. In other, gentler forms of capitalism, to be discussed in subsequent chapters, alliances with Islamic business sectors have greater chances of success than in bunker states. In Syria, by contrast, the residual private sector’s sympathies for the Muslim Brotherhood seem to have positively deterred the regime from further reform since 1991 (Fred Lawson, in Harik; cf Ayubi, p. 263).
The danger to a bunker regime is that adjustment to the global economy, however economically necessary, will undermine it. These regimes lack strategic depth. There is little civil society with which officers might ally to leverage a reform program. Chadly, Hamouche, and Hidouci tried to pull off an almost impossible stunt. Their implicit ally, the FIS, had little economic base beyond small shopkeepers and trabendo commerce. As for Zeroual’s reform efforts, maybe "his remarkable political stabilization programme in 1995 was in part a result of his shrewd policy of assuming the same political ground as the FIS. Politically he repositioned himself outside the state while at the same time standing at its centre." (Martin Stone, The Agony, p. 252) But there was simply no ground on which to stand.
Civil society, to be sure, is not only a capitalist construct but a public sphere in which political regimes try to project their image of legitimacy. Even the military dictators reach out of their bunkers and, whether or not they have read Jean-Jacques Rousseau, try to "transform might into right." (CS, p ) Algeria illustrated a series of attempts under Boumediene and his successors to erect a facade of constitutional order so as to camouflage their guns. In Syria, Adib Shishakli (1949-1954) ruled securely behind the scenes, only to fall after his rule became more exposed. His many military successors stumbled until Hafiz al-Asad (1970 - ) institutionalized the Baath regime, with its complex of allied parties and associations. However tightly both he and his arch-rival, Saddam Hussein (1968 or 1979 - ), control their security forces to stay in power, both leaders also command a complex of civil institutions designed to legitimate their leadership. Saddam Hussein rose to power through the Baath Party in fact, not the military. In Sudan the military has alternated with civilian rule since 1958. After Numeiri’s fall and a brief interval of civilian rule (1986-88), Sudan’s military strong man, Omar Bashir, could not rule with military force alone. To legitimate his regime and keep his fellow officers in line, he coopted Hassan Turabi, to provide an Islamist cover. (Bob: fill in the blank for Yemen). In Libya, too, Qaddafy (1969- ) created a façade of legitimacy. First he created a Libyan Arab Socialist Union modeled after the schema of his late mentor, Gamal Abdul Nasser. When LASU failed, Qaddafi became more creative: the Jamahuriya of popular assemblies enabled him as Revolutionary Leader to retire from all official positions, almost as Rousseau prescribed in his Social Contract (p. ). (fn about my 1979 experience in Benghazi, when I suggested he fully retire to logically follow the Green Book experience – and was attacked, did not get published?)
The visible manifestations of civil society are the media, civic, cultural, and human rights associations, political parties, trade and professional unions, even tribal associations and football clubs. They exist in most bunker states and have positively flourished in Algeria since 1988, when "literally thousands of associations were created." (Zoubir, p 36) Yahia Zoubir observes that "civil society has resisted either being reabsorbed by an ascending powerful, authoritarian state or being swept away by yet another populist, totalitarian movement," as he views the FIS (p.39). Being the most open and "vibrant" of the civil societies tolerated by a bunker state, in fact, Algeria perhaps also best reveals their limitations. Sandwiched between guerrilla bands and a rapacious counterinsurgency, civil society has no institutional guarantees. While many free-spirited mostly middle class Algerians learn the arts of association, their aspirations are constrained by economic as well as political realities. The media and the various associations rest on a very narrow economic base. A private sector of shopkeepers and small enterprises funds some associations, including the FIS, but most politically significant groups, including the press, are funded almost exclusively by the government. In addition to the usual censorship, there are more subtle controls. What is published or not published reflects the balance of power between the clans. Stories of Mohammed Bechtine’s abuses of power surfaced in late 1998, for instance, because Lamari clan leaders gave the press the green light to embarrass their rival. This is not to deny the personal bravery of the Algerian press corps: at least 58 journalists have been killed in the line of duty by either security forces or oppositions since 1992. But civil society lacks a private sector base. Thus newspapers connected with leading clans get the subsidies and state advertising accounts, while those of their opponents go bankrupt. Bechtine’s own press empire was in a state of collapse after he and Zeroual were removed from office. During the political transition in 1999 some 20 new dailies and weeklies were being launched in both French and Arabic, including a specialized business weekly, "Le Capitaliste." (MAGHREB WEEKLY MONITOR No. 58, May 16? 1999)
The only capital enjoying structural power in bunker states consists of the rents accumulated by its janissaries and their intermediaries. The bunkers cannot mobilize their business communities or develop durable arrangements with elements of civil society. Without an independent private sector to support it, civil society is largely fictitious or subject to a high degree of manipulation from the bunkers in countries like Algeria. Libya used to be the reductio ad absurdum of a civil society. In 1976 Qaddafy tried to abolished money altogether and destroy the institution of private property on which civil society rests, and "Libyans call the years from 1978 to 1988 the 'dark decade' because of the political repression and the extreme economic hardship." (al-Kikhia 1997:94). In 1978 its CIM ratio plummeted to 63% but subsequently recovered as the Leader's revolutionary appetites waned. Like Algeria under the French, the Libyans had suffered a devastating colonial experience at the hands of Mussolini. While the oil boom of the late 1950s resulted in some capital accumulation by rent-seekers around King Idris, Qaddafy easily leveled the private sector in the early 1970s. At this time Boumediene was cutting down the remnants of a native Algerian capitalist class left over from the colonial period. In both countries the colonial situation eased the way for bunker capitalism by destroying the elites that might otherwise have articulated a stronger civil society.
In the other bunker states, too, the private sector seems too feeble to support much civil society. Yemen has not one but three scattered bourgeoisies (Chaudhry 1997). Much of the original merchant class escaped the exactions of the monarchy in the 1930s for British protection in Aden. Many of the old landed classes and merchants of Aden and the Hadramout in turn emigrated to Saudi Arabia in 1967, when a radical nationalist faction gained control of the People’s Democratic Republic of Yemen. A further wave escaped the state monopolies organized by the Yemen Arab Republic in the 1970s. Many returned with unification in 1990, but the triumph dissipated amid increasing taxation and declining remittances from Saudi Arabia. Yemen’s workers also displayed remarkable mobility, departing for Saudi Arabia in the 1970s only to be expelled back home en masse in 1991 – some 800,000 to a million casualties of the Second Gulf War. In the Sudan a small, wealthy bourgeoisie is more firmly implanted, but it is overshadowed by a public sector which consumes much of the available credit. Returning to power in 1989, the military cracked down on civil society (Lesch 1996). Rents from cotton exports and arms imports from the Taliban accrued instead to Al-Mahfazah (The Portfolio), a business group associated with Hassan Turabi (David Hirst, Guardian article cited by Pete Lyon term paper 1997; Union of Arab Banks reports document the collapsing financials and obvious misuses of Turabi's Faisal Islamic Bank of Sudan in the 1980s). Poor societies with relatively small middle classes like Sudan or the Yemen are perhaps more easily plundered than wealthier ones, but Syria and Iraq also lost most of their respective bourgeoisies. In the 1960s successive Baathist revolutions scared away much of Syria's vaunted manufacturing as well commercial entrepreneurship. President Asad’s controlled infitah of the early 1970s did result in an expanded private sector, but it was now heavily dependent, like its weaker Algerian counterpart, on military patrons. In the 1970s and 1980s Saddam leveled Iraq’s class structure and created new entrepreneurs primarily from his family and village.
Algeria and Iraq have been the bunker states of renown in the 1990s, as their embattled rulers have conducted wars from their literal bunkers against their own people. But in the late 1970s and early 1980s, Syria held the dubious distinction of being the Arab state whose leadership was most hunkered down in bunkers out of fear of attack by its citizens. That Syria ultimately emerged from its civil war with its political elite still intact, but subsequently made little progress in liberalizing its economy or stimulating economic growth, underscores the tenacity of political obstacles that impede effective responses to globalization in the bunker states. The Syrian case suggests that Algeria could win the battle against internal violence, but still lose the war against economic stagnation. In both cases, as in the other bunker praetorian republics, the lack of state autonomy from social forces results in the state becoming an instrument of one or more of those social forces in their domination of others. This in turn prevents those bunker states from developing or implementing economically rational policies. They lack broad, institutionalized support in society, so they must subdue it, which entails extracting resources from civil society both to prevent it from supporting autonomous action and to pay for the coercive capacities of the state. The primary concern of these states, in short, is political control, not economic growth.
Lessons from Syria (back)
From the first post-independence coup d’etat in 1949, until 1970, various political movements and cabals of officers, with greater or lesser independence from the religious and ethnic groups of which Syria is constituted, struggled to control the state. Finally, in the late 1960s, army officers drawn from the most "compact" of the religious minorities, the Alawis, who had provided the backbone of locally recruited military forces under the French, gained control of the state, as symbolized by the last change of power in the country’s recent history, which brought the Alawi, Hafiz al Asad to the presidency. Before the end of that decade the Muslim Brotherhood, which represented the majoritarian Sunni Muslim community, began to violently challenge what they saw as Alawi usurpation of "their" state. The denouement came in 1982, when the Brotherhood instigated a mass revolt in the northern city of Hama, hoping thereby to spark unrest in Damascus and throughout the country. In the event their effort failed, in large measure because the regime, deploying troops under the command of kinsmen of the President and including large numbers of other minorities, especially Kurds, pulverized the center of Hama, killing some 20,000 of its inhabitants. For the next several years Sunni Muslim activists were hunted down by the regime, imprisoned or liquidated. For the last three decades of the Twentieth Century the Syrian state has been controlled at its apex, in descending order of importance, by the family, clan, tribe, and minority religious sect of the President. Commands of the vital military and security organs are virtually exclusively Alawi preserves, while another religious minority that tends to be favored by the regime, the Christians, provide a disproportionate number of domestic intelligence officers.
In the wake of the 1982 bloodbath, the government embarked upon a very hesitant economic reform, necessitated by declining oil prices and made possible politically by the intimidation of the Muslim Brotherhood. The destruction of Hama was fresh in the minds of any Sunni Muslims who might be tempted to use their economic skills and resources to take advantage of the limited economic opening for political purposes. In need of economic assets which the Sunnis possess in greatest measure, the regime essentially struck the same bargain with them as the "deciders" in Algeria have done with Algerian capitalists. That bargain consists of deals between individual Alawi patrons and Sunni capitalist clients, whereby the former provide protection, contacts, and permissions, while the latter do the business, paying their patrons appropriate rents for services rendered. That bargain underpins the political economy of Syria, thereby preserving Alawi rule, but at the cost of more rapid economic growth, as rent seeking, requiring as it does an absence of transparency and accountability and militating, as it does, against export led growth, has devoured the country’s resources. In the early 1950s Syria’s was one of the most rapidly growing economies in the third world, the prospects for which were adjudged by most observers as being extremely bright. By the end of the century per capita income was basically no higher than what it had been twenty years earlier. Syria had become an economic backwater in a declining region.
Capital has no structural power in Syria because its accumulation is not protected by law or institutions, as reflected in the low ratio of Contract-Intensive Money to the total money supply shown in Table 3-5. In the decade of the 1990s, only Yemen in the MENA performed more poorly than Syria on this measure, which is a surrogate indicator for the degree of rule of law and security of property. Moreover, although the Syrian ratio has fluctuated somewhat, it is exactly the same in 1995 (the last year for which data is available) as it was a decade earlier, suggesting that the nominal liberalization has not succeeded in inducing those with money to entrust it to official Syrian financial institutions. Even were the rule of law not absent, however, those institutions would hardly be attractive to Syrian capitalists. As a recent comparative study states, "Since the nationalization of banks in the 1960s, the banking system has been reduced to an appendage of the state budget." (David Waldner, State Building and Late Development. Ithaca: Cornell University Press, 1999, p. 122). Table 3-9 reveals that it is also the most concentrated of the MENA’s banking systems.
In Syria the security of property, not provided for by the legal/judicial system, is sought through personalistic connections. Thus the power and influence of key members of the core of the elite ultimately determine the outcome of even relatively minor property disputes, as claims are pushed up competitive personal networks by the disputants, until one ultimately prevails by virtue of having reached a more powerful patron. Business transaction costs in Syria, like those in Algeria, are extremely high, impressionistic evidence suggesting a qualitative difference between such costs in those two and other bunker states, on the one hand, and the bully praetorian republics on the other. In Syria, transaction costs literally begin at the airport, where those passing through customs and immigration commonly need to expedite the process by paying bribes to officials. Unfortunately, transaction costs do not end there and are so ubiquitous that they are institutionalized at fixed percentages of anticipated gains.
Syria is an information averse country. All typewriters had to be registered with the government and a sample of their typeface provided until the early 1990s. Fax machines were prohibited until the latter part of that decade and the Internet has just become available in the country. The combination of censorship and a dull, state controlled press reduce newspaper circulation to the second lowest on a per capita basis in the Arab world--only largely illiterate Yemen having proportionately fewer newspaper readers.
The Syrian economy remains primarily inward looking and essentially stagnant. Its effective duty rates in 1997, reported in Table 3-1, were 29.7%, the highest in the MENA region. Its manufactured goods as a percentage of GDP were 4.2%, which placed it above only war torn Algeria, oil rich Saudi Arabia, impoverished Yemen and an almost de-industrializing Egypt. As shown in Table 2-5, it is the only MENA country, other than Kuwait, in which the intra-industry index dropped between the mid-1980s and the mid-1990s, suggesting that Syria was further disconnecting from global industrial trade. The relatively low output of manufactured goods results not from a lack of investment in industry, which has been comparatively substantial, but from an almost complete absence of productivity increases (Waldner, p. 188). Syria, the region’s second largest agricultural exporter with the most rapidly expanding industrial base in the Arab world in the 1950s, had by the 1990s come to rely upon its comparatively meagre fuel exports for about two thirds of its total export earnings, a ratio that places it just below the big Gulf exporters, whose fuel exports, however, are many times those of Syria. Per capita GDP was struggling to hold steady at the end of the 1990s.
Syria is not lacking in appropriate factors of economic production. Its endowment of arable land is, on a per capita basis, among the highest in the MENA. Capital flows in the form of geostrategic rents into the country since 1970, when the current regime took power, have been episodic but substantial, amounting, for example, to about $2 billion in the immediate wake of the Gulf War, Syria’s payment for entering the anti-Iraq coalition. Syria’s domination of Lebanon has also generated substantial revenues and provided a sponge to absorb excess Syrian labor. During the 1990s Syria’s fuel exports have typically exceeded those of Egypt, earning another $2 billion or so annually, which, given a population about a quarter of that of Egypt’s, is on a per capita basis quite substantial. On human development indicators, including education, Syria ranks on average in the upper half of MENA states.
Based on its endowment of land, labor and capital, therefore, the Syrian economy should be among the most robust in the region. That it is not results from its very low total factor productivity, which is a measure of the effectiveness with which those factors are integrated for the purposes of production. A result of that low total factor productivity is that industry remains backward, as suggested by the fact that textiles are the only significant manufactured export and are sold principally into Russia and other relatively primitive, low price markets. The Syrian economy, in sum, is stagnating not because of an absence of factors that make for wealth, but because the utilization of those factors is extremely inefficient.
Paradoxically, if Syria’s natural endowments and ability to generate rents were less, its economy might have developed more rapidly. But the regime has managed to sustain its almost autarchic economic policy for some three decades precisely because it has been the beneficiary of strategic and petroleum rents and an agriculture that is reasonably productive, hence almost able to feed its own population, no small achievement in this region of food dependency. Unwilling for political reasons to unleash its capitalists, who for the most part are Sunni Muslim, the regime has tethered them to the military/security state, using them as cronies in rent generating activities, primarily through imports of manufactures and exports of raw materials, including agricultural products. The options for Syrian business persons are thus to cultivate relations with the Alawi elite and share rents with them, or to conduct as much business as possible beyond that elite’s reach, which means outside of Syria. Thus Syrian capitalists, who have a reputation for being among the most astute in the MENA, frequently have far flung family business conglomerates that spread into the Gulf and Europe, especially the old East Bloc countries, and which usually have their primary base not in Damascus or Aleppo, but in Beirut. But these family businesses are, for the most part, trading rather than industrial firms, for fixed capital is not safe in Syria, nor is it easy for foreign Arab nationals to establish industrial firms in other Arab states, as they tend to be more at the mercy of those states than MNCs.
The Syrian political economy today thus more closely resembles a classic East Bloc, communist one than any left in that part of the world, replete with its own cold war, ruling party and security apparatus. The latter, in fact, "gives work to almost half of all persons employed by the state, or some 15 per cent of the total workforce." (Perthes, p. 250) The state has pulverized civil society, as "the number of social, cultural, scientific, educational, religious and charity organizations permitted, being extremely low from the beginning, has actually been decreasing since 1980." (Perthes, 261) The outdated nature of the state raises the question of its future, especially if that cold war were finally to end and/or if its Lenin were to pass from the scene. The "digestion" of Lebanon by Syria over the decade of the 1990s, a country with a once more open economy and which is in some senses Syria’s Hong Kong, could ultimately lead Syria to become substantially more integrated into the global capitalist economy.
As is the case with Algeria, it is possible to construct such a scenario without straining credulity to the breaking point. A peace deal with Israel with substantial direct and indirect "peace dividends" for Syria might kickstart a process of economic reform that would be further encouraged by the much more benign regional environment, which, among other things, would reduce the need for military expenditures. President Asad’s successor, possibly his son Bashar, even in the absence of peace with Israel might well be tempted to reach out to the various political constituencies, as indeed his father did in tentative fashion upon coming to power in 1970. But such reaching out now, given the forces of globalization, would have to constitute more than "side payments" to those constituencies, as it did back in 1970. In any case the patronage available for such side payments is insufficient, so real concessions in terms of influence over public policy, protection of property rights, and much more unfettered access to the world would have to be made. The key constituency is the Sunni Muslim one, which politically is led by the remnants of the agrarian capitalist class and by the petit bourgeoisie of small shopkeepers and artisans, both categories of which endorse more components of the Washington Consensus than does the present regime.
But the question remains as to whether the gap can be bridged between the ruling social force of Alawis and the ruled Sunnis, Christians and Kurds, such that any subsequent regime could base its power on coalitions of forces in civil society rather than on instruments of coercion. It could be that in Syria, as in the other bunker states, the antagonisms are too deep, the structures too firmly in place, for a gradual, peaceful transition to more inclusive government and free markets to occur. Fear on the part of the elite that such a process could gain momentum and become uncontrollable may continue to place limits on experimentation, thereby prolonging the country’s state of economic and political stagnation. But like colonialism, globalization is a relentless, unforgiving, and still more ubiquitous force, against which Syria has stood longer and more resolutely than most countries in the region, but at an enormous price to the economic well being of its population. That it can continue to do so indefinitely, once Asad passes from the scene, seems unlikely. So the real questions are whether Syria will reach its accommodation in gradual or abrupt fashion, and how extensive that accommodation will be.
Conclusion (back)
Bunker states disorganize their upper and middle classes into masses or migrants. Trade unions and business associations exist but are not permitted to acquire roots in their societies from which to negotiate with governments or render them accountable. Civilian entrepreneurs, whether in business or politics, must remain loyal to their protectors. The one who strikes out on his own for an autonomous power base risks assassination like Mohammed Boudiaf or, less dramatically, Abdelhak Benhamouda, the Algerian trade unionist who was also gunned down in ambiguous circumstances after crossing a powerful military faction. (Alg Confi 100). No credible economic or political pacts are possible in the absence of credible interlocutors. It is instead up to the ruling clans to cut their own deals dividing up the rents and other economic spoils of domestic and international commerce. Where official state monopolies are dismantled, the clans regain ostensibly privatized and deregulated ones (Dillman). In Iraq, Libya, and Syria the clans have imploded into extended families and related tribes of the ruler. In Algeria Mohamed Lamari’s military clientele, selected for its competence and conviction rather than roots in the traditionally favored Aurès region (Addi 1999), seems precariously to diverge from the norm of the new asabiya (Salameh 1990: 61). Some of the bunker states resemble hereditary monarchies without a private sector. No godfather has yet passed the keys to his son, however, despite apparent preparations in Baghdad and Damascus. In any event the keys of bunker states no longer open many doors; the private sector’s treasuries have fled elsewhere along with much of their respective civil societies.
It is not so much the declining oil rents as the disconnection between the bunker and the private sector that explains these regimes’ difficulties with globalization. Algeria is not the only private sector to have smuggled abroad much of its private capital. Lebanon used to be a haven for Syrian capital as well as political exiles. While bunker states are not the only ones in the region to be affected by capital flight, they seem to experience greater difficulty than the others because their domestic money markets are also less securely regulated. As their low CIM rations indicate, they do not have much control over their currency flows. As political economists from Montesquieu to Kiren Chaudhry observe, mobile assets are harder to police than fixed, tangible ones that can be fenced off or occupied. Yemen during the boom years was a more extreme case than Algeria; remittances in the form of various currencies circulated by the money-changers may have exceeded North Yemen’s GDP (Chaudhry, p. 244). With or without a booming market remittances, however, Yemen’s CIM was always low. It reached a new low in 1994, in fact, as Yemen suffered civil war and, more ominously, "before, during, and after the war Ali Abdallah Saleh and his faction were purging the key organizations of all opposition groups, arranging for mass and individual assassinations of dissidentsand setting up a brutal security state constructed on the model, and, by many informal coounts, with the advice of the Iraqi Ba’aath." (Chaudhry, p 304) Crackdowns merely decentralized the money-changers’ informal system, further rupturing any business-state relations and limiting the bunker’s economic capacities. Fierce military and security forces can terrorize merchants or money-changers, whether in Yemen or Baghdad, but the large informal economies defy any sustained economic controls.
The bunker states still have to adjust, as Algeria illustrates, once they become heavily indebted yet dependent on imports for their necessities. Lacking in strategic depth, however, the best they can do is to serve as gunships for the IMF. Their nineteenth century predecessors were the British and French fleets which patrolled the southern Mediterranean, collecting Ottoman debts and establishing colonies or protectorates. In 1995 Algeria adjusted more quickly than its neighbors because it rode roughshod over its budget deficits under cover of an insurrection. Iraq between the Gulf wars also rammed through many reforms of economic liberalization (Chaudhry 1992: 152-158). The chronic civil war and starvation in the southern Sudan allows General Bachir the chance to adjust his deficits, according to a program worked out in 1997 with the IMF. In the Yemen, too, civil war enabled Colonel Saleh not only to crush his oppositions but to engage in a major IMF structural adjustment program. Indeed, the only laggards were Libya and Syria, and each had an excuse. Until 1999 Libya was subject to international sanctions, and Syria remained technically in a state of war with Israel. In the event of peace, Syria would be challenged to resume its reforms to attract private investment under Law 10 of 1991. Liberalization of the financial sector would become a priority (Waldner 1999:229), but any real reform would be politically threatening. Yet without it Syria's prudent macro-economic management (low inflation, low budget deficits, current account surpluses, facilitated by Syria's "infitah of public poverty in 1980s," as described by Perthes, 53-68) squeezes the poor and abrogates the regime's "premature Keynesianism," as Waldner calls it.
Most economic reforms of bunker regimes appear to be hollow exercises. The missing piece is the export-oriented private sector which is supposed to benefit from trade liberalization and be the internal dynamo attracting investment and generating employment. In a bunker state, however, any dynamic sector outside the official rent-producers must stay underground. In oil rentier states the petroleum sector is an enclave disconnected from the rest of the economy, but other sectors may coexist. The bunker state, whether or not it also has mineral wealth, is politically as well economically disconnected from other economic sectors. Efforts of economic liberalization therefore cannot promote greater productivity outside its enclaves. In Algeria manufacturing value added, measured in constant dollars, declined by more than half from 1990 to 1997 (WDI 1999). Algeria strikingly illustrates the negative impact of economic liberalization and adjustment on economic growth, but neither Sudan (unable because of war to exploit its oil resources) nor Yemen (unified largely for the sake of oil) can expect better results. Not oil and possible "Dutch disease" but politics determines these outcomes.
A final point about bunker regimes is that they sharply limit the possibilities of fruitful economic integration with their neighbors. Algeria shattered efforts in the late 1960s to build a Maghreb; the final blow was Qaddafi’s coup in Libya. The UMA, proclaimed in 1988 when Algeria and Morocco had repaired their relations, is stillborn. Since Chadly’s removal from power in 1992 by his fellow officers, Algerian-Moroccan disputes over the ex-Spanish Sahara have intensified. Relations may further deteriorate as a way for President Bouteflika, fictitiously elected in April 1999, to reinvent a Boumediene image and acquire some real authority. Syria and Iraq, despite a common Baa’thist legacy, have waged their internal wars since each bunker was consolidated, and the Iraqi bunker is surrounded by hostile neighbors. Libya has been at odds with all of its neighbors; and Sudan has been at loggerheads with Egypt. The political economy of bunker states explains a significant part of the problem. Having castrated their private sectors and civil societies, the bunkers lack the cover of non-governmental intermediaries to cushion processes of economic integration and develop mutual interests.
Globalization may strengthen civil society and its underlying financial flows, but these new forces escape the bunkers’ reach. These states seem destined to decay amid their internal wars unless they cultivate their private sectors. The longer they stagnate, the greater the social fragmentation, the rise of social movements in defiance of the economy, and the greater the violence as the movements in turn are suppressed. Algeria may be exceptional only in that it is so close to Europe and has such a vibrant "European" civil society inside and outside the country that the external pressures to change may prove irresistible. Syria and Libya, also facing the Mediterranean, may face greater pressures as their excuses for the bunkers -- war with Israel and international sanctions -- are removed. Syria, like Algeria, has substantial human and capital resources outside the bunkers that might facilitate reform. So for that matter does Iraq, were the sanctions and bunkers to be removed.
References (back)
Lahouari Addi, "L'armée algérienne se divise," Le Monde Diplomatique, March 1999. Tahar Belkhodja
Kiren Aziz Chaudhry, The Price of Wealth: Economies and Institutions in the Middle East, Cornell, 1997
Kiren Aziz Chaudhry, "Economic Liberalization in Oil-Exporting Countries," in Ilya Harik and Denis J. Sullivan, eds., Privatization and Liebralization in the Middle East, Indiana UP, 1992, pp. 145-166.
Dillman, Bradford, State and Private Sector in Algeria: The Politics of Rent-Seeking and Failed Development, Westview, in press
Peter Evans, "State Structures and Government-Business Relations," in Sylvia Maxfield and Ben Ross Schneider, eds., Business and the State in Developing Countries, Cornell, 1997.
Mansour O. al-Kikhia, Libya's Qaddafi: the Politics of Contradiction, UP of Florida, 1997.
Ann Mosely Lesch, "The Destruction of Civil Society in the Sudan," in Augustus Richard Norton, ed., Civil Society in the Middle East, vol. 2, Brill, 1996, pp. 153-191.
Hussein Mahdavi, "The Pattersn and Problems of Economic Development in Rentier States: the Case of Iran," in M.. Cook, ed., Studies in Economic History of the Middle East, Oxford, 1970.
Karim Nashashibi et al, Algeria: Stabilization and Transition to the Market, IMF Occasional paper 165, 1998.
Michael L. Ross, "The Political Economy of the Resource Curse," World Politics 51:2 (Jan 1999), 297-322.
Volker Perthes, The Political Economy of Syria under Asad, Tauris, 1997.
Ghassan Salame, "'Strong' and 'Weak' States: A Qualified Return to the Muqaddimah," in Giacomo Luciani,ed., The Arab State, California 1990, pp. 29-64
Lewis W. Snider, Growth, Debt, and Politics: Econimic Adjustment and the Poliical performance of Developing Countries, Westview, 1996.
David Waldner, State Building and Late Development, Cornell, 1999
Last updated 2 January 2000 |
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Department of Government,
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