by Lin Noueihed
CHAPTER 12
Embracing the Void
I don't care whether it's a white cat or a black cat.
It's a good cat as long as it catches mice.
– Deng Xiaoping
‘A Marshall Plan is needed,’ declared the Egyptian labour minister Hassan al-Boraei at a gathering of the World Economic Forum in Jordan in October 2011, outlining the economic challenges his country faced in the aftermath of the Arab Spring.1 But the money would not come from the United States, which was in no position to recreate the massive financial package it had extended to war-ravaged Europe from the late 1940s. Nor was this post-1990 Eastern Europe, where politicians could adopt a ready-made blueprint for liberalized, free-market capitalism and realize it with the economic support and technical advice of a then triumphant West.
A catastrophic financial crisis, bloody wars in Iraq and Afghanistan, towering levels of debt and a loss of moral authority had accelerated the decline of the United States and cast fresh doubts over the economic and political templates it had long tried to export. The days of that country standing out as the pre-eminent international power in the Middle East, and in the wider world, were coming to an end. But in the post-Cold War, post-credit crunch era, with both socialism and now capitalism seemingly discredited, no new political or economic philosophy stood out as a viable alternative for countries seeking fresh directions.
This contrasted with the previous hundred years, in which the Arab world had been buffeted by the rise and fall of greater forces that had each left their imprint on, and in some cases drawn the boundaries of, modern Arab states. The collapse of the Ottoman Empire after the First World War gave way to European protectorates and mandates. These gave rise to the Ba'athist and Arab nationalist waves of the 1950s and 1960s, part of an anti-colonial, secular and socialist movement that was sweeping many parts of the world. Inter-regional rivalries were then defined by the global struggle between two credible and competing ideologies promoted by the world's twin superpowers.
With the collapse of the Soviet Union in 1990–91, however, the modus operandi of its rival seemed to have emerged unopposed. Marxism was considered dead. As the United States exerted more and more political, economic and cultural clout in the second half of the twentieth century, it filled the gap that had been opened up by the decline of Ottoman, European and now Soviet power. It was Washington that had brokered Israel's peace deals, first with Egypt and later with Jordan. It was to the White House that the Middle East looked for a solution to the Israel-Palestine conflict. From the 1970s onwards, the Middle East, including Israel, received more US financial aid than any other region in the world. When the US military swiftly ejected Saddam Hussein's forces from Kuwait in 1990–91, it deepened a security alliance with the Gulf states that had begun with the relationship between President Franklin D. Roosevelt and Saudi Arabia's founder, Abdel Aziz Ibn Saud, and would be crucial to the dynamics of the region. And after the September 2001 attacks, or with the expected rise of a nuclear Iran, the Middle East waited to see how the world's only superpower would react.
In the economic sphere, the so-called Washington Consensus – a loose term coined in the late 1980s that favoured liberalization, privatization and globalization – had become the theoretical underpinning of institutions like the IMF and the stock solution in crisis-stricken countries from Eastern Europe to Asia to Latin America. In the former Soviet satellites of Eastern Europe, the United States and Western Europe provided huge financial support for the transition towards market economies and multi-party democracies. India launched an IMF-linked programme of free-market reforms from 1991 onwards. Deng Xiaoping's ‘southern tour’ of China in 1992 would bring the winds of capitalism to what was one of the world's few remaining Communist one-party states. The Middle East was already moving in the same direction. In 1970s Egypt, Anwar Sadat's policies of infitah, or ‘opening’, had broken away from the state-dominated economy. In 1987, Tunisia took out loans from the World Bank and the IMF for the first time.2 Morocco had adopted reform programmes supported by these two institutions in 1983, as did a near bankrupt Jordan in 1989, while a heavily-indebted Yemen began a structural adjustment programme under IMF auspices in 1995.3
Even the most enthusiastic Arab importers of socialist doctrine seemed to have reluctantly accepted that they might have got it wrong. In Syria, Bashar al-Assad mimicked the Chinese method of economic reform without political change.4 In Libya, the vague and eccentric socialism dreamed up in Muammar Gaddafi's Green Book had created an economy that, by the 1990s, was arguably the most restrictive and isolated in the region. But alongside the political unfreezing of the early 2000s came economic liberalization and the end of sanctions. In what would be the twilight of the Gaddafi era, the government was actively, though not very successfully, pursuing a programme of privatization, while heir apparent Saif al-Islam had hired big-name US consultancies to help restructure the Libyan economy.
The full spectrum of US influence in the Arab world is too detailed to explore here, but it was a measure of how much power was attributed to the country that, when Barack Obama assumed office in early 2009, many observers thought it presented a unique opportunity for the entire Middle East to change direction. No other country, none of the BRICs, no European state, and not even any Arab country, was perceived to have the influence that Washington could bring to bear in the region.
Within the Arab world itself, the perception of an all-powerful United States had long been the grist for a rumour mill of conspiracy theories that – not always totally without reason – attributed any significant events to Washington's design. Such was the perception of its reach that, even in 2011, it was not so unusual to meet people who believed that an event as dramatic as the Arab Spring must surely have been devised in the Pentagon, a master plan to remove ageing and change-resistant leaders and cement long-term US influence among the new democratic forces in the region.
Yet by the beginning of the Arab Spring, the West's hegemony had already peaked. The uprisings were played out against the backdrop of an accelerating transfer of power and wealth from the old economic powerhouses of the twentieth century to the fast-growing emerging giants of Asia and Latin America, and indeed to the super-rich Gulf Arab states. The economic and political templates that the United States and Western Europe had long promoted to other countries were being seriously undermined by the dramatic financial crises wreaking havoc in their own backyard, and by the outcomes of their foreign policies. And it had not gone unnoticed.
A Multifaceted Bankruptcy
Throughout 2011, the latest drama in the Arab Spring competed for the front pages with a financial and economic calamity that had become global in scale but was Western in origin. More than four years on from the implosion of the US sub-prime housing market in 2007, the crisis was still lurching from one emergency to the next. In 2008, it had ripped through the banking sector and ravaged stock markets. In 2009, the world's economy had shrunk for the first time since the end of the Second World War. In 2011, the virus mutated into a sovereign debt emergency as mismanaged European economies threatened to blow apart the continent's single currency and trigger another credit crunch.
If this was not a crisis of capitalism itself, then it was certainly a crisis of the particularly unfettered brand that had flourished since the 1980s and had its temples on Wall Street and in the City of London. It meant that in 2010 more Americans than ever before – 15 per cent of the total population and 27 per cent of the black and Hispanic communities – were considered to be living in poverty.5 While America's worst-off certainly enjoyed better living standards than the vast majority of Tunisians or Egyptians, the income inequalities between rich and poor were sharper, and getting ever more so.6
It was not just events at home that suggested something was seriously wrong. As the first section of this book outlined, the experiment with a Western economic model in Arab countries where reforms were not supported by the rule of law, independent courts and trib
unals, or anything approaching a fair marketplace for goods and ideas, was deeply flawed. The attempt to graft trade liberalization or privatization programmes onto authoritarian regimes that simply twisted them in money-spinning schemes for their own cronies had widened divides, facilitated high-level corruption and fuelled public anger. And as 2011 drew to a close, arguably the most pressing challenge for new governments in countries like Tunisia, Morocco, Jordan and Egypt was to ease that anger by improving the lot of their citizens.
In the revolutionary moment, where all sections of society try to extract as many gains as possible, governments faced rising popular pressure to implement knee-jerk measures such as raising subsidies and salaries that would take people off the streets but would ultimately be detrimental to the economy. Reverting to greater protectionism, maintaining or swelling the bloated ranks of the public sector or shunning the very idea of privatization would be deleterious to public finances and could not be credible long-term policies, particularly for countries that lacked the energy wealth to fund them. They would not provide the vital boost to the private sector, encouraging the entrepreneurs who could generate thousands of new jobs.
Three months into the Arab Spring, Robert Zoellick, the head of the World Bank, urged people to ‘keep in mind, the late Mr. Bouazizi was basically driven to burn himself alive because he was harassed with red tape … one starting point is to quit harassing those people and let them have a chance to start some small businesses’.7 Zoellick might have missed the larger point about Bouazizi's suicide, but he got the one about building small and medium-sized companies. In Tunisia, considered to be one of the region's more private sector-heavy economies, some 97 per cent of all private companies had less than six employees in 2010.8 In the US, just 5 per cent of all private companies had fewer than five employees in 2008.9 But in the aftermath of the Arab Spring, governments around the region were forced to take measures that risked reducing the private-sector role even further.
Free-market reforms now carried negative associations with the old regimes. High-level corruption and the blurred lines between private interests and the government had given big business a bad name. Policymakers associated with the past were sometimes shunted out. The governor of Jordan's Central Bank was removed in September 2011 due to his strong opposition to excessive social spending in the wake of the protests. Fares Sharaf had ‘showed that he was not in tune with the special government orientation of social welfare economics as opposed to free market views he embraced’, according to Prime Minister Marouf Bakhit.10 In Egypt, Gamal Mubarak – now standing trial on charges of profiteering – had been a strong proponent of privatization and reform that mostly benefited the cohort of wealthy businessmen, but also generated healthy growth. In Syria, the government's latest five-year economic plan, due to run between 2011 and 2015, was reportedly hushed up early in 2011 because it contained so many measures to raise taxes and reduce subsidies, measures that were probably healthy for the economy in the long term but would now be unpalatable to an increasingly angry population.11
Some of the international institutions that had promoted pro-free-market reforms, whatever their merits, were similarly tainted. Many Tunisians had not forgotten that, barely a year earlier, then-IMF chief Dominique Strauss-Kahn had visited Tunis to be decorated as a Grand Officer of the Order of the Republic. State television showed President Ben Ali hanging a medal around the Frenchman's neck, before the two men hugged each other and Strauss-Kahn delivered a glowing report on the Tunisian economy.12
In June, Egypt turned down a $3.2 billion loan from the IMF designed to help bridge the budget shortfall for that year. The terms of the loan were favourable, with an interest rate of just 1.5 per cent, but the connotations it carried were not. Under the slogan of ‘Open Your Eyes, The Debt Comes Out of Your Pocket!’ a group of Egyptian activists launched a campaign against taking on more debt. Many harked back to the spendthrift regime of Khedive Ismail, who by the 1870s had racked up such colossal arrears on a grand plan to modernize the country's infrastructure that Egypt was forced to sell its stake in the Suez Canal to Britain, and effectively lost its independence to foreign debtors. Later in 2011, the Egyptian government reopened negotiations with the IMF. The yields on its treasury bills had reached highs not seen since the peak of the financial crisis in October 2008, a sign of the risk which lenders attributed to the country's uncertain future. Several international ratings agencies downgraded their opinions of Egyptian bonds and currency, citing ‘uncertainty over the transition to a stable, civilian government’.13
The dilemma over accepting IMF help reflected how economic policymakers in the non-oil countries seemed to be struggling for direction, clear that a break was needed with the past but less clear on what should come next. ‘In the past there were two models; the socialist and the capitalist,’ said Bashar al-Assad in June 2011. ‘Many people believe that these models have fallen. Now we do not have ready-made experiences to take and implement. We need to look for a model which suits Syria.’
There was no shortage of pledges from the international community. In May 2011 the G8 countries, plus other invitees including Turkey, Qatar and Saudi Arabia, established the ‘Deauville Partnership’ that aimed to provide billions of dollars for countries going through what were hoped to be democratic transitions.14 Egypt and Tunisia were named as the first recipients, with Morocco and Jordan added later.
Yet by the end of the year there was little concrete evidence that much of this promised money had materialized. Several loans had been signed off by the European Investment Bank (EIB), the Tunis-based African Development Bank and the European Bank for Reconstruction and Development (EBRD), but the US congress had failed to include in its 2011 budget the two aid programmes for Egypt and Tunisia that Obama had announced in May, partly due to concerns about what type of regime might emerge in both places.15 By the time the G20 countries met in Cannes in November, the Arab Spring barely even featured on an agenda that was dominated by the eurozone crisis and an IMF whose finances were stretched to the limit. It seemed that the economic stragglers in the Arab world, those who did not have the luxury of oil and gas, would have to look elsewhere for support.
But it was not just Western economic models that were in trouble. The political systems that nurtured them were also being questioned, often angrily. In the United States and Western Europe, the chummy links between corporate and political power had long blinded governments to the catastrophic bubbles that were inflating. Many saw the state-funded bank bailouts as an exercise in institutionalized fraud, designed to keep the powerful financial sector solvent and profitable while an increasingly destitute government, in thrall to the debt markets, slashed its budgets for education and healthcare and spent an ever-growing proportion of the national income on interest payments. Protesters in Greece railed against externally-imposed austerity measures that would shape their futures but in which they had no say. The markets responded with scorn and fury in November 2011 when Prime Minister George Papandreou floated the idea of a public referendum on the subject.
Europeans began to ask whether they lived in democracies or ‘marketocracies’, and people around the world asked whether their governments were really run by and in the interests of the people any more. Some pointed to how much money the financial services sector donated to Britain's Conservative Party, the dominant partner in the governing coalition after 2010, or why US presidential elections were funded by multi-billion-dollar campaigns that gave the wealthiest the biggest chance of victory. In India, the world's most populous democracy, hunger-striker Anna Hazare galvanized mass public anger against political corruption and widening divides. Around the world, it seemed that a tiny elite – now described as the ‘one per cent’ – was gathering ever-greater power and wealth in its hands as the masses suffered.
Moroccans might well compare that tiny elite with what they called the makhzen, the cohort of wealthy businesspeople, palace advisors, tribal leaders, landowners and military head
s who shaped decision-making. While Morocco took steps to erode that elite's power in 2011, the US and Britain seemed to have done the opposite, just camouflaging it in a more codified, sophisticated and legalized skin. If these were the homes of democracy, embodying the values of freedom and equality more than any other, then it was hardly a shining beacon for others to copy, and left Arab activists who sought Western-style liberal democracies open to obvious criticism.
At the same time, the aura of power which had surrounded US military might was also fading, a decline whose origins some trace to the end of the Vietnam War in the 1970s. By the late 2000s Iraq and Afghanistan had proven devastating to both the finances and reputation of the United States, and almost nine years after George W. Bush delivered his now notorious ‘Mission Accomplished’ speech from an aircraft carrier off the Californian coast, both had gone seriously awry. By July, 2011 had already become the bloodiest year in Afghanistan since the start of the war ten years earlier, with little concrete achievement to show for all the losses. When the final US combat troops were withdrawn from Iraq in December, they left behind a country where Tehran had become the main beneficiary of Saddam Hussein's removal. ‘The myth about the unipolar world fell apart once and for all in Iraq,’ was the blunt view of a policy document issued by the Kremlin in 2007.
Both Iraq and Afghanistan had helped US government debt double between 2003 and 2010 and by late 2011 become larger than the country's GDP for the first time ever.16 Coupled with the astronomical cost of the corporate rescue packages during the financial crisis, these potentially crippling arrears prompted major cutbacks in military spending by both Washington and London that threatened to undermine their overseas capabilities. The EU, meanwhile, needed all the money it could get if it was to rescue its Greek, Italian or Spanish laggards.
The war on terror also battered the moral authority of the West. The humiliation of Iraqi detainees at the Abu Ghraib prison near Baghdad, the camps at Guantanamo Bay in Cuba that denied its inmates the protections enshrined in the Geneva Convention, and the ‘extraordinary rendition’ of terror suspects to secret prisons and ‘black sites’ around the world, including within the Middle East, suggested that the United States and its allies had little respect for the values that they were ostensibly fighting for. And in the wake of 9/11, Washington had so beefed up its own domestic security and surveillance apparatus that it would almost put many Arab governments to shame.
