Economic Liberalization and Authoritarianism: A Comparative Political Economy of Egypt, Tunisia, Jordan, and Morocco, 1950-2011 (Politik und Gesellschaft des Nahen Ostens) 3658356383, 9783658356385

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Politik und Gesellschaft des Nahen Ostens

Christian Neugebauer

Economic Liberalization and Authoritarianism A Comparative Political Economy of Egypt, Tunisia, Jordan, and Morocco, 1950–2011

Politik und Gesellschaft des Nahen Ostens Reihe herausgegeben von Martin Beck, Institute of History, University of Southern Denmark, Odense, Denmark Cilja Harders, Freie Universität Berlin, Berlin, Deutschland Annette Jünemann, Institut für Internationale Politik, Helmut Schmidt Universität, Hamburg, Deutschland Rachid Ouaissa, Centrum für Nah- und Mittelost-Studien, Philipps-Universität Marburg, Marburg, Deutschland Stephan Stetter, Institut für Politikwissenschaften, Universität der Bundeswehr München, München, Deutschland

Die Reihe beschäftigt sich mit aktuellen Entwicklungen und Umbr¨uchen in Nordafrika, dem Nahen Osten, der Golfregion und darüber hinaus. Die politischen, sozialen und ökonomischen Dynamiken in der Region sind von hoher globaler Bedeutung und sie strahlen intensiv auf Europa aus. Die Reihe behandelt die gesamte Bandbreite soziopolitischer Themen in der Region: Veränderungen in Konfliktmustern und Kooperationsbeziehungen in Folge der Arabischen Revolten 2010/11 wie etwa EuroArabische und Euro-Mediterrane Beziehungen oder den Nahostkonflikt. Auf nationaler Ebene geht es um Themen wie Reform, Transformation und Autoritarismus, Islam und Islamismus, soziale Bewegungen, Geschlechterverhältnisse aber auch energie- und umweltpolitische Fragen, Migrationsdynamiken oder neue Entwicklungen in der Politischen Ökonomie. Der Schwerpunkt liegt auf innovativen politikwissenschaftlichen Werken, die die gesamte theoretische Breite des Faches abdecken. Eingang finden aber auch Beiträge aus anderen sozialwissenschaftlichen Disziplinen, die relevante politische Zusammenhänge behandeln. This book series focuses on key developments in the Middle East and North Africa as well as the Gulf and beyond. The regions’ political, economic and social dynamics are of high global significance, not the least for Europe. The book series covers the whole range of the ongoing transformations in the region, such as new developments in regional conflict and cooperation after the uprisings of 2010/2011 including Euro-Arab and Euro-Mediterranean relations, or the Israeli-Palestinian conflict. On a (trans)national level, volumes in the series look at authoritarianism and reform, social movements, gender dynamics, Islam and Islamism, political economy, migration, as well as energy and environmental issues. The series focuses on innovative work in all sub-disciplines of political science and other social sciences disciplines that address political developments in the Middle East. Dr. Martin Beck ist Professor f¨ur gegenwartsbezogene Nahost-Studien an der University of Southern Denmark in Odense, Dänemark. Dr. Cilja Harders ist Professorin f¨ur Politikwissenschaft und Leiterin der „Arbeitsstelle Politik im Maghreb, Mashreq, Golf“ am Otto-Suhr-Institut f¨ur Politikwissenschaft der Freien Universität Berlin, Deutschland. Dr. Annette J¨unemann ist Professorin f¨ur Politikwissenschaft am Institut f¨ur Internationale Politik der Helmut-Schmidt-Universität Hamburg, Universität der Bundeswehr Hamburg, Deutschland. Dr. Rachid Ouaissa ist Professor f¨ur Politik des Nahen und Mittleren Ostens am Centrum f¨ur Nah- und Mittelost-Studien der Philipps-Universität Marburg, Deutschland. Dr. Stephan Stetter ist Professor f¨ur Internationale Politik und Konfliktforschung an der Universität der Bundeswehr M¨unchen, Deutschland.

Weitere Bände in der Reihe https://link.springer.com/bookseries/12508

Christian Neugebauer

Economic Liberalization and Authoritarianism A Comparative Political Economy of Egypt, Tunisia, Jordan, and Morocco, 1950-2011

Christian Neugebauer München, Germany Dissertation, Philipps-Universität Marburg, 2020

ISSN 2626-224X ISSN 2626-2258 (electronic) Politik und Gesellschaft des Nahen Ostens ISBN 978-3-658-35638-5 ISBN 978-3-658-35639-2 (eBook) https://doi.org/10.1007/978-3-658-35639-2 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Responsible Editor: Stefanie Eggert This Springer VS imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany

Acknowledgements

This book could not have been written and published without the guidance and support of many people to whom I am greatly indebted. Unfortunately, I can only name a few. Thus, thanks are due: To my first supervisor, Prof. Rachid Ouaissa from the Center for Near and Middle Eastern Studies (CNMS), Department of Middle East Politics, for accepting me as a PhD candidate with an interdisciplinary project, for persuading the faculty of social sciences of my abilities (despite my Master’ s degree from another field), for giving valuable advice at different stages of the project, and for supporting me at all times. To my second supervisor, Prof. Hartmut Elsenhans from the University of Leipzig, who commented on several drafts and outlines of the manuscript, and who enriched my work from his seemingly endless store of knowledge. I am also very thankful that he stayed in until the very end, reading and evaluating my 400 pages, despite his manifold other engagements. To my colleagues at the Center for Near and Middle Eastern Studies (CNMS), University of Marburg, for the innumerable conversations and discussions that brought my project forward. I would like to especially mention Ines Braune, Ingrid El Masry, Pierre Hecker, Jens Heibach, Ivesa Lübben, Karolin Sengebusch, Katrin Sold, and Jaouad Tissouit. A special thanks to Stefan Schulte for his technical support, to Steffen Wippel for his advice in the final stages of the project, to Jens Heibach for counseling me on the way to the publication, and to Zeinab Chaukair and Tatyana Doughouz for researching missing information and data—often at short notice. To Prof. Sefik Alp Bahadir from the University of Erlangen-Nürnberg for admitting me to Middle Eastern Studies, and for his help and advice with the

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earliest drafts of my dissertation project. The same applies to Prof. Thomas Demmelhuber, who directed my attention to economic liberalization in the Middle East and North Africa. To Thomas Richter and Andrè Bank from the German Institute for Global and Area Studies (GIGA), who gave me a fresh boost with scholarly advice, when I was at a low point of my creativeness. To Prof. James Devine from Mount Allison University, who showed me how to restructure my outline when I was overwhelmed by the size of the project, and who also gave me moral support to follow the new path. To Prof. Afaf Rahim and Prof. Mohammad Farzanegan from the Center for Near and Middle Eastern Studies (CNMS) for giving me the freedom to pursue my interdisciplinary research, which was not always complementary to the other research projects at the department of Middle East Economics. To the German Academic Exchange Service (DAAD) for financing the largest part of my field research in Morocco. To the many interviewees in Morocco, who shared their knowledge with me. A nonnegligible part of their contributions on the Moroccan political economy is contained in this publication. To the fellow researchers and staff at the Centre Jacques-Berque in Rabat, who provided me with the infrastructure to get started with my field research, and who gave me access to their personal networks in Morocco. To the editors of the book series „Politik und Gesellschaft des Nahen Ostens“ for accepting my manuscript with some revisions, and to the staff at Springer VS for getting it published. Finally, and foremost, to my family and friends. Without their encouragement and support in countless ways, I would never have been able to finish this project.

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Setting the Stage: Economic Liberalization and Authoritarianism in Resource-Poor Countries of the MENA Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Research Gaps Addressed by the Study . . . . . . . . . . . . . . . . . . . . . . 1.3 Outline of the Study and Introductory Remarks . . . . . . . . . . . . . . . 1.4 How to Read this Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Economic Liberalization, Macroeconomic Stabilization, Structural Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Political System, State, Regime, Government . . . . . . . . . . . . . . . . . 2.3 Authoritarianism, Authoritarian Regime, Neopatrimonialism . . . . 2.4 Regime Stability, Economic and Political Stabilization . . . . . . . . . 2.5 Resource Endowment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Theory and State of the Art . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Stability of Authoritarian Regimes . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1 Political Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1.1 Polity: Neopatrimonialism . . . . . . . . . . . . . . . . . . . 3.1.1.2 Politics: Actors and Institutions . . . . . . . . . . . . . . 3.1.1.3 Policies: Legitimation . . . . . . . . . . . . . . . . . . . . . . . 3.1.2 Economic Factors: Structural Heterogeneity and Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.3 Social Factors: Mobilization; Class Relations; and Sociocultural Structures . . . . . . . . . . . . . . . . . . . . . . . . .

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1 5 8 10 13 13 19 25 33 42 45 46 47 48 52 63 75 95

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3.1.4 International Factors: External Actors and the Regional Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.5 Summary: Factors Potentially Responsible for the Stability of Authoritarian Regimes . . . . . . . . . . . . . 3.2 Effects of Economic Liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Economic Effects: State Budget; International Accounts; and Economic Growth . . . . . . . . . . . . . . . . . . . . 3.2.2 International Effects: Foreign Loans and Reduction of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 Socioeconomic Effects: Socioeconomic Development and its Transmission to Social Groups and Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.4 Political Effects: Social Class Relations and Relative Strength of the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.5 Summary: Economic; International; Socioeconomic; and Political Effects of Economic Liberalization . . . . . . .

111 126 131 131 141

142 161 166

4 Theoretical Model and Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Theoretical Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Hypotheses on Economic Liberalization and the Stability of Authoritarian Regimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 “Integrated Hypotheses” on the Link between Economic Liberalization and the Stability of Authoritarian Regimes via Economic Stabilization . . . 4.2.2 “Integrated Hypotheses” on the Link between Economic Liberalization and the Stability of Authoritarian Regimes via Political Stabilization . . . . .

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5 Epistemology, Methodology, Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Epistemology and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 Justification and Description of the Methods . . . . . . . . . . . 5.2.2 Operationalization of the Main Variables . . . . . . . . . . . . . . 5.2.3 Case Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.4 Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.5 Procedure in the Empirical Part . . . . . . . . . . . . . . . . . . . . . .

181 181 183 183 188 190 198 199

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6 Empirical Analysis—Economic Liberalization and the Stability of Authoritarian Regimes in Resource-poor Countries of the MENA Region: Egypt, Tunisia, Jordan, and Morocco, 1950–2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Roots and Course of Economic Liberalization . . . . . . . . . . . . . . . . 6.1.1 Immediate Postindependence Period . . . . . . . . . . . . . . . . . . 6.1.2 State-led Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.3 Infitah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.4 Stabilization and Structural Adjustment . . . . . . . . . . . . . . . 6.1.5 Reform Periods and Economic-liberalization Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 Economic Stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.1 State Budget and International Accounts . . . . . . . . . . . . . . 6.2.2 Economic Growth and Socioeconomic Development . . . . 6.2.3 Test of “Integrated Hypotheses” in a MSSD (Periods 1965–1986, 1993–2004, 2005–2010) . . . . . . . . . . 6.2.4 Preliminary Conclusion: the Effect of Economic Liberalization on Regime Stability via Economic Stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Political Stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1 Politics: Centralization of Power; Narrowing of Regime Coalitions; and Growing Influence of Private Business Actors . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1.1 Centralization of Power . . . . . . . . . . . . . . . . . . . . . 6.3.1.2 Technocratization . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1.3 Changing Roles for Labor, Capital, and the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1.4 Incorporation of Business Actors into the Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1.5 Presidential and Royal Families as Business Actors . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.2 Policies: Struggling for Legitimacy; and Controlling Economic Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.2.1 Political Liberalization . . . . . . . . . . . . . . . . . . . . . . 6.3.2.2 Repression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.2.3 Adapting Legitimation . . . . . . . . . . . . . . . . . . . . . . 6.3.2.4 Slow, Incomplete, and Clientelist Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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201 202 202 209 214 218 228 257 258 313 412

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435 435 439 440 451 457 461 462 466 470 477

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6.3.2.5 Market Protection and Imperfect Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.3 Test of “Integrated Hypotheses” in a MSSD (Periods 1965–1986, 1993–2004, 2005–2010) . . . . . . . . . . 6.3.4 Preliminary Conclusion: the Effect of Economic Liberalization on Regime Stability Via Political Stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 The Effect of Economic Liberalization on the Stability of Resource-Poor Authoritarian Regimes: Egypt, Tunisia, Jordan, and Morocco, 1950–2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Contributions to the State of the Art . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Avenues for Further Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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8 Appendix: Hypotheses Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

583

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abbreviations

ACC CFF CGEM CPI DS DV e.g. etc. ECC EFF EGP EL EMAA ERGIS ERSAP EU FDI FSN GATT GDP GMM GNI GP GSM HDI

Amman Chamber of Commerce Compensatory Financing Facility General Confederation of Moroccan Enterprises Corruption-Perceptions Index Demand side Dependent variable Exempli gratia (for example) Et cetera (and so forth) Economic Consultative Council Extended Fund Facility Egyptian Pound Economic liberalization Euro-Mediterranean Association Agreement Moroccan Royal holding; anagram of “regis,” meaning “belonging to the King” Economic-Reform and Structural-Adjustment Program European Union Foreign direct investment National Solidarity Fund General Agreement on Tariffs and Trade Gross domestic product Generalized Methods of Moments Gross national income Gap period Global System for Mobile Communications Human-Development Index

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i.a. i.e. IER ILO IMF ISI ITPAL IV JOD JTC MAD MENA MFN MSSD n/a NDP NGO ODA ODC OECD OLS ONA p.a. PMN POLISARIO PPP RCD RP RST SAL SAR SDR SIGER SNI SOE SS SZN

Abbreviations

inter alia (among other things) id est (that is) Equity and Reconciliation Commission International Labour Organization International Monetary Fund Import-substitution industrialization Industrial- and Trade-Policy Adjustment Loan Independent variable Jordanian Dinar Jordan Telecommunications Company Moroccan Dirham Middle East and North Africa Most-Favoured Nation Most-Similar-Systems Design not available National Democratic Party Nongovernmental organization Official development assistance International Payments Board Organisation for Economic Cooperation and Development Ordinary Least Squares Omnium Nord-Africain per annum (annual) Economic-Upgrading Program Popular Front for the Liberation of Saguia el Hamra and Rio de Oro Purchasing-power parity Constitutional Democratic Union Reform period Rentier-State Theory Structural-Adjustment Loan Stability of authoritarian regimes Special Drawing Rights Moroccan Royal holding; anagram of “regis,” meaning “belonging to the King” National Investment Company State-owned enterprise Supply side Stabilization

Abbreviations

TBDS TND UAE UGTT UN UNCTAD USD UTICA VAT WB WTO

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Theory of Bureaucratic Development Society Tunisian Dinar United Arab Emirates General Union of Tunisian Workers United Nations United Nations Conference on Trade and Development United States Dollar Tunisian Union of Industry, Commerce, and Crafts Value added tax World Bank World Trade Organization

List of Figures

Figure 4.1 Figure 4.2 Figure 5.1 Figure 5.2

The theoretical model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The actor model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total natural-resources rents per capita (in current USD) for 18 MENA countries, 2000–2010 average . . . . . . . Polity2 Index (Polity IV Project) for Egypt, Tunisia, Jordan, and Morocco, 1960–2010 . . . . . . . . . . . . . . . . . . . . . .

174 175 193 197

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List of Tables

Table 2.1 Table 3.1

Table 3.2 Table 4.1

Table 4.2

Table 5.1 Table 6.1

Table 6.2

Table 6.3 Table 6.4

Classification of MENA countries according to rent income of the state and population size . . . . . . . . . . . . . . . . . . Theoretical effects of economic liberalization on the state budget, on the international accounts, and on economic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theoretical effects of economic liberalization on the income dimension of socioeconomic development . . . “Integrated hypotheses” on the link between economic liberalization and the stability of authoritarian regimes via economic stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . “Integrated hypotheses” on the link between economic liberalization and the stability of authoritarian regimes via political stabilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Polity2 index (Polity IV Project) for 18 MENA countries, 1950–2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reform periods and gap periods of economic liberalization in Egypt, Tunisia, Jordan, and Morocco, 1970–2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interdecade movements and long-term trends of the variables of economic stabilization in Egypt, Tunisia, Jordan, and Morocco (1970s–2000s) . . . . . . . . . . . . . Summary of analytical hypothesis testing: economic stabilization (IH1–IH3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Response policies to economic liberalization in Egypt, Tunisia, Jordan, and Morocco (1980s–2000s) . . . . . . . . . . . . .

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168 171

178

179 191

229

427 433 555

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Table 6.5

Table 6.6

Table 8.1 Table 8.2 Table 8.3 Table 8.4 Table 8.5 Table 8.6 Table 8.7 Table 8.8 Table 8.9

List of Tables

Summary of analytical hypothesis testing: Political stabilization—the bourgeoisie as mediator variable (IH4-A–IH5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary of analytical hypothesis testing: Political stabilization—the working class as mediator variable (IH6-A–IH6-D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the stability of authoritarian regimes . . . . . . . . Hypotheses on the effects of economic liberalization on the state budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the effects of economic liberalization on the international accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the effects of economic liberalization on economic growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hypothesis on the international effects of economic liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the socioeconomic effects of economic liberalization on a macro level . . . . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the socioeconomic effects of economic liberalization on a meso level (I) . . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the socioeconomic effects of economic liberalization on a meso level (II) . . . . . . . . . . . . . . . . . . . . . . . Hypotheses on the political effects of economic liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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563 583 586 588 590 592 593 595 596 598

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Introduction

1.1

Setting the Stage: Economic Liberalization and Authoritarianism in Resource-Poor Countries of the MENA Region

For more than 30 years, a puzzle has haunted political and academic observers of the Middle East and North Africa (MENA) region: why does authoritarianism still linger there? In the decades following the Second World War two waves of democratization would affect around 90 countries in other world regions, but curiously spared the MENA (Plattner 2002: 371–372; Albrecht and Schlumberger 2004: 127–128; Pripstein Posusney 2004: 189–191 Anderson 2006: 40–50; Schlumberger 2008). With the exception of Israel, Lebanon, Syria during the period 1954–1957, and Iraq after 2003, where democracy prevailed either due to historic path dependencies or was installed through external intervention, none of the 18 MENA countries1 would achieve the transition from authoritarian to democratic rule from their political independence up until the year 2011 (Center for Systemic Peace 2014, 2018b). In that latter year, the Arab Spring swept away old certainties by igniting popular protests and uprisings in the majority of the MENA countries. But even this watershed event did not trigger off a regional wave of democratization. Ten years later it has become clear that the Arab Spring has as of now led to genuine regime change only in Tunisia. In other MENA countries where high-ranking regime personnel were toppled, either a civil war with an as of yet unclear outcome ensued (Libya, Syria, Yemen) or authoritarianism returned (Egypt). In the remaining MENA countries, where protests of various degrees of intensity challenged incumbent rulers, 1

The MENA region, as conceptualized in this study, consists of 18 countries: Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Tunisia, Saudi Arabia, Syria, United Arab Emirates (UAE), and Yemen. © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_1

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1

Introduction

authoritarian regimes managed to stay in power (Richards et al. 2013: 409–412; Chouikha and Gobe 2015; Alexander 2016; Falk 2016). That none of the MENA countries democratized is even more puzzling if we consider that these countries were subjected to the same forces of economic globalization as their democratizing counterparts in other world regions. Apart from an increase in the international exchange of goods, services, and capital, economic globalization has advanced the spread of economic ideas. From the 1960s, the paradigm of economic liberalism would gradually reassert itself against Keynesianism, after its temporary demise in the period from the Great Depression of the 1930s up until the immediate post-war decade of the 1950s. It reintroduced economic liberalization in the policy manual of developing countries around the globe, and thereby fostered the shift of development models from state-led development / statism to export promotion focusing on comparative advantage (Hobsbawm 1995 [1994]: 350–352, 409–412; Nonneman 1996a: 3–6). The global debt crisis of the early 1980s exposed the weaknesses of the stateled development model and fostered the collapse of public finances. International institutions, above all the International Monetary Fund (IMF) and the World Bank (WB), jumped in as lenders of last resort by offering fresh credit to de-facto bankrupt developing countries, conditional on their resolve to abandon the old development model in favor of export promotion. The borrowing developing countries had one major trait in common: they were resource-poor on a per capita basis, and thus insufficiently disposed of the necessary financial reserves to weather the crisis. As a quid pro quo for emergency funds they had to implement economic reforms, specifically ones pertaining to economic stabilization and economic liberalization (Bangura and Gibbon 1992: 7–12; Penrose 1993; Hobsbawm 1995 [1994]: 422–423, 431; Nonneman 1996a: 8–10, 1996c: 32–35). These economic reforms, forced upon resource-poor developing countries both by economic necessity and by external pressure, threatened the resource-poor authoritarian regimes that were in power in most of them (Ayubi 1995: 390–394; AlSayyid 2001: 156–157, 165–173). Two things were especially threatening to incumbent regimes: First, economic stabilization and economic liberalization curbed their power of material distribution, either by introducing austerity or by drying up sources of income (e.g. from tariffs, taxes, price manipulation, or state-owned enterprises (SOEs)) (Nonneman 1996c: 38–39; Bratton and van de Walle 1997: 66, 100; Murphy 1998: 80; Geddes 1999: 138–139; Ben Ali 2000: 183–186, 206–208; Brumberg 2002: 65–66; Perrin 2002: 70; Albrecht and Schlumberger 2004: 377, 382; Rami 2007: 110; Schlumberger 2008: 116; Gandhi and Lust-Okar 2009: 415; Erdle 2010: 332; Henry and Springborg 2010: 216; Soliman 2011 [2006]: 139, 141). Second, economic liberalization was bound to increase the economic and political power

1.1 Setting the Stage: Economic Liberalization …

3

of private economic actors, above all the capital-owning bourgeoisie (Ehteshami and Murphy 1996: 760; Henry 1996). Authoritarian regimes in resource-poor countries thus had to downsize their patronage networks, while they faced the inevitable strengthening of the bourgeoisie—which could potentially develop into a democratizing force, as history had shown in other cases. However, these adverse pressures unfolding from at least the early 1980s did not bring down a single resource-poor authoritarian regime in the MENA region up until the year 2011. These empirical observations are in stark contrast to the democratization of many other resource-poor authoritarian regimes around the globe during the same time period. To clarify the contradiction between the theoretical assumptions and the empirical observations, as presented above, this study thus tackles the following research question: Why were authoritarian regimes in resource-poor MENA countries stable on a systemic level, meaning why didn’t they democratize, during the period 1950–2011 despite the pressure unfolding from economic liberalization?

In contrast to most existing studies, I hypothesize that economic liberalization did not contribute to democratization. Instead, it might have stabilized authoritarian regimes in fact. This seems counterintuitive given the arguments advanced by a large part of the literature. Specifically, I propose that economic liberalization increased the stability of authoritarian regimes in resource-poor countries of the MENA region during the period 1950–2011 through the twin transmission channels of economic and political stabilization. I find that economic liberalization might have been one of several factors that influenced the stability of resource-poor authoritarian regimes in the MENA region within the confines of the country sample (Egypt, Tunisia, Jordan, and Morocco) and the period of investigation (1950–2011). However, three qualifications have to be made: First, my findings only apply to the decades of the 1990s and 2000s. That is, to a relatively short subperiod representing the most recent past within the 60 year period of investigation. Second, of the eight policies of economic liberalization defined in this study, only four appear to be relevant for the stability of authoritarian regimes: Consumer-price liberalization; the liberalization of interest rates; exchange-rate liberalization; and privatization. Of these, consumer-price liberalization and privatization seem to play the most pivotal roles. Third, and contrary to the main hypothesis, the potential effect of economic liberalization on regime stability appears to be either positive or negative (i.e. either potentially stabilizing or destabilizing), depending on the policy, the country and the time period under observation.

4

1

Introduction

On the basis of analytical hypothesis testing I was able to identify five empirical instances (defined by country and time period) where economic-liberalization policies might have either stabilized or destabilized the incumbent regime: During the mid-late 1990s, consumer-price liberalization might have increased regime stability in Egypt and Morocco through its positive impact on poverty. In Morocco, consumer-price liberalization might have had an additional stabilizing effect through its positive impact on income inequality. In Egypt, two more policies of economic liberalization, the liberalization of interest rates and exchange-rate liberalization, might have contributed to stabilizing the regime through their positive impact on poverty. During the mid-late 2000s, privatization might have stabilized the regime in Morocco by politically weakening the working class. At the same time, consumerprice liberalization seems to have destabilized the regimes in Egypt and Jordan by politically strengthening the working class. It is important to point out that in three out of the five empirical instances, where economic-liberalization policies seem to have been relevant for regime stability, economic liberalization apparently stabilized the regime. The stabilizing effect is visible for all four stability-relevant economic-liberalization policies as well as in both of the time periods where these effects seemed to be present (mid-late 1990s and mid-late 2000s). These are nonnegligible arguments in favor of the main hypothesis, which stipulates that economic liberalization increases the stability of authoritarian regimes. The puzzle that remains concerns the role of consumer-price liberalization: while this policy seems to have had regime-stabilizing effects during the mid-late 1990s, it apparently became regime-destabilizing during the mid-late 2000s. The change is visible across the four countries in the sample, and even within one alone: Egypt. The implications of my findings lay bare the shaky nature of political rule by authoritarian regimes in resource-poor developing countries: Consumer-price liberalization, the liberalization of interest rates, exchange-rate liberalization, and privatization are often implemented by resource-poor authoritarian regimes as emergency measures when fighting against economic crises that strain the public budget and the international accounts. In contrast to other measures more dependent on the structural power of the state, such as the levying of taxes, they can be relatively easily implemented from a technical perspective (with the partial exception of privatization). Consumer-price liberalization, for example, often means withdrawing public subsidies—to a large extent, a mere administrative act. This is why international lenders push for these easy-to-implement measures as a quid pro quo for emergency lending. However, the accompanying political risks are acute: three of the four stabilityrelevant policies of economic liberalization are demand-side policies that directly

1.2 Research Gaps Addressed by the Study

5

affect the demand for consumption and for investment goods of a large number of economic actors. As consumers are affected across the board, the negative economic and socioeconomic effects of these policies make themselves felt among a large segment of the population. Thus the probability is high that these effects are translated into mass politics (driven by specific social classes, or even larger coalitions transcending class boundaries) with repercussions for the stability of the authoritarian regime in power. The hypotheses in this study are divided on the question what these repercussions of economic liberalization are: Does the implementation of economic-liberalization policies lead to political passivity or to political activity? Will the populace at large or certain social classes specifically acquiesce to socioeconomic hardships, or will they be induced to rise up against the regime? Experimenting with the four stabilityrelevant policies of economic liberalization, and especially with consumer-price liberalization, is therefore a political gamble for resource-poor authoritarian regimes, one with unpredictable and potentially dangerous outcomes for regime survival. Ultimately, in the MENA as in other world regions, authoritarian regimes in resource-poor developing countries did not have much of a choice during the 1980s– 1990s: they had to implement consumer-price liberalization, the liberalization of interest rates, exchange-rate liberalization, and privatization, being in dire financial straits and being forced into policy reform by international lenders. Thus the choice to take this political gamble, especially by implementing consumer-price liberalization and privatization, was not a completely voluntary one. It is disquieting for such regimes that economic crises fostering the implementation of the four stability-relevant economic-liberalization policies will continue to arise in years to come. All the more likely so as resource-poor MENA countries are going to remain dependent on the import of basic commodities (especially energy and food) for the foreseeable future—a still unresolved structural deficiency of their economies, one that continues to subject them to the vagaries of global price fluctuations.

1.2

Research Gaps Addressed by the Study

The first research gap I address with this work is the linkage between economic liberalization and the stability of resource-poor authoritarian regimes. Until recently, the academic literature would focus on the role of economic liberalization in democratization. It expected a positive relationship between the two variables based on a pair of hypotheses: First, it argued that economic liberalization would strengthen the bourgeoisie by increasing the available leeway for individual economic initiative. Second, it conceptualized the bourgeoisie as a democratizing actor.

6

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Introduction

The basis of the second hypothesis was the seminal work of B. J. Moore (1966), who carved out the decisive role of the bourgeoisie for the emergence of democracy in England, France, and the United States. This inductively generated theoretical model became the dominant mode of thinking about the political effects of economic liberalization for years to come (Robison 1988: 57; Rogowski 1989: 3–10; N. Hamilton and Kim 1993: 124–125; Ehteshami and Murphy 1996: 760; Henry 1996; Bellin 2000: 177–178; Bustos 2003: 1). With the turn of the millenium, a new research strand emerged that would analyze the factors responsible for the stability of authoritarian regimes (Carothers 2002; Hinnebusch 2006; Heydemann 2007b). Within the scope of this, several studies discussed economic liberalization as a factor weakening authoritarian regimes—above all by curbing their power of material distribution (Nonneman 1996c: 38–39; Bratton and van de Walle 1997: 66, 100; Murphy 1998: 80; Geddes 1999: 138–139; Ben Ali 2000: 183–186, 206–208; Brumberg 2002: 65–66; Perrin 2002: 70; Albrecht and Schlumberger 2004: 377, 382).2 Later studies, which acknowledged the persistence of authoritarianism, illuminated how such regimes try to offset the destabilizing impact of economic liberalization (see e.g.: Hibou 2002: 108; Heydemann 2007b: 13–18; Guazzone and Pioppi 2009b).3 These strategies to attenuate the reverberations from economic reform are especially visible with the economic-liberalization policies of trade liberalization, investment liberalization, and privatization (see sections 6.3.2.4 and 6.3.2.5). However, most of these studies remain largely ones empirical in nature. Neither do they elaborate on a comprehensive definition of “economic liberalization” nor do they follow a theory-guided approach to determine the potential effects thereof. I seek to overcome the deficiencies of the previous literature in three ways: First, I address the terminological fuzziness that pervaded previous studies by breaking down economic liberalization into eight specific policies, highlighting the multidimensional nature of the phenomenon. Second, I build a theoretical model that 2

The second assumption of earlier studies, namely that a bourgeoisie strengthened by economic liberalization could pressure authoritarian regimes to democratize, had already been discarded by the first decade of the new millenium. It had become clear that such regimes had in most cases successfully neutralized this potential channel of destabilization in fact (Bates 1994: 19–20; J. Moran 1996: 472–480, 483–485; Albrecht, Pawelka et al. 1998: 155; Ogachi 1999: 84; Bellin 2000: 178–183; Bensabat Kleinberg 2000: 225–229; Dodge 2002: 170, 184, 186–187; Yang 2002: 19; Hinnebusch 2006: 379, 384–385; Erdle 2010: 193–194, 220–222; Ben Romdhane 2011: 98–100). 3 A second strand of this literature discussed how political structures in MENA countries impacted on the course of economic liberalization and reform outcomes (see for example: Schlumberger 2004). In these studies, economic liberalization or economic reform is the dependent variable rather than the independent variable, as in my own one.

1.2 Research Gaps Addressed by the Study

7

assumes economic liberalization can both stabilize and destabilize authoritarian regimes. I do so by linking the two variables through the transmission channels of economic and political stabilization. Third, I use a theory-guided approach to analyze the effects of economic-liberalization policies on the stability of authoritarian regimes, in contrast to the approach of previous studies—which, as noted, mostly remained focused on the empirical level. For this purpose, I derive 12 new hypotheses by combining and integrating ones from two separate strands of the literature. The first such strand deals with political, economic, social, and international factors potentially responsible for the stability of authoritarian regimes, while the second analyzes the political, economic, socioeconomic, and international effects of economic liberalization. The second research gap I strive to remedy is the paucity of studies taking account of economic liberalization in resource-poor countries of the MENA region in a systematic and comprehensive manner. To the best of my knowledge, there has not yet been a single study that systematically establishes where, when, and in what form economic liberalization was implemented as a policy in one or a number of MENA countries over a longer time horizon. Until now, most examinations have remained both temporally and spatially confined (see e.g.: Sutton 1987; Horton 1990; Brand 1992; Harik and D. J. Sullivan 1992; Niblock and Murphy 1993; Payne 1993; Nsouli et al. 1995; Hopfinger 1996; Denoeux and Maghraoui 1998b; El-Ghonemy 1998; Piro 1998; Murphy 1999; Schlumberger 2002; Knowles 2005; Ikram 2006; Harrigan and El-Said 2009; Henry and Springborg 2010; Soliman 2011 [2006]).4 I consequently enhance this body of literature by systematically accounting for different policies of economic liberalization in four MENA countries (Egypt, Tunisia, Jordan, and Morocco) over a period of 40 years (1950–2011). The result is a comprehensive stocktaking of economic liberalization in these countries, one that can form the foundation of future research projects. The fact that I select structurally similar countries, all of them resource-poor, also allows meaningful comparison of each in terms of a specific economic liberalization policy. Thus a regional picture of economic liberalization emerges, one that can be the basis also for interregional comparisons. The third research gap I tackle is the lack of studies that situate economic liberalization in the MENA region in a long-term economic and political context. Most of the existing literature deals, as noted, with instances of economic liberalization within a shorter time frame, failing to detect historic path dependencies and important long-term intervening variables lying behind the implementation of these policies (on this argument see Chaudhry (1994)). This study hence discusses economic 4

An exception may be Richter (2011).

8

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Introduction

liberalization by taking into account the long-term economic, social, and political environments of the four MENA countries under investigation. It thereby embeds economic liberalization in a comparative political economy of the four countries over a 60 year period—from their independence in the 1950s to the Arab Spring of 2011. Within this long time frame, the study is comprehensive in the number and diversity of sources used (English, French, German).

1.3

Outline of the Study and Introductory Remarks

The study is subdivided into seven chapters: Chapter 1 sets the stage and introduces the empirical puzzle motivating this inquiry. To structure the investigation, it states the research question and main hypothesis. In a second step, it carves out the research gaps and indicates the contributions of the study to the state of the art. Chapter 2 discusses and defines the key terms used in the research. Chapter 3 presents the body of theory relevant for the inquiry. The first part of chapter 3 gives an overview of the existing literature dealing with possible factors behind the stability of authoritarianism. I subdivide these works according to political, economic, social, and international factors. The second part of chapter 3 then presents the literature on the political, economic, socioeconomic, and international effects of economic liberalization. The main insights of both parts are condensed into 96 hypotheses (presented in the appendix-chapter 8), which constitute the state of the art in both fields. As the research question demands an integration of the two fields, the hypotheses derived from the literature review constitute the raw material for generating new “integrated hypotheses” that could provide an answer to the research question. This is done in the following chapter. Chapter 4 sketches out the theoretical model, and specifies the “integrated hypotheses” (derived by integrating together several of the hypotheses from the preceding chapter) to be tested in the empirical part. Chapter 5 comments on the epistemology and methodology behind the study. On this basis, it justifies and describes the methods used—that is, it outlines the comparative case study in a descriptive sense as well as the (analytical) comparative method in its comparativehistorical variant. Following on, the chapter outlines the operationalization of the main variables, the selection of cases for the analysis, and the sources used. Finally, it outlines the procedure followed in the empirical part. Chapter 6 first presents a comprehensive overview of the roots and course of economic liberalization in the four MENA countries selected for analysis. It thereby situates economic liberalization in a wider political, economic, and social context, subdividing postindependence history in the four countries into four distinct his-

1.3 Outline of the Study and Introductory Remarks

9

torical periods. The result is a comparative political economy of the four MENA countries that constitutes the empirical basis for the subsequent analysis. The chapter then discusses at length—and comparatively for all four MENA countries selected as cases—the transmission channels of economic and political stabilization as specified in the theoretical model. To check the theoretical predictions, the “integrated hypotheses” presented in chapter 4 as well as some of the hypotheses drawn from the literature in chapter 3 are tested against the available empirical information. Both subchapters on economic and political stabilization end with a preliminary conclusion of the results from the descriptive case comparison, as well as from the analytical hypotheses testing. Chapter 7 summarizes the main findings of the study, indicates its strengths and weaknesses, states its contributions to the state of the art, and identifies avenues for future research. An appendix and Electronic Supplementary Material complement the research. The appendix consists of tables that specify the 96 hypotheses implicitly contained in the literature survey. The Electronic Supplementary Material consists of tables depicting the decade averages of 20 economic indicators and 14 socioeconomic indicators for the four MENA countries under investigation. Before I start with the investigation itself, it is important to note that the pertinent theoretical and empirical material is immense. One can never be sure to have covered all relevant sources—nor to have interpreted them correctly. Ultimately, the researcher is a storyteller and the inclusion of different materials and / or the use of different lenses of interpretation could and probably would decisively change the nature of the story. Nevertheless, stories can be more or less plausible, depending on the researcher’s efforts to attain the scientific ideals of objectivity, transparency, and continuous doubt. To the best of my ability, I have strived to find out the true course of events as well as the correct facts and figures. However, sources often contradict each other—be it due to rival interpretations or to erroneous reporting (which in many cases produces enduring errors, with authors copying from one another). Whenever I could not eliminate information I judged to be incorrect after comparing and cross-checking sources, I have reported all rival facts and figures. In the case of numbers, I indicate this by giving several in ascending order and separated by a slash. Sometimes, I also use footnotes to inform the reader about alternative information and interpretations. A final remark concerns words in Arabic: I did not follow a consistent system of transliteration. Instead, I used the anglicized form of Arabic words most common in the academic literature and indicated this through the use of italic script. Unfortunately, due to the multitude of spellings (especially in the

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Introduction

case of first and family names), comparability is not always easy for the non-Arabic speaking reader.5

1.4

How to Read this Book

This book is large and no one probably wants to read everything. I therefore give some advice on who should read what, given the reader’s interest and the usual constraints of time and attention: • Who wants to gain a quick overview of the study—the empirical puzzle motivating it, the research question, the main hypothesis, its position within scientific fields, the research gaps addressed, its structure—should read chapter 1 - Introduction. Section 1.1 also summarizes the main findings of the study. • Who wants to get a more detailed summary of the study’s main findings has to read chapter 7 - Conclusion. This chapter also comments on the implication of the findings and their boundedness and tentativeness. On this basis, it outlines the study’s contributions to the state of the art and concludes by sketching out avenues of further research. • Who is interested in the key terms of the study (economic liberalization, authoritarian regime, regime stability, etc.) should read chapter 2 - Key terms. The chapter carves out a definition of these terms for the purposes of the study, on the basis of an in-depth discussion of relevant literature. • Who wants to get an overview of the state of the art in the two theoretical fields in which the study is situated—stability of authoritarian regimes and economic liberalization—should read the summaries (sections 3.1.5 and 3.2.5) of the two theory subchapters 3.1 and 3.2. The state of the art is also summarized in the 96 hypotheses (H1–H96) presented in the appendix-chapter 8. • Who does not have much time can get a quicker overview on the state of the art in the two theoretical fields—stability of authoritarian regimes and economic liberalization—through the tables presented in the appendix-chapter 8. These tables specify 96 hypotheses (H1–H96) that describe and delineate the two fields. Together they constitute the state of the art as I perceive it. • Who is interested in the theoretical model underlying the main hypothesis of this study should read chapter 4. This chapter also presents the 12 “integrated hypotheses” (IH1–IH6-D) that I test analytically against the available empirical material in chapter 6. These “integrated hypotheses” constitute theoretical inno5

This problem is also discussed by Sater (2010: xii).

1.4 How to Read this Book

11

vation, as they integrate together the two (previously separate) theoretical fields of the study. They thus disaggregate the main hypothesis into 12 finer-grained hypotheses that can potentially contribute to answering the research question. • Who wants to find out about the epistemology and the methodology lying underneath the study should have a glimpse at chapter 5. In this chapter, I also describe the methods employed in the analysis of the empirical material, and I strategically select the empirical cases to be analyzed later. The chapter also enumerates the sources of information used. • Who wants to read a comparative political economy of the four MENA countries analyzed in this study (Egypt, Tunisia, Jordan, and Morocco), from their political independence during the 1950s up until the Arab Spring in 2011, should delve into section 6.1. At the end, in section 6.1.5, I specifically summarize the empirical information on economic liberalization in the four countries during the period of investigation. The chapter is complemented by an Electronic Supplementary Material, which contains ten tables depicting—in a comparative form—the decade averages of a multitude of economic and socioeconomic indicators on the four MENA countries analyzed. • Who is interested in the empirical material on economic and political stabilization in the four MENA countries analyzed (Egypt, Tunisia, Jordan, and Morocco), and who wants to find out more about the question whether economic liberalization stabilized the authoritarian regimes in these countries during the period of investigation (1950–2011), should read sections 6.2 and 6.3. In these chapters, I also test the 12 “integrated hypotheses” (IH1–IH6-D) and some of the 96 hypotheses (H1–H96) derived from the literature review in chapter 3. Those who do not have the time to read everything get a quick overview out of the preliminary conclusions in sections 6.2.4 and 6.3.4.

2

Key Terms

In this chapter, I theoretically define the key terms used in this study. In addition, I present some common empirical operationalizations, to show the use of these terms in empirical studies. Where theoretical terms have been constitutive for practical policies, I sketch out empirical effects of these policies, but only if these effects contributed in turn to a theoretical redefinition or to adjusted operationalizations of the original terms. Throughout the chapter, I strive to carve out the theoretical and empirical linkages of the key terms, while introducing, where necessary, related terms and concepts that appear in the literature.

2.1

Economic Liberalization, Macroeconomic Stabilization, Structural Adjustment

The first key term to define is economic liberalization. Economic liberalization as a paradigm has become prominent throughout the world since the late 1970s / early 1980s. It is most often used as a catch term to describe a bundle of economic and social policies. Nonneman (1996a: 4) outlines its main characteristics: “Essentially, economic liberalization means a reduction in the direct involvement of the state in economic activity (state enterprises); a reduction of state control of economic processes and activity (prices, production directives, etc.); giving leeway and encouragement to the private sector; and liberalizing foreign trade. The latter includes not only the reduction of trade barriers for imports, but also the halting of policies that favored import substitution over production for export.”

According to Nonneman (1996a: 4), the prescriptions of the economic liberalization paradigm “derive from the tenets of neoclassical economics (...), and in their

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_2

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Key Terms

particular antistate focus of the 1980s, more specifically from that strand that has been referred to as neoliberal.” The term neoliberalism does not relate to an established economic or political theory. Among other observable manifestations, it is a widely used phrase in both scientific and nonscientific discourse on economic liberalization since the 1980s. Wade (1992: 271) emphasizes the theoretical attachment of neoliberalism to neoclassical economics: “Neoliberal here refers to a subset of neoclassical economics. Its members believe that as a general rule the neoclassical prescriptions for shortrun optimal resource allocation are also the core recipe for maximizing the rate of long-term growth. Other neoclassicals, by contrast, draw more of a distinction between the two kinds of analyses, introducing a more complex array of variables into growth issues than they use for questions of optimum resource allocation. Neoliberals are inclined to think that “getting the prices right” is both a necessary and a nearly sufficient condition for maximizing the rate of long-term growth (“getting” in the sense of letting prices find their right levels, and “right” in the sense of the relative prices established in freely operating domestic and international markets); other neoclassicals would say that it is no more than necessary. Relatedly, neoliberals believe that most market failure is a result of government policies and that, even in those uncommon cases where market failure occurs for other reasons, the welfare costs of remedial government intervention can often be expected to be greater than the welfare gains. In the neoliberal view, growth is a natural or inherent property of capitalist economies. Governments have an important role in providing those “public goods,” such as physical infrastructure, law enforcement, macroeconomic stability, and perhaps education, that are difficult to arrange through private contracts. But beyond that they should not go, except in those rare cases of market failure referred to above.”1 1

It has been mentioned by scholars that the term neoliberal is misleading, because it could be confused with the older school of German neoliberalism, often called ordo-liberalism. Ordo-liberalism was taught by several German economists (originally by the Freiburg School (Eucken, Böhm, Grossman-Doerth), joined by Röpke, Müller-Armack and others) from the 1930s up to the post-war years. It does not differ widely from the more recent neoliberal approach. However, the motivation at the time was different: Ordo-liberals turned against the “traditional laissez-faire” character of historical capitalism in its nineteenth century variant. They contended that these structures had fostered monopolies, which became one of the major factors behind the socioeconomic problems of the early decades of the twentieth century. Ordo-liberals thus advocated for upholding competition and keeping the price system intact. They were strongly against state interventionism in any form. The state should provide ordo, but it should not interfere too much in the economy. Therefore, these scholars were skeptical about public welfare measures: “when competition and monetary stability reign, they argued, “welfare-state” measures will no longer seem so imperative even to their present advocates, since, in nonfeudal, commercial societies, great extremes in wealth, disastrous market fluctuations, and unemployment are chiefly attributable to monopoly, interventions, and unstable money. Furthermore, they insisted, equality and security are less important than

2.1 Economic Liberalization, Macroeconomic Stabilization, Structural Adjustment

15

To sum up, the neoliberal strand of neoclassical economics contends that economic growth, both short-term and long-term, will be maximized when markets are left to operate freely, while state intervention hinders growth and leads to overall welfare losses. Thus, the state should limit itself to guaranteeing the existence of an adequate institutional framework and general conditions necessary for the functioning of markets. Based on these theoretical assumptions, neoliberals regard economic growth to be the fundamental driver of socioeconomic development. Maximizing economic growth would thus be the most promising way for reducing poverty and for improving social welfare. Besides, for both economic growth and socioeconomic development private agents are assumed to be more effective than public agents. Likewise, the assumption is that “private initiative tends to be more efficiently guided by market signals” than by public intervention (Hamilton 1989: 1523; Nonneman 1996a: 4–5). The main arguments of the neoliberal strand of neoclassical economics refer to historical experience: from the 1950s up to the 1970s, “the state sector in the developing world (and worldwide) had grown in unprecedented fashion.” Developing countries in particular pursued state-led policies inspired by Keynesianism to foster socioeconomic development. With the unfolding global debt crisis at the end of the 1970s / early 1980s, this etatist paradigm ran into difficulties.2 The old Keynesian model being no longer affordable, neoclassical economics in its neoliberal variant gradually took its place as the dominant paradigm. Its theoretical propositions (free markets, efficiency of private actors) and policy recommendations (economic liberalization, including privatization) seemed to show a way out of the debt trap. Over the 1980s, a “widespread—though by no means complete—consensus in favour of [economic; C.N.] liberalization” emerged (Hobsbawm 1995 [1994]: 350–352, 403–416, 422–424, 431; Nonneman 1996a, 3). It was finally expressed in the policy prescriptions of what the British economist John Williamson in 1989 summarized as the Washington Consensus. This consensus consisted of ten economic-policy principles: freedom, productivity and progress, and the “welfare state” is the enemy of the latter three goals, even when the measures adopted do not include disapproved market interventions and “full employment” policies. Although the West Germans were friendlier to progressive taxation, state insurance schemes, and social services, than were Von Mises and Hayek, they believed that Adenauer’s republic had been much too egalitarian and paternalistic, and they feared and strongly disliked the measures adopted in postwar Britain and Scandinavia” (Oliver 1960: 118–119, 120–133). 2 The triggers of the global debt crisis among developing countries in the early 1980s were “the double shock of the oil-price increases and the relative world recession.” According to Nonneman (Nonneman 1996c: 34), “these difficulties combined with the surplus of petrodollars in the world financial system to produce mounting debts on the part of these countries.”

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Key Terms

“(1.) fiscal discipline; (2.) reorientation of public expenditures; (3.) tax reform; (4.) interest rate liberalization; (5.) unified and competitive exchange rates; (6.) trade liberalization; (7.) opening for foreign direct investment (FDI); (8.) privatization; (9.) deregulation; (10.) securing property rights” (Richards and Waterbury 2008: 228–229).

These ten policy principles were advocated by the Washington institutions (IMF, WB, and United States Treasury) as a comprehensive reform package for developing countries that had run into debt problems (Richards and Waterbury 2008: 228). The Washington Consensus formulated reform measures both on the demand side and on the supply side of the economy: The first reform step usually consisted of macroeconomic stabilization under the auspices of the IMF. These measures mainly targeted the demand side of the economy, as state spending was cut and state income was increased (above all through a rise in tax income) in order to balance the public budget and the international accounts. Both were further brought into balance by the devaluation of the domestic currency and the liberalization of interest rates. At the same time, the measures “intended to reduce public and personal consumption (demand-reducing policy), reduce inflation [...], and generate higher savings to be directed to investments.” The implicit goal was to restore the financial solvency of the state, crucial for international creditors (principles 1–3). In a second step, a longer term structural adjustment of both the demand side and of the supply side was attempted, which was usually overseen and guided by the WB (principles 4–10). The aim of these structural adjustment measures was to increase the efficiency of domestic “resource allocation” and to “improve resource mobilization.” Among other things this was pursued by “[increasing] the opening of the economy” (liberalization of trade and international capital flows), by liberalizing investment, and by privatization. The expectation was that in the medium run reforms would lead to greater national welfare, to higher spending capabilities of governments, and to a reduced dependency on foreign lending (Clawson 1992: 222–226; Haggard and Kaufman 1992b: 5; El-Ghonemy 1998: 173; Ben Ali 2000: 187–188; Stiglitz 2002: 14, 53–88, 206–213; Harrigan and El Said 2010: 20).3 3

According to Ben Ali (2000: 187), the structural adjustment programs (SAPs) implemented by many developing countries as more comprehensive reform programs usually comprised both macroeconomic stabilization and structural adjustment. While macroeconomic stabilization “[sought] to correct external imbalances” through “short-term [monetary and fiscal; C.N.] measures,” structural adjustment “[was] geared towards the medium and long term” and [had] “the goal [...] to act upon supply so as to increase it.” Thus, structural adjustment “[sought] to turn prices into an accurate reflection of scarcity and free competition. It also [implied] a change in the institutional context of economic activity through the implementation of an incentive regime for national as well as foreign capital, the reduction of the role of the state, and increased openness to the world economy.”

2.1 Economic Liberalization, Macroeconomic Stabilization, Structural Adjustment

17

In both macroeconomic stabilization and structural adjustment, economic liberalization was a core component. From the empirical analysis of the four MENA countries under investigation in this study (Egypt, Tunisia, Jordan, Morocco), one can inductively derive eight main policies of economic liberalization: (1.) on the demand side of the economy: Trade liberalization (concerning tariffs, non-tariff barriers, quantitative restrictions, trade monopolies, etc.); consumer-price liberalization (mostly in the form of consumer subsidy cuts); liberalization of interest rates; liberalization of international payments; and the liberalization of the exchange rate. (2.) on the supply side of the economy: Producer-price liberalization; investment liberalization (both of domestic and foreign investment); and privatization (see chapter 6.1.5). All of these policies theoretically have the potential to contribute to macroeconomic stabilization. However, only four of them were expected to do so in the short run. These were consumer-price liberalization in the form of subsidy cuts, the liberalization of interest rates, the liberalization of the exchange rate, and privatization as a means to raise public revenue through the sale of state assets. The remaining four, that is trade liberalization, the liberalization of international payments, producer-price liberalization, and investment liberalization, plus privatization from an efficiency perspective, were expected to unfold their effects on macroeconomic stabilization in the long run. At the same time, all eight policies of economic liberalization had potential long-term effects on economic efficiency and were thus part of structural adjustment. Many developing countries followed and still follow Washington-Consensusoriented policies. There are several reasons behind the global policy shift in the early 1980s: First, many developing countries came to the conclusion that the old etatist development model based on import-substitution industrialization (ISI) policies had not been successful. Ultimately, high debt levels made it unaffordable (see above). Second, the international context had changed. The international economic system had become more intertwined, making it more difficult for a single country to pursue an isolationist development strategy. Besides, pressure from international institutions (especially the IMF and the WB) and from Western creditors pushed developing countries to pursue the economic-liberalization path. This stance was part of a wider change of the intellectual climate towards liberal ideas, which received a second boost with the fall of the Soviet Union and its socialist economic system. Third, domestic factors in developing countries fostered economic liberalization, as new constituencies had emerged that profited from increased economic openness and competition, often backed by political considerations of the regimes in power (Hobsbawm 1995 [1994]: 418–432; Nonneman 1996c: 31–37). Empirically, the long-term results of Washington-Consensus-oriented policies were mixed: whereas macroeconomic stabilization was in most cases successful,

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structural adjustment (with economic liberalization at its core) proved much more difficult to implement and would in many cases not lead to the desired outcomes.4 The actual effects on the economy and society of developing countries are heavily disputed, with one camp decrying disastrous socioeconomic consequences and the other pointing to positive results. Due to the complexity of the theoretical and empirical linkages it is nearly impossible to even come to a tentative conclusion (Nonneman 1996a: 10–26; see also: Harrigan and El Said 2010: 20). After all, by the 2000s it had become apparent that despite reform efforts economic growth in developing countries “[had] not been strong enough to lower unemployment or significantly raise real wages and living standards” (Richards and Waterbury 2008: 261). In addition, a number of country case studies showed the negative consequences of economic liberalization. Examples are the Asian Financial Crisis in 1997 and its immediate ramifications, the ensuing huge social costs in developing countries affected by this crisis, and crony capitalism as a result of privatization in Russia during the 1990s (Richards and Waterbury 2008: 231–232). Gradually, these problems fostered a revision of the Washington Consensus. By the late 2000s, advocates would add ten more principles to the reform package: “(1.) corporate governance; (2.) anti-corruption; (3.) flexible labour markets; (4.) adherence to World Trade Organization (WTO) principles; (5.) adherence to international financial codes and standards; (6.) “prudent” capital account opening; (7.) non-intermediate exchange rate regimes; (8.) independent Central Bank / inflation targeting; (9.) social safety nets; (10.) targeted poverty reduction” (Richards and Waterbury 2008: 229).

This extension of the original principles became known as the Post-Washington Consensus. In comparison to the original Washington Consensus, the Post-Washington Consensus placed increased emphasis on the reform of the legal framework in which policies were embedded. Furthermore, it recognized social consequences as an important factor that determine the success or failure of reforms. Besides, the distinct antistate orientation of the Washington Consensus was increasingly debated among scientists and policy makers. According to Nonneman (1996a: 21–26), by

4

Stiglitz (2002: 104–113, 206–211) points to the contradictory setup of the Washington Consensus reform package: whereas macroeconomic stabilization required contractionary fiscal measures, structural adjustment in many cases depended on state spending to create the conditions for change. Besides, Harrigan and El Said (2010: 20) notes the reluctance of many developing countries to follow up with structural adjustment once macroeconomic stabilization had been achieved.

2.2 Political System, State, Regime, Government

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the late 1990s a new development consensus seemed to emerge that synthesized insights of both neoliberal and state-led development approaches.5

2.2

Political System, State, Regime, Government

In many contemporary studies, the terms political system, state, regime, and government are used interchangeably, leading to conceptual confusion. As the theoretical and empirical distinction between these terms is important for the main arguments of this study, I am going to disentangle and to define each of these terms, on the basis of debates in academic literature. The existing academic literature on the state is by far the most extensive. According to Lauth and Wagner (2010: 24), the state has been “one of the central, if not the central category of thought in political science.” Equally numerous are theoretical definitions of the “state.” Krasner (1984: 224), who refers to an unpublished work by two other researchers, mentions four conceptualizations that had appeared in the literature by the time of his writing: (1.) the state as government, “by which is meant the collective set of personnel who occupy positions of decisional authority in the polity;” (2.) the state as “public bureaucracy or administrative apparatus as a coherent totality” and as an institutionalized legal order; (3.) the state as ruling class; (4.) the state as normative order.

Conceptualizations number one and four have been used in relatively few studies. The third conceptualization is confined to Marxist approaches. Most widely used is the second conceptualization: with its focus on bureaucratic-administrative features of the state, it builds on the concept of domination introduced by Weber (1978 [1922]). In his work “Economy and Society” (“Wirtschaft und Gesellschaft,” published in 1922), Weber (1978 [1922]: 215, 954) distinguishes between three “pure types of domination”,6 which “correspond to (...) three possible types of legitimation” (i.e. “three pure types of legitimate domination”): “rational;” “traditional;”

5

Nonneman (1996a: 21–26) labels the different approaches neoliberal and interventionist. In contrast to neoliberals, interventionists emphasize the importance of state intervention in the process of late development. To corroborate their arguments, they point to the developmental success of the East Asian Tigers (South Korea, Taiwan, Hong Kong, Singapore), where the state played and still plays a central role in development policy. 6 According to Weber (1978 [1922]: 53), “domination (in German: Herrschaft) is the probability that a command with a given specific content will be obeyed by a given group of persons.”

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and “charismatic.”7 Rational domination is impersonal, resting upon “a belief in the legality of enacted rules and the right of those elevated to authority under such rules to issue commands (legal authority)” (Weber 1978 [1922]: 215).8 Traditional and charismatic domination “rest upon personal authority.” They are thus personalistic forms of domination (Weber 1978 [1922]: 954). Traditional authority has its basis in “an established belief in the sanctity of immemorial traditions and the legitimacy of those exercising authority under them.” Charismatic authority is rooted in the “devotion to the exceptional sanctity, heroism, or exemplary character of an individual person and of the normative patterns or order revealed or ordained by him” (Weber 1978 [1922]: 215). Rational domination based on legal authority is the form of domination that underlies the Weberian concept of a state. In its purest manifestation, “rationally regulated association within a structure of domination finds its (...) expression in bureaucracy”, one of the main characteristics of contemporary state apparatuses (Weber 1978 [1922]: 954).9 Weber (1978 [1922]: 54) derives his conceptualization of the state from his definition of political organizations: “A “ruling organization” will be called “political” insofar as its existence and order is continuously safeguarded within a given territorial area by the threat and application of physical force on the part of the administrative staff. A compulsory political organization with continuous operations (in German: politischer Anstaltsbetrieb) will be called a “state” insofar as its administrative staff successfully upholds the claim to the monopoly of the legitimate use of physical force in the enforcement of its order.”

The state concept of Weber (1978 [1922]) is historically derived, as it synthesizes the main pillars of a modern state ideal that evolved at least since the Peace of Westphalia in 1648 and later dominated political science (Schlichte 2005: 94–101). 7

As Weber (1978 [1922]: 954) emphasizes, “the forms of domination occuring in historical reality constitute combinations, mixtures, adaptations, or modifications of [the three] pure types.” 8 In delineation from the term domination, the term rule (in German: Herrschaft; i.e. the same translation as domination) occasionally used in this study solely refers to the rational type of domination based on rational rules and their corresponding norms, for example authoritarian rule exercised by an authoritarian regime. 9 As Weber (1978 [1922]: 221) points out, “this type of organization [i.e. a bureaucracy; C.N.] is in principle applicable with equal facility to a wide variety of different fields. It may be applied in profit-making business or in charitable organizations, or in any number of other types of private enterprises serving ideal or material ends. It is equally applicable to political and hierocratic organizations. With the varying degrees of approximation to a pure type, its historical existence can be demonstrated in all these fields.”

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In the course of the twentieth century, the Weberian (statist) view of the state as a given set of institutions to which all other political actors are subordinated encountered sharp criticism. During the 1960s, an intellectual change emanated from the United States: the behavioral revolution. In its wake, political pluralism became the dominant paradigm in political science. Politics were now framed as a struggle of different societal forces for political outcomes. Concomitantly, “the state” was “rejected as a meaningful analytic concept” (Krasner 1984: 229).10 Concomitant with the neglect of the state, political systems became the focus of analysis. Almond (1988: 855–856) emphasizes the broader scope of politicalsystems analysis compared to state-centered approaches: apart from “the phenomena of the state,” it comprised “extralegal and paralegal institutions of political parties, interest groups, media of communication, as well as social institutions such as family, school, church, and the like, insofar as they affected political processes.” It was precisely this “processual character of politics” that was now seen as key to understanding political phenomena. One of the main proponents of political-systems theory, Easton (1965: 21), defines a political system as: “those interactions through which values are authoritatively allocated for a society.”

Thus, society instead of the state is the basis of the model introduced by Easton (1965). In this model, the individual parts of society form different systems that influence each other. The political system exists alongside other systems that “constitute a source of many influences that create and shape the conditions under which the political system itself must operate” (Easton 1965: 22).11 From the mid-1970s onwards, the pluralistic approach was challenged by the new institutionalism. This new current criticized pluralism for being too functionalist and teleological (Bank 2007: 46–47). Instead, formal and informal institutions were now recognized as structural constraints on individual and group behaviour. During this second academic turnaround, the state came back into the analysis, 10

As Krasner (1984: 229) notes, “behaviorism was a reaction against formal legalism, the approach that had dominated the discipline of political science in the United States from its inception during the last part of the nineteenth century through the 1940s. Formal legalism virtually identified political life with the state, understood as an institution that promulgated binding laws and stood in a superior hierarchical position to other parts of the polity” (Krasner 1984: 229). 11 Easton (1965: 21–22) defines the term system as “any set of variables regardless of the degree of interrelationship among them.” He distinguishes between intrasocietal (economy, culture, social structure, personalities) and extrasocietal systems (international political systems, international economy, international cultural system).

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although it was then defined in a less legalistic way. According to Migdal (2009: 163) studies that resorted to the state as an analytical concept moved away from “attachment to one paradigm—rationalist, structuralist, or culturalist—towards a new eclecticism.” Instead of “a single template of the state,” these studies recognized “both the isomorphism of states and their great diversity.” Migdal (2009: 165) himself proposes a more flexible definition of the state: “The state is a field of power marked by the use and threat of violence in attempting to control peoples’ behaviour and shaped by (1.) the image of a coherent, controlling organization in a territory, which is an outgrowth and representation of the people bounded by that territory; and (2.) the actual practices of that organization’s multiple parts.”

This definition by Migdal (2009) is clearly neo-Weberian, as it emphasizes the power monopoly of the state and its control capacity. It also embodies the other aspects of the Westphalian state ideal worked out by Schlichte (2005: 94–101). However, the point of departure of Migdal (2009) is that very often the ideal image of the state (part one of his definition) differs from real-world observations. He thus allows for variety, taking into account the “practices of states to denote what states actually do, whether they fit the standards normative image or not” (part two of his definition). The major difference of post-1970s concepts of the state to the earlier statist approaches is their reference to the “multiple parts” that make up the state. They conceptualize the state not as a black box but as an entity shaped by different parts of the state organization. By forming alliances and coalitions with “a variety of domestic and foreign groups and organizations” these parts “have frequently undone the role of institutions within the overall logic of the state” (Migdal 2009: 164–165). The dismantlement of the black box of the state was a legacy from the 1960s– 1970s, when the paradigm of political pluralism had risen to dominance. From now on, state institutions were analyzed and compared separately or as part of different societal systems. Two new analytical concepts emerging at the time were those of the government and the regime. According to Krasner (1984: 224), “government” is a “collective set of personnel who occupy positions of decisional authority in the polity.” In contrast to the definition of government as an actor, the term “regime” usually refers to structure.12 It became prominent with the research on different 12

I do not follow this distinction. In later chapters of this book, the term “regime” refers to both structure (regimes as a set of norms and rules particular to the polity in which political and societal actors operate) and actors (regimes as a more or less coherent group of actors that collectively hold the levers of political power).

2.2 Political System, State, Regime, Government

23

regime types (democratic, authoritarian, totalitarian) pioneered by Linz (1964). Easton (1965: 191–192), in his work“A systems analysis of political life” (published in 1965), introduces the regime as a “fundamental component of a system:”13 “[A regime is; C.N.] a set of formal or operating constraints that are generally accepted, through quiescent indifference or positive consensus, by rulers and ruled alike and that give at least broad indications of what are or are not permissible goals, practices, and structures in the system. Whether the limits are broad or narrow, relatively changing or constant, the same for all or specific to various social groups or individual members, they do set up expectations about who is to wield power, the limits within which it is to be used, who are expected to comply, and the conditions under which these obligations arise.”

Easton (1965: 193) further subdivides the regime into three components: “Values” (“goals” and “principles”); “norms;” and “structure of authority:” “The values serve as broad limits with regard to what can be taken for granted in the guidance of day-to-day policy without violating deep feelings of important segments of the community. The norms specify the kinds of procedures that are expected and acceptable in the processing and implementation of demands. The structures of authority designate the formal and informal patterns in which power is distributed and organized with regard to the authoritative making and implementing of decisions—the roles and their relationships through which authority is distributed and exercised. The goals, norms, and structure of authority both limit and validate political actions and in this way provide what tends to become a context for political interactions. This context changes more slowly than other kinds of political relationships.”

Similar aspects are stressed by Schmitter and Karl (1991: 76) in a more recent definition: “A regime or system of governance is an ensemble of patterns that determines the methods of access to the principal public offices; the characteristics of the actors admitted to or excluded from such access; the strategies that actors may use to gain access; and the rules that are followed in the making of publicly binding decisions. To work properly, the ensemble must be institutionalized that is to say, the various patterns must be habitually known, practiced, and accepted by most, if not all, actors. Increasingly, the preferred mechanism of institutionalization is a written body of laws undergirded by a written constitution, though many enduring political norms can have an informal, prudential, or traditional basis.”

13

According to Easton (1965: 171–172), the regime is one of three “basic political objects” of a political system, the others being the “authorities” and the “political community.”

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With the reintroduction of the state as an analytical category in the mid-1970s, terminological confusion was inevitable. It became especially obvious in studies on regime change and democratization, and later in comparative studies on authoritarian regimes (Lawson 1993: 183; Bank 2010: 36). Recognizing this problem, some authors strove for conceptual clarification: Fishman (1990: 428), in a review article on Southern Europe’s transition to democracy, distinguishes between state, regime, and government based on temporal durability: “A regime may be thought of as the formal and informal organization of the center of political power, and of its relations with the broader society. A regime determines who has access to political power, and how those who are in power deal with those who are not. Regimes are more permanent forms of political organization than specific governments, but they are typically less permanent than the state. The state, by contrast, is a (normally) more permanent structure of domination and coordination including a coercive apparatus and the means to administer a society and extract resources from it.”

Fishman (1990) emphasizes that the three concepts are analytically and “in many instances” empirically distinguishable. To give an example, he points to the fact that “many centrally important state actors—e.g. the judiciary and the civil service as well as the military—play little or no role in regime politics in nonmilitary authoritarian regimes.” Lawson (1993: 186) tries to clarify the distinction by underlining the institutional order: “There may be a succession of different governments, but state and regime usually remain constant by virtue of the fact that the different governments exercise power within the framework of the established regime and without disturbing the fundamental structure of the state.”

However, the institutional order of state and regime still remains unclear. According to Lauth and Wagner (2010: 25), empirical studies have shown that a functioning state is a necessary precondition for the existence of a regime. In historical perspective, the state has been the “antipode of anarchy,” meaning without a state there is no foundation of political rule by whatever regime (see also: Kailitz 2009: 225). Lawson (1993: 187), who cites Chazan et al. (1988: 37), elaborates on these observations by differentiating between the state as the locus of political power, the government as the agent making this power effective, and the regime constituting the institutional framework for the exercise of political power:

2.3 Authoritarianism, Authoritarian Regime, Neopatrimonialism

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“The state is the locus of political power. A regime, on the other hand, has less to do with power per se than it does with the way in which power is actually used. A regime, then, may be characterized as that part of the political system which determines how and under what conditions and limitations the power of the state is exercised. In other words, the concept of regime is concerned with the form of rule.” “As a corollary, the regime also determines not only the manner in which governments are formed and carry out their functions, but also the basis of their legitimacy as well as the extent to which they are permitted to exercise authority. In summary, regimes embody the norms and principles of the political organization of the state, which are set out in the rules and procedures within which governments operate.”

Ultimately, both Lawson (1993: 187, 201) and Fishman (1990: 428) admit that the dinstinction between state, regime and government can be more or less clear-cut in reality. Whereas these entities are nearly completely separate in democracies, the distinction is virtually inexistent in totalitarian political systems. In authoritarian political systems (prevalent e.g. in the MENA region), the empirical distinction is not absent, but blurred. Therefore, state, regime, and government frequently overlap each other in these contexts.

2.3

Authoritarianism, Authoritarian Regime, Neopatrimonialism

Building on the theoretical definitions of “political system” and “regime” in the preceding subchapter, I am now going to discuss the different theoretical conceptions and empirical manifestations of political systems and regimes. This discussion leads to a classification into different types of political systems and regimes—a prerequisite for comparative research. In this study, I focus on the authoritarian regime type, which constitutes the core of authoritarianism as a political system.14 Authoritarianism is most often defined in relation to the two ends of a continuum that represents all possible types of political systems. The two ends of this continuum are democracy and totalitarianism, mirroring an academic debate of the first half of the twentieth century that sought to differentiate the two phenomena. Democracy, since the Gettysburg speech of Abraham Lincoln in 1863, has been defined as: Government of the people; by the people; for the people. More comprehensive definitions focus on either material or procedural aspects of democracy. 14

Unfortunately, many authors do not consistently distinguish between an “authoritarian regime” and “authoritarianism” as a political system (following the distinction between “political system” and “regime” proposed by Easton (1965)). In fact, many authors use these terms interchangeably, which leads to terminological confusion.

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Definitions focusing on material aspects of democracy emphasize political outcomes as the defining features of democracy, for example an equal distribution of wealth. Definitions focusing on procedural aspects of democracy describe the procedures that regulate the participation in government. Due to their tighter focus and easier operationalization, the second group of definitions have been more influential, especially in comparative politics (Lauth 2010: 99). One of the basic definitions of “procedural democracy” is from Dahl (1971), contained in his book “Polyarchy.” According to Dahl (1971: 2), democracy is “a political system, one of the characteristics of which is the quality of being completely or almost completely responsive to all its citizens. To be responsive to the preferences of its citizens, considered as political equals, all full citizens must have unimpaired opportunities: (1.) to formulate their preferences; (2.) to signify their preferences to their fellow citizens and the government by individual and collective action; (3.) to have their preferences weighed equally in the conduct of the government, that is, weighed with no discrimination because of the content or source of the preference.”

Dahl (1971: 3) further assumes “for these three opportunities to exist among a large number of people, such as the number of people who comprise most nation-states at the present time, the institutions of the society must provide at least eight guarantees: (1.) Freedom to form and join organizations; (2.) freedom of expression; (3.) right to vote; (4.) eligibility for public office; (5.) right of political leaders to compete for support; (6.) alternative sources of information; (7.) free and fair elections; (8.) institutions for making government policies depend on votes and other expressions of preference.”

Dahl (1971: 2) passes over the question if such a system does exist in reality. Instead, he proposes to use his model as a hypothetical reference point “for estimating the degree to which various systems approach this theoretical limit.” In contemporary academic literature, definitions of democracy abound, while many procedural definitions refer to Dahl (1971).15 One of the more recent and relatively parsimonious definitions of democracy as a procedure is by (Schmitter and Karl 1991: 76): “Modern political democracy is a system of governance in which rulers are held accountable for their actions in the public realm by citizens, acting indirectly through the competition and cooperation of their elected representatives.” 15

For an overview of various definitions of democracy up until the mid-1990s see Collier and Levitsky (1996: 7–11).

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Another definition by Beetham (1994: 28) stresses the preconditions for popular control of government that also Dahl (1971) emphasized: “Democracy is a political concept, concerning the collectively binding decisions about the rules and policies of a group, association or society. It claims that such decisionmaking should be, and it is realized to the extent that such decision-making actually is, subject to the control of all members of the collectivity considered as equals. That is to say, democracy embraces the related principles of popular control and political equality.”

Beetham (1994: 28–30) further “[separates] the process of popular control over government into four distinct, albeit overlapping, dimensions” that constitute mechanisms of popular control and its preconditions: “free and fair elections;” “open and accountable government;” “civil and political rights or liberties;” and a “democratic society.” The theoretical and empirical opposite of democracy is totalitarianism. Friedrich and Brzezinski (1957: 19–20) enumerate six basic characteristics that constitute totalitarianism as a type of political system: (1.) a comprehensive ideology that encompasses all fields of life; (2.) a mass party under the leadership of a dictator; (3.) a terrorist secret police; (4.) the monopolization of news and mass media by the ruling party; (5.) the regime’s monopoly on arms; (6.) the central administration and control of the economy.

After the Second World War, totalitarianism vanished in most parts of the world. Research therefore shifted to political systems and regimes that could neither be classified as democratic nor totalitarian. The wave of formerly colonized countries becoming independent during the 1950s–1960s brought the existing dichotomy of democratic and totalitarian regimes under strain, as many of these newly independent countries did not fit in either category. At first, this fact was not perceived as problematic by the academic mainstream. It was clear that democracy could claim normative superiority over all other political systems. Coupled with the observation that democracy apparently won over totalitarianism on a global level, most scientists expected the newly independent countries to become democracies over time. As a result, until the end of the 1990s, a large body of research analyzed the conditions for and paths of democratization (Dahl 1971; O’Donnell and Schmitter 1986). Proponents of the transition (to democracy) paradigm seemed to be proven right, when several of these newly independent countries became democratic in the “Third Wave of Democratization” from the mid-1970s onwards (Huntington 1991; Geddes 1999: 115; Doorenspleet 2000: 384–385). However, as history showed, democratic transi-

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tion did not happen in the majority of transitional countries.16 Thus, from the early 2000s onwards, a growing part of the academic community shifted their attention to the characteristics of regimes situated in the “precarious middle ground between full-fledged democracy and outright dictatorship” (Carothers 2002: 18). These researchers contend that authoritarian regimes are a regime type sui generis, distinct from democratic regimes, and thus has to be analysed independently. However, the major problem of this strand of research has been how to define authoritarianism and authoritarian regime. A widely discussed definition of an authoritarian system comes from Linz (1964), who used it to describe the political system in Spain during the Franco years.17 According to Linz (1964: 255), authoritarian political systems can be described as: “political systems with limited, not responsible, political pluralism; without elaborate and guiding ideology, but with distinctive mentalities; without extensive nor intensive political mobilization, except at some points in their development; and in which a leader or occasionally a small group exercises power within formally ill-defined limits but actually quite predictable ones.”

Nevertheless, democracy and totalitarianism remained the reference points of most subsequent definitions. Appropriate as it seems at first sight, this definitional anchor has until today been the central problem for comparative research on political systems and regimes. Thus, in many definitions of authoritarianism, the transition paradigm is still implicitly present.18 Most studies of authoritarian regimes until the early 2000s have in fact tried to explain how democratic transitions did, did not, or could happen (Geddes 1999: 121; Mc Faul 2002). Several scientists drew attention to this democratization bias and proceeded to analyze authoritarian regimes as a regime type sui generis (Levitsky and Way 2002: 51; Schedler 2002; B. Smith 16

After the fall of the Soviet Union, nondemocratic countries that seemingly showed signs of political liberalization were labelled “transitional countries” by Western policy makers. However, Carothers (2002: 9) reported in the early 2000s that only a small minority “of the nearly 100 countries considered as transitional in recent years (...)—probably fewer than 20— [were] clearly en route to becoming successful, well-functioning democracies or at least [had] made some democratic progress and still [enjoyed] a positive dynamic of democratization.” 17 Linz (1964) derived his definition of authoritarian political systems in part inductively from his case study on Spain during the Franco dictatorship and in part deductively from existing definitions of democracy and totalitarianism. His writings anchored the term authoritarianism in scientific debate. Afterwards, democracy, authoritarianism, and totalitarianism became known as the “trias of political systems.” 18 As Albrecht and Frankenberger (2010: 37–40) points out, this problem is present in the definition of Linz (1964) as well, as he uses the terminology of democratization theory.

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2005; Brownlee 2007; Heydemann 2007b; Schlumberger 2007; Magaloni 2008). However, at the end of the 2000s, there was still considerable disagreement in the scientific community on how to define authoritarian regimes. Existing definitional attempts remained too crude to provide useful information on the precise characteristics of these regimes, except the fact that they were nondemocratic. At the same time, the distinction between authoritarian and totalitarian regimes seemed to be arbitrary as well (Köhler and Warkotsch 2010: 61–62). Difficulties of classification further increased by the observation that nondemocratic regimes adopted institutional features associated with democratic systems (e.g. the holding of elections). These developments fostered a new debate about regimes in the “gray zone” between democracy and authoritarianism (Carothers 2002: 9). Researchers have dealt with these regimes in three principal ways: First, they conceptualized “diminished subtypes” of democracies (O’Donnell 1994; Collier and Levitsky 1996, 1997; Merkel 2004).19 Second, they introduced the new category of “hybrid regimes,” situated between democratic and authoritarian regimes (Diamond 2002; Rüb 2002; Ottawa 2003; Bogaards 2009).20 Third, they derived purportedly genuine or “enhanced” authoritarian subtypes (Almond and Powell 1966; Linz 2000: 171–261; Levitsky and Way 2002; Schedler 2002: 37–39; Schedler 19

Collier and Levitsky (1997: 440) start out from a minimalist procedural definition of democracy. On this basis they classify the diminished subtypes that appeared in the literature. In each group of diminished subtypes, one attribute of democracy is missing: Democracy without full suffrage (“limited democracy,” “male democracy,” “oligarchical democracy”); democracy without full contestation (“controlled democracy,” “de-facto one-party democracy,” “restrictive democracy”); democracy without civil liberties (“electoral democracy,” “hard democracy,” “illiberal democracy”); and democracy in which the elected government does not have the effective power to govern (“guarded democracy,” “protected democracy,” “tutelary democracy”) (for an overview and discussion see also Collier and Levitsky (1996: 17–31). O’Donnell (1994) adds to the list by introducing “delegative democracy.” Merkel (2004) distinguishes between four diminished subtypes: “exclusive democracy;” “illiberal democracy;” “delegative democracy;” and “tutelary democracy.” 20 Diamond (2002: 26) conceptualizes six different types of regimes and / or political systems: “liberal democracies;” “electoral democracies;” “ambiguous regimes;” “competitive authoritarianism;” “hegemonic electoral authoritarianism;” and “politically closed authoritarianism.” Ottaway (2003: 3, 20) introduces the term “semi-authoritarian regimes,” which are “political hybrids”. She subdivides these regimes into three types, according to “their internal dynamics and possibilities for further change”: “Regimes in equilibrium;” “regimes in decay” (with a tendency to revert to “full authoritarianism”); and “regimes that are experiencing dynamic change” (with “the possibility of incremental progress toward democracy”). Bogaards (2009: 414) extends the classical trias to five separate regime types: “functioning democracy;” “defective democracy;” “electoral authoritarianism;” “closed authoritarianism;” and “totalitarianism.”

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2006).21 However, as Köhler and Warkotsch (2010: 63–66) point out, all of these approaches suffer from the lack of a clearly defined root concept of authoritarianism. Thus, neither democracies with adjectives, nor hybrid regimes, nor subtypes of authoritarian regimes can be delineated precisely from the pure type of an authoritarian regime. The expression of this uncertainty is a “continuum of political regimes” or political systems, with “ideal democracy” and “perfect totalitarian system” as “poles,” while authoritarian regimes are located in the middle ground between democratic and totalitarian regimes, with fluid boundaries to either side (Merkel 1999: 55). The second problem is the use of democracy as a universal scale for classifying regimes (Köhler and Warkotsch 2010: 66–70). Methodologically, these approaches 21

Almond and Powell (1966) distinguish between “conservative,” “modernizing,” and “premobilized authoritarian regimes.” Geddes (1999: 121) “[classifies] authoritarian regimes as personalist, military, single-party, or amalgams of the pure types.” Linz (2000: 171– 261) conceptualizes seven subtypes of authoritarian regimes: “bureaucratic-military authoritarian regimes;” “authoritarian corporatism / organic statism;” “mobilizational authoritarian regimes in postdemocratic societies;” “postindependence mobilizational authoritarian regimes;” “racial and ethnic democracies;” “defective” and “pretotalitarian” political situations and regimes; and “post-totalitarian authoritarian regimes.” Levitsky and Way (2002: 52) adds “competitive authoritarianism,” and Brumberg (2002) introduces “liberalized autocracy.” Schedler (2002: 37) carves out “electoral authoritarianism” as an authoritarian subtype. In addition, he proposes“electoral democracy” as a democratic subtype that bears only the minimal characteristics of democracy. His goal is to conceptually grasp the “wide and foggy zone” between liberal democracy and closed authoritarianism with two genuine subtypes. Characterizing authoritarian regimes in the MENA region, Hinnebusch (2006) subdivides the sample into “populist authoritarian regimes,” “bureaucratic authoritarian regimes,” and “rentier monarchies.” Hadenius and Teorell (2007: 145–149) differentiate between “monarchies,” “military regimes,” and “electoral regimes” (further subdivided into “no-party regimes,” “oneparty regimes,” and “limited multiparty regimes”). They admit that the “regime types” are not mutually exclusive and that “there can be hybrids (or amalgams) combining elements from more than one regime type.” In addition, they “identified several minor types of authoritarian regimes” (“theocracies,” “transitional regimes,” regimes in “countries in which the central government does not in reality control the state’s entire territory” due to “civil war” or “occupation by foreign troops,” and “other” regimes “[including] a few cases that do not fit any regime type” of the proposed “schema.” Besides, they discard the classification of some authoritarian regimes as “personalist” used by Geddes (1999), “[treating] the degree of personalism as a property that may be more or less present in any regime” (Hadenius and Teorell 2007: 149). Magaloni (2008: 731–732) subdivides “autocratic regimes according to two basic criteria: the dictators’ “launching organization” (which could be “political parties, the military, and a royal family”); and the number of political parties.” Kailitz (2009) subdivides authoritarian regimes according to their “legitimacy” and the “holders of power,” leading to a classification into “absolutist monarchy, patrimonialism, military dictatorship, ideocratic and neopatrimonial one-party autocracy, constitutional monarchy, and neopatrimonial autocratic multi-party regimes, as well as a diverse set of hybrids.” Finally, Köllner (2008: 355–357) presents an overview of the academic literature on “types of authoritarian rule.”

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violate fundamental principles of classification: According to Sartori (1991) it is only possible to meaningfully compare cases if categories are mutually exclusive and collectively exhaustive. These conditions are violated in all three approaches listed above. All three of them use formal institutions of democratic systems as reference points, imbuing the definitions of regime types with teleological assumptions of the transition paradigm. Thus, categories are overlapping and thresholds are arbitrary, which blurs fundamental differences between authoritarian and democratic systems on the one hand and between authoritarian subtypes on the other (Armony and Schamis 2005: 113–114; Kailitz 2009: 211–224; Köhler and Warkotsch 2010: 66–70). Notwithstanding these methodological problems, the question arises what kind of authoritarian regimes we deal with in this study. As will be elaborated in detail in chapter 5.2.3, the country cases selected for analysis in this study are Egypt, Tunisia, Jordan, and Morocco during the period 1950–2011. The analytical case comparison is done within a Most-Similar-Systems Design (MSSD). Apart from the similar geographic location (within the MENA region) and the similar resource endowment (resource-poor countries on a per capita basis), the regimes of all four countries during the period of investigation can be classified as neopatrimonial regimes, a particular subtype of authoritarian regimes. Researchers derived this subtype of authoritarian regimes inductively from area studies on the MENA region and non-MENA African countries. Today, it is widely used in studies on the political systems of the MENA region (Erdmann and Engel 2007: 111–113; Schlumberger 2008: 111).22 Clapham (1985: 48) defines neopatrimonialism as: “a form of organization in which relationships of a broadly patrimonial type pervade a political and administrative system which is formally constructed on rational-legal lines. Officials hold positions in bureaucratic organizations with powers which are formally defined, but exercise those powers, so far as they can, as a form not of public service but of private property. Relationships with others likewise fall into the patrimonial pattern of vassal and lord, rather than the legal-rational one of subordinate 22

rdmann and Engel (2007: 113) contrast “neopatrimonial” with “bureaucratic authoritarian” regimes, a subtype introduced by Linz (1964) and later applied to regimes in the MENA region by Hinnebusch (2006)): The difference of both subtypes is in the nature of the bureaucracy. While the government in both subtypes can be described as personal, the bureaucracy can be characterized either as legal-rational (bureaucratic authoritarian regimes) or neopatrimonial (neopatrimonial regimes). Linz (2000) himself also refers to neopatrimonial regimes. Apart from the seven authoritarian subtypes presented in his study (see above), he mentions “sultanistic regimes” as a separate regime type that is based on patrimonial rule. According to Chehabi and Linz (1998: 4–7), sultanistic regimes are an extreme form of neopatrimonial regimes.

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and superior, and behaviour is correspondingly devised to display a personal status, rather than to perform an official function.”23

The combination of patrimonial relationships and a rational-legal administrative system is the decisive characteristic of neopatrimonialism. According to Bratton and van deWalle (1997: 61), “patrimonial authority” is a term used by Weber (1978 [1922]) to describe the “principle of authority in the smallest and most traditional polities.” In such political systems, the ruler “rules by dint of personal prestige and power.” He ensures the security of society and selectively distributes favours to his clients to stabilize his reign (Bratton and van de Walle 1997: 61).24 For Weber (1978 [1922]), “patrimonial” authority (based on “patriarchal” authority) contrasts with rational-legal authority, where a difference between the public and the private sphere exists (Bratton and van de Walle 1997: 61). Bratton and van de Walle (1997: 61–62) emphasize that in political systems based on rational-legal authority “written laws and bureaucratic institutions routinize the exercise of authority and protect individuals and their property from the whims of capricious leaders.” From their point of view, “patrimonialism” in the sense of Weber (1978 [1922]) applies only to “small, isolated communities with rudimentary economies,” but not to modern political systems with “bureaucratic institutions and written laws.” 23

The definition of Clapham (1985) focuses more on the social aspects of authoritarianism, in contrast to Geddes (1999: 123) (“control over access to power and influence”), Linz (2000) (party system, ideology), Levitsky and Way (2002) (institutions), and Schedler (2002) (elections). 24 It is important to note that translations of Weber’s work might be different, although Weber (1978 [1922]: 212, 299–300) himself does not clearly distinguish between the terms “authority” and “domination.” According to the 1978 translation of Weber (1978 [1922]: 1010), “patrimonial domination” is rooted in “patriarchal domination,” which itself is a form of “traditional domination” (see chapter 2.2). Patriarchal domination is based on “strictly personal loyalty” and “grows out of the master’s authority over his household” (Weber 1978 [1922]: 1006). Patrimonial domination then “developed on the basis of the oikos [“the communal form of household differentiation;” C.N., citation from Weber (1978 [1922]: 1010)] and therefore of differentiated patriarchal power” (Weber 1978 [1922]: 1010). As Weber (1978 [1922]: 1013) notes, “patrimonial conditions have had an extraordinary impact as the basis of political structures. Egypt [e.g.; C.N.] almost appears as a single tremendous oikos ruled patrimonially by the pharaoh.” Weber (1978 [1922]: 1013) therefore locates the origin of patrimonial domination in the traditionally small oikos, but also underlines its applicability to bigger entities, such as a state. Specifically, “patrimonialism and, in the extreme case, sultanism tend to arise whenever traditional domination develops an administration and a military force which are purely personal instruments of the master. Patrimonialism can be the basis of a patrimonial state, which exists “when the prince organizes his political power over extrapatrimonial areas and political subjects—which is not discretionary and not enforced by physical coercion—just like the exercise of his patriarchal power.”

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Thus, they conclude, “political scientists have found it useful to characterize as neopatrimonial those hybrid political systems in which the customs and patterns of patrimonialism coexist with, and suffuse, rational-legal institutions” (Bratton and van de Walle 1997: 61–62). From a review of literature, Schlumberger (2008: 111– 112) carve out six additional characteristics of neopatrimonial regimes: “Insularity from societal forces;” “dynamic elite configuration;” “integrated strategies of political legitimization;” “paternalistic traits / distribution of benefits to the population;” “uncertain roles and behaviour of state institutions;” and “a political economy pervaded by rent-seeking of societal actors” (see also: Pawelka 1985). According to Schlumberger (2008: 111), this combination of characteristics make neopatrimonial systems “especially resistant to change.” All of these characteristics of neopatrimonial regimes can be observed, albeit to different degrees, in the four countries under investigation in this study as well. However, any conclusions ultimately remain tentative—above all due to the uncertain theoretical basis. Probabilistic findings might be relevant for other authoritarian political systems and especially those with neopatrimonial regimes, but whether empirical cases of regimes can be classified as neopatrimonial and thence be declared comparable, remains a matter of subjective assessment.

2.4

Regime Stability, Economic and Political Stabilization

Having defined the term “regime” in chapter 2.2 and “authoritarian regime” in the preceding subchapter, I now turn to the empirical observation of regimes over time. Empirically, regimes undergo periods of stability and change. Primarily relevant for this study is stability. Specifically, what does the term regime stability mean, and under which conditions are political regimes stable? In fact, stability is a vague term in political science and has never been precisely defined. Research more often has analyzed its opposite, that is political change, for example through revolutions (Schmidt 2003: 16). When political scientists have dealt with the term “stability,” they have most often discussed it in relation to political systems, on a less abstract level also for states, but seldomly for regimes. However, the analysis of political systems can provide some insights on stability, which might be applied to political regimes as well. In his book “A systems analysis of political life,” Easton (1965: 17) poses the question: “how do any and all political systems manage to persist in a world of both stability and change?” In his theory, the political system is situated in an environment of other societal systems and has to react to “influences deriving from the other systems in which empirically it is imbedded” (Easton 1965: 18, 22). This is

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a dynamic process, in which political systems constantly adapt “their own behaviour, transform their internal structure, and even go so far as to remodel their fundamental goals” (Easton 1965: 19). As long as they “keep [their] essential variables [i.e. the allocations of values for a society and the relative frequency of compliance with them; C.N.] operating within (...) their critical range,” political systems “can be said to persist” (Easton 1965: 24–25). Here it is important to note that Easton (1965) does not speak of “stability,” but of “persistence”. According to his theory, political systems are never stable, as they are in a constant state of adaptation and change. This view is modified by Sandschneider (1995: 111), who also emphasizes continuous adaptation, but for whom a state of stability nevertheless exists. He describes “stability” as “an equilibrium in constant flux, which continuously has to be newly created and reached [translation from German; C.N.].”25 Therfore, stability depends on the observation period. According to Sandschneider (1995: 111), “in arbitrarily short periods of investigation, every system is stable [translation from German; C.N.].” Furthermore, stability can only be observed ex post. Only if a system did not change in a given situation can we empirically detect stability. It is not possible to directly observe it (Garzón Valdés 1988: 30).26 The definition of Garzón Valdés (1988: 27) focuses on this interconnectedness of stability and change [translation from German; C.N.]: “A political system is stable, if under certain conditions it has the tendency (disposition) to react in such a way, as to preserve its identity.”27

25

Easton (1965: 19–20), referring to a “system,” does not speak of a disposition to return to “equilibrium.” From his point of view, it is also possible that systems strive for continuous disequilibrium. However, as long as the “essential variables” remain within a critical range, the system persists. The same consideration applies to political regimes. In this case, the “support” for the regime is the critical variable (see below). 26 For Garzón Valdés (1988: 25–31), this problem is rooted in the dispositional character of stability. Stability is observable only under specific conditions and only through an ex post evaluation of the system’s behaviour under these conditions. 27 Gradually, Garzón Valdés (1988: 84–85) refines his definition and concludes: “A political system is stable, if in certain cases that are linked to the institutionalized exercise of power —whether these are normal or hard cases—, it has the tendency (disposition) to react in such a way that its permutations are an effective explication of its rule of recognition, and if this tendency is maintained during a time period which is significant in its historic and regional context.” Thus, he refines his definition in three aspects: First, he gives a more detailed explanation of the conditions necessary to detect stability. Second, he specifies the “identity” of a system. Third, he draws attention to the point that stability has a variable time frame and that its assessment is dependent on the regional context.

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As Easton (1965), Garzón Valdés (1988) emphasizes the non-transformation (or non-fundamental transformation) of a system’s core elements (its “identity” for Garzón Valdés (1988), its “essential variables” for Easton (1965)) as a necessary condition for stability (see also: Schmidt 2003: 35–36). These considerations on the level of a political system can also be applied to its constituent elements, for example to the political regime. For Easton (1965: 171–172), the “basic political objects” of a political system (the “authorities,” the “regime,” and the “political community”) are subject to the same environmental pressures and react in a similar way. Referring to regimes, (Easton 1965: 194) remarks: “Although, in the process of our analysis, it may at times appear that a regime in this sense is static, we well know in political research that regimes and their components adapt continuously to changing conditions. Where they fail to do so, fictions develop to cope with change or violent eruptions may modify or destroy them dramatically. A specific regime at any moment in time will be the product of the accomodation among the pressures for new goals, rules, or structures stimulated by social change and the limitations imposed by existing conventions and practices.”

Thus, the question arises under which conditions a regime, despite continuous processes of adaptation and change, could be in a temporary state of stability—and, if at all, under which conditions this would be the case. According to Easton (1965: 193), regimes consist of three components: “Values (goals and principles);” “norms;” and “structure of authority.” Of these three, values are the crucial component, as they influence the other two: “the politically dominant values do impose some broad constraints upon the actions that can be taken and even upon the structure of the regime itself” (Easton 1965: 200). Lawson (1993), who refers to a definition of “international regimes” by Krasner (1983),28 comes to the conclusion that change in these “values” (which she uses as a summary term for the “principles and norms” emphasized by Krasner (1983)) are the key to understanding regime change. When regimes change, “rules and procedures” (for which Easton (1965) uses the term “norms”) are reshaped through value change: “The key to the definition of “regime” here is clearly related to the values embodied in the principles and norms and implies that rules and procedures (which can take various forms and still be consistent with the character of the regime) derive from and are secondary to these values. A case of regime change, on this account, is therefore

28

Krasner (1983: 1) defines “international regimes” as “principles, norms, rules and decisionmaking procedures around which actors converge in a given issue area.”

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indicated primarily by a change in (or abandonment of) the principles and norms governing the nature of the regime” (Lawson 1993: 185–186).

In reverse reasoning, we can conclude that a regime can be called stable as long as the values underlying the regime do not change fundamentally. During this state of stability, norms and structure of authority change continuously, but within the limits set by the values. Once environmental influences effect a fundamental change in these values, a regime becomes unstable and changes its character. In this study, I operationalize this fundamental change of character as the movement of a regime from the democratic category to the authoritarian or vice versa. This stance is still influenced by transitologist considerations, but it does not fully adopt the conclusions of the transition paradigm. Instead it is assumed here that transitions between regime types are possible in whatever direction—from authoritarian to democratic but also vice versa. “Regime stability” thus means the remaining of a regime within the authoritarian or democratic category, irrespective of movements within the category (e.g. an evolution towards another subtype of authoritarian or democratic regimes). If political regimes can be in a temporary state of stability, what are the factors that might stabilize or destabilize them? The term I use in this study is stabilization, meaning the process that prevents a political regime from fundamentally changing its character. In my theoretical model, there are two types of stabilization: economic stabilization and political stabilization. Economic stabilization is the result of economic factors that foster the stability of a regime. These factors can unfold their effects on a microeconomic and / or on a macroeconomic level. Economic stabilization here refers solely to the macroeconomic level. It can happen through two main channels: The first channel is macroeconomic stabilization in the sense of the Washington Consensus (see chapter 2.1), meaning the restoration of balance or surplus in the state budget and on the international accounts (current account, capital account, external debt stock, international reserves). The second channel is the enhancement of economic growth and socioeconomic development. Both channels could be linked theoretically and empirically, although from a policy perspective the first channel can be activated by a regime in the short run, whereas the second channel requires longer-term policy approaches in order to be sustainable. Success in both channels assumedly is vital for regime survival and, in the long run, for the stability of authoritarian rule: Without long-term balance on the state budget and on the international accounts, regimes will lose their financial autonomy and their power of material redistribution.29 Without a minimum level of economic growth 29

As Haggard and Kaufman (1995: 45–55, 60–74) point out, economic crises have the potential to bring down authoritarian regimes and in some cases foster systemic regime changes (i.e.

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and progress in socioeconomic development, social problems could aggravate to an extent where political rule becomes unsustainable (see also: Payne 1993: 141–143, 166; Haggard and Kaufman 1995: 45–46; Bratton and van de Walle 1997: 100; Geddes 1999: 138; Soliman 2011 [2006]: 51–52, 55). Political stabilization is the result of political and economic factors that set in motion political processes on the micro, meso, or macro level. A second criterion of differentiation is if these factors operate through policies, through the arena of politics, or through processes at the polity level. The difference to economic stabilization is that the factors behind political stabilization generate direct political effects—instead of solely indirect political effects as for the factors behind economic stabilization. For both types of stabilization it is theoretically and empirically possible that effects on a micro level and / or meso level accumulate to effects on the macro level, if we assume methodological individualism. For Easton (1965), the decisive factor for the “persistence” of a political system is “support” by its “politically relevant” members. In turn, these systemic characteristics also apply to the political system’s basic political objects and their components (such as the “regime”) (Easton 1965: 153–158). Thus, if a regime is to persist (which is the case if it is stable according to the definition above) the politically relevant members of the system have to support the regime’s constituent elements, that is its “values,” “norms,” and “structures of authority.” Once support for these elements falls below a critical level, the regime breaks down (Easton 1965: 194). For Easton (1965), “support” is rooted in feelings of a system’s members linked to want-satisfaction: “Support is a function not only of actions or intensities of feelings, pro or con, but of the number of members who hold these feelings. That is to say, the total input of support for a political object is a measure of the intensity of individual feelings and behaviour together with the number of individuals involved and this is not a simple summing procedure” (Easton 1965: 165). “Support for any of the political objects will, in the long run, depend upon the members being persuaded that outputs are in fact meeting their demands or that they can be expected to do so within some reasonable time” (Easton 1965: 267).

democratization). According to the authors, economic crises typically begin with a “serious deterioration in the balance-of-payments,” “accompanied by widening fiscal deficits.” The resulting adjustment efforts by incumbent governments then lead to a “marked slowdown in economic activity, an increase in unemployment, and a deterioration in real wages,” triggering “intra-elite conflict” and “mass mobilization” against the regime (see also: Bratton and van de Walle 1997: 100; Geddes 1999: 138).

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Easton (1965) distinguishes between two kinds of support: “specific;” and “diffuse.” “Specific support” is present “wherever the input of support can be closely associated with the satisfactions obtained from specific classes of output” (Easton 1965: 268). “Diffuse support,” on the other hand, “forms a reservoir of favorable attitudes or good will that helps members to accept or tolerate outputs to which they are opposed or the effect of which they see as damaging to their wants” (Easton 1965: 273).30 Whenever support falls toward a critical level where the system’s persistence would be jeopardized, the system can respond in several ways: It can generate specific support by “improving the adequacy of outputs” or by coercion. Alternatively it can generate diffuse support for each of its basic political objects. Regarding the authorities and the regime, it can “seek to instill a deep sense of legitimacy in the members for the regime as a whole and for individuals who act on behalf of it,” or it can “invoke symbols of the common interest.” Regarding the political community, it can “promote and strengthen the degree to which members identify with [it]” (Easton 1965: 275–277). All basic political objects of a political system can therefore be stabilized by deliberate policies. So far, the theory of Easton (1965) is highly abstract and it remains unclear how it can be operationalized in order to empirically detect these “stabilization policies” initiated by a political system in times of declining support for its basic political objects (including the regime) by its politically relevant members. Operationalization is complicated by two problems: First, it is not clear who the agents are that initiate stabilization policies. Second, the mechanisms underlying the creation of support through the policies proposed by Easton (1965) (see above) are unclear—how is the “adequacy of outputs” “improved” (specific support)? what is “legitimacy” and how is it created (diffuse support)? Regarding the agents who initiate stabilization policies, Easton (1965) seems to gloss over the question. In his overview on the general types of responses to “stress” (what I have labelled “stabilization policies”), he remains at the system level, pointing out that systems react through specific policies. He does not, however, mention specific agents who initiate these policies (Easton 1965: 275–277). This reasoning reflects his system approach, where policies are initiated by societal demands and not by specific agents within the system. Nevertheless, to explain the generation of 30

Westle (1989: 184–205), who extends the model of Easton (1965), further divides support for each political object into several additional types. In contrast to Easton (1965) (two), she introduces four types of support: “diffuse;” “diffuse-specific;” “specific-diffuse;” and “specific.” Diffuse-specific and specific support depend on political outputs. Specific-diffuse support is related to political outcomes, meaning an evaluation of performance in a longer time frame. Diffuse support is not output-based, but rooted in the compatibility of ideologies and the personal values of a system’s individuals.

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diffuse support, Easton (1965) has to introduce the “leadership” as a specific group of members within the system. The leadership can manipulate other members of the system through “ideologies,” which are a source of legitimacy and thus capable of raising diffuse support. Ideologies are “an instrument of control in the hands of a leadership” by which “[it] may be successful in capturing the energies of the members for specific political objectives that they, the leadership, may consider desirable or necessary” (Easton 1965: 295–296, 340). The leadership itself is from “among the authorities” (Easton 1965: 297). It is thus reasonable to assume stabilization policies, which are not reactions by the system as a whole, are initiated by this leadership group, whose members belong to the authorities of the system. Regarding the mechanisms that underlie the creation of support, it remains unclear how “specific support” can be raised by “improving” the “adequacy of outputs.” As specific support comes from “satisfactions obtained from specific classes of output,” the generation of this kind of support can be expected to vary substantially between members of a system. Given that each member is likely to have individual preferences regarding the outputs of policies, it is impossible to deduct empirically testable general hypotheses on the nature of stabilization policies that aim to raise specific support. The only feasible method are case studies on specific policies that might be stabilization policies catering to the preferences of a particular group of members within a political system. Ultimately, the only general hypothesis we can draw up is that the political leadership probably aims at accumulating the material or immaterial resources necessary to undertake these policies. Furthermore, regarding diffuse support for a system,31 it is unclear what the “legitimacy” mentioned by Easton (1965) is and how it is created. For (Easton 1965: 278), it is not legitimacy per se that is at the basis of diffuse support. Instead, he speaks of “a belief in legitimacy,” “a sense of legitimacy,” and “feelings of legitimacy” that members have to project on the system (Easton 1965: 278; see also: Lipset 1959: 86–87). The same distinction is made by Westle (1989: 22–25). She defines “legitimacy” as “rightfulness of a political order or political rule” [translation from German; C.N.]. This reasoning has two implications: First, legitimacy is based on values, which are reflected in the characteristics of the political system and in its

31

I will deliberately leave out a discussion on policies that “invoke” the “common interest” (as proposed by Easton (1965: 275–277), as these are of minor importance theoretically and empirically. Easton (1965) admits that the “leadership” has few possibilities to make use of such policies, due to two preconditions: First, the common interest as an ethical standard already has to exist in society; and second, its invocation is dependent on “third forces” outside the direct control of the leadership (Easton 1965: 311–319).

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procedures of political decision making.32 Second, legitimacy implies a belief of the citizens in the legitimacy of the political system.33 (Easton 1965: 278) describes this “belief in legitimacy” as: “the conviction on the part of the member that it is right and proper for him to accept and obey the authorities and to abide by the requirements of the regime. It reflects the fact that in some vague or explicit way he sees these objects as conforming to his own moral principles, his own sense of what is right and proper in the political sphere.”

According to Easton (1965: 286–288), legitimacy can be ascribed by the members of a political system both to the authorities and to the regime. It is fed by three types of sources: “Ideology;” “structure;” and “personal qualities.” “Ideologies” are contained in the values of the regime. They are “ethical principles that justify the way power is organized, used, and limited and that define the broad responsibilities expected of the participants in the particular political relationships” (Easton 1965: 292). These principles are evaluated by the system’s members and compared to the values embodied in the regime and in the actions of the authorities. If system members come to a “belief in the rightness of these values and principles and in the compatibility of a regime and its authorities with them,” they will be motivated to

32

According to Garzón Valdés Garzón Valdés (1988, 17–24), these values have to be of “ethical quality” and derived from natural law. 33 In contrast to legitimacy, Garzón Valdés (1988: 19–20) calls this belief “legitimation” of the political system, meaning an “acceptance” by its members. An example is the German Nazi system, which was legitimate among a majority of Germany’s citizens, although it did not have legitimacy (see also: Lipset 1959: 87). The distinction between legitimation and legitimacy is derived from Weber (1978 [1922]: 212–215), who emphasizes that “legitimate domination” only becomes effective if “in a given case the particular claim to legitimacy is to a significant degree and according to its type treated as valid” by the ruled. (Weber 1978 [1922]: 215) distinguishes “three pure types of legitimate domination” on which “the validity of the claims to legitimacy may be based”: rational; traditional; and charismatic (see chapter 2.3). For Weber (1978 [1922]), however, “legitimacy” is an “empirical”, not a “normative” term. The “validity” (in German: “Geltung”) of an order is “the probability that action will actually be so governed [that it is guided by the belief in the existence of a legitimate order; C.N.].” Therefore, claims to the legitimacy of an order will be treated as valid or invalid based on “affectual” (“resulting from emotional surrender”), “value-rational” (“determined by the belief in the absolute validity of the order as the expression of ultimate values of an ethical, esthetic, or of any other type”), or “religious” (“determined by the belief that salvation depends upon obedience to the order”) motives. Besides, “the legitimacy of an order may (...) be guaranteed also (or merely) by the expectation of specific external effects, that is by interest situations.“ An example are conventions and laws, which entail sanctions in case of nonobedience that ensure their validity (Weber 1978 [1922]: 31–34).

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support these objects (Easton 1965: 292).34 Two factors are critical for the effectiveness of an ideology: its “perceived relationship to performance;” and its “appeal on broader psychological grounds.” In the first case, system members evaluate if the “promises and goals explicitly stated or implicitly roused by an ideology” have been met in reality. In the second case, the effectiveness of an ideology depends on its capacity to “establish a firm link with the motivational structure of the members in the system: to their conception and feelings about their own needs, interests, and place in the political and social system or to their conviction that the ideology correctly or truthfully explains the real world” (expressive aspect); and to the skill of the leadership to select an appropriate ideology (instrumental aspect) (Easton 1965: 293–296). On the basis of perceived legitimacy through ideology (ideological legitimacy) the two other sources mentioned above can further increase a system’s legitimacy: Structural legitimacy refers to the validity of the structure and norms of the regime. It can also spill over to the authorities that “are perceived to occupy valid roles in the political structure, to have been selected in accordance with the norms of the regime, and to wield power in the manner prescribed by these norms and by the regime goals” (Easton 1965: 298–299). Personal legitimacy refers exclusively to the authorities. It depends “upon the extent to which members see the occupants of authority roles as personally, in their behaviour and symbolism, worthy of moral approval” (Easton 1965: 302–307). To summarize, Easton (1965) hypothesizes that the leadership group from among the authorities of a political system can raise the level of diffuse support for the system’s regime and for its authorities through two basic channels: First, it can create ideologies that are compatible with regime values and that psychologically appeal to the members of the system. In order to be effective, however, these ideologies have to be backed by actual performance. Second, the leadership can fill important authority positions with individuals that are morally approved by the members of the system. As a result of legitimation through both channels, members will ascribe legitimacy to the authorities and to the regime, and thus provide diffuse support to these two basic political objects of the system. After all, “performance,” meaning political outputs appreciated by the members of a political system, is a necessary condition for the continuity of both types of support—specific and diffuse. In the case of specific support, performance is very narrowly defined and has to be in accordance with the expectations of a specific member of the system. In the case of diffuse support, performance has to be compatible with the underlying ideology, which usually appeals to a larger part of 34

Here, Easton (1965) apparently draws on the prior work of Lipset (1959: 86–87).

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Key Terms

society. Impossible as it might be for specific support, we can make predictions on what political outputs would have to look like to be compatible with common ideologies of mass appeal. This operationalization of political outputs conducive for diffuse support enables us to derive empirically testable hypotheses for regime stability (see chapters 3.1 and 4).

2.5

Resource Endowment

In this study, I subdivide the countries of the total MENA sample according to their resource endowment into resource-rich and resource-poor countries with either a small or large population.35 The term “resource” does not solely refer to the natural resources of a country. Instead I use a political definition of resources proposed by Rentier-State Theory (RST), which takes into account the revenue generating characteristics of resources. According to RST, richness in resources is determined by the amount of “rent” a country’s political regime has access to (see chapter 3.1.2). “Rent” is defined as the difference between the market price of a good or factor of production and its opportunity cost (Richards and Waterbury 2008: 16). In the case of a physical good, rent is the price component that exceeds production costs plus an average profit (Beck 2009: 27). From an income perspective, rent is “revenue that is appropriated without the input of production factors or without a direct service in return, and that is thus freely disposable [translation from German; C.N.]” (C. Schmid 1997: 41). To become politically effective, rent has to be accessible by a country’s political regime. Beck (2009: 26–28) and Richter (2010: 160) distinguish between four types of rent:36 1. Natural resource rent: It occurs when natural resources are exported and sold at world market prices that exceed their cost of production plus an average profit. Most important in the MENA region is rent from the sale of oil and gas. Other natural resources with significant rent components are diamonds, copper, and phosphate (the latter being an important natural resource in Morocco, Jordan, and Tunisia) (C. Schmid 1997: 42).

35

The term “country” emphasizes the geographic particularities of the entity, whereas the term “state” signifies the political character of the entity. 36 C. Schmid (1997: 42) mentions three other types of rent: Agrarian rent (e.g. from tea, coffee, grain), interest on stocks and bonds, and hidden rent (through manipulation of exchange rates).

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2. Political or strategic rent: international financial transfers without or with subsidized repayment obligation in the form of budgetary, military, or development aid. 3. Locational rent: it occurs due to locational characteristics of a country, for example when a country disposes of strategic transportation routes, such as pipelines or waterways. Besides, involvement in international tourism (attractiveness of a country due to its climate, geographic particularities, cultural monuments, or religious sites) can give rise to this type of rent (Richter and Steiner 2008). 4. Rent from workers’ remittances / migration rent: financial transfers by migrant workers to their countries of origin. The classification as rent is disputed, as the sender of the money has to work for his or her income, but transfers take on a rent character from the recipient’s perspective. A political regime can access these four sources of rent more or less easily: Natural resource rent, political rent, and locational rent can in most cases be directly appropriated through the state. Migration rent is only indirectly accessible, for example through taxation of cross-border transfers or through income and consumption taxes in the receiving country. To assess its political significance, absolute rent income has to be related with population size. The RST assumes a large share of the rent income appropriated by a regime is spent on patronage, with the aim to buy political obedience. Population size thus determines the average spending capacity of a regime at a given level of absolute rent income. In this study, I thus operationalize the resource endowment of a country as rent income per capita. In the MENA, countries are differently endowed. Combining rent income (subdivided into the categories resource-rich and resource-poor) and population size, all four combinations exist, as table 2.1 shows:37 37

The classification in table 2.1 is based on a 2008 WB report on economic development and development prospects in the MENA region (World Bank 2009: 2). The original report classifies countries according to labor abundance and resource abundance. It thereby arrives at three categories: resource-rich / labor-abundant; resource-rich / labor-importing; and resourcepoor / labor-abundant. Instead of labor abundance, I use population size, which yields one more category (resource-poor / small population, for countries that do not import labor, although they have a small population). Another study by Schlumberger (2004: 80–85), who subdivides the sample of Arab MENA countries according to “relative amount of natural resources at the disposal of the respective governments” and “distinction between Arab republics and Arab monarchies,” comes to similar conclusions—his group of “resource-rich” Arab MENA countries consists of Saudi Arabia, Bahrain, Oman, Qatar, UAE, Iraq, Libya, and Algeria; while his group of “resource-poor” Arab MENA countries consists of Jordan, Morocco, Lebanon, Egypt, Syria, Tunisia, Yemen, and the Palestinian Entity. Thus, Syria and Yemen are in the resource-poor category rather than in the resource-rich category as suggested by

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Table 2.1 Classification of MENA countries according to rent income of the state and population size Resource-rich Resource-poor

Large population

Small population

Algeria, Iran, Iraq, Saudi Arabia, Syria, Yemen Egypt, Morocco

Bahrain, Kuwait, Libya, Oman, Qatar, UAE Jordan, Lebanon, Tunisia, West Bank & Gaza

the study of the World Bank (2009: 2). This difference emphasizes the definition of more or less arbitrary thresholds that determine if a country is resource-rich or resource-poor.

3

Theory and State of the Art

In this chapter, I present theory and empirical results from the two scientific fields that are relevant for the research question of this study: stability of authoritarian regimes and economic liberalization. In the first subchapter, I carve out theoretical propositions on factors potentially affecting the stability of authoritarian regimes. In the second subchapter, I discuss the political, economic, socioeconomic, and international effects of economic liberalization. It is clear that, due to the size of the material, the selection of studies must necessarily remain eclectic and subjective. Until now, the stability of authoritarian regimes and economic liberalization have not or seldomly been linked theoretically—a problem for this study as the research question demands this linkage. The task therefore is theoretical innovation: After establishing the state of the art in both fields (which I do in this chapter), I screen the material to find common ground and linkages between the two fields. The aim is to generate new theoretical propositions that directly link economic liberalization with the stability of authoritarian regimes. This is done in section 4.2, where I present 12 new hypotheses (“integrated hypotheses”) that integrate together the two theoretical fields.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_3

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3.1

3 Theory and State of the Art

Stability of Authoritarian Regimes

With the increased focus on authoritarian regimes1 as a regime type sui generis and the fact that many authoritarian regimes did not take the path towards democracy (see section 2.3), academic research began to analyze the factors responsible for the stability of authoritarian rule. Studies on the subject are numerous, including single country case studies, comparative case studies, and large-N statistical studies. Case studies often emanate from area studies and try to carve out the region-specific characteristics of authoritarianism. Large-N studies most often originate from comparative research on authoritarian regimes, the strand that deals with authoritarian regimes on a conceptual level (e.g. by establishing typologies). Several authors have tried to sort existing studies (large-N and case studies from various regions) according to the factors these studies regard as explanatory for the stability of authoritarian rule. Köllner (2008: 357–360) identifies two explanatory factors most prevalent in recent studies: the economic resource endowment of a country; and its political regime as well as country-specific institutions (elections, parliaments, and parties). Building on this observation, Bank (2010: 22), who explicitly wants to take stock of approaches from both area studies and comparative politics, arrives at three types of theoretical approaches: institutionalist; politico-economic; and approaches focusing on international politics. “Institutionalist” approaches comprise all studies that “focus on the form and functions of political institutions”—including regime types, the relationship between regime and opposition, “authoritarian institutions,” legitimation, and “electoral authoritarianism.” In contrast, the second category of politico-economic approaches is very narrow and only comprises studies using RST as their theoretical basis. The third category subsumes approaches focusing on international politics. It is the least coherent, as the selection of studies is eclectic and there is no dominant research focus (Bank 2010: 23–34). These cross-regionally derived categories are also used by other authors to structure the stock of existing studies on authoritarian stability in the MENA region. Schlumberger (2008: 89, 91), from a review of publications in MENA area studies, arrives at four region-specific explanatory factors for the stability of authoritarian rule: economic conditions; political regime type; societal structure; and geostrategic 1

In most of the literature reviewed in this chapter, the term “authoritarian regime” comprises both the “regime” and the “authorities,” as introduced by Easton (1965). As has been explained in section 2.2, the distinction between the regime and the authorities is blurred in many authoritarian contexts. For simplification, I will deliberately ignore the distinction in subsequent chapters, using the “regime” as a term comprising both its institutional aspects and the actors constituting and perpetuating it.

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factors. He also mentions studies focusing on the religious characteristics (Islam) and cultural particularities (concept of “Arab culture”) of countries in the MENA region. However, due to their inherent theoretical flaws and missing empirical basis, Schlumberger (2008) does not consider them to be relevant.2 Ultimately, the categories of Schlumberger (2008) and Bank (2010) are relatively similar. A slight difference is that Schlumberger (2008) adds a fourth category (societal structure) and that Bank (2010) is more extensive in his institutionalist category. Whereas Bank (2010) considers domestic institutions of all sorts, Schlumberger (2008) specifically focuses on the nature of the polity. In the subsequent overview of studies discussing the long-term factors of authoritarian stability, I adopt the four categories of Schlumberger (2008). In addition, in line with Bank (2010) I extend the institutionalist category, subdividing it further into studies focusing on the polity, politics, and policies of authoritarian regimes. I will deliberately include studies of cross-regional scope and non-MENA origin, as they might be relevant for explaining the stability of authoritarian rule in the MENA region as well. In each subchapter, I first present cross-regional and non-MENA studies, before I turn to studies on the MENA region and on single MENA countries. My selection of studies is eclectic, and it comprises studies with a deductive theoretical framework as well as studies that undertake inductive theory building. It is important to note that many studies presented in the following subchapters belong to the field of democratization studies (owing to the fact that genuine research on authoritarianism is still a relatively young field). However, from a systemic perspective, inhibited democratization is equal to the stability of authoritarian rule. Thus, democratization studies3 might provide valuable information for our research question as well (Hinnebusch 2006: 374).

3.1.1

Political Factors

The first category of factors potentially relevant for the stability of authoritarian regimes are political factors. I subdivide them into factors located on the polity, politics, or policy level. The second distinction I make is geographic: the first category 2

One of the main proponents of this strand of reasoning is Huntington (1996). For a detailed discussion of religious and cultural approaches trying to explain the stability of authoritarian rule on a global scale, and an attempt to falsify their hypotheses, see Schlumberger (2008: 91–102). 3 The main dividing line of these studies is their theoretical perspective, which is either structural or actor-centered (Brownlee 2002a: 37; Teorell 2010: 16–28).

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of studies are cross-country studies or case studies on non-MENA countries; the second category are studies on the MENA region or on single MENA countries.

3.1.1.1 Polity: Neopatrimonialism Cross-country and non-MENA studies Due to the novelty of the field, cross-country research on polity-related factors of authoritarian stability is relatively slim. Until the end of the 1990s, the focus of research was on transition from authoritarianism to democracy. Only during the 2000s did the debate shift to the factors responsible for the stability of authoritarian rule. Thus, theory building is still in its early stages, visible in the fuzziness of authoritarianism as a theoretical concept and in the proliferation of authoritarian subtypes (see section 2.3). Not surprisingly, the studies that do exist are still rooted in the transitions literature. An early study by Geddes (1999) analyzes the “democratization experience” of 163 authoritarian regimes during the period 1946–1998. Subdividing regimes into military, personal, and single-party or a combination of these types, she comes to the conclusion that single-party regimes are the least likely to democratize, while military regimes are the most likely to democratize. In reverse reasoning, her findings indicate that single-party regimes are the most stable type of authoritarian regimes, whereas military regimes are the least stable type. A later study by Magaloni (2008) comes to similar conclusions: From an analysis of close to 4,000 autocratic regime years during the period 1950–2000, Magaloni (2008: 735) infers that single-party regimes are “the most stable dictatorial regimes”. The second most stable type of regimes are monarchies, followed by hegemonic-party regimes, and military dictatorships. In another study, Hadenius and Teorell (2007: 143, 152–154) analyze 191 countries during the period 1972–2003 and conclude that those authoritarian regimes that undergo some form of transition often pass through several stages, in which they evolve towards another type of authoritarian regime, before they finally democratize. For these cases of transition, the most likely final stage is the “nondominant limited multiparty” regime, which is also the least stable type of authoritarian regime. Referring to the study by Geddes (1999), Bratton and van de Walle (1994) criticize that authoritarian regimes have been treated as an undifferentiated category by the transitions literature. They point to the “neopatrimonial nature of African authoritarian regimes, which [they] contrast with the corporatist regimes that democratized in Southern Europe in the mid-1970s and in Latin America in the mid-1980s” (Bratton and van de Walle 1994: 454). As existing studies had mostly been based on the corporatist type of authoritarian regimes, they argue, theoretical predictions on transition outcomes were not applicable to regions like Africa, where regime

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characteristics were completely different. Bratton and van de Walle (1994: 458) describe these neopatrimonial regimes prevalent in many African countries as: “Regimes [in which] the chief executive maintains authority through personal patronage, rather than through ideology or law. As with classic patrimonialism, the right to rule is ascribed to a person rather than an office. In contemporary neopatrimonialism, relationships of loyalty and dependence pervade a formal political and administrative system and leaders occupy bureaucratic offices less to perform public service than to acquire personal wealth and status. The distinction between private and public interests is purposely blurred. The essence of neopatrimonialism is the award by public officials of personal favors, both within the state (notably public sector jobs) and in society (for instance, licenses, contracts, and projects). In return for material rewards, clients mobilize political support and refer all decisions upward as a mark of deference to patrons.”4

From an analysis of 45 Sub-Saharan regimes, Bratton and van de Walle (1994) infer that political transitions pass off differently from neopatrimonial authoritarianism than from corporatist authoritarianism.5 Emphasizing institutional differences, they conclude that “prospects for democracy are better in transitions from regime types other than neopatrimonial ones.” The main reason seems to be that “greater progress has been made in other regimes in routinizing participation and (especially) competition in formal political institutions” (Bratton and van de Walle 1994: 487).6 4

Bratton and van de Walle (1994) among others draw on Clapham (1985: 48), who emphasizes the coexistence in neopatrimonial regimes of patrimonial and rational-legal structures (see the definition of “neopatrimonialism” in section 2.3): “[Neopatrimonialism is] a form of organization in which relationships of a broadly patrimonial type pervade a political and administrative system which is formally constructed on rational-legal lines. Officials hold positions in bureaucratic organizations with powers which are formally defined, but exercise those powers, so far as they can, as a form not of public service but of private property. Relationships with others likewise fall into the patrimonial pattern of vassal and lord, rather than the legal-rational one of subordinate and superior, and behaviour is correspondingly devised to display a personal status, rather than to perform an official function.” 5 The key differences are rooted in the form of social protests, elite fracture, elite pacts, and the support of social classes (Bratton and van de Walle 1994: 460–468). Even within the category of neopatrimonial regimes, different institutional characteristics are correlated with different transition outcomes (Bratton and van de Walle 1994: 469–484). According to Bratton and van deWalle (1994: 485), most important seems to be “the amount of formal political participation and competition allowed by the ancien régime.” 6 Bratton and van de Walle (1994: 489) observe that “only formal institutions—such as trade unions, human rights organizations, and, especially, political parties—can force recalcitrant governments into amending constitutions and calling elections, and appear to populations as plausible alternatives to the government in power.”

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Ruhl (1996) comes to a similar conclusion in his global study of 38 neopatrimonial regimes, which are also classified as low-income countries by the WB. Focusing on two variables (“former regime type” and “level of socioeconomic development”), he argues that structural context matters in democratic transition. According to Ruhl (1996), countries whose former regime has been neopatrimonial and whose level of socioeconomic development is low, are least likely to democratize, and they will face great difficulties in the consolidation of newly created democratic structures.7 Similar to Bratton and van de Walle (1994), Ruhl (1996: 12) regards existing political culture, the lack of respect for new democratic constitutional rules, mistrust among politicians, a weak civil society, and ill-equipped emerging political parties and civic organizations (lack of traditions, experience, funds, and internal democratic procedures) as the main reasons for failed transitions in such countries. Twisting the institutional argument, Slater (2003: 86, 97) argues that the infrastructural power of regimes, meaning their ability to wield power through efficient institutions, is “the key to explaining variation in their durability.” Thus, “partybacked authoritarian regimes appear to be exceptionally resilient, because parties provide ideal organizational mechanisms for the coordinated implementation of decisions, not necessarily their collective formulation” (Slater 2003: 97). However, and contrary to expectations, this institutionalization is not “antithetical” to a personalization of rule, as the example of Malaysia under Prime Minister Mahathir Mohamad shows. Personalized regimes can be expected to be more stable, if they can draw on efficient institutions to wield power (Slater 2003: 81–82, 86). MENA case and area studies Studies on polity-related factors of authoritarianism in the MENA region often refer to the authoritarian subtype of neopatrimonialism. In his case study on Egypt, Pawelka (1985: 4) uses theoretical elements of neopatrimonialism with the aim of

7

This argument made by Ruhl (1996) is modified by Kirschke (2007), who contends that the level of socioeconomic development is not a decisive factor for the consolidation of democracy after transition from neopatrimonial rule. Instead, he hypothesizes that the type of the newly founded democratic system (“pure-presidential,” “pure parliamentary” or “semipresidential”) plays a key role. According to Kirschke (2007), semipresidential regimes are more vulnerable to authoritarian setbacks, especially if the president and the leading parliamentary group are from opposing camps. The root problem is in inherited neopatrimonial structures, which become manifest when the regime in power buys political followers through patronage. The opposition, once in power, tries to build up its own patronage networks resting on rewards in government appointment. These dynamics lead to political breakdown and entail a high probability of military overthrow.

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“contributing to a general typology of political rule in the Near and Middle East.” According to Pawelka (1985: 24–26), neopatrimonialism has three core elements that aptly describe the forms of political rule present in the MENA region [parts translated from German; C.N.]: The first core element is a “ruler, who is at the center of the political system and who controls all political decisions through a network of personal relations.” The second core element is the ruler’s legitimation by traditional loyalty. Neopatrimonial political systems are characterized by paternalistic behavior of the ruler and the ruling regime, visible through extensive social services offered to the population. At the same time, societal participation in politics is inhibited. Thus, the neopatrimonial state is “elitist, but soft.” The third core element is the concentration of power “within the center of power and between central power and society.” While the state apparatus constantly tries to impede the formation of autonomous societal organizations, “bureaucratic structures monopolize all contact between the political elite and society.” Within the center of power, “the concentration of power culminates in the political leader.” Below the leader, elites are in constant rivalry, enabling the leader to manipulate elites to make his own position unchallengeable. In addition, a fragmented opposition allows the leader to play his role as a political arbiter above party lines. Pawelka (1985: 27) contrasts neopatrimonialism with “modern authoritarianism:” Neopatrimonialism is characterized by “a priority of personalized over institutional power structures,” and it attaches greater importance to legitimation. According to Pawelka (1985: 27), “authoritarian systems also dispose of mechanisms of legitimation. However, they are characterized by the capacity of central power to induce stability through fragmentation and balance of power.” Further to that, neopatrimonialism shows a “greater degree of pluralism, participation, openness, and flexibility, than some interpretations of oriental systems would have admitted in the past.” In a later study, Schlumberger (2008: 111) stresses that “it is hardly controversial (...) among specialists on the region, that most regimes in the Arab world are of the neopatrimonial type.” Citing the study by Pawelka (1985) and others, he argues that the neopatrimonial type of authoritarian regimes is one reason for the stability of authoritarianism in the MENA region.8 According to Schlumberger (2008:

8

A different view is advanced by Hinnebusch (2006), for whom the “all-encompassing category” of “neo-patrimonialism” is not useful. He distinguishes between three subtypes of authoritarian regimes prevalent in the MENA region: “populist authoritarian” regimes; “bureaucratic authoritarian” regimes; and “rentier monarchies” (apparently, all three types converged in the more recent past). The three regime types have structural characteristics that seem to foster the stability of authoritarian rule. Populist authoritarian regimes in particular “combine all the structural features which, even individually, are most resistant to democra-

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111–112), six characteristics of neopatrimonialism make this authoritarian subtype “especially resistant to change” or very “durable:” (1.) Insularity from societal forces: these are tightly controlled and their freedom of action is limited; (2.) Dynamic form: elite structure is flexible and the regime adopts innovations enabling it to adapt to environmental change; (3.) Legitimation strategies: these are an integrative part of the regime and they are targeted towards strategically important social groups; (4.) Paternalistic traits: extensive provision of social services, giving regimes “a considerable degree of legitimacy;” (5.) Uncertainty: especially about the behavior and roles of state institutions; (6.) Rent-seeking of societal actors: a result of systematic patronage, which is a constitutive feature of neopatrimonialism.

A comparative study by Brownlee (2002a) on four MENA countries (Syria, Iraq, Libya, Tunisia) analyzes the conditions for the stability of neopatrimonial regimes. A decisive factor seems to be the “strength of hardliners” within the regime. Their power to avert regime change by using repression is conditional on the degree of “patrimonial penetration of the state and society” with “patronage networks” and on the “dependence on a superpower patron” (Brownlee 2002a: 41–42, 56–57). Ultimately, MENA case studies on the stability of authoritarian rule seem to confirm the conclusion by Bratton and van de Walle (1994) for Sub-Saharan African countries: A neopatrimonial regime is the type of authoritarian regime that is least likely to democratize or that is (as the flip side of the coin) the most stable form of authoritarianism. Taking into account the study by Slater (2003: 85–87, 96–98), it becomes clear that authoritarian regimes in the MENA region are exceptionally resistant to systemic transformation: in addition to their neopatrimonial characteristics, a large number of MENA regimes are party-backed, and they therefore dispose of a high degree of institutionalization for the implementation of their policies.

3.1.1.2 Politics: Actors and Institutions Cross-country and non-MENA studies During the 2000s, a new strand of theory evolved that analyzed the institutional underpinnings of authoritarianism. It came to be known as the “new institutionalism in the study of authoritarian regimes” (Schedler 2009: 323). This institutionalism rested on two assumptions: “Rulers, whether presiding a pre-modern hierarchical state or the complex bureaucratic structures of a modern state, have to resolve two fundamental challenges. Whatever the substantive goals they pursue, they have to

tization, namely personalist leadership, single party rule and a politicized army with a stake in the regime” (Hinnebusch 2006: 380–383).

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secure their ability to govern (the challenge of governance) and [...] their continuity in power (the challenge of political survival).” Therefore, rulers design institutions to preempt vertical threats (from the citizenry) and horizontal threats (from inside the ruling coalition) (Schedler 2009: 326). The underlying regime conception is personalistic: in most cases, the object of study is “dictatorship,” rather than an “authoritarian regime.” Instead of treating the regime as a black box, the focus is on key actors within the regime, especially the relations between “dictators” / “rulers” / “autocrats” and other members of the ruling elite. According to Schedler (2009: 328–329), autocratic rulers face the choice of continuing, creating, transforming, or destroying seven different types of political institutions: Legislatures; courts; elections; parties; media; civil society; and subnational units of decision making. If autocratic rulers create institutions, they subsequently have to “constrain, contain and control their own institutional creations.” Thus, Schedler (2009: 331) distinguishes between “institutional landscaping” (“the grand decisions of institutional macro-design”) and “institutional gardening” (“the more specific choices of institutional micro-design and micro-management”).9 Several authors emphasize the importance of parties (as institutions) for the stability of authoritarian regimes. In a pioneering study, Geddes (1999) tries to explain (by institutional mechanisms) why single-party regimes are more stable than personalist and military regimes. Comparing regime types, Geddes (1999: 132–135) carves out several advantages of single-party regimes over personalist regimes: First, while most personalist regimes end with the death of the leader, single-parties “can usually weather the death of founders and leaders.” Second, in contrast to personalist regimes with a narrow support base, single-parties “are more likely to be open to all loyal citizens (...) and are less likely to limit their clientele to a particular clan, regional, or ethnic groups.” “Through their control over the allocation of educational opportunities, jobs, and positions in government, [they] can typically claim the loyalty (or at least acquiescence) of many of the most able, ambitious, and upwardly mobile individuals in society, especially those from peasant and urban marginal backgrounds, whose social mobility might otherwise have been quite limited.” Third, singleparties “are remarkably resilient in the face of disastrous economic performance.” In contrast, personalist regimes are more “vulnerable to economic catastrophe”, because “they sustain the loyalty of their supporters by providing access to material rewards” (see also: Haggard and Kaufman 1992a: 327–329). Another study by Slater (2003) emphasizes the durability of personalized party-backed regimes on a polity 9

Along with the separation into politics-related and policy-related aspects of the stability of authoritarianism, I deal with the macrodesign of institutions in this chapter. The choices of institutional micro-management are treated in section 3.1.1.3.

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level and generally points to the institutional capacities of authoritarian regimes. In his study on Malaysia, Slater (2003: 97) comes to the conclusion that “party-backed authoritarian regimes appear to be exceptionally resilient, because parties provide ideal organizational mechanisms for the coordinated implementation of decisions, not necessarily their collective formulation.” A large number of contributions to the new institutionalism of authoritarian regimes that focus on the role of parties employ rational choice approaches: Gandhi and Przeworski (2006: 1–4) try to explain on the basis of a mathematical model why some dictatorships10 “are purely autocratic”, whereas others “exhibit the full panoply of seemingly democratic institutions.” In their model, dictators face the two problems of how to mobilize societal cooperation for generating rent and how to prevent rebellion. The available policy instruments are policy concessions (by creating legislatures and parties) and the distribution of rent. Interpreting the model results, Gandhi and Przeworski (2006: 21) argue that “dictatorships maintain institutions for systematic reasons: to mobilize cooperation and, if the opposition is threatening, also to thwart the danger of rebellion.” Ultimately, dictators maximize their utility from cooperation and thus make policy concessions up to an optimal level. Depending on the strength of the opposition, they also share a part of their rent income (Gandhi and Przeworski 2006: 2). Analyzing 166 dictatorships during the period 1946–1996, Gandhi and Przeworski (2006: 19–21) come to the conclusion that stronger oppositions induce dictators to institutionalize more, while higher rent income has the opposite effect. In a later study, Gandhi and Przeworski (2007) argue that institutionalization (operationalized by the number of “legislative parties” in the country) affects the length of autocratic tenures. In reaction to outside threats,11 rulers deliberately create 10

In most studies that apply rational choice theory, the term “dictatorship” is used instead of “authoritarian regime.” Gandhi (2008: 7) defines “dictatorships” as “regimes in which rulers acquire power by means other than competitive elections.” According to proponents of rational choice theory in the study of authoritarian regimes, the term “dictatorship” has several advantages: First, its definition leads to “analytical clarity” (Gandhi 2008: 8). Second, the interactions between a dictator or ruler and other parts of the elite can be analyzed. Third, the personalistic conception allows to define individual utility functions, which can be the foundation of mathematical models. Thus, dictators are assumed to be rational, utility maximizing actors, who have the twin goals of maximizing rent income and staying in power (Wintrobe 1998: 5–6, 106–107; Gandhi and Przeworski 2006: 6; Magaloni 2008: 717). Ultimately, by quantifying all variables and inserting them into a mathematical model authors arrive at mathematically calculated solutions to their research questions. 11 Gandhi and Przeworski (2007: 1280) distinguish two kinds of threats that autocrats face: “those that emerge from within the ruling elite; and those that come from outsiders within society. Authoritarian rulers often establish narrow institutions, such as consultative councils,

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“partisan legislatures” to “incorporate potential opposition forces, investing them with a stake in the ruler’s survival” (Gandhi and Przeworski 2007: 1280). Their model predicts that rulers “who institutionalize sufficiently survive in power longer than those rulers who underinstitutionalize.” Besides, the intensity of the threat seems to have no influence on their survival, once institutionalization is at its optimal level (Gandhi and Przeworski 2007: 1290–1293). For Gandhi and Przeworski (2007: 1283), institutionalization through a single-party is “an instrument by which the regime can penetrate and control the society. The party offers individuals willing to collaborate with the regime a vehicle for advancing their careers within a stable system of patronage.” In addition, “the party (...) extends access and legitimacy to particular groups in making demands on the government.” By linking the regime to society, a ruling party also allows to coopt rival elites from inside and outside the regime. But, as Magaloni (2008) points out, the power-sharing between the ruler and his rivals has to be credible (see also: Wintrobe 1998: 25–26). It is not enough for the ruler to simply institutionalize and thus “coopt [his rivals] with power positions and private transfers on the spot.” Rivals have to be sure that the ruler will not renege on his promises at a later point in time. A solution to this problem is “that the dictator delegates control to the access-to-power positions and the state privileges to a parallel political organization, such as a political party. The credibility of the power-sharing deal depends on the party’s ability to effectively control access to political positions and on the fact that the party can be expected to last into the future. The dictator [thus] credibly ties his hands to reward those who invest in the existing autocratic institutions by sharing power with them over the long run” (Magaloni 2008: 716, 723). Apart from power-sharing, ruling parties “regulate intrinsic conflicts among competing, ambitious elites.” On the one hand, “parties adjudicate among (...) contestants in [a] race for advancement, assuring those who are not successful today that they will have opportunities in the future.” On the other hand, “the party regulates [elite] disputes and enables solutions that might otherwise prove elusive among rivalrous leaders left to their own devices. Thus, beyond managing competition for power, parties restrain the conflicts of actors in power” (Brownlee 2007: 38). As Brownlee (2007: 39) points out, the “institutional realm” shaped by the ruling party “extends time horizons.” Parties help create “institutional settings in which organizational loyalty is the product of self-interest. When parties harness elites together, they provide collective security, a sense among power holders that juntas, and political bureaus, as a first institutional trench against threats from rivals within the ruling elite. But (...) when they need to neutralize threats from larger groups within society and to solicit the cooperation of outsiders, autocrats frequently rely on nominally democratic institutions.”

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their immediate and long-term interests are best served by remaining within the party organization.” Modifying this functionalist conception of ruling parties, B. Smith (2005) and Brownlee (2007) contend that “it is the origins, rather than the existence of, singleparty rule that account for the long-term viability of some regimes and the surprising vulnerability of others” (B. Smith 2005: 449). B. Smith (2005: 426), who replicates and modifies the study by Geddes (1999), hypothesizes that “the existence of a ruling party may not exert any systematic effect on regime resilience.” On the basis of a study of four single cases (Indonesia, Tanzania, Guinea-Bissau, and the Philippines) he suggests that the circumstances of ruling party formation determine the subsequent stability of the regime. Two factors seem to be crucial: Strength of the opposition; and access to rent. If opposition to rulers is strong and well-organized, rulers “are likely to use official parties to maintain alliances with powerful social groups.” Apart from that, if rulers do not have access to “a significant source of rents”, “they cannot simply buy off” the opposition and have to give it access to policy-making via the ruling party. A strong opposition and no or little access to rent during party formation thus seem to foster the construction of a strong party, characterized by a robust coalition between ruling and opposition groups. These characteristics of the ruling party make the regime more responsive to crises and more durable in the long run. In contrast, a weak opposition combined with easy access to a large volume of rent in the formative period seem to spawn parties that are vulnerable in crises. The latter processes thus lead to a fragile regime (B. Smith 2005: 429–433, 449–451). Similarly, Brownlee (2007) regards the party formation period as decisive for the later stability of a party-backed authoritarian regime. On the basis of four case studies (Egypt, Malaysia, Iran, and the Philippines), he argues that initial elite conflicts at the time of party creation are the key factor. If leaders successfully coopt or suppress elite rivals and do not allow them to build up broad social support, the ruling party will bind elites together in a strong coalition. If strong rival elite factions persist, they will supercede the party and form tactical alliances against the ruler’s faction. In the first case, opposition that might emerge in the future will be effectively blocked from taking power. In the second case, rival elite factions will defect to the opposition, increasing its capacity to topple the ruling party (Brownlee 2007: 35–43). To summarize, ruling parties fulfill a number of functions that help to stabilize authoritarian rule. First, they facilitate the implementation of regime policies. Second, they help the ruler to coopt and contain rival elite factions and the opposition. Third, they ensure the continuous recruitment, placement, and replacement of regime personnel. Fourth, they regulate elite conflicts. Fifth, they link the regime to society and thus bestow the regime with a sense of legitimacy. After all, the

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functionality of ruling parties is determined by the circumstances of their formative period. A second type of institutions relevant for the stability of authoritarian rule are elections. Gandhi and Lust-Okar (2009: 404) present a broad literature review on the role of elections under authoritarianism. From their point of view, scholars “now generally view the establishment of elections as a means by which dictators hold onto power.” Thus, dictators use elections “to coopt elites, party members or larger groups within society.” In relation to elites, elections fulfill the function of “spreading the spoils of office broadly among [its] members,” while elites are likely to “perceive elections as more fair and efficient compared to appointment.” Elites therefore run for the regime party in elections, hoping to obtain political office and the associated spoils and privileges. At the same time, elections can “serve as a signal to members of the regime elite that opposition is futile,“ especially if electoral victories of the regime party are overwhelming (Gandhi and Lust-Okar 2009: 405). Elections fulfill similar functions in relation to party members or party cadres: According to Magaloni (2008: 724) regular elections, even in the case of singleparty regimes, “make effective the power-sharing deal obliging the ruler to promote the rank-and-file to power positions with certain regularity.” Multiparty elections further limit the personal power of the dictator and “spread” the “spoils of office more broadly [...] among the members of the ruling party.” In an authoritarian setting, multiparty elections are thus an implicit “contract signed between the dictator and his party,” which “increases the bargaining power of the various ruling party factions vis-à-vis the dictator, because officials of high rank can always create or join a rival electoral organization with which to challenge the ruler through elections” (Magaloni 2008: 728–729). Apart from managing incentives, elections have further benefits for authoritarian regimes: First, they “provide national-level rulers with information about the loyalty and competence of their own party cadres.” Second, “elections [...] serve to coopt the opposition” by giving non-regime candidates and parties the chance for “advancement into political offices that can confer spoils and limited decisionmaking capacity.” By granting these opportunities, regimes can divide opposition forces, inducing some actors to cooperate with the regime. Third, elections (especially multiparty elections) provide authoritarian regimes with valuable information on “their bases of support and opposition strongholds.” Fourth, elections can endow regimes with legitimacy domestically and internationally, even if they are manipulated (Gandhi and Lust-Okar 2009: 405). A third type of institutions relevant for the stability of authoritarian rule are judicial institutions. Analyzing the findings of several studies, Moustafa and Ginsburg (2008: 4–11) identify five main functions that courts of justice can fulfill for

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authoritarian regimes: through courts, a regime can control society and administrative agents; maintain elite cohesion; legitimize itself; make credible commitments in the economic sphere; and implement controversial reforms by cutting short the legislative process. But they also point out that courts are “a double edged sword” for authoritarian regimes, with potential “utility to the political opposition.” Regimes thus try to contain courts through a variety of means: by setting incentives for judicial self-restraint; by creating fragmented judicial systems; by constraining access to justice; and by incapacitating judicial support networks (Moustafa and Ginsburg 2008: 14–21). After all, academic research seems to confirm the regime stabilizing role of authoritarian institutions. As Schedler (2009: 337) points out, however, authoritarian institutions “inevitably (...) contain seeds of subversion. Unless political institutions are granted minimal margins of power and autonomy, they cannot make an independent contribution to authoritarian governance and survival; as soon as political institutions are granted minimal margins of power and autonomy, they can turn against the dictator.” Scholars have highlighted the ambiguity of authoritarian elections (ranging from presidential elections to multiparty parliamentary elections), which, instead of stabilizing a regime, might trigger regime breakdown or even democratization. Thus, authoritarian elections could also have regime-destabilizing effects—they could lead to a split in the ruling coalition, once the incumbent does not run for office any more. This situation often leads to the formation of new coalitions with the potential to topple the regime. Similar dynamics are possible in the case of “stolen elections” that could trigger mass protest rallying around the opposition. In the longer run, elections could even pave the way for democracy—through their effect on citizens’ attitudes, “elections may influence citizens’ relationship with the state and their expectations about it, eventually leading to higher levels of democratic engagement.” Besides, and apart from longer term processes, elections can always “result in victory of a democratic opposition” (Gandhi and Lust-Okar 2009: 415). MENA case and area studies In contrast to cross-country and non-MENA studies, which emphasize the capability of regime institutions (ruling parties and regime-controlled elections), MENA case and area studies focus on the structural deficiencies of the opposition to explain the stability of authoritarian rule. Throughout the MENA region, formally organized opposition is confined and weak, although there are wide intraregional disparities: while opposition is broadly institutionalized and comprises a diverse range of societal actors in countries like Egypt, Morocco, and Jordan, it is very confined in the Gulf countries. But researchers agree that even in those countries where formal

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opposition exists, its structural deficiencies facilitate the survival of authoritarianism. In particular, the institutions through which formal opposition operates (parties, parliaments, elections, civil society), are structurally weak and incapable of advancing democratization. These deficiencies are deliberately created, exacerbated, and exploited by incumbent authoritarian regimes. Albrecht (2005), who analyzes the case of Egypt, comes to the conclusion that the opposition does not undermine the regime, but it instead contributes to regime stability. He carves out five functions the Egyptian opposition fulfills for the Egyptian regime: a legitimacy function; a rent-seeking function; a cooptation function; a channelling function; and a moderation function. On the basis of these categorizations for the single case of Egypt, the author generalizes to a wider population of cases: First, by tolerating a restricted pluralism, regimes enhance their legitimacy at home and abroad. Second, regimes that allow formal opposition to operate please Western governments and international institutions, “which helps attract political rents, mainly development funds from abroad.” Third, oppositional institutions (parties and nongovernmental organizations (NGOs)) “constitute the main transmission belts for the cooptation of social groups that are not represented in elitist circles.” Fourth, these institutions channel and organize societal dissent, enabling the regime to “test the people’s pulse and measure the potential for social crises to develop.” Fifth, the possibility to participate in the political game “has the potential to deradicalize domestic resistance towards the government.” According to Albrecht (2005: 391–392), “political opposition in Egypt is an imitative institution,” which only formally “resembles its counterpart in Western democracies.” Ultimately, the Egyptian regime tightly circumscribes the leeway of opposition action by setting margins and red lines that opposition cannot cross without experiencing coercion. Thus, the opposition is “discretely embedded as a player into the state’s juggling act to sustain [a] dynamic equilibrium” of diverging interests in society, which the President as supreme arbiter manages skillfully (Albrecht 2005: 389–391; see also: Zartman 1988). Cavatorta (2009) confirms this argument on the weakness of opposition in countries of the MENA. Nevertheless, he locates the problems of the opposition more in its ideological rifts and in its inability to build strong alliances than in manipulation and harassment by the regimes. Thus, across the MENA countries he observes “no deep or effective alliance-building” among oppositional forces. To the contrary, opposition alliances are “mainly of a tactical nature”, “very tentative and ad hoc,” while sporadic coalitions on a specific issue “never develop into more wide-ranging programmes for change.” Analyzing Moroccan politics, Cavatorta (2009) contends that the main reasons for opposition disunity are “ideological differences and tactical considerations,” most visible between secular and Islamist opposition actors. Both

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groups regularly clash over differences in their political programs, which assign a different “role to religion in shaping public policy.” Exacerbating these tensions, secular groups are frightened by the hypothetic strength of Islamist groups in truly democratic elections. They therefore prefer the authoritarian status quo to regime change. The Moroccan King exploits this situation, “[being] able to play one sector of the opposition against the other (...) and [...] thereby [being] able to remain the sole and unaccountable arbiter of the political system by carefully managing repression and cooptation” (Cavatorta 2009: 140–144, 151; see also: Zartman 1988). The weakness of political opposition in MENA countries manifests itself in weak opposition parties and weak parliaments: Opposition parties in MENA countries are relatively powerless actors, caught in adverse political structures and dependent on the regimes. They are ineffective due to a lack of political power, as the legislative power de facto lies in the hands of the executive. Parliaments, where they exist, “are normally tightly controlled and filled with the representatives of strategically important social groups.” Instead of playing the role of legislative power, they are used by the regimes to assess public opinion (Willis 2002: 2; Albrecht and Schlumberger 2004: 381). According to Lust-Okar (2006: 459), parliaments in the MENA region are arenas for rent-seeking and “the distribution of patronage,” rather than legislative bodies. Often they are “a basis from which one can call upon ministers and bureaucrats to allocate jobs to constituents” or allow for direct distribution of resources (e.g. through discretionary funds administered by parliaments). These structures inhibit party formation, as constituents vote for parliamentary candidates offering them access to patronage, irrespective of their ideological position (Willis 2002: 14–18; Lust-Okar 2006: 459).12 Thus, elections in this setting are not a contest of ideas and party programs, but rather “important arenas of competition over access to state resources.” Even in the absence of fraud, elections can stabilize a regime by connecting individuals to the patronage system (Lust-Okar 2006: 458– 460). Parties and parliaments are further weakened directly by the regimes, which control them by a multitude of legal requirements: First, party licensing is restricted and parties are kept financially dependent to foreclose any political threat that might emanate from them (Willis 2002: 4–7; Langohr 2004: 189). Second, constitutions often establish upper houses of parliament not elected by popular suffrage, which constrain the leeway of action for lower houses. The resulting power loss of the lower houses further weakens parties, as it keeps the incentives for party formation 12

Due to this incentive structure, parliaments in MENA countries are dominated by independent candidates who run for office because of their privileged position in the patronage system, rather than because of their ideological position. Alongside legal restrictions on party formation, these structures decrease the probability that broad parliamentary alliances emerge (Langohr 2004: 189).

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low (Langohr 2004: 189). Ultimately, political powerlessness and dependence on the regimes precludes that parties in MENA countries attract a mass following. As Albrecht (2008: 22) remarks, formal political institutions (including political parties) in the MENA region “are limited to certain strata of society, particularly the urban, politicized, and educated middle classes and upper-middle classes.” Consequently, “they play a very limited role in political participation compared to democratic countries.” Willis (2002: 3–4) concludes that parties in MENA countries are tools in the hands of authoritarian regimes rather than effective opposition actors. They provide regimes with internal and external legitimacy, serve as instruments of social control, and enable regimes to monitor dissent and mobilize the populace. Finally, the weakness of opposition in the MENA region manifests itself in a weak civil society. At first sight, civil society could be a breeding ground for opposition, as for example in the former Communist states of Eastern Europe, where a strong civil society separate from the state played a major part in opposing and finally overthrowing authoritarian regimes. From the 1990s onwards, civil society organizations (e.g. NGOs, professional associations, private voluntary associations, etc.) multiplied as well in the MENA region, due to political liberalization and the weakness of parties. In particular advocacy NGOs “[became] the most vocal secular opposition” (Wiktorowicz 2000: 45; Langohr 2004: 181–182; Alhamad 2008: 38). However, despite their increasing numerical strength, civil society organizations have not been a counterweight to incumbent regimes in MENA countries. To the contrary, MENA regimes control their civil societies. As in the case of parties, civil society organizations are manipulated by authoritarian regimes to coopt certain groups of society and to exert social control.13 Thus, civil society organizations allow MENA regimes to channel collective action into formal and visible forms of organization, helping them to create order and predictability within the opposition and society at large (Wiktorowicz 2000: 48–49; Albrecht and Schlumberger 2004: 383). As Schwarz (2002: 74–76) observes for human rights NGOs in Algeria, these groups are weak primarily due to regime interference. Thus, the Algerian regime 13

An exception seem to be professional associations. As P. Moore and Salloukh (2007) observe in the case of Kuwait, Jordan, and Syria, the relationship between professional associations and regimes is characterized by coordination, cooptation, and contestation. In many MENA countries, professional associations have “come to resemble political parties as venues of expression, mobilization, and engagement with state officials” (P. Moore and Salloukh 2007: 57). At the same time, incumbent regimes have left some leeway to professional associations, as they did not outrightly threaten their rule. Ultimately, the social bases of professional associations “determined patterns of state intervention into associational life” (according to the importance of association members as part of the social base of regime support, in addition to their role in nation-building) (P. Moore and Salloukh 2007: 55).

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sets “unwritten rules of the game”, keeps NGOs financially dependent, and weakens them by a number of restrictive and manipulative policies. Apart from regime tutelage and harassment, civil society organizations in MENA countries suffer from several other problems: First, many advocacy NGOs “generally advocate the interests of a specific group or the importance of a particular principle,” which impedes them from mobilizing “a much broader set of constituencies around the larger goal of regime change” (Langohr 2004: 182). Second, many civil society organizations are dependent on foreign funding, which makes them “vulnerable to the criticism from the population and the regime of being foreign agents or instruments of foreign states” (Schwarz 2002: 76; Alhamad 2008: 39). Consequently, civil society organizations in the MENA region “attract only a limited constituency,” mostly from the “Western educated members of the upper classes” or “the urban, politicized, and educated middle classes and upper-middle classes” (Schwarz 2002: 76; Albrecht 2008: 22; Alhamad 2008: 39). As in the case of parties, civil society in the MENA region is often polarized between secular and Islamist organizations. The different groups regularly clash over political issues and threaten each other, even to the point of using physical violence (Abdel Rahman 2002: 25– 26). Thus, many secular organizations, instead of joining the opposition, have sided with the regimes to fight Islamist civil society groups (Schwarz 2002: 77). After all, despite the apparent weakness of oppositional institutions in MENA countries and the purported role they play in stabilizing incumbent regimes, several authors remind us to be cautious: Willis (2002: 18) notes that “parties now play a more significant and influential role in the political systems of all three [Maghreb; C.N.] states than they did 20 years ago.” They can and do often use their position in the multi-party system “to draw both foreign and domestic attention to the fact that the mere existence of parties is not an automatic indicator of the existence of pluralistic democracy.” Likewise, authoritarian elections in MENA countries are not “meaningless staged events, but contain a significant amount of competition” (Lust-Okar 2006: 458–459). Albrecht (2005: 393) admits that “political opposition in an authoritarian context is a double-edged sword and bears the potential for both stabilizing authoritarian rule and inducing systemic change.” Wiktorowicz (2000: 57) notes that “the social control dimensions of civil society are not static, and there is still the possibility of democratizing pressure from below.” Further to that, Alhamad (2008) reminds us that formal institutions might not be the most relevant oppositional forces. In fact, it might rather be the informal institutions based on kin, religion, neighborhood, occupation, and commercial interests that constitute “vehicles for political participation and collective action.” These informal institutions more easily evade state control and might thus be more important for assessing the strength of the opposition and its role in stabilizing or destabilizing regimes in the MENA region.

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In contrast to studies emphasizing the characteristics of the opposition, other authors focus on the structure of the institutional landscape as a factor that might influence the stability of authoritarianism. An example is Heydemann (2007a), who analyzes the specific configuration of “social pacts” in MENA countries. According to Heydemann (2007a: 25), social pacts are “institutionalized bargains among collective actors” that encompass “a set of norms or shared expectations about the appropriate organization of a political economy in general. They are characterized by “distinctive patterns” of “formal and informal modes of governance.” After independence, MENA countries converged around a particular model, that is the “national-populist social pact.”14 Heydemann (2007a: 35–36) argues that this specific variant of social pact has proven exceptionally adaptive and resistant to structural change. In particular, national-populist social pacts inhibit the formation of cohesive opposition alliances that could exert pressure for regime change or even democratization. Overall, the Middle East stands out among other world regions by “the extent to which the national-populist social pact has permitted regimes to incorporate interests, absorb oppositions, coopt competitors, build flexible coalitions, articulate cross-cutting and seemingly inconsistent policies, reconstitute privileged social networks, restructure property rights, and accommodate the emergence of new institutions—yet do all these things within the repertoire of norms, formal institutional arrangements, and modes of informality that collectively constitute the national-populist social pact.”

3.1.1.3 Policies: Legitimation The preceding subchapters introduced structural approaches to regime stability (both on the polity level and on the politics level) and actor-centered approaches focusing on actors opposed to incumbent regimes. This subchapter discusses regimes as actors and analyzes their capabilities, actions, and policies. As outlined in section 2.4, Easton (1965: 153–158) argues that a political system (from an agent perspective: the authorities; the leadership of a system) needs to maintain a certain level of support to persist (i.e. to be stable according to the definition in this study). This support can be either specific or diffuse, and both forms of support can be deliberately generated by regime actors. Thus, regime actors can raise specific support by improving political 14

The “core elements [of “national-populist social pacts;” C.N.] include institutional arrangements, public policies, legitimating discourses, and modes of state-society relations that reflect, minimally, (1.) a preference for redistribution and social equity over growth, (2.) a preference for states over markets in the management of national economies, (3.) the protection of local markets from global competition, and (4.) a vision of the political arena as an expression of the organic unity of the nation rather than a site of political contestation” (Heydemann 2007a: 31).

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outputs for specific groups or by using coercion. Alternatively, they can raise diffuse support by building up legitimacy (Easton 1965: 268–277). Easton (1965: 286– 307) enumerates three kinds of legitimacy that a political leadership can potentially create: ideological; structural; and personal. Building on the model by Easton (1965), I first discuss the creation of specific support. The focus is on coercive policies, both in a soft (institutional containment) and hard form (overt repression of regime dissent). Subsequently, I analyze the creation of diffuse support by drawing on studies that focus on legitimation policies and their potential impact on regime stability. As before, I differentiate between cross-country or non-MENA studies and studies that focus on the MENA region and on single MENA countries. Cross-country and non-MENA studies Studies of regime stabilizing policies in an authoritarian context are relatively rare. According to George (2007: 128), “the institutions and practices of authoritarian states, including illiberal democracies, continue to suffer scholarly neglect as sustainable political phenomena.”15 This is especially obvious in the lack of comparative studies on the policies (rather than the institutions) of authoritarian regimes. Most often, policies of authoritarian regimes are treated in a descriptive manner, while the assumption of regime stability is implicitly present. As outlined above, the first type of policies aim to raise specific support, either through political outputs for certain social groups or through coercion. Due to the ambiguity of political outputs for regime stability,16 I am going to focus on coercion. Coercive policies can either be soft (institutional containment) or hard (physical and nonphysical repression of regime dissent). From an institutionalist perspective, Schedler (2009: 328) emphasizes the need for authoritarian regimes to “constrain and contain the institutional spaces they have opened up.” He assumes authoritarian regimes choose to create institutions that “serve the overwhelming purposes of governance and survival (either by facilitating the coordination among regime actors or by obstructing the coordination among oppositional actors)” (Schedler 2009: 15

George (2007: 127–128) assumes this is due to the neglect of the state in political science as well as the normative bias towards democratic regimes, both still very recent phenomena. 16 As every policy has winners and losers, the overall effect of certain policies on regime stability must be ambiguous. An elucidating example are economic-liberalization policies, for example trade liberalization: depending on domestic and international price levels, domestic consumers as an aggregate group either win or lose. However, the effects differ across different consumer groups, as each of them has different consumption preferences and needs. Similarly, the effect on domestic producers is ambiguous, depending on outputs, inputs, production structures, and so forth. Ultimately, it is practically impossible to determine the regime stabilizing impact of a certain policy.

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329). Policies of institutional containment thus potentially stabilize authoritarian regimes. Schedler (2009: 331–336) speaks of “menus of manipulation” that authoritarian regimes can pick from to keep institutions in check.17 There are two types of menus, whose menu items (i.e. manipulative strategies) differ in their function: On the first menu are strategies of legislative, judicial, and local manipulation that try to contain agents holding power delegated by the regimes. The list of menu items basically consists of “four major strategies”: “formal constraints on the delegation of power; the control over agent selection; the management of agent incentives through repression and cooptation; and the induction of logistical problems amongst multiple agents.” On the second menu are strategies of electoral, media, and associational manipulation that can be used by incumbent regimes to contain “spaces of contention by adversaries.” These strategies are less coherent and “more context-specific.” To control electoral outcomes, authoritarian regimes resort to disempowerment (circumscribing prerogatives of elected officials ex ante or ex post), supply restrictions (“exclusion, subversion, or fragmentation of opposition parties”), demand restrictions (“obstructing the formation of voter preferences by denying opposition actors free and fair access to the public space”), suffrage restrictions (“altering the composition of the electorate”), preference distortions (voter intimidation and vote buying), and vote distortions (“vote rigging or redistributive rules of aggregation”) (Schedler 2002: 41–45; Schedler 2009: 334; see also: Ottawa 2003: 139–142, 155–157). To control the media, authoritarian regimes place “restrictions on private ownership in the means of production of political information” (“state monopolies in print or electronic mass media”, judicial and economic control of nonstate media), restrictions on media content (“official state censorship, extra-legal intimidation”), and “restrictions on the consumption of available information by citizens” (“legal prohibition or disabling of mass access to symbolic products that have been produced outside the bounds of authoritarian control”). To control civil society, authoritarian regimes resort to various policies: “subordinate organization of societal interests” (vertical control through creation of parallel regime controlled organizations); “disorganization of societal actors” (“disruption of horizontal communication”); and “competitive division” (divide-et-impera strategies through repression and cooptation, “selective dispensation of punishments and favors”) (Schedler 2009: 334–335; see also: Ottaway 2003: 149–155). Apart from soft coercion, authoritarian regimes frequently resort to harder forms, such as physical violence, imprisonment, or assassination of regime opponents (Brooker 2009: 144–148). However, as George (2007) 17

In his study, Schedler (2009: 328–329) considers seven types of institutions: Legislatures; courts; elections; parties; media; civil society; and subnational units.

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shows at the case of Singapore, regimes cannot rule by violence alone. There is always a trade-off between hard coercion and legitimacy. Thus, using too much coercion to raise specific support simultaneously reduces diffuse support for the regime. Assuming regime actors are rational decision makers, they will take these effects into account, and they will thereby optimize the level of coercion. According to George (2007: 128–133), it is precisely the use of “calibrated coercion” that accounts for the “sheer longevity and stability” of the Singaporean regime. Analyzing the relationship between the regime and the news media, George (2007) shows how the Singaporean regime constantly varied its means of coercion, shifting from harder to softer forms. He admits, however, that the present “light touch regime also [worked] because of the memory of the heavy hand” and other advantageous circumstances (small geographic size, economic success, etc.) (George 2007: 142– 143). As outlined above, diffuse support is the second source of support for regimes. Regimes can create diffuse support by increasing their legitimacy through legitimation policies. Thus, several authors argue that policies of legitimation by authoritarian regimes contribute to their “consolidation of power” and “systems maintenance (...) to avoid undue reliance on physical repression” (Burnell 2006: 561; Brooker 2009: 130). Thus, authoritarian regimes resort to a number of different legitimation strategies: Brooker (2009: 134–135) mentions “ideological,” “electoral / democratic,” “legal,” and “national-interest”-based or “patriotism”-based strategies of legitimation. The latter closely resembles legitimation through “performance,” itself often connected to ideological legitimation. Burnell (2006: 548–549) distinguishes between “domestic legitimacy” claims based on a “right to hereditary rule,” “theocratic rule” or “religious credentials,” “political ideology” (“most notably communism or ethnic nationalism”), “electoral procedures,” and “performance” (“meeting or presiding over fulfilment of societal needs and desires such as material welfare and personal security”). In addition, “external legitimation” (“international legal recognition and support”) can contribute to domestic legitimation of a regime. Burnell (2006: 549) points out that these sources of legitimacy are not mutually exclusive, as authoritarian regimes are “likely to derive [their] authority from more than one source.” Besides, legitimacy claims can shift over time, “adjusting to developments in society and changes in the international environment.” After all, the various forms of legitimation conceptualized by Brooker (2009) and Burnell (2006) all fit into the three categories of legitimation deduced by Easton (1965): ideological (ideology, performance, external); structural (legal, electoral / democratic, hereditary, theocratic, religious); and personal (personality based aspects of all forms). A study by Pickel (2010) comes to similar conclusions: for Pickel (2010: 198– 199), the survival of authoritarian regimes, like democratic regimes, is dependent

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on their legitimacy in the long run. He identifies three sources of legitimacy that can contribute to regime stability: (1.) “Effectiveness:” the criteria are “economic success,” “prosperity and security,” and “reduction of social inequality;”18 (2.) “collective ideology:” Examples are “ethnocentrism / nationalism,” “equality,” “religion,” and “shared values” (e.g. “liberty,” “self-determination”); (3.) “traditional factors” of legitimacy: present in “monarchies” or “sultanistic dynasties.”

According to Pickel (2010: 196–200), the simultaneity of effectiveness and a strong ideology are especially conducive to long-term stability of authoritarian regimes. Traditional factors can be advantageous, but are less relevant in most cases. The model of Pickel (2010) is firmly rooted in the political systems theory of Easton (1965). The combination of ideology and output effectiveness corresponding to the ideology’s promises raises the legitimacy of a regime and thus increases diffuse support for it. Ultimately, the study of Pickel (2010) is an attempt to operationalize the effectiveness of political outputs, a problem not tackled by Easton (1965). In his operationalization, Pickel (2010) focuses on performance in economic, socioeconomic, and security matters, proposing that a regime has to deliver on economic success, prosperity, security, and reduction of social inequality in one way or another to survive in the long run.19 18

“Effectiveness” as a main source of legitimacy of a regime or a political system is a theoretical element Pickel (2010) might have drawn from Lipset (1959: 86–87), although he operationalized the term “effectiveness” more concretely. Lipset (1959: 86) was more instrumental and thus more vague in his operationalization: “By effectiveness is meant the actual performance of a political system, the extent to which it satisfies the basic functions of government as defined by the expectations of most members of a society, and the expectations of powerful groups within it which might threaten the system [...]. The effectiveness of a democratic political system, marked by an efficient bureaucracy and decision-making system, which is able to resolve political problems, can be distinguished from the efficiency of the total system, although breakdown in the functioning of the society as a whole will, of course, affect the political subsystem. Legitimacy involves the capacity of a political system to engender and maintain the belief that existing political institutions are the most appropriate or proper ones for the society.” 19 With its strong focus on socioeconomic performance, the operationalization of “effectiveness” by Pickel (2010) is necessarily biased. Theoretically and empirically, other types of performance can correspond to a given ideology and could thus as well raise the legitimacy of a regime. Pickel (2010: 199) is aware of this problem, but he explicitly situates his model in the tradition of Lipset (1959: 75, 91), who claims that “prolonged effectiveness,” “[meaning] constant economic development,” is a major factor for the stability of democracies (see also: Przeworski and Limongi 1997: 158–159, 166). Generalizing from democratic contexts, Pickel (2010) assumes Lipset’s proposition might also be of relevance for authoritarian regimes.

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Another study by Schmidt (2003) has a larger focus than the one by Pickel (2010). In contrast to regimes, Schmidt (2003) discusses the stability of authoritarian political systems. From a review of literature, he identifies eight factors that seem to be important for the stability of authoritarian political systems (Schmidt 2003: 37–39): (1.) “Efficiency of government:” “successful economic and social policies” that assure “want-satisfaction” of a country’s citizens; (2.) “power monopoly in state institutions:” the state has to be capable of providing “internal and external security;” (3.) “functioning political institutions:” these have to allow a “minimum of participation;” (4.) “loyalty of key supporters:” it is dependent on material benefits and “political satisfaction;” (5.) “legitimacy” of the “political system:” it can have different “sources” (“economic success,” “security,” support for “ideas,” “tradition,” “charisma” of a leader, etc.); (6.) rules for succession: authoritarian systems are highly personalized, which often leads to instability when leaders change; (7.) “particularities of political culture:” “Passivity” and mental disposition of “large parts of the population;” (8.) “stable regional environment:” Absence of conflicts that might trigger wars, military interventions, and so forth.

The model of Schmidt (2003) contains more aspects of political stability than those discussed in political systems theory. Three factors are related to institutional structures, one factor to political culture, and another factor to environmental influences. Nevertheless, the remaining three factors are closely related to the theory of Easton (1965): Efficiency of government; loyalty of key supporters; and legitimacy of the political system. In each case, the system’s performance, which becomes manifest in political outputs, plays a vital role. As for Pickel (2010), economic and socioeconomic factors are important for Schmidt (2003). Thus, on the output side of an authoritarian political system, stability is, among other things, the result of successful economic and social policies, economic success in relation to a specific ideology, and material benefits for key supporters. Although Schmidt (2003) discusses the stability of the whole political system, his conclusions are also relevant for the preconditions of regime stability within an authoritarian political system. After all, the studies by Schmidt (2003) and Pickel (2010) emphasize that economic and socioeconomic performance, which are also a central component of many ideologies, are of prime importance for the legitimacy and diffuse support and thus for the stability of many authoritarian regimes. In addition, if we assume economic and socioeconomic performance also increase the material resources that are at Moreover, Pickel (2010) draws from another strand of literature, which argues that economic crises increase the probability that regimes, both democratic and authoritarian, break down (Haggard and Kaufman 1997: 267–269; Przeworski and Limongi 1997: 167, 169).

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a regime’s disposal, they can raise specific support for the regime as well: First, an improvement of political outputs for a specific group of actors often depends on financial spending capabilities of a regime. Second, an increase in material resources enables the regime to spend more on coercion, which can raise specific support in the short run. MENA case and area studies In contrast to cross-country and non-MENA studies, a diverse body of literature exists on authoritarian policies in the MENA region. Many of these studies describe in detail the policies conducted by regimes and carve out their relevance for regime stability. Policies that aim to raise specific support through the distribution of material resources (widespread in the MENA region due to the access to oil rent) are at the core of economic theories of regime stability. These economic theories of regime stability—including empirical studies on MENA countries—will be discussed in the subsequent section 3.1.2. Other policies by MENA regimes to raise specific support, which make use of soft coercion and institutional containment, are frequently discussed in the literature: Brumberg (2002: 61) describes the regimeinduced “economic and political dissonance” in many MENA states which “facilitates the juggling act that is central to regime survival.” Thus, MENA regimes apply “divide-and-rule tactics” in order to “maximize the rulers’ room for maneuver and restrict the opposition’s capacity to work together.” They bring the ruler into a position of “chief arbiter,” who can manipulate opposition actors. Brumberg (2002: 62) further points out that the rulers at the head of MENA regimes simultaneously are “the major patrons of religious institutions”, which permits them to make use of cultural or religious dissonance within the opposition. Using divide-and-rule policies, regimes thus create what Lust-Okar (2004: 160) calls “divided political environments.” In such a setting, the opposition is split into two groups, a “loyalist” and an “illegal” one. Lust-Okar (2004: 161) shows at the cases of Morocco and Jordan how loyalist opposition becomes unwilling to mobilize protest against the regime in times of economic crises. The main reason for its passivity are the incentive structures created by incumbent regimes, which penalize loyalist opposition more than illegal opposition for destabilizing the system (Lust-Okar 2004: 161). Further to that, MENA regimes have devised a host of policies to prevent political parties from challenging their rule. The primary goal of these policies is to keep parties weak, divided, and dependent. According to Langohr (2004: 188–189), the most widely observable regime policies that aim to weaken parties are electoral fraud, “outright repression of viable opposition candidates,” limited access to the public (due to interdiction or police monitoring of gatherings), and bans on opposition broadcasts in mass media. Apart from that, three other factors explain the weak-

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ness of parties in MENA countries: incomplete parliamentarization; prevalence of independent candidacy; and financial fragility of parties. Although these factors are structural in nature and related to politics, regimes deliberately deepen them with their policies (e.g. by passing laws, by amending constitutions, etc.). Willis (2002) describes for the case of Maghribi parties how the regimes use legal and covert intervention policies to control their actions. Legal control primarily consists of party licensing and formal restrictions on party statutes and political platforms. As a more covert form of control, regimes intervene in the party system, for example by sponsoring new parties to weaken or splinter existing ones or by manipulating rivalries between existing parties. Besides, regimes regularly “interfere in the internal affairs of individual parties by playing on existing divisions within them and sponsoring rifts and splits.” For this purpose, regimes use “stick and carrot policies,” which either offer political and material benefits to party officials or which threaten them with coercion (Willis 2002: 4–11). Likewise, MENA regimes have devised policies to keep civil society organizations in check. According to Heydemann (2007b: 6–10), regime policies towards civil society organizations in MENA countries “[blend] repression, regulation, cooptation, and the appropriation of nongovernmental organizations’ (NGO) functions by the state to contain the deepening of civil societies and to erode their capacity to challenge political authority:” As a first policy, repression is used in case of “organizations that [are] deemed especially threatening” (e.g. with a focus on human rights, government accountability, and electoral reform). It includes “routine intimidation and harassment of leading political activists.” As a second policy, regimes resort to legal measures. They often do “not target civil society per se”, but they work through “the reform of legal frameworks governing NGOs” (e.g. “laws relating to media control and new counterterrorism legislation,” which can be used to indirectly restrict civil society organizations’ leeway of action). As a third policy, regimes create and sponsor NGOs with the aim to control civil society and to make use of additional political resources. As a fourth policy, they themselves “appropriate and internalize specific functions” of civil society organizations in order to “pre-empt existing frameworks for civic engagement and mobilization, while hoping to enhance their own legitimacy in the process” (Heydemann 2007b: 6–10). Overall, Heydemann (2007b) observes a trend towards “more selective repression” and towards “opening more space for civic forms of organization than in the past,” while the regimes do not transfer any power. In-depth case studies on MENA countries seem to confirm these region-wide observations: In Algeria, the repressive capacity of the state leads to self-restriction of NGOs according to “unwritten rules of the game.” A central unwritten rule is “the avoidance of public criticism of the political system per se.” Besides, the Algerian

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regime directly interferes in civil society through legislation (e.g. by a ban on foreign funding), through “the creation of state-owned NGOs or the direct cooption of existing NGOs, either by making them dependent on financial aid from the state or by coopting leading NGO activists” (Schwarz 2002: 74–76). The situation is similar in Jordan, where the regime relies on a combination of excessive bureaucratic control mechanisms and modern surveillance technology to keep civil society in check. After all, the purpose of the Jordanian regime seems to be more general: by making protest visible and manipulable it tries to use civil society organizations for social control (Wiktorowicz 2000: 48–49). Legal requirements for NGOs in Jordan are manifold, including ministerial permission on operation and compulsory disclosure of all activities. These laws make NGOs practically powerless as potential agents for regime change. Further to that, to reduce the costs of surveillance, the Jordanian regime “implemented self-disciplining mechanisms within the community of NGOs itself,” through corporatist bodies and umbrella associations that work towards “selfregulation in the community” (Wiktorowicz 2000: 51–55). Apart from civil society, MENA regimes have tried to control the institutional fields of elections and parliaments. During the runup to electoral contests, regimes regularly ensure that no meaningful opposition poses its candidacy at election day. Incumbent regimes employ a variety of means to ensure this: First, regimes structurally weaken opposition parties (see above). Second, opposition figures “become targets of coercion and repression,” facilitated by laws that give regimes far-reaching possibilities to restrict individual liberties (e.g. emergency security laws). Third, with tamed opposition parties, electoral contests become biased in favour of regime parties, as regime candidates “benefit in countless ways from their capacity to exploit the full scope of state resources and personnel on their own behalf.” Fourth, apart from state support for candidates of the regime, “state authorities often abuse their power to repress voter participation (surrounding polling stations with soldiers and police, creating obstacles to voting, physical attacking of voters), along with many instances of fraud in the conduct of elections, with vote buying being the most common example.” Fifth, “election commissions (...) stacked with regime supporters” as well as “partisan election judges and monitors” make sure elections do not get out of hand (Heydemann 2007b: 11). MENA country case studies support the regionwide conclusions on the control of parliaments and elections: Lust-Okar (2006: 458–462) analyzes Jordan as a case and describes how the regime crafted electoral laws and manipulated incentive structures to its own advantage. Thus, formal legislative powers of the Jordanian parliament are tightly confined, hindering the formation of political parties and altering the nature of competition (in parliamentary elections, access to state resources becomes more important than the choice between political alternatives). Besides, the Jordanian

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regime uses various policies to structure electoral competition and to ensure the victory of regime-friendly candidates. Most common are the shifting localization of election districts (gerrymandering) and favourable electoral rules (one person– one vote system) (Lust-Okar 2006: 464–467; see also: Lucas 2005). In a detailed account of legislative elections in the Arab world from the 1960s up to the year 2000, Pripstein Posusney (2005) shows how incumbent regimes crafted favourable electoral rules to ensure the hegemony of regime-friendly candidates in national parliaments. Thus, current electoral systems in most MENA countries are based on the principle of “the winner-takes-it-all.” These systems “offer particular advantages to incumbent regimes in countries pluralizing from single-party situations.” However, despite institutional manipulation, election results have sometimes been unfavourable to certain MENA regimes. Thus, regimes frequently changed electoral rules to adjust to perceived situations (shifting between singlewinner and multiwinner systems), besides using other coercive policies to control election results (Pripstein Posusney 2005: 98–108). In addition to their soft coercive capacity, MENA regimes rely on hard coercion to stabilize their rule. Referring to classic works on revolutions, Bellin (2004: 142– 143) comes to the conclusion that “the solution to the puzzle of Middle Eastern and North African exceptionalism lies less in absent prerequisites of democratization and more in present conditions that foster robust authoritarianism, specifically a robust coercive apparatus in these states.” According to Bellin (2004: 144–151), four variables are crucial for upholding the capacity and will of the coercive apparatus of a regime to crush attempts for regime change: fiscal health; international support networks; the level of institutionalization of the coercive apparatus; and the degree of popular mobilization for regime change. In MENA countries, the specifications on all these variables contribute to making coercive apparatuses exceptionally strong and willing to act. In addition, the “existence of a credible threat” (the Arab-Israeli conflict and / or other interstate and intrastate conflicts) reinforces these mechanisms. Ultimately, the capacity and the actual use of hard coercion seems to be a major reason why authoritarianism has prevailed in the MENA region. Apart from coercive policies effectuating specific support, a second pillar of regime stability in MENA countries are policies that raise diffuse support by increasing legitimacy. Albrecht and Schlumberger (2004: 373) assume “the search for some form of legitimacy must be at the core of every regime survival strategy in nondemocratic polities,” an opinion shared by several other authors (Murphy 1998: 72; Bank 2004: 156; Schwarz 2004: 182). Referring to the MENA region, Hudson (1977: 18) analyzes the “instruments and strategies of legitimacy-building that politicians operating under the austere conditions of Arab politics can employ.” He builds his arguments on the classification of legitimacy into three types (“per-

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sonal,” “ideological,” “structural”) by Easton (1965). According to Hudson (1977: 19–20),“personal legitimation” is important in both Arab monarchies and presidential republics. Despite processes of modernization, legitimation based on personal characteristics is “still a formidable legitimacy resource” due to two factors: First, forms of personal leadership are “historically and culturally” rooted in political systems of the Arab world. Second, “because countervailing structures are absent” and “because the leaders have been able to embody in themselves some of the diffuse legitimizing values arising out of political culture, most notably nationalism” (Hudson 1977: 19–20). In Arab monarchies, personal legitimation is based primarily on the “monarch’s personal reputation,” often supported through “dynastic proximity to the line of the Prophet Muhammad” (Hudson 1977: 25–26). In Arab republics, personal legitimation emphasizes the leading role of rulers in independence struggles or in revolutionary coups (Hudson 1977: 27). The second form of legitimation prevalent in Arab regimes revolves around “ideology.” Hudson (1977: 20–22, 27–28) observes that “in the absence of structural legitimacy (...) ideology [has become] a substitute for institutionalization.” In Arab “revolutionary republics [...] [this ideology; C.N.] has been magnified into (...) political religion” based on secular nationalism and modernity. Nationalist ideology often takes the form of panArabism “shaped by the Palestine question in particular.” Further to that, monarchs in the MENA region try to legitimize their rule through economic development and secularized nationalism. Thus, they have “superimposed nationalism onto existing political culture patterns,” which give rise to parallel ideologies of “religious rectitude and kinship obligation” (Hudson 1977: 25–26). According to Hudson (1977: 26, 28), a third source of legitimacy is “structural.” This resource “may be the most durable,” however it has been the most difficult for contemporary Arab polities, whether patrimonial or republican, to develop.” Whereas monarchies can rely to some extent on the “structural legitimacy of kingship itself,” “solid structural legitimacy [has been] absent” in the republics. The main problem is that “for all the growth of bureaucratic structures [...] there has been little development of structures of political participation that are integrated within the formal political system” (Hudson 1977: 22–24). After all, studies such as Murphy (1998), come to the conclusion that Arab regimes still use most of the above mentioned forms of legitimation. Murphy (1998: 73–76) lists six potential sources of legitimacy tapped through the respective legitimation policies: traditional and / or inherited rights to rule; anticolonialism and antiimperialism; Arab nationalism; populism and economic reform; Islam and religion; as well as democracy and popular consent. Democratic legitimation is a more recent form reflected in the introduction of “consultative assemblies, national assemblies, and national elections.” It probably is a reaction of Arab regimes to rising

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levels of education, modernization, urbanization, and internationalization (Murphy 1998: 76). Another study by Albrecht and Schlumberger (2004: 376–377) subdivides Arab regimes’ “strategies of legitimation” into those with an “internal” and “external dimension:” Internally, Arab regimes base their legitimation on “a combination of allocative power through international rent income,20 traditional religious legitimacy, and distinct developmental concepts based on collectivist ideologies.” Externally, they direct their legitimation towards “leading external powers, i.e. Western governments and international organizations.” All of the cited authors agree that the “shortage” of legitimacy diagnosed by Hudson (1977: 2) had evolved into a real legitimacy crisis by the mid-1980s (Murphy 1998: 79; Albrecht and Schlumberger 2004: 377–378; Schwarz 2004: 191). For this reason, Arab regimes “created and invented new forms of legitimacy” based on economic modernization, political participation, and a renewed emphasis on Islam (Schwarz 2004: 191–192).21 As Bank (2004: 158) points out, the policies of rulers or strategies of legitimation do not tell us anything about their effectiveness in generating a belief in legitimacy among the ruled. Research in this area must be tentative due to a “lack of independent survey, opinion polls and free media, typical of nondemocratic regimes.” Therefore, it is not possible to empirically determine the impact of policies of legitimation on regime stability in MENA countries. All we are left with is a feeling that these policies do in effect matter. Ultimately, the existing literature on legitimation by regimes in the MENA region leaves the reader with the impression that MENA regimes and their state apparatuses are relatively strong actors, who dispose of a well-stacked policy arsenal to control the political field. However, there are also critical opinions: According to Ayubi (1995: 449–450), Arab states are “hard” and “fierce,” in contrast to “strong.” He emphasizes that strong states are characterized by “infrastructural power [...] manifested above all in the ability to penetrate society and to organise social relations.” To “penetrate” their societies, these states “tend to rely more prominently on ideological means.” “Hard” states, in contrast, “tend to rely heavily on administrative means and instruments.” Strong states also differ from “fierce” states, which are “so opposed to society that [they] can only deal with it via coercion and raw force” (Ayubi 1995: 452–454). Ayubi (1995: 452–454) comes to the conclusion that Arab states are both fierce and hard, because they are weak. They lack real power 20

Several authors refer to “material legitimacy” as the legitimacy created through rent allocation, to emphasize the means of legitimation (Schwarz 2004: 191). In reference to Easton (1965), material legitimacy would ultimately be derived from an underlying ideology of distribution. 21 These new forms of legitimation are discussed for the country cases of Egypt, Tunisia, Jordan, and Morocco in section 6.3.2.3.

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to carry out effective policies in order to arrive at the desired outcomes, visible for example in fragmentary market or tax reforms. After all, the analysis by Ayubi (1995) calls into question the notion that regimes in the MENA region intentionally conduct political stabilization policies. To the contrary, regimes in the MENA region seem to be relatively powerless when it comes to assuring their survival. Therefore, observable regime policies might not be the manifestation of sophisticated “survival strategies” (as proposed in several works of the current literature), but rather ad hoc reactions, “a product of trial and error more than intentional design” (Heydemann 2007b: 1).

3.1.2

Economic Factors: Structural Heterogeneity and Rent

As a second category, economic factors might be partly responsible for the stability of authoritarian rule in the MENA region. The most prominent theory in this theoretical strand is the RST. It postulates a link between rent income of a political regime (e.g. from the sale of natural resources) and the stability of authoritarianism. The theory originally emerged from empirical studies on the MENA region and then made its way as a “traveling concept” into other area studies and comparative politics (Richter 2010: 157). As RST is increasingly applied in international comparative studies, I am going to outline its main propositions in the cross-country and non-MENA studies section. Following on, I present its specific application to the MENA region in the section on MENA case and area studies. Apart from RST, there are several other theories and theoretical arguments that state the relevance of economic factors for the stability of authoritarian rule on a global and regional scale. Cross-country and non-MENA studies Two main theories try to explain the stability of authoritarianism through economic structures: RST and the Theory of Bureaucratic Development Society (TBDS). Central to both theories is the term of “rent.” Rent had already been analyzed by classical economics (Petty, Smith, Ricardo),22 before it became prominent with Marx’ theory of surplus value. Marx distinguished between two forms of rent: “absolute basic rent” and “differential rent.” Absolute basic rent is rooted in the 22

For David Ricardo, “rent [was] a monopoly price that [resulted] from individual disposal of better than average production conditions.” This conception of rent was part of the “trinitarian income formula” of “rent as the price for land, interest as the price for capital, and wage as the price for labor” (C. Schmid 1997: 35).

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monopoly of land ownership and cultivation, an inherent characteristic of capitalist societies. Thus, owners of land can charge rent for making their property available for societal needs satisfaction (e.g. to produce food, to extract natural resources, or to use it as building ground). Differential rent accrues due to differences in the productivity of land used for production (e.g. the fertility of the soil for agricultural production).23 In contrast to the classical economists, who emphasized the character of rent as “a price for the use of scarce factors of production (price theory),” Marx drew attention to the income aspect of rent, which influences social and political power structures (theory of distribution) (C. Schmid 1997: 31–35). While Marx analyzed rent within the confines of a national economy, both the TBDS and the RST extend the analytical frame to international economic exchange that gives rise to “international rent.” Whereas the TBDS considers both domestic and international rent, RST focuses exclusively on international rent.24 According to RST, there are two necessary conditions for rent to accrue on an international level: the existence of a single world market for a product; and a plurality of sovereign states with control over their territories. Comparable to the national level, property of soil enables a proprietor to appropriate an international absolute basic rent (due to the international system of sovereign states). Likewise, international differential rent is rooted in differing costs of production on an international scale (due to structural heterogeneity within and among national economies). It accrues “if a product, which has been produced at lower national cost, is sold for the same world market price.” International differential rent can thus be “realized solely through the export of a good, and it is ultimately based on structural heterogeneity” (C. Schmid 1991: 16–21).25 23

Marx further split up differential rent into two types or components: The first differential rent component (differential rent I) resulted from the productivity of the soil, which depended on its location. The second differential rent component (differential rent II) resulted from “the effectiveness of successive capital investments on the same piece of land.” Thus, Marx emphasized the fact that initial rent could generate more rent (auto-generation of rent in the process of societal reproduction, e.g. due to technological progress) (C. Schmid 1997: 31). 24 Proposed by scholars in the 1970s, the concept of international rent is thus a transfer of Marxist rent theory from the national to the international level. These new theoretical developments were triggered by the two oil crises of the 1970s, when huge amounts of oilrelated rent income accrued to producer countries and then circulated in the whole MENA region, underlining the international dimension and significance of rent (C. Schmid 1991: 16–17). 25 “Structural heterogeneity” is a term introduced by dependency theorists to explain economic and social underdevelopment in Third World countries. Dependency theory emerged during the 1960s as an alternative to modernization theory, which regarded underdevelopment as an inevitable stage on the way to modernity (attainable through economic growth

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The TBDS, proposed by Elsenhans (1996 [1981]) in his work “Abhängiger Kapitalismus oder bürokratische Entwicklungsgesellschaft” (1981) / “State, class, and development” (1996 translation of the 1981 German edition) links rent with specific political and developmental outcomes. According to Elsenhans (1996 [1981]: 70–71, 86–87, 116), the possibility to appropriate rent leads to the formation and perpetuation of a “state class,”26 which monopolizes political power. This state class uses the available rent income to favour its members and to build up clientelistic networks within society (Elsenhans 1996 [1981]: 275–323). At the same time, rent reinforces the “structural heterogeneity”27 of an economy (Elsenhans 1996 [1981]: 69–70). This structural heterogeneity is a second fundamental reason why the state class is able to maintain its political rule: It impedes the increase of mass incomes in real terms, which keeps aggregated demand low and therefore makes mass production of consumer goods unprofitable (Elsenhans 1996 [1981]: 178–180). Therefore, the state class can uphold its monopoly on surplus appropriation, unrivalled by

and the ensuing Westernization of culture, society, economy, and political systems / politics) (Nohlen 2001: 83). Dependency theorists, in contrast, explain the underdevelopment of Third World countries through the position of these countries in the international system, meaning their dependency as “peripheral societies” on the “Western-capitalist industrialized societies (metropolises)” (center-periphery relationship) (Senghaas and Menzel 1976: 47, 63). One of the central arguments is that this center-periphery structure has produced structural heterogeneity within periphery economies and between periphery economies and the economies of the center. Structural heterogeneity refers to differences in productivity between different sectors of an economy or among the same sectors in different economies. In the center countries, capitalist production has led to “a [sectorial; C.N.] equalization of productivity levels, work intensities, profit rates, and wage levels.” According to dependency theory, no such development has taken place in the periphery due to its dependency on economic development of the center. Structural heterogeneity in periphery countries manifests itself in “different sectoral production structures, income distribution and consumption profiles, unequal distribution of technological and productivity progress, fragmentation of the workforce (...), and the corresponding political and cultural heterogeneity” (Senghaas and Menzel 1976: 57–59). 26 A “state class” is “a social class” formed by “a bureaucracy which appropriates surplus product and disposes of it relatively freely.” Bureaucracy is a “permanent and coherent social group which deals professionally with politics, has freed itself from the control of the masses and secures for itself bigger or smaller privileges thanks to the unrestricted power over the distribution of objectified labour” (Elsenhans 1996 [1981]: 174, 177). 27 Elsenhans (1996 [1981]: 94–95) defines “structural heterogeneity” as “the inability of an economic system to react—in accordance with neoliberal microeconomic theories—to changes in relative prices brought on by changes in factor employment.” His view is different from Senghaas and Menzel (1976)—who emphasize the “disparities between economic sectors”—, as it “highlights the flexibility of adjustment” (Elsenhans 1996 [1981]: 94–95).

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domestic or foreign capitalist entrepreneurs.28 Ultimately, Elsenhans (1996 [1981]) does not directly link economic structures to a specific type of political system.29 Political rule, as conceptualized by the TBDS, is a result of social (class) relations. Thus, the TBDS tries to explain the formation of a dominant class (the state class) and its resulting political rule. The explanandum of the theory is socioeconomic development, not a specific regime type. Nevertheless, the theory seems to suggest that the state class rules in an essentially nondemocratic polity.30 The TBDS therefore contributes, albeit indirectly, to an understanding why economic structures (the existence of rent, structural heterogeneity) might be important factors for the stability of authoritarianism. The other theory that postulates a link between economic structures and the stability of authoritarianism is the RST, a theory with forerunners in the 1970s that began its ascent with the 1987 edited volume “The Rentier State” (Mahdavy 28

The availability of surplus value with no possibility to use it for profitable investments (due to inexistent mass demand), fostered the formation of state classes in the first place. Thus, the political power of state classes directly results from underlying economic structures (Elsenhans 1996 [1981]: 132–133). Elsenhans (1996 [1981]: 67–69, 77–85) stresses this point by elaborating on the historical specificities of capitalist development in European countries compared to other world regions: through a combination of specific factors (landlordpeasant relations, shortage of labour after pest epidemics, etc.), mass incomes in real terms began to rise continuously in European countries, triggering a cycle of rising mass demand, investment, and further income rises, which fuelled capitalist development. No such evolution took place in today’s underdeveloped countries. State classes thus emerged due to historic local economic, social, and political conditions. After all, the international economic exchange of underdeveloped countries with a highly developed capitalist center (a consequence of different production costs) is only an additional factor that has facilitated and reinforced the emergence of state classes (through its effects on structural heterogeneity within periphery countries) (Elsenhans 1996 [1981]: 84–95). Thus, Elsenhans (1996 [1981]: 117) argues both against modernization and dependency theory, stressing that the state in the Third World is neither a development agency nor a dependent agent of the capitalist center “incapable of pursuing development strategies in the interest of the mass of the people.” Quite the contrary, Elsenhans (1996 [1981]: 71–72, 192–202) shows how the state class could initiate and support capitalist development (e.g. through agricultural reform), but deliberately refrains from such policies in order not to jeopardize its reign. 29 For (Elsenhans 1996 [1981]: 246), political power results from “the ownership of the means of production.” Formal structures of the polity (e.g. “the classification of peripheral states on the basis of the structure of their party set-up, e.g. as one-party states, totalitarian states, tutelary democracies, and modern autocracies”) are “of little use to the analysis of the controls to which the state classes are subjected as long as these parties cannot effect a transfer of power.” 30 This conclusion seems to be justified particularly in light of the analysis by Elsenhans (1996 [1981]: 186, 201–202, 213–14, 256–258) of the strategies state classes pursue to secure their reign.

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1970; Beblawi and Luciani 1987; Andersen and Ross 2014: 995, 1017). RST makes two main theoretical propositions, one economic and one political: The economic proposition is that the existence of international rent appropriated by a state hinders economic development.31 The political proposition links economic structures directly to the political system, hypothesizing that access to international rent stabilizes the rule of authoritarian regimes (Beck 2007b: 102–103; 2007a: 45). RST defines “rent” as “income which is not generated by investment or labour of the recipient.”32 In contrast to entrepreneurial profit, which the entrepreneur in a capitalist system has to reinvest in order to generate future profits, rent income can be freely disposed of by its recipient (Beck 2009: 26). RST holds that if a state appropriates international rent33 in sufficient quantity, it changes its character and becomes a “rentier state.”34 This endowment with external rent income influences 31

Relatively large foreign exchange inflows, caused by the export of natural resources, increase the real exchange rate of a country’s currency, which reduces exports and leads to deindustrialization in the long run (Dutch Disease) (Richards and Waterbury 2008: 13–18). Besides, regimes (if they dispose of sizeable natural resources) are free to use international rent for political purposes, as they do not have to reinvest the rent income to generate future economic growth. Thus, regimes usually prefer to use international rent for personal benefit and patronage (Beck 2007a: 46). 32 Other authors draw up different definitions: Taking on a cost-revenue perspective, Dunning (2008: 39) defines “resource rent” as the “economic return to natural resource extraction that exceeds labor costs and other production costs as well as transport costs and some “normal” return to capital. Alternatively but similarly, rent is the excess over the return to capital, land, and labor, when these factors of production are put to their next-best use.” The definition by Richards and Waterbury (2008: 16) summarizes these aspects: Rent is the “difference between the market price of a good or factor of production and its opportunity cost.” 33 The most common form of international rent accrues with the sale of hydrocarbon resources (oil and gas). There are further forms of rent that proponents of RST take into account: Rent from natural resources different from oil and gas (e.g. diamonds, copper, phosphate); locational rent (e.g. fees levied for waterways or pipelines, income from touristic sites); strategic or political rent (interstate transfers, such as budget, military, or development aid); migrant rent (remittances from migrant workers); agrarian rent (e.g. from tea, coffee); rent in the form of interest and dividends; and hidden rent (e.g through exchange rate manipulation) (C. Schmid 1997: 42; Beck 2009: 27–28; Richter 2010: 160–161). 34 The term “rentier state” was originally introduced by scholars from MENA area studies (Mahdavy 1970; Beblawi and Luciani 1987). These scholars had inductively developed the concept’s theoretical implications from empirical observations in the MENA region. Over time, RST became an established concept that was integrated into development theories of state and society in the Third World (C. Schmid 1997: 40). The most widely used empirical indicator for the existence of a rentier state is the share of rent income in total state income. The empirical threshold, however, is unclear and has been arbitrarily defined by several scholars: (Pawelka 1993: 106) distinguishes between “pure rentiers” (main income: oil rent and interest related rent) and “semi-rentiers” (main income: strategic; locational; and migrant rent), both

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state behavior (Pawelka 1993: 103; C. Schmid 1997: 40)—rentier states depend less on taxation of their citizens and they can distribute rent income in order to legitimate their rule (Richter 2010: 159). Such states thus become “allocation states”, practically autonomous vis-à-vis their societies, which can use rent income to pay for social services, subsidies, or currency overvaluation (Luciani 1987). At the same time, rent distribution weakens opposition, as citizens benefit more from gaining access to the rent cycle (“rent-seeking,” rentier mentality) than from changing the political status quo. Ultimately, personal relations and clientelistic networks become more important, while a work-reward nexus ceases to exist (C. Schmid 1997: 46). Academic authors have tested the propositions of RST empirically in large-N cross-country studies. Relevant for the purpose of this chapter are only those studies that test the political proposition of RST (that rent income stabilizes authoritarianism and inhibits democratization). Studies in this field can be divided into two categories: The first category of studies analyze the longer-term cross-country correlations of rent income with the systemic characteristics of political regimes (“level of democracy”). The second category of studies focus on instances of regime change and look beneath the macro-level regime characteristics to specific regime survival paths. The pioneering study of the first category is Ross (2001). He analyzes a sample of 113 developed and developing countries, using pooled time series cross-section analysis (panel) with a linear regression model for the period 1971–1997. He tests several possible effects of natural resource income on “democracy levels” / degree of democratic governance (operationalized by a continuous “democracy-autocracy” score derived from the Polity98 data set): a “rentier effect” (including a “taxation, spending, and group formation effect”); a “repression effect;” and a “modernization effect.” Ross (2001: 340–356) finds that both oil and other mineral resources are negatively and significantly correlated with the democracy level of a country. In the case of oil, his results also support all possible causal connections (not so for other minerals). However, the size of the potential effect of oil is small compared to other variables included in the regression, especially the potential effect of prior regime type and of dummies for countries from the MENA region or the Arabian peninsula. Ross (2001: 346) interprets these findings as a hint that “historical and cultural factors” might be the most important variables to explain the degree of with a share of rent income in state income above 40 percent. Beck (2009: 41) introduces three types of rentier states: Rentier states of high specificity (minimum 40–50 percent of state income consists of rent); medium specificity (30–40 percent); and low specificity (minimum 20 percent). Luciani (1987: 70) widens the scope and also considers revenue utilization— his term “allocation states” comprises “all those states whose revenue derives predominantly (more than 40 percent) from oil or other foreign sources and whose expenditure is a substantial share of gross domestic product (GDP).”

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democratic governance. He concludes by emphasizing “the critical importance of case studies in explaining regime types.” The findings of Ross (2001) are confirmed by Jensen and Wantchekon (2004). In their study on African countries, they test the effect of “natural resource dependence” (operationalized by the share of fuel, mineral, and metal exports in total merchandise exports) on three dependent variables: “political regime type” / “democracy” level (operationalized by an index based on the Polity III data set); “government consumption;” and “governance.” Their sample is much smaller than the one used by Ross (2001) and comprises only 46 Sub-Saharan countries. Employing the same method (linear panel regression), (Jensen and Wantchekon 2004: 822) analyze cross-country data from 1960 to 1995. Comparable to Ross (2001), Jensen and Wantchekon (2004: 824–833) find a significant negative correlation of natural resource dependence with democracy levels and governance. The correlation with government consumption is significantly positive, lending support to one causal mechanism proposed by RST. An additional test on a subsample leads to the conclusion that natural resource dependence also seems to have increased the chances of an authoritarian setback in newly democratic countries of the post-Cold War period (Jensen and Wantchekon 2004: 833–834). Controlling for the possibility that the negative cross-country relation of “oil and democracy” established by former studies is due to country-specific “omitted factors,” Aslaksen (2010: 421–425) retests the relation with both a panel regression with country fixed effects and a system of equations (including equations in levels and first differences, while controlling for country fixed effects), specifying generalized-method-of-moments-system estimators. She operationalizes her dependent variable “democracy” with the Freedom House Political Rights Index and her independent variable “oil” with the “value of oil extraction as a percentage of GDP.” Her dataset includes observations on “up to 156 countries between 1972 and 2002.” The results indicate that the significantly negative relation of “oil share” in GDP and “democracy” levels persists, when country fixed effects are added to the equations (Aslaksen 2010: 425–427). An early study in the second category of studies (“regime survival” studies) that test the propositions of RST (see above) is B. Smith (2004). B. Smith (2004: 235– 242) finds in his panel study (sample of 107 developing countries, both democracies and autocracies; period 1960–1999) that higher “oil dependence” (oil export value in relation to GDP) is associated with a lower probability of “regime failure” (indicated by the regime durability score of “0” in the Polity98 dataset). Furthermore, higher oil dependence significantly correlates with a lower “expected level” of “antistate political protest” and “civil war.” “Repression” (proxied by a dummy variable for “highly authoritarian regimes” with very low democracy scores in the Polity98

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dataset) is positively and significantly correlated with regime stability, but it does not reduce the potential “effect” of oil dependence (“suggesting that factors other than spending on coercion are at work in the robust relationship between oil wealth and regime durability”). B. Smith (2004: 239) also finds that “boom” and “bust” periods (caused by oil price fluctuations) are not significantly correlated with regime stability (ruling out oil-financed patronage as a causal mechanism). Thus, his study confirms the macro-level prediction of RST that a resource rent inflow stabilizes authoritarian regimes. But it contradicts two other causal mechanisms proposed by the previous literature—that rent income stabilizes regimes via repression and patronage. Using a broader operationalization of the independent variable, Morrison (2009) tests for the effect of “nontax revenue” (“total [government; C.N.] expenditures” minus “tax revenue”) and its components (“natural resource revenue,” “foreign aid,” “SOE revenue,” and “borrowing”) on the likelihood of regime change (identical dependent variable as used by B. Smith (2004)). The sample includes around 100 countries (both democracies and autocracies) and the author analyzes data for the period 1973–2001, using panel regression. Both the aggregated nontax revenue variable and its individual components are positively and significantly correlated with (democratic and autocratic) regime stability. The findings by Morrison (2009) thus support the assumption of RST that international rent has the same positive impact on the stability of authoritarian rule, no matter what the rent source is.35 Based on the regime change model introduced by Acemoglu and J. A. Robinson 35

Employing operationalizations of the independent variable other than natural resource rent, several authors have, among other things, analyzed the potential impact of foreign aid on democracy levels. The results are inconclusive: In a single cross-country regression with averaged variables, Knack (2004) finds no significant correlation of “aid intensity” or “aid dependence” with democracy indicators. In the studies by Morrison (2007) and Djankov et al. (2008), aid is significantly negatively correlated with proxies of democratic change (panel study of 108 countries for the period 1960 / 1977–1999 by Djankov et al. (2008)) and it seems to reduce the probability of democratization, even with donor conditionality (five-stage game theoretic model by Morrison (2007), based on the redistributional model of democratization by Acemoglu and J. A. Robinson (2001)). In contrast, J. Wright (2009) finds positive correlations of aid with the probability of democratization (time-series, crosssection multinomial logit model, sample of 190 authoritarian regimes in 101 countries, period 1960–2002), dependent on the size of the regime coalition (proxied by “single party regimes,” “military regimes,” and “other personal regimes”). In his empirical results, aid to single party regimes is positively correlated with the probability of democratization, the reverse is true for aid to military regimes. Overall, foreign aid seems to have more controversial effects on the stability of authoritarian rule than natural resource rent, probably due to its multiple forms (grants, loans, development or budget assistance, etc.), its suitability for appropriation by regimes, and donor conditionality.

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(2001), Morrison (2009: 122–129) also explores possible causal mechanisms: Both total nontax revenue and its individual components are negatively and significantly correlated with “taxation of wealthy elites in democracies” (sample size: 60–66 countries). At the same time, nontax revenue and its components are positively and significantly correlated with “social spending on poorer citizens in dictatorships” (sample size: 45–55 countries), lending support to the proposition of the RST that rent income stabilizes authoritarian regimes through patronage. Building on the study of Morrison (2009), Andersen and Aslaksen (2013) refine the dependent binary variable, so that it records a “regime change” only when “the chief executive’s party [as opposed to the chief executive himself; C.N.] is removed from power in a given year.” Further to that, their sample is bigger and comprises “up to 152 countries [both autocracies and democracies; C.N.] and 617 leadership durations” during the period 1975–2006. As a basis for the estimation, Andersen and Aslaksen (2013: 95–102) specify a “parametric survival model” (baseline model: “Log-normal”). The statistical results indicate a significantly positive correlation of oil wealth (operationalized by “oil income as a percentage of GDP”) and “leadership duration” in “autocratic polities” and “intermediate polities.” Besides, “mineral” resource wealth (consisting of a country’s endowment with “bauxite, copper, iron, lead, nickel, phosphate, tin, zinc, gold, and silver”) as well as “lootable diamonds” are negatively and significantly correlated with “leadership duration” in “intermediate polities.” In “democratic polities,” no clear pattern of significant correlations can be observed. The results are robust to the substitution of current “oil income” with lagged oil production volumes and “oil reserves” (in order to address possible endogeneity problems), as well as to the inclusion of a “conflict” control variable (Andersen and Aslaksen 2013: 102–105). In another study, Cuaresma et al. (2011) only include “dictatorships” in their sample, coupled with additional information on their “duration” (operationalized by the time a specific dictator “stays in office”). Their dataset thus comprises the office terms of 106 “dictators” (detected by a “score of smaller than -6” on the polity2 variable of the Polity IV database) or “647 dictator-year observations” during the time period 1980–2004. Employing a theoretical “survival model” (where the probability of a coup d’état by “kingmakers” depends on the “effort” of a dictator to exploit a natural resource and the resource’s international market price), which they transfer into a “standard parametric proportional hazard model,” Cuaresma et al. (2011: 516–527) find that “a higher level of oil production” is positively and significantly correlated with “log-time to failure” of a dictator in four of six model specifications. However, the “parameter of oil production” is only positive and significant for levels of the oil price below USD 18 per barrel. Significant positive correlations can also be observed for “gas, gold, silver, and lead.” At the same time,

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the “average annual world oil price” is negatively and significantly correlated with “log-time to failure” of a dictator in all models, “indicating that an increase in the oil price increases the probability of a successful coup d’état, resulting in a regime change.” Taken together, the seven presented studies give some credit to RST, both for the general link between international rent and the stability of authoritarian rule and for some of the proposed causal links. However, several authors have criticized the empirical studies discussed above for a number of methodological shortcomings: Building on theoretical arguments by Lipset (1959), Herb (2005: 299–301) argues that the study by Ross (2001) underestimates the potential negative effect of rent inflows on democracy levels, as Ross (2001) simultaneously assumes rent to have a positive effect on democracy via its contribution to income (measured in per capita GDP). Herb (2005: 301–302, 304–313) questions this effect and alternatively uses a measure of “counterfactual GDP” (a hypothetical GDP level that would result if states had never disposed of any rent income)36 in his panel regression of 144 countries during the period 1972–2000. The statistical results confirm his a priori critique: neither “rent [a large aggregate measure of several forms of rent; C.N.] as a percentage of government revenues” nor “oil export dependence” are significantly correlated with the democracy level (measured by Freedom House scores).37 Herb (2005: 310–311) concludes that the “oil harms democracy” effect postulated by RST is not supported by empirical data—oil neither seems “an outright curse” nor a blessing. Comparable to the findings of Ross (2001), the most influential variables in the model built by Herb (2005) are regional dummy variables, income (measured by GDP per capita), and Muslim population share, indicating that there might be yet undiscovered regional and cultural factors (Herb 2005: 305–310).38 Herb (2005: 303) concludes with an additional critique of RST: the rentier state phenomenon 36

To derive counterfactual GDP estimates, Herb (2005: 302) compares rentier states “to otherwise similar countries that lack abundant rents.” Thus, he selects comparable countries “from the same region, usually neighbors, since region is the most powerful predictor of democracy scores. The per capita GDP figures for these countries were averaged for each year, and standard per capita GDP figures for rentier states were replaced with these figures.” However, Herb (2005: 302) admits that the procedure might be inaccurate and that “any possible calculation of counterfactual GDP requires major, perhaps heroic, assumptions.” 37 The alternative operationalization of the dependent variable based on Polity IV scores is as well insignificantly correlated with government rent income. The regression results indicate a small negative relation of the dependent variable with the oil dependence variable (5 percent significance and a very small effect by one standard deviation change) (Herb 2005: 308–309). 38 As Ross (2001) before him, Herb (2005: 311) emphasizes the need for case studies that “should be designed to address the criticism to which the theory is most vulnerable: that the putative negative consequences of rentierism—authoritarianism, rent-seeking, corruption,

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might basically be a poor-country phenomenon. As the state in poor countries does not dispose of much non-rent income, the share of rent in state income is likely to be large (so these states inevitably fall into the definitional range of “rentier states”). It is thus possible that poverty is the fundamental reason for authoritarianism and that the label of rentier state is no more than its logical correlate. In a second critical study, Tsui (2011: 89–99) reflects on possible endogeneity of the commonly used independent variables of “natural resource wealth,” whose operationalization in most cases contains information on “production volumes” (which is a “flow variable” and might be dependent on regime type). Using an alternative “industrial dataset” (comprising 92–132 countries), he instruments variables describing a country’s oil-related geology and the historical sequence of (partly random) “oil discoveries” “for the magnitude of oil wealth” (a “stock variable,” representing the “capital value of future oil rents”) and analyzes the correlation of the instruments with the country’s “democratic development” (operationalized by the change in “democracy levels,” based on the Polity IV dataset) “one decade before and three decades after their peak [oil; C.N.] discovery years.” Running a number of ordinary least squares (OLS) and two-stage least squares cross-country regressions, he finds that “the [aggregated; C.N.] size of oil discovery” (instrumented by “oil endowment,” a vector of country characteristics, and “the pre-existing democracy trend before oil discovery”) is negatively and significantly related to the long-term (30 year) aggregated change in democracy levels. Within the model, this negative effect is larger the less democratic a country initially is, although its size is relatively small (Tsui 2011: 100–105). Inserting interaction terms of aggregated “oil discoveries” with “oil quality” and “exploration costs,” Tsui (2011: 106–108) finds that, given the model specifications, “the antidemocratic effect of oil is larger the higher the oil quality is.” A third critical study by Bearce and Laks Hutnick (2011) points to omitted variables and argues that the correlation between rent income and the stability of authoritarian rule might in fact not mirror the underlying causal path. Based on the redistributional model of democratization by Acemoglu and J. A. Robinson (2001), Bearce and Laks Hutnick (2011) run several panel regressions with 666 to 3.202 country / year observations, starting in 1960 (the precise sample composition is not given). The dependent variable is “democratization” (perceived as a “change in democracy” levels) and proxied by the democracy score of a country in the Polity2 dataset. The independent variables are “immigration” and “natural resource rent,” measured as “immigration per capita,” “oil and mineral rents per economic stagnation—are characteristics of both rentier states and their otherwise similar neighbors.”

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capita,” and “energy production per capita.” The results show a significantly negative correlation of immigration and democracy levels, while the inclusion of the immigration variable eliminates the significance of all operationalizations of the “natural resource rent” variable and starkly cuts the size of the coefficients. Bearce and Laks Hutnick (2011: 708–712) conclude that immigration (which is correlated with resource wealth and substantially higher in oil-rich than in mineral-rich countries) might be a factor that is more relevant than the natural resource endowment itself in determining the chances for democratization.39 In a fourth critique on existing studies, Ulfelder (2007: 995–996) points to conceptual overstretching of the RST. As RST only tries to explain the nonoccurrence of democratization or the stability of authoritarianism, the simultaneous inclusion of both existing democracies and autocracies in the empirical sample is equivalent to analyzing cases not covered by the theory. Thereby, one would assume identical effects of rent income on all types of political systems (treating the “persistence of autocracy,” “democratization,” and “reversals of democracy” as structurally identical processes), which does not seem probable. To remedy the problem, Ulfelder (2007: 997–1013) runs a logistic panel regression (period 1973–2002) solely on autocratic countries. The setup as an “event history model” allows him to focus on instances of democratization as a “change in kind rather than degree.” The independent variable “resource wealth” is proxied (fourfold) as the “share of a country’s gross national income (GNI) derived from the depletion of resources (“energy income,” “other mineral income,” and “forest resource income;” plus the combined indicator of “energy income and mineral resource income”). The dependent variable has a binary form, indicating democratization or the absence of it. The statistical results show that an authoritarian country that is more dependent on income from energy and mineral resources than another authoritarian country has a significantly smaller probability to democratize (lending support to the general proposition of RST). The possible effect of the “resource wealth” variable, however, is small compared to several control variables (especially “civil liberties” and the dummies for “post-Cold War” cases, countries from the “Middle East,” and “monarchies”). As other authors, Ulfelder (2007: 1012) concludes that causal mechanisms seem to be more than unclear and could only be uncovered by “case studies and comparative analyses.”

39

The model of Acemoglu and J. A. Robinson (2001), to which Bearce and Laks Hutnick (2011) refer, predicts that immigration will increase the political power of the nonelite segment of the population, raising the threat of revolution and inducing the elite to credibly commit to the redistribution of resource income. Therefore, democratization will be blocked and authoritarianism will be systemically stable (Bearce and Laks Hutnick 2011: 701–704).

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In a fifth study, J. Wright et al. (2015: 287–294) extend the critique by Ulfelder (2007) and point not only to the confounding of “regime changes” in existing studies, but also to the focus on instances of democratization, while the majority of historical cases “since the Second World War” had been “autocracy-to-autocracy transitions.” In addition, they criticize the frequent nondistinction between “withincountry effects” and “between-country effects.” Their dataset consists of “261 distinct autocratic regimes in 114 countries from 1947 to 2007.” They “estimate a nonlinear model, where the outcome variable is a binary indicator of regime change,” which takes into account the possibility of autocratic leadership collapse without systemic implications (thus “regime change” is operationalized more restrictively as a change in “the set of basic formal and informal rules that identify the group from which leaders can come and the rules through which leaders and policies are chosen”). Running a logit regression, J. Wright et al. (2015: 293–299) find that “total oil income per capita” (“the level of crude oil production multiplied by the world oil price and then divided by population size”) is negatively and significantly related to “the likelihood of autocratic breakdown” over all autocracies in the sample. A different picture emerges if autocracies are separated according to their historical development path: restricting the sample to cases that experienced “autocracy-todemocracy transition,” “oil income” is only negatively and significantly related to “the likelihood of autocratic breakdown” in cross-country comparison (“betweencountry effect”), while the within-country correlation (“within-country effect”) is insignificant. The reverse is true for cases that experienced “autocracy-to-autocracy transition:” For these cases, J. Wright et al. (2015: 298) detect a significant negative within-country correlation, while the between-country correlation is insignificant. They interpret their findings as a hint that cross-country differences in “oil wealth” could explain in part the lower propensity of oil-rich countries to democratize, if compared with less oil-rich countries.40 Within autocracies, “oil wealth” does not deter forces of democratization, but it seems to “prevent” “groups that organize new dictatorships” from “ousting” the ruling regime. As a “potential mechanism,” J. Wright et al. (2015: 301–303) suggest that higher “oil wealth” of autocratic regimes leads to higher “military spending,” which could serve the regime to coopt the officer corps. A sixth study by Haber and Menaldo (2011) criticizes the short time horizon of existing panel studies and the high probability in global samples of “omitted variable bias induced by unobserved country-specific and time-invariant heterogeneity.” The 40

Nevertheless, J. Wright et al. (2015: 303–304) admit that “between-country differences in oil wealth may simply reflect differences in state capacity or something else that predates the discovery of oil.”

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study is one of the most comprehensive quantitative studies on the RST to this date, as the authors test the proposed negative link of resource wealth and democratic governance for a “global panel of 168 countries” for the time period “from 1800 to 2006.”41 After “[constructing]” new longer term “original datasets” from “primary sources,” they conduct the statistical tests both for single countries over time, for specific subsamples, and for the global sample as a whole, employing different models, operationalizations of the main variables, and estimation techniques. Haber and Menaldo (2011: 4–5) operationalize the dependent variable “regime type” with the “Combined Polity 2 score, an index of the competitiveness of political participation, the openness and competitiveness of executive recruitment, and the constraints on the chief executive.” For the independent variable “resource reliance,” they use “four different measures:” “fiscal reliance on resource revenues” (the “percentage of government revenues from oil, gas, or minerals”); “total oil income per capita” (“barrels produced, divided by population, multiplied by the real world price, expressed in thousands of 2007 dollars”); “total fuel income” (“oil, natural gas, and coal, divided by population, expressed in thousands of 2007 dollars”); and “total resource income” (“oil, natural gas, coal, precious metals, and industrial metals, divided by the population, expressed in thousands of 2007 dollars”). To assess the plausibility of RST’s main propositions,42 Haber and Menaldo (2011: 5–11) extract 53 countries from the total sample. These countries had been “resource-reliant” (“based on their level of fiscal reliance on resource revenues”) during the period 1972–1999. Subsequently, the authors analyze each of these countries individually over the period 1800–2006, by qualitatively detecting periods of resource booms 41

Several observations motivated Haber and Menaldo (2011: 2) to undertake the study: “World oil reserves happen to be concentrated in precisely those countries with weak state capacity— and as any number of case studies have shown, weak state capacity preceded the discovery of oil or other minerals in those countries. Given that countries’ underlying institutions are also correlated with their regime types, it is likely that inveterately weak state capacity jointly determines authoritarianism and high levels of resource reliance.” To test this hypothesis, however, the previously used datasets, which mostly included panel data only back to the oil boom period of the 1970s, had to be extended to the pre-oil-boom period. 42 Haber and Menaldo (2011: 5–11) interpret RST in a very broad sense: they expect that a change in resource endowments would similarly affect all kinds of political systems by changing their position on a democracy-autocracy continuum (reversible relationship between the “level” of resource endowment and the “level” of political system type). Thus, a resource boom would imply that a country’s political system becomes more autocratic, whereas the “collapse of a resource boom” would imply that a country’s political system becomes more democratic. In extreme cases, a resource boom would thus lead to the “failure” of democracy (i.e. a formerly democratic political system becoming an autocracy), while a resource bust would lead to democratization (i.e. a formerly autocratic political system becoming a democracy).

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and busts, as well as moments of systemic regime change. The qualitative analysis yields three subsamples: 19 “potentially resource-blessed countries;” 26 “neither blessed nor cursed” countries; and only eight “potentially resource-cursed countries.” Within the “resource-cursed” subsample, Congo is the only country whose development over time seems to match the pattern predicted by the core of RST, which focuses on authoritarian countries (consolidation of authoritarian rule after a resource boom). 19 of the 26 “neither blessed nor cursed” countries were autocracies “prior to the discovery of natural resources” and remained so afterwards, without however becoming more autocratic. 12 of these 19 countries are situated within the MENA region. Haber and Menaldo (2011: 11–14) then proceed with a multivariate analysis “for the 18 major oil and mineral producers, for which [they had] series” for both “fiscal reliance” and “regime type.” Several cointegration tests on these two variables for each country (including control variables) lead to the result that “a long-run equilibrium relationship” between “fiscal reliance” and “regime type” might possibly exist in only five of those 18 countries (10 percent confidence level).43 The regression results from an error correction model show that the “longrun multiplier” (“total effect that an increase in “fiscal reliance” has on” “regime type;” spread over future time periods”) is not significant in four of the five cases (and does not have a negative sign in the fifth case). Leaving aside the relatively high probability of no cointegration, “only four of the [remaining; C.N.] 13 cases have long-run multipliers with the negative sign predicted by the resource curse, and none of them are statistically significant.” The within-country analyses thus do not yield any hints that a resource curse existed in any of these “18 major oil and mineral producers” over the last 200 years. To check for correlations within a multi-country sample, Haber and Menaldo (2011: 14–15) conduct the same statistical tests for a combined panel of all 18 countries. Again, they could not rule out the possibility of no cointegration at conventional significance levels. Ultimately, the error-correction-model panel regressions lead to positive and statistically significant “long-run multipliers,” “implying a resource blessing” (i.e. showing the reverse of what RST predicts). The same set of operations with an alternative operationalization of “resource reliance” (by “total oil income”), where data availability allows to include all 168 countries in the analysis, leads to basically the same results (if significant effects are found, they are positive, indicating a “resource blessing”), also if the sample is split “by time period, threshold of resource reliance, region, per capita income when oil was first produced, and distribution of income” (with the aim to uncover conditional effects) (Haber and Menaldo 2011: 15–22). Further43

These countries are Zambia, Algeria, Equatorial Guinea, Kuwait, and Nigeria (Haber and Menaldo 2011: 13).

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more, Haber and Menaldo (2011: 22–23) reestimate the parameters with “a series of dynamic, conditional fixed effects logit regressions,” presuming that “regime type” is not a continuous but a dichotomous variable. Again, results indicate a “resource blessing” rather than a “resource curse.” Finally, reverting to arguments by Herb (2005), they run regressions on the basis of a “difference-in-differences model,” deducting “regime type” scores of “counterfactual” cases from the actual score of each country.44 However, neither the static OLS regression, nor a “generalized method of moments two-stage instrumental-variables regression with country and year fixed effects” (where “total oil income” is instrumented), nor the regression of an “autoregressive distributed lag model in first differences” yield any results “that are consistent with the propositions of the RST—rather, the results indicate a potential (but very small) “resource-blessing” for some of the analyzed model-sample combinations (Haber and Menaldo 2011: 22–25). Several authors challenged the study by Haber and Menaldo (2011): Andersen and Ross (2014: 993–997) criticize Haber and Menaldo (2011) for their ahistoric treatment of the data and the “[drawing] of invalid inferences.” Their first criticism relates to the time period of the panel (1800–2006), a period they deem much too long to test a time-bound theory.45 As “no country produced economically significant quantities of oil before 1918,” variance on the independent variable was close to zero for over 100 years in the panel. Moreover, the capability of regimes to capture oil rents began to grow only since the “late 1960s.” Prior to that period, “most of the rents generated by oil production in non-Western countries were captured by a handful of large, vertically integrated international oil companies.” Only “in the 1970s, [was; C.N.] the industry [...] transformed by a wave of nationalizations and contract revisions that enabled the governments of host countries to seize control of these rents” (“the big oil change”) (Andersen and Ross 2014: 994, 1000–1003). Thus, Andersen and Ross (2014) assume RST’s explanatory power is restricted to the more recent past after the 1970s. Their second criticism relates to the conclusion by Haber and Menaldo (2011) that no such phenomenon as a “resource curse” can be observed in the long-run. Pointing to the “fallacy” of making “inferences 44

In this model, “resource-reliant” countries are compared to “a synthetic, non-resource reliant country that is represented by the average polity score of the non-resource reliant countries in the oil-producing country’s geographic / cultural region” (Haber and Menaldo 2011: 23). 45 Andersen and Ross (2014: 1016) regard it as “unwise to assume that the relationships among key variables—like oil wealth and political power—are fixed over time, without paying close attention to potential changes in the conditions that affect the causal relationship. Nor does it make sense [according to the authors; C.N.] to imply that theories about causal relationships, like the resource curse, are only valid today if they were also true in centuries past.”

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about the effects of any treatment without comparing the treated group with a control group” (i.e. generalizing from “within-country effects,” without considering “between-country effects”), Andersen and Ross (2014: 1003–1005) reject this conclusion. They present descriptive statistics from the dataset implying that, although oil rents are not negatively related to democracy levels within countries over time, “resource-producing” countries’ temporal improvement in democracy levels has been much slower than in the case of “nonresource” countries (especially from the 1980s onwards). Using the data provided by Haber and Menaldo (2011) and replicating the estimation technique (panel regression with error correction models), Andersen and Ross (2014: 1005–1013) show that an inserted interaction term of “total oil income” (alternatively “fiscal reliance”) with a “dummy for the post-1980 period” “has a negative coefficient” that is statistically highly significant (a result that holds if the “temporal break” is shifted to anywhere between 1980 and 1990; it also holds if longer lags of the independent variables are used and if estimations are repeated with a “dynamic fixed effects model”). Their statistical results thus point to the time-bounded explanatory power of RST, which seems to be confined to the post-1980 period. Overall, RST gets some support from large-N studies, at least for the period from the 1970s onwards (Ross 2001; Jensen and Wantchekon 2004; B. Smith 2004; Ulfelder 2007; Morrison 2009; Aslaksen 2010; Cuaresma et al. 2011; Tsui 2011; Andersen and Aslaksen 2013; Andersen and Ross 2014; J. Wright et al. 2015). However, there are also serious doubts, above all due to the possible spuriousness of the relationship in cross-country comparisons. Besides, the findings of studies are often contrary to the theory, especially when the time horizon of the analysis is extended, when control groups are more precisely defined, and when models and estimation techniques are refined (Herb 2005; Ulfelder 2007; Bearce and Laks Hutnick 2011; Haber and Menaldo 2011; J. Wright et al. 2015). These conclusions can also be drawn from case studies that interpret country cases by making use of RST. In contrast to large-N studies, the number of case studies in the current literature is relatively small. In one of the rare comparative studies, Beck (2007a: 49–50) analyzes the most prominent country cases commonly advanced as being contradictory to RST. He subdivides his sample into three groups of cases, that is rentier states where (1.) the authoritarian regime was replaced by another authoritarian regime (Iraq 1958, Libya 1969, Algeria 1991 / 1992, and Iran 1979), (2.) a democratic transition took place (Israel in the 1950s, Botswana, Venezuela 1958), and (3.) economic development was remarkably positive (Israel, South Korea, Taiwan, Botswana). Regarding the first group of cases, Beck (2007a: 50–53) contends that RST does not predict stability of authoritarian regimes under all possible circumstances, but that authoritarian regimes will not democratize once

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they have access to sufficient rent income. Regarding the second group of cases, Beck (2007a: 54–59) identifies new variables that seemingly modify the predicted impact of the rent influx: In Israel and Botswana, the certainty that rent income was only temporary and the prior existence of democratic structures probably enabled democratic transition. In Venezuela, the “favorable constellation of governing and opposition elites” seems to have been decisive for democratization. Regarding the third group of cases, Beck (2007a: 59–62) assumes the expected future decline of rent income, external threats, ideas of effective development, and donor conditionality fostered economic development. After all, Beck (2007a: 62–66) comes to the conclusion that RST is not refuted by these “deviant cases,” but that the aforementioned “intervening variables” not considered by the theory play an important role in shaping final outcomes. Other small-N empirical studies cast doubt on the micro-level and meso-level theoretical links proposed by RST. A central tenet of RST is that authoritarian regimes use rent income to finance policies that stabilize their rule (e.g. repression and patronage). Thus, RST holds that if rent income is permanently and sufficiently high, there will be no democratization. A logical deduction from this hypothesis is that once rent income declines to a certain level, authoritarian regimes could become unstable or even collapse, making democratization possible. A study by B. Smith (2006), however, contradicts this reasoning: B. Smith (2006: 55–56) observes that “even as regimes in oil-rich states have experienced some of the harshest economic shocks in the developing world in the last 30 years, few of them have collapsed and even fewer have undergone transitions to democracy.” He explains this puzzling observation with different paths of institutional development, shaped by two critical variables: “the timing of [oil wealth] relative to “late” development and the strength of opposition to rulers at the onset of late development.”46 Contrasting the cases of Iran and Indonesia during the period 1961–1979, B. Smith (2006: 59–70) finds that a regime that did not have access to sizable “oil revenues” “at the onset of late development” and that simultaneously faced “strong opposition” from social forces survived later crises (i.e. oil price shocks). In contrast, a regime that already disposed of sizable “oil revenues” “at the onset of late development” and whose opposition at that time was “weak” would collapse in a future crisis. He proposes an institutional explanation for these observations: If initial “oil revenues” were marginal and societal opposition fierce, the regime tended to heavily invest in coalition building (to be able to build up efficient “extractive agencies” in order “to pay for develop46

“Late development,” as understood by B. Smith (2006: 73), refers “specifically to late industrialization, which often took the form of import-substitution industrialization in oilrich countries. This is in contrast to the commerce-oriented late development that several Persian Gulf oil exporters [pursued].”

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ment” policies). Later oil wealth was then reinvested into existing structures and further strengthened an already durable institutional framework (Indonesia). If oil wealth was huge from the beginning, the regime tended to use it to buy off opposition and underinvested in institutional structures that could contain opposition (Iran). Empirically, the Indonesian regime survived later oil price-induced crises, whereas the Iranian regime collapsed. B. Smith (2006: 70–72) tests his inductively derived theoretical propositions for “the 21 authoritarian states most dependent on oil exports” between 1974 and 1992. During this period, he identifies “20 regime crises” (triggered by “oil booms and busts”), with only five cases of regime overthrow. Of those regimes that pursued late development policies (12 of 21), eight “faced” strong societal opposition and “all eight survived” later crises. Three of the remaining four regimes faced “no, little or no organized opposition” and disposed of sizable oil revenues at the onset of late development—all of them collapsed later.47 The study by B. Smith (2006) thus highlights the critical importance of intervening variables, especially “state-society relations” and the resulting institutional framework.48 “Prior politics,” and not rent income, might then be the key explanatory variable for the stability of authoritarian regimes (B. Smith 2006: 56, 61). MENA case and area studies As mentioned before, the RST has its roots in MENA case and area studies. The main propositions of the theory were inductively derived from empirical observation of the MENA region and its countries and then made their way as a “travelling concept” into other area studies and into comparative politics (Richter 2010: 157). Therefore, RST still dominates economic analyses of authoritarian rule in the MENA region. Several milestone works developed and then applied RST to a number of MENA country cases, such as Mahdavy (1970), Beblawi (1987), Luciani (1987), and Pawelka (1993). Endowed with the largest oil and gas reserves worldwide, the 47

It remains unclear, why B. Smith (2006: 71) does not report the fourth country case where opposition was weak at the onset of late development (presumably Cameroon, which he mentions among the countries that “initiated late development,” but which is missing in his subsequent analysis). The suspicion remains that Cameroon could be an outlier to the theory presented by B. Smith (2006)—either not having collapsed despite prior weak opposition, or having collapsed, but with late oil wealth. 48 Institutions also seem to play an important role regarding the second proposition of RST, that resource rents are an impediment to economic development. Several studies have underlined the importance of institutions as intervening variables that mediate the effects of a resource rent inflow on economic growth (Mehlum et al. 2006; J. A. Robinson et al. 2006), income (Hodler 2006), and economic diversification (Dunning 2005). The conclusion of these studies is that there is no inevitable economic resource curse. Ultimately, the institutional framework determines if resource rent income is put to effective use.

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MENA region is economically unique. With the 1970s oil booms, a regionwide system of “petrolism” developed, which comprised both oil-rich and oil-poor countries and in which oil rent circulated among the countries of the region (Korany 1986; Beck 2007b: 103). According to proponents of RST, the circulation of rent within the MENA region spawned two types of rentier states: oil-rich “pure” rentiers (the Arab states of the Gulf, Iraq, Iran, Libya, Algeria) and oil-poor “semi-rentiers” (Jordan, Lebanon, Syria, Egypt, Tunisia, Morocco, Yemen, Palestinian territories, Turkey) (Beblawi 1987: 53–61; Pawelka 1993: 110–157). RST’s main theoretical proposition is that rent income stabilizes authoritarian regimes, enabling them to buy legitimacy through repression and allocation (in the form of social services, subsidies, and privileges for key constituencies) (Luciani 1987: 76; Albrecht and Schlumberger 2004: 377; Bellin 2004: 148; Beck 2007b: 114–115) The rent influx thus changed the “ruling bargain” in MENA countries, freeing the state from the necessity to rely on taxation and enabling regimes to buy political consensus (“no representation without taxation”) (Chaudhry 1997: 30–34). More recent studies have focused on semi-rentier states of the region, emphasizing the multiple forms of rent income and the regimes’ skills to appropriate this rent. Thus, Richter (2007) shows how the Egyptian regime, despite severe financial difficulties, was able to maintain its rule by tapping a large number of external rent sources.49 This diversification of rent sources allowed the Egyptian regime to keep expenditures stable, even during economic crises. Peters and P. Moore (2009) make similar observations for Jordan. Nevertheless, the propositions of RST are not uncontested among researchers working on the MENA region:50 A first critique concerns the distributional capacity of rentier states and its measurement. Richter (2007: 181–182) argues that state expenditures rather than state revenues should be taken into account when judging the distributional capacity of rentier states. He underlines his argument by analyzing state expenditures in four semi-rentier states (Morocco, Tunisia, Egypt, Jordan). Richter (2010: 164–176) shows that state expenditures varied systematically less than the various forms of external rent. His observations hint at the skill of regimes in compensating for rent shortages and in tapping other sources of financing (e.g. debt). 49

External rent that directly bolstered the budget of the Egyptian state came from Suez Canal fees, oil and gas sales, and foreign aid. Together with additional rent from tourism and remittances, this rent influx also positively affected the international accounts (current and capital account) (Richter 2007: 190–191). Rent from tourism and remittances, however, could only be partly and indirectly be appropriated by the Egyptian state (e.g. through taxes and custom duties). 50 The following studies criticize the political propositions of RST for countries of the MENA region. For a critique on its economic propositions, see the study on Tunisia by Bellin (1994).

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Another critique on RST by researchers on the MENA region focuses on the purported causal mechanisms: Okruhlik (1999) shows for the case of Saudi Arabia that the distribution of rent income by the Saudi regime did not depoliticize opposition. To the contrary, the inequitable allocation of the oil rent fostered it in the first place. Highlighting five instances where rent distribution was contentious, Okruhlik (1999: 308) emphasizes that the “choices of a personal regime in distributing money inequitably for political reasons” are the fundamental variable “in the creation and convergence of opposition.” In another study, Chaudhry (1997: 30–38) criticizes the proposition of RST that a higher level of rent income makes regimes more autonomous from their societies. Comparing Saudi Arabia and Yemen over the “pre-oil boom,” “boom,” and “bust” periods, she points to the critical importance of institutional variables for political stability and change. In Saudi Arabia, oil windfall profits during the 1970s crippled state capacity, as oil rent induced the state to build up a new business class that had close familial and tribal ties to the regime. When the bust period set in, the Saudi state was unable to reintroduce taxation and experienced a harsh budget crisis. The reverse happened in Yemen, where the regime and the business class were not tightly interconnected. Ultimately, Chaudhry (1997) concludes that the historically evolved institutional framework, not rent income, is the decisive factor for state capacity and opposition. Her conclusions are confirmed by Peters and P. Moore (2009) for the case of Jordan. They refute the (indirect) proposition of RST that a decline in rent income makes regimes more instable. According to Peters and P. Moore (2009: 258, 261), “external rents are [not; C.N.] structural variables with independent and uniform effects,” but rather “an antecedent condition or intervening variable that is mediated by domestic level variables.” These “domestic level variables” are institutions, “which are key to authoritarian durability.”

3.1.3

Social Factors: Mobilization; Class Relations; and Sociocultural Structures

Theories that try to explain the stability of authoritarian regimes through social factors focus on the structure of society or on the characteristics of its individuals. These theories can be divided into two strands: socioeconomic and sociocultural. Theory building on socioeconomic factors of authoritarianism has mostly taken place within democratization studies, but these findings can contribute to an understanding of systemically stable authoritarianism as well. Most of the studies presented in this chapter develop theory inductively from country case studies. The dependent variable is always democratization. For this reason, the MENA region has been completely absent in empirical studies until 2011 due to a lack of cases. Nevertheless, the

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findings of non-MENA studies can also provide insights on the puzzle why MENA countries failed to democratize after formal political independence—meaning why authoritarianism in the region was a stable systemic outcome until 2011. In contrast to socioeconomic approaches, sociocultural approaches are region-specific. Thus, the only previous studies relevant for the research question of this study are located within MENA case and area studies. Cross-country and non-MENA studies During the 1950s, modernization theory emerged as a paradigm to “approach the explanation of democracy” (Potter 1997: 11). The classic work is Lipset (1959), who observes a correlation between manifestations of socioeconomic development (wealth, industrialization, urbanization, education) and democratic political systems. Comparing European, English-speaking, and Latin American countries, Lipset (1959: 75–80) found democracies to score consistently higher on these socioeconomic indicators than countries ruled by authoritarian regimes. He elaborates several possible causal paths for this phenomenon, showing how socioeconomic development could stabilize democratic government through changes in social structure and class dynamics. Although he does not explicitly link socioeconomic development and democratization as cause and effect, he nevertheless proposes possible causal connections (Lipset 1959: 83–85). Building on Lipset (1959) and subsequent contributions, modernization theory thus considered economic development and the ensuing socioeconomic and sociocultural transformations to be a necessary condition for democratization. However, history has shown that economic and socioeconomic development are neither a necessary nor a sufficient condition for democratization. Conversely, economic and socioeconomic underdevelopment cannot explain the systemic stability of authoritarianism. Later authors criticized modernization theory for its empirical shortcomings, although they did not discard the term “modernization.” In a key contribution, Huntington (1965) proposes a new theory that “distinguishes political development from modernization and [he] identifies the former with institutionalization” (Remmer 1997: 35). According to Huntington (1968: 32), modernization is a multifaceted process “involving changes in all areas of human thought and activity.”51 This process does not lead to democratization and eco51

Huntington (1968: 32–33) distinguishes between changes on several levels that constitute dimensions of modernization: “At the psychological level, modernization involves a fundamental shift in values, attitudes, and expectations. Traditional man expected continuity in nature and society and did not believe in the capacity of man to change or control either. Modern man, in contrast, accepts the possibility of change and believes in its desirability. (...) These changes typically require the broadening of loyalties and identifications from concrete and

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nomic prosperity, but it fosters political instability, at least in a transitory phase (see also: Deutsch 1961: 499). As a first corollary of modernization, social mobilization “gives rise to enhanced aspirations and expectations which, if unsatisfied, galvanize individuals and groups into politics.” Political institutions, however, are not yet “strong and adaptable” and cannot accomodate the new demands. The result is “instability and violence.” Economic development, as a second corollary of modernization, might have similar destabilizing effects, though presumably to a minor extent (Huntington 1968: 47–56). The final effects of mobilization on the character of the polity depend on traditional institutional structures: if these have been “complex and pluralistic”, adaptation is relatively easy. It is more difficult in “structurally differentiated” systems characterized by “rationalization of authority”, for example in highly centralized bureaucratic monarchies. A second critical factor is “middleclass political participation,” which has to be accomodated by institutional development. Subsequently, institutions have to adapt to “the expansion of participation to the urban working class and the rural peasantry.” Depending on the adaptability of institutions, the polity will either develop into a “civic” or a “praetorian” type (with civic polities showing a higher level of institutionalization for a given level of political participation). Ultimately, the probability is high that societies with “high levels of middle-class political participation” will develop into praetorian polities based on “mass society,” meaning a highly mobilized society with a low level of political institutionalization and a direct relationship between the leaders and the masses (Huntington 1968: 78–88). Huntington (1968: 89) does not use the term “authoritarianism,” but his praetorian polity type seems to fit into this category, whereas his immediate groups (such as the family, clan, and village) to larger and more impersonal groupings (such as class and nation). With this goes an increasing reliance on universalistic rather than particularistic values and on standards of achievement rather than of ascription in judging individuals. At the intellectual level, modernization involves the tremendous expansion of man’s knowledge about his environment and the diffusion of this knowledge throughout society through increased literacy, mass communications, and education. Demographically, modernization means changes in the patterns of life, a marked increase in health and life expectancy, increased occupational, vertical, and geographical mobility, and, in particular, the rapid growth of urban population as contrasted with rural. Socially, modernization tends to supplement the family and other primary groups having diffuse roles with consciously organized secondary associations having much more specific functions. (...) Economically, there is a diversification of activity as a few simple occupations give way to many complex ones; the level of occupational skill rises significantly; the ratio of capital to labor increases; subsistence agriculture gives way to market agriculture; and agriculture itself declines in significance compared to commercial, industrial, and other nonagricultural activities. There tends to be an expansion of the geographical scope of economic activity and a centralization of such activity at the national level with the emergence of a national market, national sources of capital, and other national economic institutions.”

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civic polity type corresponds to either democratic, authoritarian or totalitarian rule. Overall, the arguments made by Huntington (1968) contribute to our understanding how modernization might lead to authoritarian polities that are stable at least until processes of social change become less rapid. A second line of thought considers the relations and relative political strength of socioeconomic classes to be responsible for the occurrence of democratic and nondemocratic political systems. Referring to Marx, proponents of this strand of theory deem socioeconomic “classes”52 to be the fundamental drivers of history. In a pioneering work, B. J. Moore (1966) compares the political evolution of several European and Asian countries and the United States from a social class perspective. He observes “three routes to the modern world,” on which different forms of economic systems, class relations, and revolutions lead to different political systems. The first and oldest observable route combines a capitalist economic system and parliamentary democracy, brought about by a bourgeois revolution (England, France, United States). A second (younger) route is characterized by capitalism shaped by “conservative revolutions from above” and ends in fascism (Germany, Japan). The third route leads to communism through a peasant revolution (Russia, China). As an exception, India took a nonrevolutionary path towards democracy, although final judgment is not yet possible (B. J. Moore 1966: 413–414). Synthesizing the insights from his case studies, B. J. Moore (1966) arrives at several preconditions for the democratic route: First, there has to be a balance between the aristocracy and the ruler / the crown. Second, the aristocracy has to face a “vigorous and independent class of town dwellers” (“no bourgeois, no democracy”). Third, the aristocracy has to “turn toward an appropriate form of commercial agriculture.” In England, this meant a change in land use towards intensive crop production, while “setting the peasants free to shift for themselves as best as they could.” At the same time, peasant society was transformed and largely dissolved with the increasing industrialization and commercialization of the economy. These developments had the triple effects of making the aristocracy independent of the crown (precluding royal absolutism), creating mutual interests of aristocracy and emerging bourgeoisie, and “solving the peasant question” (its elimination either as a revolutionary factor or a “massive 52

Rueschemeyer et al. (1992: 51–52) draw on Elster (1985) to define the term “class:” Class is couched “in terms of endowments and behaviours. The endowments include tangible property, intangible skills and more subtle cultural traits. The behaviours include working versus not working, selling versus buying labor power, lending versus borrowing capital, renting versus hiring land, giving versus receiving commands in the management of corporate property. These enumerations are intended as exhaustive. A class is a group of people who by virtue of what they possess are compelled to engage in the same activities if they want to make the best use of their endowments.”

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reservoir to serve the reactionary ends of the landed upper classes”) (B. J. Moore 1966: 415–432). Notwithstanding the importance and centrality of his work, B. J. Moore (1966) has been criticized by later authors for several empirical shortcomings: his neglect of the working class; the limited time frame of his study (especially in the case of formerly fascist countries); and his underestimation of international factors. Building on the analysis by B. J. Moore (1966), Luebbert (1991) emphasizes the decisive influence of the working class for regime outcomes in interwar Europe. He identifies “three political-economic regimes emanating from the transition to government by popular mandate in Western Europe:” liberal democracy (Britain, Switzerland, France, Belgium, Netherlands); social democracy (Norway, Sweden, Denmark, Czechoslovakia); and fascism (Germany, Italy, Spain). These regimes “were, above all, responses in politics and in the labor market to the demands of the working classes.” According to Luebbert (1991: 1), the “working class challenge” became unmanageable in Western Europe after 1919, which is why the interwar years were characterized by a search for political-economic formulas that would stabilize the balance of political power, provide effective means by which to govern the economy, and at the same time dissipate, accomodate, or crush the claims of organized workers.” In this struggle, “mass material interests” embodied in social classes and advocated by “political party representatives” were the “motor force,” while individual decisions by political leaders had no decisive influence on the emerging regime types (Luebbert 1991: 6, 306–307). Ultimately, Luebbert (1991: 310) assumes the “European experience of the transition to mass politics will not be duplicated, indeed will hardly even be approximated in the contemporary Third World.” Extending social structural analysis both regionally and temporally, Rueschemeyer et al. (1992) compare the links of capitalist development and democracy in the advanced capitalist countries (Europe, Britain’s settler colonies) with the countries of Latin America, Central America, and the Carribean until the 1980s. They come to the conclusion that “three clusters of power—class power, state power, and transnational structures of power—have been important for the development (and demise) of democracy in the process of capitalist development.” Ultimately, their combination and interaction “[determined] political developments” (Rueschemeyer et al. 1992: 269–270). For Rueschemeyer et al. (1992), the working class is the “key actor in the development of full democracy.” In contrast, “large landlords, particularly those who depended on a large supply of cheap labor, consistently emerged as the most antidemocratic force.” Similarly though less starkly, the bourgeoisie “rarely if ever pressed for the introduction of full democracy.” Thus, “democracy was the outcome of the contradictory nature of capitalist develop-

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ment, which necessarily created subordinate classes, particularly the working class, with the capacity of self-organization.” These subordinate classes then changed the balance of class power (Rueschemeyer et al. 1992: 270–272). According to Rueschemeyer et al. (1992: 275–281), the structure of class relations cannot, however, sufficiently explain all cases of democratization. State power (manifested in the leeway granted to independent political actors) and “transnational power relations” (“war, the structural effects of economic dependence, and economically and geopolitically conditioned interventions of foreign powers”) are important intervening variables. In a region-specific study on Latin America, Berins Collier and Collier (2002) underline the importance of state-labor relations for the political trajectories of Latin American countries in the twentieth century (comparative study of Argentina, Brazil, Chile, Colombia, Mexico, Peru, Uruguay, and Venezuela). Being the creature of a period of export expansion from the latter half of the nineteenth century to the first decades of the twentieth, the working class over time became the primary political actor (Berins Collier and Collier 2002: 769–771). The modes of political incorporation of the labor movement differed among the countries (state versus party incorporation) and shaped “structures of contestation and cooperation in the national political arena.” These structures determined later regime outcomes (e.g. “the new authoritarianism” that could be observed in some Latin American countries during the 1960s–1970s) (Berins Collier and Collier 2002: 3–10). Another strand of research used game theory to model class struggle and analyzed its specific political outcomes: In a landmark study, Acemoglu and J. A. Robinson (2001) try to explain the transition between democratic and authoritarian political systems through a dynamic game with infinite time horizon. They assume the existence of two opposing social groups, the “elite” and the “poor,” which are characterized by different endowments with productive capital. Both groups have coherent internal preferences, which are solely determined by total consumption possibilities. During the game, both groups continuously maximize their expected consumption, which depends on capital endowment, the tax rate on capital, and a lump-sum transfer from the taxes collected by the state (Acemoglu and J. A. Robinson 2001: 940–942). Under autocracy, the elite can set the tax rate, whereas in a democracy the median voter (who is from the poor) determines it. Given the structure of the game and group preferences, the elite prefers autocracy (where it could set the tax rate at zero) and the poor prefer democracy (where they can redistribute income through a positive tax rate). Both groups can change the political status quo through revolution (the poor) or coup d’Etat (the elite). However, these actions have specific costs that both groups take into account when making decisions. Given their preferences, they only change the status quo if their expected total consumption is higher

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after a regime change. Evaluating game outcomes, Acemoglu and J. A. Robinson (2006: 244) observe a U-shaped relationship between inequality and democracy: Low socioeconomic inequality makes revolutions unprofitable for the poor, as they cannot gain much from subsequent redistribution. High inequality makes revolution very costly for the elite, inducing them to use all their means for repression and the maintenance of the status quo. Therefore, democracy most likely emerges in cases of medium inequality where it is profitable for the poor to revolt and not too costly for the elite to cede power (while expected tax rates in a future democracy must not be too high). Acemoglu and J. A. Robinson (2006 : 1, 349–355) test their model at several empirical cases. They come to the conclusion that there are “four main paths of political development:” from nondemocracy directly to consolidated democracy (Britain); from nondemocracy to unconsolidated democracy with frequent authoritarian setbacks (Argentina); persisting nondemocracy with relative social equality (Singapore); and persisting nondemocracy with high social inequality (South Africa under the apartheid regime). Apart from comparative historical studies, researchers have conducted largeN cross-country quantitative studies, regressing regime types on social indicators. An example is Vanhanen (1997), who tries to explain the existence of democracy and nondemocracy through the “distribution of economic and intellectual power resources” in a society. His linear regression model is very simple, as it contains only one independent variable and no control variables. To measure the dependent variable, Vanhanen (1997: 34–35) constructs an “index of democratization” consisting of two equally weighted variables: the degree of competition (percentage of the votes won by the largest party subtracted from 100); and the degree of electoral participation (percentage of the total population who actually voted) in parliamentary and executive elections (the weight of each election in the construction of the index is determined with the “use of judgment”). The independent variable (“Index of Power Resources”) is a composite index of six indicators measuring various dimensions of societal resource distribution (Vanhanen 1997: 42–59).53 Vanhanen (1997: 53

In a first step, Vanhanen (1997: 42–59) constructs three composite indices from his six indicators of societal resource distribution: an “Index of Occupational Diversification” (arithmetic mean of the urban population as a percentage of the total population and the nonagricultural population as a percentage of the total population); an “Index of Knowledge Distribution” (arithmetic mean of the number of students in universities and equivalent degree-granting institutions per 100,000 inhabitants and the literate population as a percentage of the adult population); and an “Index of the Distribution of Economic Power Resources” (weighted average of the area of family farms as a percentage of the total area of holdings and the degree of decentralization of nonagricultural economic resources; the weights are the percentages of the agricultural and nonagricultural population). These three sectional indices are fused into an “Index of Power Resources” by equal weights (multiplied and divided by 10,000). To

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79–95) tests his model on a longitudinal sample comprising data on the different indicators during the period 1850–1993. He defines thresholds for the independent variable (“arbitrarily one half of one standard error of estimate”) which should predict if a country falls into the democratic or nondemocratic range of the dependent variable. In a second step, the predicted level of the dependent variable is compared with its actual value for all countries in the sample. He comes to the conclusion that “according to [his] interpretation, empirical evidence has not falsified the research hypotheses (...) because approximately 80 per cent of the countries were democracies or non-democracies in 1993 as hypothesized.” The study, however, suffers from several shortcomings: In the evaluation of regression results, Vanhanen (1997: 22) throughout relies on subjective assessment rather than on calculations of probability based on assumptions about the distribution of the underlying variables (no calculation of significance levels for the estimates). Furthermore, his model is unrealistically simple, as he assumes the process of democratization to be driven by only one “common underlying factor,” presumedly selected by nature according to “the principles of the neo-Darwinian theory of evolution.” He later contradicts himself, admitting that “it would be unrealistic to expect complete correlations (...) because there may be many other factors affecting the level of democratization, including institutional variation, historical factors, various local factors, external actors, and the role of political leaders” (Vanhanen 1997: 69). Above all, the model cannot account for the low democracy level prevalent in many MENA countries (nine out of ten extreme outliers), which leads the author to hypothesize that “Muslim culture” might be an additional explanatory factor (Vanhanen 1997: 92). In another study, Boix (2003) tests the effect of income inequality and asset specificity on the likelihood of democratization. His analysis is based on a two-stage static game theoretic model, similar in its assumptions to Acemoglu and J. A. Robinson (2001). The model predicts an inverse relationship between inequality and democratization (stronger resistance of the elite to democratization in case of high societal inequality due to an expected higher tax rate) and an inverse relationship between asset specificity and democratization (stronger resistance of the elite to democratization if assets cannot be shifted abroad). Boix (2003: 78–88) uses two different samples with different operationalizations of the independent variables: The first sample includes approximately 50 countries for the observation period 1950–1990. account for cases where the three constituent indices have very different values, Vanhanen (1997: 42–59) calculates an “Index of Structural Imbalance,” as the arithmetic mean of the absolute differences of each constituent index from their overall mean. He then adds a quarter of the Index of Structural Imbalance to the Index of Power Resources, which yields the “Index of Power Resources and Structural Imbalance” as an alternative operationalization of the independent variable.

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Income inequality is measured by an adjusted Gini index. Asset specificity is operationalized by four different indicators (average share of the agricultural sector in total GDP, ratio of fuel exports over total exports, average years of schooling, and level of economic concentration measured by a Hirsch-Herfindhal index). The second sample covers the period 1850–1980. Income inequality is proxied by the distribution of agricultural property (measured by area of family farms as a percentage of the total area of holdings) and the quality of human capital (measured by the arithmetic mean of the percentage of literates in the adult population and the number of students per 100,000 inhabitants). Asset specificity is measured by an index of human capital and an index of occupational diversification (average of the percentage of nonagricultural population and the percentage of urban population). All indices used as measurements in the second sample are taken from Vanhanen (1997). As predicted by his model of democratic transition, Boix (2003: 78–88, 90–93) finds for the majority of specifications used on the basis of his first sample that higher income inequality correlates with a lower probability of democratic transition. Likewise, higher asset specificity, in three of its four different operationalizations, correlates with a lower probability of democratic transition. The same conclusions also hold for the second sample. Boix (2003: 128–129) cross-checks his findings through a qualitative historical analysis of Swiss cantons and states within the United States. Corroborating his earlier conclusions he finds that in both cases lower inequality seems to have fostered democracy. More unequal cantons or states democratized later, when the growth of financial centers had increased asset transferability. MENA case and area studies In contrast to global large-N and non-MENA studies, studies on socioeconomic factors of authoritarian stability in the MENA region are relatively rare. Some authors writing on the MENA region tried to make use of the findings of cross-country studies on social structure and democratization. In most cases, their aim is to explain why, despite the global trend, democratization has not occurred in the MENA region as a whole or in individual MENA countries. Taking up the arguments of Huntington (1968), Hinnebusch (2006: 377–378) observes that “the destabilization of early democracies [in the MENA region; C.N.] resulted from the radicalization of “new middle classes” that liberal institutions dominated by (...) oligarchies could not absorb (as long as the majority of voters remained dependent on their landlords) and by the politicization of the military as it became a vehicle of the “new middle class.” As a result, the “Middle East remains in “transition” to modernity; hence the obstacles to democratization typical of the transition persist today.” Gerber (1987) compares the findings of B. J. Moore (1966) with the evolution of social structures in MENA countries. His analysis of “the effects of the Ottoman

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socioagrarian structure on the modern countries of the Middle East” indicates that social structures in the MENA region were entirely different than in the country cases analyzed by B. J. Moore (1966). Due to the old Ottoman land law, small holdings predominated in the whole Ottoman Empire and no landlord class developed prior to the enactment of a new land law in 1858 (which provided for more possibilities “to acquire land from the government “on paper””). Thus, after 1858 landlord classes developed in some areas of the MENA region (especially in Egypt, Iraq, and Syria), but not in others (e.g. most areas of Turkey and Palestine) (Gerber 1987: 179–182). The landed class, however, did not start to struggle with the rulers, nor did it become involved in an export boom triggering an industrial revolution as in England. Instead, the landlord class, where it existed, took political power with the breakdown of the Ottoman Empire after the First World War. Unrivalled by other classes, it inhibited full democratization. The preconditions for the democratic path described by B. J. Moore (1966) were thus completely lacking in most newly emerging countries of the MENA region (see also: Issawi 1956: 32–34). Furthermore, the communist path did not materialize as “the traditional Middle Eastern agrarian regime was much less repressive than that in either Russia or China and hence did not generate the necessary preconditions for revolution” (Gerber 1987: 182). Contrary to the cases analyzed by B. J. Moore (1966), armies proved to be the decisive actors for the political fate of the MENA region. The social background of armies in MENA countries was entirely different than in Europe or South America. Whereas in the latter cases “the traditional role of the army was to guard a social hierarchy, at the center of which stood a landed upper class, the Ottoman army had no such function, simply because no landed upper class worthy of the name existed.” The army personnel was thus “recruited from among the lowest classes” and, in the twentieth century, from the “lower middle class.” When in the aftermath of the Ottoman Empire “social unrest and resentment of the lower classes against the ruling [landlord; C.N.] elite mounted, the army revolted, thereby antedating a possible popular upheaval that might have erupted some years later” (Gerber 1987: 183). These army revolts then brought to power populist authoritarian regimes. There are two exceptional paths within the MENA region: Turkey and Lebanon. In both countries, the landed class did not play a significant political role, either because it did not develop (Turkey) or because it collapsed (Lebanon). At the same time, a “bureaucratic middle class” (Turkey) or a commercial “new middle class” (Lebanon) came into existence. This structure of class relations fostered the introduction of “partial democracy” (Issawi 1956: 32; Gerber 1987: 184–185). To summarize, Gerber (1987) contends that the main obstacles to democratization (and thus the main reason for the stability of authoritarianism) in MENA countries are to be found in the unrivalled position of the landed class. At first, it inhibited democracy and it was then replaced by pop-

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ulist authoritarian regimes that came to power through peasant revolutions led by the army. However, Gerber (1987) was criticized for his neglect of postindependence political dynamics and for not analyzing the role of the bourgeoisie and the working class (Bromley 1997: 338). This critique is taken up by Hinnebusch (2006) who looks at the relations of different social classes in his structural analysis of the failure of democratization in the MENA region. His conclusion is that democracy in the MENA region did not come about because “democratic coalitions” (of the bourgeoisie, the working class, and the middle class) did not form. Instead, single classes or small class coalitions installed authoritarian systems by subduing the other classes.54 For Hinnebusch (2006: 378–380), the weakness of the bourgeoisie and the working class can be traced back to the “pre-modern imperial state’s relative hostility to private property (notably in land) and to the region’s “periphery” role in the world capitalist economy as a producer and exporter of primary products,” which “historically [made] powerful landlords and tribal oil sheikhs the strongest classes.” These structures contributed to the weakness of the bourgeoisie, which was further weakened by the “wave of nationalizations” after the army coups of the 1950s and 1960s— neither did the global economic position of the region foster the evolution of a large working class. Furthermore, modernization and economic development over time “stimulated the growth of the educated middle class across the region.”55 This educated middle class “was initially the product of and dependent on the state.” The strength of the state and the regime in relation to social classes is another reason why authoritarianism proved to be stable in the MENA region. In MENA countries, there was no “balance between the state / ruler and independent classes, in which the state [was] neither wholly autonomous of dominant classes nor captured by them, allowing a space within which civil society [could] flourish.” Specific to the region, this imbalance was further deepened by the state’s access to external rent income (Hinnebusch 2006: 378–380). The importance of state-society relations for the analysis of authoritarian stability in the MENA region is also stressed by Bromley (1997). According to Bromley 54

Thus, a path-dependent sequence of authoritarian regimes could be observed in MENA countries where a large landlord class had taken power after the collapse of the Ottoman Empire: the first period was marked by “authoritarianism of the right, where the landed aristocracy [subordinated] the bourgeoisie and the peasants,” followed by “authoritarianism of the left, where peasants and workers [were] mobilized in the revolutionary overthrow of the aristocracy” (Hinnebusch 2006: 379). 55 For empirical details, see the descriptive analyses of “modernization” in the Middle East during the 1950s–1960s by Issawi (1956: 37–38) and, much more comprehensively, by Lerner (1967).

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(1997: 336–342), “the degree of separation between the political system and the control of economic resources” opening up “social space for political and ideological mobilization independently of the state” was central to any democratization attempts in the region. As the Turkish case demonstrates, this leeway for civil society “[facilitated] the beginnings of independent organization by the bourgeoisie and the working class.” Besides, two further variables seem to be important: the existence of international rent and the influence of external powers. Rent bolsters the state, whereas external powers can either support the forces of authoritarianism or the forces of democracy. By focusing on the role of the state in the economy and the resulting state-society relations, Bromley (1997) tries to explain the persistence of populist authoritarian systems (Egypt, Iraq, Syria), of the authoritarian monarchies in the Gulf, and of the democratic evolutions in Turkey and Lebanon. Apart from class relations and the relations of classes with the state, social inequality between the ruling class and the rest of society may play a role for the stability of authoritarianism. In a cross-country study discussed above, Boix (2003) argued that high inequality between an elite and the poorer groups of society stabilizes authoritarianism, because the elite perceives democratization to be too risky in light of expected redistribution. Hinnebusch (2006: 388) underlines the importance of this argument for the MENA region, noting that “most Middle East states are currently in a transition to capitalism, wherein inequality is increasing but growth has not yet given the masses the stake in the status quo that would make democratization low-risk for the “haves”” (see also: Issawi 1956: 32). Social structures in the MENA region therefore seem to stabilize authoritarianism from two angles: low pressure on the ruling classes by nonruling classes; and socioeconomic inequalities that make democratization too costly for the elite. Nevertheless, several authors have criticized social structural approaches to explain the stability of authoritarianism in the MENA region. One example is Ayubi (1995: 175), who underlines the difficulties inherent in the analysis of class structure in the MENA region. In his point of view, “modes of “distribution” or of “circulation”” are “just as important, if not more so, than modes of production.” Furthermore, he argues that “class structure is variegated and fluid,” being “intermeshed (...) with aspects of vertical differentiation (e.g. tribe, sect, ethnie, etc.).” According to Ayubi (1995: 177–178), the all-dominant political actor in the MENA region is the “peripheral state, which arose (...) prior to the formation of the bourgeoisie as a politically dominant class.” The state is responsible for the formation of “intermediate” class categories, which constitute the “social base of state power.” These intermediate classes “seek to dominate over all other classes” and civil society, “mainly by monopolising the apparatuses of the state.” At the same time, the “polar classes (i.e. the bourgeoisie and the proletariat)” are “relatively weak,” as

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they are either dependent on the state (bourgeoisie) or internally stratified without “class consciousness” (proletariat) (Ayubi 1995: 178–181). The central role of the state and the quasi nonexistence of independent classes thus call into question the usefulness of social structural analysis for MENA countries. In contrast to socioeconomic structures and the dynamics of social class struggle, the second strand of theory that tries to explain authoritarianism in the MENA region through social factors focuses on sociocultural structures. Brynen et al. (2012: 96) give an overview on political culture theories that are used to analyze political dynamics in the MENA region. They identify three types of approaches: essentialist; contextualist; and critical.56 Essentialist approaches suffer from severe theoretical flaws and often a missing empirical basis. Thus, I am going to discuss only the contextualist and the critical approaches here. Contextualist approaches are applied to a wide range of research questions, not all of them focusing on the polity level. One such study is Sharabi (1988). Analyzing the interaction of cultural and noncultural factors, the author observes that Arab societies are “neopatriarchal” systems. According to Sharabi (1988: 3–4), “neopatriarchy” is “a concept referring equally to macrostructures (society, the state, the economy) and to microstructures (the family or the individual personality).” It is a “modernized form of patriarchy” that developed in the context of “dependency relations” with “a hegemonic modern Europe.” Neopatriarchal society’s “central psychosocial feature (...) is the dominance of the Father (patriarch), the center around which the national as well as the natural family are organized.” Sharabi (1988: 7) thus connects the societal with the political level: “Between ruler and ruled, between father and child, there exist only vertical relations: in both settings the paternal will is the absolute will, mediated in both the society and the family by a forced consensus based on ritual and 56

Brynen et al. (2012: 96, 100, 102) outline the main arguments of each type of approach: “Essentialist approaches to political culture see culture as important, determinative, and at least semi-primordial—that is, so deeply rooted in history, religion, and social organization as to be highly resistant to change. They also tend to see the Middle East as a single historical unit, with its cultural commonalities more salient in explaining regional politics than the varied, internal characteristics of individual states.” “Contextualist approaches to political culture still hold that political culture is important in explaining politics, but tend to see culture as more varied and changeable, and operating on politics in ways that are often subtle and mediated. They typically reject the notion of an “Arab” or “Islamic” culture as a gross overgeneralization and instead place emphasis on subcultures and the often contradictory and complex ways in which cultural influences are felt on politics. In this view, cultural influences are important, but traditions and doctrines are far from immutable.” “Critical perspectives tend to doubt the feasibility or value of political-culture analysis. Typically, they argue that cultural variables are not only hard to assess, but also secondary to more structural determinants like political economy and institutional legacies.”

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coercion.” Being a “type of Arab Islamic patriarchy,” neopatriarchy is constituted by the “structural prototypes” of family, tribe, and clan (Sharabi 1988: 26–27). Its vertical social relations are rooted in heteronomy, a value system “based on subordination and obedience [that] upholds an ethic of authority.” This value system in turn reinforces a “central system of patronage [that] assures the perpetuation of the primordial patriarchal authority.” In this vertical system of exchange, patronage is “lubricated” through “the wasta (mediation) mechanism” (Sharabi 1988: 43– 46).57 The dominant social class in neopatriarchal systems is the “neopatriarchal petty bourgeoisie.” As a “hybrid social class, distinct from both the underdeveloped bourgeoisie and proletariat, [it] developed into a dominant class by the mid-twentieth century.” Its ascendency was due to dependency relations arising from a “peripheral capitalism” that did not bring about “a full-fledged bourgeoisie and genuine working class” (Sharabi 1988: 5–6). Thus, rule by the neopatriarchal petty bourgeoisie led to “domestic authoritarianism,” characterized by a specific form of “etatism” fostered by “European imperialism” (Sharabi 1988: 9, 65). Sharabi (1988: 65–66) considers etatism to be “natural to neopatriarchal society [because it] was essentially nothing but the medieval sultanate in modern form.” It is based on “personalized power” and “derives its legitimacy not from some formal (constitutional or even traditional) source, but from the reality and possession of power.” In this system, individuals are “subjects and not citizens, with no human or civil rights or power to influence decisions concerning society as a whole.” Ultimately, Sharabi (1988: 65–66) is sceptical about the mutability of this authoritarian political system ascribing to it an “amazingly lasting power.” Similarly, Hammoudi (1997: 1–5), who “extrapolates” from the Moroccan case to the wider Arab world, tries to explain the “prevalence of authoritarian political systems” in “postcolonial Arab nation states” through “a set of cultural schemata.” This set is “constituted” among others by “inversion” and “ambivalence,” a cultural schema “in terms of which any access to any position of dominance is defined.” According to Hammoudi (1997: 5–6), the cultural schema of inversion and ambivalence, which was “reelaborated [and] reinvented under colonial rule,” “is grounded 57

Based on various stories and experiences depicting the functioning of Jordanian society, Cunningham and Sarayrah (1993) describe wasta as a practice of “mediation” and “intercession.” It is “rooted in family loyalty and tribal dispute resolution” and based on personal relations through family, “members of small ethnic or religious groups, political parties, or social clubs” (Cunningham and Sarayrah 1993: 2, 33). Mediation involves resolution of “matters (...) between families without going through the courts” (e.g. in the case of murder or rape), while intercession provides economic benefits to the wasta seeker “through job placement and administrative regulations” (Cunningham and Sarayrah 1993: 8–9). With the advent of the modern state, traditional wasta was extended to the new state institutions (Cunningham and Sarayrah 1993: 33).

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and sanctified by the concepts and procedures involved in the process of mystical initiation.” The extremely unequal relation of master and disciple in the religious field is mirrored in social relations, for example in the relation between father and son. Ultimately, this microsocial phenomenon also affects the macrosocial and political level, as “in all political parties and trade unions, as well as public and private bureaucracies, processes of political interaction are dominated by the relationship to a chief, which is modeled on the exemplary master-disciple relationship.” However, Hammoudi (1997: 7–9) points out that his observations do not imply the existence of “stable cultural features or [...] mentalities” in Arab countries.58 In contrast, “men and women are [...] enabled to construct and reconstruct temporary consensus” on culture in all its dimensions, “to explore ambiguities and misunderstandings, or to shatter these frameworks.” The concept of neopatriarchy introduced by Sharabi (1988) and the cultural schemata elaborated by Hammoudi (1997) are also important for the analysis of civil society in MENA countries. Ultimately, these two studies contribute to explaining why civil society does not develop into a democratizing force in the MENA region: while vertical networks and norms of paternal authority do not permit independent societal organization, “social capital” seems to have properties different from the ones assumed by authors such as Putnam et al. (1993).59 This point is stressed by Jamal (2007b) who analyzes levels of trust in Jordan, Morocco, and Egypt.60 She comes to the conclusion that trust is not conducive to democracy in these three countries. In her study, individuals who had “more confidence in the existing [authoritarian; C.N.] political institutions (...) also had higher levels of interpersonal trust.” In addition, people who were “more skeptical of the human rights situation” in their country and those who “supported democratic forms of governance” were less trusting. The results are robust to the inclusion of several control variables linked to 58

Thereby, Hammoudi (1997: 7) “wants to avoid the dangers of essentialism and their familiar corollary—the antihistoricist usage of history,” characteristic of “a number of orientalist works.” In his point of view, “such interpretations forego the task of reconstructing cultural references in relation to their circumstances, and they prod the idea of culture into the confines of a theory of race, emphasizing latent structures at the expense of human action.” 59 Putnam et al. (1993: 167) defines “social capital” as “features of social organization, such as trust, norms, and networks, that can improve the efficiency of society by facilitating coordinated actions.” According to Putnam et al. (1993: 174), horizontal (as distinct from vertical) networks are particularly suitable for inducing cooperation among individuals. Together with generalized trust and norms of reciprocity, horizontal networks constitute social capital. This type of capital facilitates collective action within a society, which purportedly is conducive to economic development and democratic governance (Putnam et al. 1993: 163–186). 60 The sample used by Jamal (2007b) includes 2,700–3,600 individuals from these three MENA countries, who were interviewed in the World Values Survey.

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religiosity and attitudes toward women (further control variables: education; age; gender; and income). The author interprets the findings as “indicating that lower levels of trust are influenced by factors deemed important for democracy” (Jamal 2007b: 1340). Another study by the same author on Palestine after the Oslo Accords seems to confirm these conclusions: Based on a 1999 survey of 1,200 Palestinians by the Jerusalem Media and Communications Center, Jamal (2007a: 78–79) hypothesizes that “association membership has an independent, positive effect on levels of interpersonal trust.” A further in-depth survey of 422 associational members in the West Bank by the author herself “indicates that higher levels of interpersonal trust are inversely related to support for democratic institutions and other important indicators of civic engagement.” According to Jamal (2007a: 79–80), civil society in the West Bank is divided between associations “with political access to the Palestinian National Authority (PNA)” and others that do not dispose of this channel of influence. Access to the center of political power makes members of pro-PNA organizations more secure that their interpersonal trust will not be abused. Generalizing her findings, Jamal (2007a: 80–82) constructs a typology of associational life in clientelistic and nonclientelistic associational terrains. Authoritarian systems typically bring about clientelistic associational terrains. In such a setting, clientelistic associations bind members vertically to political decision makers. This forging of vertical relations to politically influential individuals fosters the interpersonal trust of association members. However, civic engagement does not increase with associational membership, and concomitantly support for democratic institutions is lower. The reverse is true in the case of horizontally structured nonclientelistic associations prevalent in nonclientelistic associational terrains. Members of this type of associations show increasing civic engagement and higher support for democratic institutions, but their interpersonal trust is lower. Ultimately, this second study by Jamal (2007a: 80–82) suggests that the purported virtuous circle connecting social capital and democratic governance only holds for nonclientelistic associational terrains. These are usually present in consolidated democratic systems. In contrast, social capital in authoritarian systems seems to stabilize rather than to undermine the existing political order. Studies that analyze sociocultural factors of authoritarianism in the MENA region have been criticized by numerous authors: One example is Hudson (1995: 65–71), who divides the literature on political culture in the MENA region into “reductionist” and “empirical” approaches. He criticizes the “grand generalizations” of reductionist approaches, especially its conception of Islam, as “oddly disconnected from history [and] seemingly unadaptable to changing circumstances.” Being less parsimonious, empirical approaches try to grasp the influence of political culture through “attitude surveys” and “micro-level case studies.” However, empirical approaches

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also suffer from several shortcomings: First, “empirical survey work on the Arab World is meager.” Second (and partly a result of the first problem), the “validity and reliability, not to mention interpretation, are often problematic” (Hudson 1995: 69). Nevertheless, Hudson (1995: 62) is convinced that political culture is an “important variable [that] cannot be reduced to other factors such as economics, institutions, or externalities:” “without factoring in the complexities of culture, values, beliefs, ideology, and legitimacy,” the risk arises that one is “being left with arid economistic reductionism.” Stronger criticism is voiced by Anderson (1995). She outlines various problems connected with political culture analysis: First, “there is virtually no effort to examine the actual causal connections between apparently correlated phenomena, such as attitudes, behavior, and institutions.” Attitudes and “timeless beliefs” are assumed to influence institutional outcomes, whereas a possible reverse causality is not taken into consideration. Second, political culture approaches suffer from “logical and epistemological flaws,” as proponents try to “explain the absence of something desirable—democracy—by the presence of something undesirable—[...] “bad attitudes”—,” which is arbitrary and not based on a “rigorous specification of the feature whose absence is to be explained.” Third, approaches are marked by “an inability to think critically about change.” Thus, Anderson (1995: 89–90) complains that although “we know that transformations in one part of social life—the economy, technology, education (...)—will alter other aspects of social life,” authors of the field conceptualize culture as permanent and immutable. She proposes a more careful assessment of political culture variables, one that builds on an analysis of “institutional structures, sources of government revenue, population growth rates, class relations, regime constituencies, government policy biases, and a host of other things.”

3.1.4

International Factors: External Actors and the Regional Context

Of all possible factors of authoritarianism, international factors have so far received the least attention in the literature. Once again, democratization studies, which have been the prime theoretical source for the analysis of authoritarian stability, have left their mark: Anchored in comparative politics, democratization studies have by and large neglected international factors while focusing exclusively on domestic drivers

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of change (Pridham 1994: 9; Yilmaz 2002: 68).61 The situation changed in the 1990s, when it became obvious that international factors had played a major role in the democratic transitions of post-Cold War Eastern Europe (Yilmaz 2002: 68–69). However, the new attention given to international factors in democratization studies has not yet made substantial inroads into the more recent research on the stability of authoritarianism (Burnell and Schlumberger 2012b: 10). Nevertheless, deduction from democratization studies can yield insights on the role of international factors for the stability of authoritarianism as well. Several authors strove to untangle the international variables that might affect democratization processes. For example, Pridham (1994: 11) distinguishes between: 1. “Background or situational variables:” “external policy patterns” of a country; “pressures for change;” “geostrategic situation;” “present state of the international economy;” “significant international events surrounding the transition process;” and “the international system as such.” 2. “External actors:” “international organizations;” “foreign governments;” and “a range of non-governmental actors.” 3. “Forms of external influence:” “direct intervention (invasion, occupation);” as well as “political, diplomatic, economic and commercial, moral, cultural and also covert or subversive [forms]; and they may be direct or indirect, coercive or persuasive.” A more process-oriented view is advocated by Whitehead (2001 [1996]), who suggests “three main headings under which international factors [of democratization] may be grouped and analyzed: Contagion; control; and consent.” Contagion refers 61

International political structures and agency have traditionally been the domain of international relations. Concomitantly, comparative politics has taken on a strongly domestic perspective, where international factors have played a subordinate role. Thus, both disciplines have largely pursued their own research agendas without substantial cross-fertilization (Yilmaz 2002: 68–69). The field of democratization studies was dominated by structural accounts during the 1950s–1970s (modernization theory, social structural analysis), and agency-centered perspectives based on rational actor models only became more prominent in the 1980s (Schmitz 2004: 406–408, 416). According to Schmitz (2004: 408), this shift “[reflected] not only the limits of the modernization perspective but [it was; C.N.] part of a more general trend of rational choice based challenges to macro-structural and functionalist arguments.” In agency-centered models of democratization, agents within the regime (hardliners versus softliners) and the opposition are the main drivers of change, while democratic transitions are assumed to unfold in distinct phases (Rustow 1970; O’Donnell and Schmitter 1986). The actors involved are modeled as rational decision makers, who perceive the democratization process as a sequence of games, for which they maximize their payoff (Przeworski 1992).

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to the autonomous spread of democracy from one country to another without interference of external actors. Control is influence by outside powers directed towards democratic transition. Consent refers to domestic actors’ common agreement on the form of the future democratic system. This agreement can be influenced by international processes in four aspects: “the territorial limits to successive democratizations;” “main international structures tending to generate consent” (e.g. “regional blocs,” such as the European Union (EU)); “the ways in which authentic national democratic actors may be constituted from relatively diffuse transnational groupings;” and “the role of international demonstration effects” (e.g. “images of the good life in North America or Western Europe”). Subsequently, I merge the categorizations of Pridham (1994) and Whitehead (2001 [1996]), and I distinguish between structural variables (including positional and process variables) and variables representing actors, while treating forms as an inherent aspect of both. Due to the large number of possible variables located on the international level, the following overview of studies necessarily remains eclectic. Cross-country and non-MENA studies International structural factors that potentially stabilize authoritarian regimes have received scant attention in the literature. There are several studies dating back to the 1970s–1980s, when structural theories played a more important role. The theoretical frame of these studies was deduced from dependency theory.62 Most prominent is the study by O’Donnell (1973), who uses elements of both modernization and dependency theory to explain the emergence of authoritarian systems in Argentina and Brazil during the 1960s. According to O’Donnell (1973), dependent industrial development in these countries had set in motion processes of social mobilization that could not be handled by the democratic political systems in place, and therefore finally brought about authoritarian coups. He thus directly links the dependent position of a country in the global economic system with the occurrence of an authoritarian political system in this country.63 In a later study, Bollen (1983) analyzes this purported negative relationship between dependency and democratic govern62

As Bollen (1983: 468) notes, “most empirical tests [examined] economic dependency in relation to economic development (and growth) and the distribution of income. [...] The potential consequences of dependency for political equality [were] less well explored.” Apart from his own study, Bollen (1983) cites four other studies that analyze the relation between dependency and “non-democratic government,” among them O’Donnell (1973). 63 According to O’Donnell (1973: 53–95), the dependent position of Argentina and Brazil in the 1950s–1960s caused the failure of their development models, which were based on horizontal industrialization and import substitution. After a period of continuous growth, several problems of these development models became apparent (such as foreign exchange shortage, inflation, erratic growth, social misallocations, and persistent rigidities in social

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ment for a larger number of observations. He theorizes that the support of noncore elites by core elites “hinders the processes associated with socioeconomic development that contribute to democratic forms of government” in the noncore countries. Thus, the interference of core elites either weakens the noncore bourgeoisie (alliance between the core elite, the noncore landowning class, and the merchants), or incorporates it into the “system of domination,” or leads to the suppression of the noncore working class (Bollen 1983: 470). Bollen (1983: 471–478) tests his theory on a sample of about 100 countries (80 percent of them developing countries) and finds that the periphery position of a country is negatively and significantly correlated with its democracy score (ordinary and weighted least squares linear regressions; cross-section for the year 1965; dependent variable measured by a democracy index constructed by the author). Economic development as the sole control variable has a significantly positive correlation with democracy. Probably due to methodological constraints, Bollen (1983) is not able to quantify the potential indirect influence of dependency (resulting from the periphery position of a country) on democracy via economic development (purportedly negative as well). As a factor contributing to dependency, colonial legacies and postcolonial relations might also have hindered democratization and fostered the stability of authoritarianism in noncore countries. For example, Rustow (1970: 350–352) deems “national unity” to be a necessary “background condition” for democratization. He contends that national unity can only be achieved if “the vast majority of citizens [...] have no doubt or mental reservations as to which political community they belong to. This excludes situations of latent secession [...] and, conversely, situations of serious aspirations for merger [...].” In many newly independent developing countries of the twentieth century world, the export of the Westphalian state structure), which produced severe economic crisis. At the same time, horizontal industrialization had triggered modernization processes that led to increased social differentiation. New social groups emerged (above all a large working class and a middle class), which expressed increased demands of consumption and political participation. Ultimately, pre-coup populist democratic systems were not able to handle the higher societal demands and thus steadily evolved towards praetorian systems (see also: Huntington 1968). The political tensions were further aggravated by the high degree and strength of unionization, a legacy from the populist era. When it became apparent that a political stalemate paralyzed the countries, coup coalitions led by technocratic elites overthrew the governments, with tacit support from the propertied sectors of society. Post-coup regimes then excluded the “popular sector” from participation in government and set up “bureaucratic-authoritarian regimes,” characterized by a high degree of corporatism (manifest in “increased organizational strength of many societal sectors, governmental attempts at control by “encapsulation,” [distinct; C.N.] career patterns and power-bases of most incumbents of technocratic roles, pivotal role played by large (public and private) bureaucracies”) (O’Donnell 1973: 95).

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system by European colonial powers led to disputed state borders and a lack of national unity. In these countries, unachieved national unity might be a factor that has contributed to the stability of authoritarianism. More recent accounts focus on the democratizing potential of international structural factors. Drake (1998) proposes a list of international factors, among them several structural factors of global reach, which from his point of view supported the “Third Wave of Democratization” during the period 1974–1990. He distinguishes between economic factors (sustained economic growth, the spread of new technologies, international depression and the debt crisis, globalization and neoliberalism), imperial factors (the impact of the United States and Western Europe as role models, changes in the Soviet Union and Eastern Europe), and ideological factors (the spread of liberalism, universalization of the concept of human rights).64 However, it is difficult to reverse the argument of Drake (1998) in order to explain the stability of authoritarianism. One can hardly imagine that any of the mentioned factors could have been absent in a specific country ruled by an authoritarian regime, given that all factors are more or less of global reach. As many authoritarian regimes worldwide have weathered these global pressures, academic research points towards the decisive influence of regional and domestic factors that moderate the impact of international structures.65 A second strand of the democratization literature that focuses on international structural factors deals with regional structural effects. Most prominent are studies analyzing what Whitehead (2001 [1996]: 5–8) calls “contagion.” What could be observed in the different waves of democratization was a regional “domino effect,” where each democratic transition seemed to trigger the same process among neighboring countries. Several large-N studies dealing with contagion processes come to the conclusion that such effects exist and that they can foster both democratization and the deepening of authoritarianism. In one of these studies, Brinks and Coppedge (2006) test for the possible effects of polity changes among countries of a network. 64

Drake (1998: 75–86) assumes these international structural factors indirectly influenced democratization processes through their impact on domestic structures and actors. They thus might have either influenced social and political structures, strengthened oppositional actors, or weakened the regimes in power. 65 One example is Haggard and Kaufman (1998), who argue that economic crises destabilize authoritarian regimes. But ultimately the institutional setup of the regime moderates the impact of economic crises and determines regime stability (stability as the final result in dominant party regimes, controlled transitions in cohesive military regimes, regime collapse in vulnerable military regimes). Global economic crises, like the debt crisis in the 1980s, would then have different impacts on a domestic level. Similarly, Gleditsch and Ward (2006: 916) doubt that “universal global influences affect all countries alike.” They point to “large regional differences and variations” masked by the “global level [as] an aggregate.”

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They situate countries within three types of networks: contiguous neighbors; a single global network; and networks of superpower influence. Basing their analysis on a two stage model (first stage: probit model; second stage: panel regression with continuous dependent variable), they estimate “the impact of independent variables on the direction and extent of change, given the probability of change.” The sample covers all countries of the world during the period 1972–1996 (dependent variable: annual change in democracy levels, derived from the Freedom House political rights and civil liberties measures). In addition to the independent lagged diffusion variables (average differences in democracy levels between a country and its neighbors in the network), Brinks and Coppedge (2006) control for a variety of domestic variables and regional dummies. They find that diffusion by geographic neighbors and global diffusion are positively and significantly related to the democracy level of a country. Diffusion from superpowers (United States and Soviet Union) is nonsignificant in most models. Most regional dummies correlate negatively and significantly with the democracy level, while most domestic variables are not significantly related with it. Another study by Gleditsch and Ward (2006) comes to similar conclusions. The authors use a probit model to determine a country’s likelihood of change from autocracy to democracy and vice versa (dichotomized dependent variable based on the Polity IV dataset). Their independent variables represent several international effects: the proportion of neighboring democracies (assumption: 500 km radius); the global proportion of democracies; the occurrence of conflict on a country’s territory; and neighboring transitions to democracy (control variables: economic development level; growth; and time under each regime type). Analyzing two different samples from the periods 1951–1998 and 1875–1998, Gleditsch and Ward (2006) conclude that “a higher proportion of democratic neighbors significantly decreases the likelihood that autocracies will endure, and decreases the likelihood that democracies will break down.” Democratic transitions in neighboring countries and a higher global proportion of democracies both seem to decrease the likelihood that autocracies will endure. A third study by Leeson and Dean (2009) corroborates these findings. In this study, the basis of estimations is a spatial autoregressive and spatial error model applied to a panel data set covering more than 130 countries during the period 1851–2001. The dependent variable is measured by four year average changes in democracy levels, based on the Polity IV dataset. The independent variables are operationalized by the weighted changes in democracy levels among a country’s geographic neighbors plus several controls (lagged democracy level of a country, GDP per capita, and GDP per capita growth). Leeson and Dean (2009) find consistent and significantly positive correlations of changes in democratic levels among countries with common borders. However, the magnitude of the coefficients

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is relatively small, with countries catching only between 2 percent and 17 percent of their neighbors’ weighted change in democracy levels. Overall, large-N studies on regime type diffusion seem to confirm the hypothesis that countries emulate the regime types of their neighbors. However, all these studies suffer from unclear theorizing on a micro level. Several hypothetical diffusion channels are assumed, but authors do not test for these links due to operationalization problems. A rare study that focuses on the micro level is Bader et al. (2012), who qualitatively examine the hypothesis that autocracies promote their regime type among neighbors. The theoretical basis is a political economy framework that assumes rational governments whose sole interest is domestic political survival. Governments therefore make foreign policy decisions that maximize the probability that they survive in office. Survival in turn is “dependent on [the; C.N.] support of crucial societal groups.” Bader et al. (2012) assume “governments benefit domestically from similar systems in their neighborhood.” This is why “[governments] prefer system convergence in their region.” Moreover, the authors hypothesize that democratic governments prefer public goods to private goods, as they have to deliver to a larger coalition. Autocratic governments, in contrast, prefer private goods, as they have to pay off small societal groups. Thus, transboundary public goods (e.g. peace, free trade, clean environment) emanate relatively more from democracies, whereas autocracies are often responsible for the spread of public bads (e.g. uncontrolled migration, cross-border environmental pollution, transnational organized crime). Ultimately, preferences for public or private goods could also explain contagion: Democracies prefer democratic neighbors, as they want to free ride on transboundary public goods. Autocracies are more easily manipulable in their spending decisions, tax policies, land concessions, or transit rights, while the lack of accountability “eases exploitation from outside.” Therefore, autocracies prefer autocratic neighbors, because they provide them with the opportunity to reap private goods that can serve to pay off their regime coalitions. Nevertheless, the decision for active regime change seems to be moderated by the variable “political stability.” Bader et al. (2012) predict that autocracies will only promote autocratic regime change if neighboring regimes are politically unstable. They try to back their prediction with four case studies on neighboring countries of China and Russia that are characterized by unstable political regimes (Cambodia, Myanmar, Georgia, and Kyrgyzstan). After all, the conclusions of the study are highly theoretical, as it remains unclear whether incentives have been correctly modelled and whether actual behavior of governments corresponds to the incentives predicted by the model. Apart from international structural factors, international actors might contribute to stabilizing authoritarian regimes. According to Pridham (1994: 11), there are three

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types of international actors in general: international organizations; foreign governments; and nongovernmental actors. Studies on international nongovernmental actors who contribute to stabilizing authoritarian regimes seem to be nearly nonexistent.66 In contrast, there are numerous studies on the potential effect of foreign aid by governments and international organizations on the stability of authoritarian rule. In a pioneering study, Knack (2004) finds no significant correlations of aid dependence with the change of democracy levels (dependent variable operationalized by Freedom House political freedoms and civil liberties scores or by measurements of the Polity IV dataset; independent variable operationalized by official development assistance (ODA) in percent of GNI and in percent of government expenditure; several control variables, including the initial democracy scores). The method employed in this study is cross-section linear regression (OLS, two-stage least squares (2SLS), and a logit model), with a sample covering around 100 countries. Change variables are calculated as end of period (year 2000) minus initial period (year 1975) values. A study by Djankov et al. (2008) comes to different conclusions: Regressing several independent variables (foreign aid: measured as the share of ODA over GDP; oil rents: share over GDP; terms of trade shocks: positive and negative over five year periods) on changes in democracy levels (measures from Database of Political Institutions 2002 and Polity IV), the authors find a significant negative correlation of foreign aid with the dependent variable (methods: OLS; Instrumental Variables; and Generalized Methods of Moments (GMM); data averaged over five years). The sample includes 108 recipient countries during the period 1977–1999 (DPI database) and 1960–1999 (Polity IV database). Their findings receive support from Morrison (2007), who analyzes the effects of aid on a theoretical level. Extending the redistributional model of democratization by Acemoglu and J. A. Robinson (2006) with variables of “unconditional and conditional non-tax resources” (five stage game theoretic model), he reaches the conclusion that even foreign aid with policy conditionality (i.e. foreign aid that is more or less directly spent on public goods, with limited possibility of the government to rededicate funds) will stabilize authoritarian regimes. Assuming the model by Acemoglu and J. A. Robinson (2006) depicts reality correctly, foreign aid in this theoretical framework reduces the need for redistribution by the rich elite in power. Instead of pressing for democratization 66

There is a sharp contrast to democratization studies, which have attributed a democratizing role to nonstate actors, especially as parts of civil society (Weigle and Butterfield 1992: 19; Tusalem 2007: 366). This enthusiasm resulted from the fact that civil society played a major role in the fall of communist regimes in Eastern Europe after 1990. Around the turn of the millenium, enthusiasm gave way to disillusion, as it became clear that in other authoritarian settings civil society had not been strong enough to challenge incumbent regimes. Instead, it was often manipulated and controlled by them (Youngs 2004: 137–182).

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and for redistribution via taxes, the poor group of society will be satisfied with the redistributive effect of aid that reduces socioeconomic inequality. Another study by J. Wright (2009) proposes that the effect of foreign aid on the survival of authoritarian regimes might be translated by domestic institutional factors. In his theoretical model, conditional aid enters the utility function of a rational dictator who decides over whether or not to democratize. Based on the predictions of the model, the regressions include coalition size and regime type as independent variables apart from aid (controls: neighbor polity; conflict; GDP per capita; growth). Using an extended version of the regime-years database provided by Geddes (1999), which contains 190 authoritarian regimes in 101 countries during the period 1960–2002, J. Wright (2009) arrives at the conclusion that aid to military regimes strengthens authoritarian rule, while it fosters democratization in the case of single-party regimes (time-series cross-section multinomial logit model with controls for time dependence; one and two stage regressions with instruments for aid). After all, evidence for the potential effect of foreign aid, disbursed by international actors, on authoritarian stability is inconclusive. A major problem are the underresearched effects of aid on micro-level institutions (Morrison 2007: 384; Djankov et al. 2008: 172, 193). The fact that foreign aid does in some instances seem to stabilize authoritarian regimes is interesting insofar, as many international donors adopted a democracy promotion agenda after the end of the Cold War. Thus, they implicitly attached restrictions on grants and loans, making these transfers conditional on progress towards democratic governance. But, as empirical studies globally tell, conditionality did not seem to work in all cases; and sometimes it was deliberately not applied (Youngs 2004: 27–84; Burnell and Schlumberger 2012a). Looking beyond foreign aid to the donor-recipient relationship, Levitsky and Way (2006) introduce a model that tries to explain under which conditions pressure by international donors can destabilize “competitive authoritarian regimes.” Their concept of “linkage and leverage” focuses on the interconnectedness of international and domestic factors. “Leverage” refers to “governments’ vulnerability to international democratizing pressure.” “Linkage” is “the density of economic, political, social, organizational, and communication ties to the United States, EU, and Western-led multilateral institutions.” Linkage can “[raise] the cost of authoritarianism by heightening the international salience of repression, fraud, and other abuses; increasing the likelihood that Western governments would respond to those abuses; and creating domestic constituencies with a political, economic, or professional stake in adhering to democratic norms.” According to Levitsky and Way (2006: 199–200), the two dimensions of linkage and leverage can explain the pattern of post-Cold War democratizations in competitive authoritarian settings: Where both linkage and leverage were high, “international pressure contributed to democ-

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ratization even under unfavorable domestic conditions” (Central Europe and the Americas). Where both linkage and leverage were low, “external democratizing pressure was limited and domestic forces predominated, which frequently resulted in authoritarian persistence” (former Soviet Union, East Asia). Where linkage was low and leverage was high, “external pressure was only intermittent and partially effective, at times weakening autocracies, but—in the absence of a strong domestic push—rarely achieving democratization” (Sub-Saharan Africa).67 MENA case and area studies In the MENA region, several international structural factors coincide to foster the stability of authoritarian rule. A first factor is the prevalence of interstate conflict. According to (Gause III 1995: 284), “almost every Arab state over the past decades has been directly involved in some form of international conflict:” the Western Sahara dispute between Algeria and Morocco; “Libya’s episodic military confrontation with its neighbors;” the Arab-Israeli conflict and its regional ramifications; “the past decade of war in the Gulf.” Brynen et al. (2012: 261) add the strifes between Kurdistan Workers’ Party (PKK) fighters and the Turkish army in Iraq; Saudi Arabia’s military interventions in Yemen; and a number of intrastate conflicts with external links (e.g. in Saudi Arabia and Iran).68 According to Brynen et al. (2012: 261–262), a high level of conflict has different implications for the stability of authoritarian rule: On the one hand, conflict “challenges regime stability.” On the other hand, “it also creates conditions that increase the state’s capacity to maintain a monopoly on the means of coercion and survival, even in the face of growing popular illegitimacy and 67

Levitsky and Way (2006) do not elaborate the fourth category—high linkage, low leverage—, perhaps because no competitive authoritarian regimes actually fall into this category. This pattern might be due to pure chance or it might indicate that Western pressure could even work towards strengthening full-scale authoritarianism. According to Levitsky and Way (2006: 201), leverage is a function of several factors: a country’s “raw size and (military or economic) strength” (to block democratization pressures); “Western foreign policy agendas” (where “competing issues or goals” might exist); and a country’s “access to political, economic and / or military support from an alternative regional power.” In the case of small authoritarian countries, the latter two points might reduce Western leverage. Thus, foreign powers in some cases try to foster the stability of existing authoritarian regimes, thereby preventing an evolution even towards competitive authoritarianism. This might be the reason why the authors mention the Middle East as a low leverage region, but do not consider it in their country sample (if competitive authoritarian regimes existed in the Middle East, they would have fallen into the high linkage / low leverage category) (Levitsky and Way 2006: 201, 213). 68 The list of conflicts is far from complete—for a comprehensive overview on interstate and intrastate conflicts in the MENA region, see the volumes by Fawcett (2005), Halliday (2005), and Rubin (2009).

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discontent.” Thus, MENA regimes react to conflicts by funelling an exceptionally high proportion of state expenditures into arms procurement and security personnel. The resulting coercive capacities can be and were used in many cases for repression of domestic opponents (Gause III 1995: 285–286; Brynen et al. 2012: 262–263). In addition, a climate of war preparation “concentrates power in the hands of the executive,” allows regimes “to stigmatize opposition forces as treasonous,” and “leads to greater state control over the economy, limiting the power and autonomy of private sector economic actors who might press for democratic reform” (Gause III 1995: 286). A second international structural factor that potentially stabilizes authoritarian rule in the MENA region are transnational ideological influences. While PanArabism dominated the discourse during the 1930s–1970s, it was Islamism that has gained ground from the late 1970s onwards (Gause III 1995: 287–289; Brynen et al. 2012: 266). According to Brynen et al. (2012: 266–268), “pan-Islamic appeals” have become a central element of regional politics in the MENA region since the turn to the 2000s. As in the case of intrastate and interstate conflicts, transnational ideologies have both destabilized (through mobilizing populations for an international cause, triggering e.g. the “new Arab Cold War”) and stabilized incumbent regimes in various contexts (legitimation through the transnational ideology, denouncing opposition as backed by foreign powers, quelling domestic dissent in the name of security and the “fight against terror”) (Gause III 1995: 290; Brynen et al. 2012: 269–272). A third international structural factor that seems to have stabilized authoritarianism in the MENA region is the legacy of colonialism. As Hinnebusch (2006: 377– 378) points out, “the haphazard imposition of territorial boundaries under imperialism” has been an “obstacle to democratization” in the MENA region. The external imposition of state borders led to a “mismatch [...] between state and identity” which hindered the formation of an “underlying consensus on political community (shared nationhood) that would allow groups to differ peacefully over lesser issues and interests” (see also: Rustow 1970). According to Hinnebusch (2006: 378), this mismatch is also a root factor behind the prevalence of conflict and transnational ideologies in the MENA region: First, the incongruence of state and identity fostered the “persistence of sub-state and supra-state identities that weakened the identification with the state that was needed for stable democracy.” Thus, Pan-Arabism and political Islam emerged as transnational ideologies rivalling conceptions of small-statehood and nationhood. Second, “artificial boundaries built irredentism [...] into the very fabric of the state system,” which created “acute security dilemmas” for MENA states. This disputed status quo has fuelled permanent interstate and intrastate conflicts. After all, the strength of transnational ideologies, its political movements, and the

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conflictual environment threaten the integrity of existing nation states. Under these circumstances, Hinnebusch (2006: 378) concludes, “elites are more likely to resort to authoritarian solutions.” Apart from international structural factors, international actors have directly or indirectly contributed to authoritarian stability in the MENA region. The first category of international actors are state actors, either states from the region or outside powers. Thus, states from the region have frequently intervened into each other’s domestic affairs: Until the Arab defeat in the Six-Day-War against Israel 1967, Pan-Arabism had been used by some local players (Egypt, Syria, Iraq) to destabilize regimes in the region with the aim of establishing hegemony (mobilization and support of revolutionary groups, direct military interventions). With the first oil crisis of 1973, the international state system in the region evolved towards “political petrolism,” which brought new players to the fore (Korany 1986: 69–72; Gause III 1995: 287–289; Halliday 2005: 236–239). Under the system of political petrolism, the oil-rich countries (mainly located in the Gulf region) circulated their oil rent among the oil-poor countries of the region—either through direct transfers or indirectly through workers’ remittances and joint investment projects. Their aim was political stability, which they hoped to achieve by bringing Nasserist revolutionary politics to an end (Korany 1986: 72–77; Beck 2007a: 45). After the second Gulf War in 1991, when petrolist coalitions fell apart, oil-rich MENA countries changed their foreign policy approach. They now tried to base intraregional cooperation less on the distribution of oil rents, but more on policies of free trade and free investment, as advocated by the Bretton Woods institutions (Luciani 2005: 98). Apart from actively stabilizing regimes, oil-rich countries also used their oil rents to support intrastate actors in conflicts against hostile regimes (an example is the support given by Saudi Arabia, Libya, Sudan, Iraq and Iran for various foreign Islamist opposition groups) (Gause III 1995: 289; Halliday 2005: 243). Overall, the picture is mixed: MENA state actors have stabilized and destabilized each other at the same time and in various constellations. The main levers of influence have been interstate and intrastate conflicts with, as discussed above, all their ambiguous effects on regime stability. Another group of international state actors that potentially influence the stability of authoritarian rule in the MENA region are global powers and supra-state organizations, above all the United States, the Soviet Union (prior to 1989), European nation states, and the EU (after 1992). During the Cold War, the United States and the Soviet Union rivalled for regional allies. The heyday of rivalry was the period 1955–1975, when the Soviet Union started to build up regional allies among radical Arab nationalist regimes (Egypt, Iraq, Syria, Libya, and South Yemen). The United States in turn was more present on the Arabian Peninsula and, after 1967, focused on Israel and its neighbors. Contrary to other world regions, some client

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states in the MENA region switched sides frequently or had two patrons at the same time (e.g. Egypt and Iraq) (Halliday 2005: 99–100, 120). Both superpowers sought to stabilize allied regimes by “pouring weapons, advice and in some cases economic assistance into the region” (Halliday 2005: 127). Whereas Soviet influence faded with the end of the Cold War, United States interests were more lasting and diversified. Since the Second World War , the United States had three main policy goals in the region: “Protection of Israel; guaranteeing the supply of oil; and, until 1991, containing Soviet influence” (Halliday 2005: 142; Hudson 2005: 284–290). Therefore, the United States continuously sought to stabilize their oil-producing allies and the players that had made peace with Israel (Egypt, Jordan). Since the events of 11 September 2001, support was also given to regimes supporting the United States in their “War on Terror.” The most prominent example of United States regime-stabilizing support is the Egyptian regime, which received continuous financial assistance since its peace treaty with Israel in 1979. According to estimations, annual military and development aid from the United States to Egypt amounted to approximately USD 2 billion during the 1990s and 2000s (Brownlee 2002b: 11; Brynen et al. 2012: 264). In addition, Egypt disproportionately benefited from various emergency grants, loans, and debt relief packages from donors including the United States, the Paris Club, and international organizations (notably the IMF and the WB) (Gause III 1995: 293; Brownlee 2002b: 11; Richter 2009: 59–61). Similarly, regime stability in the MENA region has been a primary goal of European state powers and the EU. However, in contrast to the United States, European states and the EU focused more on their southern Mediterranean neighborhood. According to Cavatorta (2001: 181–182), the interests of European states and the EU in the Maghreb countries of Algeria, Tunisia, and Morocco coincide with those of the United States. The prime objective of all external powers is the “stability” of regimes in the Maghreb, “which means that every regime will be accepted and acceptable [...] as long as it is able to deliver in five key areas: keep the energy supplies accessible; counter Islamic resurgence; allow for the liberalization of the economy in order to satisfy the needs of international capital; restrict migration; and support for, or at least non-interference with, the peace process between Israel and the [Palestine Liberation Organization; C.N.] (PLO).” Players in the Maghreb that fulfill these conditions are rewarded with “foreign investment, support in international fora, a free hand in dealing with Islamic parties and movements, and political recognition of their legitimacy”—in short with regime stabilizing support. Nevertheless, foreign powers have not always stabilized MENA regimes in the period after the Second World War. Repeatedly, external state actors have worked towards regime change (Iran 1953) or forcibly removed regimes through direct military intervention (Iraq 2003, Libya 2011) (Gause III 2005: 278–279; Halliday 2005:

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102; Brynen et al. 2012: 265, 275). The United States-led military interventions in Iraq and Libya during the 2000s were an outgrowth of the new American strategy for regional security in the aftermath of 11 September 2001. After this watershed event, the United States increasingly adopted the conviction that a democratization of the MENA region would be a precondition for eradicating jihadist terrorism. Therefore it made democracy promotion one of its prime official policy goals in the region (Brynen et al. 2012: 272). Several years before, European policies had already taken a similar turn with the launch of the Barcelona Process in 1995 (Pace 2009: 40–42). However, despite its regime destabilizing potential, democracy promotion had not led to democratic regime change in the region (at least until the Arab Spring in 2011) (Sayyid 2007: 215, 228–229).69 As several authors point out, both external policy makers and MENA regimes are responsible for the failure of democracy promotion in the region. There are two major reasons for that: First, external powers have not been fully committed to bring about democratic change. Despite their official rhetoric, they often pursued inconsistent policies at a multilateral and bilateral level (Sayyid 2007: 217–222; Pace 2009: 44–45). Ultimately, top-down approaches predominated, which “focused on political elites, giving preference to secular, Western-style opposition movements with very limited popular appeal” (Powel 2009: 203; Brynen et al. 2012: 273). According to several authors, this cautious and selective approach reflected the policy preferences of the United States and European states, which prioritized “political stability” and “security” (in relation to terrorism, migration, energy supplies) over all other goals (Cavatorta, Chari, et al. 2006: 10, 17–18; Celenk 2009; Pace 2009: 42; Durac 2010: 84; Powel 2010: 64). Their overwhelming fear was that vigorous democracy promotion could bring Islamist opposition groups to power, with unpredictable consequences for political stability and foreign relations (Cavatorta 2005: 562; Powel 2009: 201–205; 2010: 66–67). Second, the ambiguous stance of external powers allowed incumbent regimes in the MENA region to thwart democracy promotion initiatives by portraying themselves as reformist (through “cosmetic” reform initiatives) while being able to deliver stability (Powel 2009: 205–207). In light of these unintended consequences, some authors come to the conclusion that democracy promotion by external actors, despite its goal of bringing about regime change, actually stabilized

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Regarding the Arab Spring in 2011, it is highly questionable if the popular uprisings and regime changes in Tunisia and Egypt were in any way influenced by democracy promotion initiatives. Most experts on the region emphasize that the events had not been influenced from outside (Challand 2011: 274). There are very few authors who attribute at least some positive impact to democracy promotion policies (Youngs 2003: 420–425).

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authoritarian regimes in the MENA region (Kienle 2007: 247–249; Durac 2010: 84). The third and last group of international actors with a potential influence on authoritarian stability are nonstate international actors. Halliday (2005: 231) distinguishes between political and economic “transnational actors,” which are simultaneously non-state actors:70 Transnational political actors could be “opposition political movements, movements of national revolt, transnational tribal or ethnic groups, religious sects and confessions, and groups engaged in terrorism.” One could add to this list what Carapico (2000) calls “INGOs” (international nongovernmental organizations). Transnational economic actors could be “large corporations, investors with oil money, or migrants remitting funds to their families at home” (Halliday 2005: 231). In a historical study, Halliday (2005: 236–256) analyzes the role of transnational nonstate actors in the MENA region for three types of groups: nationalist movements operating across borders; transnational Islamist groups; and diaspora communities. He points out that these groups have at times both destabilized (as opposition groups) and stabilized incumbent regimes (as domestic economic actors, expatriate actors instrumentalized for foreign policy purposes, and as providers of a pretext for gearing up security measures) (see also: Brynen et al. 2012: 266–272). Regarding international NGOs, authors distinguish between transnational NGOs and foreign-funded domestic NGOs. The general consensus seems to be that these groups have by and large not been able to challenge authoritarian regimes. Although often backed by substantial foreign funds, they usually attract only a limited constituency. This reflects a “lack of public trust,” mainly due to their foreign funding (Hawthorne 2004: 15; Yom 2005: 19; Alhamad 2008: 39). Furthermore, the financial links of these international NGOs to other countries give incumbent regimes in the MENA region the opportunity to denounce them as “foreign agents or instruments of foreign states” (El-Gawhary 2000: 39; Schwarz 2002: 76). After all, the academic literature on the role of international nonstate actors for the stability of authoritarian regimes in the MENA region is slim. While there are some studies on the influence of international political nonstate actors, studies focusing on international economic nonstate actors are more or less absent.

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Halliday (2005: 234–236) notes that the term “non-state” in connection with “transnational” is problematic, as many groups that appear to be independent from state influence may “on closer examination be controlled in part or wholly by states.” This is especially true for NGOs, nationalist movements, and Islamist groups (Halliday 2005: 235–236, 241).

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Summary: Factors Potentially Responsible for the Stability of Authoritarian Regimes

The body of literature on factors potentially responsible for the stability of authoritarian regimes is diverse. Most of the theoretical input still comes from democratization studies by way of reverse reasoning. Nevertheless, genuine research on authoritarian regimes and the factors influencing their stability has evolved considerably from the 2000s onwards. In line with the distinction made in this subchapter between political, economic, social, and international factors (notwithstanding their overlap in certain cases) as well as the geographic classification into global / cross-country and MENA studies, I now strive to summarize the main points of the reviewed literature. Due to the multitude of studies and their complexity, the summary must necessarily remain eclectic and subjective. Ultimately, the main points of the literature summary, which I carve out below, can be expressed in 25 hypotheses. These hypotheses (H1–H25) describe and delineate the field dealing with factors potentially responsible for the stability of authoritarian regimes. Together the hypotheses constitute the state of the art in this field, as I perceive it. They thus complement the literature summary, but in order to improve readability I present them in the appendix-chapter 8 (see table 8.1). Summary of political factors I subdivided studies on political factors contributing to the stability of authoritarian regimes into studies on the characteristics of the polity, on politics in authoritarian systems, and on policies of authoritarian regimes. The main points of each literature strand can be summarized as follows: Regarding the first literature strand focusing on characteristics of the polity, the consensus of global / cross-country studies seems to be that party-backed authoritarian regimes (in either a single-party or a multiparty variant) are more stable than their non-party-backed counterparts (Geddes 1999; Slater 2003; Magaloni 2008). A second regime type propitious for stability are neopatrimonial regimes. Therefore, it can be hypothesized that party-backed neopatrimonial regimes are exceptionally stable (Bratton and van de Walle 1994; Ruhl 1996). The conclusions on neopatrimonial regimes by the global cross-country literature are mirrored by the literature on regimes in the MENA region (Pawelka 1985; Brownlee 2002a; Schlumberger 2008). Regarding the second literature strand focusing on politics in authoritarian systems, studies take a closer look at the institutional underpinnings of authoritarianism (Schedler 2009). Several of the global / cross-country studies corroborate the view that party-backed authoritarian regimes are the most stable type of authoritarian

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regimes by carving out their institutional advantages (Geddes 1999; Slater 2003; Gandhi and Przeworski 2006; Brownlee 2007; Gandhi and Przeworski 2007; Magaloni 2008). Regular elections, as one specific institutional characteristic of these regimes, seem to play an important role for regime stability (Magaloni 2008; Gandhi and Lust-Okar 2009). However, some studies also point to the relevance of intervening variables, such as the circumstances of ruling party formation (given by strength of opposition, access to rent, and interelite rivalry at the time of party formation) (B. Smith 2005; Brownlee 2007). Studies on the politics of authoritarian regimes in the MENA region emphasize the political weakness of formal opposition, visible in weak parties, weak parliaments, manipulated elections, and a weak civil society. These deficiencies are both a cause for and result of stable authoritarianism (Zartman 1988; Wiktorowicz 2000; Schwarz 2002; Willis 2002; Albrecht and Schlumberger 2004; Langohr 2004; Albrecht 2005; Lust-Okar 2006; Alhamad 2008; Cavatorta 2009). However, several authors add a note of caution, as oppositional institutions do always have the potential for subversion (Wiktorowicz 2000; Willis 2002; Albrecht 2005; LustOkar 2006). Moreover, informal opposition may be more dangerous for incumbent regimes than formal opposition (Alhamad 2008). Other studies on the politics of authoritarianism in the MENA region elaborate on additional institutional underpinnings of neopatrimonial regimes, for example the social pacts between the regimes and their populations (Heydemann 2007a). Regarding the third literature strand focusing on policies of authoritarian regimes, global / cross-country studies distinguish, in line with Easton (1965), between policies to raise specific support and policies to raise diffuse support among the populace. Studies on policies raising specific support focus on coercion, either in the form of institutional containment or in the form of physical and nonphysical repression (Schedler 2002; Ottawa 2003; George 2007; Brooker 2009; Schedler 2009). Studies on policies raising diffuse support analyze a wide range of legitimation policies. The most prevalent forms treated in the literature seem to be personal, ideological, and external versus internal forms of legitimation (Burnell 2006; Brooker 2009). Two studies emphasize that the simultaneity of “output effectiveness” (relating above all to “economic success” and socioeconomic performance) and a strong ideology are especially conducive to raise diffuse support and thus to foster the long-term stability of authoritarian regimes (Schmidt 2003; Pickel 2010). The topics and insights of the global / cross-country literature are by and large mirrored in the literature on regime-stabilizing policies of regimes in the MENA region and in single MENA countries (Hudson 1977; Murphy 1998; Wiktorowicz 2000; Brumberg 2002; Schwarz 2002; Willis 2002; Albrecht and Schlumberger

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2004; Bellin 2004; Langohr 2004; Lust-Okar 2004; Pripstein Posusney 2005; LustOkar 2006; Heydemann 2007b). Summary of economic factors Studies on economic factors contributing to the stability of authoritarian regimes focus on the regimes’ rent income, both in global / cross-country studies and in studies on the MENA region. The main (though not undisputed) conclusion of global / cross-country studies, which comes in slightly different forms, is that higher rent income of a regime reduces the regime’s democracy level. For authoritarian regimes, higher rent income thus implies a deepening or stabilization of their authoritarian characteristics (Ross 2001; Jensen and Wantchekon 2004; Ulfelder 2007; Aslaksen 2010; Tsui 2011; Andersen and Ross 2014; J. Wright et al. 2015). The rent income itself can be derived from various sources (C. Schmid 1997; Beck 2009; Richter 2010). Some studies also hypothesize that higher rent income of a regime reduces the probability of regime failure (B. Smith 2004; Morrison 2009; Cuaresma et al. 2011; Andersen and Aslaksen 2013). However, the results from large-N studies suggest that other factors might be more important for regime stability, such as prior regime type, other institutional factors, and regional or cultural factors (Ross 2001; Herb 2005; Ulfelder 2007). Another problem is that rent income itself has no direct political implications, but it has to be institutionally processed to become politically effective. Case studies carved out that the timing of the rent influx and the initial strength of political opposition might be two variables mediating the regime-stabilizing effect of an increase in rent income (B. Smith 2006). Further to that, there is the possibility of spurious correlation, hinting at hidden fundamental factors of authoritarian stability, such as poverty or immigration (as suggested by the reviewed literature) (Herb 2005; Bearce and Laks Hutnick 2011). In contrast to global / cross-country studies, the conclusion of studies on the MENA region and on single MENA countries is that the relation between rent income and regime characteristics is not gradualist. The hypothesis for MENA countries is less comprehensive and proposes that rent income stabilizes authoritarian regimes for which the share of rent income in total state income is relatively high (at arbitrary thresholds) (Beblawi 1987; Luciani 1987; Pawelka 1993; Albrecht and Schlumberger 2004; Bellin 2004; Beck 2007b). As their global counterparts, case studies on MENA regimes point to the relevance of institutional variables for final political outcomes (Chaudhry 1997; Okruhlik 1999; Peters and P. Moore 2009). Summary of social factors Global and cross-country studies on social factors contributing to the stability of authoritarian regimes can be subdivided into three different strands: The first and old-

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est strand uses elements of modernization theory and hypothesizes that economic underdevelopment and the resulting lack of sociocultural transformations, possibly mediated by the adaptability of the institutional framework, are an important factor behind the stability of authoritarianism (Lipset 1959; Deutsch 1961; Huntington 1968). More recent contributions to this strand include several indicators of modernization in their models, analyzing large-N datasets with statistical methods (Vanhanen 1997). The second strand focuses on social class relations and comes to various conclusions: authoritarian regimes might be stable due to the insignificant size and / or political weakness of the bourgeoisie; due to the insignificant size and / or political weakness of the working class; or due to specific relations of certain classes with the state (B. J. Moore 1966; Luebbert 1991; Rueschemeyer et al. 1992; Berins Collier and Collier 2002). Some authors emphasize “state power” and “transnational structures of power” (i.a. economic and political dependency) as important intervening variables (Rueschemeyer et al. 1992). The third strand combines elements of both modernization theory and theories of social class relations. It models outcomes on the polity level as the result of a game between two social classes, “the elite” and “the poor.” One of the key conclusions is a hypothesized U-shaped relationship between economic inequality and democracy, meaning democracy most likely emerges in cases of medium economic inequality, while authoritarianism remains stable in the case of low or high economic inequality (Acemoglu and J. A. Robinson 2001, 2006). This basic model was extended by other authors who included additional independent variables (e.g. the ability to shift economic assets abroad). For the latter variable, authoritarian regimes might be more stable if economic assets cannot be shifted abroad (due to stronger resistance of the asset-owning elite to democratization) (Boix 2003). Studies on social factors contributing to the stability of authoritarian regimes in the MENA region take up the theoretical arguments by global and cross-country studies. However, authors point to the specific historical evolution of class relations in MENA countries, making MENA cases not comparable with the country cases underlying the global theories of the field (Issawi 1956; Gerber 1987). MENA countries today are characterized by a lack of “democratic coalitions” of the bourgeoisie, the working class, and the middle class. Bourgeoisie and working class in MENA countries are both weak. This is due to the relatively strong position of the state and of the regime (mainly a result of rent income) and to the periphery position of the region in the world capitalist economy (Ayubi 1995; Bromley 1997; Hinnebusch 2006). Finally, MENA case and area studies add another strand of thinking on social factors potentially responsible for the stability of authoritarianism: sociocultural structures. Thus, several authors point to the hierarchical structure of Arab

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societies (described i.a. as “neopatriarchy” and characterized by “master-disciple” relationships) and the link between interpersonal trust and inclusion in authoritarian institutions as possible socio-cultural factors stabilizing authoritarian regimes (Sharabi 1988; Hammoudi 1997; Jamal 2007b,a). Summary of international factors Global / cross-country studies on international factors contributing to the stability of authoritarian regimes can be subdivided into three different strands: The first strand regards economic and political dependency on the former colonial center as responsible for the emergence of authoritarian political systems in countries that had become independent from colonial rule. One hypothesis is that dependent industrial development caused social mobilization, which could not be handled by the nascent democratic systems and thus brought about authoritarian coups (O’Donnell 1973). Another hypothesis is that the interference of core elites in local politics, often in collaboration with noncore elites, obstructs democratization and thus stabilizes authoritarianism (Bollen 1983). Yet another hypothesis regards the lack of “national unity,” itself a result of territorial boundaries drawn by the former colonial powers, as an impediment to stable democratic systems and a factor stabilizing authoritarian regimes (Rustow 1970). The second strand proposes that effects of “contagion” from countries in the geographic neighborhood or through global trends can either stabilize authoritarianism or promote democratization (depending on the cases analyzed) (Whitehead 2001 [1996]; Brinks and Coppedge 2006; Gleditsch and Ward 2006; Leeson and Dean 2009; Bader et al. 2012). The third strand focuses on the influence of international actors, such as foreign governments, international organizations, and international nonstate actors, on the stability of authoritarianism. A major (and unresolved) question is if foreign aid stabilizes authoritarian regimes (Knack 2004; Morrison 2007; Djankov et al. 2008; J. Wright 2009). Studies on international factors contributing to the stability of authoritarian regimes in the MENA region mirror the global and cross-country studies and add some aspects: First, the legacy of colonialism (especially “the haphazard imposition of territorial boundaries”) is also regarded as a factor stabilizing authoritarian regimes in MENA countries. Not least, the noncongruence of nationhood and territorial boundaries is a root cause of many interstate and intrastate conflicts in the region. These conflicts induce regimes to maintain high levels of military and security spending, and they are a source of legitimation for incumbent regimes—two factors potentially stabilizing authoritarianism (Gause III 1995; Hinnebusch 2006; Brynen et al. 2012). Second, region-specific transnational ideologies, often advocated and sponsored by other states (such as Pan-Arabism and Pan-Islamism), sta-

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bilized authoritarian regimes that legitimated themselves through these ideologies (although these ideologies also destabilized some regimes in the region) (Gause III 1995; Brynen et al. 2012). Third, international actors (states, global superpowers, international organizations, international nonstate actors) stabilized authoritarian regimes in the MENA region in various instances (Korany 1986; Gause III 1995; Cavatorta 2001; Brownlee 2002b; Halliday 2005; Beck 2007a; Brynen et al. 2012). However, there are also examples for a regime-destabilizing influence of international actors (e.g. the 1953 coup in Iran or the 2003 United States invasion of Iraq) (Gause III 2005; Halliday 2005; Brynen et al. 2012).

3.2

Effects of Economic Liberalization

In section 2.1, I defined “economic liberalization” as a multidimensional phenomenon that comprises several policies both on the demand side and on the supply side of an economy. In this subchapter, I present the state of the art on potential economic, social, and political effects of economic liberalization. Economic liberalization as conceptualized in this study consists of eight policies: (1.) on the demand side of the economy: Trade liberalization (concerning tariffs, non-tariff barriers, quantitative restrictions, trade monopolies, etc.); consumer-price liberalization (mostly in the form of consumer subsidy cuts); liberalization of interest rates; liberalization of international payments; and the liberalization of the exchange rate. (2.) On the supply side of the economy: Producer-price liberalization; investment liberalization (both of domestic and foreign investment); and privatization.

3.2.1

Economic Effects: State Budget; International Accounts; and Economic Growth

Economic effects of economic liberalization can unfold through the state budget, through the international accounts of a state, and through economic growth. These three variables are part of economic stabilization, one of two transmission channels between the main variables of this study’s theoretical model (see section 4.1). The balance of the state budget and the balance of the international accounts (the latter represented by the main components of the balance of payments: Currentaccount balance (including the trade balance); capital-account balance; net foreign investment; external debt position; and international reserves) are the main targets in the first dimension of economic stabilization (see section 2.4). In theory, policies of economic liberalization can have multiple effects on these two parameters. I confine

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the analysis to some prominent channels and effects assumed by specialists of international finance and academics alike. These are both short-term effects (believed to unfold within zero to five years after the implementation of a reform) and longterm effects (believed to unfold more than five years after the implementation of a reform). Economic growth is one of the two main targets of the second dimension of economic stabilization (see section 2.4), the other being socioeconomic development (which is treated in section 3.2.3. Economic growth is measured here as real economic growth (of the whole economy and on a per capita basis). In theory, policies of economic liberalization can influence real economic growth of an economy in multiple ways. I confine the analysis to some prominent channels and effects assumed in the academic literature (mostly from proponents of the neoclassical school of economics). These effects could unfold both in the short run (zero to five years after the implementation of a reform) and in the long run (more than five years after the implementation of a reform). State budget Regarding the state budget, economic-liberalization policies could have both positive and negative effects. On the demand side, trade liberalization in the form of tariff reduction is expected to deteriorate the balance of the state budget (i.e. to increase the budget deficit) in the short run due to a loss of tariff income and due to a loss of domestic tax income on goods and services (although, in the case of import liberalization, the final “revenue outcome [...] depends [...] on the price elasticity of demand for imports and the price elasticity of supply of import substitutes”) (Rodrik 1990: 941; Ebrill et al. 1999: 5; Agbeyegbe et al. 2006: 264–266). In contrast, trade liberalization might ameliorate the state budget in the long run through higher tax income from domestic companies that increased their output or that came into being—for example due to more liberal import regulations of essential inputs, due to the abolition of export barriers, or due to efficiency effects unfolding from import competition. Company creation and growth might then reduce the state’s budget deficit even further through job creation (Ebrill et al. 1999: 6–7; Agbeyegbe et al. 2006: 266). Consumer-price liberalization (mostly in the form of subsidy cuts) should reduce the budget deficit in the short run and in the long run. The liberalization of interest rates (if leading to their rise) might reduce public investment and could thus bring down the budget deficit both in the short run and in the long run. However, the effect could also become negative, when higher interest rates reduce private investments, which are a source of tax income for the state. The liberalization of the exchange rate is expected to increase the budget deficit in the case of currency devaluation, due to the resulting inflation and pressure on the government to cush-

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ion the price increases in basic commodities with subsidy payments (Choudhri and Hakura 2001; Frankel et al. 2005: 1–7; Ca’Zorzi et al. 2007: 6–8, 17). In addition, exchange-rate liberalization might increase the budget deficit through higher costs of servicing the public sector’s external debt (Rodrik 1990: 940; Agbeyegbe et al. 2006: 266). However, there is also a possible positive effect, as currency devaluation increases tariff income in national currency from imports in the short run (if import volumes are sticky) and might thus decrease the budget deficit (Agbeyegbe et al. 2006: 266; Saibene and Sicouri 2012: 195). Likewise, the budgetary effect of exchange-rate liberalization (leading to devaluation) might become positive in the long run, given that the state is able to tap the tax base of the expanding export sector and could thus make up for the tax losses in the contracting domestically-oriented sectors. Theoretical effects of the liberalization of international payments on the state budget are less treated in the literature and thus omitted here. On the supply side, producer-price liberalization could help eliminate parallel markets, and thereby would make more economic activity taxable by bringing it into the formal sector (thus reducing the budget deficit of the state) (Rodrik 1990: 942). The liberalization of domestic and foreign investment should raise the volume of investment, thereby creating jobs. Thus, the budget deficit is expected to decrease through a substitution of public investment with private investment, less pressure on the government to maintain or increase state employment, more tax income, and less social spending. However, there is a note of caution regarding foreign investment: In the long run, the liberalization of FDI could lead to a competition with other countries trying to attract FDI with low tax rates (“race to the bottom”). Ultimately, this competition could bring down total corporate tax revenues in a country and thus increase the public budget deficit (Gropp and Kostial 2000). Privatization reduces the budget deficit in the short run through privatization proceeds (which are revenue for the state), if these proceeds are saved, and through the elimination of transfer payments (Plane 1997: 161; Gupta et al. 1999: 10–11; Barnett 2000: 4–5). But the financial net effect of privatization might also be negative due to worker layoffs and compensation (which increase social spending) and due to the “administrative cost of privatization” (such as “running the executive agencies for privatization” as well as “payments made to firms [...] that provide legal advice, valuation, and underwriting services”). Thus, the long-term effects of privatization operations on the state budget depend on their overall net-employment and net-investment outcomes. Both outcomes comprise the whole production chain, including suppliers and customers of the privatized enterprise. Finally, it is important to mention that if the SOE sold is profitable (which empirically is often the case), privatization represents only an intertemporal shift of revenue streams (sales revenue in the present exchanged for future cash flows). In this case, the long-term effect on the state budget would be

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zero (assuming the sales price was calculated correctly) (Rodrik 1990: 942–943; Gupta et al. 1999: 11–12; Dagdeviren 2006: 480–481). International accounts The effects of economic liberalization on the international accounts of a state can be as ambiguous as in the case of the state budget. On the demand side, trade liberalization in the form of a reduction of import barriers in general (tariff cuts or the elimination of non-tariff barriers, such as quantitative restrictions, bureaucratic obstacles, import monopolies, etc.) is expected to deteriorate the trade balance (and thus the current-account balance) in the short run through an increase of imports. However, import liberalization could in the longer run also be beneficial for exports, as “incentives [are shifted] away from production for the home market and toward production for the export market” (the “net effect on the balance of payments” depending on the “demand elasticity” of imports and the “supply elasticity” of exports). Besides, import liberalization could raise the competitiveness of export products, if imported upstream products become cheaper and more easily available. At the same time, trade liberalization on the export side should ameliorate the trade balance (and thus the current-account balance) through an increase of exports (Bertola and Faini 1991: 269–270; Alimullah 1992: 24–25; Williamson 1993: 1333; Santos-Paulino and Thirlwall 2004: F50–F54, F63–F64, F68–F70; Parikh 2006: 429–432, 440– 441, 462; Pacheco-López and Thirlwall 2007: 469–471). Consumer-price liberalization (mostly in the form of subsidy cuts) for import products should reduce their import volume and should thus bring down the trade deficit (ameliorating as well the current-account balance). The liberalization of interest rates (if leading to their rise) is expected to increase foreign capital inflows (in the form of portfolio investment and FDI) in the short run and thus to reduce the foreign-debt component in the capital-account balance (Blanchard 2000: 353–358, 383–385). Concomitantly, the liberalization of interest rates (if leading to their rise) reduces domestic investment while increasing domestic (financial) savings (if the “substitution effect” of higher interest rates is larger than the “income effect”),71 which diminishes the volume of domestic investment that has to be financed with foreign means (including foreign debt) (Williamson 1993: 1332; Warman et al. 1994: 631; Bandiera et al. 1999: 1–7, 19–20; Odhiambo 2009: 543–546). The liberalization of international payments has ambiguous theoretical effects on the international accounts of a state: On the one 71

Most authors contend that rising real interest rates affect investment relatively more from the demand side (reflecting the cost of capital) than from the supply side through increased savings (which still depend on financial intermediaries to be transformed into investment capital). The net effect of rising real interest rates on investment is thus by most authors expected to be negative (Warman et al. 1994: 629–634; Arestis 2004: 259–260, 265–267).

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hand, it might lead to a rise in remittances, which bolsters the current account. If geared towards exporters (e.g. a liberalization of foreign-exchange holding regulations), it could raise exports and thus ameliorate the trade balance. If geared towards foreign direct investors, it could increase FDI inflows and thus ameliorate the capital account (where foreign debt could be substituted by FDI). On the other hand, it could facilitate transfers out of the country, deteriorating the current account and making the capital-account balance more dependent on foreign means (capital flight). The final short-term and long-term effects on the international accounts are thus unclear even on a theoretical level. The liberalization of the exchange rate (if resulting in devaluation) might worsen the trade balance immediately after the policy reform (as the stickiness of imports and exports at first leaves volumes unchanged, while import prices in domestic currency rise) but improves it in the short to medium run through the devaluation-induced change in prices, leading to an increase in exports and a decrease in imports (Gylfason and Risager 1984; Himarios 1989; Rose and Yellen 1989: 53–57, 67; Williamson 1993: 1332–1333; Zhang 1999: 150). On the supply side, producer-price liberalization, if leading to a price increase for tradable consumer goods, increases domestic production and should thus reduce imports in the short run and in the long run. This should lead to an amelioration of the trade balance (and thus the current-account balance). Both investment liberalization and privatization (if geared as well to foreign investors) should lead to a rise in FDI and thus reduce, at least in the short run, the foreign-debt component in the capital-account balance. In contrast, the long-term effects of an increase in FDI on the balance of payments of the host country are theoretically ambiguous (Sunkel 1972: 526–527; Williamson 1993: 1333; Brada and Tomsik 2009: 5, 8–9).72 Economic growth Regarding economic growth, policies of economic liberalization could have both positive and negative effects. On the demand side, the proponents of neoclassical growth theory expect trade liberalization to impact positively on economic growth in the long run through a variety of channels: “Static gains” from trade could arise if trade liberalization “[improves]” an economy’s “resource allocation” and thus 72

The possible effects of FDI on the international accounts of a host country are expected to change over the life cycle of an FDI project. An inflow of foreign capital in the “entry” state is followed by “profit and invested capital repatriation as the project matures.” These financial flows might be difficult to detect due to “transfer pricing.” Besides, during the life span of the FDI project, the trade balance of the host country is affected by “possible imports of machinery and inputs, as well as exports of the project’s output as it begins operation” (the net effect on the current account is then an empirical question) (Sunkel 1972: 526–527; Hood and Young 1993: 88–93; Jansen 1995: 197–199; Brada and Tomsik 2009: 5, 8–9).

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raises the efficiency of supply and demand, which would finally drive economic growth (Baldwin 1992: 162–163; Dornbusch 1992: 74; Agénor 2004a: 22–23). Trade liberalization could further amplify the static productivity gains by the availability of “better technologies” and “less expensive or higher quality intermediate goods” (Dornbusch 1992: 74). Besides, there are possible “dynamic gains” (Agénor 2004a: 22–23; Santos-Paulino and Thirlwall 2004: F50): On the export side, trade liberalization “reduces anti-export bias” and should thereby increase exports, which themselves might have growth-stimulating effects (Greenaway and Sapsford 1994: 157–158; Thirlwall 2000: 141–154; L. A. Winters 2004: F4–F10). At the same time, liberalization of exports broadens the potential market of domestic companies, making possible growth-enhancing “economies of scale and scope” (Dornbusch 1992: 74–75). On the import side, trade liberalization could enhance “domestic competition” and lead to “a shakeup of industry that may create a Schumpeterian environment especially conducive to growth” (Dornbusch 1992: 73–76). Furthermore, both import liberalization and export liberalization could facilitate the transfer of external know-how, improving technology as a fundamental growth driver (Grossman and Helpman 1991: 517–518; Dornbusch 1992: 74–75; L. A. Winters 2004: F10–F11). In addition, trade liberalization could “raise or lower the return to capital,” possibly “resulting” in additional “capital accumulation (decumulation) [amplifying] ([mitigating]) the standard output effects of the liberalization” (Baldwin 1992: 162–163). Finally, trade liberalization could enhance the potential spillover effects from FDI on economic growth (see below) (Lesher and Miroudot 2008: 11, 16, 21–22). Nevertheless, short-term effects of trade liberalization on economic growth could be negative, when domestic companies and investment are crowded out as a result of import competition (Stiglitz 2002: 59; Todaro and S. C.Smith 2006: 627–629). Other economic-liberalization policies on the demand side could also affect economic growth: First, consumer-price liberalization through subsidy cuts could free public resources for economic growth-generating public spending and investment, both in the short run and in the long run. Second, the liberalization of interest rates (if leading to their rise) might indirectly increase economic growth in the long run through a positive impact on “financial depth” / “financial development” (which itself might drive “physical capital accumulation” and “efficiency of capital allocation”) or “through raising the productivity of investment” (while the growth channel via higher “total savings” is rejected by most authors) (R. G. King and Levine 1993: 717–719, 734–735; Warman et al. 1994: 629–634; Demetriades and Hussein 1996: 387–389; Arestis 2004: 254–255; Odhiambo 2009: 548–549; Bumann

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et al. 2013: 257).73 However, short-term effects of interest-rate liberalization on economic growth are very likely to be negative (if rates rise), due to their depressing effect on investment and due to an increase in the number of projects defaulting on their debt (Stiglitz 2002: 59–60). Third, the liberalization of international payments could increase the supply of foreign currency and its availability for imports, potentially fostering economic growth. But it also enables capital transfers to the outside world, possibly decreasing domestic investment and thus economic growth (Sumner 2005: 274). Fourth, exchange-rate liberalization (if leading to a devaluation of the domestic currency) could reduce economic growth in the short run and in the long run through “contractionary effects.” These effects may have several causes: a deterioration of the terms of trade (and thus a fall of “the country’s real income”); the domestic redistribution of income from wage earners to capital holders; the increase of “domestic currency costs of intermediate goods imports;” an inflation-induced increase of wages; and a “reduction [...] in the supply of loans” (Christopoulos 2004: 809; Saibene and Sicouri 2012: 194–195). Nevertheless, currency devaluation could also have “expansionary” effects and thus raise economic growth in the case of “very elastic demand for investment imports” and a concomitant “elasticity of export demand exceeding unity” (Gylfason and M. Schmid 1983; Buffie 1986: 376). On the supply side, producer-price liberalization in domestic markets potentially leads to more efficient resource allocation and could thus increase economic growth in the long run. According to Rodrik (1990: 938), this effect could only unfold if “the gap between the parallel and official prices is large and simultaneously the authorities [had been] able to check the leakage into parallel markets.” As a second bundle of policies on the supply side, the liberalization of private domestic and foreign investment (portfolio investment and FDI) is expected to impact positively on economic growth by raising private investment (mostly in the form of physical capital accumulation), which effectuates further investment as well as consumption (multiplier effects), and by improving the efficiency of production through private ownership (Nonneman 1996a: 5–7; Plane 1997: 168–169; Cook and Uchida 2003: 122–123). The liberalization of FDI (if it leads to an increase in FDI inflow) could have additional independent positive effects on economic growth of the receiving economy, both in the short and in the long run (if economic growth is endogenously determined by the interplay of several variables, among them FDI)

73

Although some authors profess considerable doubts about the purported positive influence of financial liberalization on economic growth (see for example: Barnebeck Andersen and Tarp 2003; Arestis 2004: 256–263, 267–268; Bumann et al. 2013: 257–258).

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(De Mello, Luiz R. Jr. 1997: 8–9; Balasubramanyam et al. 1999: 28–29; X. Li and X. Liu 2005: 394–396, 404; Hansen and Rand 2006: 28–38; Z. Liu 2008: 178).74 There are several channels through which FDI could impact positively on economic growth: A direct growth effect occurs if FDI leads to “a positive net transfer on the capital account” (which is the case if FDI inflows are “greater than the sum of profit repatriation, royalties, intracompany loans from subsidiary to parent, and transfer pricing”) or if there is a positive net contribution of FDI companies to the current account (i.e. exports from FDI companies surpass imports of FDI companies) (Sumner 2005: 274). Besides, FDI could have indirect effects on economic growth through crowding in of domestic investment and production via backward (supplier) and forward (customer) linkages with domestic companies (Lall 1993a: 18–19; Jansen 1995: 196; Borensztein et al. 1998: 117–118, 134; Markusen and Venables 1999: 336–337, 352; Sumner 2005: 274). Furthermore, FDI could increase the productivity of the host economy (leading to increasing returns in domestic production) through several channels: First, productivity improvements could happen within the FDI companies through the use of more sophisticated technology and “new inputs,” especially of “a wider range of intermediate goods,” than in the case of domestic companies (De Mello, Luiz R. Jr. 1997: 9; X. Li and X. Liu 2005: 394). Second, the average productivity of the host economy could rise through technology “spillovers” from FDI companies, which could materialize through the import of physical capital with a more sophisticated technological content, through technological adaption and “imitation,” or through human capital improvement (either by import of more highly qualified labor and / or by “knowledge transfer” on domestic labor75 ) (Lall 1993b: 237–247; Chen 1994; Aitken, Hanson, et al. 1997: 104–105; De Mello, Luiz R. Jr. 1997: 9, 22–23; Blomström and Kokko 1998; Borensztein et al. 1998: 116–118, 133–134; Bende-Nabende 2002: 140–150; Blomström and Kokko 2002: 11–15; Miyamoto 2003: 34–36; Görg and Greenaway 2004: 172–175, 181– 182, 184–186; Greenaway, Sousa, et al. 2004: 1028–1032; Javorcik 2004: 605–609; Lesher and Miroudot 2008: 7–11; Z. Liu 2008: 177; K. E. Meyer and Sinani 2009; Baltabaev 2014: 311). The productivity of the host economy could further increase through more intense competition, when the market entry of foreign investors “puts pressure on [...] [domestic companies; C.N.] to use existing technology more efficiently” and to speed up the “adoption of new technology” (Lall 1993b: 245–246; 74

Although there might be reverse causality, if economies with high growth rates potentially attract more FDI (De Mello, Luiz R. Jr. 1997: 27–29; Choe 2003: 44–45, 54). 75 The human capital improvement by “knowledge transfer” could come about “through labor training and skill acquisition and diffusion, on the one hand, and through the introduction of alternative management practices and organisational arrangements, on the other” (De Mello, Luiz R. Jr. 1997: 9).

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Kokko 1996: 517–520, 527–528; De Mello, Luiz R. Jr. 1997: 21; Blomström and Kokko 1998: 3, 16; Görg and Greenaway 2004: 174; Lesher and Miroudot 2008: 7; Baltabaev 2014: 311).76 In contrast to the adherents of the neoclassical school of economics, proponents of “dependency theory” and their intellectual offspring assume FDI to have a decreasing long-term effect on economic growth (even if its short-term effect might be positive), as it perpetuates and aggravates the “structural deficiencies” of developing countries’ economies (i.a. through “control” of “key sectors,” crowding out of domestic companies, and “disruption [...] of traditional labor-intensive activities”) (Sunkel 1972: 518; Frank 1975: 17–19, 95–100; Senghaas and Menzel 1976; Wohlmuth 1976; Senghaas 1978; Bornschier 1980b: 17–26; Bornschier and Ballmer-Cao 1980; Bornschier 1980a; Bornschier, Chase-Dunn et al. 1980).77 76

There is a broad consensus in the literature that the hypothesized effects of FDI on economic growth are mediated by a range of intervening variables. These variables determine the “absorptive capacity” of a host economy in relation to FDI. Among the most widely cited intervening variables are: the level of human capital in the host economy (De Mello, Luiz R. Jr. 1997: 17–18; Borensztein et al. 1998: 117, 134; Balasubramanyam et al. 1999: 29, 33–36; X. Li and X. Liu 2005: 398–404; Batten and Vo 2009: 1629–1638); the “investment environment” (De Mello, Luiz R. Jr. 1997: 18); the trade policy regime (Balasubramanyam et al. 1996: 92–96, 103–104; De Mello, Luiz R. Jr. 1997: 16; Balasubramanyam et al. 1999: 29, 31–33; Lesher and Miroudot 2008: 11, 16, 21–22; Batten and Vo 2009: 1629–1638); the level of “development” (Blomström and Lipsey et al. 1992: 16–18; De Mello, Luiz R. Jr. 1997: 21–22); the “technology gap” between home economy and host economy (X. Li and X. Liu 2005: 398–404; Baltabaev 2014: 312–316, 327–328); “economic freedom” / “freedom from government intervention” (Azman-Saini et al. 2010: 1080–1082, 1086–1087; Herzer 2012: 398, 406–408); “primary export dependence” (Herzer 2012: 398, 406–408); “financial development” (Hermes and Lensink 2003: 142–147, 158–159; Alfaro et al. 2004: 91–93, 107–108, 2010: 243–244, 254; Choong 2012: 821–822, 832); and “institutional quality” (Jude and Levieuge 2017: 715–720, 733–735). 77 The various strands of dependency theory (which had its heyday during the 1960s and 1970s) assume FDI and trade take place in an unequal global capitalist system (“center” / “metropolis”-“periphery” structure). FDI and trade perpetuate and aggravate the “structural deficiencies” of developing countries’ economies (especially through multinational corporations’ “control” over “critical or key sectors in underdeveloped economies” and through crowding out of domestic companies) and are thus detrimental to long-term economic growth and socioeconomic development (Frank 1975: 17–19, 95–100; Cardoso and Faletto 1976 [1969]: 24–25, 185–202; Senghaas and Menzel 1976; Wohlmuth 1976; Palma 1978; Senghaas 1978; Bornschier 1980b: 41–46). In the late 1970s and early 1980s, proponents of neoclassical development theory challenged the dependency theorists on the grounds that protectionist economic policies (most often in the form of ISI), which were an outgrowth of theoretical thinking, had not markedly improved socioeconomic development in the countries implementing them. This attack left its mark on the dependency theory camp, whose proponents were sidelined by the new neoclassical “mainstream” (Lall 1993a: 3–4). Nevertheless,

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Crowding out of domestic companies in the short and in the long run, which depresses economic growth, is also seen as a possible effect of FDI by the more recent literature (Lall 1993a: 19; Jansen 1995: 196–197; Blomström and Kokko 1998: 18–19; Markusen and Venables 1999: 336–337, 352; Stiglitz 2002: 68; Görg and Greenaway 2004: 179; Herzer 2012: 396–397; Morrissey 2012: 437–440, 442– 443). Comprising not just FDI but also foreign portfolio investment, several authors link “capital-account liberalization” to economic growth. Most of them assume a positive long-term independent effect, as “capital-account liberalization” might stimulate economic growth through static and dynamic effects: Static effects result from “more efficient allocation of resources” and from more “opportunities for risk diversification.” Dynamic effects result from a “boosting [of; C.N.] productivity growth” through the enhancement of domestic “stock market liquidity” and through higher “efficiency of the domestic banking system” due to “greater foreign bank presence” (Levine 2001: 688–693; Edison et al. 2002: 20–24). In the case of “stockmarket liberalization” (liberalization of foreign portfolio investment), the cost of capital for domestic firms should fall, enabling them to invest more, and thus it should drive economic growth (Blair Henry 2003).78 As a third supply-side policy, privatization could make former SOEs more efficient both in the short and in the long run, through the transfer of ownership from the public sector to the private sector (concomitant with the introduction of market-based performance criteria) and through the abolition of protectionist measures by the state (such as “subsidies,” “transfer payments, and “tax alleviation”). If combined with the introduction of competition, privatization would thus eliminate market distortions and lead to more efficient resource use by the privatized enterprises. These outcomes remnants of the dependency theory survived in an attenuated form: those authors admit that FDI fosters short-term economic growth, but suggest it leads to “unbalanced” growth in developing countries in the long run (inhibiting the “convergence” in terms of aggregate income between developing and developed countries) (Bornschier 2008 [2002]: 582, 599–605). By the 2000s, three positions regarding the potential effect of FDI on economic growth in developing countries were visible in the debate: The “conventional” position followed neoclassical development theory and saw FDI as growth enhancing. The “pessimistic” position followed dependency and world systems theory and saw FDI as growth-reducing. The “skeptical” position was a synthesis of the other two positions and attributed a role to host country government policies expected to mediate the final effect of FDI on economic growth (Bornschier and Herkenrath 2008: 304–308). 78 However, capital account liberalization might also “[invite] speculative hot money flows and [thus; C.N.] [increase] the likelihood of financial crises with no discernible positive effects on investment, output, or any other real variable with nontrivial welfare implications” (Blair Henry 2003: 91; see also: Bhagwati 1998; Stiglitz 2002: 65–67, 89–132).

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should then drive economic growth (Plane 1997: 161, 167–169; Havrylyshyn and Mc Gettigan 1999: 10–11; Cook and Uchida 2003: 122–124; Estrin et al. 2009).79

3.2.2

International Effects: Foreign Loans and Reduction of Debt

Apart from pure economic effects, economic liberalization can have international (political) effects with economic consequences. First of all, the implementation of economic-liberalization policies increases the benevolence of international creditors, especially if these policies signal compliance with loan conditionalities. In the case of MENA countries, the compliance of governments with the conditionalities of IMF and WB lending (besides strategic objectives not connected with the reform record) triggered renewed lending by these institutions, but also debt reschedulings and cancellation by donor countries (single countries or the Paris Club) and by commercial creditors (London Club) (Greenaway 1998: 495, 497; Bayliss 2002: 605–606; Todaro and S. C.Smith 2006: 680; Harrigan and El-Said 2009). These rewards implicate an additional influx of foreign currency (through new foreign loans) or a slowdown of its outflow (due to a rescheduling or a decrease in principal and interest payments on foreign debt). Both of these effects finance higher current-account deficits (which are often due to trade deficits), and they enable a government to run a higher level of foreign debt. Concomitantly, additional foreign exchange loans, debt rescheduling, and debt cancellation should ameliorate a state’s budget position in the short run (while additional lending deteriorates the budget in the long run due to additional principal and interest payments). This is the case if the foreign-exchange loans are contracted by the government, and if they are paid out as direct budget support or as support to recipients who depended on state subsidies before. It is also the case if the government is the debtor, and if it receives more lenient terms of repayment (rang79

The neoclassical school of economics does not per se favor private over public ownership of economic assets. Inefficiencies of SOEs are solely attributed to the obstruction of market mechanisms (leading to a defective incentive structure), as a result of the lack of competition in those markets where SOEs operate. During the 1980s–1990s, scholars of New Institutional Economics (property-rights theory, principal-agent theory, etc.) introduced the notion that private owners of a company, if compared with public owners, face a different incentive structure, which induces them to run their companies more efficiently. These two strands of thought were complementary in their support for privatization, with the theoretical implication that privatization should foster economic growth (Plane 1997: 167–169; Havrylyshyn and Mc Gettigan 1999: 10–11; Cook and Uchida 2003: 122–123).

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ing from partial rescheduling to full cancellation), which then reduces its current expenditures on principal and interest payments. After all, the possibility to run higher current-account deficits, to gear a higher level of foreign debt, and the short-term amelioration of the state budget all enlarge the investment and consumption possibilities of an economy. As the state and private individuals can spend and invest more, economic growth can potentially rise, while socioeconomic development might be ameliorated as well. Thus, international effects of economic-liberalization policies implemented by the government in a certain country can alter the pure economic effects discussed in the previous subchapter.

3.2.3

Socioeconomic Effects: Socioeconomic Development and its Transmission to Social Groups and Classes

When the economic effects of economic liberalization impact on society, they entail socioeconomic effects. These socioeconomic effects of economic liberalization become visible at all levels of society (macro, meso, and micro). On the macro level, they codetermine the average socioeconomic development of a country, which itself has several “dimensions” (e.g. income, health, education, human rights, political rights, general well-being) (Todaro and S. C.Smith 2006: 15–24). I focus here on the income dimension of socioeconomic development,80 measured by average income per capita (GDP per capita), real household income (proxied by wage levels, employment / unemployment, inflation, and remittances), poverty,81 and income inequality.

80

Limitations on obtainable verbal and numerical information / data as well as constraints in information processing capacity and the general scope of this work dictate the focus on the income dimension of socioeconomic development. Besides, the theoretical channels linking economic liberalization with income variables are better established in the academic literature. 81 Once again, I focus only on the income dimension of poverty. Nevertheless, it is clear “that poverty is a multi-dimensional concept, encompassing not only insufficient income, but also lack of access to adequate health services and sanitation, a high degree of illiteracy, and deprivation of basic rights and security” (Agénor 2004b: 353).

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On the meso level, the question arises which social groups and “classes”82 benefit and which of them lose in economic terms from economic-liberalization policies. It has to be mentioned at the outset that this question is extraordinarily complex: First, social classes, no matter how one defines them, are not homogenous (E. O. Wright 1985: 86–92; Neubert 2014: 26, 32; Sengebusch and Sonay 2014: 6). They consist of a variety of different segments, groups, and actors that might be affected differently by economic-liberalization policies. Second, specific classes might not exist in all countries, or they might be difficult to discern, especially in developing countries or in “the Global South” (Neubert 2014: 27–28). Third, the multidimensional nature of economic liberalization further complicates matters, as each policy may have different socioeconomic effects on social classes and their constituent elements. I focus here on five broad social-class categories that subdivide the totality of domestic society (assuming an aristocracy does not exist). The first three class categories are the constituent elements of neo-Marxist class theory: the “bourgeoisie;” the “middle class;” and the “working class” (E. O. Wright 1985: 86– 92).83 In addition, I introduce a fourth class category labelled “lower classes” for 82

According to Neubert (2014: 25), the term “class” as a unit of society in its Marxist sense is defined in relation to “the ownership of the means of production.” For Marx, “capitalist societies are marked by two dominating classes; on the one hand the “ capitalist” or “ bourgeois” class that owns the capital, and on the other hand the working class that controls the means of labor. Middle classes played a minor role in this concept, as they were seen as “pettybourgeoisie” and therefore as a supplement to the “bourgeois class.” ” “In sociology after World War II, the term class received a different twist. Whereas in Marxist and neo-Marxist (e.g. Bourdieu) concepts class was a theoretically grounded concept related to control over means of production, in descriptive studies of social structure class is understood as “ a particular socioeconomic stratum defined by professional position, education, and income.” The three criteria are linked to each other, but not in deterministic way. All these concepts imply that social position is more or less directly linked to socioeconomic position and influences consciousness and / or values and attitudes” (Neubert 2014: 26). 83 It has to be mentioned that neo-Marxist authors use finer-grained class categories: One of the main proponents of neo-Marxist class theory, E. O.Wright (1985: 86–92), adopts Marxist class theory to the conditions of “contemporary capitalism.” His “typology” of social classes in contemporary societies “is divided into two segments: one for owners of the means of production and one for non-owners. Within the wage-earner section of the typology, locations are distinguished by the two subordinate relations of exploitation characteristic of capitalist society—organization assets and skill / credential assets.” A differentiation along these criteria yields 12 social classes or possible “class locations:” The segment of the “owners of the means of production” consists of the “bourgeoisie” (which “owns sufficient capital to hire workers” but does not work itself), “small employers” (who “[own] sufficient capital to hire workers but [who; C.N.] must work”), and the “petty bourgeoisie” (which “owns sufficient capital to work for self but [which cannot; C.N.] hire workers”). The segment of “non-owners” of means of production (the “wage labourers”) consists of “expert managers,” “expert super-

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people of lower socioeconomic status than the working class. This residual category might consist (depending on the characteristics of a society) of one or several classes and could include the peasantry as well as the rural and urban “poor,” that is poor people who in their majority work in the informal economy, in contrast to workers in the formal economy. I introduce this additional class category to allow for a more nuanced view on the socioeconomic effects of economic liberalization—despite the Marxist critique that these socioeconomic strata cannot constitute a class or classes due to their missing class conscience (a result, in the case of the small-holding peasantry, of their “isolated” “mode of production”), and the fact that there might be significant overlap with the poorer segments of the working class and of the middle class (Marx 1869: 88–89; Neubert 2014: 25). The fifth class category I look at (though I only hypothesize on the effects of economic liberalization in general) is the “state class” or “state bourgeoisie,” a class discernible in the society of many nonindustrialized countries (Waterbury 1991: 1; Elsenhans 1996 [1981]).84 visors,” “experts non-managers,” “semi-credentialled managers,” “semi-credentialled supervisors,” “semi-credentialled workers,” “uncredentialled managers,” “uncredentialled supervisors,” and “proletarians.” The “middle class” or “middle classes” are constituted by that “terrain of class-locations” which “are distinct from the polarized classes of the capitalist mode of production: expert managers; non-managerial experts; non-expert managers; etc.” They constitute “contradictory locations within exploitation relations,” “for they will typically hold contradictory interests with respect to the primary forms of class struggle in capitalist society, the struggle between labor and capital. On the one hand, they are like workers in being excluded from ownership of the means of production; on the other, they have interests opposed to workers because of their effective control of organization and skill assets” (E. O. Wright 1985: 86–88). More recent attempts to identify the “middle classes” by socioeconomic criteria focus on measurements of “income and / or consumption,” although thresholds are numerous and arbitrary (Neubert 2014: 24–25; Sengebusch and Sonay 2014: 5). Instead of or in addition to “socioeconomic criteria” other authors (following Weber and Bourdieu) revert to “sociocultural differences” (which outline different “milieus or lifestyles”) to define the middle class(es) in specific countries (Neubert 2014: 23–26; Sengebusch and Sonay 2014: 5–6). 84 According to Elsenhans (1996 [1981]: 174, 177), a “state class” is “a social class” formed by “a bureaucracy which appropriates surplus product and disposes of it relatively freely.” Bureaucracy is a “permanent and coherent social group which deals professionally with politics, has freed itself from the control of the masses and secures for itself bigger or smaller privileges thanks to the unrestricted power over the distribution of objectified labour” (see section 3.1.2). According to Waterbury (1991: 1), “state bourgeoisie” refers to “the owners of intellectual or technical capital—white-collar workers, civil servants, public-sector managers, and those in the service sector.” These “strata [...] neither own (much) capital nor do they provide labor to the owners of capital in the same manner as peasants and the proletariat.” “They are situated between capital and labor, and, in Marxist analysis, are seen as the witting or unwitting agents of the dominant class as it emerges or as it consolidates its grip on the

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On the micro level, policies of economic liberalization might influence small groups or specific individuals within society. As this study is concerned with the (comparative) effects of economic liberalization on a macro and meso level, I neglect micro level effects here. In the subsequent paragraphs, I first take a glimpse at purported general effects of economic liberalization on each of the four social classes. Then I successively analyze potential macro / country level socioeconomic effects of each of the eight economic-liberalization policies specified in section 2.1. Where possible, I seek to indicate the relevance of the macro-level conclusions for the meso level of domestic society, that is for the different social classes. Economic effects of economic liberalization in general on social classes The first social class affected by economic liberalization is the bourgeoisie.85 The majority of authors agree that, from an ex post perspective, on average the bourgeoisie benefitted from economic-liberalization policies or from economic reforms that contained elements of economic liberalization. As a result, the bourgeoisie in many countries grew in numerical size, enhanced its capital accumulation, or newly came into existence (e.g. in China) (Krueger and Turan 1993: 379; Payne 1993: 148; Nelson 1994: 61; Farsoun and Zacharia 1995: 273–275; Albrecht, Pawelka, et al. 1998: 136, 153, 155; Howell 1998: 59; Layachi 1999: 50; Murphy 1999: 226–228; Bensabat Kleinberg and Clark 2000: 298; Di John 2005: 117). That economic liberalization benefitted a significant number of the bourgeoisie’s members also comes to the fore in political action and lobbying for the implementation of these policies, as for example in Turkey during the 1980s (Krueger and Turan 1993: 345–347) or in Venezuela from the mid-1980s up to the 2000s (Di John 2005: 110). However, when looking into the black box of the class as an aggregate, it becomes clear that the bourgeoisie’s constituent elements (i.e. its individuals and groups) accumulate capital from diverse activities—major dividing lines are if incomes are earned in export-oriented or in import-competing sectors, if activities are “in the state sector” or in the private sector, and if activities are in the “formal” / “legal” or in the “informal” / “extralegal” sector of the economy (J. D. Sullivan 1994: 147). Thus, economic-liberalization policies should have different economic effects on groups and individuals within the bourgeoisie, mirrored in differing preferences for economic policy. For example, in Chile, Mexico, and Argentina, economic liberalization pitted the old “urban and often-populist coalition behind ISI” against economy and the state apparatus.” Referring to the Arab world, Ouaissa (2014: 14) underlines the origins of the state class in the “middle classes” of these countries. 85 The bourgeoisie in this study comprises all individuals within a society who own capital. Following the territorial principle of the nation-state, foreign investors / capital holders within the domestic economy are not counted as members of the bourgeoisie.

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“internationally-oriented interests” (Schamis 1999: 239–268). But the case of Mexico shows that a priori structure (e.g. whether a company is export-oriented or focused on the domestic market) is not a sufficient factor to determine winners and losers of economic liberalization within the bourgeoisie. A range of other variables influence the final outcome. Thus, during Mexico’s economic reform period of the 1980s and 1990s, “big business” profited disproportionately, while “small companies and medium companies” could not make use of the new opportunities due to a lack of finance, or they had to close down due to pressure from foreign competitors (compounded by missing state aid) (Bensabat Kleinberg 2000: 225–232). The second social class affected by economic liberalization is the middle class. The main difference in economic terms between the middle class and the bourgeoisie is that the middle class derives the main part of its income from salaries and wages, while the bourgeoisie derives its income primarily from capital ownership (interest, dividends). In its sources of income, the middle class is more similar to the working class, although the type of activities from which income is derived differ (white-collar versus blue-collar professions, level of remuneration, etc.). Thus, the main point of economic vulnerability of the middle class (as of the working class) is inflation. In general, economic liberalization had a nonuniform effect on the middle class: Segments that could make better use of the new economic opportunities which economic liberalization provided (e.g. through employment in booming sectors) or that could better shield themselves from inflation (e.g. through access to foreign exchange from remittances), fared disproportionately better than segments that derived their income from employment in ailing sectors or from less well-paid activities in general and that only disposed of income in national currency (Waterbury 1989: 51). Nevertheless, in several countries economic liberalization led to a significant growth of the middle class, most notably in China (Kuide et al. 1994: 124–125). After all, in many countries economic stabilization in combination with economic liberalization led to a polarization within the middle class, with rising socioeconomic inequality between an upper segment benefitting from economic policy reform and a lower segment that saw its real income and standard of living decline (Murphy 1999: 226–228; Ouaissa 2014: 15).86 Potentially negative effects from economic liberalization could be aggravated by economic stabilization, especially by the curbing of public consumption and investment. Thus, in many countries economic policy reforms have above all hurt public sector employees, who descended to the lower segments of the middle class or who were at risk to drop out of the middle class and to join the ranks of lower classes (Nelson 1989: 8). 86

Ouaissa (2014: 15) makes this observation for several countries of the Arab World from the 1970s / 1980s to the 2010s, Murphy (1999: 226–228) for Tunisia during the 1970s–1990s.

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These socioeconomic shifts could be observed for example in Mexico and other Latin American countries, Eastern Europe, Turkey, and the MENA region during the 1980s–2000s (N. Hamilton and Kim 1993: 126; Krueger and Turan 1993: 378; Nelson 1994: 58; Farsoun and Zacharia 1995: 274–275). The third social class affected by economic liberalization is the working class. Being dependent on wages for its income and being socioeconomically close to the lower segment of the middle class, it also came under pressure in many countries since the onset of economic liberalization. A main factor behind its social decline was the weakening of “organized labor,” itself partly a result of economic liberalization.87 Another factor was low economic growth coupled with high population growth, which resulted in an oversupply of labor. The weaker position of labor in general and of organized labor in particular slowed down wage increases, while it curbed labor-friendly “patronage” rooted in protectionist trade and investment policies. After all, these processes led to a decline of workers’ real income (N. Hamilton and Kim 1993: 126, 131; Krueger and Turan 1993: 378; Murphy 1999: 226–228; Schamis 1999: 239; Bensabat Kleinberg and Clark 2000: 299; Kurtz 2004: 271; Di John 2005: 113). The fourth social class or class category affected by economic liberalization are the lower classes. Similar to the working class, the lower classes are dependent on wages, although the regularity of employment is less and the level of remuneration is lower. These differences make members of the lower classes especially vulnerable to be affected by poverty. According to several authors, policies of economic liberalization and structural adjustment were associated with or have effectively increased poverty among the economically most vulnerable in Eastern Europe, Latin America, and Africa (Nelson 1994: 58–59; Ogachi 1999: 98; Kurtz 2004: 280–285). Some authors even speak of pauperization and the creation of a “social underclass” in certain countries or regions (e.g. in Africa) (Ogachi 1999: 91). Others instead argue that economic liberalization and structural adjustment have helped the poor through the trickle-down effect of increased economic growth (Nelson 1992: 222–224). The fifth social class affected by economic liberalization is the state class in nonindustrialized countries. Economic liberalization, as it eliminates some sources of rent, should at first sight harm the state class (who derives a large part of its income from the control of rent), although several authors emphasize that economic liberalization concomitantly creates new sources of rent (Nonneman 1996c: 38– 39; Albrecht and Schlumberger 2004: 377–378, 382; Guazzone and Pioppi 2009b). 87

Economic-liberalization policies included the liberalization of labor markets, which led to a decline of legally protected (and thus often organized) labor in the formal sector of the economy and to a rise of legally unprotected (and thus often nonorganized) labor in the informal sector of the economy (Kurtz 2004: 271–272).

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According to Elsenhans (1999: 430), “globalization” (which is partly a result of policies of economic liberalization) will not eradicate rent and the state class nurtured by it, unless “marginality” among a country’s workforce is eliminated. Only under this condition would “export-oriented growth” lead to “scarcity of labor” and finally trigger a process of capitalist development. If marginality is not eliminated, “globalization” will not eradicate rent, but it will simply shift the mode of appropriation (“private” actors instead of the state now appropriate the rent) (Elsenhans 2001a: 160–170; 2001b: 43). For developing countries, one can thus assume economic liberalization in general does not fundamentally harm the state class in economic terms, given that marginality still prevails there (e.g. because “egalitarian agrarian reforms” are not implemented) (Elsenhans 1999: 431). Besides, as the state class controls the state as a ruling class, its members are less subjected to the market than members of the other classes. Nevertheless, due to internal heterogeneity of the class (which consists of capital owners and wage earners), the effects of economic liberalization on the class as a whole are presumedly complex. Socioeconomic effects of specific policies of economic liberalization and their transmission to social classes Apart from the average economic effects of economic liberalization on the different social classes, the eight specific policies of economic liberalization analyzed in this study might have particular effects differing from the general picture. I am going to discuss each economic-liberalization policy in turn, moving from the demand side to the supply side of the economy. In a first step, I analyze the macro-level socioeconomic effects of the policies, followed in a second step by an attempt to sketch out how these macro-level effects could be transmitted to the meso level of social classes. I will concentrate here on four of the five classes introduced above (the bourgeoisie, the middle class, the working class, and the lower classes), leaving aside potential effects of these policies on the state class (assuming a relative immunity of its net rent income to economic-policy changes, at least in the medium run). On the demand side of the economy, trade liberalization might have both positive and negative effects on socioeconomic development: Liberalization of imports could lead to a rise in unemployment, a fall in average wages in import-competing industries (“with wage adjustments dampening the employment response”), and possibly increasing wage inequality between “skilled” and “unskilled” labor (if economic sectors predominantly employ labor with a specific skill level) (Revenga 1997: S23; Hanson and Harrison 1999: 272, 286–287; Robertson 2000: 827–828, 832, 845–846; Feliciano 2001: 95–97, 104–105, 111–112; Arbache et al. 2004: F77;

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Pontual Ribeiro et al. 2004: 212).88 Export industries in developing countries, on the other hand, are expected to benefit from both import liberalization and from export liberalization, with a positive effect on employment (especially if export products are relatively labor-intensive) and possibly on wage equality (if the export sector predominantly employs “unskilled” labor) (Ghose 2000: 294–295, 298–300; Arbache et al. 2004: F75; Pontual Ribeiro et al. 2004: 212).89 According to Kumar and Mishra (2008), trade liberalization could raise average wages in both importcompeting and export-oriented sectors in the long run, due to the positive effects of foreign competition on productivity levels. But trade liberalization might also increase unemployment in the short run, “as inefficient industries close down under pressure from international competition.” This effect might even continue into the long run, if enterprise creation in the export sector faces obstacles (such as a lack of “capital and entrepreneurship”) (Stiglitz 2002: 59). After all, it seems clear that the time frame of the analysis is important: As Haouas et al. (2005: 528–532) point out, there might be differences between the “short-run” and “long-run effects” of trade liberalization on employment and wage levels in the sectors of “exportable, importable, and non-tradable” goods (depending on factor endowments, the mobility of production factors between economic sectors, and the “substitution effects” and “income effects” following changes in world-market prices) (see also: Mehta and 88

Although there could be “significant variation at the firm level:” “Firms with a higher degree of market power [...] may choose to accomodate changes in international competition by altering their profit margins rather than by adjusting their labor costs.” “Capital-intensive firms may actually benefit from the removal of barriers to imports, which lower their production costs. And some firms may respond to increased competition by upgrading productivity and the skills of their workforce, hence leading to a “paradoxical” association between lower trade protection and higher worker earnings” (Revenga 1997: S23). Similarly, Pontual Ribeiro et al. (2004: 212) argue that “the adjustment [to trade liberalization; C.N.] may not be identical across businesses, since firms are heterogeneous in profitability, non-convex adjustment costs, and trade exposure.” 89 According to Ghose (2000: 295–298), this positive effect of trade liberalization on employment could, for the case of manufacturing in developing countries, also unfold in the importcompeting sector (in addition to the export sector), due to the “[relaxation] of the foreign exchange constraint” through more exports, the “[encouragement] of FDI inflows,” the “high income elasticity of demand for import-competing products,” and the “existence of surplus labour,” which “makes simultaneous expansion of employment in all branches of manufacturing possible.” However, as Arbache et al. (2004: F75–F79) remark, the positive effect of trade liberalization on wage equality in developing countries, hypothesized “by the theorems of Heckscher and Ohlin and Stolper and Samuelson,” might in effect be a negative one due to the positive effect of trade liberalization on “technology imports,” which need “skilled labor” for their operation and which would therefore drive up wages for “skilled” workers (increasing wage inequality between “skilled” and “unskilled” workers) (see also: Hanson and Harrison 1999; Robertson 2000).

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Hasan 2012: 76–77, 89–90). The net effect of trade liberalization on total employment and wage levels is thus an empirical question. Finally, trade liberalization could also affect poverty90 levels through its impact on product and factor markets and on “government spending” (“income distribution” channel). It also might have an indirect long-term effect on poverty through its possible effect on economic growth (which is in most cases assumed to be poverty-reducing) (L. A. Winters 2002: 1347– 1359; Agénor 2004a: 23–24, 26–31; Dollar and Kraay 2004: F26–F29; L. A. Winters et al. 2004: 74–106; Tsai and C.-H. Huang 2007: 1861–1862). However, long-term effects of trade liberalization on poverty probably differ from short-term effects due to factor mobility / immobility, so short-term effects could be poverty-increasing, despite the occurrence of poverty-decreasing long-term effects (or vice versa) (L. A. Winters 2002: 1359–1361; Hertel et al. 2003: 1299–1301, 1305; Agénor 2004a: 25–26, 35–36; Dollar and Kraay 2004: F29; L. A. Winters et al. 2004: 102–103; Tsai and C.-H. Huang 2007: 1861; Barraud and Calfat 2008: 366). Ultimately, the impact of trade liberalization on poverty is very hard to establish, as it is complicated by the various sources of household income, the possibility of substitution between work outside and inside the household, and the complex “transmission mechanisms” between the world price of a good and the final consumer price inside a country. “Income multiplier effects” and factor market adjustments (determining wages and employment) triggered by price “shocks” due to trade liberalization further blur the picture (L. A. Winters 2002: 1343–1347; Barraud and Calfat 2008: 366). Contrary to proponents of the neoclassical school of economics, proponents of “dependency theory” and its theoretical siblings implicitly argue against trade liberalization, as it would subject developing countries to the deforming force of the “global capitalist system,” leading to a long-term orientation of trade patterns along the “comparative advantages” of developing countries, which ultimately would lead to a relative stagnation of socioeconomic development in these countries (Sunkel 1972: 518–519; Frank 1975: 3–4; Palma 1978: 906–907; Senghaas 1978: 5–13). Given that the macroeconomic effects of trade liberalization are extraordinarily complex (direct versus indirect effects, short-term versus long-term effects, etc.) it becomes an even more complex task to determine the net economic benefits of trade liberalization for different social classes. These socioeconomic effects of trade liberalization on a meso level depend, among other things, on the factor endowment of 90

“Poverty,” indicated by a threshold of “household welfare” or “household utility” depends on “the prices of all goods that the household faces and income.” “Household income” is “full income,” depending on working hours at “prevailing wage rates, transfers and other non-earned income (including a wide range of elements, such as remittances, official transfers, transfers in kind, etc.), and profits from production decisions” (L. A. Winters 2002: 1341; Hertel et al. 2003: 1299; L. A. Winters et al. 2004: 74)

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the national economy (relative abundance in labor or capital, in skilled or unskilled labor, etc.), on income sources of the average member of a class (income from wages / salaries or capital, sectoral occupation, access to foreign currency, etc.), on the characteristics of the average human capital of a class (transferability across economic sectors, adaptability to economic change, etc.), and on consumption patterns of the average member of a class (domestically produced versus imported products, preferences regarding the intertemporal distribution of consumption, etc.). Several authors analyze the relevance of these factors for the socioeconomic effects of trade liberalization on different social groups and classes: Focusing on the factor endowment of the national economy, Rogowski (1989: 3–10) strives to carve out the domestic socioeconomic and political effects of “increasing exposure to trade” of a country (a situation that could arise e.g. through the implementation of trade-liberalization policies). In his theoretical model, he subdivides countries according to their “endowments” with the production factors of “capital,” “labor,” and “land” (representing a multitude of similar actors) along two dimensions, that is the level of development of an economy operationalized by its endowment with capital (“advanced” / capital-rich or “backward” / capital-poor) and the land-labor ratio of an economy. Building on the prior trade model of Heckscher-Ohlin and its theoretical appendix, the Stolper-Samuelson theorem, Rogowski (1989: 7–8) hypothesizes that an expansion of trade benefits a country’s “abundant” factors, while it harms a country’s “scarce” factors ( gains / losses could be in terms of wages and profits). Thus, in an advanced economy, capital owners (as members of the bourgeoisie) gain economically from freer trade, while in a backward economy they lose. Landowners and workers (as members of the working class or lower classes) gain in both types of economies, if they are an abundant factor, and lose if they are a scarce factor. Although, for reasons of simplicity, Rogowski (1989) does not distinguish between wage labor and salaried labor (blue-collar versus whitecollar work), his argument revolving around scarcity versus abundance could also be applied to the salaried members of the middle class. Some authors subdivide labor into “skilled” and “unskilled” labor (see above), assuming poor developing countries are well-endowed with unskilled labor (which thus is an abundant production factor), while richer developing countries and some industrialized countries are well-endowed with skilled labor. Trade liberalization would then benefit unskilled labor in poor developing countries (which should be visible in rising employment and / or a higher wage level), while it would hurt skilled labor in these countries (which should be visible in declining employment and / or a lower wage level). Likewise, it would benefit skilled labor in richer developing countries and in some industrialized countries, while it would hurt unskilled labor in these countries (Thompson 1995; Arbache et al. 2004: F73–F77). However, other

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authors point out that the results from empirical analyses sometimes contradict the common theory based on the Heckscher-Ohlin trade model and its associated Stolper-Samuelson theorem: According to Arbache et al. (2004: F74–F77), in some developing countries rising (and not falling) wages for skilled labor together with rising wage inequality between skilled and unskilled labor could be observed, which might be due to the fact that trade liberalization triggers “a simultaneous process of technological modernization and increasing capital, which together produce an increase in demand for highly skilled labor” to the detriment of unskilled labor. After all, the decisive question for determining net benefits for social classes that derive their income from labor is what type of labor members of a class offer on average. While members of the lower classes should predominantly earn their living with unskilled labor, members of the working class could offer both unskilled and skilled labor. Besides, segments of the middle class could derive their income from skilled labor. A deeper look into the inner structure of the class would thus be necessary to determine the average effects of trade liberalization on the working class and on the middle class. Frieden and Rogowski (1996: 25–37) extend the theory of Rogowski (1989) by breaking up the aggregate factoral view and by discerning specific “economic actors and groups” who benefit and who lose from “an easing of international exchange” (i.e. “an exogenous decrease in the costs or an increase in the rewards” of “international trade and investment”), which alters relative goods prices within an economy. Focusing on trade, they hypothesize that “an easing of international exchange—a reduction in the cost of international transactions—is beneficial for those who consume goods or services associated with international exchange, such as exporters, importers, and consumers of imports. Conversely, such a reduction in international transaction costs hurts those competing with imports.” Moreover, Frieden and Rogowski (1996: 38) admit that production factors are often specific to certain sectors (i.e. nontransferable) in the short run, which makes an aggregate view (as assumed by the Stolper-Samuelson theorem) unrealistic. What matters then for socioeconomic analysis are not average gains or losses of production factors in the whole economy, but gains and losses of production factors in specific sectors (“Ricardo-Viner approach”). According to the specific-factors model, an easing of international trade will generate benefits for production factors in sectors that are “relatively competitive on world markets,” while it will harm those in sectors that are “relatively uncompetitive.” Applying these hypotheses to the analysis of social classes, trade-liberalization policies (which decrease the costs of trade) will generate benefits for those members of the bourgeoisie who are involved in export or import of goods, while it will harm those who produce for the domestic market

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under pressure from import competition.91 The highest profits accrue to capital owners who are invested in internationally competitive sectors. As for the other classes whose members derive their income primarily from labor, it should benefit those members of the middle class, working class, and lower classes who work in internationally competitive export-oriented sectors or activities, while it should harm those who work in internationally uncompetitive import-competing sectors. Finally, members of all four social classes analyzed here, whose consumption basket contains imported goods or who can substitute domestically produced for imported goods, gain from trade liberalization through lower import prices. A third approach is the new trade theory advocated by Krugman (1986), which focuses on the firm level. According to this theory, factors employed in internationally competitive firms benefit from an easing of trade through economies of scale (giving an advantage to larger firms), while those employed in internationally uncompetitive firms lose (Frieden and Rogowski 1996: 39–42). Regarding social classes, capital owners of the bourgeoisie invested in the first type of firms win through trade liberalization, while those in the second type of firms lose. Similarly, members of the other three classes who derive their income from work in internationally competitive companies gain from trade liberalization (assuming rising profits of companies translate into salary increases and wage increases for its employees), while those working for internationally uncompetitive companies lose.92 However, as the studies on general socioeconomic effects of trade liberalization tell us (see above), it is important to consider the time horizon when judging the policy’s effects. Thus, if a certain social class gains or loses from trade liberalization could differ in the short run and in the long run. As an example, the bourgeoisie might in the short run gain through trade liberalization even in the case where capital is a scarce factor, due to the fact that its capital might be predominantly invested in internationally competitive export-oriented sectors. But in the long run it might lose through lower interest rates, as capital becomes less scarce. Likewise, the working class might lose from trade liberalization in the short run if its members predominantly work in internationally uncompetitive import-competing 91

This theoretical proposition is consistent with empirical observations in the MENA region, for example by Murphy (1998: 80), that “commercial middle men and entrepreneurs appear to reap the benefits of trade liberalisation and the new sponsorship of the private sector.” 92 Empirical observations in several countries and regions seem to back this theory, as reported for example by Farsoun and Zacharia (1995: 274–275), who conclude that the imposition of the “structural adjustments of the late 1980s and thus of free markets [...] [has polarized] the labor force structure [in the Arab world; C.N.]: a minority who benefitted from the privatized market and from the economic institutions linked to the multinationals (including oil) and the great majority that did not.”

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sectors, notwithstanding that labor in general would be an abundant production factor. Over time, initial losses could turn into long-term benefits, as labor switches sectors within the domestic economy and when it overall becomes scarcer (driving up wages). Nevertheless, these mechanisms can only unfold if production factors in an economy can switch between activities, which might not always be the case. Another important point is that trade liberalization has both direct and indirect effects: Indirect effects could materialize through the policy’s potential long-term impact on productivity and thereby on economic growth (see above). Thus, both abundant and scarce factors in an economy as well as both export-oriented and import-competing sectors might benefit from trade liberalization in the long run, which further complicates the analysis. If we additionally allow for different sources of income derived by class members, determining long-run effects of trade liberalization for the different social classes becomes close to impossible. An example is the effect of trade liberalization on poverty, as discussed above. How poverty caused by trade liberalization affects the working class and the lower classes necessarily remains unclear, as the complexity of the phenomenon does not allow to formulate testable hypotheses (let alone to accomplish reliable empirical measurement). The second economic liberalization policy on the demand side, consumer-price liberalization, most often in the form of subsidy cuts for basic commodities and services, reduces real incomes of wage earners across the board due to the resulting inflation (while the “passthrough” could very likely be completed in the short run). Higher inflation could then disproportionately hurt the poor (raising poverty levels and income inequality) (Agénor 2004b: 363). “Increases in prices of goods and services produced by the public sector—such as utilities and other types of public services [...]—” could further “reduce [the already low; C.N.] purchasing power” of poor people (Agénor 2004b: 360). On the other hand, the reduction of subsidies could free public resources for government investment and spending on projects with a short-term and long-term potential to enhance socioeconomic development. Regarding the effects of the policy on social classes, it is clear that all classes except (potentially) the bourgeoisie would lose from consumer-price liberalization in the short run (assuming it leads to a rise in prices), as the resulting inflation reduces real incomes derived from wage or salaried labor remunerated in domestic currency. Poor members of the working class and the lower classes might suffer disproportionately due to a lack of financial reserves. Members of the bourgeoisie cannot completely shield themselves from inflation in the short run, but they would certainly not be harmed in the long run, as the prices of their assets (and thus their capital income in monetary terms) would rise proportionately. If the theoretical benefits through higher public spending materialize, all four social classes could benefit from the policy in the long run.

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As a third economic-liberalization policy on the demand side, the liberalization of interest rates (if triggering a rise of rates) could increase unemployment both in the short run and in the long run through lower investment (Agénor 2004b: 352). Rising interest rates can also affect household net income negatively if households are indebted (Arestis 2004: 261). Besides, interest-rate liberalization might directly increase poverty, when it is not accompanied by “institutional reforms, in particular stronger property rights and wider access to credit information” (Singh and Y. Huang 2015: 131, 139, 142). However, interest-rate liberalization could also indirectly foster socioeconomic development in the long run due to its possible positive effect on economic growth. The effect of interest-rate liberalization on social classes is ambiguous and depends, in the case of the wage-earning and salary-earning classes, on the indebtedness of households within a class as well as on the situation in the labor market (scarcity or abundance of labor offered predominantly by a class). For the bourgeoisie, higher interest rates are both a benefit (as existing capital earns a higher income) and a loss (as capital accumulation becomes more costly). As in the case of other policies, long-term positive effects of the policy on economic growth would benefit all four social classes. As a fourth economic-liberalization policy on the demand side, the liberalization of international payments could boost remittances. It would thus raise household incomes and could thereby reduce poverty (L. A. Winters 2002: 1341; Hertel et al. 2003: 1299; L. A. Winters et al. 2004: 74). However, the liberalization of international payments could also facilitate financial transfers out of the country (“capital flight”), with potential negative effects for socioeconomic development (Agénor 2004a: 33–35). At the same time, capital-account liberalization could increase the probability of adverse economic shocks, and it would thus raise “domestic interest rates” due to “increased risk of default.” Both effects could have negative consequences for the poor (Agénor 2004a: 31–32). On the level of social classes, the bourgeoisie seems to be the main beneficiary of the liberalization of international payments, if it disposes of mobile financial assets: Observing that the liberalization of international payments often occurs together with the liberalization of foreign investment, Frieden (1991) analyzes the “distributional implications” of “international capital mobility” by employing a HeckscherOhlin model (in which international trade is substituted by international capital flows) and a specific-factors model, in which “the economy is organized into activities (or sectors) to which factors are specific, along with factors that can move freely from activity to activity.” For the long run (employing the Heckscher-Ohlin model), Frieden (1991: 435) concludes that “international financial integration” (a result i.a. of the liberalization of international payments and of the liberalization

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of foreign investment) benefits capital owners in capital-rich (developed) countries, while it hurts those in capital-poor (developing) countries. For the short run (employing the specific-factors model), “financial integration” “in the [capital-rich; C.N.] developed world” “favors capitalists with mobile or diversified assets and disfavors those with assets tied to specific locations and activities.”93 In capital-poor developing countries, capital owners with assets in specific sectors and activities gain from financial integration, “since they can now borrow at lower interest rates.” Conversely, “owners of [mobile; C.N.] liquid financial assets” lose, as they receive lower interest rates for their investments. In conclusion, capital owners as members of the bourgeoisie both gain and lose from “increased capital mobility” (as a result of the liberalization of international payments and the liberalization of foreign investment), depending on the country of operation, type of assets, and sector of activity. Thus, “increased capital mobility is generally good for financial asset-holders in the developed world and bad for those in the developing world.” Besides, “it is bad for [...] specific factors in the developed world and good for those in the developing world” (Frieden 1991: 436–439; see also: Haggard and Maxfield 1996: 37–38). As for the other three social classes, the liberalization of international payments is beneficial to those classes whose members have access to remittances. Remittances as foreign currency inflows increase incomes and shield the recipients from inflation of the national currency. As a fifth economic liberalization policy on the demand side, exchange-rate liberalization in most developing countries leads to devaluation of the national currency and could be “passed through” (either in the short or in the long run) to domestic “consumer prices,” thus fuelling inflation. This “passthrough” might be more “complete” the higher the inflation rate already is (as price-setting firms in “high inflation regimes” expect exchange-rate changes to be “non-transitory”) (Choudhri and Hakura 2001; Frankel et al. 2005: 1–7; Ca’Zorzi et al. 2007: 6–8, 17). Higher inflation ultimately reduces real income of wage earners, with potential negative effects on poverty and on income equality. On the other hand, a depreciation of the real exchange rate “tends to foster a reallocation of resources toward agricultural export activities, raising the income of export crop farmers and rural households in the long run. In countries, where the poor are predominantly located in rural areas, a real depreciation will therefore raise incomes and reduce poverty.” However, these positive effects might vanish, if employment and wages decline in the non-tradables sector (possibly increasing poverty), caused by the long-term shift of supply toward 93

The reason for this outcome is that capital can flow to capital-poor (developing) countries where interest rates are higher, while owners of specific assets have to borrow at higher interest rates.

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tradable goods and services after the depreciation of the currency (Agénor 2004b: 364). Given that the inflationary effect of exchange-rate liberalization materializes in the short run, all four social classes would lose from the policy in their consumption possibilities. This would also be the case in the long run, with the exception of the bourgeoisie, which derives its income from capital and which is thus immune to inflation. On the production side, the effects are more ambiguous: Within the bourgeoisie, exchange-rate liberalization hurts importers of goods and services, while it benefits exporters. Thus, workers and employees (as members of the middle class, of the working class, and of lower classes) in export-oriented sectors might see their nominal wages rise, while those in import-competing sectors could face declining nominal wages in addition to higher inflation (Waterbury 1989: 50–51; Krueger and Turan 1993: 350). In the long run, exchange-rate liberalization might raise the efficiency of resource use in the domestic economy, increasing economic growth. Rising growth would then raise average incomes for all four social classes. On the supply side of the economy, the effect of domestic producer-price liberalization on socioeconomic development is theoretically ambiguous, depending on whether prices rise or fall. A price rise transfers surplus from consumers to producers (while a price decline does the reverse), with potential effects (positive or negative) on inflation, real wages, income inequality, and poverty. The bourgeoisie, as the class that owns the capital for production (and thus represents the producers), will gain from producer-price liberalization if prices rise, while it will lose if prices fall. The other three social classes gain from a fall in producer prices, which increases their real income and simultaneously reduces income inequality in comparison with the bourgeoisie. As the second policy of economic liberalization on the supply side, the liberalization of investment (both domestic private and foreign) could lead to a rise in total investment, potentially bringing down unemployment. Besides, the liberalization of FDI could have additional short-term and long-term effects on socioeconomic development: First of all, FDI can have a nonnegligible effect on employment. It could increase employment in the host country directly (through job creation within FDI companies) and indirectly (through “backward and forward linkages” to domestic suppliers and customers) (Bende-Nabende 2002: 132–133, 136–140; Sumner 2005: 275; Abor and Harvey 2008: 215–217). However, the net effect of FDI on employment might also be negative due to “possible layoffs” and “crowding-out of local firms” (Stiglitz 2002: 68; Sumner 2005: 275). Ultimately, the “net contribution” of FDI to total employment depends on several factors, such as the “choice of techniques,” the “composition of output,” and possible crowding-out / crowding-in of employment in domestic companies (Hood and Young 1993: 81–82; Lall 1993a: 10–

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11; Enderwick 1994: 5–7; Pina 1994: 132–133, 149–152; Abor and Harvey 2008: 215–216; Coniglio et al. 2015: 1245). Furthermore, the inflow of FDI could “raise the level of wages” in domestic companies through “wage spillovers” and (even without spillover effects) it could lead to an increase of “the average level of wages in a country or industry” (Aitken, Harrison et al. 1996: 346–350, 352; Lipsey and Sjöholm 2001: 1–2, 11, 13–14; Lipsey 2002: 30–34; Görg and Greenaway 2004: 182, 184; Abor and Harvey 2008: 216–217; Coniglio et al. 2015: 1245–1246).94 In addition, FDI might raise the level of human capital in a host country. According to several authors, FDI companies spend more on “technical and managerial” employee training (“particularly for skilled workers”) than domestic companies and thus disproportionately raise the level of human capital in the host country (this effect is assumed to be especially large in the service sector) (Enderwick 1994: 11–13; International Labour Organisation 1994; Aitken, Harrison et al. 1996: 346–347; Bende-Nabende 2002: 130–132, 133–136; Blomström and Kokko 2002: 17–19; Miyamoto 2003: 32).95 Apart from training on the job, FDI companies might push tertiary education in host countries from the demand side, and they sometimes also provide scholarships (Blomström and Kokko 2002: 16–17). A higher level of human capital should then raise average wages. If these theoretical links exist in reality, FDI could directly affect poverty “through employment generation” (or destruction), “human capital upgrading through training provision,” and changes in “wage rates” (Jalilian and Weiss 2002: 236; Tsai and C.-H. Huang 2007: 1862; Gohou and Soumaré 2012: 76; Fowowe and Shuaibu 2014: 323–324). On top of that, FDI might indirectly affect poverty through its possible impact on economic growth (most authors assume economic growth to decrease poverty) (Klein et al. 2001: 5–7; Jalilian and Weiss 2002: 236–239; Tsai and C.-H. Huang 2007: 1862; Fowowe and Shuaibu 2014: 323). The purported poverty-reducing effect of economic growth might be amplified through FDI’s direct and indirect (via economic growth) contribution to tax income of the state (which could potentially be spent on fighting poverty) (Klein et al. 2001: 15; Sumner 2005: 275; Fowowe and Shuaibu 2014: 323). Nevertheless, FDI could also 94

According to Lipsey and Sjöholm (2001: 1–2, 11), these wage effects could unfold along three possible channels: the competition for scarce labor with domestic companies (effecting an outward shift of the labor demand curve); the introduction, transformation or expansion of “high-wage, high-skill” “sectors” or “industries” in the host country; and the general “upgrading of skill levels within industries” (possibly by technology “spillovers” from FDI companies to domestic companies), raising the average productivity of workers and thus the equilibrium wage if workers are paid according to their marginal contribution to total output (see also: Görg and Greenaway 2004: 182, 184). 95 However, higher average skill level in FDI companies might also indicate the use of more capital-intensive technology, reducing overall positive employment effects (Enderwick 1994: 7–9).

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have an increasing effect on poverty, for example when FDI in the banking sector constrains the possibilities of credit provision to labor-intensive enterprises or when “user charges” (e.g. in the case of public utilities) and “access of the poor to services” deteriorate after the market entry of FDI companies (although services could also improve and prices could fall) (Stiglitz 2002: 69–70; Agénor 2004a: 32; Sumner 2005: 275). Finally, FDI might have both positive and negative effects on income inequality (Enderwick 1994: 9–11): On the one hand, modernization theory predicts that FDI in developing countries would at first contribute to rising income inequality, but would in the long run reduce it (being subject to the relationship of development and income inequality described by the Kuznets curve) (Tsai 1995: 470–471; Klein et al. 2001: 13). By “bringing capital” to a host country, FDI should in the long run “[decrease] the total returns to capital and [increase] the returns to labor.” “Thus, foreign capital competes with domestic capital for domestic workers, [possibly; C.N.] driving up wages and decreasing the profitability of domestic firms. This effect would speed up convergence of the incomes of labor relative to capital, decreasing income inequality” (Jensen and Rosas 2007: 471). On the other hand, dependency theory and its theoretical siblings expect that an increase in FDI would raise income inequality in developing host countries in the long run, as the growth and wage dynamics triggered by FDI remain confined to enclave sectors and do not spill over to the “traditional” sectors (“dependent development”) (Bornschier, Chase-Dunn et al. 1980; Tsai 1995: 471–472; Bornschier 2008 [2002]: 582, 591–599). A decisive criterion here is whether FDI inflows disproportionately benefit “skilled workers” (which would raise income inequality between skilled and unskilled workers, although it might decrease it between skilled workers and capital holders) or “unskilled workers” (which would decrease overall income inequality) (Feenstra and Hanson 1997; Sylwester 2005: 291–292; Tsai and C.-H. Huang 2007: 1862). Ultimately, the “scale of benefits” from FDI to socioeconomic development “depends on the kind of FDI and its mode of entry, function, and financing, as well as the nature of the host economy” (Sumner 2005: 275). Regarding the transmission of socioeconomic effects of investment liberalization to social classes, it seems indisputable that the bourgeoisie benefits from investment liberalization if domestic private investment is liberalized. One can assume the liberalization of domestic private investment creates “new opportunities” of capital accumulation, both for members of the existing bourgeoisie and for new actors who join the bourgeoisie after the policy reforms (e.g. former public sector managers who make use of their gatekeeper position in regulated markets, private “entrepreneurs” who build up their business in newly liberalized sectors) (Nelson 1989: 8). However, when foreign investment is liberalized, benefits for the bourgeoisie may be different. They could be higher or lower than in the case of domestic investment,

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depending, among other things, on the strength of competition by FDI companies, on the participation of the bourgeoisie in inbound FDI, and on the complementarity of domestic and foreign investments in the national economy. As for the other three social classes, they should benefit from the liberalization of domestic private investment through a rise in employment driven by higher investment. In the case of foreign investment, possible effects on the middle class, the working class, and the lower classes are more ambiguous: On the one hand, a liberalization of FDI could create jobs, increase wages, and raise the average skill level for different types of labor in the domestic economy—all three factors would increase nominal incomes in the short and in the long run. It could also impact positively on economic growth through productivity spillovers, which would further increase incomes in the long run. These positive dynamics could reduce poverty among the lower classes and the poorer segments of the working class. On the other hand, FDI has the potential to crowd out domestic investment, thereby reducing employment and raising prices if market concentration increases—both effects would reduce real incomes among members of the middle class, of the working class, and of the lower classes. The third policy of economic liberalization on the supply side, privatization of SOEs, also has ambiguous theoretical effects on socioeconomic development: On the one hand, privatization of SOEs could lead to a rise of unemployment in the short run, “as the new owners reduce the overstaffing that typically exists to achieve higher productivity” (Gupta et al. 1999: 4–5; Barnett 2000: 5; Bayliss 2002: 616– 617; Stiglitz 2002: 56–57; Dagdeviren 2006: 478; Tomic 2006: 64–66; Nixson and Walters 2006: 1563; Brown, Earle and Telegdy 2010: 684). On the other hand, privatization of an SOE could “lead to an expansion of activities” (especially in the longer run) and might thus increase employment (Gupta et al. 1999: 4–5; Barnett 2000: 5; Tomic 2006: 64–66; Brown, Earle and Vakhitov 2006: 273–274, 291–292; Brown, Earle and Telegdy 2010: 684). Wages for employees of privatized firms might fall in the short run, when the newly privatized company adjusts to a “more competitive environment” (thereby reducing “excessive” wage levels), but they might rise in the long run with increases in productivity. When privatized SOEs have a large workforce, this process could reduce average wage levels in the whole economy in the short run and increase them in the long run (Gupta et al. 1999: 5–6, 8; Brown, Earle and Vakhitov 2006: 273–274, 291–292; Brown, Earle and Telegdy 2010: 684). Besides, “the prices of goods and services produced by [a] privatized enterprise” might rise, if production had been subsidized by the state before, with possible negative effects on the purchasing power of poor households. However, higher prices also increase supply, eliminating possible former “scarcities” (with potentially beneficial effects for poor households) (Gupta et al. 1999: 8–9; Bayliss 2002: 614–616, 619). Furthermore, if privatization leads to capital gains for the new owners, who

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are predominantly from upper income brackets, income inequality over the whole population may rise (Gupta et al. 1999: 9–10; Nixson and Walters 2006: 1563). But privatization could also disburden the state budget and free resources for public investment in education, health, and infrastructure projects, with potential positive effects on socioeconomic development (Bayliss 2002: 608–609; Nixson and Walters 2006: 1564). Finally, privatization might indirectly affect wages, employment, inequality, and poverty through its possible impact on economic growth (see also: Bayliss 2002: 607). Regarding the effects of privatization on social classes, the potential benefits of the policy primarily accrue to the bourgeoisie, assuming it is able to gain control of the privatized companies’ capital (although it might be forced to leave a part of the spoils to foreign investors). Empirically, this seems to have been the case in a number of countries. For example, in Latin America and Eastern Europe privatization gave persons, who were well-positioned in the former state-controlled economy, the chance to enrich themselves through “spontaneous privatizations” of former SOEs. Thereby, a group of “newly wealthy” emerged within the bourgeoisie or joined it (Nelson 1994: 59). The effects of privatization on the three other classes seem to be negative in the short run and potentially positive in the long run: In the short run, the reduction of employment in typically overstaffed SOEs, the curbing of wages, and the rise of prices for goods and services produced by privatized companies harm the middle class, the working class, and the lower classes. The final effects on social classes depend on the overcapacity of positions in privatized companies primarily held by members of a certain social class and the exposure of a class regarding the consumption of goods and services produced by privatized companies. In the long run, positive socioeconomic effects of privatization (reflected in higher wages, higher employment, better and cheaper products and services) are more likely to emerge, once efficiency gains materialize on the company level, on the industry level, and on the level of the national economy visible in higher economic growth.

3.2.4

Political Effects: Social Class Relations and Relative Strength of the State

Having discussed possible socioeconomic effects of economic liberalization, the question in this subchapter is whether these effects on the meso level of social classes have political consequences on the macro level, that is whether they have the potential to influence a country’s political system type on the totalitarianismdemocracy continuum (see section 2.3). If we conceive social classes as political actors and political outcomes on the macro level as a result of class relations and

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class struggle, we also have to take into account the state as an actor in the game. Whether the state is a dependent agent of the politically dominant class / classes or an independent actor is a question I will not pursue further (see also: Robison 1988: 54–55). What is important here is the fact that the state, as initiator of policies of economic liberalization, is itself subject to these policies’ repercussions. Being an integral part of a country’s regime, the characteristics of a state have a direct impact on the regime type and on the political system type (see section 2.2). I am now going to discuss these political effects of economic liberalization for the state and for three of the four social classes introduced in section 3.2.3. Due to a lack of literature I will leave out the discussion for the lower classes. As for the state, a number of authors argue that policies of economic liberalization weaken it through two main channels: First, economic-liberalization policies might undermine the state’s legitimacy due to a reduction of “patronage.” Economic liberalization reduces rent sources that the state could formerly tap due to its pivotal position as regulator of the economy. Examples are the reduction of income from tariffs due to trade liberalization, from the regulation of international financial transfers due to the liberalization of international payments, from artificially low and fixed producer prices due to producer-price liberalization, and from access to (monopoly / oligopoly) profits and assets of SOEs due to investment liberalization and privatization. In addition, the state’s partial withdrawal from the economy as a rule-setter, investor, and employer reduces its ability to conduct social policies (e.g. through public employment in SOEs, subsidization of consumer products, cheap credit, or an overvalued exchange rate), which are a main pillar of legitimation (Widner 1994: 61–63; Nonneman 1996c: 38–39; 1996b: 308; Bratton and van de Walle 1997: 100; Albrecht, Pawelka et al. 1998: 153; Murphy 1998: 80; Geddes 1999: 138–139; Brumberg 2002: 65–66; Albrecht and Schlumberger 2004: 377, 382; Gandhi and Lust-Okar 2009: 415). Second, the socioeconomic hardships of economic liberalization could arouse protest of disaffected groups, which might destabilize the state (Seddon 1986; 1993; Nonneman 1996b: 310; Arce and Bellinger Junior 2007: 97–100, 118–119). Authoritarian states (i.e. states in authoritarian political systems) might be especially vulnerable to economic liberalization, as it might force an authoritarian state to build up “domestic institutions” indispensable for the “efficient operation” of a market economy (such as “an enforceable system of property rights and impartial courts”), whose introduction “[supports] democracy” (Q. Li and Reuveny 2003: 34). Further to that, by “[decentralizing] decisions” in the economy, economic liberalization also decentralizes “political power” away from the authoritarian centralist state of the hitherto “closed economy” (Rubio 1993: 37–39, 47). Last but not least, by increasing the number of suppliers and customers in the market, economic liberalization creates more “options” for “consumers” and thus

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entices them to “demand” more options in other “[realms] of life as well, especially in politics. Therefore, political demands on an authoritarian state are bound to increase, weakening its grip on society (Rubio 1993: 39–40). After all, these dynamics could have political consequences: Some authors hypothesize that they could trigger the growth of a “civil society,”96 which ultimately challenges the state on political grounds (N. Hamilton and Kim 1993: 113; Rubio 1993: 37–39, 42–43, 47–48; Kuide et al. 1994: 124–126; Nonneman 1996b: 309; Bensabat Kleinberg and Clark 2000: 287–289; Clark and Bensabat Kleinberg 2000: 2–4; Bustos 2003: 2). Less “incentives” for rent-seeking, a lower “degree of control over economic policymaking and performance” leading to “social instability,” and pressure from society might then gradually “unravel elite cohesiveness” and could finally lead to democratization (Q. Li and Reuveny 2003: 33; Rudra 2005: 705, 708–711).97 A second group of authors challenge this view by emphasizing that the state still holds most levers of political power, despite the potentially undermining influence of economic liberalization. Empirically, in many countries the state and the regime have been able to control civil society and thus to keep it from evolving into a political opposition threatening their rule (Fierlbeck 1994: 152–153; Albrecht, Pawelka et al. 1998: 154, 156; Howell 1998: 69–72; Clark and Bensabat Kleinberg 2000: 4–5, 11–13; Clark 2000: 157–158, 166–176; King 2000: 201–202, 204, 212–213; Bustos 2003: 2). Apart from state action, structural factors (e.g. ethnic cleavages) could prevent the emergence of a politically demanding civil society as a result of economic liberalization (Nyang’oro 2000: 91–92, 105–106). Besides, economic liberalization might ultimately support the state’s political survival through “social atomization,” preventing “collective action” and leading to “political quiescence” (although with the side effect of “undermining” the “legitimacy” of the political system) (Kurtz 2004: 263–265). Other authors doubt the decisive influence of economic liberalization on the evolution of a civil society, emphasizing instead that 96

Pollack (2004: 27–30) defines “civil society” as the “collectivity of public associations, societies, movements, and unions, in which citizens assemble voluntarily.” These assemblies do not necessarily have to be formally organized. Politically, economically and socially, civil society is distinct from the “state,” the “market,” and the “family.” Thus, actors of civil society are characterized by autonomy from state power, by renunciation of private pursuit of profit, and by the publicity of their actions. 97 In the theoretical models underlying their studies, both Q. Li and Reuveny (2003: 41) and Rudra (2005: 704, 712) define “globalization” as their independent variable, while the “level of democracy” is the dependent variable. However, it its obvious that the manifestations of globalization (increased “international trade, FDI, [and] portfolio investments”) are a direct result of policies of economic liberalization, above all of trade liberalization and of the liberalization of foreign investment.

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“economic development,” which “[produces] increasing levels of education and income and [spurs] the growth of an educated middle class,” is a more important factor (as modernization theory argues) (Jones 2000: 26). As for the bourgeoisie, one hypothesis states that this social class, having been strengthened economically and politically by economic liberalization,98 becomes a pro-democracy actor out of self-interest (assumption: more democratic domestic institutions would benefit business). Ultimately, the theory expects economic liberalization to correlate with a growing and politically active bourgeoisie that tries to curb the influence of an authoritarian regime while pushing for full democratization (Rogowski 1989: 3–10; Bustos 2003: 1). Empirical observations in some countries in fact seem to lend support to the theory, for example in Mexico in the early 1980s, South Korea in the mid-1980s, and Brazil and Thailand in the late 1980s (Robison 1988: 57; N. Hamilton and Kim 1993: 124–125; Bellin 2000: 177–178). However, several authors doubt these dynamics. They point to empirical observations in many countries, where the bourgeoisie stayed politically passive or sided with incumbent authoritarian regimes when facing economic liberalization (Fierlbeck 1994: 162; J. Moran 1996: 472–480, 483–485; Hinnebusch 2006: 379, 384– 385; Ben Romdhane 2011: 98–100). In some cases, foreign investors contributed to this passive or antidemocratic stance of the domestic business community (Armijo 1999: 34–38; Winters 1999: 244–246). The literature offers two preponderant explanations for these outcomes: First, the bourgeoisie might have been too weak politically, even after economic liberalization, to constitute a counterweight to incumbent authoritarian regimes. One reason could be the internal division of the class, for example into protectionist and free trade supporting groups or along ethnic lines (as in Africa) (Robison 1988: 66–67, 70–71, 73–74; Rogowski 1989: 4–10; Bates 1994: 21; P. Moore 2000: 180–182, 197; Rudra 2005: 709). Second, the most powerful segments of the bourgeoisie might have been coopted by the regimes, with the prospect of economic benefit (e.g. through commitment to business-friendly policies, “crony capitalism,” etc.), either as clients or through personal incorporation into the regime (e.g. by assuming influential political positions). The resulting dependency on the regime and the congruence of interests has kept the bourgeoisie in most countries from challenging “the status quo” (Bates 1994: 19–20; J. Moran 1996: 472–480, 483–485; Albrecht, Pawelka, et al. 1998: 155; Ogachi 1999: 84; Bellin 2000: 178–183; Bensabat Kleinberg 2000: 225–229; Dodge 2002: 170, 184,

98

Several authors have argued that the political weight and influence of the bourgeoisie increase with economic liberalization (Nelson 1994: 60–61; Haggard and Maxfield 1996: 37, 41).

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186–187; Yang 2002: 19; Hinnebusch 2006: 379, 384–385; Erdle 2010: 193–194, 220–222; Ben Romdhane 2011: 98–100). As for the middle class, a first hypothesis assumes economic liberalization to foster the growth of this class, and thereby to contribute to the political strengthening of civil society, which finally pushes for democratization. This theoretical proposition thus regards the evolution of a middle class as a necessary factor for the emergence of “an autonomous civil society” (specifying the “civil society weakens an authoritarian state” hypothesis presented above) (Robison 1988: 57; Haggard and Kaufman 1992a: 341; Kuide et al. 1994: 124–126; Nonneman 1996b: 309; Kok-Wah Loh 2000: 73–80). Empirically, the theory has some merit, although the relative size of the middle class seems to be an important variable that determines if the potential effects can unfold (in the MENA region e.g. the middle class dit not reach a critical size) (Hinnebusch 2006: 379). Further to that, some authors doubt that economic liberalization is the main driver for the evolution of a middle class. Instead, they point to “economic development” as the fundamental factor of democratization (reverting to modernization theory) (Ruhl 1996: 10; Jones 2000: 26; Q. Li and Reuveny 2003: 32–33).99 A second hypothesis regarding the link between economic liberalization, the middle class, and systemic political outcomes is that not in all cases can we expect a middle class strengthened by economic liberalization to act in support of democracy. As the cases of South American countries during the 1960s–1980s or Indonesia until the 1990s show, a middle class strengthened by economic liberalization might nevertheless prefer an existing authoritarian regime to the uncertainties of democratization and to an unknown future democratic regime (O’Donnell 1973; Robison 1988: 57; Fierlbeck 1994: 160; Jones 2000: 26; Neubert 2014: 25; Ouaissa 2014: 14). Regarding the working class, one group of authors hypothesizes that economic liberalization confers economic benefits to this class, which then, politically strengthened, pushes for democratization. According to Rogowski (1989: 3–10), this could happen through trade liberalization, when labor is an abundant factor of production in the economy.100 A main channel through which the working class could 99

One of the main proponents of modernization theory, Lipset (1959: 83–86), does, however, not deal with democratization. Instead he proposes that increasing “wealth” of a population fosters the growth of a middle class and of a civil society, which he both deems conducive for the endurance of existing democratic systems. 100 But, as Hinnebusch (2006: 379) remarks, the working class has to reach a critical size for these effects to unfold. Thus, even if labor is an abundant factor of production (as e.g. in the MENA region), economic liberalization does not automatically spawn a larger and politically conscious working class.

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benefit from economic liberalization is the growth of the manufacturing sector. Due to geographical proximity of manufacturing plants in industrial agglomerations, the sector offers good conditions for the political organization (unionization) of labor. In countries such as South Korea and Mexico, where economic liberalization was accompanied by the growth of the manufacturing sector, the labor movement gained in strength (supported by the development of labor shortages, which became visible in rising wages) and soon placed political demands on the regime (N. Hamilton and Kim 1993: 131; Rubio 1993: 40–41; Jones 2000: 26–27, 33–42). Contrary to the bourgeoisie and the middle class, the working class is generally regarded as a democratizing actor in the literature. A second hypothesis thus states that economic liberalization harms the working class, and thereby impedes democratization or weakens an existing democracy. Possible transmission channels for this outcome could be the decline of labor-intensive industries in import-competing sectors, the abolition of labor rights and the “flexibilization” of labor laws in the course of economic reform, or the “demobilization” and “atomization” of workers due to economic liberalization (Rudra 2002: 413, 435–436; Kurtz 2004: 271–274; Arce and Bellinger Junior 2007: 98). Empirical support for this hypothesis can be found in Latin American countries, for example in Argentina and Venezuela during the 1980s–1990s (Patroni 2000: 252–259; Di John 2005: 113). Finally, it is important to note that there still is the problem of reverse causality. Thus, economic liberalization could be a result of political liberalization and not vice versa (Richards 1993; Nonneman 1996b: 310–311; Rode and Gwartney 2012). Another possibility is that the variable relation is not unidirectional, if both phenomena unfold in a mutually reinforcing process (Pool 1993: 40–41). These arguments are part of a larger debate on the political and economic factors (independent variables) influencing the course of economic stabilization and structural adjustment (dependent variable) (Lal 1987; Haggard and Kaufman 1992c; Bates and Krueger 1993; Nonneman 1996c: 39–42; Pitlik 2008).

3.2.5

Summary: Economic; International; Socioeconomic; and Political Effects of Economic Liberalization

In this chapter, I carved out the economic, international, socioeconomic, and political effects of economic liberalization on a theoretical level. These theoretical effects are numerous, complex, and often ambiguous. To enhance clarity, I focused in each type of effects on several (measurable) variables and empirical phenomena. Following on, I am going to summarize the main points of the reviewed literature. Due to the

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multitude of studies and their complexity, the summary must necessarily remain eclectic and subjective. Ultimately, the main points of the literature summary, which I carve out below, can be expressed in 71 hypotheses. These hypotheses (H26–H96) describe and delineate the field dealing with effects of economic liberalization. Together the hypotheses constitute the state of the art in this field, as I perceive it. They thus complement the literature summary, but in order to improve readability I present them in the appendix-chapter 8 (see tables 8.2–8.9). Summary of economic effects Economic effects of economic liberalization become visible in the state budget, in the international accounts, and in economic growth. Table 3.1 gives an overview of theoretically assumed economic effects of economic liberalization, summarizing the literature presented in this subchapter. It classifies the different policies of economic liberalization according to their presumed short-term and long-term effects on the state budget, on the international accounts, and on economic growth. The policies themselves are subdivided into demand-side (DS) policies and supply-side (SS) policies. In the empirical part of this study, I test only those hypotheses against the empirical material, where the literature is not torn between opposing positions. These are the cases where the literature assumes the effects of an economic-liberalization policy to be either “mostly positive” or “mostly negative” (meaning that a large majority of authors expresses this opinion). I thus exclude the cases where the literature is characterized by a multitude of opinions, meaning effects have to be classified as “ambiguous” (which become visible in rival hypotheses). Applying this filter, the following number of hypotheses are relevant: Eight hypotheses (H26–H33) for the effects of economic liberalization on the state budget, 12 hypotheses (H34– H45) for the effects of economic liberalization on the international accounts, and 14 hypotheses (H46–H59) for the effects of economic liberalization on economic growth. I present these hypotheses in the appendix-chapter 8 (see tables 8.2–8.4). Summary of international effects In the case of international effects of economic liberalization, I confine the analysis to international political effects with possible economic consequences.101 In particular, I focus on the actions of international creditors (principals), who monitor the actions (meaning the performance regarding economic stabilization and eco101

I have already dealt with international economic effects of economic liberalization in section 3.2.1.

Long-term (5+ years)

International accounts Short-term (0–5 years)

Long-term (5+ years)

State budget Short-term (0–5 years)

Presumed effects for developing countries

DS: Trade liberalization (export side), consumer-price liberalization, liberalization of interest rates; SS: Producer-price liberalization, investment liberalization (FDI), privatization DS: Trade liberalization (export side), consumer-price liberalization, liberalization of interest rates, exchange-rate liberalization; SS: Producer-price liberalization

DS: Consumer-price liberalization; SS: Producer-price liberalization, investment liberalization (domestic private)

DS: Consumer-price liberalization; SS: Producer-price liberalization, investment liberalization (domestic private, FDI)

Mostly positive

DS: Trade liberalization (import side)

DS: Trade liberalization, exchange-rate liberalization

Mostly negative

(Continued)

DS: Trade liberalization (import side), liberalization of international payments; SS: Investment liberalization (FDI)

DS: Liberalization of international payments, exchange-rate liberalization

DS: Trade liberalization, liberalization of interest rates, exchange-rate liberalization; SS: Investment liberalization (FDI), privatization

DS: Liberalization of interest rates; SS: Privatization

Ambiguous

Table 3.1 Theoretical effects of economic liberalization on the state budget, on the international accounts, and on economic growth

168 3 Theory and State of the Art

Long-term (5+ years)

Economic growth Short-term (0–5 years)

Presumed effects for developing countries

Table 3.1 (Continued)

DS: Trade liberalization, consumer-price liberalization, liberalization of interest rates; SS: Producer-price liberalization, investment liberalization (domestic private, FDI, foreign portfolio), privatization

DS: Consumer-price liberalization; SS: Investment liberalization (domestic private), privatization

Mostly positive

DS: Trade liberalization, liberalization of interest rates, exchange-rate liberalization DS: Exchange-rate liberalization

Mostly negative

DS: Liberalization of international payments

DS: Liberalization of international payments; SS: Investment liberalization (FDI)

Ambiguous

3.2 Effects of Economic Liberalization 169

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nomic liberalization) of debtors (agents). Reviewing the literature summary yields one hypothesis (H60). I present this hypothesis in the appendix-chapter 8 (see table 8.5). As elaborated in section 3.2.2, further lending, debt rescheduling, and debt cancellation affect the state budget, the international accounts, and economic growth. Implying an additional influx of foreign currency (through new foreign loans) or a slowdown of its outflow (due to a rescheduling or decrease in principal and interest payments on foreign debt), these benevolent actions of international creditors finance higher current-account deficits (which are often due to trade deficits), while they enable a government to run a higher level of foreign debt. These are nonhypothetical effects. At the same time, additional foreign-exchange loans, debt rescheduling, and debt cancellation should ameliorate a state’s budget position in the short run (while additional lending deteriorates the budget in the long run due to additional principal and interest payments). After all, the possibility to run higher current-account deficits, the possibility to gear a higher level of foreign debt, and the short-term amelioration of the state budget enlarge the investment and consumption possibilities of an economy. These effects, once again, are nonhypothetical. As the state and private persons can spend and invest more, economic growth can potentially rise, while socioeconomic development might be ameliorated as well. Summary of socioeconomic effects In the case of socioeconomic effects of economic liberalization, I distinguished between the macro level and the meso level. On the macro level, I focused on the income dimension of socioeconomic development (measured by average income per capita (GDP per capita), real household income (proxied by wage levels, employment / unemployment, inflation, and remittances), poverty, and income inequality). On the meso level, I strove to carve out how policies of economic liberalization affect different social classes within the national society. Table 3.2 first gives an overview of theoretically assumed socioeconomic effects of economic liberalization on the macro level, summarizing the literature presented in this subchapter. It classifies the different policies of economic liberalization according to their presumed short-term and long-term effects on the income dimension of socioeconomic development. Due to the size of the literature, the selectivity of the reviewed sources, as well as my subjective structuring and assessment of the state of the art, this classification necessarily remains arbitrary. Once again, I test only those hypotheses against the empirical material, where the literature is not torn between opposing positions. These are the cases where the literature assumes the effects of an economic liberalization policy to be either “mostly positive” or “mostly negative” (meaning that a large majority of authors

Long-term (5+ years)

Socioeconomic development (income dimension) Short-term (0–5 years)

Presumed effects for developing countries

SS: Investment liberalization (domestic private), privatization

SS: Investment liberalization (domestic private)

Mostly positive

DS: Consumer-price liberalization, liberalization of interest rates, exchange-rate liberalization; SS: Privatization

Mostly negative

DS: Trade liberalization, liberalization of international payments; SS: Producer-price liberalization, investment liberalization (FDI) DS: Trade liberalization, consumer-price liberalization, liberalization of interest rates, liberalization of international payments, exchange-rate liberalization; SS: Producer-price liberalization, investment liberalization (FDI)

Ambiguous

Table 3.2 Theoretical effects of economic liberalization on the income dimension of socioeconomic development

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expresses this opinion). I thus exclude the cases where the literature is characterized by a multitude of opinions, meaning effects have to be classified as “ambiguous” (which become visible in rival hypotheses). Applying this filter, seven hypotheses (H61–H67) are relevant. They describe the effects of economic liberalization on the income dimension of socioeconomic development. I present these hypotheses in the appendix-chapter 8 (see table 8.6). The macro level effects of economic liberalization on socioeconomic development are transmitted to the meso level of social classes. Reviewing the literature summary yields 19 hypotheses (H68–H86) for the effects of economic liberalization on social classes. I subdivide them into hypotheses focusing on economic liberalization in general (H68–H71) and hypotheses focusing on specific policies of economic liberalization (H72–H86). Due to the selectivity of the reviewed sources as well as my subjective structuring and assessment of the state of the art, the choice and classification of hypotheses necessarily remains arbitrary. I present these hypotheses in the appendix-chapter 8 (see tables 8.7 and 8.8). Summary of political effects In the case of political effects of economic liberalization, the literature focuses on the socio-political channel working through social classes to systemic political outcomes. Three social classes are regarded as the main political actors: the bourgeoisie; the middle class; and the working class. In addition, the state is an important actor in the game. Classes politically interact and forge coalitions, which often spawns a civil society in a space between the state, social classes, and the market. A large part of the literature belongs to democratization studies and thus has an inherent theoretical bias. Nevertheless, blocked democratization is systemically equal to the stability of authoritarianism (see section 3.1). Thus, democratization studies are still useful for the purposes of this study. There is a certain overlap with the studies on social factors responsible for the stability of authoritarianism presented in section 3.1.3. However, the studies analyzed in this section 3.2.4 explicitly add economic liberalization as a variable. A review of the literature summary yields ten hypotheses (H87–H96) on the political effects of economic liberalization. I present these hypotheses in the appendix-chapter 8 (see table 8.9).

4

Theoretical Model and Hypotheses

Having discussed the state of the art in the two scientific fields relevant for the research question of this study, that is the stability of authoritarian regimes and the effects of economic liberalization, I now elaborate the theoretical model, on which I base my investigation. Moreover, I specify the hypotheses to be tested in the empirical part of this study. The chapter starts with the theoretical model, whose purpose it is to depict the research question and the main hypothesis in theoretically definable variables and variable relations. In addition, I briefly discuss the basic actor theorem underlying the theoretical model. In the second part of the chapter, I specify the hypotheses to be tested analytically in chapter 6. Until now, the two scientific fields (i.e. the stability of authoritarian regimes and economic liberalization) have not or seldomly been linked theoretically—a problem for this study, as the research question demands exactly that. I therefore evaluated the literature survey of chapter 3 to find common ground and linkages between the two fields. My aim was to generate new theoretical propositions that bridge the divide. The 12 “integrated hypotheses” presented here are the product of this endeavor. They represent theoretical innovation, directly linking economic liberalization with the stability of an authoritarian regime, and thereby integrating together the two previously separate theoretical fields.

4.1

Theoretical Model

The theoretical model underlying the main hypothesis is relatively simple and contains only three variables: The independent variable (IV) is “economic liberalization.” It can have an impact on the dependent variable (DV) “regime stability” through the transmission channels of “economic stabilization” and “political stabilization.” The transmission channels themselves are modified by the impact of © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_4

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the variable “regime policies.” All terms used here as well as the variables have been theoretically defined in chapter 2. The main hypothesis of this work, which is reflected in the theoretical model, is that economic liberalization contributed to the stability of authoritarian regimes in the four MENA countries under examination (Egypt, Tunisia, Jordan, and Morocco), from their political independence during the 1950s up to the Arab Spring in 2011, through the transmission channels of economic and political stabilization. Thus, we are concerned in this study with one specific manifestation of the DV, that is the stability of an authoritarian regime. Figure 4.1 depicts the variables of the theoretical model and their relations: Figure 4.1 The theoretical model

Economic stabilizaon Transmission channels

Polical stabilizaon

Regime stability (DV)

Economic liberalization (IV)

Regime policies

Regime policies

The basic actor theorem underlying the theoretical model and the main hypothesis assumes actors are rational decision makers. The regime, as the pivotal (collective) actor of the model, approaches rational decision making according to its overarching (“axiomatic”) goal of regime survival. These assumptions are backed by numerous authors (Weber 1978 [1922]: 952; Haggard and Kaufman 1992b: 21; Dodge 2002: 170; Hibou and Tozy 2002: 108; Bueno de Mesquita et al. 2003: 9, 15–16; Albrecht and Schlumberger 2004: 372–373; Schlumberger 2004: 111; Magaloni 2008: 717; Schedler 2009: 326, 329; Albrecht and Frankenberger 2010: 54; Soliman 2011 [2006]: 55).1 1

Although Geddes (1999: 125) reminds us that the will for political survival cannot be assumed for all types of authoritarian regimes. Military rulers, for example, often do not want to remain in power, possibly together with other key members of the regime.

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Accepting these assumptions means that one can interpret empirically observable regime policies (or at least their long-term pattern) as serving the goal of regime survival. However, as pointed out by several authors, regime policies are often not intentionally designed, and they rather emerge over time as a path-dependent phenomenon shaped by a multitude of actors (Hibou 2011 [2006]: 69–70, 156–158, 273). Further to that, decision making by actors might not be rational in all cases due to imperfect information. If we nevertheless accept these assumptions despite their weaknesses, we can conceive of regime stability (DV) as the outcome of a struggle between the regime (which, as a conglomerate of actors, wants to stay in power) and its opposition (loosely defined as the totality of formal and informal, organized and nonorganized actors who prefer the downfall of an incumbent regime to its continuity). As discussed in section 2.4, this struggle keeps the regime in a state of constant flux. Only when the regime fundamentally changes its character does a transition between the regime types authoritarianism and democracy or vice versa occur. Figure 4.2 depicts the actor model and shows the embeddedness of the struggle between the regime and its opposition as well as the role played by economic liberalization:

IA IA/ DA

IA/ DA

Opposition

Regime IA/ DA IA/ DA

DA

DA

Economic liberalization IA

Figure 4.2 The actor model

International environment / structures

DA

Domestic environment / structures

DA

IA

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The struggle between the regime and its opposition is embedded in a domestic environment/in domestic structures that contain other domestic actors (DA). The domestic environment itself is embedded in an international environment/in international structures that contain international actors (IA). Some of them operate both in an international environment and in a domestic environment (IA/DA). Economic liberalization as a structural variable is located at the border of the domestic environment and the international environment, as it is shaped by both. It is in reciprocal relationships with domestic actors and international actors, being influenced by them but also influencing them and/or making them its agents. It also impacts on the relationship and interaction between the regime and its opposition. Besides, it is shaped by both domestic structures and international structures, and in turn it also shapes these structures.

4.2

Hypotheses on Economic Liberalization and the Stability of Authoritarian Regimes

As outlined in the introductory chapter, the main hypothesis of this study is that economic liberalization contributed to the stability of authoritarian regimes in the four MENA countries under examination, from their political independence during the 1950s up to the Arab Spring in 2011, through the transmission channels of economic and political stabilization. I am now going to dissect the main hypothesis into 12 finer-grained hypotheses (“integrated hypotheses”) that will be tested analytically against the empirical material in chapter 6. These “integrated hypotheses” (IH1–IH6-D) are the product of the extensive literature survey and analysis in chapter 3. They represent theoretical innovation, directly linking economic liberalization (the IV of the theoretical model) with regime stability (the DV of the theoretical model) for the case of an authoritarian regime, and thereby integrating together the two previously separate scientific fields. To construct an “integrated hypothesis”, I combined two or several of the hypotheses derived from the literature survey. These hypotheses describe and delineate the two scientific fields—that is the stability of authoritarian regimes and the effects of economic liberalization. In their totality, the hypotheses thus constitute the state of the art in these two fields, as I perceive it. For reasons of readability, they are shown in the appendix-chapter 8 (see tables 8.1–8.9). Technically, an “integrated hypothesis” is constructed by integrating together one of the 25 hypotheses (H1– H25) on factors potentially responsible for the stability of authoritarian regimes and one or several of the 71 hypotheses (H26–H96) on the effects of economic liberalization. Tables 4.1 and 4.2 below indicate the respective hypothesis combinations in their second column.

4.2 Hypotheses on Economic Liberalization and the Stability …

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4.2.1 “Integrated Hypotheses” on the Link between Economic Liberalization and the Stability of Authoritarian Regimes via Economic Stabilization I devise three “integrated hypotheses” (IH1–IH3) that speculate on the link between economic liberalization and the stability of authoritarian regimes via economic stabilization. These “integrated hypotheses” integrate together one of the 25 hypotheses (H1–H25) on factors potentially responsible for the stability of authoritarian regimes and one or several of the 71 hypotheses (H26–H96) on the effects of economic liberalization (see tables 8.1–8.9 in the appendix-chapter 8). The “integrated hypotheses” IH1 and IH2 are especially interesting, as they contradict the earlier assumption that less poverty and lower economic inequality increase the stability of an authoritarian regime (second channel of economic stabilization) (see section 2.4). The three “integrated hypotheses" IH1–IH3 are shown in table 4.1.

4.2.2 “Integrated Hypotheses” on the Link between Economic Liberalization and the Stability of Authoritarian Regimes via Political Stabilization I devise nine “integrated hypotheses” (IH4-A–IH6-D) that speculate on the link between economic liberalization and the stability of authoritarian regimes via political stabilization. These “integrated hypotheses” integrate together one of the 25 hypotheses (H1–H25) on factors potentially responsible for the stability of authoritarian regimes and one or several of the 71 hypotheses (H26–H96) on the effects of economic liberalization (see tables 8.1–8.9 in the appendix-chapter 8). The nine “integrated hypotheses” IH4-A–IH6-D are shown in table 4.2.

H15,2 H62, H64, H65 SZN - Economic

H24, H60

IH2

IH3

Integrated hypothesis

Developing countries Economic liberalization aggravates economic underdevelopment by increasing poverty among the population of a country, and thereby increases the stability of an authoritarian regime. Developing countries Economic liberalization increases economic inequality among the population of a country, and thereby increases the stability of an authoritarian regime. Global The implementation of economic liberalization by a debtor as part of a loan-conditionality agreement increases financial contributions of international creditors/donors, and thereby increases the stability of an authoritarian regime.

Geographic scope

2 As the focus in this study is on resource-poor MENA countries that belong to the group of developing countries, I only use hypothesis H15 in that variant which makes predictions on authoritarian regimes facing high economic inequality among its populations.

SZN - Economic

H12, H62, H63, H64, SZN - Economic H71, H79

IH1

Transmission channel - Type of stabilization (SZN)

Integrates hypotheses No.

Integrated hypothesis No.

Table 4.1 “Integrated hypotheses” on the link between economic liberalization and the stability of authoritarian regimes via economic stabilization

178 4 Theoretical Model and Hypotheses

Integrates hypotheses No.

H13, H72, H76, H78, H82

H13, H72, H76, H78, H82, H91

H13, H68, H75, H77, H81, H83, H84, H86, H91

H13, H68, H75, H77, H81, H83, H84, H86

Integrated hypothesis No.

IH4-A

IH4-B

IH4-C

IH4-D

SZN - Political

SZN - Political

SZN - Political

SZN - Political

Global

Global

Global

Global

Transmission channel - Geographic scope Type of stabilization (SZN)

(Continued)

Economic liberalization brings economic gains to the bourgeoisie, increasing its size but decreasing its political strength, and thereby increases the stability of an authoritarian regime.

Economic liberalization brings economic gains to the bourgeoisie, increasing its size and political strength, and thereby reduces the stability of an authoritarian regime.

Economic liberalization inflicts economic losses upon the bourgeoisie, decreasing its size but increasing its political strength, and thereby reduces the stability of an authoritarian regime.

Economic liberalization inflicts economic losses upon the bourgeoisie, decreasing its size and political strength, and thereby increases the stability of an authoritarian regime.

Integrated hypothesis

Table 4.2 “Integrated hypotheses” on the link between economic liberalization and the stability of authoritarian regimes via political stabilization

4.2 Hypotheses on Economic Liberalization and the Stability … 179

H14, H62, H63, H64, SZN - Political H65, H70, H71, H73, H76, H78, H79, H96

H14, H62, H63, H64, SZN - Political H65, H70, H71, H73, H76, H78, H79, H95

H14, H61, H66, H67, SZN - Political H74, H75, H77, H83, H85, H95

H14, H61, H66, H67, SZN - Political H74, H75, H77, H83, H85, H96

IH6-A

IH6-B

IH6-C

IH6-D

SZN - Political

H18, H92

IH5

Transmission channel - Type of stabilization (SZN)

Integrates hypotheses No.

Integrated hypothesis No.

Table 4.2 (Continued)

Global

Global

Global

Global

MENA

Geographic scope

Economic liberalization brings economic gains to the working class, increasing its size but decreasing its political strength, and thereby increases the stability of an authoritarian regime.

Economic liberalization brings economic gains to the working class, increasing its size and political strength, and thereby reduces the stability of an authoritarian regime.

Economic liberalization inflicts economic losses upon the working class, decreasing its size but increasing its political strength, and thereby reduces the stability of an authoritarian regime.

Economic liberalization inflicts economic losses upon the working class, decreasing its size and political strength, and thereby increases the stability of an authoritarian regime.

Despite its growth and political strengthening through economic liberalization, the bourgeoisie does not push for democratization, due to internal cleavages and due to cooptation and repression by the state and the regime (which makes the bourgeoisie politically weaker and thus increases the stability of an authoritarian regime).

Integrated hypothesis

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5

Epistemology, Methodology, Methods

In this chapter, I first comment briefly on the epistemology and methodology that underlie the investigation, and that also guide the choice of methods. Following on, I describe the methods used in this study, while justifying my choice. The main method used is the comparative case study, both in a descriptive and in an analytical variant (“comparative-historical method”). As a prerequisite for the case selection, which is the first step of the comparative case study, I operationalize the variables of the theoretical model. I then expound my informational sources. Finally, I describe the procedure followed in the empirical analysis of chapter 6. Specifically, I explain how I apply the method of the comparative case study.

5.1

Epistemology and Methodology

According to Crotty (1998: 2–3), there are four “basic [interrelated; C.N.] elements of any research process” (categorization in descending order) (see also: Della Porta and Keating 2008: 21–32): 1. “Epistemology: the theory of knowledge embedded in the theoretical perspective and thereby in the methodology.”1 ,2 1

The three basic epistemologies are: “Objectivism; constructionism; [and; C.N.] subjectivism (and their variants)” (Crotty 1998: 5). 2 On the same level as the epistemology would be the ontology underlying a scientific study: According to Crotty (1998: 10–12), “ontology is the study of being. It is concerned with “what is,” with the nature of existence, with the structure of reality as such.” In the given framework, “it would sit alongside epistemology informing the theoretical perspective, for each theoretical perspective embodies a certain way of understanding what is (ontology) as well as a certain way of understanding what it means to know (epistemology).” © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_5

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2. “Theoretical perspective: the philosophical stance informing the methodology and thus providing a context for the process and grounding its logic and criteria.”3 3. “Methodology: the strategy, plan of action, process or design lying behind the choice and use of particular methods and linking the choice and use of methods to the desired outcomes.”4 4. “Methods: the techniques or procedures used to gather and analyze data related to some research question or hypothesis.”5 Every scientific study is characterized by a combination of specifications of these four elements. Some studies use more than one combination due to triangulation, most commonly on the level of methods and less frequently on the level of methodology (Crotty 1998: 12–14; Della Porta and Keating 2008: 34). My study, which deals with social phenomena in the political and economic realm, starts off from a constructionist epistemology. Phenomena such as “economic liberalization” and “authoritarian regimes” have no meaning “apart from the operation of a consciousness.” Their meaning is a construction of human minds, and it may therefore differ across individuals or groups of individuals (Crotty 1998: 8–9). Nevertheless, the theoretical perspective of this study is mostly positivist. “Positivism” states that “what is posited or given […] is what is observed” with the human senses, that is through “direct experience” (Crotty 1998: 19–20). Thus “the researcher can be separated from the object of his / her research and therefore observe it in a neutral way and without affecting the observed object” (Della Porta and Keating 2008: 23). By building a theoretical model consisting of clearly defined variables, for which falsifiable hypotheses are formulated, I assume the subjective meaning of variables and variable relations does not vary among individuals (see also: Della Porta and Keating 2008: 26–30). Thus, meaning in the positivist theoretical perspective takes on an objective character—an assumption contradictory to

3

A nonexhaustive list of “theoretical perspectives” includes: “Positivism (and postpositivism); interpretivism (including symbolic interactionism, phenomenology, and hermeneutics); critical inquiry; feminism; postmodernism; etc.” (Crotty 1998: 5). 4 A nonexhaustive list of methodologies includes: “experimental research; survey research; ethnography; phenomenological research; grounded theory; heuristic inquiry; action research; discourse analysis; feminist standpoint research; etc.” (Crotty 1998: 5). 5 Scientific methods are manifold. A nonexhaustive list would include: “sampling; measurement and scaling; questionnaire; participant and non-participant observation; interview; focus group; case study; life history; narrative; visual-ethnographic methods; statistical analysis; data reduction; theme identification; comparative analysis; cognitive mapping; interpretative methods; document analysis; content analysis; conversation analysis; etc.” (Crotty 1998: 5).

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the constructionist epistemology taken on in this study, which signifies one weakness of my argument. As for the methodology, this study is mostly situated within experimental research, because cases are selected from a sample according to the characteristic of specific variables (quasi-experimental setup). A set of hypotheses is then tested against the empirical observations made for each case. On the level of methods, I was not able to triangulate due to temporal and financial constraints. Ultimately, the sole method I use is the comparative case study, both in a descriptive and in an analytical variant (see section 5.2). Although the chosen combination of theoretical perspective, methodology, and method suggests that in the end causal paths, possibly with the potential to contribute to universal laws, might be identified, this is not the case. As Popper (2005 [1934]: 3–25) has shown, inductive reasoning cannot be the basis for universal laws. Even on the level of only one case, intracase analysis cannot carve out undisputed causal paths. Humphreys (1989: 7–9) points out that “causal knowledge” is always “incomplete” due to “the multiplicity of causes.” “In situations of multiple causation, […] the same outcome can be caused by combinations of different independent variables.” Therefore, researchers suggest the use of “probabilistic causation” instead of “traditional” / “deterministic” causation (Humphreys 1989: 27–28; Lieberson 1992: 106–107; King et al. 1994: 87–89). However, due to a lack of rigid “process tracing” in the case analysis, the conclusions of this study still remain tentative and should provide ideas for further research rather than constitute findings on probable causal relations (see also: Vennesson 2008: 231–239).

5.2

Methods

5.2.1

Justification and Description of the Methods

The number of available scientific methods for dealing with research questions in general is large. Methods can be situated along a “continuum,” ranging from the ideal type of a purely qualitative method to the ideal type of a purely quantitative method. That means most methods combine qualitative and quantitative aspects Crotty 1998: 2–7, 14–17; McQueen and Knussen 2002: 4–15, 27–29, 34–40; Creswell 2014: 3–4, 17–21).6 According to McQueen and Knussen (2002: 27–34) and Creswell 6

To show the variety of scientific methods, Crotty (1998: 5) draws up an eclectic and nonexhaustive list of 20 different methods. For Creswell (2014: 3–5), the dichotomy between “qualitative” and “quantitative” and the positioning on a “continuum” applies to “research approaches” instead of “methods.” Research approaches are “the plan or proposal to conduct research, [involving] the intersection of philosophy, research designs, and specific methods.”

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(2014: 16–21), there are five main criteria for the selection of a method, under the condition that it should be scientifically appropriate for dealing with a specific research question: Scope of the research question; nature, availability, and quality of the information or data; number of observations; prior experience of the researcher; and miscellaneous constraints. The scope of the research question refers to two aspects: First, how much previous work has been done by other researchers? In particular, how large and well-established is the body of theory? This determines the possibility for deductive derivation of hypotheses versus the necessity of inductive theory building. Second, does the research question ask for generalizations over many cases, or does it ask for the particularities of a specific case? The more previous work and established theory exists, the easier it is to deductively derive hypotheses. These hypotheses can then be tested at either a large-N dataset containing many cases (with the help of statistics) or at a small-N setup with few cases. If there is only limited previous work, while theory is not yet well-established, inductive theory building might be the only way forward. For this purpose, single-case or comparative case studies are most appropriate (McQueen and Knussen 2002: 29–30; Creswell 2014: 20). The nature, availability, and quality of the information or data refers, first of all, to the question whether the information or data on the phenomenon of interest is quantifiable (i.e. whether it can be numerically measured), or whether it can only be verbally described. Second, the choice of method depends on the effective availability of information or data. Third, the question is which quality available data has. This refers both to the appropriateness of empirical operationalizations for the given theoretically described phenomenon and to the methodology of sampling, data collection, and data evaluation. Besides, the question arises whether the institutions or people who gathered the information or data are trustworthy in their recording. Purely quantitative methods, such as large-N statistical methods, can only be applied if the phenomenon of interest can be operationalized in quantitative form, if the information or data are available and appropriately operationalized, and if the information or data were collected and treated in a scientifically sound way. Not purely quantitative methods (such as the case study) can be applied in all other cases, although a constraint is always the quality and trustworthiness of available information or data. If there are doubts in this respect, this precludes a scientific analysis (McQueen and Knussen 2002: 27–29, 83–85; Gerring 2007: 57–61). The number of observations (small-N versus large-N) is another crucial factor that determines the choice of method. Only if the sample size exceeds a certain threshold do inductive statistical methods (e.g. the linear regression) become feasible, as they assume a certain distribution of individual observations within a given population of cases (e.g. a normal distribution). The threshold sample size depends

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on the “level of variability in the population” and on the requirements for the validity of results, that is the “tolerated” “margin of error” and the “required” “level of confidence.” A rule of thumb is that the more observations are available (i.e. the larger the sample size), the higher is the probability to establish generalizable results (within the setup and constraints of the model assumed as a basis for the analysis). If the number of observations is relatively small, methods focusing on the description of the particularities of a specific phenomenon (manifest in a specific case or a small number of comparable cases) are more appropriate (McQueen and Knussen 2002: 30, 77–82; Gerring 2007: 33–34; Della Porta 2008: 209–210). As last points, the prior experience of the researcher, constraints of time and money, and the targeted “audience” determine the choice of method. The correct application of methods requires expert knowledge and practical experience, which is often a constraint that hinders researchers in selecting the most appropriate method for analyzing a given phenomenon of interest. The result is research (and often nevertheless published results) that uses unsuitable tools for the analysis. Further to that, the planning of research, the collection of information, and the evaluation of collected information is a timely and cost-intensive process, especially if the research question requires a broader setup of research (involving possibly research teams). Finally, “researchers write for [specific; C.N.] audiences” whose “experiences […] with quantitative, qualitative, or mixed methods studies can shape the decision made about the choice of design.” In many cases, these constraints might preclude the choice of a specific method, despite its appropriateness or the use of method triangulation (McQueen and Knussen 2002: 30–33; Creswell 2014: 20–21). The question finally is which methods to choose for the research question in this study. Both of the main variables, “economic liberalization” (IV) and “regime stability” (DV), are theoretical and empirical phenomena situated at the macro level and thus notoriously difficult to operationalize. Moreover, they are multifaceted phenomena, implying that a careful and scientifically sound operationalization should take into account different theoretical and empirical dimensions. This complexity makes quantitative operationalizations exceptionally difficult. Nevertheless, both the academic literature and nonacademic publications offer several quantitative operationalizations of the DV “regime stability,” mostly expressed as a change in democracy level of a regime based on a classification of polities along a continuum from totalitarianism to ideal democracy. The basis of these operationalizations are indices expressing polity characteristics, such as the Polity Score of the American NGO Center for Systemic Peace or the political-rights indices and civil-liberties indices of the American NGO Freedom House, which quantify the democratic content or democracy level of a polity (Freedom 2018; Center for Systemic Peace 2018b). However, it remains unclear for these operationalizations

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at which point a polity on the continuum changes its fundamental character from authoritarian to democratic (see the “gray zone” and stability problem described in sections 2.3 and 2.4). For the IV “economic liberalization” quantitative operationalizations are equally difficult to construct, with the difference that (to the knowledge of the author) no commonly available panel dataset measuring the level of economic liberalization in MENA countries over longer periods of time currently exists. A fundamental problem is that, contrary to the characteristics of polities (democracy versus authoritarianism), no comprehensive collection and evaluation of empirical information on economic liberalization has so far been undertaken, neither by individual researchers nor by academic or nonacademic institutions. Thus, the current availability of information or data on both main variables (regime stability and economic liberalization), which sum up to only a small N of observations, as well as the theoretical and empirical difficulties that complicate the analysis of these macro phenomena, suggest that methods carving out the particularistic details of cases, such as the case study, are more appropriate for dealing with the research question in this work (see also: Gerring 2007: 60). A second argument for the use of the case study method is the fact that until now there is relatively few research on the phenomenon of economic liberalization and its potential economic and political effects. The body of theory is still small, and different strands of theory are not clearly discernible. This makes deductive derivation of hypotheses difficult, whereas inductive theory building might be more fruitful. For this purpose, a single case study or the comparative method (comparison of several cases) are especially appropriate. Due to their potential to carve out detailed transmission channels on the meso or micro level, these methods could contribute to better theory building on the macro level. The highest possible validity of results could probably be achieved if method triangulation was applied (“mixed methods designs”). For example, after a statistical analysis of the correlation of quantitatively measured phenomena, the preliminary results could be checked with in-depth case studies. The comparison of results would then increase the validity of the final results (Kelle 2008: 260–262; Berg 2009: 5–8; Creswell 2014: 14–16). However, several interrelated constraints appear: As discussed above, the availability of quantitative data measuring the level of the IV “economic liberalization” is too slim to allow for a longitudinal statistical analysis of the phenomenon in MENA countries. To conduct a statistical analysis, one would be forced to collect data on economic liberalization oneself, in order to construct a quantitative index of economic liberalization measurable for several MENA countries at different points of time. This is a task overstretching the capacities of a single researcher, not only in terms of time and money but also in terms of expertise and proficiency.

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For all these reasons, I opt for the case study as the sole method to be employed in this study. According to Gerring (2007: 19), a “case connotes a spatially delimited phenomenon (a unit) observed at a single point in time or over some period of time. It comprises the type of phenomenon that an inference attempts to explain” (see also: Vennesson 2008: 226–227). In this study, the units of analysis are authoritarian regimes in the MENA region, which exist within the confines of nation-states. As a method, the case study “is most usefully defined as an intensive study of a single unit or a small number of units (the cases), for the purpose of understanding a larger class of similar units (a population of cases)” (Gerring 2007: 37). The most appropriate form of case study for our purposes seems to be the comparative case study, both in a descriptive and in an analytical variant. The analytical variant is called the “comparative-historical method” or “cross-national diachronic study,” where several cases are compared over time, while the “variation of interest is both synchronic and diachronic” (King et al. 1994: 34–35, 43–49; Gerring 2007: 27–28; Della Porta 2008: 218; Vennesson 2008: 227–228; see also: Berg 2009: 257–258, 328). Like the “experimental method” and the “statistical method,” the “comparative method” (including the comparative-historical variant) aims at establishing general, empirical relations between two variables and controlling them by keeping all other variables constant” (Della Porta 2008: 201–202). As a tool of analysis for the research question in this study, the comparative-historical method has several advantages:7 First, in contrast to large-N / “large cross-case N” studies, small-N / “small cross-case N” case studies do not assume “unit homogeneity across the sample and the population,” allowing for an analysis of the particularities of the investigated cases (Gerring 2007: 20–21, 30–31, 49–52). Second, it allows for both hypothesis testing (although in a less representative form than inductive statistical methods do for larger samples) and for hypothesis generation in a relatively flexible and exploratory setup. This is particularly useful for a subject such 7

According to Gerring (2007: 37–38), “the case study research design exhibits characteristic strengths and weaknesses relative to its large-N cross-case cousin,” which are not “invariant laws,” but which “represent methodological affinities.” “These trade-offs derive, first of all, from basic research goals such as (1.) whether the study is oriented towards hypothesis generating or hypothesis testing, (2.) whether internal or external validity is prioritized, (3.) whether insight into causal mechanisms or causal effects is more valuable, and (4.) whether the scope of the causal inference is deep or broad. These trade-offs also hinge on the shape of the empirical universe, that is, on (5.) whether the population of cases under study is heterogeneous or homogeneous, (6.) whether the causal relationship of interest is strong or weak, (7.) whether useful variation on key parameters within that population is rare or common, and (8.) whether available data is concentrated or dispersed. Along each of these dimensions, case study research has an affinity for the first factors and cross-case research has an affinity for the second.”

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as the link between economic liberalization and the stability of authoritarianism, for which existing research is still slim (Gerring 2007: 39–42; Vennesson 2008: 227). Third, it is especially appropriate for investigating possible “causal mechanisms” within the cases studied (as opposed to possible “causal effects” in large-N research designs) (Gerring 2007: 43–48). Fourth, it allows for the analysis of both quantitative and qualitative (nonnumerical) information, a necessary condition for the choice of method if (as in our case) quantitative material is rare or even nonexistent (see above). The range of materials that can be used in the analysis is broad: According to Gerring (2007: 10–11, 33, 68–69), “evidence [“data”] for a case study may be drawn from an existing dataset or set of texts or may be the product of original research by the investigator. Written sources may be primary or secondary. Evidence may be quantitative, qualitative, or a mixture of both—as when qualitative observations are coded numerically so as to create a quantitative variable. Evidence may be drawn from experiments, from “ethnographic” field research, from unstructured interviews, or from highly structured surveys” (see also: Vennesson 2008: 227; Berg 2009: 322–325; Yin 2009: 19, 101–114). After all, it remains an open question which cases to select for the comparative study from the whole population of cases. This will be done in section 5.2.3.

5.2.2

Operationalization of the Main Variables

The main variables of the theoretical model outlined in section 4.1 are “regime stability” (DV) and “economic liberalization” (IV). IV and DV are linked through the transmission channels of “economic stabilization” and “political stabilization.” All of the main variables and the transmission channels have been theoretically defined in chapter 2. I operationalize the DV “regime stability” in two ways: First, descriptively as the remaining of a regime within the same systemic category on the totalitarianismdemocracy continuum (see section 2.3). For an authoritarian regime, “stability” means that the regime remains in the authoritarian category, that is democratization does not occur. However, as mentioned before, the “gray zone” problem complicates operationalization. Second, I operationalize the DV quantitatively by the Polity2 Index as provided by the Polity IV Project (Center for Systemic Peace 2018b, 2018a). The Polity2 Index, which yields a “regime score” whose value “ranges from +10 (full democracy) to -10 (full autocracy),” is composed of two subindices,

5.2 Methods

189

DEMOC and AUTOC,8 which are themselves composite indices “[measuring] […] both institutionalized democracy and autocracy” (Center for Systemic Peace 2017). According to the Polity IV Project, a regime can be called a democracy if it has been attributed a value equal to or higher than six on the Polity2 Index (Center for Systemic Peace 2014). “Regime stability” in the case of an authoritarian regime thus means that the regime does not reach a value equal to or higher than six on the Polity2 Index, meaning it retains a nondemocratic “regime score.” As for the IV “economic liberalization,” I operationalize it descriptively by breaking it down into eight policies inductively derived from empirical observation: (1.) on the demand side of the economy: Trade liberalization (concerning tariffs, non-tariff barriers, quantitative restrictions, trade monopolies, etc.); consumer-price liberalization (mostly in the form of consumer subsidy cuts); liberalization of interest rates; liberalization of international payments; and the liberalization of the exchange rate. (2.) On the supply side of the economy: Producer-price liberalization; investment liberalization (both of domestic private and foreign investment); and privatization (see section 2.1). Due to a lack of quantitative data on economic liberalization, I am not able to use an alternative quantitative operationalization of the IV. As for the transmission channels between IV and DV, the difference between these two channels from a technical perspective is that economic stabilization is more precisely defined on a theoretical level than political stabilization, which facilitates its operationalization. All of the theoretical variables whose values determine economic stabilization are empirically measurable, which makes operationalization relatively easy: the balance of the state budget; the balance of the international accounts; economic growth; and socioeconomic development. In contrast, the definition of political stabilization is vague and does not lend itself to meaningful operationalization. I strove to remedy this problem by abandoning theorybased operationalization in favour of an inductive approach. Thus, I exploratively searched in academic and nonacademic literature on resource-poor MENA countries for empirically observable policies and phenomena in politics that took place during the examination period of this study (1950s–2011) and that a significant number of authors interpret as a reaction to economic reform. The selection of these observations is eclectic, meaning it is not theory-guided. Based on the theoretical model in section 4.1, I assume these policies and political processes detected in the empirical material served the overall goal of political stabilization and thereby 8

Both the DEMOC and the AUTOC index, whose values range from zero to ten, contain measures for “the competitiveness of executive recruitment,” for the “openness of executive recruitment,” for “constraints on the chief executive,” and for the “competitiveness of political participation.” The AUTOC index additionally contains measures for the “regulation of participation” (Center for Systemic Peace 2017).

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regime survival—although certainly no single actor (such as the artificial construct of a monolithic regime) steered the policies and processes behind the scenes. As for control variables, I assume many of them to be constant, due to the fact that the countries in the sample all belong to a particular geographic and cultural region (the MENA region). The control variable used to stratify the MENA sample is resource endowment, defined as total rent income of a country’s regime divided by population size (see section 2.5). I operationalize the numerator of the variable with the indicator “total natural-resources rents per capita” in current USD provided by the World Bank (2017). According to the World Bank (2017), “total naturalresources rents are the sum of oil rents, natural gas rents, coal rents (hard and soft), mineral rents, and forest rents.” Thus, the operationalization only takes into account one type of rent, that is rent from natural resources.

5.2.3

Case Selection

In this study, I start off with the empirical observation that the 16 countries in the MENA region ruled by authoritarian regimes right after their political independence (i.e. all MENA countries except Israel and Lebanon) did not change in terms of the fundamental character of their polities until the Arab Spring in 2011, meaning their regime type was stable (no democratization). If we measure the character of the polity quantitatively (despite the inaccuracy of this kind of operationalization) with the Polity2 Index of the Polity IV Project (see section 5.2.2) this corroborates the statement: 14 of the 16 MENA countries whose regimes I labelled “authoritarian”9 remained in the nondemocractic zone of the autocracy-democracy continuum during the given time period. The two deviant cases are Syria, which had a democratic period during 1954–1957, and Iraq, where democratization might have taken place since 2003. Table 5.1 shows the average and range as well as the temporal evolution of the Polity2 Index for each of the 18 countries within the total MENA sample from their political independence (or 1950 at the earliest) until 2010 right before the onset of the Arab Spring (Center for Systemic Peace 2014, 2018a). This means that the value of the DV “regime stability” in terms of systemic regime characteristics (authoritarian / autocratic versus democratic) is more or less constant across 15 of the 18 MENA country cases (i.e. no or low variance in the nondemocratic characteristics of the polity can be observed). Nevertheless, there are the undisputed 9

Lebanon, whose regime after independence I assumed to be nonauthoritarian, is actually classified as nondemocratic by the Polity IV Project up until 2005 (Center for Systemic Peace 2014, 2018a).

Data availability polity2 score (period) (maximum time span 1950–2010)

1962–2010

1971–2010

1952–2010

1950–2010

1950–2002, 2010

1950–2010

1957–2010

MENA country

Algeria

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

−10

−9

−6

−7

−10

−7

−6

−7

−10

−9

6

−9

−6

8

Lowest polity2 score

Average polity2 score

Table 5.1 Polity2 index (Polity IV Project) for 18 MENA countries, 1950–2010

−2

10

3

3

−3

−5

2

Highest polity2 score

(Continued)

Autocracy (1962–1988), closed anocracy (1988–1991), autocracy (1992–1994), closed anocracy (1995–2003), open anocracy (2004–2010) Autocracy (1971–2009), closed anocracy (2010) Autocracy (1952–2004), closed anocracy (2004–2010) Closed anocracy (1950–1953), autocracy (1954–1978), closed anocracy (1979–1981), autocracy (1982–1996), open anocracy (1997–2003), autocracy (2004–2010) Closed anocracy (1950–1967), autocracy (1968–2002), open anocracy (2010) Full democracy (1950–1966), democracy (1967–2010) Autocracy (1957–1988), closed anocracy (1989–2010)

Polity classification according to Polity IV Project (period)

5.2 Methods 191

1963–1989, 1991–2010 1950–1989, 2005–2010 1951–2010 1956–2010

1950–2010 1971–2010 1950–2010 1950–2010

1959–2010

1971–2010 1990–2010

Kuwait

Libya Morocco

Oman Qatar Saudi Arabia Syria

Tunisia

UAE Yemen

Lebanon

Data availability polity2 score (period) (maximum time span 1950–2010)

MENA country

Table 5.1 (Continued)

0 −7 −10 −10 −10 −10 −9

−9 −8 −5

−7 −7 −9 −10 −10 −7

−7 −8 −2

−10

−8 2

Lowest polity2 score

Average polity2 score

−8 −2

Autocracy (1963–1989, 1991–2010) Open anocracy (1950–1989), democracy (2005–2010) Autocracy (1951–2010) Closed anocracy (1956–1964), autocracy (1965–2010) Autocracy (1950–2010) Autocracy (1971–2010) Autocracy (1950–2010) Open anocracy (1950), autocracy (1951–1953), democracy (1954–1957), closed anocracy (1961–1962), autocracy (1963–2010) Autocracy (1959–1986), closed anocracy (1987–2010) Autocracy (1971–2010) Closed anocracy (1990–2010)

Polity classification according to Polity IV Project (period)

5

−3

−6 −10 −10 7

−7 −3

6

−7

Highest polity2 score

192 Epistemology, Methodology, Methods

5.2 Methods

193

outlier of Israel and the two further possible outliers of post-2003 Iraq and post-2005 Lebanon (while the three year democratic interlude in Syria was too short to make the country an outlier over a 60 year period). Cases can thus only be selected on the IV, which potentially varies. However, the fact that all cases are located within the MENA region, whose countries share similar geographic circumstances as well as cultural characteristics (i.a. linguistic and religious particularities), one can assume most of the control variables with potential effect on the DV “regime stability” not to show great variance across countries either. Thus, variance is minimal on both the DV and on the majority of possible IVs, which makes case selection exceptionally difficult and bound to be arbitrary. But there is one control variable, on which MENA countries differ significantly: “Resource endowment,” a control variable suggested by RST (as introduced in section 3.1.2). Variance on this control variable can thus be used to stratify the MENA sample. I operationalize “resource endowment” with the indicator “total natural-resources rents per capita” in current USD on the basis of data provided by the World Bank (2017) (see section 5.2.2). In order to smooth out yearly fluctuations, which are often driven by special effects, I calculated the 11 year average of the indicator for the period 2000–2010 (i.e. the 11 year period before the onset of the Arab Spring, which marks the end of the period of investigation) for each country. This calculation leads to the following results for the sample of 18 MENA countries, as shown in figure 5.1: Total natural resources rents per capita (current USD), 2000 -2010 average 19,018

15,156

7,547 5,631 5,172

4,247

no

n

0.10

ba

22

Le

29 rd

oc or M

Tu

ni

sia

co

36

Isr ae l

148

Jo

158 Eg yp t

272 Ye m en

ria

318 Sy ria

n ai hr

621

Al ge

Ira

n Ba

ya

Ira q

Lib

a bi

an Om

ra iA

949

Sa

ud

t ai

UA E

w Ku

Qa ta r

970

an

1,750

Figure 5.1 Total natural-resources rents per capita (in current USD) for 18 MENA countries, 2000–2010 average

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The picture that emerges reflects the observations sketched out in section 2.5, although the operationalization used here only contains one source of rent.10 To stratify the MENA sample, I suggest a division into three subsamples: resource-rich countries; countries that are neither resource-rich nor resource-poor; and resourcepoor countries. Possible (although subjective) thresholds are USD 2,000 per capita or USD 1,000 per capita for resource-rich countries (including or excluding Iraq, which might anyway be excluded from the analysis due to its special characteristics on the DV, as the poorest of the resource-rich MENA countries)11 and USD 500 per capita, USD 200 per capita, or USD 100 per capita for neither resource-rich nor resource-poor countries (including or excluding Syria, Yemen, Egypt, and Tunisia as the poorest of the neither resource-rich nor resource-poor countries).12 I opt for the USD 1,000 per capita and the USD 200 per capita thresholds, which yields the following subsamples of MENA countries for the given indicator of resource endowment (in descending order): 1. Resource-rich: Qatar, Kuwait, UAE, Saudi Arabia, Oman, Libya, Iraq 2. Neither resource-rich nor resource-poor: Iran, Bahrain, Algeria, Syria, Yemen

10

To check for the robustness of results I extended the time period and calculated the same indicator of average “total natural resource rents per capita in current USD” for the period 1990–2010 (i.e. 20 years instead of ten), based on data provided by the World Bank (2017). The results differ only slightly from the previous results obtained for the period 2000–2010: The six resource-richest countries are exactly the same and in the same order, that is Qatar (USD 13.605), Kuwait (USD 9.406), UAE (USD 6.470), Saudi Arabia (USD 3.854), Oman (USD 3.536), and Libya (USD 2.753). Then the ranking changes slightly: Iraq could not be included in the sample due to a lack of data. The following five countries are Bahrain (USD 757), Iran (USD 657), Algeria (USD 376), Yemen (USD 188), and Syria (USD 177). Thus, Iran and Syria are classified one rank lower than in the sample based on the period 2000– 2010. For the six resource-poorest countries, the ranking does not change: Egypt (USD 121), Tunisia (USD 101), Morocco (USD 20), Jordan (USD 13), Israel (USD 11), and Lebanon (USD 0.36). 11 Although the immense richness of Qatar and Kuwait compared to their peers within the resource-rich group might justify a separate category of “super resource-rich countries.” The question is, whether theory suggests that another subdivision of the sample is advisable for the given research question. 12 The empirical pattern would allow for a further subdivision of the “neither resource-rich nor resource-poor” category of MENA countries. A first subsample of countries only slightly above the “resource-poor” category would consist of Tunisia, Egypt, Yemen, and Syria. A second subsample of countries only slightly below the “resource-rich” category would consist of Algeria, Bahrain, Iran, and possibly Iraq.

5.2 Methods

195

3. Resource-poor: Egypt, Tunisia, Morocco, Jordan, Israel, Lebanon.13 ,14 For the research question of this study, which asks for the effects of economic liberalization on the stability of authoritarian regimes, it is most interesting to focus on the subsample of resource-poor MENA countries—before all, because the potential effect of the control variable “resource endowment” on the DV “regime stability” (which theory assumes to be strong) is relatively weak for these countries and does therefore not overshadow the effect of other independent or control variables in the same intensity as for resource-rich countries. Moreover, in resource-poor MENA countries, economic liberalization was empirically more extensive than in the resource-rich countries, which increases the amount of information available for the analysis (Beck and Schlumberger 1999). However, the empirical correlation of the variables “economic liberalization” and “resource endowment” hints at the problem of multicollinearity and suggests that economic liberalization might ultimately not be the fundamental factor behind the stability of authoritarian rule (King et al. 1994: 122–124). If this fundamental factor is “resource endowment,” economic liberalization might nevertheless be an important transmission channel (comprising both structural aspects and actors) between the purely structural variables “resource endowment” and “regime stability.” Within the subsample of resource-poor countries, I exclude Israel and Lebanon due to their outlier characteristics on the DV (see above). Ultimately, four countries remain that are both resource-poor and ruled by authoritarian or nondemocratic regimes from their political independence until the Arab Spring in 2011: Egypt, Tunisia, Morocco, and Jordan. 13

The classification of countries within the sample leads to similar subsamples as the ones presented in section 2.5. The difference is that here the subsample of resource-rich countries is further subdivided into richer and poorer resource-rich countries. Moreover, the MENA sample in this chapter contains Israel, but excludes the Palestinian territories. 14 If the other three types of rent mentioned in section 2.5 (political rent, locational rent, and rent from workers’ remittances) were included in the calculation, the resulting picture might be slightly different, although most probably only for the “resource-poor” category of countries and possibly for some poorer countries within the “neither resource-rich nor resource-poor” category. For example, as Mednicoff (2002: 94) points out, Jordan received substantially larger amounts of foreign aid from the Gulf countries (probably containing a sizeable political rent component) until the early 2000s than Morocco did. The same might be true in the case of aid from the United States. Thus, if political rent was included in the calculation, Jordan might in fact be less resource-poor than Morocco—although Morocco was far in front of Jordan in terms of EU aid. A second example is Egypt, whose regime, apart from natural resource related rent income, disposes of sizeable political rent income (mostly through United States aid) as well as locational rent income (Suez Canal, tourism) (see section 6.1.4).

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Without variance on the DV and most potential IVs controlled due to the four countries’ location in the same geographic and cultural region,15 there is no possibility for analytical case selection from among these four MENA countries, neither on the DV nor on the IV. In a first step, I therefore select all four countries for the analysis (see also: Gerring 2007, 187). My aim is a descriptive comparison of the four cases to shed light on potential effects of economic liberalization on regime stability, without the pretense to establish the nature of the economic-liberalization variable as either an IV or a transmission channel from a fundamental IV to the DV. In a second step, I allow for variance on the DV “regime stability,” by treating it as a continuous (degree of autocratic / democratic) variable instead of a binary (nondemocratic / democratic) variable. The assumption I make is that the degree of how “autocratic” / “democratic” a regime is (as measured by the Polity2 Index of the Polity IV Project) also measures how stable a regime is. For an authoritarian regime, this means that the higher the index—that is the more an authoritarian regime moves towards the democracy end of the continuum—the less stable it becomes in its authoritarian character (see section 5.2.2). Of course, this assumption has many drawbacks, as regimes that are more “autocratic” according to this index could in fact be less stable and thus more prone to democratization (fierce regimes are not necessarily the most durable). Leaving aside possible problems, conceptualizing the DV “regime stability” as a continuous variable and operationalizing it with the 15

The four countries of Egypt, Tunisia, Morocco, and Jordan have been selected as most similar cases by other authors before: According to Pripstein Posusney (2003: 270–271), “Egypt, Tunisia, Morocco, and Jordan share a number of similarities […]. Economically, based on their per capita GNPs, all four countries fall into the WB’s category of “lower middle income” countries. Although Egypt can be considered moderately oil dependent, none are major exporters of oil; they must rely mainly on merchandise and invisibles for export earnings. Nevertheless, remittances from labor migration within the region and Arab aid provided important sources of foreign exchange for all four in the 1970s and early 1980s. Thus, all were adversely affected by the downturn in the world oil market in the mid-1980s, and experienced serious balance of payments difficulties and mounting foreign debt. All four entered the 1980s with economies in which the government played a major role; sizeable public sectors were created as a consequence of postcolonial nationalizations when statist development strategies were adopted. Public sector and civil service jobs, with their attendant benefits, were offered to high school and college graduates as a way to encourage education, and came to be viewed by students and their families as an entitlement. In response to their external crises, all four turned to multilateral lending agencies, especially the IMF and the WB, in the 1980s and 1990s, and implemented stabilization and SAPs under their auspices. […] All are generally considered to be authoritarian countries in which most power is vested in the executive branch, whose leader is not subject to popular choice; the press and opposition activity are restricted, to different degrees, in each […]. However, all have undergone limited political reforms roughly simultaneous with their economic adjustment programs” (see also: El-Mikawy and Pripstein 2002, 51).

5.2 Methods

197

Polity2 Index leads to the pattern shown in figure 5.2 for the four selected MENA countries during the period 1960–2010 (Center for Systemic Peace 2018a): Polity IV - polity2 score 1960 - 2010; Egypt, Tunisia, Jordan, Morocco 0

-2

-4

-6

Egypt Jordan Morocco Tunisia

-8

-10

-12

Figure 5.2 Polity2 Index (Polity IV Project) for Egypt, Tunisia, Jordan, and Morocco, 1960– 2010

With variance on the DV and no variance on most potential IVs (see above), three temporally-bound case comparisons following the MSSD as proposed by John Stuart Mill become possible (Przeworski and Teune 1970: 32–34; Lieberson 1992: 110; Della Porta 2008: 214–215; Seawright and Gerring 2008: 304–306). In each temporally bound case comparison, the sample of the four MENA countries is split into two groups, among which values of the DV differ significantly: The first comparison is between Egypt and the group consisting of Tunisia, Jordan, and Morocco during the period 1965–1986. On the basis of the chosen operationalization of the DV, the empirical observation is that the Egyptian regime was less stable during the given period than its three MENA counterparts. The second comparison is between the pair of Tunisia and Jordan and the pair of Egypt and Morocco during the period 1993–2004. The empirical observation is that the Tunisian and Jordanian regimes were less stable than the Egyptian and the Moroccan regimes during the given period. The third comparison is between Morocco and the group consisting of Egypt, Jordan, and Tunisia during the period 2005–2010. The empirical observation is that the Moroccan regime was more stable than its three MENA counterparts during the given period. The structure of the case selections following the MSSD allows for an analysis of the question, whether economic liberalization as a potential IV might in fact be

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partly responsible for the variance observed on the DV among the four countries during the three periods. However, whatever the results, one has to bear in mind that they will be inconclusive. As Lieberson (1992: 109–111) points out, Mill’s “method of difference,” which underlies the MSSD, cannot undoubtedly identify the one factor responsible for variance on the DV, due to its inability “to examine interaction effects” between the IVs and “multiple causes” (“their absence is assumed”). Besides, it is “exceptionally vulnerable […] to the exclusion of relevant variables” (see also: Przeworski and Teune 1970: 34).

5.2.4

Sources

The information processed for this study stems completely from secondary sources in English, French, and German: academic books (approximately 300); journal articles (approximately 300); research reports from various institutions (approximately 90); and internet pages / documents (approximately 80). In addition, I analyzed about 300 press articles (99 percent of them in French) from: international newspapers (Le Monde); international journals (including Jeune Afrique, Le Point Afrique, L’Express); and the press in Egypt, Tunisia, and Morocco. The vast majority of press articles from North Africa stemmed from Moroccan sources (Le Journal Hebdomadaire: 117 articles; La Vie Éco: 68 articles; L’Économiste: 43 articles; Telquel: 32 articles; ÉconomieEntreprises: 11 articles; Aujourd’hui le Maroc: two articles; Maroc Hebdo: one article). Apart from better accessibility of online archives of the Moroccan press (compared to online archives of the Tunisian, Egyptian, and Jordanian press), the prevalence of Moroccan sources is due to my seven-month field research in Morocco during the period 2010–2012. The totality of these roughly 1.000 secondary sources mentioned above form the basis of in-depth single-case studies on the political economies of Egypt, Tunisia, Jordan, and Morocco, to be published as separate books. I included around two thirds of these secondary sources in the bibliography of this comparative study. For quantitative data, I relied on publicly accessible internet databases of the IMF (World Economic Outlook Database), the WB (Open Data), the United Nations Conference on Trade and Development (UNCTAD) (interactive database, i.a. for numbers on FDI), the Center for Systemic Peace (Polity IV Project), Transparency International, Office des Changes Maroc, Macro Trends (for historical oil prices), Fxtop and Oanda (for historical exchange rates). In addition, I extracted quantitative data from reports and other publications of various research institutions, including the United Nations Development Programme (UNDP) (Human Development

5.2 Methods

199

Reports), the WB, the WTO, and the Organisation for Economic Cooperation and Development (OECD).16

5.2.5

Procedure in the Empirical Part

As stated in the introductory chapter, the main hypothesis of this study is that economic liberalization contributed to the stability of authoritarian regimes in the four MENA countries under investigation (Egypt, Tunisia, Jordan, and Morocco), from their political independence during the 1950s up to the Arab Spring in 2011, through the twin transmission channels of economic and political stabilization. In the empirical part (chapter 6), I analyze what role economic liberalization played in these two transmission channels based on the empirical material available for the four MENA countries. Chapter 6 starts with a comparative political economy of Egypt, Tunisia, Jordan, and Morocco for the period of investigation (see section 6.1). The chapter is subdivided into four distinct historical periods that are observable in all four MENA countries: “immediate post-independence period;” “state-led development;” “Infitah;” and “stabilization and structural adjustment.” The aim of section 6.1 is to carve out the empirical manifestations of economic liberalization, its roots and course, and their embeddedness in political, economic, and social developments. At the end of the subchapter, I structure the empirical material to establish distinguishable reform periods (i.e. periods when policies of economic liberalization were implemented with a specific scope and pace) for each of the four countries. Sections 6.2 and 6.3 present the empirical material on the twin transmission channels of economic and political stabilization, based on their operationalizations outlined in section 5.2.2. For economic stabilization, I trace the development of its operationalized constituent variables (the balance of the state budget, the balance of the international accounts, economic growth, and socioeconomic development) for each country and each reform period. For political stabilization—given the lack of suitable operationalizations—I describe empirically observable policies and dynamics in politics that took place during the study’s period of investigation (1950–2011). The empirical material on both types of stabilization is the basis for the subsequent hypothesis testing. 16

It is important to note that quantitative data on MENA countries are often noncomprehensive and of inferior quality. A major problem for the reliability of the data are “the attempts of ruling regimes to manipulate the figures in order to realise particular policy objectives” (Wurzel 2009a: 18; Erdle 2010: 50).

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To analyze what role economic liberalization played in the two transmission channels for the four MENA country cases, I proceed as follows: for the channel of economic stabilization, I use 42 hypotheses out of the 71 derived from the literature survey on the effects of economic liberalization in section 3.2. These 42 hypotheses (H26–H67; see appendix-chapter 8, tables 8.2–8.6) speculate about the effects of economic liberalization on the variables of economic stabilization. I check these 42 hypotheses against the empirical information on each of the four MENA countries, to assess how policies of economic liberalization might have influenced the operationalized variables of economic stabilization. The hypothesis testing at this stage is non-analytical, as I do not compare the four MENA countries among each other. For the channel of political stabilization, I seek to carve out the role of economic liberalization in the politics and policies of political stabilization in a descriptive manner, that is without recourse to theory (thus, no hypothesis testing takes place). In addition, I analytically test the 12 “integrated hypotheses” (IH1–IH6-D), specified in sections 4.2.1 and 4.2.2, that link economic liberalization as an IV directly with regime stability (DV) for the case of an authoritarian regime. Three of these “integrated hypotheses” (IH1–IH3) speculate on the link between economic liberalization and the stability of authoritarian regimes via economic stabilization, nine of them (IH4-A–IH6-D) on the link between economic liberalization and the stability of authoritarian regimes via political stabilization. Allowing for variance on the DV (see sections 5.2.2 and 5.2.3), I test these “integrated hypotheses” against the empirical material of the four MENA countries within a MSSD case comparison.

6

Empirical Analysis—Economic Liberalization and the Stability of Authoritarian Regimes in Resource-poor Countries of the MENA Region: Egypt, Tunisia, Jordan, and Morocco, 1950–2011 This chapter presents and discusses the empirical material. It consists both of descriptive comparisons of the four MENA country cases (Egypt, Tunisia, Jordan, and Morocco) and tests of the hypotheses derived from the body of theory (see chapters 3, 4.2, and the appendix-chapter 8) against the empirical information available for the four countries.1 The chapter starts with a comparative political economy of the four MENA countries under investigation, along distinct historical periods from their political independence during the 1950s up to the Arab Spring in 2011. Subsequently, the chapter sketches out the temporal occurrence of economic liberalization policies in each of the four countries. Economic liberalization is thus placed in a broader politico-economic context that allows a more meaningful comparison of the four countries (see section 6.1). Following on, I analyze the links between the IV “economic liberalization,” the transmission channels of economic and political stabilization, and the DV “regime stability” (see the theoretical model in section 4.1) for each of the four MENA countries and their authoritarian regimes. The analysis is based on a description of variable relations for each of the four countries (including, for economic stabilization, descriptive hypothesis testing), a descriptive diachronic comparison of the four countries, and an analytical test of hypotheses in a MSSD

1 To support the reader in comparing the four MENA countries (Egypt, Tunisia, Jordan, and

Morocco) during the investigation period (1950–2011), I provide additional comparative data in the Electronic Supplementary Material. This material consists of tables depicting the decade averages of 20 economic indicators and 14 socioeconomic indicators for the four MENA countries under investigation. Supplementary Information The online version contains supplementary material available at (https://doi.org/10.1007/978-3-658-35639-2_6).

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_6

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comprising the four country cases during the periods 1965–1986, 1993–2004, and 2005–2010.

6.1

Roots and Course of Economic Liberalization

This subchapter traces economic liberalization in the four MENA countries under examination (Egypt, Tunisia, Jordan, and Morocco), from their formal political independence during the 1950s up to the Arab Spring in 2011. It shows where, when, and how economic liberalization took place, and it situates the phenomenon in a broader politico-economic context. To put the comparison of the four countries in terms of economic and political stabilization (see sections 6.2 and 6.3) on a solid basis, the chapter starts with a comparative political economy of the four countries, beginning at independence (preceded by a short historical glimpse into the colonial period) and ending with the Arab Spring in 2011. It is subdivided into four distinct historical periods that structure the postindependence politico-economic history in each of the four countries: “immediate postindependence period;” “state-led development;” “Infitah;” and “stabilization and structural adjustment.” These historical periods mirror the evolution of the global political economy, marked by the demise of Keynesianism and the renaissance of economic liberalism.2

6.1.1

Immediate Postindependence Period

In all four MENA countries under investigation, the immediate postindependence period was still shaped by preindependence structures. All four countries had gone through several decades of colonial rule (75 years in Tunisia, 70 years in Egypt, 44 years in Morocco, and 29 years in Jordan). However, the characteristics of colonialism differed: In Egypt, the British had unilaterally abolished the protectorate in 1922, but they continued to control government on the basis of legal restrictions to Egyptian sovereignty (the four Reserved Points) (Daly 1998; Perry 2004). In Tunisia and Morocco, the French (in northern Morocco the Spanish) had established protectorates that remained in place with minor adjustments until the time of independence. Government of the protectorates was controlled by the French Residency, while the colonial administration encouraged thousands of French colons to settle and to take possession of expropriated land (S. Amin 1970; E. Hermassi 1972; 2

For a discussion of the global political economy after the Second World War, see Haggard and Kaufman (1992b: 12–13), Soliman (2011 [2006]), and Stilwell (2012).

6.1 Roots and Course of Economic Liberalization

203

Julien 1978; Faath 1987; M. A. Alaoui 1994; Pennell 2000; Perkins 2004; Abitbol 2009; Vermeren 2010; Gilson Miller 2013; Chouikha and Gobe 2015; Alexander 2016). In Transjordan (since 1950 “Jordan”), colonial rule was least thoroughgoing, due to its status as a British mandate (which legally differed from a protectorate). Thus, the British controlled the Transjordanian government through the Residency in Amman and British officers commanded the Jordanian army, but the British (due to international political constraints, a lack of financial means, and the small economic potential of the territory) never established colonial rule comparable to their former protectorate in Egypt or to the French protectorates in Tunisia and Morocco. In fact, the main purpose of British presence was Jordan’s strategic importance, especially as a military buffer territory (Wilson 1987; Robins 2004; Alon 2009 [2007]; Bradshaw 2012). In Egypt, Tunisia, and Morocco, popular resistance against colonial rule grew after the end of the First World War. Nationalism was the major ideology fuelling the independence struggle. The leaders of this struggle came from the middle and upper class, often members of a new elite or socially ascending groups who had gained political power through their interaction with the colonialists (in business, in the state administration, or in the military). Their career often included an education at domestic schools and universities reserved for the colonial population or at academic institutions in the colonial center. Coalition building among these vanguard groups determined the course of events at the time of independence (handover of the state by the colonial powers or coup d’Etat) and the trajectory of the postindependence state (social revolution or continuity of old ruling elites) (E. Hermassi 1972; Ruf 1984; Botman 1998; Daly 1998; Murphy 1999; Perkins 2004; Perry 2004; Alexander 2010; Chouikha and Gobe 2015; Alexander 2016). Jordan is a special case, as it emerged as a purely artificial state (Transjordan) with the post-1919 mandate system. Contrary to the other three cases, there was no comparable popular struggle for independence in Jordan. Ultimately, independence was sought and negotiated by the political elite, with the Jordanian King as the central actor (Robins 2004; Bradshaw 2012). In Egypt, the main nationalist actor was the Wafd, “a coalition of the rural middle class and high-status urban groups, with support from less affluent urban groups,” which later became a political party. Other groups with more radical nationalist positions and a social revolutionary agenda were denied access to formal politics and relegated to street action. As coalition building among nationalist actors in Egypt was restricted, the independence coalition did not reach a critical size. Thus, independence finally came about through an army coup. It was led by young Egyptian officers with a lower middle class background, who benefitted from the fact that Britain had allowed the buildup of an Egyptian army in the 1936 Anglo-Egyptian Treaty of Alliance (Botman 1998; Perry 2004; Farah 2009). In Tunisia, the inde-

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pendence struggle was led by the Neo-Destour, a nationalist party that integrated together broad sections of society. Its leaders represented new elite segments from the sahel (coastal region in the East), who had been educated in institutions of the colonial center. The independence coalition led by the Neo-Destour was broad and included workers, artisans, peasants, and nomads. Its power was enhanced by the mobilizational capacity of organized labor. France thus agreed to Tunisian independence without military resistance and an independence war like in neighboring Algeria was avoided (E. Hermassi 1972; Ruf 1984; Murphy 1999; Perkins 2004; Alexander 2010; Chouikha and Gobe 2015; Alexander 2016). In Morocco, the independence struggle was initiated by members of the urban bourgeoisie, who organized it through secret societies and associations. With the foundation of the first nationalist parties in the late 1930s, the movement already split into two major camps. But the Sultan (who was exiled by the French during 1953–1955) symbolically united the parties behind the nationalist cause. Moreover, he broadened the independence coalition by enticing the rural population to support the mostly urban independence movement. Ultimately, the colonial powers France and Spain had to give in to negotiated Moroccan independence. Afterwards, the Sultan and the biggest nationalist party (the Istiqlal) became the main rivals for political power in the new state (Ashford 1961; Julien 1978; Sluglett and Farouk-Sluglett 1984; Faath 1987; M. A. Alaoui 1994; Pennell 2000; Abitbol 2009; Vermeren 2010; Gilson Miller 2013). In Jordan, independence was reached without a major popular struggle, when King Hussein abrogated the Anglo-Transjordanian Treaty in 1957. Several key events had speeded up the process of separation from Britain: the end of the British mandate in Palestine (1948); the first Arab-Israeli war (1948 / 1949); the proclamation of Kingship (1949); the annexation of the West Bank (1950); and the assassination of King Abdullah (1951) (Patai 1958; Satloff 1994; Robins 2004; Bradshaw 2012). After all, the four countries reached formal political independence at different points of time: Egypt in 1952; Morocco and Tunisia in 1956 (Morocco 18 days earlier than Tunisia); and Jordan in 1957. The political systems that emerged after independence reflected the balance of forces within the nationalist movement. Where one actor was dominant (as in Tunisia) or where the army imposed itself as the dominant actor (as in Egypt), political systems evolved towards the creation of single parties and corporatist authoritarian systems. Where there was no dominant actor (as in Morocco), a multi-party system emerged. Jordan is a special case, as it reached independence without a major popular struggle, keeping the Amir / King in undisputed position, although the final political outcome was as well a multi-party system. In Egypt, the Free Officers abolished the existing multi-party system and created the Liberation Rally, the forerunner of the single party dedicated to mobilize

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popular support for the new regime. They disempowered the old landed elites of the monarchical era through land reform, and by transferring land to landless peasants they set in motion social revolutionary processes (Waterbury 1983; Vatikiotis 1991; Farah 2009). In Tunisia, elections to a new constituent assembly right after independence were followed by the abolition of the monarchy, by Bourguiba’s nomination as President of the Republic, and by the establishment of the Neo-Destour’s single-party rule with the Constitution of 1959. As the nationalist coalition excluded members of the old elite, postindependence politics had social-revolutionary traits (visible in the Neo-Destour’s ideology of universal equality and its land reform policy). The new single party created and infiltrated several national organizations and solidified its popular base by setting up party cells across the country. Over time, an inclusivist corporatist political system with “strongly personalized” “bureaucraticauthoritarian” traits emerged (Murphy 1999; Perkins 2004; Erdle 2010; Chouikha and Gobe 2015; Alexander 2016). In Jordan, Amir Abdullah had solidified his rule by crowning himself King in 1946. When de-facto political independence came in 1957, it coincided with the radicalization of domestic politics, fuelled by Egyptian revolutionary Pan-Arabism. To gain control of the crisis, the new King Hussein dissolved all political parties in 1957 (in the end they remained banned until 1992). After the 1967 war against Israel, he also declared martial law (which would be in force until 1991), stymying politics through formal channels in the Kingdom (Patai 1958; Aruri 1972; Dann 1989; Satloff 1994; Robins 2004; Milton-Edwards and Hinchcliffe 2009 [2001]; Bradshaw 2012). In Morocco, Sultan Sidi Mohammed announced the “establishment of a constitutional monarchy” right after independence. However, he reneged on this promise, as he gradually gained political power to the detriment of the urban political parties (above all due to his support from the rural population and his command over the security forces). In 1957, he accepted the title of King and introduced hereditary succession. Until the first Constitution of 1962, the Sultan / King assumed all legislative and executive powers (a system comparable to the preindependence period, but without the French Residency as final decision maker). Gradually, King Mohammed V retreated to a position of arbiter above party lines, which gave him the power to manipulate political forces and allowed him to maintain his supreme decision making. In 1960, he installed himself at the top of government, a move that radicalized the opposition. After the successsion by King Hassan II in 1961, the 1962 Constitution legally codified the multi-party system, while the King was endowed with extraordinary executive powers. When the main leftist party scored well in the 1963 parliamentary elections, the political situation became further polarized. After the 1965 Casablanca riots, the King declared a state of emergency. He then suspended the Constitution, dissolved Parliament, and began to rule by decree (a situation that would endure until 1970)

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(Ashford 1961; Robert 1963; Zartman 1964; Sluglett and Farouk-Sluglett 1984; Leveau 1985 [1976]; Faath 1987; Pennell 2000; Sater 2010; Vermeren 2010; Gilson Miller 2013). In their attempt to consolidate power, all four regimes repressed their opponents— who had sometimes been former allies in the independence struggle. In Egypt, the Free Officer regime cracked down on the Muslim Brothers as early as 1954 and soon thereafter turned on leftist and communist groups. Besides, the faction around Nasser pushed out the supporters of Nasser’s rival, General Naguib, from the inner circle of the regime. Thus, Nasser became the undisputed head of the new state (Vatikiotis 1991; Perry 2004). In Tunisia, rivalries between the leading personalities of the Neo-Destour broke out openly even before independence. Ultimately, the faction of Bourguiba repressed the faction of Salah Ben Youssef with military force, aided by the French army (Chouikha and Gobe 2015; Alexander 2016). In Jordan, the political crisis of the mid-1950s pitted the royalist camp against the supporters of Arab radicalism. After the 1957 Zarqa uprising, the regime repressed its opposition with force (Patai 1958; Aruri 1972; Dann 1989; Satloff 1994; Robins 2004; MiltonEdwards and Hinchcliffe 2009 [2001]; Bradshaw 2012). In Morocco, the emerging regime around King Mohammed V began to repress leftist opponents since the end of the 1950s. Repression against the opposition from the left was further geared up after the strong showing of the main leftist party in the 1963 parliamentary elections (Faath 1987; Perrault 1990; Pennell 2000; Sater 2010; Vermeren 2010; Gilson Miller 2013). Three of the four regimes (the exception being Tunisia) relied on the military to secure their reign. In Egypt, the military had taken over government with the coup of 1952. President Nasser himself had been the leading personality of the Free Officers. This fact anchored the military firmly in the postindependence regime (Perry 2004). In Jordan, the core of the military was the Arab Legion, an army unit made up of tribal Bedouins and commanded by British officers. It was kept loyal by the King, not the least through land distribution to tribal leaders. Thus, the King could rely on the army during the crisis of 1957, when left-wing and Arab-nationalist politicians rallied the urban people (mostly Palestinians) against the monarchy (Patai 1958; Wilson 1987; Robins 2004; Alon 2009 [2007]; Bradshaw 2012). In Morocco, France as the colonial power had built up a Moroccan army mainly from Berber tribes (formation of Berber officers at the Collège Militaire of Azrou). The army was loyal to the King and safeguarded the crown against its urban opposition (major nationalist parties, labor unions, leftist groups) and against dissident Berber tribes during the 1950s–1960s (Ashford 1961; E. Hermassi 1972; Faath 1987; Vermeren 2010; Gilson Miller 2013). Ultimately, all four regimes could consolidate their rule after independence not least due to the efforts of the colonial powers to build

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up an effective military and to increase the governability of the territory through infrastructure development (Ben Ali 2000; Robins 2004; Joffè 2009). Economically, the situation at the time of independence was precarious in all four countries. While population growth was increasing, unemployment and inflation were high, depressing per capita incomes (Stewart 1964; O’Brien 1966; Salmi 1979; Belal 1980; Swearingen 1988; Perry 2004; Farah 2009; World Bank 2017). In Egypt, Tunisia, and Morocco, the most productive parts of the economy were dominated by foreign investors. Thus, colonialism had fostered dualistic economic structures, which deepened inequality between urban and rural areas (in urban and industrial centers, domestic capital holders, workers, and the petty bourgeoisie had benefitted from new economic opportunities) (Salmi 1979; Waterbury 1983; Sluglett and Farouk-Sluglett 1984; Swearingen 1987, 1988; M. A. Alaoui 1994; Beinin 1998; Murphy 1999; Pennell 2000; Perry 2004; Abitbol 2009; Erdle 2010; Sater 2010; Vermeren 2010; Gilson Miller 2013). In these three countries, economic problems were aggravated by massive capital flight in the first years after independence (S. Amin 1970; Belal and Agourram 1971; Belal 1980). Socioeconomic conditions were equally appalling, with high rates of illiteracy, low enrollment rates in all stages of education, and low average life expectancy (mostly due to precarious health conditions) (Stewart 1964; S. Amin 1970; Belal 1980; Pennell 2000; Perkins 2004; Gilson Miller 2013). The four regimes tried to remedy the situation with decolonization, land reform, public development policies, promotion of private investment, and industrialization. Decolonization comprised several policies: First, formal political independence ended the control of government by the colonial powers and colonial troops left the countries (although the complete withdrawal sometimes took several years). However, due to a lack of human capital, technocratic personnel still remained present in the institutions of the postindependence states (Ashford 1961; S. Amin 1970; Faath 1987; Pennell 2000; Vermeren 2010; Gilson Miller 2013). Second, in Tunisia and Morocco, where large numbers of settlers (mostly French colons) had been present, the majority of the foreign inhabitants left the country in the first years after independence (although this exodus aggravated the economic crisis in the short run) (Stewart 1964; S. Amin 1970; Belal 1980; Perkins 2004). Third, the Tunisian and the Moroccan regime nationalized abandoned colon land. In Morocco, most of this land was sold or transferred to private domestic investors (Stewart 1964; Leveau 1985 [1976]; Swearingen 1987, 1988; Pennell 2000; Vermeren 2010; Gilson Miller 2013). Ultimately, nationalizations in the immediate postindependence period were mostly passive (i.e. most often public takeover of assets left behind by departing settlers), rather than active expropriation (S. Amin 1970; Leveau 1985 [1976]; Swearingen 1987). Fourth, decolonization comprised the creation of national currencies and

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domestic banks (including public banks to finance development) (S. Amin 1970; Grissa 1991; Robins 2004). Further to that, land reform was on the agenda. Depending of the size of colonial landholdings, it was also part of the policy of decolonization: In Egypt, the 1952 land reform was a domestic issue (as colonists had not built up landholdings on a larger scale). The new regime limited the size of landownership and redistributed excess land to landless tenant farmers, while farmers were forced to join cooperatives. It thereby eliminated the economic base of the former landed elite (O’Brien 1966; Mabro 1974; Pawelka 1985; Wahba 1994; Beinin 1998; Farah 2009). In Tunisia, limited land reform took place after the shift to state-led development in 1961 (1964 nationalizations of remaining settler land and buildup of an agricultural cooperative system) (E. Hermassi 1972; A. Findlay 1984; Perkins 2004; Ben Romdhane 2011; Chouikha and Gobe 2015). In contrast, there was no land reform in the immediate postindependence period in Morocco. As independence had not sidelined traditional land-owning elites, these elites were well represented in the postindependence regime and blocked any redistribution of land (they also bought or appropriated a large share of the land formerly owned by the colonists) (Leveau 1985 [1976]; Swearingen 1987, 1988; Pennell 2000; Vermeren 2010; Gilson Miller 2013). Besides, all four governments tried to improve the miserable socioeconomic conditions with public policies. In Egypt, the government initially concentrated on land reform, before it introduced other development policies after the turn to stateled development in 1956 (O’Brien 1966; Mabro 1974; Waterbury 1983; Pawelka 1985; Vatikiotis 1991; Wahba 1994; Beinin 1998; Farah 2009). In Tunisia, the government quickly expanded education and “tunisified” the administrative system (S. Amin 1970; Perkins 2004). In Morocco, public development policies were less ambitious, although some progress was made in school enrollment (IBRD 1966; Belal 1980; Vermeren 2010). In Jordan, development policies in the immediate postindependence period were hampered by two international wars (1967, 1973) and a civil war (1970 / 1971) (Dann 1989; Feiler 1994; Piro 1998; Robins 2004). To back up development policies, all four governments founded a host of financial institutions with the mission to finance development projects (in the case of Egypt and Tunisia, these institutions were created with the turn to state-led development, in Jordan and Morocco even before the turn) (Tiano 1963; Stewart 1964; IBRD 1966; Belal 1980; Brand 1994; Kingston 1994; Knowles 2005). The remaining two policies to revive the economy and to foster socioeconomic development—that is the promotion of private investment and industrialization— were complementary. Industrialization had two goals: On the one hand, it should enable economic decolonization by reducing the dependence on imports from the

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colonial center, and on the other hand it should boost economic growth and thus help ameliorate the socioeconomic situation. To organize industrialization, two of the four countries introduced economic planning even before the shift to state-led development (Morocco in 1958 and Jordan in 1962) (Ashford 1961; Klat 1962; S. Amin 1970; Belal 1980; Faath 1987; Swearingen 1988; Robins 2004). In Egypt and Tunisia, planning was introduced with the shift to state-led development (1956 and 1961 respectively) (O’Brien 1966; Mabro 1974; Waterbury 1983; Pawelka 1985; Vatikiotis 1991; Wahba 1994; Beinin 1998; Farah 2009). To finance industrialization, the countries that had implemented a land reform (Egypt and Tunisia) channelled economic surplus from agriculture into industry, with the help of the system of agricultural cooperatives (Waterbury 1983; Pawelka 1985; Wahba 1994; Mitchell 2002; Perkins 2004). But the main financing channel conceived by all four regimes was an increase of private investment, which they tried to bring about by the continuation of preindependence liberal economic policies (both in the domestic economy and in international economic exchange) in combination with various incentives for private investors (although some nascent consumer goods industries were protected by tariffs with the goal of import substitution) (O’Brien 1966; S. Amin 1970; E. Hermassi 1972; Ruf 1984; Bellin 1991; Wahba 1994; R. J. King 1998; Wils 2003; Perkins 2004; Farah 2009; Erdle 2010; Sater 2010; Chouikha and Gobe 2015; Alexander 2016). Ultimately, liberal economic policies did not lead to a sufficient increase in private investment—in fact, private investment even decreased markedly in most countries—, as the domestic bourgeoisie was too capital-scarce and risk-averse and foreign investors too hesitant due to political uncertainty (S. Amin 1970; Waterbury 1983; Wahba 1994; Farah 2009; Chouikha and Gobe 2015; Alexander 2016). In Jordan, the economy additionally suffered from two international wars, the Israeli occupation of the West Bank, and a civil war (Dann 1989; Feiler 1994; Piro 1998; Robins 2004). Thus, economic growth remained low in all four countries and balance of payment problems mounted, while the socioeconomic malaise intensified (IBRD 1966; S. Amin 1970; Belal and Agourram 1971; E. Hermassi 1972; Khrouz 1988). Reacting to these imbalances, all four regimes turned to a state-led development model.

6.1.2

State-led Development

After an approach to economic policy in the immediate postindependence period that could be labelled “muddling through” (still containing many elements of liberal preindependence policy, but also visible state intervention in the process of decol-

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onization), the political regimes in all four MENA countries under examination turned to a state-led or statist development model. The two “presidential republics” shifted policy markedly earlier than the two monarchies: Egypt in 1956 and Tunisia in 1961, while Morocco started only in 1968 and Jordan in 1973 (E. Hermassi 1972; Salmi 1979; Waterbury 1983; El Malki 1989; Vatikiotis 1991; Wahba 1994; Robins 2004; Knowles 2005; Farah 2009; Alexander 2016). A major driver for the policy turn in all countries was the aim of state building, tightly connected with the legitimation of the regime (Piro 1998; Murphy 1999). Another reason was the inability or unwillingness of private investors to undertake large investment projects, which kept cumulative private investment low (see section 6.1.1). Internationally, due to the Keynesian economic model prevalent in industrialized countries, donors were susceptive to development policy with a central role for the state. Furthermore, the economy of the Soviet Union had grown faster than the Western industrialized economies during the 1950s, which made economic policies based on state planning attractive to developing countries (Hobsbawm 1995 [1994]).3 In both Egypt and Tunisia, the regime that came to power after independence legitimated itself as the defender of the national interest against the former colonial power (in part also against the old ruling elite, which had collaborated with it) and as the guarantor of socioeconomic advancement of the population at large (see section 6.3.2.3). These sources of legitimation necessitated two policies: On the one hand, the transfer of control over economic assets from the former colonialists into the hands of the state or indigenous private economic actors. And on the other hand, the increase of public resources for state spending and investment. Thus, both Egypt and Tunisia nationalized a large part of the former private colonial economy at a relatively early point in time (though the nationalizations were much more pervasive in industrial and commercial assets than in land) (O’Brien 1966; S. Amin 1970; Waterbury 1983; Vatikiotis 1991; Wahba 1994; Farah 2009; Alexander 2010). In order to increase public resources, these two countries extracted agricultural surplus through the collectivization of agricultural production and through price control of agricultural products. This surplus was then used for industrialization and social spending by the state (O’Brien 1966; E. Hermassi 1972; A. Findlay 1984; Pawelka 1985; Wahba 1994; Perkins 2004; Ben Romdhane 2011; Chouikha and Gobe 2015). Nationalizations as a means for economic advancement were bolstered in Egypt and Tunisia by enduring political confrontation with the former colonial power (Suez

3

For a more comprehensive overview of the international factors that favored the adoption of state-led development models by Third World countries during the latter half of the twentieth century, see Hobsbawm (1995 [1994], 259, 270–274, 350–352).

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Crisis in 1956, attack on Bizerte naval base in 1961) (S. Amin 1970; Waterbury 1983; Vatikiotis 1991; Perkins 2004; Perry 2004; Alexander 2010, 2016). In both Jordan and Morocco, the legitimation of the regime comprised the additional pillar of tradition and (from the 1950s onwards) symbolic elements of Kingship (although much more so in Morocco than in Jordan) (see section 6.3.2.3). These two regimes thus changed policy towards a state-led development model only when the (unexpected) flow of external resources permitted them to do so. At the same time, they did not resort to forced extraction of material resources from their societies. In both cases, the resource boom came with the 1973 global oil crisis (which entailed a rise in phosphate prices and worker remittances), although Morocco started earlier for political reasons (enhanced need for legitimation since the 1965 state of emergency and the 1971–1972 coup attempts) (Salmi 1979; Satloff 1986; El Malki 1989; Knowles 2005; Vermeren 2010; World Bank 2017). Stateled development policies in both Jordan and Morocco were complemented by the encouragement of private investment to make up for missing public resources (A. M. Findlay 1984; El Malki 1989; El Oufi 1990; Knowles 2005; Vermeren 2010). Jordan, without a history of direct colonial occupation and with the smallest domestic market among the four countries, did not dispose of sizeable economic assets from the former colonial power that could be nationalized. Concomitantly, the Jordanian regime neither had the power nor the will to nationalize assets belonging to the indigenous bourgeoisie (El-Said 2002; Carroll 2003; Knowles 2005; P. Moore 2009 [2004]). The Moroccan regime nationalized all former colonial lands in several stages until the early 1970s (and sold most of them to the indigenous rural and urban elite). But it refrained from doing so in commerce and industry, until Moroccanization in the early 1970s did so indirectly and partly (again, mostly to the profit of the indigenous business elite) (Leveau 1985 [1976]; Swearingen 1987; El Oufi 1990; Cammett 2007b; Sater 2010; Vermeren 2010). As a result of state-led development policies, which mainly consisted of an increase in public investment backed by economic planning, the share of the public sector in total investment rose far above the share of the private sector (most starkly in Egypt, still significantly in Tunisia and Morocco), with the exception of Jordan (where it rose only to parity with the private sector) (O’Brien 1966; S. Amin 1970; E. Hermassi 1972; Mazur 1979; Salmi 1979; Waterbury 1983; A. M. Findlay 1984; Satloff 1986; Sutton 1987; Khrouz 1988; El Malki 1989; Horton 1990; Bellin 1991; Grissa 1991; Feiler 1994; S. Belghazi 1997; Murphy 1999; Knowles 2005; Rami 2007; Catusse 2008; Erdle 2010; Sater 2010; Vermeren 2010; Alexander 2016). Private economic activity was relegated to a subordinate role in Egypt and Tunisia (although in the Tunisian case with more leeway for private actors) (S. Amin 1970; Waterbury 1983; Bellin 1991; Grissa 1991; Murphy 1999; Erdle

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2010; Chouikha and Gobe 2015; Alexander 2016). In Jordan and Morocco—with less forced resource extraction by the state—private investment was encouraged at all times (A. M. Findlay 1984; El Oufi 1990; Knowles 2005; Vermeren 2010). In all four countries, public-sector employment soared, as the state created a new middle class of government employees (S. Amin 1970; Faath 1987; Sutton 1987; Horton 1990; Morrisson 1991b; Brand 1992; Wahba 1994; Piro 1998; Sater 2010). Social spending was geared up, which led to stark socioeconomic improvements (especially in Egypt, Tunisia, and Jordan), with the partial exception of Morocco (Pawelka 1985; Satloff 1986; Rhazaoui 1987; Feiler 1994; Farah 2009; Sater 2010; Ben Romdhane 2011; World Bank 2017; Chouikha and Gobe 2015). After all, economic performance during the period of state-led development differed among the four countries under investigation: In Egypt and Tunisia, economic growth was moderate, while external imbalances mounted (E. Hermassi 1972; Waterbury 1983; Perkins 2004; World Bank 2017). Particular to Egypt, growth was—among other factors—depressed by the costly war in Yemen, and it was finally stifled by the 1967 war against Israel (Waterbury 1983; Vatikiotis 1991). Morocco and Jordan entered the state-led development phase much later (when Egypt and Tunisia were already on the brink of abandoning the model), at a time when the first oil boom started to inflate economic fundamentals. Thus, economic performance in Morocco and Jordan was spectacular, at least in the early years of state-led development. The reckoning came in the early 1980s, and the crisis was deeper and longer than in the case of pre-oil-boom Egypt and Tunisia (Salmi 1979; A. M. Findlay 1984; Sluglett and Farouk-Sluglett 1984; Satloff 1986; Pomfret 1987; Rhazaoui 1987; Sutton 1987; Khrouz 1988; El Malki 1989; Brand 1994; Feiler 1994; Piro 1998; Pennell 2000; Knowles 2005; Milton-Edwards and Hinchcliffe 2009 [2001]; Vermeren 2010; World Bank 2017; El-Said and Harrigan 2014; IMF 2014). Politically, state-led development facilitated and necessitated corporatist authoritarianism. In Egypt and Tunisia, state direction of the economy correlated with a corporatist political system, whose degree of centralization rose over time. Both Presidents—Nasser and Bourguiba—solidified their position within the regime during the early years of state-led development (S. Amin 1970; Waterbury 1983; Grissa 1991; Vatikiotis 1991; Wahba 1994; Murphy 1999; Perkins 2004; Perry 2004; Erdle 2010; Chouikha and Gobe 2015; Alexander 2016). In contrast, political systems became more decentralized in Jordan and Morocco. The regimes in these two countries had stymied political life through the banning of parties (Jordan) and through the proclamation of a state of emergency (Jordan, Morocco) in the immediate postindependence period (see section 6.1.1). During the period of state-led development, both regimes then relaxed restrictions and permitted a limited political pluralism to reemerge (Jordan: 1978 creation of the National Consultative Council, 1984 recon-

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vention of Parliament; Morocco: 1970 abolition of the state of emergency, 1974 readmission and legalization of political parties, 1977 parliamentary elections) (Satloff 1986; Faath 1987; Brand 1992; Robins 2004; Milton-Edwards and Hinchcliffe 2009 [2001]; Sater 2010; Vermeren 2010; Gilson Miller 2013). To judge the final political outcomes, it is important to note that state-led development came significantly later in Jordan and Morocco than in Egypt and Tunisia, at a time when the effects of the 1973 oil boom already made themselves felt. Internationally, two of the four regimes had to weather a number of major international crises that strained public finances, and thereby reduced the viability of state-led development: The Egyptian regime interfered in the North Yemen civil war during 1962–1967 and thereafter continuously fought Israel in the 1967 Six Day War, the War of Attrition, and the 1973 Yom Kippur War (Waterbury 1983; Vatikiotis 1991; Perry 2004). The Moroccan regime entered a war against the Popular Front for the Liberation of Saguia el Hamra and Rio de Oro / Frente Popular para la Libéracion de Saguía el Hamra y Río de Oro (POLISARIO) guerilla in the Western Sahara, which was most intense during the late 1970s / early 1980s. The conflict was still not solved until the end of the examination period in 2011 (Damis 1983; Sutton 1987; Pennell 2000; Hughes 2001; Sater 2010;Vermeren 2010; Gilson Miller 2013). In contrast, Tunisia and Jordan did not have to cope with major international crises during the period of state-led development: Tunisia weathered a limited military confrontation with France in the early 1960s (S. Amin 1970; Perkins 2004; Alexander 2010, 2016). Jordan came out of a war-ridden period (1967 Six Day War, 1970 / 1971 Jordanian civil war, 1973 Yom Kippur War) and then entered calmer waters during the mid-1970s and throughout the 1980s, without direct involvement in a hot war (although the 1980–1988 Iran-Iraq war indirectly affected the country) (Robins 2004). The country that first abandoned the state-led model was Tunisia in 1969, followed by Egypt in 1974. The two monarchies changed policy markedly later, that is during the 1980s (Morocco: 1980, Jordan: 1985) (Waterbury 1983; El Malki 1989; Horton 1990; Brand 1992; Wahba 1994; Owen and Pamuk 1999; El-Said 2002; Knowles 2005; Vermeren 2010; Ben Romdhane 2011; Richter 2011; Alexander 2016). The major reason in all countries was an overstretching of the state-led development model, rooted in extensive public investment and public spending at a time when domestic resources were unsufficient (incompatibility between industrialization and mass welfare). In the end, the lack of domestic resources had to be substituted for ever more by foreign loans (S. Amin 1970; E. Hermassi 1972; A. M. Findlay 1984; Sluglett and Farouk-Sluglett 1984; Satloff 1986; Pomfret 1987; Rhazaoui 1987; Khrouz 1988; El Malki 1989; Horton 1990; Feiler 1994; Wahba 1994; Murphy 1999; Perkins 2004; Erdle 2010; Ben Romdhane 2011; World Bank

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2017; Chouikha and Gobe 2015). High population growth, itself accelerated by state-led development, constituted an additional burden (Winckler 1997; World Bank 2017). In the cases of Egypt (Yemen 1962–1967, Six Day-War 1967, War of Attrition) and Morocco (Western Sahara), high war costs exacerbated the strain (Waterbury 1983; Vatikiotis 1991; Owen and Pamuk 1999). Morocco and Jordan, which pursued the model until the 1980s, also faced the adverse effects of the two 1970s oil booms and the ensuing global economic crisis. These were a consumption boom triggering high inflation, Dutch disease causing a fall in agricultural production, a recession in major export markets, a surge and subsequent fall of phosphate prices, persistently high energy import prices, and a cutback on foreign aid. Finally, these effects depleted their foreign-exchange reserves (Mazur 1979; Salmi 1979; A. M. Findlay 1984; Sluglett and Farouk-Sluglett 1984; Satloff 1986; Pomfret 1987; Rhazaoui 1987; Sutton 1987; Swearingen 1987, Khrouz 1988; Swearingen 1988; El Malki 1989; Horton 1990; Morrisson 1991b; Feiler 1994; Robins 2004; Knowles 2005; World Bank 2017). Ultimately, all four countries reacted to the imbalances by reorienting their economic policy towards a form of economic opening called Infitah (Egypt, Tunisia, Jordan), or they pursued structural adjustment right away (Morocco).

6.1.3

Infitah

Forced by financial crises that revealed the non-viability of state-led development, the four regimes abandoned the state-led development model. Three of them (Egypt, Tunisia, and Jordan) reoriented economic policy towards an opening (Infitah) to more private investment and to freer international economic exchange, while they kept the level of state intervention in the economy relatively high. As the only country among the four, Morocco did not switch to Infitah but pursued structural adjustment—that is more comprehensive and much deeper reforms that significantly reduced state intervention in the economy—right away. The first country to start with Infitah was Tunisia in 1969, followed by Egypt in 1974. Jordan changed policy only in 1985 / 1986. Morocco, which skipped Infitah, initiated the policy turn to structural adjustment in 1980 (Waterbury 1983; Satloff 1986; Vatikiotis 1991; Brand 1992; Feiler 1994; Wahba 1994; Murphy 1999; Perkins 2004; Knowles 2005; Harrigan and El-Said 2009; Erdle 2010; Alexander 2016). Several economic reforms constituted the core of the Infitah policy program: First, an easing of restrictions for private investment, both domestic and foreign. Private investment should raise capital accumulation (and thus bring forward industrialization), and it should create jobs to reduce persistent unemployment. The hope

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was that FDI would have additional benefits, especially a transfer of technology that would lead to productivity increases and to a positive effect on the capital account and on foreign-exchange reserves. In both Egypt and Tunisia, the liberalization and promotion of private investment was pursued by creating a dual economy, with starkly differing legislation for private and public enterprises. Second, a fundamental reorientation of economic policy from self-sufficiency (pursued through ISI policies) to export promotion (aligned on perceived comparative advantage). Third, an easing of restrictions on the domestic trade and international transfer of foreign exchange, which complemented the liberalization of private investment. Fourth, a facilitation of imports through the reduction of quantitative restrictions and through the abolition of state import monopolies. Fifth, a partial breaking up of the corporatist system of interest mediation to allow for tripartite negotiations between individual “social partners,” that is labor, employers, and the state. Sixth, a decentralization of the management of SOEs and an orientation on profit-related criteria. The goal was to make SOEs more efficient, which constituted a first step towards privatization (although privatization was not an official policy goal at the time) (Waterbury 1983; A. Findlay 1984; Satloff 1986; Bellin 1991; Brand 1992; Wahba 1994; Perkins 2004; Harrigan and El-Said 2009; Erdle 2010; Richter 2011; Alexander 2016). However, despite the Infitah reforms, neither domestic private investment nor FDI did substantially increase. In Egypt and Tunisia, the public share in total investment and in total employment in fact increased during the Infitah period. Besides, most private capital was invested in the service sector, to the detriment of industrialization (which also reduced potential positive effects on employment) (Grissa 1991; Wahba 1994; Beattie 2000; Perkins 2004; Farah 2009; Chouikha and Gobe 2015; Alexander 2016). The two oil crises / booms of the 1970s compounded the economic impact of Infitah reforms in Egypt and Tunisia: On the one hand, the massive increase of rent inflows (from hydrocarbons, other raw materials, worker remittances, and foreign aid) boosted total investment and GDP growth. On the other hand, the rent inflows drove up imports (facilitated by the liberalization of import regulations) and fuelled inflation—although the rent inflows also stimulated exports, but their effect on imports was disproportionately stronger. Concomitantly, rent inflows nurtured Dutch Disease (which led to long-term deindustrialization). Ultimately, budget deficits and current-account deficits skyrocketed, substantially increasing the countries’ external debt burden (A. Findlay 1984; Wahba 1994; G. A. Amin 1995; R. J. King 1998; Murphy 1999; El-Ghonemy 2003; Perkins 2004; Ikram 2006; Noland and Pack 2007; Farah 2009; Erdle 2010; World Bank 2017; Chouikha and Gobe 2015; Alexander 2016). When the oil price began its downward movement in the early 1980s, macroeconomic fundamentals further worsened,

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until they reached nonsustainable levels by the mid-1980s (El-Ghonemy 1998; R. J. King 1998; Murphy 1999; Perkins 2004; Farah 2009; Soliman 2011 [2006]; World Bank 2017; IMF 2014; Alexander 2016). In Jordan, this was the case throughout its short period of Infitah (1985 / 1986–1988), which coincided with the height of the 1980s economic crisis (Brand 1992; Feiler 1994; El-Said 2002; Knowles 2005; Richter 2011; World Bank 2017; IMF 2014). Nevertheless, the high rent inflows of the mid-1970s to early 1980s markedly improved socioeconomic indicators in Egypt and Tunisia through higher average per capita incomes and through higher social spending by the state. Thus poverty declined, health conditions improved (which raised average life expectancy), and average educational levels rose (Hinnebusch 1985; El-Ghonemy 1998; Ikram 2006; Noland and Pack 2007; Harrigan and El-Said 2009; Ben Romdhane 2011; World Bank 2017; El-Said and Harrigan 2014). On the downside, the resource boom reduced real-wage incomes through high inflation, while capital holders could increase their fortune. Thus, average income inequality and average wealth inequality increased (Hinnebusch 1985; Perkins 2004; Ikram 2006; Farah 2009; World Bank 2017; Alexander 2016). With the drop in oil prices during the 1980s, the rate of socioeconomic improvement could not be maintained, and conditions stagnated or worsened due to low economic growth coupled with persistently high population growth (Vatikiotis 1991; El-Ghonemy 2003; Richards and Waterbury 2008; Farah 2009; Roll 2010; Soliman 2011 [2006]; World Bank 2017). Once again, Jordan did only experience the latter developments, as Infitah took place relatively late (during the mid-late 1980s) (Feiler 1994; El-Ghonemy 1998; Robins 2004; Harrigan and El-Said 2009; World Bank 2017; Robins 2004). In the beginning, the turn to Infitah in Egypt, Tunisia, and Jordan was facilitated by domestic political processes: First, “social forces with an interest in these changes” politically gained the upper hand (“the private bourgeoisie,” “small and medium capitalists,” and “segments of the state bourgeoisie” interested in exploiting their position for private economic gain) (Hinnebusch 1985; Murphy 1999; Erdle 2010). Second, Infitah was perceived as crucial to increase political support and foreign aid from Western countries (Osman 2010). But the adverse economic consequences of the oil boom—which were compounded by Infitah policies—soon made domestic politics more confrontational: rising subsidy payments due to high inflation increased budget deficits and the external debt of the state. Pressure to reduce these imbalances drove the governments into subsidy cuts. This triggered recurrent confrontation with disaffected societal groups, culminating in large-scale riots (1977 in Egypt, 1978 and 1984 in Tunisia) (Paul 1984; Ruf 1984; Seddon 1984; Rivlin 1985; Seddon 1986; Wahba 1994; Murphy 1999; Beattie 2000; Perkins 2004; Perry 2004; Ikram 2006; Farah 2009; Erdle 2010; Ben Romdhane 2011; Soliman

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2011 [2006]; Chouikha and Gobe 2015; Alexander 2016). The turbulences pitted the regimes against the working class, which fought against the deterioration of living standards and the loss of former privileges. The ensuing repression of the left facilitated the rise of Islamist groups. These groups mushroomed after the 1967 defeat of Arab forces in the war with Israel and received another boost by the 1979 Iranian revolution. After an initial period of wary coexistence, the Egyptian and Tunisian regime confronted and repressed their Islamist opposition (Vatikiotis 1991; Murphy 1999; Beattie 2000; Perkins 2004; Perry 2004; Farah 2009; Erdle 2010; Ben Romdhane 2011; Chouikha and Gobe 2015; Alexander 2016). In Jordan, similar processes—driven by the economic crisis—were at work (amplified by the rising pressure on the state to reduce budget deficits), although the impact of Infitah reforms was probably negligible. Thus, in 1986 students at Yarmouk University engaged in a battle with the security forces to protest against the increase of university fees. As in Egypt and Tunisia, Islamist actors became the primary adversaries of the regime (Satloff 1986; Milton-Edwards and Hinchcliffe 2009 [2001]). By economically nurturing the bourgeoisie, Infitah set in motion processes of political change. In Egypt and Tunisia, the strengthening of the bourgeoisie to the detriment of the working class led to the breakup of the single parties and to the introduction of limited multi-partyism. The new core constituencies (those that advocated a continuation of economic liberalization) dominated the new ruling party, while different offshoots established themselves as opposition parties (which were then gradually legalized) (Springborg 1989; Vatikiotis 1991; Murphy 1999; Beattie 2000; Perkins 2004; Perry 2004; Erdle 2010; Ben Romdhane 2011; Chouikha and Gobe 2015; Alexander 2016). In Jordan, multi-partyism was already in place when Infitah began, though it remained constrained until 1989. The political effects of the Jordanian Infitah are unclear, especially as the period was so short (a duration of approximately three years). Processes of political liberalization in Jordan already started in the early-mid 1980s—before all with the 1984 reconvention of Parliament—and continued unabatedly throughout the Infitah period (1986: new Electoral Law). They finally culminated in the parliamentary elections of 1989 (at the beginning of the period of stabilization and structural adjustment), the first ones since 1967 (Satloff 1986; Brand 1992; Ryan 2002; Robins 2004; Milton-Edwards and Hinchcliffe 2009 [2001]). Internationally, the situation was relatively calm for two of the three countries that pursued Infitah (the exception being Tunisia): After the 1973 Yom Kippur War, Egypt was not involved in an international war until the Gulf War of 1990 / 1991. Nevertheless, the peace process with Israel caused disturbances, as it isolated Egypt among the countries of the Arab League for roughly a decade (Vatikiotis 1991; Perry 2004). In Jordan, the short period of Infitah (1985 / 1986–1988) continued within the

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relatively calm waters of the state-led development period. Contrary to the 1960s– 1970s, the country was not involved in an international war. Nevertheless, there were indirect ramifications on Jordan of two conflicts in neighboring countries: the 1980–1988 Iran-Iraq war and the 1987 Intifada in the Palestinian territories occupied by Israel (Robins 2004). The exception to this rule is Tunisia, which faced a feud with Libya during the 1970s–1980s—a conflict that included militant attacks on targets within Tunisia, allegedly supported by the hostile neighbor (Perkins 2004; Alexander 2010; Chouikha and Gobe 2015; Alexander 2016). Ultimately, both the Egyptian and the Tunisian regime could sustain Infitah until the early 1980s due to persistently high rent inflows. The Egyptian regime adjusted it in the early 1980s through an active industrial policy (Vatikiotis 1991; Soliman 2011 [2006]). But when the oil price plunged (deepest falls in 1982 and 1986), structural adjustment could not be avoided by any of the three countries, as the budget deficits, the current-account deficits, and the external debt levels skyrocketed (Vatikiotis 1991; Satloff 1992; Feiler 1994; Piro 1998; Murphy 1999; El-Said 2002; Ryan 2002; El-Ghonemy 2003; Wils 2003; Perkins 2004; Knowles 2005; Ikram 2006; Farah 2009; Harrigan and El-Said 2009; Soliman 2011 [2006]; World Bank 2017). In all three countries that had pursued Infitah, the IMF came on the scene as a lender of last resort. It made lending conditional on structural adjustment. Tunisia was the first country of the three that concluded a Standby Arrangement with the IMF in 1986. Jordan followed suit in 1989. Egypt could avoid comprehensive structural adjustment until 1991, due to continuous strategic rent from its international sponsors. After the Gulf war of 1990 / 1991 a 50-percent debt cut conditional on policy reforms—proposed by the Paris Club of international lenders—finally enticed Egypt into the policy turnaround (Payne 1993; Murphy 1999; El-Ghonemy 2003; Perry 2004; Knowles 2005; Farah 2009; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; Richter 2011; Soliman 2011 [2006]; Chouikha and Gobe 2015; Alexander 2016).

6.1.4

Stabilization and Structural Adjustment

Forced by deepening macroeconomic imbalances and finally by unsustainable foreign-exchange shortages,4 the four MENA countries under investigation initiated the stabilization and structural adjustment period at different points in time: Morocco 4

For foreign-exchange shortages as the final factor initiating IMF / WB-led stabilization and structural adjustment, see White (2001, 135–137), Richter (2009), Richter (2010, 13–14, 23–25), and Richter (2013).

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in 1980; Tunisia in 1986; Jordan in 1989; and Egypt in 1991. The basis of stabilization and structural adjustment were emergency-lending agreements with the IMF: In Egypt, Tunisia, and Jordan, initial IMF lending was granted under the umbrella of Standby Arrangements. In Morocco, the first IMF Standby Arrangement of 1982 was preceded by two IMF Extended Fund Facility (EFF) lending arrangements. In Egypt, IMF lending was part of the more comprehensive Economic-Reform and Structural-Adjustment Program (ERSAP), which tied debt relief and emergency lending to the implementation of economic reforms (Rhazaoui 1987; Sutton 1987; El Malki 1989; Horton 1990; Satloff 1992; Payne 1993; Pripstein Posusney 1997; ElGhonemy 1998; Murphy 1999; Ryan 2002; El-Ghonemy 2003; Wils 2003; Perkins 2004; Knowles 2005; Ikram 2006; Alissa 2007; Farah 2009; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; Richter 2009; Harrigan and El Said 2010). The initial IMF agreement was followed in each case by further IMF lending agreements, which covered a period of several years. Ultimately, Egypt concluded four agreements with the IMF during 1987–1996 (three Standby Arrangements and one EFF; total loan commitments: Special Drawing Rights (SDR) 1.2 billion), Tunisia two during 1986–1988 (one Standby Arrangement and one EFF; total loan commitments: SDR 311 million), Jordan six during 1989–2002 (three Standby Arrangements and three EFFs; total loan commitments: SDR 744 million), and Morocco 11 during 1980–1992 (seven Standby Arrangements, two EFFs, and two Compensatory Financing Facilities (CFFs); total loan commitments: SDR 3.4 billion). On the back of IMF agreements, the WB concluded policy-based lending agreements with the four countries under examination. WB engagement usually covered a longer time frame than IMF lending. Thus, Tunisia concluded ten agreements with the WB during 1986–2005 (total loan commitments: USD 1.6 billion), Jordan eight during 1989–2002 (total loan commitments: USD 870 million), and Morocco 18 during 1980–2010 (total loan commitments: USD 3.1 billion). Egypt is an exception, as it only concluded one agreement with the WB in 1991 (total loan commitment: USD 300 million) (Sutton 1987; Horton 1990; Morrisson 1991b; Vatikiotis 1991; Satloff 1992; Payne 1993; Nsouli et al. 1995; Murphy 1999; The World Bank 1999; Ryan 2002; Schlumberger 2002; Wils 2003; Robins 2004; Knowles 2005; Alissa 2007; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; Richter 2009; Roll 2010; Soliman 2011 [2006]; Bertelsmann 2012c). Apart from direct lending, IMF agreements served as policy anchors that induced bilateral and commercial creditors to reschedule and (in rare cases) to cancel their debt claims and / or to offer new lending. During the period 1983– 2002, bilateral creditors thus cancelled debt worth USD 25 billion in Egypt (half the country’s external debt stock of the late 1980s), USD 2.7 billion in Morocco,

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and USD 700 million in Jordan, but none in Tunisia. Besides, bilateral creditors rescheduled principal and interest payments amounting to USD 25 billion in Egypt (the other half of the country’s external debt stock of the late 1980s / early 1990s), USD 8 billion in Morocco, and USD 6.5 billion in Jordan, but once again none in Tunisia. On top of that, commercial creditors rescheduled principal and interest payments worth USD 7.8 billion in Morocco and USD 800–900 million in Jordan (but none in Tunisia, while Egypt’s external debt was nearly completely bilateral) (Sutton 1987; Payne 1993; Nsouli et al. 1995; Mitchell 2002; Schlumberger 2002; Wils 2003; Perry 2004; Knowles 2005; Ikram 2006; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; Soliman 2011 [2006]). Economic policies in the four MENA countries during the period of stabilization and structural adjustment targeted both the demand side and the supply side of the economy. Depending on their presumed effects, these policies could be classified as either stabilization or structural-adjustment policies, while several policies combined both aspects (see section 2.1). On the demand side, the pure stabilization policies (excluding policies of economic liberalization) implemented by all four governments at some point of time were the raising of tax income (through a widening of the tax base, an increase of tax rates, or the introduction of new taxes), the curbing of public investment, the reduction of subsidies for SOEs, and wage restraints or wage freezes for public-sector employees (Rhazaoui 1987; Sutton 1987; El Malki 1989; Horton 1990; Morrisson 1991b; Payne 1993; Nsouli et al. 1995; El-Ghonemy 1998; Murphy 1999; WTO 1999; Schlumberger 2002; Kienle 2004; Robins 2004; Knowles 2005; Ikram 2006; Harrigan and El-Said 2009; MiltonEdwards and Hinchcliffe 2009 [2001]; Erdle 2010; Harrigan and El Said 2010; Sater 2010; Vermeren 2010). Economic-liberalization policies targeting the demand side were trade liberalization (concerning tariffs, non-tariff barriers, quantitative restrictions, trade monopolies, etc.), consumer-price liberalization (mostly in the form of consumer subsidy cuts), liberalization of interest rates, liberalization of international payments, and the liberalization of the exchange rate (see section 6.1.5). All of these economic-liberalization policies were instruments of structural adjustment. With the exception of trade liberalization and the liberalization of international payments, they also served the goal of macroeconomic stabilization. On the supply side, the only stabilization policy was privatization (with its proceeds presumedly ameliorating the state budget), which was also an economicliberalization policy and an instrument of structural adjustment. Most other supplyside policies constituted instruments of structural adjustment (the partial exception being investment promotion), three of which were also policies of economic liberalization: Producer-price liberalization; investment liberalization (both of domestic private and foreign investment); and trade liberalization with its assumed long-term

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supply side effects (see section 6.1.5). Other structural-adjustment policies aimed at sectoral restructuring, mostly in services, for example in banking, financial services (including trading of financial assets through the stock market), insurance, telecommunications, and transport. In several of these sectors, new sectoral watchdog agencies with the mission to regulate competition were set up (Payne 1993; Nsouli et al. 1995; WTO 1995; Gregson 1998; Murphy 1999; WTO 1999; Schlumberger 2002; WTO 2003; Schlumberger 2004; Knowles 2005; WTO 2005b; Ikram 2006; Mohieldin and Nasr 2007; Harrigan and El-Said 2009; WTO 2009a, b; Erdle 2010; OECD 2010; Roll 2010). Besides, all four regimes initiated general competition policy, whose basis was a Competition Law (Murphy 1999; WTO 2003; Ben Jelili 2005; WTO 2005a, b; OECD 2007; WTO 2009a, b; Bertelsmann 2010b; OECD 2010, 2012). Structural-adjustment policies were complemented by the promotion of private investment (both domestic and foreign), through the successive overhaul of Investment Codes that included measures of investment liberalization and investment incentives (e.g. tax benefits and subsidies on infrastructure) (Rhazaoui 1987; Sutton 1987; Payne 1993; Nsouli et al. 1995; Denoeux and A. Maghraoui 1998b; Piro 1998; Murphy 1999; WTO 1999; Schlumberger 2002; WTO 2003; Wils 2003; Schlumberger 2004; Knowles 2005; WTO 2005b; OECD 2007; Rutherford 2008; Harrigan and El-Said 2009; WTO 2009a, b; Erdle 2010; OECD 2010, 2012, 2013; AMDI 2015; WTO 2016). In the first phase of the reform process (from the mid-1980s up to the mid-late 1990s), the four governments concentrated on macroeconomic stabilization policies as advocated by the IMF, while they gradually added pure economic-liberalization policies to their reform programs. From the mid-1990s up to the 2000s (once progress in stabilization had been achieved), the focus of economic policy shifted from the demand side to the supply side of the economy (Rhazaoui 1987; Sutton 1987; El Malki 1989; Horton 1990; Payne 1993; Saghir 1993; Nsouli et al. 1995; El-Ghonemy 1998; Murphy 1999; WTO 1999; Schlumberger 2002; Kienle 2004; Schlumberger 2004; Knowles 2005; WTO 2005a, b; Ikram 2006; OECD 2007; Harrigan and El-Said 2009; WTO 2009a, b; Erdle 2010; Harrigan and El Said 2010; OECD 2010; Sater 2010; Richter 2011; OECD 2012, 2013)(see also section 6.1.5). All four governments sought to anchor the economic reform process through multilateral and bilateral trade agreements. By 1990, three of the four countries had joined the General Agreement on Tariffs and Trade (GATT) (the exception being Jordan, which joined the successor institution WTO only in 2000). In addition, from the mid-1990s up to the early 2000s, all of them signed Euro-Mediterranean Association Agreements (EMAAs): Tunisia in 1995 (in force since 1998); Morocco in 1996 (in force since 2000); Jordan in 1997 (in force since 2002); and Egypt in 2001 (in force since 2004). The EMAAs obliged the four countries, among other things,

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to eliminate import tariffs for finished industrial goods from the EU within 12 years (Sutton 1987; WTO 1995; Licari 1998; Murphy 1999; WTO 1999; Denoeux 2001; El-Said 2002; Haddadi 2003; WTO 2003; WTO 2005b; Alissa 2007; Noland and Pack 2007; OECD 2007; al Khouri 2008; Escribano and Lorca 2008; Rutherford 2008; Hoekman and Kostecki 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; WTO 2009a, b; Erdle 2010; OECD 2012; European Commission 2014; Alexander 2016). To prevent disastrous effects on their local industries, the Tunisian and Moroccan governments initiated Mise-à-Niveau programs, with the aim to raise competitiveness of domestic industries through public support. Moreover, to avoid a hub-and-spokes trading structure, all four governments pursued South-South integration through the Greater Arab Free Trade Area (GAFTA; initiated in 1997, fully in force since 2005) and the Agadir Agreement (signed in 2004, in force since 2007) (Licari 1998; Murphy 1999; WTO 1999; El-Said 2002; WTO 2003; Perkins 2004; WTO 2005a, b; Noland and Pack 2007; OECD 2007; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; WTO 2009a; Erdle 2010; Sater 2010; Chouikha and Gobe 2015; Alexander 2016). Economically, the 1990s (i.e. the decade when stabilization and structural adjustment were pursued in all four MENA countries) were a difficult decade: At the beginning, the Gulf Crisis kept economic activity relatively low in all four countries. During the mid-late 1990s, economic growth then rose markedly in Egypt and Tunisia. In Morocco, growth was hampered by a succession of exceptionally harsh droughts. In Jordan, it was sluggish due to the low oil price and the languishing Iraqi market. In the late 1990s, the Asian Financial Crisis brought down economic growth rates in all four countries. After all, the decade average of real GDP growth was higher than during the 1980s in Tunisia and Jordan, but lower in Egypt and Morocco (see section 6.2.2). Other macroeconomic variables improved more clearly: In all four countries, the average budget deficit and the average trade deficit were lower during the 1990s than during the 1980s. Likewise, the currentaccount deficit decreased in three of the four countries (the exception being Jordan). Further to that, relative net FDI inflows increased in three of the four countries (the exception being Egypt), while international reserves rose in all of them. The movement of the external debt stock differed: it increased in Tunisia and Jordan, while it declined in Egypt and Morocco (see section 6.2.1). At the same time, socioeconomic conditions did not significantly improve: Despite markedly lower inflation rates and population growth rates in all four countries, the decade average for real GDP per capita growth did only increase in Tunisia and Jordan from the 1980s up to the 1990s (while it decreased in Egypt and Morocco). The trend in the income dimension of socioeconomic development was unclear: While inflation decreased, relative remittance income decreased as

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well, and the movement of the official unemployment rate was ambiguous. At the same time, the official poverty rate of the 1990s was only lower than during the 1980s in Morocco, while its movement was ambiguous in the other three countries. Likewise, there was no consistent trend in income inequality, which was higher during the 1990s than during the 1980s in Jordan, lower in Tunisia, approximately the same in Morocco, and unclear due to a lack of data in Egypt. Ultimately, the Human-Development Index (HDI) ranking in global comparison deteriorated in all four countries during the 1990s (see section 6.2.2). The domestic political situation of the 1990s differed between the two monarchies and the two presidential republics: whereas the Jordanian and Moroccan monarchical regimes opened up their political systems through political liberalization (in Jordan until the mid-1990s, in Morocco throughout the 1990s), the Egyptian and Tunisian presidential-republican regimes once again began to close their political systems after a period of limited political liberalization (which took place throughout the 1980s in Egypt and during the late 1980s in Tunisia). Ultimately, in both Egypt and Tunisia the level of repression mounted significantly during the 1990s. It was further pushed up by the violent confrontation of the regimes with their Islamist opposition (see sections 6.3.2.1 and 6.3.2.2). But concomitantly, political liberalization did not pacify domestic politics in Jordan and Morocco: In Jordan, countrywide riots in 1996 brought political liberalization to an end, as the regime geared up repression to regain control (Schwedler and Andoni 1996; Ryan 1998b, 2002; Wils 2003; Knowles 2005). In Morocco, the low economic growth together with the adverse effects of macroeconomic stabilization and structural adjustment nurtured societal resistance against the regime, above all by the unemployed youth, workers, and public sector employees (Denoeux and A. Maghraoui 1998b, a; Pennell 2000; Denoeux 2001; El-Mikawy and Pripstein 2002; Sater 2010; Vermeren 2010). In all four countries, the Gulf war of 1990 / 1991 was the major international event of the early decade, affecting politics and the economy in various ways. While Egypt and Morocco joined the United States-led Desert Storm coalition, Tunisia and Jordan had to pay dearly for not joining, as the United States and the Gulf countries slashed their economic assistance. At the same time, in Egypt and Jordan the first half of the 1990s was marked by the Palestinian-Israeli and the subsequent Jordanian-Israeli peace process (1993 Oslo Accords, 1994 Jordan-Israel peace treaty) (Payne 1993; Feiler 1994; Murphy 1999; Pennell 2000; Ryan 2002; Perkins 2004; Perry 2004; Robins 2004; Knowles 2005; Lucas 2005; Milton-Edwards and Hinchcliffe 2009 [2001]; Osman 2010; Sater 2010; Vermeren 2010; Soliman 2011 [2006]; Gilson Miller 2013; Alexander 2016). After all, the mid-late 1990s were a relatively peaceful period in all four countries, when major international conflicts were either absent / completely under control (e.g. between Egypt and Israel as well as between Jor-

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dan and Israel) or entering calmer waters (as the Western Sahara conflict between Morocco and the Algerian-backed POLISARIO) (Pennell 2000; Ryan 2002; Perry 2004; Robins 2004; Lucas 2005; Osman 2010; Sater 2010; Zunes and Mundy 2010). During the 2000s, the focus of economic reforms shifted to the supply side of the economies. Reforms included the liberalization of investment in major service subsectors, the creation of an institutional framework to regulate competition, the promotion of private investment, and privatization (WTO 2003; Schlumberger 2004; WTO 2005a, b; OECD 2007; Demmelhuber 2009; Harrigan and El-Said 2009; WTO 2009a, b; Bertelsmann 2010a; Erdle 2010; OECD 2010; Roll 2010; WTO 2016) (see also section 6.1.5). Economic liberalization on the demand side slowed down in most countries, although there were exceptions, notably trade liberalization (which continued at increasing speed in all four countries) and other country-specific economic-liberalization policies. Two examples are exchange-rate liberalization in Egypt (which came under pressure from its USD currency peg in the early 2000s and thus introduced managed floating of the Egyptian Pound (EGP) in 2003, a reform that triggered stark devaluation), and consumer-price liberalization / subsidy cuts in Egypt and Jordan (especially during 2005–2008 due to the rise of international commodity prices in the slipstream of the third oil boom) (see section 6.1.5). Structural adjustment on the supply side and the remaining economic-liberalization policies on the demand side were enhanced by reform-minded governments (Jettou governments 2002–2007 in Morocco, Nazif governments 2004–2011 in Egypt) or by the temporary suspension of Parliament (as in Jordan during 2001–2003 and 2009–2010) (Robins 2004; Ryan and Schwedler 2004; Lucas 2005; Choucair 2006; Rutherford 2008; White 2008; Harrigan and El-Said 2009; Peters and P. Moore 2009; Sater 2009b, a; Vermeren 2009; Henry and Springborg 2010; Roll 2010; Sater 2010; Vogt 2011;Bertelsmann 2012b; OECD 2013). However, the economic crisis of the early 2000s and the commodity-price boom of the mid-2000s induced some of the four governments to partially reverse earlier demand-side reforms, notably consumer-price liberalization / subsidy cuts (which were partly rescinded in Egypt during 1998–2004 as well as in Tunisia and Morocco during 2003–2008) (S.A. 04.08.2006; Tounassi 17.05.2008; Farah 2009; Joffè 2009; WTO 2009b; Henry and Springborg 2010; Sater 2010; WTO 2016). Further to that, the four governments tried to counter the rising budget deficits of the 2000s with macroeconomic stabilization policies, such as privatization, “release of public sector workers, and a broadening of the tax base” (Alissa 2007; OECD 2007; Bertelsmann 2008c, d; Demmelhuber 2009; OECD 2009; WTO 2009a, b; Bertelsmann 2010c; Sater 2010; WTO 2016). Due to negative effects from the burst of the Dotcom bubble in Western industrialized economies during 2000–2001, from the 11 September 2001 attacks, and

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from the ensuing United States War on Terror (culminating in the 2003 United States invasion of Iraq), economic growth remained depressed in Egypt and Tunisia (the latter additionally had to cope with a 2002 terrorist attack) during the early 2000s, while it seemed not as affected in Jordan and Morocco. In the latter two countries, higher foreign aid and remittances (Jordan) and better weather (Morocco) increased growth rates. Since 2004 / 2005, growth rates rose starkly in three of the four countries with the beginning of the third oil boom (the partial exception being Morocco). During this boom, all four countries benefitted through increased revenue from hydrocarbons (Egypt and Tunisia), remittances, tourism, and significantly higher FDI. Finally, the World Financial Crisis, which unfolded during 2007–2009, brought the third oil boom to an end. After all, average real GDP growth rates were higher during the 2000s than during the 1990s in Egypt, Jordan, and Morocco, but lower in Tunisia (see section 6.2.2). The third oil boom and the ensuing World Financial Crisis affected other macroeconomic variables as well: The average budget deficit and the average trade deficit both rose in Jordan and Morocco during the 2000s compared to the 1990s. In Tunisia, both deficits declined. In Egypt, the trade deficit declined, while the movement of the budget deficit remains unclear due to incomplete data. At the same time, the current-account deficit declined in all four countries, and relative FDI net inflows as well as international reserves rose, while the external debt stock decreased in three of the four countries (the exception being Tunisia, where it stayed flat compared to the 1990s) (see section 6.2.1). The socioeconomic indicators of the 2000s were driven by high average real GDP growth, falling population growth, and low inflation, which (despite the inflationary effects of the third oil boom) once again decreased on average compared to the previous decade. Thus, real GDP per capita growth was higher on average during the 2000s compared to the 1990s in three of the four countries (the exception being Tunisia, where it stayed flat). Concomitantly, rising remittances and falling official unemployment further improved the income dimension of socioeconomic development (Egypt being an exception in both indicators). However, an improved income side of socioeconomic development did not reduce poverty in all four countries: the official average rate of the 2000s was only lower compared to the 1990s in Morocco, while it was higher in Egypt and had no clear trend due to missing data in Tunisia and Jordan. Likewise, official income inequality was only lower in Tunisia, while it rose in Morocco and stayed flat in Jordan (data for Egypt was missing). After all, the HDI score improved in global comparison in all four countries during the 2000s (see section 6.2.2). The low economic growth of the early 2000s (in Egypt and Tunisia) and the ensuing high inflation period of the third oil boom (in all four countries) fuelled societal tensions: In the early 2000s, the Egyptian regime got heavily embattled at

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the ballot box, with a disastrous performance of the ruling National Democratic Party (NDP) in the 2000 parliamentary elections (Rutherford 2008; Demmelhuber 2009). In Tunisia, popular riots took place in the southern provinces in spring 2000, followed by djihadist terrorist attacks on the island of Djerba in 2002 (Perkins 2004; Henry 2008; Erdle 2010). In Morocco, the social unrest of the 1990s continued during the first half of the 2000s, with major strikes and demonstrations by workers and unemployed graduates (Denoeux 2001; Howe 2001; Bertelsmann 2003; Haddadi 2003; Bank 2012; Desrues 2012; Daadaoui 2013). To counter popular dissatisfaction, three of the four regimes turned to limited political liberalization in the late 1990s / early 2000s (the exception being Jordan; in Morocco, this process continued unabatedly from the early 1990s onwards), reforms that were also driven by international pressure, especially United States democracy promotion after 2002 (see section 6.3.2.1). In the mid-late 2000s, the third oil boom counterintuitively did not ease the tensions and popular resistance instead mounted, visible in more frequent labor action and protests by middle class segments of society, including a large number of civil servants. Protests were fuelled by persisting unemployment and high inflation rates that reduced real incomes. They increasingly included rioting by the rural population that had no access to subsistence agriculture (Demmelhuber and Roll 2007; al Khouri 2008; Rutherford 2008; Joffè 2009; Vermeren 2009; Bertelsmann 2010c, d; Erdle 2010; Osman 2010; Sater 2010; Vogt 2011; Adely 2012; Bertelsmann 2012b, d; Lübben 2012; Albrecht 2013; Clancy-Smith 2013; Rutherford 2013; Chouikha and Gobe 2015; Alexander 2016). The regimes reacted with a further increase in repression (in Jordan since 1999 / 2000, in Morocco since 2003, in Egypt since the mid-2000s), perpetuated by the passing of counterterrorism laws in the aftermath of djihadist attacks (2002 in Tunisia, 2003 in Morocco, 2006 in Jordan; the Egyptian regime still could make use of the state of emergency in dealing with its opponents). By the late 2000s, the level of protest and the degree of organization of oppositional actors had become markedly higher than a decade earlier, while formal channels for the articulation of dissent had been narrowed. Nevertheless, the regimes coupled repression with selective acts of political liberalization, intended to win over moderately religious parts of society (and thus to keep them from supporting Islamist opposition actors) and to placate international actors who expected an improvement of governance including steps towards democratization (United States, EU) (see sections 6.3.2.1 and 6.3.2.2). At the same time, the international situation of the 2000s facilitated the gearing up of repression. It was marked in all four countries by the 11 September 2001 attacks and the ensuing United States War on Terror (in which the United States government first prioritized “security” over political freedom, although it later pushed good governance with the official aim of democracy promotion), which intensified

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security cooperation between the United States and all four countries under examination (most notably Tunisia and Jordan were brought back into the United States fold after the split over the Gulf war 1991). The 2003 United States invasion of Iraq affected all MENA countries through a fall in FDI and tourism revenues (Perkins 2004; Perry 2004; Robins 2004; Knowles 2005; White 2005; Choucair 2006; Alissa 2007; Henry 2008; Joffè 2008; White 2008; Milton-Edwards and Hinchcliffe 2009 [2001]; Erdle 2010; Roll 2010; Sater 2010; Zemni and Bogaert 2010; Zunes and Mundy 2010; Bertelsmann 2012c; Zisenwine 2013; UNCTAD 2014; Chouikha and Gobe 2015; Alexander 2016). Ultimately, the decade of the 2000s was more conflict prone than the 1990s in all four countries under investigation. As a general trend, djihadist activity rose, while dormant international conflicts reheated (e.g. the Western Sahara conflict and the Israeli-Palestinian conflict) (Robins 2004; Knowles 2005; Vermeren 2009; Bertelsmann 2010a; Henry and Springborg 2010; Zunes and Mundy 2010; Bertelsmann 2012a). Beginning in Tunisia in late 2010, the Arab Spring protests finally unfolded throughout the Arab world: In Egypt, they released from power long-time President Mubarak, his inner family circle (most notably his son Gamal, who had held senior positions in the NDP), and his closest political aides in February 2011 (Bertelsmann 2010a; Bishara 2012; Lübben 2012; Shehata 2012; Rutherford 2013). In Tunisia, the protests brought down the core of the regime, including President Ben Ali, members of his extended family in the political apparatus and in business, as well as key members of the ruling party (Bertelsmann 2012d; Willis 2012; Gana 2013; Chouikha and Gobe 2015; Alexander 2016). In Jordan and Morocco, protests were marked, but they did not lead to regime change or to significant changes within the regimes: In Jordan, the government tried to calm down the protests with “economic aid packages,” increases in consumer subsidies and salaries of civil servants, as well as with limited coercion. Besides, the Jordanian King dismissed the government and initiated a constitutional reform (which produced minor amendments) (Vogt 2011; Bank 2012; Bertelsmann 2012b; Ryan 2013; Schwedler 2013). In Morocco, the government raised consumer subsidies, created more jobs in the public sector, increased salaries of civil servants, selectively geared up repression, and coopted parts of the protest movement. Besides, the Moroccan King initiated a reworking of the Constitution resulting in several amendments (including the obligation of the King to select the Prime Minister from among members of the winning party in parliamentary elections / the largest party in Parliament) (Desrues 2012, 2013; Gilson Miller 2013; Mekouar 2013; Bertelsmann 2014b).

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Reform Periods and Economic-liberalization Policies

After the diachronic comparison of the four political economies, this subchapter narrows the focus and summarizes the main facts and insights on economic liberalization in the four MENA countries under investigation (Egypt, Tunisia, Jordan, and Morocco). The subchapter starts with an introductory paragraph that draws a comparative picture of economic liberalization among the four MENA cases, forestalling the synthesis of the within-case analyses in the subsequent paragraphs. In these within-case analyses, I carve out the main policies of economic liberalization during the period 1950–2011 in each of the four MENA countries. To do this, I draw from a detailed account of the four countries’ postindependence political economy that formed the empirical basis for the comparative study in the preceding parts of section 6.1. By reviewing economic liberalization in the four MENA countries during the examination period 1950–2011, one can distinguish several reform periods (RPs) for each country, in which the governments and regimes pursued policies of economic liberalization. These RPs were determined by important national and international events, which started or disrupted economic liberalization (e.g. the change of core regime members, the beginning or end of the interference of international institutions, national or global crises). RPs did not follow each other seamlessly in every case, as they were sometimes interrupted by gap periods (GPs) where economic liberalization did not proceed significantly. Thus, empirically, economic liberalization was not a steady process. Apart from gap periods, it was sometimes even reversed in periods of deliberalization. Over time, economic liberalization in all four countries therefore showed a volatile pattern, although with a positive long-term trend.5 Table 6.1 shows the RPs and GPs that can be discerned for each of the four MENA countries. As defined in section 2.1, policies of economic liberalization are divided into demand-side and supply-side policies: On the demand side, economic liberalization in the four MENA countries under examination comprised trade liberalization (concerning tariffs, non-tariff barriers, quantitative restrictions, trade monopolies, etc.), consumer-price liberalization (mostly in the form of consumer subsidy cuts), 5

An example for this volatile pattern is trade liberalization: After the first liberalizing steps during the 1970s, trade liberalization in Egypt, Tunisia, and Jordan actually regressed during the first half of the 1980s (introduction of new protectionist measures), before the governments once again began to tear down trade barriers towards the end of the 1980s / early 1990s. Even in Morocco, where trade liberalization progressed more uniformly, the pattern during the 1980s was volatile and trade liberalization was interrupted by periods of deliberalization (Richter 2011).

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Table 6.1 Reform periods and gap periods of economic liberalization in Egypt, Tunisia, Jordan, and Morocco, 1970–2011 Country

RP 1

Egypt Tunisia Jordan

1974–1981 1987–1990 1991–1998 1999–2003 2004–2011 1982–1986 1970–1981 1985–1995 1995–2011 1982–1985 1972–1982 1986–1990 1992–1999 1999–2004 2004–2011 1982– 1985, 1990–1991 1980–1982 1983–1985 1986–1993 1993–1999 1999–2011

Morocco

RP 2

RP 3

RP 4

RP 5

GPs

liberalization of interest rates, liberalization of international payments, and the liberalization of the exchange rate. On the supply side, economic liberalization comprised producer-price liberalization, investment liberalization (both of domestic private and foreign investment6 ), and privatization.7 Economic liberalization in the postindependence period of the four countries began when the imbalances on the state budget and the international accounts had become unsustainable in the long run, while the regimes also faced a range of incentives to change policy. Tunisia was the first country to initiate economic liberalization in 1970, followed by Egypt in 1974. Both countries had implemented extensive statist development models (although more so in the case of Egypt), which had finally overstretched their finances. During the 1960s and early 1970s, Egypt additionally suffered from high war costs. Turning to Infitah was, for both the Tunisian and the Egyptian regime, a measure to unburden themselves from spending obligations (above all public investment and social spending). Concomitantly, they could build up new constituencies within the private-sector bourgeoisie. The hope was that the budget deficit would be reduced by less spending and by more efficient use of resources, while the international accounts would ameliorate through higher exports, higher FDI, and more international donor money (Waterbury 1983; A. Findlay 1984; Hinnebusch 1985; Bellin 1991; Grissa 1991; Vatikiotis 1991; Wahba 1994; Murphy 1999; Perkins 2004; Erdle 2010; Osman 2010; Chouikha and Gobe 2015; Alexander 2016). Jordan also started economic liberalization on a limited scale since the early 1970s, although the motive was primarily to revive the economy after the devastat6

Foreign investment can be further differentiated into FDI and foreign “portfolio investment” (IMF 2009: 100–111). 7 For clarification, trade liberalization could also be a supply-side policy (through possible competition effects and other efficiency effects), but it is solely treated as a demand-side policy here.

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ing civil war of 1970–1971—rather than to rectify macroeconomic ills due to statist development policies (Mazur 1979; Richter 2011). Both Jordan and Morocco only turned to economic liberalization on a broader scale, when the post-oil-boom effects had strained their budgets and international accounts to an unbearable extent . Ultimately, post-oil-boom effects brought all four countries to the brink of bankruptcy during the 1980s, although at different points in time. The precise point in time, when bankruptcy of the state became imminent, differed significantly among the four countries. The decisive factors were the availability of donor money and oil-related rent income, themselves a result of a country’s location and strategic importance—thus Jordan and Egypt could hold out longer, nearly defaulting on their debt only in 1989 and 1990, while Morocco and Tunisia already stood at the brink of bankruptcy in 1983 and 1986 respectively (Richter 2013). Facing imminent bankruptcy, all four countries turned to the IMF for fresh credits and for an official seal of approval to keep bilateral and commercial lending flowing (in combination with debt rescheduling and cancellation). In the end, the involvement of the IMF and the WB gave economic liberalization in the four countries a big push. The major reason was loan conditionality, that is the disbursement of credit tranches was made conditional on progress in agreed-upon reform policies, including economic liberalization (Sutton 1987; Horton 1990; Morrisson 1991b; Vatikiotis 1991; Satloff 1992; Ryan 2002; Payne 1993; Nsouli et al. 1995; Murphy 1999; El-Ghonemy 2003; Wils 2003; Knowles 2005; Ikram 2006; Alissa 2007; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; Richter 2009; Roll 2010; Richter 2011; Soliman 2011 [2006]; Chouikha and Gobe 2015; Alexander 2016). But even after the IMF engagement had come to an end, all four countries continued with economic-liberalization policies, aided by additional WB loans (with the exception of Egypt) (Licari 1998; Murphy 1999; Denoeux 2001; Haddadi 2003; Perry 2004; Knowles 2005; Ikram 2006; Alissa 2007; al Khouri 2008; Escribano and Lorca 2008; Rutherford 2008; Harrigan and El-Said 2009; Henry and Springborg 2010; Roll 2010; Zemni and Bogaert 2010).8 8

After de-facto financial bankruptcy, all four countries initially entered into a Standby Arrangement with the IMF (Morocco in 1983, Tunisia in 1986, Egypt in 1987, and Jordan in 1989). Egypt and Morocco were the only countries that had already signed IMF agreements prior to bankruptcy (Egypt: 1962 Standby Arrangement, 1976; Morocco: 1964, 1968, 1976 CFF, 1980 EFF, 1981 EFF, 1982 Standby Arrangement). Cooperation with the IMF continued for different time spans in the four countries, while the official agreements and the loan volumes differed: since 1980 and until the end of the examination period (spring 2011), Egypt cooperated with the IMF under three Standby Arrangements and one EFF (total agreed lending volume: SDR 1.16 billion) during an 11 year period (1987–1998), Tunisia under one Standby Arrangement and one EFF (total agreed lending volume: SDR 311 million) during a six year period (1986–1992), Jordan under three Standby Arrangements and three EFFs

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The actual scope of economic liberalization in each country was determined by the strictness of external conditionalities (once again a result of the strategic importance of a country for international sponsors, which finally determined the leverage of external institutions, such as the IMF and the WB, over domestic policy), by the incentives for a regime to undertake economic liberalization (a result of the characteristics of the regime coalition, but also of expected future international sponsoring), and by the effects of the national and international environment (political and economic crises / booms (Harrigan and El-Said 2009; see also: Harik 1992b, 14–16; Ayubi 1995, 336–339, 382–394; Al-Sayyid 2001, 156–157, 165–173). By analysing the four countries’ history of economic liberalization, several common patterns of reform sequence become obvious:9 In the case of Egypt, Tunisia, and Jordan, which started with economic liberalization already in the early 1970s, the three common policies were trade liberalization, the liberalization of international payments (both of them demand-side policies), and the liberalization of foreign and domestic private investment (a supply-side policy). In addition, the Egyptian government undertook the first steps to implement a legal framework for privatization. The aim of trade liberalization and of the liberalization of international payments was to increase the efficiency of production and to boost economic growth. Investment liberalization should, before all, disburden the state budget by substituting (total agreed lending volume: SDR 745 million) during a 15 year period (1989–2004), and Morocco under seven Standby Arrangements, two EFFs, and two CFFs (total agreed lending volume: SDR 3.4 billion) during a 13 year period (1980–1993). Loan arrangements with the WB followed agreements with the IMF. The number, type, volume, duration, and scope of the WB loans differed among the countries. One country (Egypt: 1974, 1977) had already contracted policy loans with the WB before de-facto financial bankruptcy. Two countries (Tunisia, Morocco) continued cooperation with the WB beyond the termination of the official IMF engagement. Since 1980 and until the end of the examination period (spring 2011), Egypt contracted one WB loan (1991 Structural-Adjustment Loan (SAL); total loan commitment: USD 300 million), Tunisia ten (total loan commitments: USD 1.6 billion) during a 19 year period (1986–2005), Jordan eight (total loan commitments: USD 870 million) during a 12 year period (1989–2002), and Morocco around 20 (total loan commitments: around USD 2.7 billion) during a 26 year period (1984–2010) (S. Amin 1970; Belal and Agourram 1971; Salmi 1979; Waterbury 1983; Rhazaoui 1987; Sutton 1987; Khrouz 1988; El Malki 1989; Horton 1990; Morrisson 1991b; Vatikiotis 1991; Satloff 1992; Payne 1993; Wahba 1994; Nsouli et al. 1995; Murphy 1999; The World Bank 1999; Ryan 2002; Schlumberger 2002; Wils 2003; Robins 2004; Knowles 2005; Alissa 2007; Harrigan and El-Said 2009; MiltonEdwards and Hinchcliffe 2009 [2001]; Richter 2009; Roll 2010; Sater 2010; Soliman 2011 [2006]; Bertelsmann 2012c). 9 For reasons of readability, I do not cite literature sources in the subsequent paragraphs. For the sources underlying the case comparison, the reader is referred to the within-case analyses following the comparative part, as well as the preceding paragraphs.

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private for public investment and by raising the efficiency of investment. A second goal of investment liberalization was to ameliorate the capital account by increasing FDI inflows. In contrast to Egypt, Tunisia, and Jordan, economic liberalization was still dormant in Morocco during the 1970s. In fact, Moroccan trade was successively deliberalized during this period. The situation changed with the economic crisis of the 1980s. When all four countries faced severe payments problems, the governments reacted with macroeconomic stabilization in order to avoid financial bankruptcy (which failed in all cases). Macroeconomic stabilization of the 1980s (until the point of bankruptcy) included policies of economic liberalization on the demand side, with a short-term potential for stabilization. Thus, all four countries tried to implement some form of consumer-price liberalization / subsidy cuts (although this policy aroused political resistance and was in several cases partially revoked), and all of them actively devalued their currencies (partial exchange-rate liberalization). Further to that, only one country (Morocco) pursued interest rate liberalization, while only one (Jordan) pursued trade liberalization in this period (but only in the late 1980s, after new protectionist measures had been implemented). On the supply side of the economy, only two countries (Jordan and Egypt) implemented policies of economic liberalization (i.e. the liberalization of domestic and foreign investment). Ultimately, the macroeconomic-stabilization policies of the 1980s did not save any of the four countries from de-facto financial bankruptcy. As has been said, Morocco (1983) and Tunisia (1986) faced bankruptcy significantly earlier than Jordan (1989) and Egypt (1990), due to less availability of donor money. In the aftermath of de-facto financial bankruptcy, policies of economic liberalization became broader and deeper in all countries, mainly due to IMF and WB loan conditionalities. Nevertheless, the focus of reforms was still on the demand side. Thus, Tunisia’s and Morocco’s reforms of economic liberalization during the second half of the 1980s included four out of five demand-side policies (trade liberalization, consumer-price liberalization / subsidy cuts, liberalization of international payments, liberalization of the exchange rate). The fifth policy, interest-rate liberalization, was only pursued by the Moroccan government, but not by the Tunisian government. On the supply side, Tunisia concentrated more on domestic producerprice liberalization, while Morocco deepened investment liberalization (opening of the banking and transport sectors, abrogation of the Moroccanization Decrees). Moreover, both countries set up a legal framework for privatization, although the first privatizations did not yet take place (with the exceptions of spontaneous privatizations by executive order). During the 1990s, all four countries found themselves in a post-bankruptcy reform phase, and economic liberalization was extensive (both on the demand side

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and on the supply side). However, the countries had reached different stages of structural adjustment: whereas economic liberalization had already advanced relatively far in Morocco and Tunisia, it had only begun in Egypt, and it was still in an early phase in Jordan. On the demand side, trade liberalization was now a common policy, as were consumer-price liberalization / subsidy cuts, the liberalization of international payments, and interest-rate liberalization. Only Egypt implemented partial exchange-rate liberalization through active devaluation of the currency, while the currencies of the other three countries had by then already been depreciated to near free-floating value—although the currency regime in all four countries during the 1990s–2000s remained a “managed floating” arrangement, i.e. a peg to a basket of foreign currencies, flexible within a certain band, with an official exchange rate set by the Central Bank.10 On the supply side, all four countries implemented some form of investment liberalization, all of them in the financial sector (banking: Egypt, Tunisia, Morocco;11 insurance: Egypt, Jordan), three in the telecommunications sector (Egypt, Jordan, Morocco), and two in the transport sector (Egypt, Tunisia). Furthermore, three out of four countries pursued domestic producer-price liberalization in the agricultural sector (the partial exception being Jordan, where the process started in the late 1980s, but stalled during the 1990s).12 Besides, all four countries undertook the first privatization operations on the basis of privatization laws. However, privatization was slow in this initial period, as governments moved cautiously due to political sensitivities (expected worker layoffs, difficult economic situation, already existing socioeconomic hardships). In the early 1990s, economic reforms in all four countries were supervized by the IMF and the WB. Later on, when macroeconomic fundamentals had ameliorated, the countries terminated their cooperation with the IMF and continued with reforms on their own terms—although with continuing WB involvement in three of the four countries, as well as EMAAs and WTO membership as new policy anchors in all of them.13 10

For details on currency regimes in the four countries during the examination period, see (Richter 2011: 84–88, 100–104, 114–131, 149–154). 11 By the 1990s, investment in the Jordanian banking sector was already much more liberalized than in the other three MENA countries, due to the sector’s structure (there were no public commercial banks in the Jordanian market) (WTO 2009a: 78). 12 Jordan once again began liberalizing production in its agricultural sector in the runup to its WTO accession in 2000. However, significant measures were only implemented from the year 2000 onwards, when Jordan started a price-liberalization program as part of its WTO commitments (WTO 2009a: 62). 13 Cooperation between the IMF and national governments (through Standby Arrangements, EFFs, CFFs) was terminated at different points in time: in Tunisia in 1992; in Morocco in 1993; in Egypt in 1998; and in Jordan in 2004. The earlier termination in Tunisia and Morocco

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During the 2000s, economic liberalization was already well advanced in all four countries. The focus of reforms now shifted from the demand side to the supply side of the economy.14 On the demand side, the most visible activity was trade liberalization, guided mainly by the EMAAs and commitments under the WTO framework. Three out of four countries continued with consumer-price liberalization / subsidy cuts (the exception being Morocco). Only Egypt implemented further reforms targeting the liberalization of international payments. On the supply side, all countries continued with investment liberalization in the banking sector, while several countries deepened reforms in telecommunications (Egypt, Jordan, Morocco), insurance (Egypt, Jordan), and transport (Egypt, Tunisia). In some countries and sectors, investment liberalization only started during the 2000s, such as in the insurance sectors of Tunisia and Morocco (apart from a privatization operation in 1997), in the telecommunications sector of Tunisia, and in the transport sectors of Jordan and Morocco. Moreover, in all four countries privatization picked up speed, with the total sales volume of SOEs multiplying. Privatization by the 2000s increasingly affected big SOEs, even in sectors deemed strategic, which had not been affected by privatization during the 1990s. Subsequently, I discuss in detail the RPs and GPs of economic liberalization for each of the four MENA countries (within-case analyses). indicates the earlier beginning of macroeconomic stabilization and structural adjustment in these two countries (early / mid-1980s in Tunisia and Morocco, late 1980s in Jordan, early 1990s in Egypt). After cooperation with the IMF had come to an end, the WB still stayed involved with lending in two out of four countries (in Tunisia until 2001, in Morocco until 2003) (Nsouli et al. 1995; Murphy 1999; The World Bank 1999; El-Ghonemy 2003; Knowles 2005; Alissa 2007; Harrigan and El-Said 2009; Milton-Edwards and Hinchcliffe 2009 [2001]; Richter 2009; Roll 2010). In all four countries, bilateral EMAAs with the EU constituted new policy anchors from the late 1990s and early 2000s onwards, especially in the field of trade liberalization. The EMAAs entered into force at different points in time: in Tunisia in 1998; in Morocco in 2000; in Jordan in 2002; and in Egypt in 2004. On a multilateral level, trade liberalization in the late 1990s and throughout the 2000s was guided by the WTO, to which three of the four countries acceeded at the organization’s foundation in 1994—all of these three countries were former signatories to the GATT: Egypt since 1970; Morocco since 1987; and Tunisia since 1990—while Jordan joined the WTO in 2000 (Sutton 1987; Licari 1998; Murphy 1999; WTO 1999; Denoeux 2001; Haddadi 2003; WTO 2005b; Alissa 2007; al Khouri 2008; Escribano and Lorca 2008; Rutherford 2008; Milton-Edwards and Hinchcliffe 2009 [2001]; WTO 2009a; Erdle 2010; Zemni and Bogaert 2010; European Commission 2014; Alexander 2016). 14 Ultimately, all four countries, during the period 1980–2010, had followed more or less the model sequence of reforms advocated by the Washington institutions, beginning with fiscal stabilization and economic liberalization on the demand side (especially currency devaluation), before moving reforms of economic liberalization to the supply side of the economy (Rodrik 1990: 933).

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Within-case analysis: Egypt In the late twentieth and early twenty-first century, the Egyptian government pursued policies of economic liberalization in five distinct reform periods: The first reform period (1974–1981) started, when it became clear that the Nasserist state-led development model could not fulfill both a developmental and a welfare function, as it had overstretched both the state budget and the balance of the international accounts (Waterbury 1983: 87–93, 109–112; Wahba 1994: 87, 91–97, 148).15 The Egyptian government thus turned to Infitah after the 1973 Yom Kippur War and initiated the first reforms of economic liberalization in 1974 (Waterbury 1983: 131–132). This first reform period lasted until 1981, when the new President Mubarak put brakes on the process. Under Mubarak’s early tenure (1982–1986), economic liberalization was not pursued in significant fashion (GP) (Vatikiotis 1991: 449; Soliman 2011 [2006]: 36–37). This situation changed with the government’s de-facto bankruptcy in 1986 and the May 1987 IMF Standby Arrangement. By signing this IMF agreement, Egypt entered its second reform period (1987–1990) (Vatikiotis 1991: 455, 458; Ikram 2006: 56; Harrigan and El-Said 2009: 197; Soliman 2011 [2006]: 44, 103). This second reform period lasted until 1990, when the government once again faced de-facto bankruptcy. This time, it was saved by the ensuing Gulf crisis, which brought a massive debt cut (Perry 2004: 142; Soliman 2011 [2006]: 44–45). The third reform period coincided with the core phase of the ERSAP (1991–1998) and ended with the expiration of the third and last IMF Standby Arrangement in September 1998 (El-Ghonemy 2003: 80; Harrigan and El-Said 2009: 39, 197–198; Richter 2009: 61; Roll 2010: 116). In the fourth reform period (1999–2003), the Egyptian government continued with economic liberalization in piecemeal fashion, hindered by a sequence of economic and political crises (1997–1998 Asian Financial Crisis, 11 September 2001 attacks, 2003 United States invasion of Iraq) (Perry 2004: 131–132; Ikram 2006: 75–76; Harrigan and El-Said 2009: 50; Roll 2010: 118). The fifth reform period began with the inauguration of the first Nazif government in July 2004 and ended with the Arab Spring and President Mubarak’s dismissal in

15

After payments crises in 1962 and 1965 / 1966, the Egyptian government had already adjusted the model and turned towards a policy of austerity (Inkimash) (Waterbury 1983: 87– 96). However, thoroughgoing structural reforms were delayed by the Six Day War (1967) and by the ensuing War of Attrition against Israel. During 1967–1973, the Egyptian regime almost exclusively pursued macroeconomic stabilization, by cutting back on social spending and on public investment (made possible through the state of war and strong nationalist agitation), in order to redirect resources towards military expenditures (Waterbury 1983: 99–100, 112, 124; Owen and Pamuk 1999: 133–134). In addition, it relied on increased financial aid from oil-rich Arab states after 1967 (Vatikiotis 1991: 409–414; Perry 2004: 107–109).

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February 2011 (Rutherford 2008: 223; Henry and Springborg 2010: 178; Roll 2010: 119; Rutherford 2013: 39–43). Reform period 1 (1974–1981) The initial steps of economic liberalization during the first reform period (1974– 1981) included several reforms: Law 43 of 1974 opened up most sectors of the Egyptian economy for foreign investment; Law 112 of 1975 enabled the state to sell shares in SOEs; Law 118 of 1975 liberalized imports by the private sector; Law 97 of 1976 liberalized the holding of foreign exchange by Egyptian citizens; Law 32 of June 1977 eased the repatriation of profits and capital by foreign investors; and Law 159 of 1981 gave local-currency investors the same rights as foreign investors who set up projects with foreign exchange. In addition, Law 159 of 1981 partly abolished workers’ rights in the management of SOEs and their entitlement to profit shares and equal pay (Waterbury 1983: 131–132; Wahba 1994: 190–195; Richter 2011: 132, 140). Further economic liberalization measures were demanded by the 1976 IMF agreement (especially price liberalization through subsidy reduction), but these were not implemented due to the 1977 riots (Rivlin 1985: 177–182; Wahba 1994: 148–152; Beattie 2000: 206–211; Perry 2004: 125–126; Farah 2009: 79; Soliman 2011 [2006]: 39–40). Gap period (1982–1986) After President Mubarak’s takeover in 1981, the Egyptian government nearly completely halted the process of economic liberalization (with the exception of price liberalization in basic consumer goods / subsidy reduction) during the period 1982– 1986,16 although it kept existing laws in place. However, in some fields it actually deliberalized regulations, for example in the import of industrial goods (Vatikiotis 1991: 449; El-Ghonemy 1998: 184; Soliman 2011 [2006]: 37, 43–44, 50). At the same time, it continued to gear large (and increasing) budget deficits and to finance the negative balance on the international accounts with foreign debt (Soliman 2011 [2006]: 103). With only minor stabilization and adjustment efforts, the 1986 oil price slump finally overburdened the government’s debt-service capacity and brought it to the brink of bankruptcy (Vatikiotis 1991: 455, 458; Ikram 2006: 56; Harrigan and El-Said 2009: 197; Soliman 2011 [2006]: 44, 103).

16

The relative share of subsidies in total public expenditures fell by half during 1982/1983– 1989/1990, although it remains unclear whether this was due in part to a reduction of absolute subsidy payments (Soliman 2011 [2006]: 58–60).

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Reform period 2 (1987–1990) The ensuing 1987 IMF Standby Arrangement initiated the second reform period (1987–1990), as it demanded macroeconomic stabilization in part by measures of economic liberalization. However, it became clear very quickly that the Egyptian government would follow through on only some of the stipulated measures (especially exchange-rate liberalization and investment liberalization), while it bluntly violated the IMF agreement in others areas (especially price liberalization / subsidy reduction, interest-rate liberalization, and privatization) (Richter 2009: 61; Soliman 2011 [2006]: 44, 50, 58, 103). Thus, it devalued the EGP by nearly 100 percent against the USD during 1987–1990 (partial exchange-rate liberalization) and passed a new Investment Law in 1989, further liberalizing investment conditions (Vatikiotis 1991: 458; El-Ghonemy 2003: 80). At the same time, subsidies increased back to their former relative level, while the real interest rate was negative (although this was mainly due to the high inflation rates), and privatization did not advance significantly (Ayubi 1996: 51–52, 55; Harik 1997: 89; Pripstein Posusney 1997: 195, 211; Gobe 1999: 199; El-Ghonemy 2003: 79; Soliman 2011 [2006]: 44, 98–100). Reform period 3 (1991–1998) Due to the limited nature of macroeconomic stabilization (a result of the government’s reluctance to pursue IMF prescribed reforms), the Egyptian government once again faced de-facto bankruptcy by 1990 (WTO 1999: 1; El-Ghonemy 2003: 80; Farah 2009: 41; Soliman 2011 [2006]: 103). After a renewed bailout by its major international creditors (despite dismal performance under the preceding IMF agreement), coupled with the proposal of a massive debt cut, Egypt started to implement the ERSAP in 1991 (as a condition for further IMF / WB funds, debt rescheduling, and debt cancellation), which initiated the third reform period (1991–1998). This period came to an end, when the last IMF Standby Arrangement expired in September 1998 (El-Ghonemy 2003: 80; Perry 2004: 142; Harrigan and El-Said 2009: 39, 197–198; Roll 2010: 112; Soliman 2011 [2006]: 44–45). Under the ERSAP, the Egyptian government implemented a range of reforms that contained many elements of economic liberalization: Demand side reforms started in January 1991 with interest-rate liberalization, which increased rates since 1993 to constantly over 3.5 percent p.a. in real terms. In February 1991, the government began to unify the several official exchange rates, combined with a further devaluation of the EGP (partial liberalization of the exchange rate) by 25 percent and a currency peg to the USD in October 1991 (Ikram 2006: 64–65) . Connected with currency devaluation was the liberalization of international payments, which was de facto completed until the end of the 1990s ( Richter 2011). Furthermore, demand side reforms included trade liberalization, as most non-tariff barriers were eliminated, while average Most-Favoured Nation (MFN) tariff rates were reduced

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by a third during 1991–1998 (WTO 1999: 29, 33–35; Harrigan and El-Said 2009: 52; Richter 2011: 146–147). In addition, consumer prices of basic commodities were further liberalized, with subsidies declining by a factor of three in terms of GDP during 1992–1997, while the list of subsidized items was shortened (WTO 1999: 3, 75–76; Ikram 2006: 66–67). On the supply side, two new laws liberalizing investment were passed (1997 Investment Law, 1998 Companies Law) (WTO 1999: 14, 25–28; Rutherford 2008: 198). Sectoral liberalization was most extensive in the agricultural sector, where reforms comprised price liberalization of inputs and of final products (including the reduction of subsidies), liberalization of marketing, and privatization of land (WTO 1999: 73; Harrigan and El-Said 2009: 57–58). Liberalization also progressed in the financial sector—notably in banking (1996: Foreign investors were allowed to own 100 percent of bank equity; 1998: Law conceiving the privatization of public banks) and insurance (successive liberalization of prices for insurance contracts since 1996)—, in the telecommunications sector (1998: Granting of two Global System for Mobile Communications (GSM) licences to private operators), and in the transport sector (liberalization of port services and maritime transport since 1996 / 1998) (Gregson 1998; WTO 1999: 91–99; Mohieldin and Nasr 2007: 712; Harrigan and El-Said 2009: 43; Roll 2010: 124–138, 142–144). Concomitantly, the government undertook the first steps of privatization, with the sale of public shares in joint-venture banks starting in 1994. Privatization of SOEs throughout the economy then picked up speed in the later 1990s (sale of shares in 118 SOEs until June 2000) (Gobe 1999: 204; WTO 1999: 59–62; Ikram 2006: 80; Mohieldin and Nasr 2007: 712; Harrigan and El-Said 2009: 55–56; Roll 2010: 124–137). Reform period 4 (1999–2003) The fourth reform period (1999–2003) was marked by several political and economic crises that had a dampening effect on economic fundamentals and on the willingness of the Egyptian government to undertake further reforms (Perry 2004: 131–132; Henry and Springborg 2010: 172; Roll 2010: 118; IMF 2014; UNCTAD 2014). Nevertheless, some policies of economic liberalization were implemented during this period: On the demand side, the most significant reform was a successive liberalization of the EGP’s exchange rate to the USD, until the currency was de facto floated in 2003 (although this reform was not intended but a defensive reaction against increasing currency outflows). The policy reduced the EGP’s value vis-à-vis the USD by 50 percent during 2000–2004 (WTO 2005a: 3; Ikram 2006: 75–76 Rutherford 2008: 198; Harrigan and El-Said 2009: 50, 67–68; Roll 2010: 119; OANDA 2015). Further to that, trade liberalization continued (reduction of average applied MFN tariffs by roughly 7 percent during 1998–2005 (WTO 2005a: 27). On the supply side, investment and price liberalization continued in the banking

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sector (Banking Law 88 of 2003, which gave the Central Bank more independence in monetary policy and eliminated the partition of banks into commercial and investment banks) and in the insurance sector (all insurance tariffs were deregulated in June 2000) (WTO 2005a: 66, 68; Roll 2010: 126–127). Reform period 5 (2004–2011) The inauguration of the first government under Prime Minister Ahmed Nazif in July 2004 initiated the fifth reform period (2004–2011), when some policies of economic liberalization were pushed forward in unprecedented fashion (Rutherford 2008: 223; Henry and Springborg 2010: 178; Roll 2010: 119): On the demand side, the government intensified trade liberalization, with the weighted average tariff rate being approximately halved from 15 percent in the early 2000s to 7 percent in 2007, while several non-tariff barriers were removed (WTO 2005a: 27; OECD 2007: 42; Demmelhuber 2009: 192–193; Farah 2009: 49; Harrigan and El-Said 2009: 69–70). Besides, the government reduced consumer subsidies (partial price liberalization), especially in energy (where price increases amounted to 20–50 percent for certain products), and it eased restrictions on foreign-exchange holdings (Rutherford 2008: 223; Demmelhuber 2009: 195; Harrigan and El-Said 2009: 69–71). On the supply side, the main liberalization thrust targeted privatization, where the government put companies for sale in hitherto protected sectors, such as telecommunications (sale of 20 percent of Telecom Egypt in 2005 / 2006), petrochemicals, and banking (since 2004: Sale of public stakes in joint-venture banks; 2006: Privatization of the Bank of Alexandria). Ultimately, privatization proceeds during 2004–2008 summed up to more than double the amount received during 1994–2004 (WTO 2005a: 47–48; Demmelhuber and Roll 2007: 10; OECD 2007: 49; Rutherford 2008: 223; Harrigan and El-Said 2009: 71–72; Roll 2010: 112–137). Furthermore, the government deepened liberalization in the telecommunications sector by selling a third GSM licence to an Emirati operator in the late 2000s (Unknown author 19.03.2006; OECD 2007: 49; Unknown author 2007, 02.06.2015). Within-case analysis: Tunisia Policies of economic liberalization in postindependence Tunisia occurred in three different periods: The first reform period (1970–1981) began after President Bourguiba had stopped the implementation of statist development policies with the dismissal of Minister of Finance and Planning Ahmed Ben Salah in 1969 (Ben Romdhane 2011: 121; Alexander 2016: 113). It coincided with the period of Infitah during the 1970s and came to an end with the expiration of the 1977–1981 Five Year Plan (A. Findlay 1984: 227–228; Bellin 1991: 51; Grissa 1991: 112; Murphy 1999: 85; Perkins 2004: 160, 162–164; Erdle 2010: 79; Chouikha and Gobe 2015: 26; Alexander 2016: 113–114). Afterwards, economic difficulties grew to an

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unprecedented extent, when the first major plunge of the oil price happened in 1982 (repeated in 1986), while political contestation of the regime further intensified (a process underway since the 1978 riots) (Ruf 1984: 109; Seddon 1986: 187; R. J. King 1998: 114; Murphy 1999: 60–63, 76; Perkins 2004: 165, 167–168, 174–175; Erdle 2010: 84, 86–87; Ben Romdhane 2011: 196; Chouikha and Gobe 2015: 28, 33–34, 41–43; Alexander 2016: 44–45). Thus, economic liberalization was temporarily stopped (gap period 1982–1985). But by 1985 / 1986, the Tunisian state stood at the brink of financial bankruptcy. It had to turn to the IMF for emergency funds and for a seal of approval to keep external lending flowing (Payne 1993: 145–146; Murphy 1999: 74, 96–99; Richter 2011: 102, 111–112; Chouikha and Gobe 2015: 39; Alexander 2016: 117). The precarious economic and political situation did not leave room for reforms of economic liberalization, as the 1984 riots and the rescindment of subsidy cuts exemplified (Paul 1984; Seddon 1984, 1986: 177, 180–186; Murphy 1999: 65–66; Perkins 2004: 169–170; Ben Romdhane 2011: 197–198; Chouikha and Gobe 2015: 37–38). The devaluation of the Tunisian Dinar (TND) since October 1985 and the belated reforms of Prime Minister Sfar in mid1986 (which included some policies of economic liberalization) can already be seen as precursors to the November 1986 IMF Standby Arrangement, which consolidated the second reform period (1985–1995) (Payne 1993: 145–146; Murphy 1999: 95–100, 104–108; Perkins 2004: 173–174; Harrigan and El-Said 2009: 112, 199; Harrigan and El Said 2010: 5; Richter 2011: 106, 112). From 1986 onwards, the Tunisian government continuously pursued policies of economic liberalization. It continued implementing the reforms even when its last agreement with the IMF (an EFF concluded in 1988) expired in July 1992 (Murphy 1999: 151–153; Harrigan and El-Said 2009: 197). In 1995, the signature of the EMAA and the WTO accession changed the reference frame of economic reforms. Thereby, Tunisia entered its third reform period (1995–2011), where the stipulations of the EMAA and the contractual framework of the WTO determined the pace of economic liberalization (Murphy 1999: 147–148; WTO 2005b: 18–20, 34; Erdle 2010: 116–119; Alexander 2016: 119, 136). Reform period 1 (1970–1981) The focus of economic reforms in the first reform period (1970–1981) was on the liberalization and promotion of domestic and foreign investment, trade liberalization, and the liberalization of international payments for exporting companies. Two new laws (Law 38 of 1972 and Law 74 of 1974) reduced existing obstacles to investment, while they specified a whole range of (mostly tax-related) incentives (which complemented the liberalization measures). Thus, Law 38 of 1972 liberalized investment by trade liberalization of imported input products and allowed foreign investors to

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repatriate profits free of taxes (A. Findlay 1984: 227–228) . Besides, through a 1972 law, export-oriented companies with a majority of foreign capital were exempted from import duties on investment goods and input goods as well as from existing restrictions on the transfer of capital and profits abroad. In 1973, trade liberalization for investment goods and input goods was partially extended to all companies within the Tunisian economy (Richter 2011: 105, 110). Gap period (1982–1985) During the subsequent period 1982–1985, the government mostly pursued macroeconomic stabilization, with the aim to cushion the impact of the economic crisis on government finances and on the international accounts. Partial price liberalization through subsidy cuts was one measure, but it failed due to societal resistance (rescinding of the subsidy cuts announced in December 1983 after the January 1984 riots) (Paul 1984; Seddon 1984, 1986: 177, 180–186; Murphy 1999: 65–66; Perkins 2004: 169–170; Ben Romdhane 2011: 197–198; Chouikha and Gobe 2015: 37–38). Apart from that, policies of economic liberalization were not pursued forcefully. In fact, the Tunisian government turned to economic deliberalization (especially in trade) to slow down the outflow of foreign exchange (Richter 2011: 102, 110– 112). Ultimately, it could not avoid the depletion of reserves to the point of de-facto bankruptcy in 1986 (Payne 1993: 145–146; Murphy 1999: 74, 96–99; Richter 2011: 102, 111–112; Chouikha and Gobe 2015: 39; Alexander 2016: 117). Reform period 2 (1985–1995) The second reform period (1985–1995) started with the continuous devaluation of the TND (partial liberalization of the exchange rate) since late 1985, as its “nominal effective exchange rate” declined by more than 20 percent against major currencies from October 1985 to summer 1986 ( Richter 2011: 100–102) . The reforms initiated by Prime Minister Sfar in mid-1986 triggered another “10 percent devaluation of the TND.” In addition, these reforms comprised “the liberalization of import restrictions on raw materials, spare parts, and semifinished goods” (abolition of import licences and quantitative restrictions), especially for exporting companies (Payne 1993: 145–146; Richter 2011: 112). Besides, prices of many manufactured goods were deregulated and prices of staple foods, petroleum, and pharmaceuticals were increased (partial price liberalization that brought payments to the Caisse Générale de Compensation down by 50 percent) (Payne 1993: 146; Murphy 1999: 96–100, 104–108; Harrigan and El-Said 2009: 112, 199; Harrigan and El Said 2010: 5; Richter 2011: 106, 112). The reforms of the Sfar government already related to the November 1986 IMF Standby Arrangement, which stipulated more far-reaching measures: During 1986–

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1987, the TND was further devalued by over 30 percent, followed by additional “gradual depreciation [...] in line with the inflation differential between Tunisia and its trading partners” (Harrigan and El-Said 2009: 112). Since 1987, the government extended the liberalization of international payments by allowing Tunisian residents to open foreign-exchange accounts with currency earned abroad and by raising the threshold for export earnings that exporters could keep. Thus, a limited interbank foreign-exchange market came into being within the Tunisian economy (Richter 2011: 106). Besides, the government tackled privatization with Law 47 of 1987, which created a legal framework for the restructuring and privatization of SOEs (Saghir 1993: 10). Economic liberalization intensified from 1988 onwards under the new President Ben Ali. On the demand side, the government pursued four major reforms: First, it deepened trade liberalization by lifting restrictions for 70 percent of imports until 1990 and by reducing average tariffs as well as the maximum tariff rate (from 236 percent in the mid-1980s to 43 percent in 1988). At the same time, it began to dismantle state monopolies on export activities (Murphy 1999: 112–113, 135; Harrigan and El-Said 2009: 119; Richter 2011: 112–113). Second, subsidies on basic consumer goods were further reduced (they were halved in terms of GDP during 1985–1993) (Harrigan and El-Said 2009: 124). Third, the government partially deregulated interest rates. Fourth, constraints to the convertibility of the TND were relaxed further (1993: full convertibility of the TND for foreigners, including the free repatriation of capital and profits for foreign investors; 1994: establishment of a “real” interbank foreign-exchange market). In 1995, foreign investors were allowed to purchase up to 10 percent of the capital of Tunisian companies listed at the stock exchange and up to 30 percent in the case of nonlisted companies. On the supply side, the reform agenda also comprised four main policies: First, the government lifted price controls on most agricultural and manufactured products (including the prices of input products). Second, investment restrictions for offshore companies in the domestic economy were eased (1993 Investment Incentives Code). Third, the government deepened sectoral investment liberalization: In the financial sector, it allowed banks to extend their range of activities, and it removed state controls over lending operations. In the transport sector, maritime transport services were opened to private competition in 1992. Fourth, the legal framework of privatization was revised with Law 9 of 1989 (replacing Law 47 of 1987), which actually started the privatization process (sale of the first 40 SOEs during 1988– 1993). With Law 102 of 1994, privatization was then legalized for foreign investors (Payne 1993: 146–147; Saghir 1993: 16; Murphy 1999: 105, 108–113, 138, 141– 150; WTO 2005b: 59–62, 95, 102–104; Harrigan and El-Said 2009: 113, 118–125;

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Erdle 2010: 102, 115; Richter 2011: 102, 106; OECD 2012: 21–22, 43, 117–119, 130; WTO 2016: 79). Reform period 3 (1995–2011) From 1995 onwards, the Tunisian government anchored its reform process with the conclusion of the EMAA and its accession to the WTO. These two treaties constituted the new reference frame for economic reforms in the third reform period (1995–2011), and they accelerated economic liberalization, especially in trade. For trade liberalization, the more significant treaty was the EMAA, which stipulated a phase-out of tariffs on industrial goods imported from the EU (Tunisia’s main trading partner) over a 12 year period, implying free trade in these goods from 2008 onwards (as the Tunisian government began to implement the EMAA since its signature) (Murphy 1999: 147–148; WTO 2005b: 18–20, 34; Erdle 2010: 116–119; Alexander 2016: 119, 136). In contrast, multilateral trade liberalization within the WTO framework stagnated from the mid-1990s until the mid-2000s, before it was finally accelerated in the late 2000s (WTO 2005b: 27–30; Harrigan and El-Said 2009: 126–127; Henry and Springborg 2010: 46–47, 171). During 2006–2010, the simple average applied MFN rate fell from 44.7 percent in 2006 to 26.1 percent in 2007 and to 18.8 percent in 2010, while the maximum tariff rate was reduced from 150 percent in 2006 to 73 percent in 2007 and to 36 percent in 2009 (WTO 2016: 43). Another measure of economic liberalization on the demand side were cutbacks on subsidies in the early 2000s—although it remains unclear whether the relative decrease in terms of GDP was due to a cutback on subsidy rates and / or the elimination of product categories—, which however were rescinded once the mid-2000s oil boom led to skyrocketing import prices of basic commodities (WTO 2005b: 60, 2016: 85). Furthermore, the government deepened the liberalization of international payments: By 1997, foreigners received permission to hold 49 percent of the capital of Tunisian companies. From February 1999 onwards, Tunisian exporters were allowed to hold 50 percent of their export revenues in foreign exchange. In November 2003, the amount of foreign-exchange earnings exporters could keep was raised from 50 to 70 percent. However, by the 2000s, payments liberalization for ordinary Tunisian residents was still rudimentary and subject to many restrictions (WTO 2005b: 103; Richter 2011: 107). On the supply side, foreign investment was further liberalized by a 1997 reform, which raised the threshold for foreign ownership in Tunisian companies to 49 percent (see above), and by a 2005 amendment to the 1993 Investment Incentives Code that allowed foreigners to hold 50 percent of the capital of listed and nonlisted Tunisian enterprises (WTO 2005b: 22–23; OECD 2012: 15–16, 50–54; WTO 2016: 34–35). Further to that, the government continued with sectoral investment liberalization:

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during the latter half of the 1990s, it liberalized investment in several transport subsectors (1996: land-freight transport, charter-air-freight and passenger transport, 1998: port services) ( WTO 2005b: 96–100) . Liberalization of the banking sector continued on the basis of the 2001 Banking Law (WTO 2005b: 102; Erdle 2010: 337–338). Thus, additional private investors entered the market via privatization: In 2002, the state sold the International Union of Banks / Union Internationale des Banques (UIB), followed in 2005 by the privatization of the public shares in the Banque du Sud (BS), the seventh largest of the Tunisian market in terms of assets. Thereafter, two further banks of smaller size were privatized in 2008 (WTO 2005b: 93; Erdle 2010: 131, 192; OECD 2012: 58; WTO 2016: 138). Since 2002, the government opened up the telecommunications sector for competition by selling two GSM licences to private operators in 2002 and 2009 and a second fixed-telephony licence in 2009. In 2006, 35 percent of the capital of Tunisie Télécom (the former state-owned monopolist) was privatized to the benefit of an Emirati investor (WTO 2005b: 92–93; Erdle 2010: 131; Serraj 01.04.2011; OECD 2012: 58; WTO 2016: 80, 138, 140). In 2008, the government opened up the insurance sector, allowing foreign investors to hold a majority of the capital in insurance companies (Law 088) (WTO 2016: 133). Finally, the government accelerated the privatization process after 1995, including the offering for sale of SOEs in previously closed sectors (e.g. energy, telecommunications, municipal utilities, banking). In 2008, Law 08-23 was promulgated, which included the sector of public utilities in the privatization program, allowing for the possibility of concessions to private operators (WTO 2005b: 66; Harrigan and El-Said 2009: 127; OECD 2012: 14, 41–43, 135; Alexander 2016: 118; WTO 2016: 80). Within-case analysis: Jordan Economic liberalization in postindependence Jordan began in 1972 after the Jordanian civil war, although it took up speed only in the mid-1980s, when the government was under pressure from a low oil price and thus faced mounting financial difficulties on the state budget and on the international accounts. It proceeded in five reform periods: The first reform period (1972–1982) started after the ramifications of the civil war (1970–1971) had ebbed. However, economic liberalization was limited in this period (Mazur 1979: 224–225, 236–237; Richter 2011: 158–160). During the subsequent gap period (1982–1985), it was stopped and in some cases reversed. The second reform period (1986–1990) started with the reforms of the new Rifa’i government in 1985–1986 (“little Infitah”) and ended with the beginning of the Gulf crisis in 1990, which temporarily brought the reform process to a halt (Satloff 1986: 24; Brand 1992: 172–179; Alissa 2007: 4; Harrigan and El-Said 2009: 79, 81, 197; OECD 2013: 54). The July 1989 IMF Standby Arrangement, which followed on the

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heels of the Jordanian government’s de-facto financial bankruptcy in February 1989, did not constitute a structural break. But it can be considered as the last phase of the second reform period, when formerly initiated policies of economic liberalization received an additional boost (Satloff 1992: 137–138; Ryan 2002: 52; Wils 2003: 129; Knowles 2005: 80, 92, 94–95, 105–106; Alissa 2007: 4; Harrigan and El-Said 2009: 79, 197–198; Milton-Edwards and Hinchcliffe 2009 [2001]: 77). During the period 1990–1991, economic reforms were shelved, as the country suffered from the negative economic and political effects of the Gulf crisis (i.a. termination of the 1989 IMF Standby Arrangement in January 1991) (Alissa 2007: 4; Harrigan and El-Said 2009: 81, 197). After Jordan’s international rehabilitation at the Madrid Conference in October 1991, the country entered its third reform period (1992–1999) in early 1992 with the conclusion of a second IMF Standby Arrangement (Schlumberger 2002: 227; Wils 2003: 137; Robins 2004: 182–183; Knowles 2005: 92, 95–96; Alissa 2007: 5; Harrigan and El-Said 2009: 81, 197; Milton-Edwards and Hinchcliffe 2009 [2001]: 82). This reform period lasted until the death of King Hussein in February 1999 (Robins 2004: 193; Lucas 2005: 128–129). The takeover by King Abdullah II initiated the fourth reform period (1999–2004). It came to an end with the expiration of the third and last IMF Standby Arrangement in July 2004 (Knowles 2005: 92, 99–102; Alissa 2007: 5; Harrigan and El-Said 2009: 197; Milton-Edwards and Hinchcliffe 2009 [2001]: 90–92). This period was marked by the dissolution of Parliament from June 2001 to June 2003, which enabled the administration to push through economic reforms by administrative decree (Robins 2004: 202–203; Ryan and Schwedler 2004: 144; Lucas 2005: 133–135, 139; Choucair 2006: 9; Harrigan and El-Said 2009: 84; Peters and P. Moore 2009: 277; OECD 2013: 54– 55). Thereafter, the Jordanian government pursued economic-liberalization policies on its own terms—though anchored by the EMAA that came into force in 2002, and by its 2000 WTO accession—during the fifth reform period (2004–2011), until the Arab Spring in early 2011 constituted the latest structural break in the process (Milton-Edwards and Hinchcliffe 2009 [2001]: 89, 90; WTO 2009a: 13, 17; Alissa 2007: 5; Vogt 2011: 65–66; Bank 2012: 31–32; Ryan 2013: 122–123; European Commission 2014). Reform period 1 (1972–1982) and gap period 1 (1982–1985) In the first reform period (1972–1982), the Jordanian government implemented three notable economic-liberalization policies: the partial liberalization of international payments; very limited trade liberalization (both demand-side policies); and investment liberalization (a supply-side policy). In 1972, the government passed the Encouragement of Investment Law, by which protectionist measures in the industrial sector were reduced, while FDI restrictions were eased (Mazur 1979: 224–225,

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236–237; Richter 2011: 158–160). During 1974–1982, the Jordanian government liberalized international-payments regulations for Jordanian citizens (who could open foreign-exchange accounts and keep foreign exchange longer than before), for companies (which could keep a higher share of their export earnings and which could invest in foreign countries), and for banks (which could trade foreign exchange freely since 1977). Concomitantly, import restrictions were reduced on a very limited scale (mostly tariff reductions and quota reductions). When economic difficulties became severe from 1982 onwards, the Jordanian government stopped economic liberalization (first gap period 1982–1985) and turned to economic deliberalization (especially in trade) to stabilize the international accounts ( Richter 2011: 155–161). Reform period 2 (1986–1990) As these protectionist policies failed, the government once again turned to economicliberalization policies in the second reform period (1986–1990), which started with the takeover by the Rifa’i administration. Reforms were later intensified and extended under the 1989 IMF Standby Arrangement. Four reforms targeted the demand side of the economy: First, the government lifted the state monopoly on the importation of most food items in 1986, allowing private operators to enter the market (Satloff 1986: 24; Brand 1992: 172–179). Trade liberalization was accelerated after the IMF Standby Arrangement, when the government lowered the maximum tariff rate from over 300 percent to 60 percent in November 1989, while quantitative import restrictions had already been reduced to 7 percent of imported goods by that time ( Richter 2011: 161–162) . Second, the government cut subsidies (partial price liberalization) on several consumer products in early 1989, triggering price increases from 10 percent to 65 percent (Satloff 1992: 138; Piro 1998: 73; Schlumberger 2002: 227; Milton-Edwards and Hinchcliffe 2009 [2001]: 77). Third, the Central Bank liberalized interest rates in 1990 (Harrigan and El-Said 2009: 80; WTO 2009a: 77). Fourth, the government devalued the Jordanian Dinar (JOD) by 50 percent against the USD during 1988–1990 (partial liberalization of the exchange rate). In February 1990, it finally succeeded to create a common market for foreign exchange (Piro 1998: 72–73; Harrigan and El-Said 2009: 80; Richter 2011: 149–153). Three reforms targeted the supply side of the economy: First, the government liberalized the retail prices of agricultural produce in 1986. Second, domestic private investment and FDI were progressively liberalized, when in early 1986 the government “lifted most major restrictions on investment in the country by nonJordanian Arabs,” followed by the issuance of the country’s “first [cross-sectoral; C.N.] investment law” (“Encouragement of Investment Law”) in 1988. Concomitantly, it abolished the Jordanian-majority ownership requirement in the banking sector. Moreover, the investment-licensing requirement was dropped in 1989. Third,

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privatization was conceived with the government’s Paper on Privatization in late 1986, although it did not yet take off (Satloff 1986: 24; Brand 1992: 172–179; Piro 1998: 73; Harrigan and El-Said 2009: 79; OECD 2013: 54). Gap period 2 (1990–1991) and reform period 3 (1992–1999) After a period of standstill due to the negative effects of the Gulf crisis (second gap period 1990–1991), the Jordanian government initiated the third reform period (1992–1999) with the conclusion of the second IMF Standby Arrangement in February 1992 (Schlumberger 2002: 227; Wils 2003: 137; Robins 2004: 182– 183; Knowles 2005: 92, 95–96; Alissa 2007: 4–5; Harrigan and El-Said 2009: 81, 197). On the demand side of the economy, it pursued three reforms: First, the Jordanian government liberalized trade regulations by reducing the maximum tariff rate from 40 percent in 1997 to 30 percent in 2000. Moreover, customs procedures were simplified by the new 1998 Customs Law (Schlumberger 2002: 232; Richter 2011: 162–163). Second, “general food subsidies were largely removed and were limited to four products” (milk, rice, wheat, and sugar). Thus, food subsidies declined from 3 percent of GDP in 1990 to 1 percent in 1994 (Wils 2003: 143; Robins 2004: 183; Harrigan and El-Said 2009: 82). Likewise, other subsidies (i.a. on petroleum products, electricity, and water) were cut in early 1992 (Wils 2003: 143). Third, in 1997, the government abolished all transfer restrictions regarding JOD foreign-exchange transactions for both Jordanian citizens and for foreigners (Harrigan and El-Said 2009: 82; WTO 2009a: 1–2; Richter 2011: 154, 158). Four reforms targeted the supply side of the economy: First, the government initiated further price-liberalization measures in the agricultural sector (reduction of input subsidies) towards the end of the 1990s, as a preparation for WTO accession (WTO 2009a: 62). Second, Investment Promotion Law 16 was passed in 1995, which granted nondiscriminatory treatment to foreign investors (Schlumberger 2002: 231; Wils 2003: 144; Schlumberger 2004: 139–140; Knowles 2005: 182–183; WTO 2009a: 18; OECD 2013: 54, 56). In 1997, the government exempted some sectors from the legislation, “which limited foreign ownership” to 50 percent of a company’s stock (Knowles 2005: 183). Third, private investment in several previously closed sectors was progressively liberalized, such as in the insurance sector (establishment of the Insurance Commission in 1999 as a first step towards market opening) and in the telecommunications sector (sale of two GSM licences in 1994 and 1999) (Wils 2003: 191–192, 2004: 150; WTO 2009a: 80). Fourth, the government seriously began with privatization towards the end of the 1990s and sold a number of SOEs, including shares in strategically important companies (e.g. a 40 percent stake in the national telecommunications company in late 1999) (Schlumberger 2002: 231– 232; Wils 2003: 195–201; WTO 2009a: 52–53, 84).

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Reform period 4 (1999–2004) The fourth reform period (1999–2004) started with the takeover of King Abdullah II after the death of his father. It ended when the third and last IMF Standby Arrangement expired in July 2004 (Milton-Edwards and Hinchcliffe 2009 [2001]: 90–92; Robins 2004: 193; Lucas 2005: 128–129). From the start of his reign, King Abdullah II put a special emphasis on economic-policy making. He oriented his agenda on the stance of the Washington institutions (Lucas 2005: 129; Choucair 2006: 8; Harrigan and El-Said 2009: 83; Milton-Edwards and Hinchcliffe 2009 [2001]: 90, 128; Henry and Springborg 2010: 253). Concomitantly, the dissolution of Parliament from June 2001 to June 2003 multiplied the enacting of economic reforms by administrative decree (Choucair 2006: 9; Harrigan and El-Said 2009: 84). On the demand side of the economy, trade liberalization was intensified with two rounds of tariff cuts in August 1999 and April 2000 (El-Said 2002: 264) . Moreover, the Jordanian government abolished all quantitative restrictions in international trade until 2003 ( Richter 2011: 162–163) . From the early 2000s onwards, the pace of trade liberalization was set by the WTO membership (accession in 2000) and by the EMAA with the EU (in force since 2002). Among other things, WTO rules bound Jordan to reduce its maximum tariff to 20 percent until 2010, while the EMAA stipulated the phasing-out of tariffs on industrial goods imported from the EU over a 12-year period that began in May 2006 (El-Said 2002: 264; Milton-Edwards and Hinchcliffe 2009 [2001]: 90; WTO 2009a: 13, 16–17; Richter 2011: 163; European Commission 2014: 163). Apart from that, reforms on the demand side included a further round of subsidy cuts on basic food products, petrol, public transportation, water, and electricity (El-Said 2002: 264). On the supply side of the economy, the Jordanian government pursued three main reforms: First, price liberalization in the agricultural sector was intensified with the 2000 WTO accession, resulting in a 2000–2006 reform program that aimed at reducing producer support through a cutback on government services, on price support for final products, and on input subsidies (WTO 2009a: 63–64, 66). Second, private investment was liberalized in several service sectors, including banking (where Banking Law 28 of 2000 authorized the Central Bank to license banks),17 other financial services (Securities Law 76 of 2002, which specified licensing requirements), and transport (Public Transport Law 48 of 2001, which established the Public Transport Regulatory Commission as a first step towards market opening)

17

It is important to note here that private investment in banking had always been relatively free in Jordan, due to the sector’s structure (no public commercial banks) ( WTO 2009a: 77–80) .

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(WTO 2009a: 69, 77–79, 82, 89). In addition, the government issued three new temporary investment laws in 2003 (not ratified by Parliament), which presumedly contained elements of economic liberalization, apart from an amelioration of (taxbased and other) investment incentives ( OECD 2013: 54–56) . Third, Privatization Law 25 of 2000 was passed, which created a “legal and institutional framework” to sell off SOEs at a faster pace (Alissa 2007: 12; WTO 2009a: 51–53). The speed of privatization thus increased, and the number of “privatization transactions” rose to 51 “by mid-2002” (Harrigan and El-Said 2009: 84). Reform period 5 (2004–2011) After the expiration of the 2002 IMF Standby Arrangement in mid-2004, the Jordanian government pursued economic-liberalization policies on its own terms (fifth reform period 2004–2011), although the WTO framework and the EMAA with the EU constituted policy anchors (Harrigan and El-Said 2009: 75; Milton-Edwards and Hinchcliffe 2009 [2001]: 90–92). Reforms continued at a relatively quick pace until 2007–2008, when the World Financial Crisis slowed down the process. The events of the Arab Spring in early 2011 then finally put economic reforms on hold (Vogt 2011: 62; Bertelsmann 2012b: 2). On the demand side of the economy, economic-liberalization policies during the period 2004–2010 mainly concerned trade liberalization. Thus, the weightedaverage applied tariff rate over all trading partners was reduced from 13 percent in 2003 to 5.6 percent in 2008. Comparable but less starkly, the simple-average applied MFN rate for trade with WTO partners decreased from 15 percent in 2000 to 11 percent in 2008 (WTO 2009a: 23; Bertelsmann 2010b: 14; Richter 2011: 162; Bertelsmann 2012b: 17). Besides, the skyrocketing international prices of basic commodities forced the government into further subsidy cuts (partial price liberalization) during the period 2006–2008, especially for fuel and wheat products. The absolute value of fuel subsidies was first reduced by 60 percent during 2005–2006, before fuel subsidies were abolished completely in February 2008 (triggering price increases between 30 percent and 110 percent for fuel products) (WTO 2009a: 61, 73). On the supply side of the economy, the government deepened market opening in several sectors: In the telecommunications sector, more private operators received licences ( WTO 2009a: 83–84) . In the transport sector, several oversight bodies (endowed with the authority to license new market participants) were established, such as in the maritime-transport sector and the civil-aviation sector (WTO 2009a: 87, 90). Furthermore, privatization continued on the basis of the 2000 Privatization Law, although its pace was not spectacular (more than 70 operations concluded by

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June 2008), before it came to a temporary halt with the World Financial Crisis ( WTO 2009a: 52–53) . Within-case analysis: Morocco Economic liberalization in postindependence Morocco occurred in five reform periods, starting in 1980. In the half-decade before, the decline in phosphate prices from 1975 onwards, the exploding war costs in the Sahara, and the renewed rise of commodity import prices after the second oil crisis (1979) had dragged the Moroccan economy into a severe crisis (A. Findlay 1984: 208; Faath 1987: 148, 157, 195–198; Pomfret 1987: 181; Sutton 1987: 7–9, 29–30, 33; El Malki 1989: 149; Payne 1993: 150–151; Pennell 2000: 346; Gilson Miller 2013: 182–183). The Moroccan government tried to implement the first stabilization measures at the end of the 1970s and then under IMF supervision since 1980 (Rhazaoui 1987: 146; El Malki 1989: 149– 150, 158; Horton 1990: 32–34, 109; Payne 1993: 151). Concomitant with the 1980 IMF-EFF, the WB negotiated a SAL with the Moroccan government. Both the 1980 WB-SAL and the 1980–1981 IMF-EFFs as well as the 1982 IMF Standby Arrangement contained elements of economic liberalization, especially consumer-price liberalization / subsidy cuts concerning basic commodities and utilities.18 Although economic liberalization was only implemented in piecemeal fashion (while all IMF and WB agreements were cancelled soon after their inception), the first three years of the 1980s constitute Morocco’s first reform period (1980–1982), where reforms of economic liberalization started on the ground (Faath 1987: 158; Sutton 1987: 10; Horton 1990: 16, 19, 34–38, 109–110; Bouachik 1993: 42; Nsouli et al. 1995: 9, 22, 27, 40, 120; Gilson Miller 2013: 185). Thereafter, the simultaneous occurrence of several adverse external factors (recession in major export markets, high United States interest rates combined with an appreciating USD, bad weather, low foreign aid from Arab countries since 1982) aggravated problems in government finances and on the international accounts (Faath 1987: 173; Pomfret 1987: 179–180; Sutton 1987; Khrouz 1988: 76–79; Horton 1990: 19, 37; Morrisson 1991b: 42, 109; Vermeren 2010: 79–80; Gilson Miller 2013: 185; World Bank 2017). The extent was such that the government faced de-facto financial bankruptcy in early 1983. It thus turned anew to the IMF and concluded a second Standby Arrangement (September 1983). This time, the lending agreement was conditional on the implementation of more thoroughgoing stabilization measures and of structural adjustment under the auspices of the WB (Sutton 1987: 10–11; Horton 1990: 19, 37, 41–42, 47, 57–58, 18

In contrast, the 1978–1980 Three Year Plan of the Moroccan government, which aimed at macroeconomic stabilization (without IMF involvement), had deliberately excluded price liberalization / subsidy cuts in basic commodities as a measure of stabilization, for the reason that the government feared the political ramifications ( Horton 1990: 32–33) .

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65; Morrisson 1991b: 40; Nsouli et al. 1995: 9, 50–51; Harrigan and El-Said 2009: 153–156, 198; Richter 2011: 97). The second IMF Standby Arrangement initiated the second reform period (1983–1985), which ended with the cancellation of the third IMF Standby Arrangement (concluded by mid-1985) in December 1985, due to noncompliance of the Moroccan authorities with IMF conditionalities (Sutton 1987: 68; Horton 1990: 44–45, 109–110; Payne 1993: 152; Nsouli et al. 1995: 9). But an economic upturn (driven by the 1986 plunge of the oil price) once again kick-started economic liberalization and thereby initiated the third reform period (1986–1993). At first, the Moroccan government pursued economic reforms on its own terms for 12 months, until it negotiated a fourth Standby Arrangement with the IMF in December 1986 (Sutton 1987: 36; Horton 1990: 46, 109; Payne 1993: 153; Nsouli et al. 1995: 9). In the following year, Morocco acceeded to the GATT and thus locked in economic liberalization in international trade ( Sutton 1987: 53– 54) . The third reform period came to an end with the expiration of the seventh and last IMF Standby Arrangement in March 1993 (Nsouli et al. 1995: 8–9) . During the fourth reform period (1993–1999), the Moroccan government implemented economic-liberalization policies without IMF supervision, although the WB stayed involved with several loans (Harrigan and El-Said 2009: 160–164, 198). Besides, the signature of the EMAA constituted a new policy anchor for the economic reform process (Licari 1998: 1–8; Pennell 2000: 377; Denoeux 2001: 72; Haddadi 2003: 73; al Khouri 2008: 13–14; Escribano and Lorca 2008: 148–149; Zemni and Bogaert 2010; 92). The death of King Hassan II in July 1999 marked the end of the fourth reform period (Willis 1999: 115; Vermeren 2010: 100). The fifth reform period (1999–2011) began with the coronation of King Mohammed VI and lasted until the onset of the Arab Spring in early 2011 (Pennell 2000: 375; Howe 2001: 59; Sater 2010: 74; Gilson Miller 2013: 234–235; Mekouar 2013: 143). Reform period 1 (1980–1982) In the first reform period (1980–1982), the focus of economic reforms was on macroeconomic stabilization, although government policies contained some elements of economic liberalization. On the demand side, partial price liberalization / reduction of subsidies served the goal of stabilizing the public budget: Between summer and winter of 1980, prices of subsidized consumer goods were increased by 10–50 percent, followed in 1981 by price increases of petroleum by 5–23 percent. In May 1981, further price increases were announced for basic food products (flour, sugar, butter) by 30 percent, which were one igniting factor behind the Casablanca riots of June 1981 (price increases were later reduced and partly cancelled by the government) (Faath 1987: 158, 162; Horton 1990: 18, 35–36; Vermeren 2010: 79– 80; Gilson Miller 2013: 185). Despite the societal turmoil, subsidy cuts continued to

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be implemented: In 1982, subsidies on milk were abolished, concomitant with price increases of public services during the same year (irrigation water by 16 percent, drinking water by 15–20 percent, rail transport by 10–15 percent, and electricity by 28 percent). Apart from price liberalization, the government started to partially liberalize interest rates in April 1982 (leading to their rise). Moreover, from 1980 onwards, the Moroccan government began to liberalize the exchange rate, by making the MAD’s official rate more flexible, and thereby starting devaluation. At the same time, there were no discernible policies of economic liberalization on the supply side of the economy during the period 1980–1982 (Horton 1990: 16, 19, 36–37; Bouachik 1993: 42; Nsouli et al. 1995: 22, 27, 40, 120; Richter 2011: 85–86, 97–98). Reform period 2 (1983–1985) With the 1983 IMF Standby Arrangement, which initiated the second reform period (1983–1985), and with more WB lending activity economic liberalization gathered pace. Five policy reforms targeted the demand side of the economy: First, the government continued with consumer-price liberalization, as consumer subsidies were once again significantly reduced, with price increases during the period 1982–1985 amounting to 18–90 percent for basic consumer goods and services (sugar, cooking oil, wheat / flour, water, electricity, transportation). For some goods (butter, highquality flour, petroleum), subsidies were phased out completely (Sutton 1987: 11; Horton 1990: 42, 71; Morrisson 1991b: 39, 88; Bouachik 1993: 42; Nsouli et al. 1995: 34; El-Ghonemy 1998: 188; White 2001: 134; Harrigan and El-Said 2009: 153; Sater 2010: 98). Second, interest rates on deposits above 12 months were liberalized in 1985. Third, with the 1983 Investment Code the convertibility of the Moroccan Dirham (MAD) was improved for foreign investors resident in Morocco. These investors received the permission to transfer net profits freely out of the country (Rhazaoui 1987: 156). Fourth, the government accelerated the liberalization of the exchange rate and further devalued the MAD. During 1980–1985, the MAD’s rate declined against its existing peg-basket by 30 percent and against the USD by 60 percent. Fifth, the government accelerated trade liberalization, as the average tariff rate fell from 36 percent in 1983 to 23 percent in 1986. Further reforms were the reduction of the maximum tariff rate from 400 percent to 60 percent in 1984, the abolition of the upfront import deposit in 1984, and the reduction by half of the special import tax during 1983–1985. Moreover, in 1984, all export fees and licences were revoked, while the state export monopoly in processed foods was dismantled (Rhazaoui 1987: 154–155; Sutton 1987: 11, 49–52, 54–55, 103; Horton 1990: 20, 42, 58–59, 68–71, 122; Morrisson 1991b: 41; Nsouli et al. 1995: 32–33, 39–40, 120; Denoeux and A. Maghraoui 1998b: 59; El-Ghonemy 1998: 188; Harrigan and El-Said 2009: 154; Richter 2011: 85–86, 97–98).

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On the supply side of the economy, the government promulgated a new Investment Code in 1983, which might have liberalized investment in some sectors (at least incentives were extended to investors in non-moroccanized companies), while several regulations were liberalized for foreign investors (Rhazaoui 1987: 156; Sutton 1987: 51; Nsouli et al. 1995: 38–39). Besides, some sectoral investment liberalization took place, such as in banking and in public transport: In the banking sector, the minimum treasury-paper holding requirements of banks for term deposits were abrogated during 1984–1986. In public transport, services within Casablanca were opened in 1985 for private operators who could from then on compete with the services provided by the municipality (Rhazaoui 1987: 155; Sutton 1987: 49–50; Morrisson 1991b: 41; Nsouli et al. 1995: 27–28). Reform period 3 (1986–1993) After the reform process had stalled for several months in the second half of 1985 (which induced the IMF to cancel its third Standby Arrangement with the Moroccan government in December 1985), the Moroccan government continued with economic liberalization in 1986. Reform efforts were supported by an economic upturn (Sutton 1987: 68; Horton 1990: 45, 109; Payne 1993: 152; Nsouli et al. 1995: 9). It thus set off the third reform period (1986–1993). The IMF then once again became involved with another Standby Arrangement in December 1986 (Sutton 1987: 36; Horton 1990: 46, 109; Payne 1993: 153; Nsouli et al. 1995: 9). Several reforms targeted the demand side of the economy: First, the government continued with trade liberalization by abandoning import list C (the most restrictive) in February 1986. It almost eliminated quantitative restrictions in international trade until the mid-1990s and replaced them by tariffs, while the maximum tariff rate was further reduced to 40 percent in 1992 and to 35 percent in 1993. In 1988, the government introduced a new uniform tariff instrument that replaced all existing import duties. Besides, the state’s monopoly on tea and tobacco imports was abolished in 1993. After all, the average rate of protection (which takes into account tariff barriers and non-tariff barriers) declined starkly in the early 1990s, from 38 percent in 1990 to 24 percent in 1995 (Horton 1990: 75; Nsouli et al. 1995: 15, 32–33; WTO 1995: 27–28, 56, 2003: 30, 35; Achy and Sekkat 2007: 137; Richter 2011: 97–98). Second, prices for public services were further increased (partial price liberalization / subsidy cuts) during 1986–1988 and once again in the early 1990s, especially for drinking water, electricity, and rail transport (Bouachik 1993: 42; Nsouli et al. 1995: 31, 84). In 1991, the government abolished subsidies on cement (leaving sugar, edible oils, and low-quality flour as the only subsidized consumer goods) (Nsouli et al. 1995: 34, 81, 84). Third, interest rates were further liberalized (1989: Rates on deposits above six months; 1990: Rates on deposits above three months) and finally freed

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for all time deposits in 1992. In 1991, the Central Bank abolished credit ceilings for commercial banks (although it still determined lending rates) (Nsouli et al. 1995: 25–28, 105). Fourth, during 1988–1989, restrictions on international payments were further reduced, as foreign exchange could be imported more freely (1988: institution of convertible MAD accounts in Morocco for nonresident Moroccans) (Nsouli et al. 1995: 39; OECD 2010: 46–47; Richter 2011: 91–92). “In early 1992, the repatriation of profits and capital financed by foreigners but from local resources was significantly liberalized, when capital accounts were replaced by convertible time accounts” (Nsouli et al. 1995: 39; OECD 2010: 46–47; Richter 2011: 92–93). One year later, “the remaining restrictions [for foreigners; C.N.] on holding and trading Moroccan securities were lifted” (Nsouli et al. 1995: 39). Until 1993, Morocco had thus established full current-account convertibility for nonresidents and nearly full capital-account convertibility for foreign investors (Nsouli et al. 1995: 37, 39; WTO 1995: 13, 21, 2003: 4; Achy and Sekkat 2007: 153; Richter 2011: 92–94). Besides, exporting firms in the domestic economy got more possibilities to retain a part of their foreign-exchange earnings between 1991 and 1996. In 1993, foreign borrowing by domestic firms was liberalized “and shortly afterward borrowing by resident firms from foreign shareholders was completely liberalized” (Nsouli et al. 1995: 28, 39; WTO 1995: 45; Richter 2011: 92). In contrast to the other three countries under investigation, the Moroccan government did not actively devalue the MAD (exchange-rate liberalization) any more after 1985 (Richter 2011: 87). On the supply side, the Moroccan government pursued three reform paths: First, it implemented price liberalization in the agricultural sector, when it liberalized the marketing and the prices of staple-food products and agricultural inputs (WTO 2003: 69–73, 2009b: 81, 85). Since 1987 / 1988, “all cereal producer prices, except those for soft wheat, were liberalized” (Nsouli et al. 1995: 34). Second, a new 1988 Investment Code liberalized foreign investment, as “foreign investors no longer [needed] the prior approval of the Foreign Exchange Office [ODC; C.N.] to create or expand a business or to buy shares in Morocco-based businesses. Limits on the amount of profits that foreign corporations [could] send back home [were] also abolished” (Denoeux and A. Maghraoui 1998b: 59–60) . In 1989, the Moroccanization Decrees of 1973 were abrogated, while the requirement that foreign investment in moroccanized sectors could not exceed 49 percent of a company’s capital was dropped (Nsouli et al. 1995: 39; Denoeux and A. Maghraoui 1998b: 60; Richter 2011: 91). Concomitantly, Morocco’s financial market [...] “was progressively deregulated and opened to foreign investors” (Denoeux and A. Maghraoui 1998b: 59–60). During 1991–1993, commercial banks’ minimum holding requirements of public liabilities (short-term treasury paper and bonds of development banks) were substantially reduced, thus liberalizing private investment in banking (Nsouli et al. 1995: 27).

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Third, privatization of SOEs started with a 1988 draft law and was then instituted with Privatization Law 39 of 1989, which authorized the privatization of 112 enterprises (37 hotels and 75 firms in various sectors) (Nsouli et al. 1995: 32; Denoeux and A. Maghraoui 1998b: 60–61; Sater 2010: 101–103). Reform period 4 (1993–1999) When the seventh IMF Standby Arrangement expired in March 1993, Morocco entered its fourth reform period (1993–1999) (Harrigan and El-Said 2009: 160–164, 198). During this period, the Moroccan government pursued economic liberalization on its own terms (though supported by several WB loans), and it anchored its reform process once again in 1996 by signing an EMAA with the EU—besides its accession to the WTO in 1994, as a former GATT member (Licari 1998: 1–8; Pennell 2000: 377; Denoeux 2001: 72; Haddadi 2003: 73; al Khouri 2008: 13–14; Escribano and Lorca 2008: 148–149; Hoekman and Kostecki 2009: 303–310; Zemni and Bogaert 2010: 92). On the demand side of the economy, three fields of policy reform were noticeable: First, trade liberalization proceeded, though at a slower pace. Until the mid-1990s, “the unilateral reduction of non-tariff and tariff barriers was largely completed” (Richter 2011: 98). From then on, trade liberalization was determined solely by Morocco’s adherence to the EMAA and to the WTO. As in the case of other Mediterranean partner countries of the EU, the EMAA’s most far-reaching stipulation was the phase out of Moroccan tariffs on the importation of industrial goods from the EU over a 12-year period (ENPI 1996; Licari 1998: 7–17; Pennell 2000: 377; WTO 2003: 23–25; Escribano and Lorca 2008: 148–149; WTO 2009b: 22– 24). However, due to the tariffication of quantitative restrictions as demanded by the WTO, the simple arithmetic average of MFN tariff rates rose by 10 percent in terms of import value during the second half of the 1990s, while the “mean unweighted tariff,” which had fallen “from 47 percent in 1980 to 37 percent in the early 1990s,” did only decline to 33 percent by 2002 (Nsouli et al. 1995: 33; WTO 2003: 30, 35, 115; Achy and Sekkat 2007: 137). Second, consumer subsidies were further reduced (partial consumer-price liberalization), with consumer subsidies for food products declining from MAD 2.7 billion in 1996 to MAD 1.3 billion in 2000. After 1997, the subsidy on domestic common wheat was phased out (WTO 2003: 59, 81). Third, the Moroccan government deepened the liberalization of international payments. Until 1995, it established full current-account convertibility for Moroccans living abroad. At the same time, current-account convertibility for resident Moroccans was still pending (Nsouli et al. 1995: 37, 39; WTO 1995: 13, 21; WTO 2003: 4; Achy and Sekkat 2007: 153; Richter 2011: 92–94). In 1996, a domestic interbank foreign-exchange market was established (opened for trade with foreign banks in 1997), which further eased foreign-exchange trading (Achy and Sekkat 2007: 153;

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Richter 2011: 87). Contrary to IMF recommendations, the Moroccan government did not actively pursue a further liberalization of the exchange rate during the 1990s and the early 2000s, only slightly modifying the MAD’s peg to its currency basket ( Richter 2011: 87–88) . On the supply side of the economy, a new Investment Code (“Investment Charter”) was introduced in 1995, which harmonized stipulations across the different sectoral investment legislations and which contained as well elements of investment liberalization (besides its focus on investment incentives) (Denoeux and A. Maghraoui 1998b: 79; WTO 2003: 27; OECD 2010: 46–47, 57–58). Moreover, the government partially liberalized investment in several sectors, such as in banking (where the 1993 Banking Law legalized the opening of Moroccan branches by foreign banks) and in telecommunications (where the government sold a second GSM licence to a private operator in 1999) (Saâdi 03.07.1999: 6; WTO 2003: 97; Sater 2010: 103). Furthermore, the first privatizations took place since 1993, although the implementation of privatization was slow throughout the 1990s (biggest operations in the sectors of banking, cement, oil refining, steel, and insurance; apart from the privatization of the National Investment Company / Société Nationale d’Investissement (SNI) conglomerate). Total revenue was derived to a large extent from one operation, that is the 1999 sale of the second GSM licence (Belyazid and Mear 31.12.1992; J.B. 02.12.1993; A.D.N. 17.11.1994, 12.01.1995; El Mariki and Salah 20.04.1995; Kably and El Mariki 27.04.1995; Nsouli et al. 1995: 32, 120; Assouali 1996: 284–287, 303–307, 335–341, 344–350; Hillebrand 1996: 21– 22; Kably 21.03.1996, 04.07.1996, 09.10.1997; Ndour and Mossadeq 08.05.1997; Denoeux and A. Maghraoui 1998b: 61–62; Zouaoui 13.10.2001; WTO 2003: 61; Tritki 10.12.2005; Rami 2007: 116–117). Reform period 5 (1999–2011) With the coronation of King Mohammed VI in mid-1999, Morocco entered its fifth reform period (1999–2011), in which reforms of economic liberalization continued until they were hampered by the effects of the World Financial Crisis from 2008– 2009 onwards. The fifth reform period finally came to an end with the Arab Spring in early 2011 (Pennell 2000: 375; Howe 2001: 59; Sater 2010: 74; Gilson Miller 2013: 234–235; Mekouar 2013: 143; Bertelsmann 2014b: 16). On the demand side, trade liberalization, anchored by the EMAA and the WTO, once again picked up speed ( Harrigan and El-Said 2009: 175–177) . After a rise in the second half of the 1990s, the simple arithmetic average of MFN customs duties fell from 33 percent in 2002 to 20 percent in 2009—while the weighted average tariff rate over all trading partners stood at 11 percent during 2007–2009 (WTO 2003: 30, 36, 115, 2009b: 33, 39–40, 141; Bertelsmann 2010c: 14). Other measures of economic liberalization on

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the demand side, notably consumer-price liberalization / subsidy cuts and currentaccount liberalization for Moroccan residents, were apparently not implemented. Regarding consumer prices, the government actually reintroduced petroleum subsidies in 2003 due to the quickly rising international prices—a policy, which starkly increased its budget deficit in the mid-2000s (S.A. 04.08.2006; Tounassi 17.05.2008: 39; Joffè 2009: 161–162; WTO 2009b: 82–83, 95; Sater 2010: 114; Agueniou 13.12.2011; Hari 04.02.2012). On the supply side, the government extended the liberalization of producer prices (begun in the agricultural sector in the late 1980s) to the service sector. Based on the 1999 Law on Pricing Freedom and Competition (entering into force in 2001), it liberalized prices in a number of service subsectors, such as rail transport of goods and passengers (2002) and road transport of goods (2004) (WTO 2009b: 33, 67, 104– 105). At the same time, it also liberalized investment in services: Road transport during 2000–2003; air transport during 2002–2007; rail transport in 2005; insurance in 2006 (for foreign investors); and maritime transport in 2006–2007 (WTO 2009b: 105–110, 123). In 2006, a new Banking Law further liberalized investment in the banking sector, making the Central Bank the sole regulator, including the right to licence the establishment of new banks (WTO 2009b: 5, 120–121). Furthermore, from the early 2000s onwards, privatization proceeded at a faster pace than ever before, driven by several large operations in the telecommunications, tobacco, sugar, and maritime-transport sector (WTO 2003: 61–63, 90, 2009b: 64–65, 115; Sater 2010: 101–104, 113).

6.2

Economic Stabilization

Having established the empirical status of economic liberalization in the four MENA countries under investigation (see the preceding section 6.1.5), I now turn to the analysis of the policy’s effects. In this subchapter, I analyze the effects of economicliberalization policies on the stability of the four authoritarian regimes through the transmission channel of economic stabilization. Economic stabilization, as defined in section 2.4, happens through two main channels: The first channel is macroeconomic stabilization in the sense of the Washington Consensus, meaning the restoration of balance or surplus on the state budget and on the international accounts (current account, capital account, external debt stock, international reserves). The second channel is the enhancement of economic growth and socioeconomic development. I proceed in three steps: In a first step, I compare the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) descriptively in a diachronic setup, focusing on the

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main parameters in each of the two dimensions of economic stabilization. In a second step, I descriptively test 42 hypotheses out of the 71 derived from the literature survey on the effects of economic liberalization in section 3.2. These 42 hypotheses (H26–H67; see appendix-chapter 8, tables 8.2–8.6) speculate about the effects of economic liberalization on the variables of economic stabilization (20 of them via the state budget and the international accounts, 21 of them via economic growth and socioeconomic development, one hypothesis via all four variables). I check these 42 hypotheses against the empirical information on each of the four MENA countries, to assess how policies of economic liberalization might have influenced the operationalized variables of economic stabilization. The hypothesis testing at this stage is non-analytical, as I do not compare the four MENA countries among each other. In a third step, I analytically test the three “integrated hypotheses” IH1– IH3 on the link between economic liberalization and regime stability transmitted through economic stabilization (see section 4.2.1) in a MSSD for the periods 1965– 1986, 1993–2004, and 2005–2010.

6.2.1

State Budget and International Accounts

As conceptualized in sections 2.4 and 3.2.1, the main parameters in the first dimension of economic stabilization are the balance of the state budget and the balance of the international accounts (the latter represented by the main components of the balance of payments: current-account balance (including the trade balance); capital-account balance; net foreign investment; external debt position, and international reserves). In this subchapter, I first compare the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) descriptively in a diachronic setup by contrasting the empirical pattern and long-term trends of the state budgetary balance and of variables reflecting the international accounts. Subsequently, I check the theoretical effects of the policies of economic liberalization on the state budget and on the international accounts against the empirical data of the four MENA countries. I do this by descriptively testing 21 hypotheses out of the 42 derived from the literature review in sections 3.2.1–3.2.2 that describe potential effects of economic liberalization on economic stabilization. These 21 hypotheses (H26–H45 and H60; specified in the appendix-chapter 8, tables 8.2, 8.3, and 8.5) speculate about the effects of economic liberalization on economic stabilization via the state budget and the international accounts. I check these 21 hypotheses against the empirical information on each of the four MENA countries (yielding four within-case analyses), to assess how policies of economic liberalization might have influenced the variables of the state budget and the international accounts. The hypothesis testing at this stage is non-

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analytical, as I do not compare the four MENA countries among each other. I thus proceed country by country and chronologically through the reform periods. Descriptive diachronic comparison of Egypt, Tunisia, Jordan, and Morocco I start by looking at the empirical pattern and long-term trends of the state budgetary balance and of variables reflecting the international accounts in the four MENA countries under examination. Several commonalities but also country-specific differences become apparent:19 In all four countries, the budget deficit was structurally lower during the 1990s and 2000s compared to the 1980s. However, the countryspecific levels differed considerably, with minimum levels from the early 1990s up to the late 2000s (the lower boundary of the corridor in which the budget deficit oscillated) at 11 percent of GDP in Egypt, 6 percent in Jordan, 6 percent in Morocco, and 5 percent in Tunisia. But this long-term negative trend seems to have changed in the more recent past for some countries: If the average budget deficit in terms of GDP (based on IMF figures of “general government revenue” and “general government total expenditure”) during 2000–2009 is compared with the average budget deficit during 1991–1999, Jordan and Morocco registered an increase, while Tunisia registered a decrease (data for Egypt was only available since 2002). Subsequently, the average budget deficit during 2010–2011 was higher than during 2000–2009 in all four countries (with the starkest increase in Morocco) (Sutton 1987: 11–13; El Malki 1989: 172; Horton 1990: 6, 8, 14, 19, 83, 113–114; Morrisson 1991b: 42–43, 130; Brand 1994: 48; Nsouli et al. 1995: 5, 12; El-Ghonemy 1998: 184; WTO 1999: 5–6; Perry 2004: 131; Knowles 2005: 62, 220; Ikram 2006: 66–68; OECD 2007: 46; Demmelhuber 2009: 195; Farah 2009: 51; Harrigan and El-Said 2009: 112–113; Harrigan and El Said 2010: 4–9; Henry and Springborg 2010: 178, 183–184; Vermeren 2010: 80; Soliman 2011 [2006]: 43–50; IMF 2014). The same holds true for the trade deficit, which was structurally higher in all countries during the 1990s and the 2000s (in Tunisia and Morocco already from the late 1980s onwards), if compared with the 1970s and 1980s.20 The average trade deficit fell in Jordan and Morocco from the 1970s up to the 1980s, while it rose in Egypt and Tunisia. After a significant decline in all four countries from the 1980s up to the 1990s, the average trade deficit rose again in Jordan and Morocco from the 1990s up to the 2000s, while it further declined in Egypt and Tunisia. As in 19

The basis of comparison are the within-case analyses for the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) in the subsequent parts of this subchapter. 20 A partial exception is Tunisia, where the decade average of the trade deficit (total period 1970–2009) was lowest during the 1970s (2.6 percent of GDP). It then plunged to 6.1 percent of GDP during the 1980s, before falling to 4.2 percent in the 1990s and to 2.7 percent in the 2000s ( World Bank 2017).

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the case of the budget deficit, the minimum levels of the trade deficit during the 1990s and 2000s differed among the four countries: 42 percent of GDP in Jordan, 10 percent in Egypt, 8 percent in Tunisia, and 6 percent in Morocco (although the Moroccan trade deficit structurally increased after 2006 to levels between 10 percent and 15 percent of GDP). During 2010–2011, the average trade deficit increased in three of the four countries, compared with the period 2000–2009 (the exception being Jordan) (Harrigan and El Said 2010: 4–9; World Bank 2017). Likewise, the current-account deficit rose to structurally higher levels from the late 1980s onwards in three of the four countries (the exception being Jordan, where the pattern was not uniform). The decade average of the current-account deficit decreased continuously from the 1970s (where measurements for the four countries start at different points in time) up to the 2000s in Egypt, Tunisia, and Morocco. In contrast, it increased in Jordan from the 1970s up to the 1990s, before it decreased in the 2000s (to a level still higher than during the 1980s). The order of the four countries changed from the 1970s up to the 2000s: In the 1970s, Jordan had the lowest current-account deficit, followed by Egypt, Tunisia, and Morocco. In the 2000s, Egypt had the lowest current-account deficit (it even registered an average surplus during the 1990s and the 2000s), followed by Morocco, Tunisia, and Jordan (which now had the highest). During 2010–2011, the average current-account deficit increased significantly in all four countries, compared to the period 2000–2009. Once again, the country-specific minimum levels of the current-account balance during the 1990s and 2000s differed: -18 percent of GDP in Jordan, -8 percent in Tunisia, -5 percent in Morocco (although the Moroccan current-account balance plunged to structurally lower levels after 2007), and -3 percent in Egypt (Harrigan and El Said 2010: 4–9; World Bank 2017; IMF 2014). In all four countries, FDI net inflows skyrocketed to structurally much higher levels since the mid-2000s. In three of the four countries, FDI net inflows had already climbed to higher levels during the 1990s and early 2000s if compared to the 1980s (the exception being Egypt, while in Jordan they only picked up in the late 1990s). The decade average of relative FDI inflows (FDI net inflows in current USD in relation to GDP in current USD) increased continuously in three of the four countries from the 1970s up to the 2000s—the exception being Egypt, where relative FDI inflows decreased from the 1980s up to the 1990s, before they increased again during the 2000s. During the 1970s, all four economies had average relative FDI inflows under 2 percent of GDP (the highest in Tunisia, the lowest in Morocco). In the 2000s, average relative FDI inflows were between 3 percent and 4 percent of GDP in Egypt, Tunisia, and Morocco (lowest in Morocco at 3 percent of GDP). Jordan experienced an exceptional surge of relative FDI inflows during the 2000s,

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with an average of 11 percent of GDP (World Bank 2017; IMF 2014; UNCTAD 2014). The external debt stock of all four economies increased from the 1970s onwards and reached a peak in the mid-1980s to early 1990s (244 percent of GNI in Jordan in 1991, 132 percent in Egypt in 1988, 112 percent in Morocco in 1985, 74 percent in Tunisia in 1987). From there, it structurally decreased again in all countries (in relative terms: most in Egypt and least in Tunisia). By the late 2000s, the external debt stock was back at the level of the 1970s in Egypt and Morocco, but still structurally higher in Tunisia and Jordan. Its decade average (overall period 1970–2009) rose in all four countries from the 1970s up to the 1980s. From the 1980s up to the 1990s, the decade average declined in Egypt and Morocco, while it rose starkly in Jordan and slightly in Tunisia. From the 1990s up to the 2000s, it decreased in three of the four countries (the exception being Tunisia, where it stayed flat) (Harrigan and El Said 2010: 4–9; World Bank 2017). Finally, the decade average (overall period 1970–2009) of “total reserves (including gold)” rose continuously from the 1970s up to the 2000s in all four countries. During the 2000s, international reserves were disproportionately higher than in any preceding period. In three of the four countries (the exception being Jordan), the progressive growth of reserves started already in the 1990s. From 1990 to 2010, total reserves rose by a factor of 12 in Jordan, 11 in Tunisia, ten in Egypt, and ten in Morocco (Harrigan and El Said 2010: 4–9; World Bank 2017). Searching for empirical substance of possible indirect effects of economic liberalization on the state budget and on the international accounts, IMF and WB lending to the four countries under investigation was substantial: During the period 1980–2010, the IMF contracted loans worth SDR 3.4 billion with the Moroccan government, SDR 1.2 billion with the Egyptian government, SDR 744 million with the Jordanian government, and SDR 311 million with the Tunisian government (although not all loan commitments were actually drawn). In addition, WB loan commitments during the same period amounted to USD 3.1 billion for Morocco, USD 1.6 billion for Tunisia, USD 870 million for Jordan, and USD 300 million for Egypt (Sutton 1987: 10–11, 36, 68; Horton 1990: 34–38, 41, 44–46, 47, 57–58, 60, 68–69, 109–110; Morrisson 1991b: 40; Vatikiotis 1991: 455, 458; Satloff 1992: 137–138; Payne 1993: 152–154; Nsouli et al. 1995: 8–9; Murphy 1999: 99–100; The World Bank 1999; Ryan 2002: 52–54; Schlumberger 2002: 227; Wils 2003: 129, 137; Robins 2004: 182–183; Knowles 2005: 92, 94–102, 105–107; Alissa 2007: 4–5; Harrigan and El-Said 2009: 39, 49–65, 79, 81, 115, 153–157, 160–164, 166, 174, 197–199; Milton-Edwards and Hinchcliffe 2009 [2001]: 77, 84; Richter 2009: 61; Roll 2010: 112, 116; Soliman 2011 [2006]: 44, 103; Bertelsmann 2012c: 19). Apart from direct funds, the seal of approval by the IMF and the WB induced

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bilateral and commercial creditors to reschedule and (less often) to cancel their debt claims. During the period 1983–2002, bilateral creditors cancelled debt worth USD 25 billion in Egypt (half the country’s external debt stock of the late 1980s), USD 2.7 billion in Morocco, and USD 700 million in Jordan (but none in Tunisia). Besides, bilateral creditors rescheduled principal and interest payments amounting to USD 25 billion in Egypt (the other half of the country’s external debt stock of the late 1980s / early 1990s), USD 8 billion in Morocco, and USD 6.5 billion in Jordan (but none in Tunisia). On top of that, commercial creditors rescheduled principal and interest payments worth USD 7.8 billion in Morocco and USD 800–900 million in Jordan (but none in Tunisia, while Egypt’s external debt was nearly completely bilateral) (Sutton 1987: 34–36; Payne 1993: 154; Nsouli et al. 1995: 8–9, 51; Mitchell 2002: 276–277; Schlumberger 2002: 228; Wils 2003: 131, 137–139; Perry 2004: 131, 142; Knowles 2005: 116–118; Ikram 2006: 56, 58; Harrigan and El-Said 2009: 40; Milton-Edwards and Hinchcliffe 2009 [2001]: 78, 84; Soliman 2011 [2006]: 44–45).21 Subsequently, the evolution of the state budget and of the international accounts (represented by the main components of the balance of payments, that is currentaccount balance (including the trade balance); capital-account balance; net foreign investment;22 external debt position; and international reserves) are depicted in detail for each country and each reform period (for the country-specific reform periods, see section 6.1.5). Concomitantly, I discuss the hypotheses H26–H45 and H60 (derived in sections 3.2.1 and 3.2.2; specified in the appendix-chapter 8, tables 8.2, 8.3, and 8.5) on the possible effects of policies of economic liberalization on these variables of economic stabilization by contrasting them with the empirical data of the four countries. I discuss both possible short-term and long-term effects, although the analysis is limited to those effects that theory assumes to be either “mostly positive” or “mostly negative” (thus I will omit theoretically “ambiguous” effects). Whenever I discuss a hypothesis, I indicate the hypothesis number (see tables 8.2, 8.3, and 8.5 in the appendix-chapter 8) in parentheses. 21

The difference between Tunisia (whose creditors did neither cancel nor reschedule any of its external debt) and Egypt (whose external debt was cancelled by half in the early 1990s, while the other half was rescheduled) is stark. Thus, Egypt’s external debt in relation to GDP (which had been almost double that of Tunisia in the late 1980s) stood at only half the level of Tunisia’s at the end of the 1990s. As a consequence, debt-related payments constituted a much bigger burden for the Tunisian budget from 1997 onwards and throughout the 2000s than for the Egyptian one (Henry and Springborg 2010: 183; World Bank 2017). 22 As data on total net foreign investment, which includes foreign portfolio investment and FDI, was not or only incompletely available to the author, the figure presented for this component of the balance of payments will solely be the net FDI inflows.

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Within-case analysis: Egypt In Egypt, the most intense reform efforts regarding economic liberalization took place during the mid-1970s, during the 1990s, and during the period 2004–2010 (see section 6.1.5). The budget deficit first rose since the mid-1970s up to a level of 15 percent of GDP during the mid-late-1980s, before it fell significantly during the 1990s. It then began a renewed rise to around 10 percent during the early 2000s and to 8 percent during the mid-late 2000s. Overall, the budget deficit seems to have structurally declined, being empirically confined below maximum levels of 10 percent of GDP since the early 1990s. The trade balance improved with high volatility from a level of -20 percent of GDP during 1974–1975 to a level between -10 percent and -15 percent in the mid-1980s. It then plunged anew to -18 percent of GDP in 1988, before it continuously improved and finally reached -2.5 percent in 1992. From there, it once again followed a downward trend to -9.5 percent of GDP in 1998, then turned around and rose back to slightly under -1 percent in 2004 and 2006. Afterwards, it declined again to a level around -5 percent of GDP during 2007–2011. Overall, the trade balance structurally improved, oscillating in a corridor between -10 percent and -20 percent of GDP during 1974–1990 and in a corridor between balance and -10 percent of GDP during 1991–2011. Likewise, the current-account balance fluctuated around a level of -6 percent of GDP during 1977–1985, then improved to a level around -2 percent during 1986–1990 and finally shot up to a surplus of 8 percent in 1992. From there, it declined back to -3 percent of GDP in 1998, increased again to a surplus of 4 percent in 2004 and declined back to -2 percent during 2009–2010 (a level comparable to the late 1980s). Overall, the current-account balance structurally improved, from average levels below -4 percent of GDP during 1977–1985 to levels above -2 percent during 1986–2011. FDI net inflows first rose from around USD 500 million (current) p.a. in the mid-1970s to over USD 1 billion (current) p.a. in the mid-1980s, before they declined to average levels far below USD 1 billion (current) p.a. from 1990 up to the early 2000s. Since 2004, FDI net inflows skyrocketed and reached USD 11.6 billion (current) in 2007, before declining back to USD 6.4 billion (current) in 2010. Overall, their level was significantly higher after 2003 than in all preceding periods. The external debt stock of the Egyptian economy first continuously rose from the mid-1970s to a level of 120–130 percent of GNI in the late 1980s. It was then cut by debt cancellation to 80 percent of GNI in the early 1990s and continuously declined to 30 percent around the year 2000 and to slightly under 20 percent in the late 2000s. Overall, the level of external debt first structurally increased from the 1970s up to the 1980s and then structurally decreased again to once again reach the level of the early 1970s by the 2000s. International reserves built up slowly during the 1980s and stood at USD 2.5 billion (current) in the late 1980s. They subsequently increased with

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the 1990 debt cut to USD 3.6 billion (current) and continued their rise to USD 19 billion (current) in the late 1990s. After a short period of decline to USD 13.6 billion (current) in 2001, they once again massively increased to just under USD 40 billion (current) in 2010, before they plunged to USD 20 billion (current) after the Arab Spring. Overall, international reserves were significantly higher during the 1990s and 2000s than during the 1970s and 1980s (World Bank 2017; IMF 2014; UNCTAD 2014). In the following part, the evolution of the state budget and of the international accounts in Egypt’s different reform periods, as well as possible effects of economic-liberalization policies on these outcomes will be discussed. Whenever I discuss a hypothesis, I indicate the hypothesis number (see tables 8.2, 8.3, and 8.5 in the appendix-chapter 8) in parentheses. Reform period 1 (1974–1981) During the first reform period (1974–1981), data on the budget deficit is sparse, although the majority of authors contend that it increased starkly. Its average during 1973–1983 was around 12 percent of GDP. The trade deficit was very volatile, although its trend was downward, dragging it from 20 percent of GDP in 1974– 1975 towards 15 percent around 1980–1981. Data for the current-account balance was available to the author since 1977. During 1977–1981, the current account stood between -4 percent and -8 percent of GDP (with the outlier of 1980, when it was close to balance), without a clear trend. FDI net inflows increased to levels above USD 100 million (current) p.a. during 1977–1978 and above USD 500 million (current) during 1979–1981. The “external debt stock” of the Egyptian economy skyrocketed from 25 percent of GNI in 1974 to 102 percent in 1981. “Total reserves (including gold)” increased continuously since 1975 and reached USD 2.5 billion (current) in 1980, before they declined to USD 1.7 billion (current) in 1981 (El-Ghonemy 1998: 184; Soliman 2011 [2006]; World Bank 2017; IMF 2014; UNCTAD 2014). The policies of economic liberalization introduced by the Egyptian government during the first reform period (1974–1981) affected the demand side (import liberalization, liberalization of international payments) and the supply side (investment liberalization, first steps towards privatization of SOEs) of the economy (see section 6.1.5). But the supposed effects were uneven: On the one hand, the liberalization of investment (especially of foreign investment) and the initiation of the first steps towards privatization of SOEs triggered only a weak supply response, while most of the additional investment went into nonproductive activities within the tertiary sector. Ultimately, investment reforms might have contributed to the rise in FDI, although its levels were too low to significantly slow down the buildup of foreign debt in the capital-account balance (H38). On the other hand, the abolishment of import restrictions and the liberalization of foreign-exchange holdings

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kept demand high. Thus, Egypt’s trade balance stayed hugely negative (although it improved slightly during the first reform period), depressing the current-account balance (H40). The current-account deficits could not be offset by foreign-capital inflows, increasing Egypt’s foreign debt stock fourfold in terms of GNI between 1974 and 1981. Concomitant with the international accounts, the budget deficit of the Egyptian state deteriorated, driven by trade liberalization (losses of tariff income) and by increasing subsidy payments due to high inflation rates (themselves driven by the import boom and by domestic borrowing of the government) (H29). However, the effects of economic liberalization on the macroeconomic balance were disguised by the enormous rise in rent inflows after the first oil crisis / boom in 1973 and even more so after the second oil crisis / boom in 1979 (which occurred together with the reestablishment of full oil-production capacity after the return of the Sinai oil fields). The massive influx of foreign exchange and the reforms of economic liberalization reinforced each other in the disproportional increase of demand, while supply remained depressed due to institutional shortcomings and unfolding Dutch Disease. After all, the originary impact of economic-liberalization reforms (independent of the effect of rent inflows) on the international accounts and on the state budget during the period 1974–1981 is hard to isolate. The more so since two other factors blurred the picture: the increase in international commodity prices due to the 1970s oil boom (which further raised Egypt’s import bill) and the decline of import demand from industrialized countries (whose economies entered a period of stagflation after the 1973 oil crisis, depressing Egyptian exports independent of Dutch Disease) (see also: Wahba 1994: 148–159, 166–167; G. A. Amin 1995: 7– 13; Beattie 2000: 219–220, 261; El-Ghonemy 2003: 79; Ikram 2006: 24–26; Farah 2009: 39–41; G. A. Amin 2011: 36). Gap period 1 (1982–1986) The deterioration of the state budget continued in the ensuing gap period (1982– 1986), where economic liberalization was put on hold (with the exception of consumer-price liberalization) and regulations (especially in international trade) were in fact deliberalized (see section 6.1.5). The budget deficit “soared to a point” (10–15 percent of GDP in the mid-1980s), where it was “one of the highest in the world” (Soliman 2011 [2006]: 43–44, 50). According to El-Ghonemy (1998, 184), it skyrocketed from an average 12 percent of GDP during 1973–1983 to 23 percent in 1985, before it fell to 17 percent in 1986. In contrast, the main components of the international accounts showed an uneven development: The trade deficit decreased from 15 percent of GDP in 1982 to 10 percent in 1986, while the current-account balance fluctuated between -8.1 percent and -2.8 percent of GDP during 1982–1986. FDI net inflows increased steadily from USD 294 million (current) in 1982 to USD

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1.22 billion (current) in 1986. At the same time, the “external debt stock” continued to increase from 115 percent of GNI in 1982 to 124 percent in 1986, while “total reserves (including gold)” could stabilize on roughly the 1981 level of slightly less than USD 2 billion (current) (World Bank 2017; IMF 2014; UNCTAD 2014). One policy of economic liberalization might have contributed to these outcomes in the gap period (1982–1986) (see section 6.1.5): Consumer-price liberalization / subsidy cuts probably reduced the budget deficit. Given the budget deficit’s rise during the period 1982–1986, consumer-price liberalization could still have slowed down this rise (H26). At the same time, it could have contributed to the decline of the trade deficit, as higher prices of basic import commodities should have reduced import volumes (H35). However, several other influential factors mask the independent effect of economic liberalization during this period: the decline of the oil price during 1980–1986 connected with the continued economic downturn in major export markets (which decreased Egypt’s export earnings); the institution of new protectionist measures in international trade (which reduced imports); the turn to a more active industrial policy (which increased exports); higher population growth (1974–1981: 2.3 percent p.a.; 1982–1986: 2.6 percent p.a.); and particularly high rent inflows in the first half of the 1980s, especially donor money from the United States after the 1979 peace treaty with Israel (which stabilized the current account and the international-reserve position) (Vatikiotis 1991: 449, 454; Wahba 1994: 154–155; Richards and Waterbury 2008: 73; Roll 2010: 110; Soliman 2011 [2006]: 36–37, 40–42; World Bank 2017). Reform period 2 (1987–1990) During the second reform period (1987–1990), the state’s budget deficit declined steadily (although it remained near the 10-percent average level of the 1980s),23 while the trade and current-account deficits could not be decisively reduced from their 1986 level (trade balance 1987–1990: -14 percent of GDP; current-account balance 1987–1990: -2 percent of GDP). Net FDI inflow declined from an average USD 1.1 billion (current) p.a. during 1987–1989 to just USD 734 million (current) in 1990. The country’s “external debt stock” during 1987–1989 continued to hover at levels comparable to the early 1980s (120 percent of GNI), before it declined to 78 percent in 1990 due to the Paris Club debt cut. Likewise, “total reserves (including gold)” stayed roughly constant during 1987–1989 (USD 2.5 billion (current)), before 23

According to El-Ghonemy (1998: 184), the budget deficit fell from 17 percent of GDP in 1986 to 14 percent in 1987, to 16 percent in 1988, to 14 percent in 1989, and to 6 percent in 1990.

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they increased substantially with the 1990 debt cut (USD 3.7 billion (current)) (ElGhonemy 1998: 184; Perry 2004: 131; Ikram 2006: 68; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the second reform period (1987–1990) (see section 6.1.5): A major factor behind the persistent trade and current-account deficits was probably the huge devaluation of the EGP against the USD, which raised import values in EGP. The concomitant positive effect on Egyptian exports and the price effect by a weakened EGP on nonessential consumer-goods imports might have attenuated the strain on the trade balance. At the same time, the devaluation of the EGP probably slowed down the decline of the budget deficit, as it increased inflation and thus the pressure for subsidization (H30). Possible effects of the 1989 Investment Law on private investment and employment (H28, H33) could only be detected during the third reform period (1991–1998), where total investment (public + private) unexpectedly fell until 1993, while increasing official unemployment was a factor contributing to the budget deficit (although these two developments were mainly due to the reduction of public investment under the ERSAP) (see also: WTO 1999: 3, 75–76; El-Ghonemy 2003: 81–82; Ikram 2006: 66–67, 82; IMF 2014). Similarly, a clear positive trend of FDI (with potential positive effects on the capital account) during the early 1990s is not discernible (H38). Apart from the possible direct effects of policies of economic liberalization on the Egyptian state budget and on the international accounts, the credible intent of the Egyptian government to pursue these policies also had an influence (H60): The 1987 Standby Arrangement with the IMF brought in foreign currency in the form of loans (total loan commitment: SDR 250 million; drawn amount: SDR 116 million). This financial influx contributed to the fall of the budget deficit in the short run—although the loans increased the budget deficit in the long run due to additional principal and interest payments—and bolstered the country’s international reserves, while increasing the external debt stock. In addition, commitment to economic reforms (including economic liberalization) triggered a first round of debt rescheduling by the Paris Club in 1987, comprising interest and principal payments of USD 12 billion (Vatikiotis 1991: 455, 458; Ikram 2006: 56, 58; Harrigan and El-Said 2009: 39, 49–65, 197–198; Soliman 2011 [2006]: 44, 103; World Bank 2017; IMF 2014). These deferred payments improved the state’s budgetary position and should have positively affected international reserves (see also: World Bank 2017; IMF 2014). Reform period 3 (1991–1998) During the third reform period (1991–1998), the state’s budget deficit declined to levels that were significantly lower than during the second reform period (1987–1990).

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According to El-Ghonemy (1998, 184), the budget deficit was as low as 1 percent of GDP in 1991, 3.5 percent in 1992 and then turned into a budgetary surplus of 1.6 percent of GDP in 1993. But it began to rise anew from the mid-late 1990s, until it was back at the level of the late 1980s (roughly 10 percent of GDP) in the early 2000s (see also: WTO 1999: 5–6; Ikram 2006: 66–67; Henry and Springborg 2010: 183–184; Soliman 2011 [2006]: 45–50; IMF 2014). The lower budget deficits of the early-mid 1990s positively affected the trade balance and the current-account balance, which ameliorated substantially: The trade balance improved from an average level of -14 percent of GDP during 1987–1990 to -6 percent during 1991–1998 (although the trend was downward from -2.5 percent of GDP in 1992 to -9.5 percent in 1998). Likewise, the current-account balance improved from an average -2 percent of GDP during 1987–1990 to a positive 1.8 percent during 1991–1998 (although its average level masks a decline from a surplus of 8 percent of GDP in 1992 to a deficit of 3 percent in 1998). Net FDI inflows fell to historical lows during 1991– 1992 of an average USD 356 million (current) p.a., before rising back to USD 922 million (current) p.a. during 1993–1998. At the same time, the “external debt stock” of the Egyptian economy temporarily increased from a level of 78 percent of GNI after the 1990 debt cut to 89 percent of GNI in 1991, before it continuously declined to 38 percent of GNI in 1998. Concomitantly, “total reserves (including gold)” increased continuously from a post-debt-cut level of USD 3.6 billion (current) in 1990 to USD 19.4 billion (current) in 1997 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the third reform period (1991–1998) (see section 6.1.5): On the demand side, the partial liberalization of interest rates (and their subsequent rise) probably brought down public investment, which might have reduced the budget deficit (if the dampening effect on private investment and on the related tax income was not as strong). At the same time, rising real interest rates are supposed to have attracted more FDI and portfolio investment and thus probably helped to bring down the foreigndebt share in the capital-account balance (besides increasing international reserves) (H36). The further liberalization of the EGP’s exchange rate (triggering a further devaluation against the USD) should have reduced the trade deficit and the currentaccount deficit in the long run (H44). Despite currency devaluation, the Egyptian government succeeded to cut subsidies (partial price liberalization) of basic consumer goods, which ameliorated the state budget and should have also reduced the trade deficit through higher prices of imported goods (H26, H35). At the same time, trade liberalization on the import side should have had an increasing effect on the budget deficit (through the loss of tariff revenue) and also probably on the trade deficit (as exports declined relatively more than imports) (H29, H40). Finally, the

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liberalization of international payments apparently could not hinder the decline in remittances (which decreased in relative terms from 15 percent of GDP in 1992 to 4 percent in 1998), contributing to the decline of the current-account balance during 1992–1998 (see also: Harrigan and El-Said 2009: 42; World Bank 2017; IMF 2014). On the supply side, the liberalization of investment and prices, especially in the agricultural sector, did not significantly reduce official unemployment, which hovered around 8–11 percent of the labor force during 1991–1998 (in fact increasing during 1991–1995, before it declined by 2–3 percent until 1998). Thus, employment creation through additional investment was probably not a very important factor alleviating the state budget during the 1990s (H28, H33). At the same time, price liberalization in the agricultural sector might have increased domestic supply of agricultural goods, thus contributing to the fall of the trade and currentaccount deficits (H37, H45). Further to that, investment liberalization in general might be one factor driving the rise in net FDI inflows since 1993 and thus reducing the share of foreign debt in the capital account (while increasing currency reserves) (H38). Privatization, which took up speed late in the third reform period, might have slowed down the rerise of budget deficits in the late 1990s (see also: World Bank 2017; IMF 2014). However, the effects of economic liberalization on the state budget and on the international accounts during the third reform period (1991–1998) are blurred by other factors: First, as a quid pro quo of Egypt’s pivotal role in the Desert Storm Coalition of the 1991 Iraq war, the United States, Saudi Arabia, and the Paris Club cancelled half of Egypt’s debt in the early 1990s (a sum of around USD 25 billion) (Mitchell 2002: 276–277; Perry 2004: 131, 142; Harrigan and El-Said 2009: 40; Soliman 2011 [2006]: 44–45). This massive debt cut improved Egypt’s state budget and international accounts independently from economic liberalization. But the Paris Club share (USD 10 billion) was conditional on the implementation of the ERSAP (which contained elements of economic liberalization), as were the several reschedulings and reductions of interest payments on the rest (USD 25 billion) of Egypt’s external debt (period 1990–1996) (Pripstein Posusney 1997: 219; ElGhonemy 2003: 80; Perry 2004: 142; Ikram 2006: 68; Soliman 2011 [2006]: 44–45). Thus, debt cancellation and rescheduling were at least partly an effect of the implementation of economic-liberalization policies (H60). The same holds true of the three IMF agreements of the 1990s (two Standby Arrangements and one EFF) and the 1991 WB-SAL, which stipulated the implementation of economic-liberalization policies as a precondition for the disbursement of loan tranches (Harrigan and ElSaid 2009: 39, 49–65, 197–198; Richter 2009: 61; Roll 2010: 112, 116). These IMF and WB loan agreements (total agreed lending volume: SDR 905 million (IMF) and USD 300 million (WB)) contributed to the fall of the Egyptian state’s budget deficit

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in the short run and to the rise of international reserves, although they slowed down the fall of the external debt stock (see also: World Bank 2017; IMF 2014). Second, most of the improvement in the state budget probably resulted from a deliberate cut in public investment and spending (pure stabilization) and not from policies of economic liberalization (WTO 1999: 3, 75–76; Ikram 2006: 66–67). The restraint in public expenditures also seems to be the prime responsible for the ameliorated trade and current-account balances of the 1990s, although the partial liberalization of the EGP-USD exchange rate probably had a nonnegligible effect too (H44). Third, the current account was influenced not only by an ameliorating trade balance (in which policies of economic liberalization might have played a major role), but also by steadily declining remittances and by plummeting levels of ODA (where policies of economic liberalization apparently played a less important role). The Gulf crisis of 1990–1991 amplified these trends, as it negatively affected tourism revenues and remittances in the first half of the 1990s (WTO 1999: 100–101; Farah 2009: 41–42; World Bank 2017). At the end of the third reform period, the 1997 massacre of tourists in Luxor once again brought down tourism revenues in the short run. Fourth, the Asian Financial Crisis (1997–1998) affected most developing countries through a withdrawal of foreign investment capital, including Egypt (Perry 2004: 136–137; Ikram 2006: 75–76; Harrigan and El-Said 2009: 50). Fifth, population growth slowed down markedly compared to the previous reform period (1987–1990: 2.6 percent p.a.; 1991–1998: 2 percent p.a.) ( World Bank 2017). Reform period 4 (1999–2003) During the fourth reform period (1999–2003), the budget deficit was significantly higher (at around 10 percent of GDP) than during the preceding reform period (where it was markedly lower, although with rising tendency since the mid-1990s). At the same time, the trade balance continuously improved from -8.3 percent of GDP in 1999 to -2.6 percent in 2003. Likewise, the current-account balance rose from 1.8 percent of GDP in 1999 to 2.3 percent in 2003. FDI net inflows declined continuously from an average level of USD 1.2 billion (current) during 1999–2000 to USD 510 million (current) in 2001, USD 647 million (current) in 2002, and USD 237 million (current) in 2003. Concomitantly, the “external debt stock” of the Egyptian economy declined further from 34 percent of GNI in 1999 to 28 percent in 2001, before it rose back to 36 percent in 2003. “Total reserves (including gold)” declined back from USD 19 billion (current) in 1998 to USD 15 billion (current) in 2003 (Ikram 2006: 66–67; Henry and Springborg 2010: 183–184; Soliman 2011 [2006]: 45–50; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the fourth reform period (1999–2003) (see section 6.1.5): The nearly full liberaliza-

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tion of the EGP’s exchange rate to the USD in the fourth reform period (1999–2003), which reduced the EGP’s value by 50 percent, could have been a factor behind the rising budget deficits at the time—due to the inflationary effects on basic import commodities, which the government might have tried to cushion with a raise of subsidy payments (H30). The liberalization of the exchange rate should also have helped reducing the trade deficit in the long run, as it made exports cheaper and imports more expensive (H44). A countereffect on imports should have been the trade liberalization (reduction of MFN tariffs) during the same period (H40). On the supply side, the limited investment liberalization and price liberalization in the financial sector could have created some jobs and thus might have alleviated the public budget (H28, H33), although the effects are supposed to have been marginal in the short run. In fact, official total unemployment actually increased well beyond the fourth reform period, from 8 percent of the total labor force in 1999 to 11 percent during 2005–2006 (see also: World Bank 2017). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Egypt’s fourth reform period (1999–2003): Above all, there were several major disruptive international events with negative effects on trade, remittances, tourism, and FDI (and thus on Egypt’s state budget and on its international accounts). These were the Asian Financial Crisis of 1997–1998 (which spilled over to other developing countries and which still affected Egypt during the first years of the fourth reform period), the terrorist attacks of 11 September 2001, and the 2003 United States invasion of Iraq. Besides, the global economy entered a downturn with the burst of the Dotcom bubble in the early 2000s (Perry 2004: 131–132; Ikram 2006: 75–76; Harrigan and El-Said 2009: 50; Roll 2010: 118; IMF 2014). At the same time, population growth slowed down further (1991–1998: 2 percent p.a.; 1999–2003: 1.8 percent p.a.) (see also: World Bank 2017). Reform period 5 (2004–2011) In the fifth reform period (2004–2011), the budget deficit of “general government” declined slightly from around 10 percent of GDP during 1999–2003 to an average 8 percent of GDP during 2004–2010 (with little year-to-year fluctuation). The international accounts also improved: The trade balance stood at an average -3.1 percent of GDP during 2004–2008 (compared to -5 percent in the fourth reform period (1999–2003)), before it deteriorated to -5.3 percent during 2009–2011 due to the effects of the World Financial Crisis. Likewise, the current account showed a historical surplus of 2.3 percent of GDP during 2004–2008 (up from an average balance during 1999–2003), before it plunged to an average -2.2 percent during 2009–2011. FDI net inflows skyrocketed from USD 237 million (current) in 2003 to USD 11.6

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billion (current) in 2007, before declining back to USD 6.4 billion (current) in 2010 and a net ouflow of USD 483 million (current) in 2011 after the Arab Spring. At the same time, the “external debt stock” of the Egyptian economy declined further from 32 percent of GNI during 1999–2003 to 29 percent during 2004–2008 and to 17 percent during 2009–2011. “Total reserves (including gold)” more than doubled from an average USD 14 billion (current) during 1999–2003 to an average USD 29 billion (current) during 2004–2010, before they fell from USD 37 billion (current) in 2010 to USD 19 billion (current) in 2011 and to USD 16 billion (current) in 2012 (OECD 2007: 46; Demmelhuber 2009: 195; Farah 2009: 51; Henry and Springborg 2010: 178, 183–184; Soliman 2011 [2006]: 50; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the fifth reform period (2004–2011) (see section 6.1.5): On the demand side, the strong trade-liberalization drive of the Nazif governments probably contributed to the budget deficit’s stickiness at a relatively high level, as tariff income declined (H29). Concomitantly, trade liberalization should have slowed down the reduction of the trade deficit, as the price decline in imports should have increased their volume (H40). In contrast, consumer-price liberalization (in the form of subsidy cuts, mostly for energy products) helped to reduce the budget deficit, while it probably contributed to the fall of the trade deficit by increasing the price of import products (H26, H31, H35, H42). On the supply side, the thrust in privatization brought significant revenues to the budget (although the net income to the state is unclear, as information on social compensation payments is sparse). As a large sum of privatization receipts also constituted FDI, privatization probably contributed to the skyrocketing rise of FDI and thus helped bringing down the foreign-debt component in the capital account (while the slowdown of foreign-debt accumulation helped to reduce the relative level of external debt) and increasing international reserves (H39). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Egypt’s fifth reform period (2004–2011): First, during the period 2004–2008, the second oil boom boosted the value of Egypt’s oil and gas exports, positively affecting the trade balance and the current account. Rising oil and gas prices also drove up remittances from oil-rich countries, Suez Canal fees, tourism from countries benefitting from the boom (all three positively affecting the current account), and FDI (in the energy sector, but also in services due to Dutch-Disease effects) (WTO 1999: 76–78; WTO 2005a: 57–58; OECD 2007: 14–15; Henry and Springborg 2010; Roll 2010: 121; Soliman 2011 [2006]: 49; World Bank 2017; UNCTAD 2014). Second, the global economy entered an upturn since the early-mid 2000s, further boosting all these

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revenue and capital streams (IMF 2014). Third, the World Financial Crisis as a major disruptive international event brought the boom to an end. It made itself felt in Egypt’s state budget and in its international accounts since 2008, blurring the effect of other factors such as economic liberalization (Henry and Springborg 2010: 172; IMF 2014). Within-case analysis: Tunisia In Tunisia, the implementation of economic liberalization was most intense during the early 1970s, from the mid-1980s up to the mid-1990s, and during the 2000s (see section 6.1.5). The budget deficit stood at 6.7 percent of GDP in 1982 and then declined to 5.3 percent in 1986 and to an average 3.8 percent during 1986–1990. Subsequently, it decreased in the first half of the 1990s from 5 percent of GDP in 1991 to 2 percent in 1994, before it rose again to 5 percent in 1996. Since 1997, its trend was negative, until it stood at under 1 percent of GDP in the late 2000s. The budget deficit then rose anew after the Arab Spring from 1 percent in 2010 to 3.7 percent in 2011. Overall, the budget deficit was structurally lower in the 2000s compared to the 1990s, oscillating in a corridor from 5 percent to 2 percent of GDP during the 1990s and in a corridor of 3 percent to balance during the 2000s. The trade balance first increased from -3 percent of GDP in 1970 to a surplus of 3 percent in 1974. It then plunged to -8 percent of GDP in 1977, before rising back to -3 percent in 1979 and falling to a temporary minimum of -11 percent in 1984. From there, it skyrocketed to a positive 0.4 percent of GDP in 1988, before once again falling to -7.5 percent in 1993. Afterwards it started a new rise, reaching 1.5 percent of GDP in 1996, followed by a decline to -4 percent in 2001 and a rerise to -0.4 percent in 2005. From there, it decreased to -4.8 percent in 2010. Overall, the Tunisian trade balance was highly volatile during the period 1970–2010, although the level of the 1990s and 2000s was structurally higher than that of the 1980s, and volatility declined over time (during 1994–2009, the trade balance oscillated in a relatively narrow band, between zero and -4 percent of GDP). The current-account balance closely followed the trade balance: It first increased from -11 percent of GDP in 1977 to -4 percent of GDP during 1979–1980, before decreasing again to -12 percent of GDP in 1984. From there, it skyrocketed to a surplus of 0.9 percent of GDP in 1988 and once again fell back to -8.4 percent in 1993. It then followed a rising trend, reaching -2 percent of GDP in 1999. After a fall to -4.6 percent of GDP in 2001, it rose to -0.9 percent in 2005, before it followed a declining trend down to -5 percent in 2010. Like the trade balance, the current-account balance was highly volatile. Nevertheless, it was structurally higher in the 1990s and 2000s than in the 1980s, while volatility declined (during 1994–2009, the current account oscillated in a relatively narrow band, between -1 percent and -4.6 percent of GDP). Net

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FDI inflows first rose to a significantly higher level in the early 1980s (1970–1979: USD 55 million (current) p.a.; 1980–1985: USD 238 million (current) p.a.). They then temporarily declined back to USD 90 million (current) p.a. during 1986–1990. During the period 1992–2005, they jumped to a markedly higher level, oscillating between USD 351 million (current) and USD 821 million (current) p.a. (but following an upward trend). Finally, FDI net inflows skyrocketed to an average USD 2.2 billion (current) p.a. during 2006–2010 (with annual inflows between USD 3.3 billion (current) and USD 1.5 billion (current)). Overall, FDI net inflows were structurally higher during the 1990s, compared to the 1970s and 1980s, and they reached a significantly higher level during the 2000s, if compared to the 1990s. Tunisia’s external debt stock first fell from a level of 44 percent of GNI in 1970 to 27 percent in 1975, before it increased to 51 percent in 1978. Afterwards, it decreased again to 42 percent of GNI in 1980, followed by a continuous rise to 74 percent in 1987. Thereafter, its trend became negative, until it stood at 52 percent of GNI in 1998. After 1998, it rose back to levels around 70 percent of GNI in the early 2000s, before it once again declined to an average level of 55 percent during 2005–2010. Overall, the external debt stock of the Tunisian economy was at structurally higher levels from the mid-1980s up to the 2000s (oscillating in a band between 50 percent and 80 percent of GNI), if compared to the 1970s and to the first half of the 1980s (when it oscillated in a band between 25 percent and 50 percent of GNI). Tunisia’s “total reserves (including gold)” first increased from USD 60 million in 1970 to USD 700 million in 1980. They then decreased in the first half of the 1980s to USD 294 million in 1985. Afterwards, total reserves rose again and reached an average level of USD 900 million during 1990–1993. Since 1994, the trend became clearly positive and total reserves climbed up to a level of USD 4.6 billion in 2005. In 2006, they jumped to USD 6.9 billion and then skyrocketed to USD 11.3 billion in 2009. Thereafter, they declined back to an average level of USD 8.8 billion during 2010–2011. Overall, total reserves were structurally higher during the 1990s than during the 1970s and 1980s. They then once again increased to a significantly higher level during the 2000s (compared to the 1990s) (Harrigan and El-Said 2009: 112–113; World Bank 2017; IMF 2014; UNCTAD 2014). In the following part, the evolution of the state budget and of the international accounts in Tunisia’s different reform periods, as well as possible effects of economic-liberalization policies on these outcomes will be discussed. Whenever I discuss a hypothesis, I indicate the hypothesis number (see tables 8.2, 8.3, and 8.5 in the appendix-chapter 8) in parentheses. Reform period 1 (1970–1981) Data on the budget deficit in Tunisia’s first reform period (1970–1981) is sparse. Nevertheless, one can assume budget deficits showed a rising trend, at least since

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the mid-1970s. There are two reasons for this assumption: extensive social spending and inflation pressure related to Dutch Disease (itself a result of the 1970s oil boom), which forced the government to spend ever more on subsidies to maintain political stability (in 1980 the deficit of the Tunisian Caisse Générale de Compensation amounted to USD 239 million) (R. J. King 1998: 113; Murphy 1999: 86–92; Perkins 2004: 160–162, 164; Erdle 2010: 80–81; Alexander 2016: 43, 116). The trade balance first improved from a deficit of -2.8 percent of GDP in 1970 to a surplus of 3 percent in 1974. It then plunged to a deficit of 8.4 percent of GDP in 1977. After a rerise to -3 percent of GDP in 1979, the trade balance once again fell to -8.5 percent in 1981. Data on the current-account balance were available to the author since 1976, when it stood at -8.8 percent of GDP. At first, it deteriorated to -11 percent of GDP in 1977, before it continuously improved to -3.8 percent in 1980 and then fell again to -8.9 percent in 1981. FDI net inflows were at an average USD 34 million (current) p.a. during 1970–1975, before they more than doubled to an average USD 86 million (current) p.a. during 1976–1979 and then began a hike to USD 327 million (current) in 1981 and to USD 371 million (current) in 1982 (the temporary peak). The “external debt stock” of the Tunisian economy first fell from 44 percent of GNI in 1970 to 27 percent in 1975, before it increased to 51 percent in 1978. Afterwards, it fell again to an average 43 percent of GNI during 1980–1981. “Total reserves (including gold)” continuously increased from USD 60 million (current) in 1970 to USD 700 million (current) in 1980, before they fell slightly to USD 610 million (current) in 1981 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the first reform period (1970–1981) (see section 6.1.5): On the demand side, trade liberalization for investment goods and input goods imported by Tunisian producers could have contributed to the rising budget deficits of the 1970s, due to the loss in tariff income (H29). Besides, trade liberalization could also have driven the deterioration of the trade deficit (and the current-account deficit) in the second half of the 1970s, due to an increase in imports (H40). However, the net effect is unclear, as trade liberalization was implemented predominantly for exporting companies, which might have thus increased exports (with a positive effect on the trade balance and on the current account) (H34, H41). The partial liberalization of international payments for exporting companies and for foreign investors could have been one factor behind the rise in FDI net inflows during the 1970s. As the policy was very confined in the case of Tunisian exporters, it is unlikely that it enabled capital flight. On the supply side, the liberalization of domestic and foreign investment supposedly was one of the main factors behind the rise in FDI net inflows, which slowed down the need to finance gaps in the capital account with foreign debt (H38)—although the effect seems to have been limited, given the still relatively

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small amounts of FDI. A job-creation effect of investment liberalization, which disburdened the public budget, is possible, although it seems to have been small in light of the severe unemployment problem of the mid-late 1970s (H28, H33) (see also: World Bank 2017). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Tunisia’s first reform period (1970–1981): First, the oil boom drove up oil and gas prices as well as the price of phosphates, another major Tunisian export product (A. Findlay 1984: 224–225; Murphy 1999: 83–85). Second, the current account was bolstered by other revenue streams that also rose due to the oil boom, such as remittances (especially from Libya), “tourism receipts, and ODA from oil-rich Arab countries” (A. Findlay 1984: 226; Perkins 2004: 163; World Bank 2017). Third, a factor dampening economic expansion was the unfolding recession in Europe (Tunisia’s major export market) since the mid-1970s (IMF 2014). Gap period (1982–1985) In the gap period (1982–1985), when economic liberalization was to a large extent dormant, macroeconomic fundamentals further deteriorated. An exception was the budget deficit, which stood at 6.7 percent of GDP in 1982. Its movement during 1983–1985 is unknown to the author, although it seems to have declined to 5.3 percent of GDP by 1986. The trade balance decreased further from -8.5 percent of GDP in 1981 to -10.5 percent in 1982 and to -11.4 percent in 1984, before it improved to -6 percent in 1985. The current-account balance closely followed the trade balance: from -9 percent of GDP in 1981 it further decreased to -10.7 / 9.2 percent in 1982 and to -11.6 percent in 1984, before it improved to -6.4 percent in 1985. FDI net inflows fell continuously from USD 371 million (current) in 1982 to USD 139 million (current) in 1985 (compared to USD 287 million p.a. during 1980–1981). The “external debt stock” of the Tunisian economy increased from 48 percent of GNI in 1982 to 61 percent in 1985. Finally, “total reserves (including gold)” dwindled from USD 692 million (current) in 1982 to USD 294 million (current) in 1985 (Harrigan and El-Said 2009: 112–113; World Bank 2017; IMF 2014; UNCTAD 2014). During this gap period (1982–1985), very few policies of economic liberalization were implemented by the Tunisian government (see section 6.1.5). One exception is partial consumer-price liberalization / subsidy cuts, which took place in 1983 / 1984, but which were later rescinded after the 1984 riots. It remains unclear, how big actual and sustained subsidy cuts were during this period. Whatever the numbers, it seems clear that they could not substantially hold back the deterioration of the trade deficit, although they might have contributed to a possible decrease of the budget deficit (H26).

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Besides, there were at least four other factors (not related to economic liberalization) impacting on the state budget and on the international accounts during the period 1982–1985: First, the continuous decline of the oil price during 1980– 1986 (first major plunge in 1982), which reduced export earnings from oil and gas, remittances (especially from Libya), ODA from oil-rich Arab countries, and tourism receipts; second, the continuing recession in Europe; third, higher population growth (1970–1981: 2.3 percent p.a.; 1982–1985: 2.6 percent p.a.); and fourth, the drought of 1982, which reduced agricultural output, while increasing agricultural imports (El-Ghonemy 1998: 178; R. J. King 1998: 114; Murphy 1999: 94; Perkins 2004: 169, 171; World Bank 2017; Alexander 2016: 116). Reform period 2 (1985–1995) During the second reform period (1985–1995), the budget deficit fell from 5.3 percent of GDP in 1986 to an average level of 3.8 percent of GDP during 1986–1990. Thereafter, the deficit of “general government” declined from 4.7 percent of GDP in 1991 to 2.3 percent in 1994, before it rose back to 4.1 percent in 1995. The trade balance showed a very volatile pattern during the second reform period: From an average level of -6.6 percent of GDP during 1985–1986, it skyrocketed to a surplus of 0.4 percent in 1988 and then plunged back to a deficit of 7 percent in 1990. Afterwards, it rose back to -5 percent of GDP in 1991, followed by a fall to -7.5 percent in 1993 and a rerise to an average -3.4 percent during 1994–1995. The current-account balance closely followed the trade balance: from an average level of -6.8 percent of GDP during 1985–1986, it increased to a surplus of 0.9 percent in 1988, then plunged back to an average deficit of 5 percent during 1990–1991 and further to -8.4 percent in 1993, before it rerose to an average -4 percent during 1994–1995. FDI net inflows decreased from an average level of USD 215 million (current) p.a. during the preceding gap period (1982–1985) to an average USD 90 million (current) p.a. during 1986–1990 (a level comparable to the early 1970s, if inflation is taken into account), before they rose to new highs of an average USD 471 million (current) p.a. during 1991–1995. The “external debt stock” of the Tunisian economy first continued its rise from 61 percent of GNI in 1985 to an average 73 percent during 1987–1989, before it fell to 65 percent in 1990 and to 58 percent in 1992. It then levelled off at an average 64 percent of GNI during 1993–1995. “Total reserves (including gold)” increased from their historical low of USD 294 million (current) in 1985 to USD 1 billion (current) in 1989, then declined slightly to an average USD 900 million (current) during 1990–1993 and finally rose to new highs of USD 1.6 billion (current) during 1994–1995 (Harrigan and El-Said 2009: 112–113; World Bank 2017; IMF 2014; UNCTAD 2014).

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Policies of economic liberalization might have contributed to these outcomes in the second reform period (1985–1995) (see section 6.1.5): On the demand side, the large currency devaluation during the period 1985–1987 (partial liberalization of the exchange rate) should have helped bringing down the trade deficit by roughly 5–6 percent of GDP from the mid-1980s up to the late 1980s. This significant reduction of the trade deficit in turn ameliorated the current-account balance. Currency devaluation allowed the Tunisian government to concomitantly implement trade liberalization (tariff reduction), without increasing the trade deficit (tariff reductions implemented by the government of Prime Minister Sfar in 1986 and by the government under the new President Ben Ali during 1988–1990) (H40). The government further supported this effect through trade liberalization on the export side (H34). Besides, consumer-price liberalization in the form of subsidy cuts might also have contributed to bringing down the trade deficit and the current-account deficit in the mid-late 1980s, as they made imports more expensive (H35). At the same time, currency devaluation and trade liberalization in the form of tariff reduction should have slowed down the fall of the budget deficit, while consumer-price liberalization in the form of subsidy cuts should have accelerated it (H26, H29, H30, H31). The continuous liberalization of international payments during the period 1987–1995 should have increased remittances and FDI, thus assumedly bolstering the current account and bringing down the share of foreign loans in the capital account (H38). Remittances actually hovered between 3 percent and 5 percent of GDP during the second reform period (1985–1995), a level comparable to the first half of the 1980s—thus no correlation between the liberalization of international payments and the level of remittances is visible at first sight. In contrast, FDI net inflows seem to have reacted to payments liberalization for foreign investors in the early 1990s. Thus, one could assume the liberalization of payments in the early 1990s contributed to the amelioration of the capital account by reducing the need for foreign loans (see also: World Bank 2017). On the supply side, producer-price liberalization in the agricultural and industrial sector might also have contributed to bringing down the trade deficit and the current-account deficit in the mid-late 1980s, due to a rise of domestic production and a concomitant reduction of imports (H37, H45). At the same time, producer-price liberalization could have contributed to the decline of the budget deficit, through the elimination of parallel markets leading to more taxable economic activity (H27, H32). Investment liberalization in the financial sector and in the transport sector during the early 1990s—combined with liberalizing measures stipulated in the 1993 Investment Code—could have created jobs (official unemployment fell from 16.8 percent of the total labor force in 1991 to 14.5 percent in 1995) and thus might have helped reduce the budget deficit in the period 1991–1994 (H28) (see also: World Bank 2017).

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Apart from possible direct effects of economic liberalization on Tunisia’s state budget and on its international accounts, economic-liberalization policies during the second reform period (1985–1995) had an indirect effect, as their implementation ensured the flow of IMF and WB credit (H60). Thus, the 1986 IMF Standby Arrangement and the 1988 IMF-EFF brought in foreign currency of SDR 311 million / about USD 500 million (amount drawn: SDR 298 million), while WB loans during the period 1986–1991 amounted to USD 914 million (Murphy 1999: 99–100; Harrigan and El-Said 2009: 115, 197–199). These funds bolstered Tunisia’s state budget (in the short run, as additional principal and interest payments increased it in the long run) and international reserves, although they also contributed to the rise of the external debt stock in the late 1980s (see also: World Bank 2017; IMF 2014). Besides, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Tunisia’s second reform period (1985–1995): First, the government implemented a range of macroeconomic-stabilization measures (cuts in state spending and investment, wage freeze for public-sector workers, tax reform) as part of the Mzali / Sfar austerity budgets and later as condition of the 1986 IMF Standby Arrangement (Payne 1993: 146; Saghir 1993: 2–3; Murphy 1999: 96–100, 104–108; Perkins 2004: 173–174; Harrigan and El-Said 2009: 112, 199; Harrigan and El Said 2010: 5; Richter 2011: 106, 112). Second, population growth slowed down (1982–1985: 2.6 percent p.a.; 1985–1995: 2.2 percent p.a.) ( World Bank 2017). Third, the 1990–1991 Gulf crisis was a highly disruptive event for the Tunisian economy, as both the United States and the Gulf states slashed their economic assistance and military aid, after President Ben Ali’s refusal to support the Desert Storm coalition (visible in a stark decline of total ODA from 3 percent of GNI to 0.4 percent during the first half of the 1990s (Murphy 1999: 115–116; Perkins 2004: 191–192; World Bank 2017; Alexander 2016: 144). Reform period 3 (1995–2011) During the third reform period (1995–2011), the budget deficit (deficit of “general government”) showed a declining trend. After a temporary rise from 4 percent of GDP in 1995 to 5 percent in 1996, it declined to an average level of 2.9 percent during 1998–2001 and then slowly continued its way downward to a mere 0.6 percent in 2008. Afterwards, it remained around 1 percent of GDP during 2009–2010 and then shot up to 3.7 percent in 2011. The trade balance, as in the second reform period (1985–1995), stayed volatile, though with a smaller variance: From an average level of -3.4 percent of GDP during 1994–1995, it increased to -1.5 percent in 1996. It then declined back with ups and downs to -4 percent of GDP in 2001, followed by a continuous rise to -0.4 percent in 2005. Afterwards, it decreased to an average

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-3 percent of GDP during 2008–2009 and further to -4.8 percent in 2010. The currentaccount balance increased from an average level of -4 percent of GDP during 1994– 1995 to an average level of -2.5 percent during 1996–1999. After a temporary decline to -4.6 percent of GDP in 2001, it rose to -0.9 percent in 2005, followed by a decline to -3.8 percent in 2008 and to -4.8 percent in 2010. FDI net inflows stabilized at a level above USD 300 million (current) p.a. during 1995–2005, hovering between USD 351 million (current) and USD 821 million (current) p.a. In 2006, they skyrocketed to USD 3.3 billion (current) and stayed above USD 1.5 billion (current) p.a. during 2007–2010. Tunisia’s “external debt stock” first decreased further from 63 percent of GNI in 1995 to 52 percent in 1998. It then increased again to 70 percent of GNI in 2002, followed by a continuous decline to 51 percent in 2008. Afterwards, it settled at 53 percent of GNI during 2009–2011. “Total reserves (including gold)” slightly increased from their average level of USD 1.6 billion (current) during 1994–1995 to an average USD 2.1 billion (current) during 1996–2002. In 2003, they rose to USD 3 billion (current) and then continuously hiked until they stood at USD 11.3 billion (current) in 2009. From this level, they fell to USD 7.8 billion (current) in 2011 (Henry and Springborg 2010: 183; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the third reform period (1995–2011) (see section 6.1.5): On the demand side, trade liberalization in the form of tariff reduction proceeded at a slower pace during the second half of the 1990s, before it accelerated again in the 2000s. There is no obvious correlation with the budget deficit, which showed a declining trend during 1997– 2010. However, trade liberalization could have slowed down the budget deficit’s fall (H29). Likewise, the faster trade liberalization from the early-mid 2000s onwards, which should have dragged down the trade balance and the current-account balance, is not directly visible in the pattern of these variables (both were volatile, worsening in the early 2000s, ameliorating in the mid-2000s, and then worsening again in the late 2000s). Consumer-price liberalization in the form of cutbacks on subsidies might have contributed to the fall of the budget deficit throughout the 2000s (H26, H31). Implemented in the early 2000s, it might also have helped dampening the increase of the trade deficit and of the current-account deficit during that time (H35). The liberalization of international payments during the period 1997–2003 was geared primarily towards Tunisian exporters and foreign direct investors. Nevertheless, exports hovered between 38 percent and 42 percent of GDP during 1997–2004 and began to rise significantly only from 2005 onwards. Likewise, FDI net inflows only began to significantly increase since 2006. It thus seems unlikely that payments liberalization had a strong effect on the trade balance, on the current account, or on the capital account from the late 1990s up to the mid-2000s (see also: World Bank

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2017; IMF 2014; UNCTAD 2014). On the supply side, the further liberalization of FDI (through the 2005 amendment to the 1993 Investment Incentives Code) seems to be one factor behind the skyrocketing FDI net inflows since 2006, which structurally improved the capital account (H38). Continuous sectoral investment liberalization in banking, insurance, transport, and telecommunications from the late 1990s onwards might have been partly responsible for the falling official unemployment rates during the period 1999–2008. Less people out of work should in turn have alleviated the public budget (which effectively showed a declining trend during the period 1997– 2010) (H28, H33). The enhancement of privatization after 1995 (see section 6.3.2.4) and the fact that many of the big operations involved foreign investors probably increased FDI net inflows (notably since 2006) and thus bolstered the capital account (H39) (see also: WTO 2005b: 93; Erdle 2010: 131, 192; OECD 2012: 15–16, 50–54, 58; World Bank 2017; UNCTAD 2014; Alexander 2016: 121; WTO 2016: 34–35, 138). Besides, policies of economic liberalization had an indirect effect on the Tunisian state budget and on its international accounts during the third reform period (1995– 2011), as their implementation ensured the flow of WB credit (H60). During the period 1996–2005, the Tunisian government contracted four loans with the WB, with a total lending volume of USD 637 million (The World Bank 1999; Harrigan and El-Said 2009: 115, 199). These loans contributed to the fall of the Tunisian state’s budget deficit and should have supported the increase of its international reserves, although they also augmented the external debt stock (see also: World Bank 2017; IMF 2014). Furthermore, a range of other factors probably affected the state budget and the international accounts in the third reform period (1995–2011), blurring the independent contribution of economic liberalization: First, the period 1995–2011 was full of major disruptive events, which must have influenced economic indicators in Tunisia, such as the Asian Financial Crisis of 1997–1998 and its global ramifications, the burst of the Dotcom Bubble in the United States and Western Europe in 2000–2001 (which dampened demand for Tunisian exports and reduced other revenue streams relevant for the current account), the terrorist attacks of 11 September 2001, the 2002 bombing on the island of Jerba (which brought down tourism receipts during 2002– 2003), and the World Financial Crisis with its peak during 2008–2009 (Perkins 2004: 203; Henry 2008: 303; Bertelsmann 2010d: 2, 20; Erdle 2010: 123, 125, 128, 131; IMF 2014; Alexander 2016: 71, 124, 140–141). Second, the mid-2000s oil boom also affected Tunisia by increasing both export value of oil and gas and the value of basic import commodities (with an opposite effect on the trade balance and on the current account) (Henry and Springborg 2010: 45, 175). Third, the rise in ODA to higher levels during 1999–2006 (mainly due to United States contributions

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after 2001, related to the War on Terror and to the Trans-Sahara Counterterrorism Initiative),24 the structural rise of remittances in the 2000s (1995–2000: 3.5 percent of GDP; 2001–2010: 4.5 percent), and the rise of tourism receipts during the period 2004–2010 (2000–2003: USD 2 billion p.a.; 2004–2010: USD 3.2 billion p.a.) were three major factors behind the amelioration of the current account in the mid-late 2000s (Perkins 2004: 203; Erdle 2010: 123, 125; World Bank 2017; Alexander 2016: 140–141). Fourth, population growth declined significantly compared to the previous reform period (1985–1995: 2.2 percent p.a.; 1995–2011: 1.2 percent p.a.) ( World Bank 2017). Within-case analysis: Jordan In Jordan, economic liberalization could first be noticed in the 1970s. At that time, the scope of policies was still limited. Reforms of economic liberalization then picked up speed since 1986. During the period 1986–1999 (with the exception of the gap period 1990–1991), economic liberalization was intense, while the Jordanian government concentrated on demand-side reforms. From the late 1990s onwards, policies of economic liberalization increasingly comprised supply-side reforms, while policies on the demand side became confined to trade liberalization and consumer-price liberalization (see section 6.1.5). During the 1970s and early 1980s, the budget deficit followed a rising trend, until it stood at 7 percent of GDP in 1985 (the first year for which the author has numerical data). It then increased further to an abysmal 13.5 percent of GDP in 1987, before it reversed its trend and decreased to a budget surplus of 2 percent of GDP in 1992. Afterwards, the budgetary balance declined again to reach a renewed deficit of 6 percent of GDP in 1998, followed by an upward movement to a deficit of 1 percent of GDP in 2004. After 2004, the budget deficit once again followed a rising trend, until it stood at 8.5 percent of GDP in 2009 and 5.6 percent in 2010. Overall, the budget deficit was structurally lower during the period 1992–2008, compared to the period 1985–1991 and to the period after 2008. Its volatility during the period 1993–2008 was also lower (fluctuation between 1 percent and 6 percent of GDP) than during 1985–1991 (fluctuation between 2 percent and 13 percent of GDP). The trade balance stood at -47 percent of GDP in 1976 and further declined to its lowest point in 1981 at -55 percent. From then on, it increased steadily to -18 percent of GDP in 1989. During 1990–2004, it oscillated between -18 percent and -31 percent of GDP. It then decreased to -42 percent of GDP in 2005, before it once again entered an upward trend, reaching -21 percent in 2010. Overall, the trade balance was structurally higher 24

Although the structural increase was modest, as “net ODA” rose from an average 0.7 percent of GNI during 1994–1998 to an average 1.2 percent during 1999–2006 ( World Bank 2017).

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from the mid-1980s up to the late 2000s (when it oscillated between -40 percent and -20 percent of GDP), compared to the period mid-1970s–mid-1980s (when it oscillated between -40 percent and -55 percent of GDP). The current-account balance was positive during 1972–1976 at levels between balance and 3 percent of GDP, then plunged to -11 percent of GDP in 1978 and shot up to a surplus of 10 percent of GDP in 1980, before falling back to a deficit of 8 percent in 1983. Thereafter, it steadily increased to reach near balance in 1986, before entering a period with high fluctuation between a surplus of 4 percent of GDP and a deficit of 16 percent during 1987–1992. Since 1993, the current-account balance steadily increased, until it stood at surpluses of 5 percent of GDP in 1999 and 11.5 percent in 2003. It then plunged to -18 percent of GDP in 2005, before following a highly volatile trend during 2006–2010, with values between -17 percent and -5 percent of GDP. Overall, the current-account balance did not show a clear pattern during the whole period 1972–2010, precluding the analytical division into subperiods. FDI net inflows were below USD 100 million (current) p.a. between 1972 and 1996 (with the exception of 1981). During 1997–2002, they oscillated between USD 150 million (current) and USD 360 million (current) p.a. (with an exceptional spike of USD 900 million (current) in 2000). Starting in 2003, FDI net inflows began a continuous hike, skyrocketing to USD 3.5 billion (current) in 2006, before they entered a downward trend and declined to USD 1.5 billion (current) in 2011. Overall, FDI net inflows were structurally higher during the period 1997–2004, compared to the pre-1997 period. Since 2005, they once again rose to a significantly higher level compared to the previous period. The “external debt stock” of the Jordanian economy continuously increased from 23 percent of GNI in 1972 to 99 percent in 1988, before it skyrocketed to 244 percent in 1991. After 1991, it followed a steep downward trend, reaching 97 percent of GNI in 1998. Until 2002, the “external debt stock” increased back to 135 percent of GNI, before it once again followed a downward trend, reaching 59 percent in 2009 and 65 percent in 2010. Overall, the “external debt stock” remained significantly higher during the period 1980–2010 than during the 1970s (when it was still below 50 percent of GNI). Compared to its peak period during 1988–2005 (when it stood at 99 percent of GNI or more), it seemed to have structurally declined to levels beneath 100 percent of GNI (although higher than 50 percent) since 2006. “Total reserves (including gold)” first increased from USD 300 million (current) in 1972 to USD 1.7 billion (current) in 1980. They then entered a downward trend to reach USD 400 million (current) in 1988. After 1988, total reserves slowly but steadily increased until they stood at USD 5.5 billion (current) in 2005. Thereafter, they shot up to USD 13.6 billion (current) in 2010. Overall, “total reserves” were structurally higher during the 1990s than during the 1970s and 1980s. During the 2000s, they once again rose to a significantly

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higher level, if compared with the 1990s (World Bank 2017; IMF 2014; UNCTAD 2014). In the following part, the evolution of the state budget and of the international accounts in Jordan’s different reform periods, as well as possible effects of economic-liberalization policies on these outcomes will be discussed. Whenever I discuss a hypothesis, I indicate the hypothesis number (see tables 8.2, 8.3, and 8.5 in the appendix-chapter 8) in parentheses. Reform period 1 (1972–1982) Data on the budget deficit in the first reform period (1972–1982) was not available to the author, although one can assume it followed a rising trend due to high inflation rates and the government’s turn to comprehensive subsidization of basic commodities (creation of the Ministry of Supply in 1974). The trade balance seems to have worsened throughout the 1970s, and it stood at an average -48 percent of GPD during 1976–1980. It decreased further to -54 percent of GDP during 1981–1982. In contrast, the current-account balance at first was positive at an average 1.6 percent of GDP during 1972–1976. But it then fell with higher budget deficits to -11 percent of GDP in 1978. From there, it rose to an exceptional surplus of 9.6 percent of GDP in 1980, before it deteriorated again to -1 percent in 1981 and to -7 percent in 1982. FDI net inflows were miniscule during the 1970s, amounting to only USD 17 million (current) p.a. on average during 1972–1980. After an exceptional net inflow of USD 141 million (current) in 1981, they amounted to USD 59 million (current) in 1982. The “external debt stock” of the Jordanian economy gradually increased from 23 percent of GNI in 1972 to 47 percent in 1980 and to 55 percent in 1982. “Total reserves (including gold)” continuously increased from USD 293 million (current) in 1972 to USD 1.7 billion (current) in 1980, before they declined back to USD 1.4 billion (current) in 1982 (Knowles 2005: 62, 220; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the first reform period (1972–1982) (see section 6.1.5): On the demand side, the limited trade liberalization concerning imports might have been one factor driving the deterioration of the budget deficit due to the loss of tariff income (H29). At the same time, it might have contributed to the deterioration of the trade deficit by increasing import volumes. The deteriorating trade balance supposedly was one of the main factors dragging down the current-account balance to negative levels in the late 1970s (H40). The liberalization of international payments since 1974, which was mainly geared towards Jordanian citizens and exporting companies, could have driven exports of goods and services (which increased from 32 percent of GDP in 1976 to 44 percent in 1981), thus slowing down the rise of the trade deficit. These reforms could also have been partly responsible for the rise of remittances (them-

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selves bolstering the current account) from 4.7 percent of GDP in 1973 to 24 percent in 1976 and to an average 21 percent during 1977–1982. On the other hand, payments liberalization could also have facilitated capital flight, intensifying the pressure on the current account (which turned negative after 1976) and thus driving the level of external debt (which increased throughout the 1970s) (see also: World Bank 2017). On the supply side, the 1972 Encouragement of Investment Law might have alleviated the public budget due to the increase of private-sector employment (reducing the public-sector intake and social spending on the unemployed) (H28, H33). At the same time, the easing of FDI restrictions in the 1972 law should have increased FDI net inflows (which seems to be the case, although on a low level), themselves bolstering the capital account and slowing down the accumulation of foreign debt (which nevertheless rose fast) (H38) (see also: World Bank 2017). Apart from policies of economic liberalization, a range of other factors supposedly affected the state budget and the international accounts during Jordan’s first reform period (1972–1982): First, the years 1972–1973 still witnessed the ramifications of the 1970–1971 civil war (Feiler 1994: 47; Piro 1998: 60–62). Second, the two oil booms of 1973 and 1979 massively increased ODA (mostly from the Gulf countries; net ODA rose from 9 percent of GNI in 1971 to 44 percent in 1979), remittances, and export revenues (especially from phosphates) (Mazur 1979: 213– 214, 256; Satloff 1986: 8–10; Piro 1998: 47; Knowles 2005: 33, 36–38; World Bank 2017). These revenue streams bolstered the current account, but they also drove up imports. Third, climatic conditions during the 1970s were poor, which depressed agricultural output independently from Dutch Disease, leading to rising agricultural import bills (Satloff 1986: 12). Fourth, the plunge of the oil price at the end of the first reform period immediately reduced ODA from oil-rich Arab countries (total ODA plummeted from 44 percent of GNI in 1979 to 28 percent in 1981, and to 19 percent in 1982) (Satloff 1986: 20; Feiler 1994: 52; Knowles 2005: 34–39; World Bank 2017). Gap period 1 (1982–1985) During the first gap period (1982–1985), data on the budget deficit was still not available to the author until 1985, when the deficit of “general government” stood at 7 percent of GDP. The trade balance continuously ameliorated from -54 percent of GDP in 1982 to -37 percent in 1985. Likewise, the current-account balance improved from -7 percent of GDP in 1982 to -4 percent in 1985. FDI net inflows during 1982– 1985 oscillated between USD 25 million (current) p.a. and USD 77 million (current) p.a. The “external debt stock” of the Jordanian economy increased continuously from 55 percent of GNI in 1982 to 80 percent in 1985. At the same time, “total reserves (including gold)” continuously decreased from USD 1.4 billion (current)

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in 1982 to USD 770 million (current) in 1985 (Brand 1994: 48; World Bank 2017; IMF 2014; UNCTAD 2014). Due to the difficult economic situation, policies of economic liberalization were put on hold during the first gap period (1982–1985). In fact, the government turned to economic deliberalization (especially in international trade) (Richter 2011: 160–161) . Reform period 2 (1986–1990) During the second reform period (1986–1990), the budget deficit of “general government” exploded from 2.4 percent of GDP in 1986 to an average 13.3 percent during 1987–1988, before being nearly halved to an average 7.2 percent during 1989–1990. The trade balance first ameliorated from -25 percent of GDP in 1986 to -18 percent in 1989, before it plunged to -30 percent in 1990. The current-account balance plunged from -0.7 percent of GDP in 1986 to -15.2 percent in 1987, then shot up to a surplus of 3.8 percent in 1989, before it received another blow by the hugely negative trade balance of 1990, thus falling back to -15.5 percent. FDI net inflows remained low at an average USD 24 million (current) p.a. during 1986– 1990, without a clear trend. The “external debt stock” of the Jordanian economy virtually exploded during the second reform period, from 77 percent of GNI in 1986 to 99 percent in 1988, 182 percent in 1989, and 211 percent in 1990. “Total reserves (including gold)” more than halved between 1986 (USD 853 million (current)) and 1988 (USD 414 million (current)), before they rose to USD 1.1 billion (current) in 1990 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the second reform period (1986–1990) (see section 6.1.5): On the demand side, trade liberalization targeting imports was still limited (with the exception that the state’s food-import monopoly was largely abolished in 1986) and only picked up speed after the 1989 IMF Standby Arrangement. Thus, possible effects should rather have become visible in the third reform period (1992–1999), where the budget deficit turned into a surplus and then stayed relatively low until 1995, while the trade balance continuously ameliorated (i.e. both variables showed a pattern contrary to the expected effects of tariff-reducing trade liberalization) (H29, H40). The reduction of subsidies on a range of products in 1989 should have helped reducing the budget deficit in the period 1989–1990 (when it was nearly halved from its 1988 level) (H26). It should also have contributed to bringing down the trade deficit, due to the price rise for import products (the trade deficit in fact fell significantly from 1988 to 1989) (H35). The liberalization of interest rates by the Jordanian Central Bank in 1990 only took place at the end of the second reform period (1986–1990). Therefore, possible effects will be analyzed as part of the third reform period (1992–1999). The most far-reaching reform on the demand side was the 50-percent devaluation

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of the JOD towards the USD during the period 1988–1990 (a partial liberalization of the exchange rate). Apparently, the Jordanian government did not try to cushion the resulting high inflation (the change of average consumer prices exploded from 6.7 percent in 1988 to 25.7 percent in 1989 and to 16 percent in 1990) by an increase in subsidies (H30). To the contrary, it concomitantly reduced subsidies (see also: World Bank 2017; IMF 2014). On the supply side, the liberalization of the retail prices of agricultural produce in 1986 should have raised domestic agricultural production and thus should have helped ameliorating the trade balance (H37). The liberalization of investment that took place in the second reform period (1986–1990) was first geared towards FDI (non-Jordanian Arab investors) and later to domestic investors as well (abolition of the investment requirement in 1989). These reforms should have increased FDI, although that was not the case at first sight. However, the effect might have been more pronounced in the case of domestic investment, as “total investment” increased from 20 percent of GDP in 1986 to 23 percent in 1989 and to 31 percent in 1990. This could have entailed an increase in employment (although there were no figures available to the author), with possible positive effects on the state budget through less public investment and less social spending (H28) (see also: World Bank 2017; IMF 2014; UNCTAD 2014). In addition to possible direct effects, policies of economic liberalization during the second reform period (1986–1990) had two important indirect effects: First, the intent to implement economic reforms (which included economic liberalization) induced the IMF and the WB to negotiate the first policy-lending contracts with the Jordanian government (H60). During the period 1989-1991, loan commitments amounted to SDR 60 million from the IMF under the 1989 Standby Arrangement (amount drawn: SDR 27 million) and USD 150 million from a 1989 WB Industrialand Trade-Policy Adjustment Loan (ITPAL) (Satloff 1992: 137–138; Ryan 2002: 52; Wils 2003: 129; Knowles 2005: 92, 94–95, 105–106; Alissa 2007: 4; Harrigan and El-Said 2009: 79, 197–198; Milton-Edwards and Hinchcliffe 2009 [2001]: 77). These foreign-currency inflows slowed down the rise of the state’s budget deficit (in the short run, as additional principal and interest payments increased it in the long run) and the decline of international reserves, although they also increased the external debt stock of the Jordanian economy (see also: World Bank 2017; IMF 2014). Second, submission to the IMF’s terms of the 1989 Standby Arrangement induced Jordan’s main bilateral creditors to partly reschedule their debt claims (H60). Thus, Paris-Club countries rescheduled an amount of USD 1.2–1.4 billion of debt (principal and interest) falling due during the period 1989–1990 over ten years. On top of that, the Soviet Union rescheduled an amount of approximately USD 200 million (Schlumberger 2002: 228; Wils 2003: 131, 138; Knowles 2005: 116–117; Milton-Edwards and Hinchcliffe 2009 [2001]: 78). These reschedulings should have

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alleviated the state budget through a reduction of principal and interest payments on government debt, apart from slowing down the dissipation of foreign-exchange reserves. But the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Jordan’s second reform period (1986–1990): First, the declining oil price (main plunges in 1982 and 1986) continued to reduce ODA (decline from 10.1 percent of GNI in 1986 to 8.4 percent in 1989) and remittances (18 percent of GDP in 1986, 12 percent in 1990), although the decline was starker during the first gap period (1982–1985). Nevertheless, the impact on the current account was sizeable (Knowles 2005: 34; Macro Trends 2013; World Bank 2017; IMF 2014). Second, the government implemented a range of pure stabilization policies shortly before and after the 1989 IMF Standby Arrangement (cancelling of development projects, public-sector wage freeze, import ban on luxury goods, introduction of several fees and taxes), which should have helped ameliorate the state budget and the international accounts independently from economic liberalization (Brand 1992: 172–179; Schlumberger 2002: 227– 228; Knowles 2005: 80, 156; Harrigan and El-Said 2009: 79; Milton-Edwards and Hinchcliffe 2009 [2001]: 77). Third, the economic crisis forced the government into anticyclical spending to cushion its social effects, driving up the budget deficit (Feiler 1994: 52–53) . Fourth, population growth slowed down compared to the previous reform period (1982–1985: 4.1 percent p.a.; 1986–1990: 3.8 percent p.a.) (World Bank 2017). Fifth, the Gulf crisis at the end of the second reform period was a major disruptive international event, significantly affecting the Jordanian economy in all macroeconomic indicators (Feiler 1994: 55; Ryan 2002: 73–75; Robins 2004: 176–181; Knowles 2005: 81, 121–122; Milton-Edwards and Hinchcliffe 2009 [2001]: 49–50, 79–82; World Bank 2017; IMF 2014). Gap period 2 (1990–1991) In the second gap period (1990–1991), the budget deficit of “general government” increased from 7.5 percent of GDP in 1990 to 10.2 percent in 1991. The trade balance ameliorated slightly from -30 percent of GDP in 1990 to -22 percent in 1991. The high trade deficits were reflected in the current-account balance, which stood at an average -16 percent of GDP during 1990–1991. Net FDI inflows were USD 38 million (current) in 1990, succeeded by a net outflow of USD 12 million (current) in 1991. The “external debt stock” of the Jordanian economy, which stood at an exorbitantly high 211 percent of GNI in 1990, further increased to 244 percent in 1991 (its historical maximum during the period 1970–2011). “Total reserves (including gold)” stabilized at a level of USD 1.1 billion (current) during 1990–1991 (World Bank 2017; IMF 2014; UNCTAD 2014). Economic liberalization was stopped

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during the second gap period (1990–1991), as Jordan came into great economic difficulties, following the decision of the regime not to join the coalition forces against Iraq (loss of the Iraqi market, closing of the Saudi Arabian market, expulsion of Jordanian guest workers from the Gulf countries). As a consequence, external revenue streams dried up, with remittances down from 15 percent of GDP in 1989 to 10 percent in 1991, tourism revenue losses at USD 200–400 million, and a virtual drying up of Arab bilateral aid after 1990. All these developments severely affected the state budget and the international accounts (Feiler 1994: 55; Ryan 2002: 73–75; Robins 2004: 176–181; Knowles 2005: 81, 121–122; Milton-Edwards and Hinchcliffe 2009 [2001]: 49–50, 79–82; World Bank 2017; IMF 2014). In addition, the IMF terminated its 1989 Standby Arrangement in January 1991 (Alissa 2007: 4; Harrigan and El-Said 2009: 81, 197). Reform period 3 (1992–1999) During the third reform period (1992–1999), the budgetary balance of “general government” first turned into a surplus of 2 percent of GDP in 1992, from a deficit of 10 percent of GDP in 1991. The budget deficit then averaged 2.1 percent of GDP during 1993–1995, before it deteriorated to 5.6 percent in 1998 and finally ameliorated to 2.8 percent in 1999. The trade deficit showed a declining trend, from 31 percent of GDP in 1992 to 18 percent in 1999. At the same time, the current-account balance starkly improved, from a deficit of 16 percent of GDP in 1992 to balance during 1997–1998 and to a surplus of 5 percent in 1999. FDI net inflows oscillated between a positive USD 41 million (current) and a negative USD 34 million (current) p.a. during the period 1992–1996, before they jumped to an average USD 276 million (current) p.a. during 1997–1999. The “external debt stock” of the Jordanian economy could be reduced from 244 percent of GNI in 1991 to 161 percent in 1992. It then declined further to 97 percent in 1998, before it increased back slightly to 101 percent in 1999. “Total reserves (including gold)” slowly crawled upwards from USD 1 billion (current) in 1992 to USD 2.8 billion (current) in 1999 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the third reform period (1992–1999) (see section 6.1.5): On the demand side, the liberalization of interest rates in 1990 led to their subsequent rise. This should have driven the inflow of FDI and of foreign portfolio investment, thus ameliorating the capital account by reducing the need for foreign debt (H36). However, FDI net inflows only rose significantly in the late 1990s, so the connection seems very weak. Unfortunately, there was no data on foreign portfolio investment available to the author. But the continuously falling level of external debt seems to suggest that the Jordanian economy could effectively draw on more foreign equity financing

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to balance its capital account. Apart from that, the consumer-price liberalization through subsidy cuts during the first half of the 1990s assumedly was an important factor behind the low budget deficits and the falling trade deficits during that time (H26, H31, H35, H42). Furthermore, the abolition of all transfer restrictions regarding JOD-foreign-exchange transactions (liberalization of international payments) in 1997 should have contributed to the structural rise in FDI net inflows since that year (average net inflow 1992–1996: USD 8 million p.a.; 1997–2004: USD 467 million p.a.). It should also have increased remittances and exports, although these two variables showed a declining trend after 1997 (nevertheless, payments liberalization might have slowed down their decline (see also: Harrigan and El-Said 2009: 80; World Bank 2017; UNCTAD 2014). On the supply side, the further liberalization of agricultural producer prices towards the end of the 1990s should have increased domestic agricultural production and thus reduced agricultural imports, ameliorating the trade balance (H37). Furthermore, the two reforms liberalizing FDI since 1995 (1995 Investment Promotion Law, 1997 abolition of the 50-percent threshold in some sectors) should have increased FDI, which actually rose to structurally higher levels since 1997. Concomitant with investment liberalization in the insurance sector and in the telecommunications sector, these reforms could also have reduced the budget deficit through the creation of new jobs (H28, H33). In fact, official unemployment decreased from an average 17 percent of the labor force during 1992–1996 to an average 12 percent during 1997–2000, before it once again increased to 16 percent during 2001–2003. Finally, the start of privatization on a larger scale in the late 1990s should have boosted FDI and thus helped ameliorate the capital account (H39) (see also: World Bank 2017; UNCTAD 2014). The implementation of economic-liberalization policies during the third reform period (1992–1999) also had indirect political effects with economic consequences (H60): As a quid pro quo of reform anchoring by four further IMF agreements (1992, 1994, 1996, 1999) and satisfactory compliance regarding the loan conditionalities, the Paris-Club creditor countries granted five further rounds of debt rescheduling (1992, 1994, 1996, 1997, 1999), with a total amount of external debt (principal and interest) rescheduled of USD 4.1 billion. In addition, the London Club of commercial creditors rescheduled an amount of USD 800–900 million (principal and interest) of Jordan’s external debt in 1993, as a result of the government’s compliance with the 1992 IMF Standby Arrangement. Furthermore, the United States cancelled external debt worth USD 700 million during the period 1994–1997 (being Jordan’s sole bilateral creditor to do so) (Schlumberger 2002: 228; Wils 2003: 131, 137–139; Knowles 2005: 116–118; Milton-Edwards and Hinchcliffe 2009 [2001]: 78, 84). Debt reschedulings and cancellation should have alleviated the state budget through a reduction of principal and interest payments on government debt. Apart from that,

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they should have slowed down the dissipation of foreign-exchange reserves and, in the case of cancellation, they should have brought down the absolute level of external debt. Furthermore, the continuous implementation of economic-liberalization policies (signaling abidance by the loan conditions) brought in further IMF and WB lending (H60). During the period 1992–1999, the Jordanian government contracted four loan agreements with the IMF (one Standby Arrangement and three EFFs with total loan commitments of SDR 600 million, while SDR 505 million were actually drawn) and five loan agreements with the WB (worth USD 480 million in total) (Ryan 2002: 53–54; Schlumberger 2002: 227; Wils 2003: 137; Robins 2004: 182–183; Knowles 2005: 92, 95–102, 106–107; Alissa 2007: 5; Harrigan and ElSaid 2009: 81, 197–198; Milton-Edwards and Hinchcliffe 2009 [2001]: 84). These foreign-currency inflows bolstered the state budget in the short run and contributed to the increase of international reserves, although they also slowed down the fall of the external debt stock (see also: World Bank 2017; IMF 2014). Besides, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Jordan’s third reform period (1992–1999): First, the 1994 peace treaty with Israel significantly increased ODA, especially from the United States (“net ODA” rose from 5.9 percent of GNI in 1993 to 8.4 in 1995, although this effect quickly dissipated after 1997) (Knowles 2005: 84, 121–122; Milton-Edwards and Hinchcliffe 2009 [2001]: 84; World Bank 2017). Second, remittances rose to structurally higher levels during the 1990s, from an average 13 percent of GNI during 1987–1991 to an average 21 percent during 1992–1999 ( World Bank 2017). Both higher ODA and higher remittances bolstered the current account. Third, the government continued with pure macroeconomic-stabilization policies after 1992 (e.g. the 1994 introduction of a general sales tax), which should have ameliorated the state budget independently from economic-liberalization policies (Schlumberger 2002: 230–231; Robins 2004: 183; Knowles 2005: 156–157; Harrigan and El-Said 2009: 82). Fourth, the financial crisis emanating from East Asia since 1997–1998 that affected developing countries around the globe also dampened economic fundamentals in Jordan, with probable effects on the state budget and the international accounts (Knowles 2005: 82–83) . Reform period 4 (1999–2004) In the fourth reform period (1999–2004), the budget deficit of “general government” first stood between 3 percent and 4 percent of GDP during 1999–2002, before it decreased to 2 percent in 2003 and to 1 percent in 2004. The trade balance decreased from -18 percent of GDP in 1999 to an average -26 percent during 2000–2001, before it increased back to an average -20 percent during 2002–2003 and finally fell to 30 percent in 2004. In contrast, the current-account balance stayed positive through-

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out the fourth reform period at an average 4 percent of GDP (oscillating between balance and a surplus of 11.5 percent of GDP). FDI net inflows averaged USD 511 million (current) p.a. during 1999–2004, with two peaks in 2000 and 2004 at over USD 900 million (current) p.a. The “external debt stock” of the Jordanian economy first increased from 101 percent of GNI in 1999 to 135 percent in 2002, before it fell again to 112 percent in 2004. “Total reserves (including gold)” continued their upward trend, increasing from USD 2.8 billion (current) in 1999 to USD 5.4 billion (current) in 2004 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the fourth reform period (1999–2004) (see section 6.1.5): Possible effects of economic-liberalization policies on the demand side might have materialized from accelerated trade liberalization on the import side since 1999. This policy might be partly responsible for the stickiness of the budget deficit at higher levels during the late 1990s and early 2000s, if compared to the mid-1990s (H29). It could also have affected the trade balance negatively, due to a disproportional increase in imports (the trade deficit in fact increased during 2000–2001, although it decreased again thereafter) (H40). Besides, a further round of subsidy cuts in the first half of the fourth reform period should have reduced the budget deficit through less government spending and the trade deficit through a price rise for imported commodities (H26, H35). Both variables actually improved during the early 2000s (see also: World Bank 2017; IMF 2014). On the supply side, the intensification of producer-price liberalization in the agricultural sector during the early-mid 2000s could have reduced the budget deficit by eliminating parallel markets, thereby making more economic activity taxable (H27). It could also have reduced the trade deficit (or slowed down its rise) by increasing domestic agricultural production, and thereby reducing the need for imports (H37). The trade balance in fact improved during 2002–2003, but it then deteriorated significantly since 2004 and during the first half of the fifth reform period (2004–2011). Further to that, the liberalization of private investment in several service sectors (banking, financial services, transport) during the early 2000s might have alleviated the state budget through job creation (H28). In fact, official unemployment first rose during the fourth reform period, from 11.5 percent of the total labor force in 1999 to 16.2 percent in 2002, before falling again to an average level of 13.2 percent during the period 2004–2010. Irrespective of the accuracy of these figures, it remains unclear to which extent job creation through investment liberalization plays a role here. Finally, the speeding up of privatization during the fourth reform period should have helped reducing the budget deficit through privatization proceeds (assuming they were larger than social-compensation payments). At the same time, privatization should also have increased FDI, with positive effects on the capital account (FDI net inflows effectively stabilized on the structurally higher

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level, to which they had risen from 1997 onwards) (H39) (see also: World Bank 2017; IMF 2014; UNCTAD 2014). Apart from possible direct effects of economic-liberalization policies, Jordan’s state budget and its international accounts during the fourth reform period (1999– 2004) were affected by another round of debt rescheduling, itself a result of the government’s abidance by the conditions of external lenders (which included economic liberalization) (H60). Thus, in 2002 the Paris Club rescheduled another USD 1.2 billion of external debt (principal and interest) in the aftermath of the 2002 IMF Standby Arrangement (Knowles 2005: 118). This rescheduling alleviated the Jordanian government’s budget through lower principal and interest payments, apart from ameliorating the capital account through less need to contract new foreign debt (see also: World Bank 2017; IMF 2014). Furthermore, the actual implementation of economic-liberalization policies induced the IMF and the WB to offer new lending (H60): during the period 2000–2004, loan commitments amounted to SDR 85 million (SDR 11 million actually drawn) from the 2002 IMF Standby Arrangement and USD 240 million from two WB loans (Knowles 2005: 92, 99–102, 106–107; Alissa 2007: 5; Harrigan and El-Said 2009: 197–198). These foreign-currency funds contributed to the fall of the budget deficit in the short run and to the increase of international reserves during the fourth reform period, although they increased the external debt stock of the Jordanian economy (see also: World Bank 2017; IMF 2014). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Jordan’s fourth reform period (1999–2004): Above all, major disruptive international events took place, such as the downturn of the US economy and of the Western European economies after the burst of the Dotcom Bubble in 2000–2001, the outbreak of the second Intifada in the Palestinian Territories in late 2000, the 11 September 2001 terrorist attacks and its international ramifications (including the United States War on Terror), and the 2003 United States invasion of Iraq (which triggered the influx of thousands of Iraqi refugees, but also brought skyrocketing United States aid during 2003–2004 and the restart of revenue streams from the Gulf countries) (Robins 2004: 202, 204; Knowles 2005: 83, 122; Alissa 2007: 7, 16; Bertelsmann 2008b: 2; Milton-Edwards and Hinchcliffe 2009 [2001]: 129; Bertelsmann 2010b: 15). At the same time, population growth slowed down significantly compared to the previous reform period (1992–1999: 3.5 percent p.a.; 1999–2004: 1.9 percent p.a.) (World Bank 2017).

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Reform period 5 (2004–2011) During the fifth reform period (2004–2011), the deficit of “general government” increased from 1.1 percent of GDP in 2004 to levels between 4 percent and 6 percent during 2005–2010, with an exceptional spike of 8.5 percent in 2009. The trade deficit worsened from 30 percent of GDP in 2004 to an average 38 percent during 2005– 2007, before it ameliorated to 30 percent in 2008 and to 21 percent in 2010. The current-account balance turned deeply negative, from a surplus of 0.3 percent of GDP in 2004 to an average -15 percent during 2005–2007, before increasing again to -5 percent in 2009. Thereafter, it once again followed a declining trend down to -7 percent of GDP in 2010 and to -10 percent in 2011. FDI net inflows skyrocketed from an average USD 426 million (current) p.a. during 1999–2003 and USD 937 million (current) in 2004 to USD 3.5 billion (current) in 2006, before declining back to USD 2.6 billion (current) in 2007 and to USD 1.7 billion (current) in 2010. The “external debt stock” of the Jordanian economy further decreased from 112 percent of GNI in 2004 to 59 percent in 2009, before it increased slightly to 65 percent in 2010. Concomitantly, “total reserves (including gold)” increased from USD 5.4 billion (current) in 2004 to USD 13.6 billion (current) in 2010 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the fifth reform period (2004–2011) (see section 6.1.5): On the demand side, the strong trade-liberalization drive (tariff cuts under the EMAA and the WTO) of the mid-2000s should have contributed to an increase in the budget deficit, due to a sizeable loss of tariff income (H29). In fact, the budget deficit increased significantly after 2004. Trade liberalization on the import side should also have worsened the trade balance, due to a disproportionate increase in import volumes (a prediction that is also in line with the actual data after 2003) (H40). Besides, the subsidy cuts of the mid-2000s (partial consumer-price liberalization), which were a defensive reaction against the rising international prices of basic import commodities (especially fuel products), should have slowed down the rise of budget deficits, although they could not prevent their structural rise (H26). The same probably can be said about the supposed effect of consumer-price liberalization on the trade balance (trade deficits structurally rose during the mid-2000s, although perhaps not as fast as if no subsidy cuts had been implemented) (H35) (see also: World Bank 2017; IMF 2014). On the supply side, the investment liberalization in several sectors (telecommunications, transport) might have raised private investment and created jobs, alleviating the state budget of some former public investment and of a part of social spending on unemployment (H28, H33). Total investment effectively increased from an average 21 percent of GDP during 1999–2003 to an average 30 percent during 2004–2008. However, the shares of public and private investment are not known to the author.

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Concomitantly, official unemployment decreased from an average 15.8 percent of the total labor force during 2001–2003 to an average 13.4 percent during 2004–2008. Once again, the independent contribution of investment liberalization to these figures is speculative. Furthermore, privatization (in addition to sectoral investment liberalization) might have contributed to raising FDI and could thus have ameliorated the capital account (H39) (FDI net inflows effectively skyrocketed after 2004) (see also: World Bank 2017; IMF 2014; UNCTAD 2014). Nevertheless, a host of other factors (not related to economic liberalization) supposedly had an impact on the Jordanian state budget and on its international accounts during the fifth reform period (2004–2011): First of all, the country was shaken by a big terrorist attack in Amman in November 2005, which might have slowed down the increase in tourism receipts (further dragging down the current account) (Choucair 2006: 12; Bertelsmann 2008b: 8; Milton-Edwards and Hinchcliffe 2009 [2001]: 67, 91–92). Second, the mid-2000s oil boom spilled over to Jordan, raising tourism revenues (which increased from USD 1.3 billion in 2003 to USD 4.4 billion in 2010) and exports to oil-rich countries (Jordanian exports increased from 44 percent of GDP during 1999–2003 to 54 percent during 2004–2008) (Peters and P. Moore 2009: 277; Macro Trends 2013; World Bank 2017).25 Both developments helped slowing down the deterioration of the current-account balance, while the possible effect on exports also bolstered the trade balance. At the same time, the exploding international prices of basic commodities (in the slipstream of the oil boom) increased Jordan’s imports (Milton-Edwards and Hinchcliffe 2009 [2001]: 92; WTO 2009a: 4, 61, 73; World Bank 2017). This price effect might have been the major factor dragging down the trade balance. Third, population growth nearly doubled compared to the previous reform period (1999–2004: 1.9 percent p.a.; 2004–2011: 3.7 percent p.a.) ( World Bank 2017). Fourth, the World Financial Crisis made itself felt in Jordan since the year 2008, negatively affecting all macroeconomic fundamentals (Bertelsmann 2012b: 4; IMF 2014). Within-case analysis: Morocco Economic liberalization started in Morocco during the period 1980–1982, as part of policies of macroeconomic stabilization under two IMF-EFFs and one IMF Standby Arrangement. However, it was the 1983 IMF Standby Arrangement and the ensuing WB lending that broadened and deepened the reforms. Economic liberalization was most intense on the demand side during the second and third reform period (1983– 25

Surprisingly, remittances seemed not to be positively affected by the mid-2000s oil boom. They declined in relative terms from an average level of 22 percent of GDP during 1999–2003 to 19 percent during 2004–2008 ( World Bank 2017).

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1993). On the supply side, it was most intense during the fourth and fifth reform period (1993–2011) (see section 6.1.5). The budget deficit of the Moroccan state first rose from 10 percent of GDP in 1980 to an average 15 percent during 1981– 1982, before it declined continuously to 4.6 percent in 1988. After a short increase to 6 percent of GDP in 1989, it further decreased to a mere 1.4 percent in 1990. In the first half of the 1990s, the budgetary balance of “general government” then declined from -1 percent of GDP in 1991 to -2.8 percent in 1995, before it registered a surplus since 1996, reaching +3.5 percent of GDP in 1999. From there, it plunged to deficits of 4.7 percent of GDP in 2002 and of 5.9 percent in 2005. Afterwards, it rose back to a surplus of 0.7 percent of GDP in 2008 and finally declined to a deficit of 6.6 percent in 2011. Overall, the budgetary balance followed a rising trend during the period 1982–1999. After 1999, the long-term trend became negative. Nevertheless, the budgetary balance was at a structurally higher level during the period 1990–2010 (oscillating between a deficit of 6 percent of GDP and a surplus of 3.5 percent) than during the period 1980–1989 (when it was between -5 percent and -15 percent of GDP). The trade balance first decreased from -8.7 percent of GDP in 1980 to an average level of -12 percent during 1981–1982. From there, it ameliorated successively until it stood at a level close to balance in 1988. However, it declined back to levels between -5 percent and -6 percent of GDP during 1989–1995. Afterwards, it oscillated between levels of -3 percent and -6 percent of GDP during 1996–2006. It then plunged to -14 percent of GDP in 2008, rerose to -10.8 percent in 2010, and declined again to -14 percent in 2011. Overall, the trade balance was structurally higher during the period 1987–2006 (when it oscillated between balance and -6 percent of GDP), compared to the period 1980–1986 and after 2006 (when it was between -6 percent and -14 percent of GDP). The current-account balance first decreased from -4 percent of GDP in 1980 to -8.4 percent in 1985. From there, it hiked to an exceptional surplus of 0.4 percent of GDP in 1988, but immediately declined back to a deficit of 3.8 percent in 1989. Staying relatively flat at an average -2.7 percent of GDP during 1990–1994, the current-account balance decreased to -4.8 percent in 1995, rose back to -1.5 percent in 1996, declined gradually to 3.7 percent in 2000, and finally shot up to a surplus of 2 percent in 2001. It then entered a declining trend down to -7 percent of GDP in 2008, followed by a rerise to -4.4 percent in 2010 and a renewed fall to -7.6 percent in 2011. Mirroring the trade balance, the current-account balance was structurally higher during the period 1988–2007 (when it oscillated between a surplus of 2 percent of GDP and a deficit of 5 percent), compared to the period 1980–1987 (when it was between -4 percent and -8 percent of GDP) and after 2007 (when it was once again between -4 percent and -8 percent of GDP). Annual FDI net inflows first dissipated from USD 89 million (current) in 1980 to close to zero in 1986, before they continuously increased to

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USD 551 million (current) in 1994. After a decline to USD 322 million (current) in 1996, they followed a highly volatile trend, with annual values between USD 400 million (current) and USD 1.4 billion (current) during 1997–2000 and between USD 480 million (current) and USD 2.8 billion (current) during 2001–2010. Overall, their level was significantly higher during the period 1989–1996 (compared to the period 1980–1988) and once again during 1997–2011 (compared to the period 1989–1996). Besides, the volatility of FDI net inflows markedly increased after 1996. The “external debt stock” of the Moroccan economy continuously increased from 46 percent of GNI in 1980 to 112 percent in 1985. From there, it followed a noninterrupted declining trend and finally reached 23 percent of GNI in 2008. Afterwards, the “external debt stock” increased back to 30 percent of GNI in 2011. Overall, external debt built up to huge levels in the first half of the 1980s, but then declined back and finally reached relative levels significantly below the 1980 value from the mid-2000s onwards. “Total reserves (including gold)” hovered at levels below USD 850 million (current) during 1980–1989, reaching their lowest point at USD 266 million (current) in 1984. They then increased gradually to USD 5.9 billion (current) in 1999 and USD 5 billion (current) in 2000. Afterwards, they began a steep hike to USD 24.7 billion (current) in 2007, before falling to an average USD 23 billion (current) during 2008–2010 and to USD 20.4 billion (current) in 2011. Overall, “total reserves” first rose to structurally higher levels during 1990–2000 (compared to the period 1980–1989) and once again during 2001–2011 (compared to the period 1990–2000) (World Bank 2017; IMF 2014; UNCTAD 2014). In the following part, the evolution of the state budget and of the international accounts in Morocco’s different reform periods, as well as possible effects of economicliberalization policies on these outcomes will be discussed. Whenever I discuss a hypothesis, I indicate the hypothesis number (see tables 8.2, 8.3, and 8.5 in the appendix-chapter 8) in parentheses. Reform period 1 (1980–1982) During the first reform period (1980–1982), the budget deficit of the Moroccan state rose from around 10 percent of GDP in 1980 to levels between 14 percent and 18 percent in 1981 and remained there in 1982. The trade balance stood at -8.7 percent of GDP in 1980 and worsened to an average -12.1 percent during 1981– 1982. The current-account balance decreased from -4 percent of GDP in 1980 to -6.4 percent in 1981, increasing again to -5.4 percent in 1982. FDI net inflows averaged USD 75 million (current) p.a. during 1980–1982. The “external debt stock” of the Moroccan economy increased from 46 percent of GNI in 1980 to 73 percent in 1982. At the same time, “total reserves (including gold)” fell from USD 814 million (current) in 1980 to an average USD 524 million (current) during 1981–1982

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(Horton 1990: 6, 19, 113; Morrisson 1991b: 130; Vermeren 2010: 80; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the first reform period (1980–1982) (see section 6.1.5): First, the several rounds of partial consumer-price liberalization / subsidy cuts during the period 1980–1982 should have slowed down the rise of the budget deficit (H26). Besides, they might also have slowed down the rise of the trade deficit (in the case of tradable consumer goods and services) and of the current-account deficit (via the trade deficit) (H35). Second, the partial liberalization of interest rates since April 1982 (which presumedly triggered their rise)26 should have reduced public investment, with positive effects on the budget (although the rise of interest rates did not prevent the government from raising public investment by 30 percent in 1982 to fulfill the goals of the 1981–1985 Plan). Interest-rate liberalization leading to rising rates might also have slowed down capital outflows, which had been accelerated due to the rise of interest rates in the United States. In turn, this should have positively affected the capital account by slowing down the growth of the external debt stock (H36). Third, the beginning of exchange-rate liberalization probably drove inflation (which in fact was similarly high during 1980–1982 than during 1977–1979, at around 10– 11 percent p.a.). However, the Moroccan government tried to avoid subsidy increases (H30) and instead cut subsidies during the period 1980–1981, fending off the possible effects of exchange-rate liberalization on the public budget at high social and political cost (1981 Casablanca riots). Concomitantly, the partial exchange-rate liberalization (leading to devaluation of the MAD) should have increased exports and decreased imports in the long run, thus ameliorating the trade balance and the current-account balance (H44) (see also: Faath 1987: 162; Pomfret 1987: 179; Horton 1990: 18–19, 36; Morrisson 1991b: 130; Denoeux and A. Maghraoui 1998b: 57; Vermeren 2010: 79–80; World Bank 2017). Apart from possible direct effects, the intent of the Moroccan government to implement economic reforms including economic liberalization during the first reform period (1980–1982) (as well as their actual implementation after 1980) induced the IMF to contract policy lending (H60). Under the two IMF-EFFs during 1980–1981, the 1982 IMF Standby Arrangement, and the 1982 CFF, Morocco received loan commitments worth SDR 2.1 billion (Sutton 1987: 10; Horton 1990: 34–38, 109–110; Nsouli et al. 1995: 9).27 The actual disbursement of several loan 26

In fact, Moroccan “real interest rates” rose from negative levels during 1978–1981 to positive levels since 1982 and remained there throughout the 1980s–2000s (with the exception of the year 1985) (World Bank 2017). 27 Additional funds from the WB did not materialize, as negotiations between the WB and the Moroccan government over a USD 500 million SAL failed in 1981. Actual drawings under

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tranches slowed down the rise of the budget deficit (in the short run) and the fall of international reserves during the first reform period, although it also contributed to the buildup of external debt (see also: World Bank 2017; IMF 2014). Further to that, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Morocco’s first reform period (1980–1982): First, the government implemented several contractionary and expansive policies, with probable effects on the state budget. On the one hand, it pursued some pure macroeconomic-stabilization policies, such as the public-sector wage freeze and the tax increases of 1982. On the other hand, it conducted expansive policies, such as the 3-percent wage increase for public-sector employees, the partial cancellation of subsidy cuts in the aftermath of the 1981 Casablanca riots, and the 30-percent increase of public investment in 1982 (Rhazaoui 1987: 147–148; Horton 1990: 16, 19, 36–37; Morrisson 1991b: 130; Bouachik 1993: 42; Nsouli et al. 1995: 22, 27, 40, 120; Vermeren 2010: 80). Second, the government rescinded some of the import restrictions introduced under the 1978–1980 Stabilization Plan due to the expansive objectives of the 1981–1985 Plan (Nsouli et al. 1995: 120; Richter 2011). Third, the 1979 oil crisis had pushed up the oil price (which remained high until 1982), raising the price of energy imports as well as that of other basic import commodities (Morrisson 1991b: 37; Nsouli et al. 1995: 49–50). Fourth, the effects of the two 1970s oil crises had brought the major industrialized countries into recession, depressing demand for Morocco’s export products (Pomfret 1987: 180; Rhazaoui 1987: 148; Sutton 1987: 30; Denoeux and A. Maghraoui 1998b: 57; Vermeren 2010: 79). Fifth, interest rates in the United States were high (after their skyrocketing rise during the period 1977–1981), driving capital outflows from Morocco and further raising import prices for Moroccan consumers due to the appreciation of the USD (Pomfret 1987: 179; Denoeux and A. Maghraoui 1998b: 57; Vermeren 2010: 80). Sixth, foreign aid from Gulf countries was exceptionally high during 1980–1981, especially after the Casablanca riots (Sutton 1987: 31; Horton 1990). Seventh, the costs of war and infrastructure building in the Sahara were particularly high during the period 1976–1985, weighing heavily on the public budget (A. M. Findlay 1984: 208; Faath 1987: 157, 161, 174, 366, 369; Sutton 1987: 7–8; Pennell 2000: 346; Vermeren 2010: 75, 81–82; Gilson Miller 2013: 182–183). Eighth, Morocco experienced one of the harshest drought periods (1980–1984) in its recent history, which slashed agricultural output and

the 1980–1981 EFFs were very small, amounting to only SDR 284 million from total loan commitments of SDR 1.6 billion (Horton 1990: 37–38, 110; Nsouli et al. 1995: 9; Harrigan and El-Said 2009: 197).

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starkly increased agricultural imports (Faath 1987: 173; Pomfret 1987: 179–180; Sutton 1987: 60; Vermeren 2010: 79; Gilson Miller 2013: 185). Reform period 2 (1983–1985) During the second reform period (1983–1985), the budget deficit declined from an average 15 percent of GDP during 1981–1982 to 9–13 percent in 1983, 7–12 percent in 1984, and 9–10 percent in 1985. The trade balance improved from an average 12 percent of GDP during 1981–1982 to an average -8 percent during 1983–1985. The current-account balance deteriorated from an average level of -6 percent of GDP during 1983–1984 to -8.4 percent in 1985. FDI net inflows decreased from an average USD 75 million (current) p.a. during 1980–1982 to an average USD 47 million (current) p.a. during 1983–1984 and to USD 20 million (current) in 1985. The “external debt stock” of the Moroccan economy kept increasing, from 83 percent of GNI in 1983 to its maximum at 112 percent in 1985. At the same time, “total reserves (including gold)” further dissipated from an average USD 524 million (current) during 1981–1982 to an average USD 329 million (current) during 1983–1985 (Sutton 1987: 11–13; El Malki 1989: 172; Horton 1990: 6, 8, 83, 113; Morrisson 1991b: 42–43, 130; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the second reform period (1983–1985) (see section 6.1.5): On the demand side, the strong trade-liberalization drive concerning both exports and imports should have slowed down the fall of the budget deficit through a loss of tariff income (H29). Concomitantly, trade liberalization on the import side probably slowed down the fall of the trade deficit through a rise of imports, while trade liberalization on the export side should have accelerated the fall of the trade deficit through raising exports (H34, H40). Second, partial consumer-price liberalization through subsidy cuts in basic commodities improved the budgetary balance of the Moroccan state and should also have improved the trade balance through a reduction of import volumes (H26, H35). Third, the partial liberalization of interest rates in 1985 and their ensuing rise might have increased foreign investment (H36), although FDI net inflows actually decreased during 1985–1986 (unfortunately the author did not dispose of figures on foreign portfolio investment). Fourth, the 1983 liberalization of the MAD’s convertibility for foreign investors should have further increased FDI, although the superficial figures contradict this hypothesis. However, payments liberalization could also have fostered capital flight, which might have been the reason for the falling FDI net inflows during the period 1984–1986. Fifth, the continuing devaluation of the MAD (partial exchange-rate liberalization) should have increased the budget deficit by fuelling inflation and by increasing the pressure on the government to raise subsidies (H30). However, the government in effect cut subsidies and

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thus fended off possible effects of exchange-rate liberalization on the public budget. As during the first reform period (1981 Casablanca riots), the social and political costs of this policy were high (1984 countrywide riots). On the supply side, the liberalization of investment for foreigners by the 1983 Investment Code as well as sectoral investment liberalization in banking and transport could have contributed to the decrease of the budget deficit by raising private investment (which seems really to have increased) and by creating jobs (H28) (unemployment figures were not available to the author). At the same time, these supply-side policies do not seem to have increased FDI (at least until 1986) (see also: Paul 1984; Seddon 1984, 1986: 177–178; Faath 1987: 167–168; Perrault 1990: 316–318; Morrisson 1991b: 88, 100; World Bank 2017; UNCTAD 2014). Apart from possible direct effects, policies of economic liberalization had an indirect effect during the second reform period (1983–1985), as their implementation under IMF and WB guidance ensured debt rescheduling by Morocco’s foreign creditors (H60). During the second reform period (1983–1985), five rounds of debt rescheduling took place: two by the Paris Club (1983, 1985; total rescheduled amount: USD 1.5 billion); two by commercial creditors / London Club (1983, 1985; total rescheduled amount: USD 2.2 billion); and one by Saudi Arabia (1984; rescheduled amount: USD 1.2 billion) ( Sutton 1987: 34–35) . These reschedulings alleviated the Moroccan government’s budget through lower principal and interest payments. They also impacted positively on the capital account through less need to contract new foreign debt (see also: World Bank 2017; IMF 2014). Apart from debt rescheduling, the Moroccan government’s abidance by loan conditionalities induced the IMF and the WB to offer new lending (H60). During the second reform period (1983–1985), total loan commitments amounted to SDR 610 million from the IMF (two Standby Arrangements and one CFF; actual drawings under the Standby Arrangements: SDR 310 million) and USD 450 million from three WB loans (Sutton 1987: 10–11, 68; Horton 1990: 41, 44–45, 47, 57–58, 60, 68–69, 109–110; Morrisson 1991b: 40; Payne 1993: 152; Nsouli et al. 1995: 9; Harrigan and El-Said 2009: 153–156, 198). Disbursed loan tranches helped bringing down the Moroccan state’s budget deficit in the short run (although in the long run they increased the budget deficit through higher principal and interest payments) and slowed down the fall of international reserves, although they also increased the external debt stock (see also: World Bank 2017; IMF 2014). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Morocco’s second reform period (1983–1985): First, the Moroccan government implemented extensive macroeconomic-stabilization policies, most notably the slashing of public investment (by 40 percent during 1982–1983 and by another 12–25 percent during

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1983–1984), but also cuts in social expenditures (1983 partial hiring and wage freeze in the public sector, reduction of per-capita social expenditures, education expenditures, health expenditures, and social-security expenditures by 15 percent on average during 1982–1985) and tax raises (1983 further increase of the manufacturer’s sales tax) (Rhazaoui 1987: 153–154; El Malki 1989: 170; Horton 1990: 42; Morrisson 1991b: 39, 89–94, 130, 147; Nsouli et al. 1995: 44; El-Ghonemy 1998: 188; Harrigan and El-Said 2009: 154; Sater 2010: 98; Vermeren 2010: 81). Second, it also conducted expansive policies, such as the high spending on war and infrastructure in the Sahara, the cancelling of consumer subsidy cuts after the 1984 riots combined with the subsequent increase of subsidies during 1984–1985, and the 1984 abolition of agricultural taxes for the rest of the century (Faath 1987: 174; Rhazaoui 1987: 156; Horton 1990: 43, 83, 86–87, 132; Pennell 2000: 357). Third, international revenue streams with a rent component reached structurally different levels compared to the first reform period (1980–1982), such as remittances (which rose by 1 percent of GDP) and ODA (which were lower by 3 percent of GDP during 1983–1984) (Pomfret 1987: 180; Sutton 1987: 31; Khrouz 1988: 76–79; Horton 1990: 19, 37; Morrisson 1991b: 109; World Bank 2017). Fourth, United States interest rates slowly declined but remained at a high level, fostering capital outflows and keeping import prices high due to a strong USD (Vermeren 2010: 80; World Bank 2017). Fifth, the significant decline of the oil price in 1982 brought down import values, not only for petroleum products but also for other basic commodities (Macro Trends 2013; World Bank 2017; IMF 2014). Sixth, the first two years of the second reform period were still affected by the 1980–1984 drought, which reduced domestic agricultural output and raised agricultural imports (Faath 1987: 173; Pomfret 1987: 179–180; Sutton 1987: 11, 60, 102; Morrisson 1991b: 42; Vermeren 2010: 79; Gilson Miller 2013: 185). Reform period 3 (1986–1993) In the third reform period (1986–1993), the budget deficit stood at 6.5 percent of GDP in 1986 (down from 9–10 percent in 1985) and then declined to 6 percent in 1987 and to 4.6 percent in 1988, before rising again to 6 percent in 1989. During 1990– 1993, the deficit of “general government” fell starkly to 1.4 percent of GDP in 1990 and to 1 percent in 1991, before it increased again to 2.2 percent in 1993. The trade balance first increased significantly from -6.5 percent of GDP in 1986 to balance in 1988. It then declined back immediately to -5.2 percent of GDP in 1989, before it walked sideways, averaging -5.5 percent during 1990–1993. Mirroring the trade balance, the current-account balance shot up from -6.2 percent of GDP in 1986 and -7 percent in 1987 to a surplus of 0.4 percent in 1988, before it immediately declined back to -3.8 percent in 1989 and then stayed relatively flat at an average -2.5 percent

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during 1990–1993. FDI net inflows were close to zero in 1986 and then followed a clearly rising trend up to USD 491 million (current) in 1993. The “external debt stock” of the Moroccan economy declined from its peak of 112 percent of GNI in 1985 to 94 percent in 1986 and further with ups and downs to 72 percent in 1993. “Total reserves (including gold)” increased from USD 487 million (current) in 1986 to an average USD 786 million (current) during 1987–1989, before they entered a starkly rising trend up to USD 3.9 billion (current) in 1993 (Sutton 1987: 12; Horton 1990: 14, 113–114; Nsouli et al. 1995: 5, 12; World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the third reform period (1986–1993) (see section 6.1.5): On the demand side, the further liberalization of imports might have slowed down the decline of the budget deficit, due to a loss of tariff income (H29). At the same time, trade liberalization on the import side probably kept trade deficits high (with the exception of 1988), as it increased import volumes (H40). Apart from that, partial consumer-price liberalization / subsidy cuts for a range of services as well as cement (1991) should have reduced the budget deficit (H26), while its effect on the trade balance is assumed to be negligeable, due to the nontradable character of the affected services and goods (with the exception of electricity) (H35, H42). Furthermore, the strong drive towards interest-rate liberalization during 1989–1992 could have contributed to the rise of FDI throughout the third reform period, bolstering the capital account, as less foreign debt had to be contracted (H36, H43). Finally, the partial liberalization of international payments since 1988 (especially for foreigners) might have been an additional factor behind the rise of FDI (and possibly of foreign portfolio investment, for which the author unfortunately has no data). At the same time, payments liberalization for Moroccan exporters towards the end of the third reform period is not visibly correlated with a rise in exports (which began to rise significantly only around the turn to the 2000s) (see also: World Bank 2017; UNCTAD 2014). On the supply side, the liberalization of producer prices in the agricultural sector might have contributed to the fall of the budget deficit by eliminating parallel markets and by making more economic activity taxable (H27, H32). Besides, producer-price liberalization should have raised prices and thus increased domestic production of agricultural produce. Increased domestic production could have brought down the trade deficit (H37, H45), although that is not directly visible from the figures. Besides, the 1988 Investment Code and the 1989 abrogation of the Moroccanization Decrees probably were two major factors behind the increase in FDI, especially since 1990. Probable positive effects on FDI were further augmented by the opening of the financial market to foreign investors and by the start of privatization. The rise in FDI bolstered the capital account by reducing the growth of the external debt

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stock (H38) (see also: Nsouli et al. 1995: 35, 39; Denoeux and A. Maghraoui 1998b: 59–60; Richter 2011: 91; World Bank 2017). Apart from possible direct effects of economic-liberalization policies on macroeconomic fundamentals during the third reform period (1986–1993), the pursuance of these policies had important indirect effects: First, abidance by the loan conditions induced the IMF and the WB to contract new lending (H60). During the third reform period (1986–1993), loan commitments amounted to SDR 632 million from the IMF (four Standby Arrangements; SDR 506 million actually drawn) and to USD 1.3 billion from six WB loans (Sutton 1987: 36; Horton 1990: 46, 109– 110; Payne 1993: 153–154; Nsouli et al. 1995: 8–9; Harrigan and El-Said 2009: 155–157, 160–164, 198). These loans improved the state budget through direct transfers (although they increased it in the long run through higher principal and interest payments) and helped increasing international reserves. However, they also slowed down the decline of the external debt stock (see also: World Bank 2017; IMF 2014). Second, the Moroccan government’s willingness to follow the loan conditions of the Washington institutions induced its international lenders to undertake further rounds of debt rescheduling (H60): Thus, during the period 1987–1992, four further rounds by the Paris-Club bilateral creditors (1987, three rounds during 1988–1992) brought reschedulings of USD 5.4 billion of interest and principal payments, while London-Club creditors rescheduled USD 5.6 billion of debt in two further rounds (1987, 1990). On top of the reschedulings, Saudi Arabia cancelled USD 2.7 billion of bilateral debt in 1990, as a quid pro quo for Morocco’s support of the Desert Storm coalition during the 1991 Gulf War (Sutton 1987: 36; Payne 1993: 154; Nsouli et al. 1995: 8–9, 51). Debt rescheduling helped to improve the state budget through less principal and interest payments. It should also have bolstered international reserves (through less need to contract new foreign debt), while it did not reduce absolute foreign debt. In contrast, debt cancellation by Saudi Arabia reduced Morocco’s external debt stock and also contributed to an improvement of the budgetary situation (see also: World Bank 2017; IMF 2014). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Morocco’s third reform period (1986–1993): First, the Moroccan government conducted several pure macroeconomic stabilization policies, which should have accelerated the decline of the budget deficit: 1986 introduction of a value added tax (VAT) and a petroleum levy; 1989 introduction of a global personal-income tax; further reduction of public investment during the late 1980s and the first half of the 1990s (Sutton 1987: 12, 52; El Malki 1989: 173; Horton 1990: 9, 16, 42, 116–117, 131; Nsouli et al. 1995: 15, 44, 61; Achy and Sekkat 2007: 116–118; Harrigan and El-Said 2009: 153; Sater 2010: 98; IMF 2014). Second, international revenues with a rent component

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reached structurally different levels: Remittances, which had risen starkly in the second reform period (1983–1985), declined by an average 1 percent of GDP after 1987. ODA deviated from its declining trend after 1989 and rose to levels higher than before, by around 2 percent of GNI. Likewise, tourism receipts reached structurally higher levels since the mid-1980s and kept increasing throughout the first half of the 1990s (Nsouli et al. 1995: 119; Haas and Plug 2006: 612, 622; World Bank 2017). Third, real interest rates in Morocco were higher in the third reform period (4 percent p.a. on average) than in the second reform period (0 percent p.a. on average), driving up savings and reducing the savings-investment gap (thus ameliorating the capital account through less dependence on foreign debt to finance domestic investment) (Nsouli et al. 1995: 22–25, 44–46; World Bank 2017; IMF 2014). Fourth, the oil price plunged to significantly lower levels in 1986, reducing energy-import costs and dragging down the price of other basic commodities. A temporary upsurge in 1990–1991 due to the Gulf crisis did not fundamentally alter its course, as it returned to low levels thereafter (Sutton 1987: 12, 53; Horton 1990: 6, 130; Macro Trends 2013). The oil price decline also had important political effects, as it slowed down the Sahara conflict, reducing military and security spending of the Moroccan government (Sater 2010: 60; Zunes and Mundy 2010: 23–24). Fifth, population growth declined markedly compared to the previous reform period (1983–1985: 2.3 percent p.a.; 1986–1993: 1.9 percent p.a.) (World Bank 2017). Sixth, rainfall in Morocco was much higher during the second half of the 1980s compared to the first half. In the early 1990s, the weather once again became more unstable—while in 1991 Moroccan producers brought in a record harvest, the period 1992–1993 was marked by renewed drought (Nsouli et al. 1995: 42, 49, 59; Pennell 2000: 357–358; Sater 2010: 98–100). Seventh, the Gulf crisis of 1990–1991 was a major international event with ramifications in Morocco, although its economic effects were more confined than in countries geographically closer to Iraq (such as Jordan) (Payne 1993: 155; Nsouli et al. 1995: 77; Pennell 2000: 359; World Bank 2017; IMF 2014). Reform period 4 (1993–1999) During the fourth reform period (1993–1999), the budget deficit of “general government” first increased from 2.2 percent of GDP in 1993 to 2.8 percent in 1995. It then turned into a budgetary surplus of 1 percent of GDP in 1996, which rose further to 3.5 percent in 1999. The trade balance first declined from -5.6 percent of GDP in 1993 to -6.4 percent in 1995, before it improved to an average level of -3.6 percent during 1996–1999. The current-account balance declined from -2.7 percent of GDP in 1993 to -4.8 percent in 1995, before it jumped to -1.5 percent in 1996 and subsequently declined back to -2.4 percent in 1999. FDI net inflow first rose from USD 491 million (current) in 1993 to USD 551 million (current) in 1994, before it declined

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back to an average USD 327 million (current) p.a. during 1995–1996. Since 1997, it entered a period of high volatility, shooting up to USD 1.2 billion (current) in 1997, falling to USD 400 million (current) in 1998, and once again jumping to USD 1.4 billion (current) in 1999. The “external debt stock” of the Moroccan economy declined from 72 percent of GNI in 1993 to 58 percent in 1996, then slightly increased to 62 percent in 1997 and once again continued its decline to 56 percent in 1999. “Total reserves (including gold)” continued their rise from USD 3.9 billion (current) in 1993 to USD 5.9 billion (current) in 1999 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the fourth reform period (1993–1999) (see section 6.1.5): On the demand side, the liberalization of imports should have increased the budget deficit due to a loss of tariff income (H29), although not to the same extent as during the second and third reform period (1983–1993). After 1994, simple-average MFN tariffs were actually increased, as a result of the tariffication of quantitative restrictions concomitant with the WTO accession. This policy should rather have contributed to a decrease of the budget deficit (which actually turned into a budget surplus during the second half of the 1990s). Rising average import tariffs could also be one factor contributing to the amelioration of the trade balance in the late 1990s (H40 inverse). Further to that, the liberalization of international payments for Moroccans living abroad should have increased remittances (although that does not seem to have been the case, as remittances stayed flat at 5 percent of GDP during 1994–1999). Besides, partial consumer-price liberalization / subsidy cuts for food products during 1996– 2000 (including the abolition of subsidies on common wheat) should have helped turning the budget deficit into a surplus (H26), while this policy should also have contributed to increasing the trade balance through higher import prices (H35) (see also: WTO 2003: 30, 35, 115; World Bank 2017; IMF 2014). On the supply side, the further liberalization of investment through the 1995 Investment Charter as well as the market opening in banking and telecommunications might have alleviated the state budget through higher tax income and through job creation (H28). However, total investment stayed relatively constant during 1993–2000, at an average 24 percent of GDP (although private investment must have increased, if public investment in fact declined). Besides, the size of the tax effect triggered by this additional private investment remains unclear. Regarding job creation, a positive effect might have manifested itself in the medium run: Official unemployment first rose from 13.5 percent of the total labor force in 1993 to 16.6 percent in 1998, before it declined to 13.6 percent in 2000 and 11.6 percent in 2002. Moreover, both privatization and investment liberalization (especially if it also targeted foreign investors, such as in the banking sector) should have raised FDI, thus ameliorating the capital

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account by exchanging foreign debt for foreign capital (H39). FDI in fact jumped to higher average levels after 1996, although its volatility also markedly increased (see also: WTO 2003: 27; OECD 2010: 46–47, 57–58; World Bank 2017; IMF 2014; UNCTAD 2014). Apart from possible direct effects, policies of economic liberalization during the fourth reform period (1993–1999) might have had an indirect effect in convincing external lenders to offer further loans (H60). In fact, during the period 1995–1999, the WB contracted four loans with the Moroccan government, with loan commitments totalling USD 700 million (Harrigan and El-Said 2009: 160–164, 198). The inflow of these funds improved the state budget and the international-reserve position in the short run, although they also raised principal and interest payments as well as the external debt stock (see also: World Bank 2017; IMF 2014). However, the Moroccan state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during the country’s fourth reform period (1993–1999): First, the Moroccan government continued with policies of (pure) macroeconomic stabilization, especially the cutback on public investment (Nsouli et al. 1995: 61; Achy and Sekkat 2007: 116–117). Second, international revenue streams with a rent component reached structurally different levels compared to the previous reform period. Internationaltourism receipts continued their rise since the second half of the 1980s, reaching USD 1.5 billion (current) in 1995 and USD 2.2 billion (current) in 1999. At the same time, “net ODA” fell to structurally lower levels with the end of the Cold War and the passing of the Gulf crisis (1990–1993: 3.6 percent of GNI on average; 1994– 1999: 1.5 percent). Likewise, remittances declined from an average 6.4 percent of GDP during 1990–1993 to an average 4.9 percent during 1994–1999 (Haas and Plug 2006: 612, 622; World Bank 2017; Office des Changes 2015). Third, Moroccan real interest rates were markedly higher during the second half of the 1990s than during the first half (1990–1991: 2.3 percent p.a. on average; 1994–1995: 6.4 percent p.a. on average; 1996–1999: 12 percent p.a. on average). Nevertheless, this seems not to have affected gross national savings, which hovered around 23 percent of GDP during 1990–1995 and 22 percent during 1996–2000 (World Bank 2017; IMF 2014). Fourth, the oil price was exceptionally low during 1997–1999, falling from USD 26 (current) per barrel in December 1996 to USD 11 (current) per barrel in November 1998, before rising back to USD 26 (current) per barrel in December 1999 (Nsouli et al. 1995: 77; Pennell 2000: 359; Macro Trends 2013). Fifth, population growth declined further (1986–1993: 1.9 percent p.a.; 1993–1999: 1.5 percent p.a.) (World Bank 2017). Sixth, weather conditions in Morocco were extremely volatile during the second half of the 1990s. There were three excellent years (1994, 1996, 1998) and two droughts (1995: “Drought of the century;” 1997) (Nsouli et al. 1995:

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42, 49; WTO 1995: xi, 11; Denoeux 2001: 70; Sater 2010: 99–100). Seventh, as in other developing countries, the Asian Financial Crisis of 1997–1998 influenced Morocco’s international accounts, especially on the capital side (World Bank 2017; IMF 2014). Reform period 5 (1999–2011) During the fifth reform period (1999–2011), the budgetary balance of “general government” first plunged from a surplus of 3.5 percent of GDP in 1999 to a deficit of 2.1 percent in 2000 and to an even higher deficit of 4.7 percent in 2002. From there, it rose back to -3.6 percent of GDP in 2004 and once again fell to -5.9 percent in 2005. Afterwards, it steeply rose to a surplus of 0.7 percent of GDP in 2008, before it once again declined to -4.3 percent in 2010 and to -6.6 percent in 2011. The trade balance fell from -3.7 percent of GDP in 1999 to -5.6 percent in 2000. It then rose back to -2.7 percent of GDP in 2002. Afterwards, it followed a declining trend down to an average -6 percent of GDP during 2005–2006. This trend continued (with steeper slope), until the trade balance reached an abysmal -14 percent in 2008. Subsequently, it rose back to -10.8 percent of GDP in 2010 and once again declined to -14 percent in 2011. The current-account balance fell from -2.4 percent of GDP in 1999 to -3.7 percent in 2000. It then jumped to a surplus of 2 percent of GDP in 2001, followed by a declining trend down to -0.6 percent in 2004 and to -7 percent in 2008. Rising back to -4.4 percent of GDP in 2010, it finally fell to -7.6 percent in 2011. FDI net inflows skyrocketed in average volumes, although with increasing volatility. Between 1999–2011, annual net inflows oscillated between USD 422 million (current) and USD 2.8 billion (current). The “external debt stock” of the Moroccan economy continuously fell from 56 percent of GNI in 1999 to 23 percent in 2008, before it increased slightly to 30 percent in 2011. “Total reserves (including gold)” first fell from USD 5.9 billion (current) in 1999 to USD 5 billion (current) in 2000, before they increased steeply to USD 24.7 billion (current) in 2007. Afterwards, they declined to USD 22.7 billion (current) in 2008, rose back to USD 24 billion (current) in 2010, and finally fell to USD 20.4 billion (current) in 2011 (World Bank 2017; IMF 2014; UNCTAD 2014). Policies of economic liberalization might have contributed to these outcomes in the fifth reform period (1999–2011) (see section 6.1.5): On the demand side, the only notable policy of economic liberalization was trade liberalization, which once again accelerated compared to the fourth reform period (1993–1999). The decline of import tariffs should have contributed to the structurally higher budget deficits of the 2000s (compared to the 1990s) (H29). Besides, it probably was a factor behind the rising trade deficits (dragging down the current-account balance as well) (H40) (see also: World Bank 2017; IMF 2014). On the supply side, the theoretical effects

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of producer-price liberalization in the service sector on the budget position of the Moroccan state are unclear. There are no obvious effects on Morocco’s international accounts either, due to the nontradable character of the services concerned (rail transport, road transport of goods). However, there might have been effects on the state budget from investment liberalization in several service sectors (if it led to more private investment and employment creation) (H28, H33). Thus, “total investment” effectively rose from an average 24 percent of GDP during 1999–2002 to an average 27 percent during 2003–2006 and to an average 36 percent during 2007–2011 (while tax revenues were as well significantly higher during the fifth reform period than during the fourth reform period). At the same time, official unemployment fell from 14 percent of the total labor force in 1999 to 11 percent in 2004 and to 9 percent during 2009–2011. Nevertheless, the independent contribution of policies of economic liberalization on these developments is unclear. What seems to be beyond doubt is the positive effect the liberalization of air transport during 2002–2007 had on international-tourism receipts (which in fact rose starkly throughout the 2000s) and thus on the current account. Finally, privatization, which proceeded at a faster pace than ever before during the fifth reform period (1999–2011), should have reduced the budget deficits of the 2000s (or it should at least have slowed down their rise), through a significant increase in privatization proceeds. Concomitantly, privatization and investment liberalization in service sectors might have driven up FDI net inflows (which effectively rose to structurally higher levels during the 2000s, although their volatility further increased compared to the fourth reform period), thus ameliorating the capital account due to the substitution of external debt with foreign investment (H39) (see also: World Bank 2017; IMF 2014). Apart from that, policies of economic liberalization during the fifth reform period (1999–2011) had an additional indirect effect, as their implementation induced external lenders to offer further credit (H60). Thus, during 2001–2010, the WB contracted four further loans with the Moroccan government, with loan commitments amounting to USD 200 million (Harrigan and El-Said 2009: 166, 174, 198; Bertelsmann 2012c: 19). WB loans contributed to an amelioration of the state budget and of the international reserve position in the short run, although they also raised principal and interest payments as well as the external debt stock (see also: World Bank 2017; IMF 2014). However, the state budget and the international accounts might also have been influenced by other factors (not related to economic liberalization) during Morocco’s fifth reform period (1999–2011): First, the Moroccan government implemented several policies of (pure) macroeconomic stabilization, such as tax reforms (VAT reform in 2005, introduction of a General Tax Code in 2007) and cutbacks on public-sector employment (2004 / 2005 introduction of an early-retirement scheme) (Bertels-

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mann 2008c: 19; OECD 2009: 452; WTO 2009b: 31, 37, 45–46; Bertelsmann 2010c: 20; Sater 2010: 114). Tax revenues in fact steadily increased during the fifth reform period and reached 24 percent of GDP in 2010—higher than in most of the other MENA countries (Achy 2010: 7; Bertelsmann 2010c: 20). Second, the Moroccan government also pursued expansive policies, above all the reintroduction of petroleum subsidies in 2003 and the concomitant raise of sugar and wheat subsidies. This policy led to a huge increase in subsidy payments of the Caisse de Compensation during the 2000s, a trend that the World Financial Crisis did only temporarily interrupt but not decisively change (S.A. 04.08.2006; Tounassi 17.05.2008: 39; Joffè 2009: 161–162; WTO 2009b: 82–83, 95; Sater 2010: 114; Agueniou 13.12.2011; Hari 04.02.2012). In addition, the mid-2000s oil boom triggered a flaring up of the Sahara conflict (after the rejection of the Baker Plan) and a new arms race with Algeria (further fuelled by Morocco’s eligibility since 2004 to buy sophisticated weapons as a major non-NATO ally of the United States) (White 2005: 606–607; al Khouri 2008: 14; White 2008: 103; Vermeren 2009: 37– 38; Henry and Springborg 2010: 223; Sater 2010: 130–131, 137; Zunes and Mundy 2010: 74–75, 142–143, 238–250; Zisenwine 2013: 72–74). Third, international revenue streams with a rent component reached structurally different levels compared to the fourth reform period: Remittances rose starkly from 5.1 percent of GDP during 1993–1999 to 7.4 percent during 2001–2011. Likewise, “international tourism receipts” increased continuously from USD 2.2 billion (current) in 1999 to USD 8.9 billion (current) in 2008, before levelling off at USD 8–9 billion (current) during 2009–2011 (World Bank 2017).28 Fourth, the economy of the United States and the Western European economies experienced a downturn after the burst of the Dotcom Bubble in 2000–2001, depressing Moroccan exports (World Bank 2017; IMF 2014). Around the mid-2000s, the global economy entered a boom period (affecting industrialized and developing countries alike), concomitant with the second oil boom and the explosion of commodity prices (Joffè 2009: 161–162; OECD 2009: 454; Sater 2010: 114; Macro Trends 2013). The mid-2000s boom ended with the World Financial Crisis, which made itself felt in Morocco since the year 2008 (Sater 2010: 115; Bertelsmann 2012c: 18; Rivlin 2013: 85; IMF 2014). Fifth, population growth was once again structurally lower than in the previous reform period (1993– 1999: 1.5 percent p.a.; 1999–2011: 1.1 percent p.a.) (World Bank 2017). Sixth, the weather in Morocco was much better on average during the fifth reform period than during the fourth (while volatility of climatic conditions was also markedly less) 28

In contrast, “net ODA” did not reach structurally different levels during the fifth reform period (1999–2011) (if compared to the fourth (1993–1999)), still hovering at 1–2 percent of GNI (World Bank 2017).

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(Bertelsmann 2006b: 12; White 2008: 100; Achy 2010: 14; Bertelsmann 2010c: 2; Rivlin 2013: 84–85). Seventh, the 2003 terrorist attacks in Casablanca were a major disruptive event, with possible consequences for the state budget and for tourism receipts (their growth might have been hampered) (Vermeren 2009: 19; Sater 2010: 79; World Bank 2017; IMF 2014). Eighth, the terrorist attacks of 11 September 2001 influenced the Moroccan economy in several respects, not least through the ensuing United States War on Terror (which brought additional financial contributions from the United States, but also more fiscal responsibilities in the field of security) (White 2005: 611; Henry 2008: 294–298; Joffè 2008: 318; White 2008: 102–103; Sater 2010: 137; Zemni and Bogaert 2010: 92–93; Zisenwine 2013: 78–79). Summary of non-analytical hypothesis testing In this subchapter, I strove to shed light on the effects of policies of economic liberalization on the state budget and on the international accounts—and thus on economic stabilization—in the four MENA countries under examination (Egypt, Tunisia, Jordan, and Morocco). For this purpose, I descriptively tested the 21 hypotheses H26– H45 and H60 (derived in sections 3.2.1 and 3.2.2; summarized in the appendixchapter 8, tables 8.2, 8.3, and 8.5) against the empirical data of the four MENA countries. On a theoretical level, some policies of economic liberalization seem more conducive for economic stabilization than others. Regarding economic stabilization via the state budget, three policies of economic liberalization should have both a positive short-term and a positive long-term effect: Consumer-price liberalization; producer-price liberalization; and the liberalization of domestic private investment. Two policies should have a negative short-term effect and an ambiguous long-term effect: Trade liberalization on the import side; and exchange-rate liberalization. One policy should have a positive short-term effect and an ambiguous long-term effect: the liberalization of FDI. Two policies should have both an ambiguous short-term and an ambiguous long-term effect: the liberalization of interest rates; and privatization (see section 3.2.5). Regarding economic stabilization via the international accounts, four policies of economic liberalization should have both a positive short-term and a positive longterm effect: Trade liberalization on the export side; consumer-price liberalization; the liberalization of interest rates; and producer-price liberalization. Two policies should have a positive short-term effect and an ambiguous or unclear long-term effect: the liberalization of FDI; and privatization. One policy should have a negative short-term effect and an ambiguous long-term effect: Trade liberalization on the import side. One policy should have an ambiguous short-term effect and a positive long-term effect: Exchange-rate liberalization. One policy should have both

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an ambiguous short-term and an ambiguous long-term effect: the liberalization of international payments (see section 3.2.5). However, despite the relatively well-established theoretical channels, it is not possible to come to a conclusion about the role of policies of economic liberalization in economic stabilization via the state budget and the international accounts for the four authoritarian regimes in the MENA region. The reason for this negative assessment is that the empirical effects of economic liberalization on the state budget and on the international accounts are hard to detect: A first problem is the difficulty to operationalize and to measure the IV “economic liberalization.” We lack information on the precise empirical implementation of economic-liberalization policies in most countries (which kind of policies were implemented when and where and to what degree). Thus, we are left with incomplete information on the characteristics of the IV ( Greenaway and Sapsford 1994: 158–159; Greenaway 1998: 501; Bandiera et al. 1999: 10–11; Greenaway, Morgan, et al. 2002: 231–233, 236; Wacziarg and Horn Welch 2008: 193–194). A second problem results from the myriad of other variables that theoretically and empirically influence the state budget and the international accounts (while interaction effects between these variables are likely complex)—meaning that the independent effect of economic-liberalization policies is hard to isolate. This is even more of a problem, if we consider both short-term and long-term effects29 of economic liberalization (Greenaway 1998: 503; Greenaway, Morgan, et al. 2002: 233). Some of the possible control variables blurring the picture are: macroeconomicstabilization policies that do not contain elements of economic liberalization (e.g. expenditure cuts, tax increases); rent inflows not connected with economic liberalization (e.g. due to natural resources, strategic importance of a country for international donors, internationally important infrastructure, tourist attractions, etc.); the global and local economic situation (upturn or downturn); the international prices of basic commodities (affecting a country as importer and exporter); population growth; the vagaries of nature (weather, natural catastrophes); and major disruptive national and international events (economic and political crises, wars, terrorist attacks, etc.) (see also: Greenaway 1998: 503). After all, to obtain information about the independent effect of economic liberalization on the state budget and on the international accounts, we would have to be able to build an apt theoretical model (which we are not) and to operationalize all variables correctly (likely elusive too). The hypotheses would then have to be tested 29

Examples of possible long-term effects of economic liberalization are competition and efficiency effects of trade liberalization or the supply response to a liberalized domestic price system.

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in a multivariate setup. Be that as it may, in the end it is impossible to detect all relevant variables—let alone operationalize them correctly. Thus, the true independent effect of economic-liberalization policies on the state budget and on the international accounts cannot be identified. We are left instead with mere speculation (albeit speculation based on scientific reasoning), in observing macro-level correlations (which are distorted through the effects of many independent and intervening variables) and in generating, at most, some more or less well-founded propositions and hypotheses for the case of the four countries under examination. This is what I strove to do by testing the 21 hypotheses H26–H45 and H60 (derived in sections 3.2.1 and 3.2.2; summarized in the appendix-chapter 8, tables 8.2, 8.3, and 8.5) against the empirical data of the four MENA countries. Finally, it is important to note that even if we had ex post knowledge on the precise independent effects of economic liberalization, the problem remains that we still lack information on counterfactual situations. That is, regarding what would have happened to the state budget and to the international accounts if policies of economic liberalization had not been implemented at all, or had been in a different manner to the ones in which they were.

6.2.2

Economic Growth and Socioeconomic Development

As conceptualized in sections 2.4, 3.2.1, and 3.2.3 the main parameters in the second dimension of economic stabilization are real economic growth (of the whole economy and on a per capita basis) and the income side of socioeconomic development, operationalized by average income per capita (GDP per capita), real household income (proxied by wage levels, employment / unemployment, inflation, and remittances), poverty, and income inequality. In this subchapter, I first compare the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) descriptively in a diachronic setup, by contrasting the empirical pattern and the long-term trends of economic growth and of indicators reflecting the income dimension of socioeconomic development. Subsequently, I check the theoretical effects of the policies of economic liberalization on economic growth and on socioeconomic development against the empirical data of the four MENA countries. I do this by descriptively testing 22 hypotheses out of the 42 derived from the literature review in sections 3.2.1– 3.2.2 that describe potential effects of economic liberalization on economic stabilization. These 22 hypotheses (H46–H67; specified in the appendix-chapter 8, tables 8.4–8.6) speculate about the effects of economic liberalization on economic stabilization via economic growth and socioeconomic development. I check these 22 hypotheses against the empirical information on each of the four MENA countries

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(yielding four within-case analyses), to assess how policies of economic liberalization might have influenced the variables of economic growth and socioeconomic development. The hypothesis testing at this stage is non-analytical, as I do not compare the four MENA countries among each other. I thus proceed country by country and chronologically through the reform periods. Descriptive diachronic comparison of Egypt, Tunisia, Jordan, and Morocco I start by looking at the empirical pattern and long-term trends of economic growth and indicators reflecting the income dimension of socioeconomic development in the four MENA countries under investigation. Several commonalities but also countryspecific differences become apparent:30 In all four countries, the rise of GDP in current USD during the time when economic-liberalization policies were implemented was interrupted by periods of temporary decline (once in Jordan, twice in Egypt, five times in Morocco, and six times in Tunisia). In three of the four countries (the exception being Tunisia), some of these temporary declines were amplified by the devaluation of the domestic currency against the USD. By 2011, GDP in current USD had increased to 248 billion in Egypt, 101 billion in Morocco, 46 billion in Tunisia, and 29 billion in Jordan (World Bank 2017; IMF 2014; Fxtop Company 2017). Real GDP growth over all four countries averaged 6.2 / 8.4 percent p.a. during 1970–197931 (highest in Jordan: 15 percent p.a. during 1976–1979; second highest in Tunisia: 7.2 percent p.a.; lowest in Morocco: 5.3 percent p.a.), 4 percent p.a. during 1980–1989 (highest in Egypt: 5.3 percent p.a.; lowest in Jordan: 3 percent p.a.), 4.2 percent p.a. during 1990–1999 (highest in Tunisia: 5.2 percent p.a.; lowest in Morocco: 3.3 percent p.a.), and 5.2 percent p.a. during 2000–2009 (highest in Jordan: 6.5 percent p.a.; lowest in Tunisia: 4.6 percent p.a.). All four countries recorded their highest decade average of real GDP growth (overall period 1970–2009) during 1970–1979. Afterwards, the decade average of real GDP growth rose continuously from the 1980s up to the 2000s only in Jordan. In both Egypt and Morocco, it declined from the 1980s up to the 1990s and then increased again during the 2000s (Morocco’s 2000s average was at least higher than the 1980s average, which was 30

The basis of comparison are the within-case analyses for the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) in the subsequent parts of this subchapter. 31 The average value of 8.4 percent p.a. over all four countries is inaccurate, as the average real GDP growth rate of Jordan is measured only during 1976–1979 due to a lack of data. Jordan’s average growth rate is also significantly higher than in the other three countries and thus drives the total average markedly upward. If only the average growth rates of Egypt, Tunisia, and Morocco were taken into account, the total average over these three countries would drop to 6.2 percent p.a. during 1970–1979 ( World Bank 2017).

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not the case in Egypt). In Tunisia, the decade average of real GDP growth increased from the 1980s up to the 1990s, but then fell in the 2000s (although to a level still higher than the 1980s average). The country with the highest average rate of real GDP growth during the whole period 1970–2009 was Jordan (6 percent p.a., although measurements start only in 1976), followed by Egypt (5.2 percent p.a.), Tunisia (5.1 percent p.a.), and Morocco (4.3 percent p.a.). The pattern of real GDP growth during the respective examination periods showed several boom and bust periods—that is when real GDP growth increased or decreased for at least two years in a row—in each of the four countries. They were more extended in Egypt and Jordan than in Tunisia and Morocco (where real GDP growth was more volatile). Thus, Tunisia had six boom periods, Egypt four, Morocco four, and Jordan two. Concomitantly, Egypt had four bust periods, while Tunisia, Jordan, and Morocco had only two each (World Bank 2017; IMF 2014). The volatility of real GDP growth per decade declined continuously from the 1970s up to the 2000s in three of the four countries (the exception being Morocco, where it rose from the 1970s up to the 1990s, before it declined significantly during the 2000s). The average standard deviation per decade over all four countries was 4.8 percent for 1970–1979 (highest in Jordan: 7.6 percent during 1976–1979; second highest in Tunisia: 4.6 percent; lowest in Morocco: 2.4 percent), 4.3 percent during 1980–1989 (highest in Jordan: 7.4 percent; lowest in Egypt: 2.2 percent), 3.3 percent during 1990–1999 (highest in Morocco: 5.6 percent; lowest in Tunisia: 1.8 percent), and 1.6 percent during 2000–2009 (highest in Morocco: 1.8 percent; lowest in Tunisia: 1.3 percent). The country with the highest volatility of real GDP growth (measured by its standard deviation) during 1970–2009 was Jordan (6.4 percent; although measurements for Jordan start only in 1976), followed by Morocco (4 percent), Tunisia (3.2 percent), and Egypt (2.9 percent) (World Bank 2017; IMF 2014). Population growth over all four countries averaged 3.3 percent p.a. during 1960– 1969 (highest in Jordan: 6.1 percent p.a.; lowest in Tunisia: 1.8 percent p.a.), 2.6 percent p.a. during 1970–1979 (highest in Jordan: 3.5 percent p.a.; lowest in Egypt and Morocco: 2.2 percent p.a.), 2.8 percent p.a. during 1980–1989 (highest in Jordan: 3.7 percent p.a.; lowest in Morocco: 2.2 percent p.a.), 2.3 percent p.a. during 1990–1999 (highest in Jordan: 3.8 percent p.a.; lowest in Morocco: 1.6 percent p.a.), and 1.7 percent p.a. during 2000–2009 (highest in Jordan: 2.9 percent p.a.; lowest in Tunisia and Morocco: 1 percent p.a.). During the whole period 1960–2009, Jordan had the highest average population growth rate with 4 percent p.a., followed by Egypt (2.2 percent p.a.), Morocco (2 percent p.a.), and Tunisia (1.9 percent p.a.) (World Bank 2017).

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In all four countries under examination, the rise of GDP per capita in current USD from the 1970s up to the 2000s was interrupted by periods of temporary decline (twice in Jordan, three times in Egypt, four times in Tunisia, and five times in Morocco). By 2011, GDP per capita in current USD had increased to 4,292 in Tunisia, 4,266 in Jordan, 3,067 in Morocco, and 2,817 in Egypt. Real GDP per capita growth over all four countries averaged 3.9 / 6 percent p.a. during 1970– 197932 (highest in Jordan: 12.2 percent p.a.; second highest in Tunisia: 4.8 percent p.a.; lowest in Morocco: 3 percent p.a.), 1.7 percent p.a. during 1980–1989 (highest in Egypt: 3.2 percent p.a.; lowest in Jordan: 0.2 percent p.a.), 2.1 percent p.a. during 1990–1999 (highest in Tunisia: 3.3 percent p.a.; lowest in Jordan: 1 percent p.a.), and 3.4 percent p.a. during 2000–2009 (highest in Morocco: 3.6 percent p.a.; lowest in Egypt: 3 percent p.a.). Three of the four countries recorded their highest decade average of real GDP per capita growth (overall period 1970–2009) during 1970– 1979 (the exception being Morocco, where it was highest in the 2000s). Afterwards, the decade average of real GDP per capita growth rose continuously from the 1980s up to the 2000s only in Jordan. In both Egypt and Morocco, it declined from the 1980s to the 1990s and then increased again during the 2000s (Morocco’s 2000s average was at least higher than the 1980s average, which was not the case in Egypt). In Tunisia, the decade average of real GDP per capita growth increased from the 1980s to the 1990s and then stayed flat during the 2000s. The countries with the highest average rate of real GDP per capita growth during 1970–2009 were Egypt and Tunisia (both 3.1 percent p.a.), followed by Jordan (2.8 percent p.a.; although measurements for Jordan start only in 1976) and Morocco (2.7 percent p.a.) (World Bank 2017; IMF 2014). Regarding indicators of socioeconomic development, it becomes clear that the four countries started off at different points and developed at different speed. Measured by the HDI—a composite index capturing several dimensions of socioeconomic development—, the order of the four countries was the same in 1980 and 2010, although the margins between the countries had changed. Jordan was the country with the highest HDI value in both 1980 and 2010, followed by Tunisia, Egypt, and Morocco. Nevertheless, Jordan realized the smallest progress in socioeconomic development (as measured by the HDI) during these 30 years, while the 32

The average value of 6 percent p.a. over all four countries is inaccurate, as the average real GDP per capita growth rate of Jordan is measured only during 1976–1979 due to a lack of data. Jordan’s average rate is also significantly higher than in the other three countries and thus drives the total average for the 1970s markedly upward. If only the average real GDP per capita growth rates of Egypt, Tunisia, and Morocco were taken into account, the total average over these three countries would drop to 3.9 percent p.a. during 1970–1979 (World Bank 2017).

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other three countries caught up. The biggest progress in absolute figures happened in Egypt and Tunisia (a positive change of the HDI value during 1980–2010 of 0.228), the second biggest in Morocco (0.215), while the HDI value in Jordan grew by only 0.148. When one looks at relative improvements, the picture changes: The value of the HDI for Morocco improved by 54 percent from 1980 to 2010, while Egypt’s HDI value improved by 50 percent, Tunisia’s by 47 percent, and Jordan’s by 25 percent. With Jordan as a benchmark, both Egypt and Morocco improved their relative socioeconomic development level (measured by the HDI) by 16 percent during 1980–2010, while Tunisia improved it by 14 percent.33 In global comparison (as measured by the rank in the Human Development Reports (1990, 2000, 2010) based on HDI values, divided by the number of countries in the underlying global HDI sample), Egypt and Tunisia improved their position if 2010 is compared with 1990, while Morocco and Jordan fell back. Tunisia realized the biggest improvements, outpacing 5.9 percent more countries in the global sample in 2010 compared to 1990. Egypt outpaced 5.6 percent more countries, while Morocco was outpaced by 1.3 percent more countries and Jordan was outpaced by 4.7 percent more countries34 (UNDP 2015b, a, c, d, e). In the income dimension of socioeconomic development, official unemployment in all four countries increased significantly from the 1970s up to the mid-late 1980s. 33

Taking Jordan as a benchmark for the other three countries, one can make the following conclusions: In 1980, the level of socioeconomic development (as measured by the HDI) in Egypt was 76 percent of that prevalent in Jordan at the time. For Tunisia it was 82 percent and for Morocco 67 percent respectively. In 2010, the level of socioeconomic development (as measured by the HDI) in Egypt had reached 92 percent of that prevalent in Jordan, meaning Egypt had caught up to Jordan by 16 percent during the period 1980–2010. In Tunisia, the level of socioeconomic development in 2010 had reached 96 percent of that prevalent in Jordan, while Morocco had reached 82 percent, so Tunisia caught up in relation to Jordan during the period 1980–2010 by 14 percent and Morocco by 16 percent (UNDP 2015a, c, d, e). 34 It is important to note that all four countries first fell back in the global HDI ranking from 1990 to 2000, before they all improved their position from 2000 to 2010. Comparing the HDI ranking in 2000 with the one in 1990, Jordan was outpaced by 9.1 percent more countries, Morocco by 5.1 percent more countries, Tunisia by 4.2 percent more countries, and Egypt by 3 percent more countries. Comparing the HDI ranking in 2010 with the one in 2000, Tunisia outpaced 10 percent more countries, Egypt 8.6 percent more countries, Jordan 4.4 percent more countries, and Morocco 3.8 percent more countries (UNDP 2015b). After all, if one compares the four countries, socioeconomic development (as measured by the HDI) in Jordan and Morocco deteriorated the most during the 1990s and improved the least during the 2000s, while socioeconomic development in Egypt and Tunisia deteriorated the least during the 1990s and improved the most during the 2000s. Thus, the performance of Tunisia and Egypt during the 2000s more than compensated for the losses of the 1990s, while Morocco and Jordan during the 2000s could not fully make up for the losses incurred during the 1990s.

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Towards the end of the 1980s it was between 11 percent and 15 percent of the labor force in Egypt, Tunisia, and Morocco, while it stood at around 20 percent in Jordan (although inofficial estimates were markedly higher for all countries). During 1990–1995, official unemployment (International Labour Organization (ILO) estimates) was highest in Jordan (between 15 percent and 20 percent of the labor force), followed by Tunisia, Morocco, and Egypt. Tunisia rose to the top between 1995 and 2000 (with rates above 15 percent), closely followed by Morocco, while the figures for Jordan and Egypt declined markedly during this period. After 2000, official unemployment once again rose in Jordan (and less starkly in Egypt), while it fell again in Morocco and Tunisia. During 2005–2010, Jordan and Tunisia had the highest official unemployment rates (between 12 percent and 15 percent of the labor force), while the figures for Morocco and Egypt were around 10 percent. Three of the four countries had lower average rates of official unemployment in the 2000s than in the 1990s (the exception being Egypt, where it stayed roughly the same). In Egypt and Tunisia, average official unemployment increased during 2010–2011 compared to 2000–2009, while it further declined in Jordan and Morocco (World Bank 2017). The evolution of “youth unemployment” (in percent of the labor force ages 15– 24; ILO estimates) during 1991–2010 followed roughly the same trends, although the order of countries was different: During 1990–1995, official “youth unemployment” was highest in Jordan (between 30 percent and 41 percent), followed by Tunisia and Egypt (between 26 percent and 34 percent), while it was far lower in Morocco (between 18 percent and 27 percent). During 1995–1999, it increased markedly in Tunisia and Morocco (up to 30–35 percent), while it fell in Egypt and Jordan (down to 20–27 percent). After 1998, Morocco decoupled from the other three countries, as its official “youth unemployment” rate plunged from 35 percent in 1998 to 20 percent in 1999 (a decrease that can only be explained by a change in the method of measurement, making Morocco incomparable to the other three countries after 1998). During 1999–2003, official “youth unemployment” once again rose in Egypt and Jordan, while it fell in Tunisia and Morocco. During 2004–2010, the rate in Egypt, Jordan, and Tunisia hovered around 25–35 percent, while it oscillated between 15 percent and 20 percent in Morocco. Three of the four countries had lower average rates of official “youth unemployment” in the 2000s than in the 1990s (the exception being Egypt, where it rose by around 1 percent during the 2000s). In all four countries, the average of official “youth unemployment” increased during 2010–2011 compared to 2000–2009 (with the starkest increase in Tunisia) (World Bank 2017). Inflation (“change of average consumer prices”) in decade average was highest during the 1970s in Jordan (11 percent p.a.), while it amounted to 8 percent p.a. in

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both Egypt and Morocco (data on Tunisia was not available to the author). From there, the decade average of inflation was constantly falling until the 2000s in both Jordan and Morocco (as well as in Tunisia, with the earliest figure in 1980). In contrast, inflation in Egypt skyrocketed to 18 percent p.a. during the 1980s, from where it steadily declined during the 1990s and 2000s. During 2000–2009, average inflation amounted to 1.9 percent p.a. in Morocco, 2.8 percent p.a. in Tunisia, 3.7 percent p.a. in Jordan, and 7.1 percent p.a. in Egypt (World Bank 2017; IMF 2014). Average “personal remittances received” in relation to GDP were highest by far in Jordan during the period 1977–2011, followed by Egypt and, with another considerable margin (at least during the period 1976–1994), Morocco and Tunisia. Both Jordan and Egypt faced a stark decline of relative remittance income during the period 1984–1991. The average for Jordan fell from around 20–25 percent of GDP during 1976–1984 to a level between 10 percent and 20 percent during 1984–1991, while the average for Egypt fell from around 10 percent to 13 percent of GDP during 1976–1984 to a level below 10 percent during 1984–1990. From there, the pattern in Egypt and Jordan diverged, as Jordan regained its former share of remittances, with an average level above 20 percent of GDP during 1995–2004. Concomitantly, Egypt’s remittance figure declined sharpely to levels around 5 percent of GDP during 1995–2011. After 2001, remittances in Jordan also entered a downward trend, until they reached levels around 15 percent during 2008–2011. In contrast, the long-term trend of remittances in Morocco and Tunisia during 1976–2011 stayed relatively flat, as they hovered around 5–10 percent of GDP in Morocco and 3–5 percent in Tunisia. Three of the four countries saw their relative remittance income decline from the 1980s up to the 1990s, before it rose again in the 2000s (the exception being Egypt, where the decade average declined continuously from the 1980s up to the 2000s) (World Bank 2017). Figures on poverty are very sparse and often contradicting due to different estimation techniques. Apparently, official poverty declined in the second half of the 1980s in both Tunisia and Morocco (the declining trend in Tunisia seems to have begun in the mid-1970s), while it rose in Jordan. During the first half of the 1990s, poverty rose in Egypt, Tunisia, and Morocco, before it decreased again in Egypt and Morocco in the second half of the 1990s (although resting at higher levels compared to the early 1990s). During the 2000s, official poverty declined markedly in Tunisia, Jordan, and Morocco, while it rose significantly in Egypt. A cross-country comparison is meaningless, due to a lack of comparable data and no obvious empirical patterns. From the 1970s up to the 2000s, official poverty figures for a country at a certain point in time were anywhere between 7 percent and 32 percent of the population. If we trust official figures, nationwide average poverty (“poverty head-

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count ratio,” measured against the respective official national poverty lines) around the year 2010 stood at 25 percent of the population in Egypt, 16 percent in Tunisia, 14 percent in Jordan, and 9–10 percent in Morocco35 (see also: World Bank 2017). Income inequality, as measured by the Gini index (WB estimates), decreased from the mid-1980s up to the early 1990s in Tunisia (where it was highest in the late 1980s compared to Jordan and Morocco), while it increased in Jordan and stayed roughly constant in Morocco. During the 1990s, income inequality increased throughout the decade in Morocco, decreased in Jordan, and first increased and then decreased in Tunisia. During the 2000s, it rested at the level of the late 1990s in Morocco, while it increased again in Jordan and further decreased in Tunisia. Thus, around the early-mid 2000s, income inequality was highest in Morocco (Gini index value 0.41; 2005 measurement), followed by Jordan (0.39; 2002 measurement) and Tunisia (0.38; 2005 measurement). No data on income inequality in Egypt was available to the author. Averaging all available measurements in each decade, income inequality seems to have decreased from the 1980s up to the 2000s in Tunisia. In Jordan, it increased from the 1980s up to the 1990s and then stayed flat in the 2000s. In Morocco, it increased from the 1980s up to the 2000s (World Bank 2017). Searching for empirical substance of possible indirect effects of economic liberalization on economic growth and on socioeconomic development, IMF and WB lending to the four countries under investigation was substantial: During the period 1980–2010, the IMF contracted loans worth SDR 3.4 billion with the Moroccan government, SDR 1.2 billion with the Egyptian government, SDR 744 million with the Jordanian government, and SDR 311 million with the Tunisian government (although not all loan commitments were later drawn). In addition, WB loan commitments during the same period amounted to USD 3.1 billion for Morocco, USD 1.6 billion for Tunisia, USD 870 million for Jordan, and USD 300 million for Egypt. Apart from direct funds, the seal of approval by the IMF and the WB induced bilateral and commercial creditors to reschedule and (less often) to cancel their debt claims. During the period 1983–2002, bilateral creditors cancelled debt worth USD 25 billion in Egypt (half the country’s external debt stock of the late 1980s), USD 2.7 35

It is important to note that rural-urban differences in official poverty levels were apparently not uniform among the countries: They seem to have been starkest in Egypt (data for the 2000s) and Morocco (data for the 1990s–2000s), where official poverty was clearly more widespread in rural areas than in urban areas (20 percent higher in Egypt, 10–15 percent higher in Morocco). In Jordan, differences between rural and urban poverty levels are visible, but the gap between rural areas (higher poverty) and urban areas (lower poverty) seems to be rather small (data for 2010). The pattern of rural-urban poverty in Tunisia during the 1990s and 2000s is unclear due to a lack of data. From the mid-1970s up to the end of the 1980s, official poverty in Tunisia seems to have been higher in urban areas (see also: World Bank 2017).

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billion in Morocco, and USD 700 million in Jordan (but none in Tunisia). Besides, bilateral creditors rescheduled principal and interest payments amounting to USD 25 billion in Egypt (the other half of the country’s external debt stock of the late 1980s / early 1990s), USD 8 billion in Morocco, and USD 6.5 billion in Jordan (but none in Tunisia). On top of that, commercial creditors rescheduled principal and interest payments worth USD 7.8 billion in Morocco and USD 800–900 million in Jordan (but none in Tunisia, while Egypt’s external debt was nearly completely bilateral) (see section 6.2.1). Subsequently, the pattern of economic growth and the evolution of the income dimension of socioeconomic development (proxied by GDP per capita, GDP per capita growth, real household income (itself proxied by unemployment, inflation, and remittances), poverty, and income inequality) are depicted in detail for each country and each reform period (see section 6.1.5), yielding four within-case analyses. Concomitantly, I discuss the hypotheses H46–H67 (derived in sections 3.2.1– 3.2.3; specified in the appendix-chapter 8, tables 8.4–8.6) that speculate about the possible effects of policies of economic liberalization on economic growth and on socioeconomic development by contrasting them with the empirical data of the four MENA countries. I discuss both possible short-term and long-term effects, although the analysis is limited to those which theory assumes to be either “mostly positive” or “mostly negative” (thus I will omit theoretically “ambiguous” effects). Whenever I discuss a hypothesis, I indicate the hypothesis number (see tables 8.4–8.6 in the appendix-chapter 8) in parentheses. As for control variables, I concentrate on some fundamental drivers of economic growth and of socioeconomic development, looking at their evolution: physical capital (proxied and measured by total annual investment); population (measured by population growth); and human capital (proxied by health and education; measured by average life expectancy at birth and the gross enrollment ratio in secondary and tertiary education). Other factors / variables potentially influencing the DVs are the same as discussed for the case of the state budget and the international accounts (see section 6.2.1). Within-case analysis: Egypt In Egypt, the most intense reform efforts regarding economic liberalization took place during the mid-1970s, during the 1990s, and during the period 2004–2010 (see section 6.1.5). The Egyptian GDP rose from USD 9 billion (current) in 1974 to USD 24 billion (current) in 1980, USD 96 billion (current) in 1990, USD 105 billion (current) in 2000, and USD 248 billion (current) in 2011. During 1974–2011, there were two periods, in which GDP in current USD declined (1989–1992 and 2000– 2004). In both periods, an economic crisis coincided with currency devaluation. Real GDP growth (calculated on the basis of GDP in national currency) averaged

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6.2 percent p.a. during 1970–1979, 5.3 percent p.a. during 1980–1989, 4.1 percent p.a. during 1990–1999, and 5 percent p.a. during 2000–2009. During 1974–2011, there were four boom periods, when annual real GDP growth increased (1973–1976, 1981–1983, 1992–1998, and 2003–2008), and four bust periods, when annual real GDP growth decreased (1976–1981, 1983–1992, 1998–2003, and 2008–2011). The volatility of annual real GDP growth (measured by its standard deviation) showed no consistent trend, decreasing from 4.4 percent during the first reform period (1974– 1981) to 1.4 percent during the gap period (1982–1986) and to 0.8 percent during the second reform period (1987–1990). It then increased again to 2.1 percent during the third reform period (1991–1998), before levelling off at 1.2 percent during the fourth (1999–2003) and fifth (2004–2011) reform period. Its decade average continuously declined from 4.4 percent during 1970–1979 to 2.2 percent during 1980– 1989, 2.1 percent during 1990–1999, and 1.5 percent during 2000–2009. Population growth decreased from 2.7 percent in 1960 to 2 percent in 1973, then increased to 2.8 percent in 1987, decreased to 1.7 percent in 2007, and finally increased again to 2.1 percent in 2011. It averaged 2.6 percent p.a. during 1960–1969, 2.2 percent p.a. during 1970–1979, 2.6 percent during 1980–1989, 2 percent p.a. during 1990– 1999, and 1.8 percent p.a. during 2000–2009. Thus, GDP per capita increased from USD 238 (current) in 1974 to USD 528 (current) in 1980, USD 765 (current) in 1990, USD 1,461 (current) in 2000, and USD 2,817 (current) in 2011. There were three periods during 1974–2011, when GDP per capita in current USD declined significantly (1987–1988, 1990–1991, and 2000–2004). Real GDP per capita growth (calculated on the basis of GDP in national currency) averaged 4 percent p.a. during 1970–1979, 3.2 percent p.a. during 1980–1989, 2.3 percent p.a. during 1990–1999, and 3 percent p.a. during 2000–2009. Socioeconomic development, in the dimensions measured by the HDI, increased from an HDI value of 0.453 in 1980 to 0.546 in 1990 (rank 85 of 130 countries worldwide), 0.622 in 2000 (rank 119 of 174 countries worldwide), and 0.681 in 2010 (rank 101 from 169 countries worldwide). The measure of HDI rank divided by the number of countries in the respective HDI sample increased from 0.654 in 1990 to 0.684 in 2000 and then decreased to 0.598 in 2010 (implying an improvement of Egypt’s position in global comparison from 1990 to 2010). In the income dimension of socioeconomic development, official unemployment rose from 4.3 percent of the total labor force in 1976 to 11 percent in 1986, 18 percent in 1990, and 20 percent in 1993. According to ILO estimates, it was markedly lower during the early 1990s, increasing from 9 percent of the total labor force in 1992 to 11.3 percent in 1995. It then declined back to 8.1 percent in 1999, once again increased to 11.2 percent in 2005, decreased to 8.7 percent in 2008, and finally increased to 12 percent in 2011. Official “youth unemployment” (in percent of the labor force ages 15–24; ILO estimate) increased from 26.2 percent in 1992

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to 32.4 percent in 1995, then declined back to 20.9 percent in 1999, once again increased to 33.7 percent in 2005, decreased to 25.8 percent in 2008, and finally increased to 33.9 percent in 2011. Inflation (“change of average consumer prices”) averaged 7.8 percent p.a. during 1970–1979, 17.5 percent p.a. during 1980–1989, 10.9 percent p.a. during 1990–1999, and 7.1 percent p.a. during 2000–2009. “Personal remittances received” fluctuated between 6 percent and 13 percent of GDP during 1977–1994 (with the exception of 14.6 percent in 1992), then declined from 7.1 percent in 1994 to 2.9 percent in 2000, increased back to 5.6 percent in 2005 and fluctuated between 4 percent and 6 percent during 2006–2011. There were two periods, when “personal remittances received” followed a rising trend in relative terms (1989–1992, 2000–2005) and two periods, when they followed a declining trend in relative terms (1983–1986, 1992–2000). Poverty, especially in rural areas, seems to have decreased significantly from the early 1970s up to the mid-1980s (until it stood at 25–30 percent of the population as a nationwide average in 1981 / 1982). But it then increased again by 10–20 percent in rural areas and by 5–10 percent in urban areas until 1990 / 1991. During the implementation of the ERSAP (1991– 1998), poverty increased in the first half of the 1990s and then decreased in the second half (with estimated nationwide average poverty rates between 17 percent and 50 percent). After the end of the ERSAP, the “poverty headcount ratio” (percent of population below the national poverty line) increased again from 16.7 percent in 1999 to 19.6 percent in 2004, 21.6 percent in 2008, and 25.2 percent in 2010.36 Data on income inequality was not available to the author (El-Ghonemy 1998: 182–186; El-Laithy et al. 2003; El-Saharty 2005: 9–13; Ikram 2006: 24, 255; Farah 2009: 40–41; World Bank 2017; El-Said and Harrigan 2014: 106–107; IMF 2014; UNDP 2015b, a). In the following part, the pattern of economic growth and the evolution of the income side of socioeconomic development in Egypt’s different reform periods, as well as the possible contribution of economic-liberalization policies to these outcomes will be discussed. Reform period 1 (1974–1981) During Egypt’s first reform period (1974–1981), GDP in current USD rose from nine billion in 1974 to 26 billion in 1981. GDP per capita rose from USD 238 (current) in 1974 to USD 526 (current) in 1981. This evolution yielded real GDP growth (calculated on the basis of GDP in national currency) of 7 percent p.a. on 36

The “rural poverty headcount ratio” (percent of the rural population below the official rural poverty line) increased from 22.1 percent in 2000 to 26.8 percent in 2004, 28.9 percent in 2008, and 32.3 percent in 2010, while the “urban poverty headcount ratio” (percent of the urban population below the official urban poverty line) increased from 9.3 percent in 2001 to 10.1 percent in 2004, 11 percent in 2008, and 15.3 percent in 2010 (World Bank 2017).

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average, with a standard deviation of 4.4 percent, and real GDP per capita growth of 5.6 percent p.a. on average, with a standard deviation of 4 percent. The evolution of average real household income is unclear: On the one hand, GDP per capita in current USD rose continuously and “personal remittances received” increased from 6.3 percent of GDP in 1977 to 12.2 percent in 1979, before falling to 9.3 percent in 1981. They averaged 10.3 percent of GDP during 1977–1981. On the other hand, inflation (“change of average consumer prices”) skyrocketed from 10 percent in 1974 to 13 percent in 1977 and to 21 percent in 1980, before falling to 10 percent in 1981 (with an average of 11.8 percent p.a. during 1974–1981) (World Bank 2017; IMF 2014). Despite high inflation, unemployment seems to have risen during the 1970s (although there are no reliable statistics). In 1976, official unemployment apparently stood at 4.3 percent of the labor force, while its average during 1973–1983 is calculated at 6 percent (El-Ghonemy 1998: 184; Farah 2009: 40–41). At the same time, “the number of absolute poor rural households declined from 51 percent [of all rural households; C.N.] in the early 1970s to 30 percent by the early 1980s” (Ikram 2006: 24). Poverty in 1981 / 1982 affected 24–30 percent of the rural population and 23–30 percent of the urban population (El-Ghonemy 1998: 184). Data on income inequality was not available to the author. The policies of economic liberalization implemented by the Egyptian government during the first reform period (1974–1981) affected the demand side (import liberalization, liberalization of international payments) and the supply side (investment liberalization, first steps towards privatization of SOEs) of the economy (see chapter 6.1.5). These policies might have influenced economic growth and the income dimension of socioeconomic development: On the demand side, import liberalization through Law 118 of 1975 might have slowed down economic growth during the latter half of the 1970s (although growth still remained remarkably high), before a positive long-term effect could have unfolded (H49, H52)—however, real GDP growth slowed down to 6.2 percent p.a. during 1980–1985 (see also: IMF 2014). On the supply side, the liberalization of FDI through Law 43 of 1974 could have begun to raise economic growth from the late 1970s onwards (H57)—although average real GDP growth was markedly lower during 1979–1984 (6 percent p.a.) than during 1974–1978 (9 percent p.a.). The liberalization of domestic private investment (which was pushed with Law 159 of 1981) might have driven economic growth during the period 1982–1984 and then could have helped slowing down its decrease during the latter half of the 1980s (H47, H56). In addition, it might have had positive short-term and long-term effects on socioeconomic development, through total investment and employment (H61, H66). However, “total investment” fell from 34 percent of GDP in 1982 to 23 percent in 1986, while official unemployment rose from 4.3 percent of the total labor force in 1976 to 11 percent by 1986. Several

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effects are theoretically ambiguous and are thus not discussed here: For economic growth, the effect of the liberalization of international payments and the short-term effect of FDI. For socioeconomic development, the effect of trade liberalization, the effect of the liberalization of international payments, and the effect of FDI. Besides, possible effects of privatization are not discussed, as the reform through Law 112 of 1975 was initially purely legislative, while it did not yet lead to the implementation of privatization on a significant scale (see also: World Bank 2017; IMF 2014). Apart from economic-liberalization policies, economic growth and the income dimension of socioeconomic development might have been influenced by several control variables during the first reform period (1974–1981): Physical capital formation, proxied by “total investment,” rose from an average 28 percent of GDP during 1974–1977 to an average 33 percent during 1978–1981. Annual population growth rose from 2 percent in 1974 to 2.5 percent in 1981. The health dimension of human capital improved, with average “life expectancy at birth” rising from 54 years in 1974 to 59 years in 1981. Likewise, the education dimension of human capital improved as well: the average “gross enrollment ratio” in secondary education for both sexes rose from 35 percent of the respective age group in 1974 to 50 percent in 1981. Concomitantly, the average “gross enrollment ratio” in tertiary education for both sexes rose from 11 percent of the respective age group in 1974 to 17 percent in 1981 (World Bank 2017; IMF 2014). Apart from that, the effects of economic liberalization on economic growth and on the income dimension of socioeconomic development were disguised by the enormous rise in rent inflows after the first oil crisis in 1973, and even more so after the second oil crisis in 1979—which occurred together with the reestablishment of full oil-production capacity after the return of the Sinai oil fields. These rent inflows augmented state revenues (through oil sales, Suez Canal fees, and tourism) and family incomes (through remittances and the service-sector boom), with probable positive effects on economic growth and on socioeconomic development. But the oil-price boom also drove up international commodity prices, and thereby raised inflation (negatively affecting real GDP growth, real household income, and poverty). Finally, the decline of import demand from industrialized countries, whose economies entered a period of stagflation after the 1973 oil crisis, depressed Egyptian exports (and thus economic growth) and might also have hurt employment in the export sector (see section 6.2.1) (see also: Wahba 1994: 152; Ikram 2006: 24, 26; Noland and Pack 2007: 47; Farah 2009: 41; World Bank 2017; IMF 2014).

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Gap period (1982–1986) During the gap period (1982–1986), the Egyptian GDP in current USD rose from 30 billion in 1982 to 54 billion in 1986. GDP per capita rose from USD 561 (current) in 1982 to USD 707 (current) in 1986. This evolution yielded real GDP growth (calculated on the basis of GDP in national currency) of 7.3 percent p.a. on average, with a standard deviation of 1.4 percent, and real GDP per capita growth of 3.8 percent p.a. on average, with a standard deviation of 2.4 percent. Real household-income growth probably slowed down, with inflation (“change of average consumer prices”) rising again from 15 percent in 1982 to 17 percent in 1984 and to 24 percent in 1986— overall, 16.8 percent p.a. on average during 1982–1986 and thus markedly higher than during the first reform period (1974–1981: 11.8 percent p.a.). At the same time, GDP per capita in current USD increased continuously, while “personal remittances received” rose from 9.5 percent of GDP in 1982 to 13 percent in 1983, before falling continuously in relative terms to 7 percent in 1986. They averaged 10.4 percent of GDP during 1982–1986 and thus remained at the same level than during the period 1977–1981 (World Bank 2017; IMF 2014). Official open unemployment reached 11 / 12 percent of the labor force by 1986 (up from 4.3 percent in 1976), with a concomitant rise in informal employment (an estimated 2.9 million people in 1985) (El-Ghonemy 1998: 184; Farah 2009: 41). Data on poverty and income inequality was not available to the author. Apart from limited consumer-price liberalization / subsidy cuts for basic consumer goods, economic-liberalization policies were stopped during the gap period 1982–1986 (see section 6.1.5). Consumer-price liberalization might have had a positive effect on economic growth during the whole 1980s (H46, H53). Even though real GDP growth declined from an average 8 percent p.a. during 1982–1985 to an average 3.7 percent p.a. during 1986–1990, consumer-price liberalization might still have slowed down this decline. At the same time, consumer-price liberalization might have fuelled inflation in the short run (H62). The “change of average consumer prices” effectively increased from 15 percent in 1982 to 25 percent in 1987 and subsequently stayed high at an average 19 percent p.a. during 1988–1990. Besides depressing real household income, galloping inflation might have increased poverty and income inequality (although figures were not available to the author) (H62). The long-term effect of consumer-price liberalization on socioeconomic development is theoretically ambiguous and thus not discussed here (see also: IMF 2014). Besides, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the gap period (1982– 1986): Physical capital formation, proxied by “total investment,” fell from 34 percent of GDP in 1982 to 23 percent in 1986. Its average declined from 33 percent of GDP during 1978–1981 to 27 percent during 1982–1986. Population growth rose from

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2.3 percent p.a. during 1974–1981 to 2.6 percent p.a. during 1982–1986. The health dimension of human capital improved, with average “life expectancy at birth” rising from 60 years in 1982 to 62 years in 1986. At the same time, progress in the education dimension of human capital was nonuniform: while the average “gross enrollment ratio” in secondary education for both sexes rose from 52 percent of the respective age group in 1982 to 62 percent in 1986, the average “gross enrollment ratio” in tertiary education for both sexes stayed roughly constant during the same period (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Egypt’s gap period (1982–1986): the decline of the oil price during 1980–1986 connected with the continued economic downturn in major export markets (which should have reduced economic growth and dampened the progress of socioeconomic development); and particularly high rent inflows in the first half of the 1980s, especially donor money from the United States after the 1979 peace treaty with Israel (with a presumedly positive effect on economic growth and socioeconomic development) (see section 6.2.1). Reform period 2 (1987–1990) During the second reform period (1987–1990), the Egyptian GDP in current USD rose from 77 billion in 1987 to 115 billion in 1989, and then declined to 96 billion in 1990. GDP per capita fell from USD 776 (current) in 1987 to USD 653 (current) in 1988, before rising back to USD 765 (current) in 1990. This evolution yielded real GDP growth (calculated on the basis of GDP in national currency) of 3.4 percent p.a. on average, with a standard deviation of 0.8 percent, and real GDP per capita growth of 1.9 percent p.a. on average, with a standard deviation of 1.3 percent. Real household-income growth probably remained slow or negative, with GDP per capita in current USD lower in 1990 than in 1987 and inflation (“change of average consumer prices”) rising further to an average 20.4 percent p.a. during 1987–1990 (compared to 16.8 percent p.a. during 1982–1986). At the same time, “personal remittances received” hovered between 8 percent and 11 percent of GDP—9.5 percent on average during 1987–1990 and thus slightly lower than during the preceding gap period (1982–1986: 10.4 percent of GDP (World Bank 2017; IMF 2014). Unemployment was estimated at around 18 percent of the labor force in 1990 and thus up from 12 percent in 1986. Poverty in 1990 / 1991 seems to have affected 39–55 percent of the people in rural areas and 36–44 percent of the people in urban areas (i.e. an increase of 10–20 percent in rural areas and of 5–10 percent in urban areas since 1980 / 1981) (El-Ghonemy 1998: 184). Data on income inequality was not available to the author.

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Policies of economic liberalization might have affected economic growth in Egypt’s second reform period (1987–1990) (see section 6.1.5): On the demand side, the 100-percent devaluation of the EGP against the USD (partial liberalization of the exchange rate) might have negatively influenced economic growth both during the second reform period (short-term effects) and in the course of the 1990s (longterm effects) (H51, H59). Real GDP growth was in fact markedly lower during the second reform period (1987–1990: 3.4 percent p.a. on average) than during the preceding gap period (1982–1986: 7.3 percent p.a. on average). During 1990–1996, real GDP growth declined further to an average 3 percent p.a. On the supply side, the further liberalization of domestic private investment through the 1989 Investment Law might have driven economic growth both in the short run and in the long run (as economic growth de facto followed a declining trend, it might still have slowed down its decline) (H47, H56) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in the second reform period (1987–1990) (see section 6.1.5): Exchange-rate liberalization might have fuelled inflation in the short run and might thus have contributed to rising poverty and income inequality (H64). In fact, inflation was higher during the second reform period (1987–1990: 20 percent p.a.) than during the preceding gap period (1982–1986: 17 percent p.a.). It subsequently stayed high at an average 18 percent p.a. during 1991–1992. If this rise in inflation occurred simultaneously with an increase in poverty and in income inequality cannot be established due to a lack of data. The long-term effect of exchange-rate liberalization on socioeconomic development is theoretically ambiguous and thus not discussed here. Besides, the 1989 liberalization of domestic private investment might have increased capital formation, potentially decreasing unemployment (H61, H66). However, “total investment” declined markedly after 1989, from 30 percent of GDP in 1989 to 15 percent in 1993, before it increased again to an average 20 percent of GDP during 1994–1999. Official unemployment (ILO estimate) hovered between 9 percent and 11 percent of the total labor force during 1991–1996, before it declined to 8 percent during 1997–1999. Likewise, official youth unemployment (percent of the labor force ages 15–24; ILO estimate) first increased from 26 percent in 1992 to 32 percent during 1994–1995, before it declined to 21 percent by 1999. Thus, from a superficial point of view, the short-term effect of the liberalization of domestic private investment appears to have not been strong enough to stop socioeconomic development from deteriorating during the early-mid 1990s (H61), although its long-term effect might have contributed to the amelioration of socioeconomic indicators during the late 1990s (H66) (see also: World Bank 2017; IMF 2014).

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Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the second reform period (1987–1990): Physical capital formation, proxied by “total investment,” rose from 25 percent of GDP in 1987 to 33 percent in 1988, before it declined back to 28 percent in 1990. Its average was 29 percent of GDP during 1987–1990 and thus slightly higher than during the preceding gap period (1982–1986: 27 percent). Compared to the period 1982–1986, population growth stayed flat at an average 2.6 percent p.a. during 1987–1990. The health dimension of human capital improved, with average “life expectancy at birth” rising from 63 years in 1987 to 65 years in 1990. At the same time, progress in the education dimension of human capital was nonuniform: while the average “gross enrollment ratio” in secondary education for both sexes rose from 64 percent of the respective age group in 1987 to 75 percent in 1990, the average “gross enrollment ratio” in tertiary education for both sexes fell from 19 percent of the respective age group in 1987 to 15 percent in 1990 (World Bank 2017; IMF 2014). Apart from possible direct effects of policies of economic liberalization on economic growth and on the income dimension of socioeconomic development, the credible intent of the Egyptian government to pursue these policies had political effects with economic consequences: Above all, the 1987 Standby Arrangement with the IMF brought in foreign currency in the form of loans (total loan commitment: SDR 250 million; drawn amount: SDR 116 million) (H60), which contributed to the fall of the budget deficit in the short run—although these loans increased the budget deficit in the long run due to additional principal and interest payments. In addition, commitment to economic reforms (including economic liberalization) triggered a first round of debt rescheduling by the Paris Club in 1987, comprising interest and principal payments of USD 12 billion (H60). These deferred payments improved the state’s budgetary position and could thus have created leeway for the government to enhance economic growth and socioeconomic development by public spending and investment (see section 6.2.1). Reform period 3 (1991–1998) During the third reform period (1991–1998), the Egyptian GDP in current USD declined from 96 billion in 1990 to 48 billion in 1991 (mostly due to the devaluation of the EGP towards the USD) and further to 44 billion in 1992, before it increased steadily to 89 billion in 1998. GDP per capita fell from USD 765 (current) in 1990 to USD 641 (current) in 1991, before it increased to USD 1,287 (current) in 1998. This evolution yielded real GDP growth (calculated on the basis of GDP in national currency) of 4 percent p.a. on average, with a standard deviation of 2.1 percent, and real GDP per capita growth of 1.9 percent p.a. on average, with

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a standard deviation of 1.4 percent. Average real household income seems to have increased since the mid-1990s: First of all, GDP per capita in current USD rose starkly after 1992. Further to that, inflation (“change of average consumer prices”) declined steadily from 21 percent in 1992 to 5 percent in 1998—overall, 10.5 percent p.a. on average during 1991–1998 and thus markedly lower than during the second reform period (1987–1990: 20.4 percent p.a.). But there were also factors that slowed down household-income growth: “personal remittances received” plunged from 15 percent of GDP in 1992 to 4 percent in 1998 (7.9 percent of GDP on average during 1991–1998, compared to 9.5 percent during 1987–1990) (World Bank 2017; IMF 2014). At the same time, unemployment stayed high in the early 1990s, rising from 18 percent of the labor force in 1990 to 20 percent in 1993 (El-Ghonemy 1998: 184). According to the ILO, the official “total unemployment” rate was much lower, increasing from an average 9.3 percent of the total labor force during 1991– 1992 to an average 11.1 percent during 1993–1995, before it declined to an average 8.5 percent during 1996–1998. Likewise, official “youth unemployment” (in percent of the labor force ages 15–24; ILO estimate) is reported to have increased from an average 27.8 percent during 1991–1992 to an average 32.1 percent during 1993–1995, before it fell to an average 24.9 percent during 1996–1998 ( World Bank 2017). Poverty apparently increased during 1991–1996 and then decreased in the second half of the 1990s (with estimated nationwide average poverty rates between 17 percent and 50 percent) (El-Ghonemy 1998: 182–186; El-Laithy et al. 2003; ElSaharty et al. 2005: 9–13; Ikram 2006: 255; El-Said and Harrigan 2014: 106–107). Data on income inequality was not available to the author. Policies of economic liberalization might have affected economic growth in Egypt’s third reform period (1991–1998) (see section 6.1.5): On the demand side, the liberalization of imports and the liberalization of interest rates since 1991 might have affected economic growth negatively in the short run and positively in the long run (H49, H50, H52, H54). In contrast, consumer-price liberalization through subsidy cuts might have increased economic growth both in the short run and in the long run (H46, H53), while the expected short-term and long-term effects of the 1991 devaluation of the EGP on economic growth were negative (H51, H59). The effect of the liberalization of international payments on economic growth is theoretically ambiguous and thus not discussed here. In fact, real GDP growth picked up from a minuscule 0.3 percent in 1992 to an average 4.5 percent p.a. during 1994–1996 and to an average 6.2 percent p.a. during 1997–2000, before it fell to an average 3.3 percent p.a. during 2001–2003. Trade liberalization on the import side, the liberalization of interest rates, and consumer-price liberalization could all have been factors driving economic growth during the latter half of the 1990s (H52, H53, H54), while the devaluation of the EGP might have slowed down the growth spurt (H59). In contrast,

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in the early 1990s, the combined effects of trade liberalization, of the liberalization of interest rates, and of exchange-rate liberalization might have hampered the recovery of economic growth (while consumer-price liberalization might have bolstered it) (H46, H49, H50, H51). On the supply side, the liberalization of domestic private investment since the mid-1990s should have driven economic growth both in the short run and in the long run (H47, H56). Over the course of the 1990s, real GDP growth was effectively highest in the second half (6.2 percent p.a. on average), but it declined to an average 4 percent p.a. during 2000–2005. Nevertheless, investment liberalization could still have slowed down its decline. The liberalization of FDI in the banking sector in 1996 could as well have bolstered economic growth in the long run (H57), while its short-term effects are theoretically unclear. Privatization, as a second supply-side policy, should also have increased economic growth both in the short run and in the long run (H48, H58). (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in the third reform period (1991–1998) (see section 6.1.5): Both consumer-price liberalization and exchange-rate liberalization might have driven up inflation in the short run, possibly increasing poverty and income inequality (H62, H64). During the 1990s, inflation (“change of average consumer prices”) was effectively higher in the first half (15.6 percent p.a. on average during 1991–1993, 8.5 percent p.a. on average during 1994–1996) than in the second half (5 percent p.a. on average during 1997–1999) and it fell more or less continuously from 21 percent in 1992 to 3 percent in 2000 (see above). Concomitantly, the liberalization of interest rates might have depressed investment in the short run, raising unemployment and potentially increasing poverty as well (H63). The long-term effects of all five demand-side policies of economic liberalization on socioeconomic development are theoretically ambiguous and thus not discussed here. The same holds true for the short-term effects of trade liberalization and of the liberalization of international payments. On the supply side, the liberalization of domestic private investment should have had positive effects both in the short run and in the long run (through higher investment and lower unemployment) (H61, H66). In contrast, the short-term effects of privatization on unemployment are expected to be positive, although its long-term effects should have been negative (H65, H67). Corresponding to the predicted short-term effect of interest-rate liberalization (but in contrast to the predicted short-term effect of investment liberalization), “total investment” first fell from 23 percent of GDP in 1991 to 15 percent in 1993, before it hovered between 19 percent and 21 percent during 1994–2000. Following the theory on short-term effects of investment liberalization (but running counter to the theory on short-term effects of interest-rate liberalization and privatization), official “total unemployment” declined by 3 percent during the second half of the 1990s,

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although it then increased again from 9 percent of the total labor force in 2000 to 11 percent in 2005 (running counter to both theories on long-term effects of investment liberalization and privatization). Nevertheless, investment liberalization and privatization could still have slowed down the increase of unemployment during the first half of the 2000s. The path of “youth unemployment” was roughly similar, although with higher variance. Corresponding to the expected short-term effects of consumer-price liberalization and of exchange-rate liberalization (but running counter to the expected effects of investment liberalization), the nationwide average of poverty increased during the first half of the 1990s, before it decreased again during the second half. Figures on income inequality were not available to the author (see above) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the third reform period (1991–1998): Physical capital formation, proxied by “total investment,” first declined from 23 percent of GDP in 1991 to 15 percent in 1993, before it hovered between 19 percent and 21 percent during 1994–2000. Its average was 19 percent of GDP during 1991–1998 and thus markedly lower than during the preceding reform period (1987–1990: 29 percent). Compared to the second half of the 1980s (2.7 percent p.a. on average), population growth declined to an average 2 percent p.a. during 1991–1998. The health dimension of human capital improved, with average “life expectancy at birth” rising from 65 years in 1991 to 68 years in 1998. At the same time, progress in the education dimension of human capital was nonuniform: while the average “gross enrollment ratio” in secondary education for both sexes fell from 75 percent of the respective age group in 1991 to 74 percent in 1997, the average “gross enrollment ratio” in tertiary education for both sexes rose from 13 percent of the respective age group in 1991 to 31 percent in 1999 (World Bank 2017; IMF 2014). Besides, several other factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Egypt’s third reform period (1991–1998): First, as a quid pro quo of Egypt’s pivotal role in the Desert Storm Coalition of the 1991 Iraq war, the United States, Saudi Arabia, and the Paris Club cancelled half of Egypt’s bilateral debt in the early 1990s (around USD 25 billion). This massive debt cut improved Egypt’s state budget and its international accounts and should thus have freed resources for growth-generating and development-enhancing public and private projects. However, the Paris Club share (USD 10 billion) was conditional on the implementation of the ERSAP (which contained elements of economic liberalization), as were the several reschedulings and reductions of interest payments on the rest (USD 25 billion) of Egypt’s external debt (period 1990–1996). Thus,

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debt cancellation and rescheduling were also (at least partly) an effect of the implementation of economic-liberalization policies (H60). The same holds true of the three IMF agreements of the 1990s (two Standby Arrangements and one EFF) and the 1991 WB-SAL, which stipulated the implementation of economic-liberalization policies as a precondition for the disbursement of loan tranches (H60). These IMF and WB loan agreements (total agreed lending volume: SDR 905 million (IMF) and USD 300 million (WB)) contributed to the fall of the Egyptian state’s budget deficit in the short run, once again freeing public resources for projects that could potentially foster economic growth and socioeconomic development. Second, the Egyptian government significantly cut public investment as part of the ERSAP (pure stabilization), blurring the effects of policies of economic liberalization on total investment, unemployment, and poverty. Third, the 1992 land reform very likely reduced small landholders’ (who are a large group of Egyptian society) average net income. Fourth, both remittances and ODA declined significantly during the 1990s. Fifth, several major disruptive national and international events took place, with negative effects on trade, remittances, tourism, and FDI (and thus on economic growth and on socioeconomic development): the 1990–1991 Gulf Crisis; the 1997 massacre of tourists in Luxor; and the Asian Financial Crisis of 1997–1998 (which spilled over to other developing countries) (see section 6.2.1) (see also: Mitchell 2002: 264–266; El-Ghonemy 2003: 82–83; Farah 2009: 46–47). Reform period 4 (1999–2003) During the fourth reform period (1999–2003), the Egyptian GDP in current USD first increased from 95 billion in 1999 to 105 billion in 2000, before it declined steadily to 85 billion in 2003 (affected by the substantial devaluation of the EGP towards the USD). Likewise, GDP per capita increased from USD 1,352 (current) in 1999 to USD 1,461 (current) in 2000, before it declined back to USD 1,148 (current) in 2003. This evolution yielded real GDP growth (calculated on the basis of GDP in national currency) of 4.3 percent p.a. on average, with a standard deviation of 1.2 percent, and real GDP per capita growth of 2.2 percent p.a. on average, with a standard deviation of 1.4 percent. The evolution of average real household income remains unclear: On the one hand, inflation (“change of average consumer prices”) was lower than ever at an average 2.9 percent p.a. during 1999–2003 (compared to 10.5 percent p.a. during 1991–1998). On the other hand, GDP per capita in current USD declined after 2000 and “personal remittances received” fell to lower average levels (3.3 percent of GDP during 1999–2003, compared to 7.9 percent during 1991– 1998). At the same time, the official “total unemployment” rate (ILO estimate) increased again from 8.1 percent of the total labor force in 1999 to 10.4 percent in 2003. Likewise, official “youth unemployment” (in percent of the labor force ages

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15–24; ILO estimate) increased from 21 percent in 1999 to 26 percent in 2000 and to an average 28.7 percent during 2001–2003. The “poverty headcount ratio” (percent of the population below the national poverty line) increased from 16.7 percent in 1999 to 19.6 percent in 2004.37 Data on income inequality was not available to the author (World Bank 2017; El-Said and Harrigan 2014: 107–108; IMF 2014). Policies of economic liberalization might have affected economic growth in Egypt’s fourth reform period (1999–2003) (see section 6.1.5): On the demand side, trade liberalization should have decreased economic growth in the short run, while it should have increased it in the long run (H49, H52). In contrast, the substantial devaluation of the EGP towards the USD might have reduced economic growth both in the short run and in the long run (H51, H59). On the supply side, the most significant policy was producer-price liberalization in the banking sector and in the insurance sector, taking place around the year 2000. Whereas the short-term effect of producer-price liberalization on economic growth is theoretically unclear, its long-term effect should have been positive (H55). Corresponding to the theory on short-term effects of trade liberalization and of exchange-rate liberalization, real GDP growth fell from 6 percent in 1999 to 3.2 percent in 2002 and 2003. It then rose steadily and reached 7 percent p.a. during 2007–2008—following the theory on positive long-term effects of trade liberalization and of producer-price liberalization on economic growth, but running counter to the theory on negative long-term effects of exchange-rate liberalization. Nevertheless, exchange-rate liberalization around the year 2000 could still have hampered economic growth in the second half of the 2000s (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in the fourth reform period (1999–2003) (see section 6.1.5): The expected short-term effect of exchange-rate liberalization was negative, due to a presumed positive effect on inflation, which could have increased poverty and income inequality (H64). In fact, inflation first declined from 3.8 percent in 1999 to 2.4 percent p.a. during 2001–2002 and to 3.2 percent in 2003. It then shot up to over 8 percent p.a. during 2004–2005 (corresponding to theory, if the implementation of exchange-rate liberalization, which was completed in 2003, was back-loaded). At the same time, the “poverty headcount ratio” increased by 3 percent during 1999–2004, while data on income inequality was not available to the author (see above). The long-term effect of exchange-rate liberalization on the income dimension of socioeconomic development is theoretically unclear and thus not dis37

The “rural poverty headcount ratio” (percent of the rural population below the official rural poverty line) increased from 22.1 percent in 2000 to 26.8 percent in 2004, while the “urban poverty headcount ratio” (percent of the urban population below the official urban poverty line) increased from 9.3 percent in 2000 to 10.1 percent in 2004 ( World Bank 2017).

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cussed here. The same holds true for the short-term and long-term effects of trade liberalization and of producer-price liberalization (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the fourth reform period (1999–2003): Physical capital formation, proxied by “total investment,” fell from 21 percent of GDP in 1999 to 17 percent in 2001 and then levelled off at 19 percent during 2002–2003. Its average was 19 percent of GDP during 1999–2003 and thus at the same level as in the third reform period (1991–1998). Population growth declined to 1.8 percent p.a. during 1999–2003 (1991–1998: 2 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 68 years in 1999 to 69 years in 2003. At the same time, progress in the education dimension of human capital was nonuniform: while the average “gross enrollment ratio” in secondary education for both sexes increased from 79 percent of the respective age group in 1999 to 81 percent in 2003, the average “gross enrollment ratio” in tertiary education for both sexes fell from 31 percent of the respective age group in 1999 to 27 percent in 2003 (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Egypt’s fourth reform period (1999–2003): Above all, there were several major disruptive international events with negative effects on trade, remittances, tourism, and FDI (and thus on economic growth and on socioeconomic development). These were the Asian Financial Crisis of 1997–1998 (which spilled over to other developing countries and which still affected Egypt during the first years of the fourth reform period), the terrorist attacks of 11 September 2001, and the 2003 United States invasion of Iraq. Besides, the global economy entered a downturn with the burst of the Dotcom bubble in the early 2000s (see section 6.2.1). Reform period 5 (2004–2011) During the fifth reform period (2004–2011), the Egyptian GDP in current USD first declined from 85 billion in 2003 to 83 billion in 2004, before it increased steadily to 248 billion in 2011. Likewise, GDP per capita declined from USD 1,148 (current) in 2003 to USD 1,071 (current) in 2004, and then rose to USD 2,817 (current) in 2011. This evolution yielded real GDP growth (calculated on the basis of GDP in national currency) of 5.6 percent p.a. on average during 2004–2010, with a standard deviation of 1.2 percent, and real GDP per capita growth of 3.7 percent p.a. on average during 2004–2010, with a standard deviation of 1.3 percent. The evolution of average real household income is unclear: On the one hand, inflation (“change of average con-

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sumer prices”) skyrocketed from 3.2 percent in 2003 to an average 7 percent during 2004–2006 and to an average 12.3 percent during 2007–2011 (yielding an average inflation rate of 10.4 percent p.a. during 2004–2011, compared to 2.9 percent p.a. during 1999–2003). On the other hand, GDP per capita in current USD increased starkly after 2004, and “personal remittances received” reached higher average levels, hovering between 4 percent and 6 percent of GDP during 2004–2011 (at an average of 5.2 percent of GDP, compared to 3.3 percent during 1999–2003). At the same time, the official “total unemployment” rate (ILO estimate) declined from an average 11 percent of the total labor force during 2004–2006 to an average 9 percent during 2007–2010. Likewise, official “youth unemployment” (in percent of the labor force ages 15–24; ILO estimate) fell from an average 32 percent during 2004– 2006 to an average 26 percent during 2007–2010. The “poverty headcount ratio” (percent of the population below the national poverty line) further increased from 19.6 percent in 2004 to 21.6 percent in 2008 and to 25.2 percent in 2010.38 Data on income inequality was not available to the author (World Bank 2017; IMF 2014). Policies of economic liberalization might have affected economic growth in Egypt’s fifth reform period (2004–2011) (see section 6.1.5): On the demand side, trade liberalization of imports might have influenced economic growth negatively in the short run and positively in the long run (H49, H52). Consumer-price liberalization through subsidy cuts should have had a positive short-term and long-term effect on economic growth (H46, H53). The liberalization of international payments has ambiguous theoretical effects on economic growth and is thus not discussed here. On the supply side, the main policy was privatization, which proceeded in unprecedented fashion during the period 2004–2008. It might have increased economic growth both in the short run and in the long run (H48, H58). In fact, real GDP growth was at first relatively low at 4.3 percent p.a. on average during 2004–2005 (although up from 3.3 percent p.a. during 2001–2003), then increased to 7 percent p.a. during 2006–2008, before it once again fell to 5 percent p.a. during 2009–2010. During 2011–2012, the real GDP growth rate plummeted to 2 percent p.a. on average. Depending on the point in time when trade liberalization was implemented, these data could align with the theoretical predictions—even if bivariate correlations are small, trade liberalization on the import side could still have depressed the economic growth rate in the short run despite its rise. The figures also align with the predicted positive short-term contribution of privatization to economic growth. The 38

The “rural poverty headcount ratio” (percent of the rural population below the official rural poverty line) increased from 26.8 percent in 2004 to 28.9 percent in 2008 and to 32.3 percent in 2010, while the “urban poverty headcount ratio” (percent of the urban population below the official urban poverty line) increased from 10.1 percent in 2004 to 11 percent in 2008 and to 15.3 percent in 2010 ( World Bank 2017).

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long-term trend of economic growth since the late 2000s is negative, which does not correspond with the theoretical predictions of higher economic growth through trade liberalization, through consumer-price liberalization, and through privatization. Nevertheless, these three policies could still have slowed down the growth decline after 2008 (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in the fifth reform period (2004–2011) (see section 6.1.5): Consumer-price liberalization might have had a negative short-term effect (through higher inflation, which might have increased poverty and income inequality) (H62), while its long-term effect as well as the short-term and long-term effects of trade liberalization and of the liberalization of international payments are all theoretically ambiguous and thus not discussed here. Inflation in fact skyrocketed from 3.2 percent in 2003 to an average 7 percent p.a. during 2004–2006 and to an average 12.3 percent p.a. during 2007–2011. Higher inflation might then have driven poverty: in line with theory, the “poverty headcount ratio” (percent of the population below the national poverty line) increased from 19.6 percent in 2004 to 21.6 percent in 2008 and to 25.2 percent in 2010. Similarly, privatization might have had a negative short-term effect, but also a positive long-term effect (mostly via unemployment) (H65, H67). Official “total unemployment” in fact increased slightly from 10 percent of the total labor force during 2002–2003 to 11 percent during 2004–2006, before it decreased to 9 percent during 2007–2010. During 2011– 2012, it then increased markedly to levels above 12 percent.39 Until 2010 and right before the onset of the Arab Spring, this pattern roughly corresponds to what theory on privatization and unemployment predicts. Data on income inequality was not available to the author (see above) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the fifth reform period (2004–2011): Physical capital formation, proxied by “total investment,” increased steadily from 19 percent of GDP in 2004 to 28 percent during 2007–2008, before falling to an average 21 percent during 2009– 2010 and to 17 percent in 2011. Its average was 22 percent of GDP during 2004–2011 and thus higher than in the fourth reform period (1999–2003: 19 percent). Population growth (1.9 percent p.a.) stayed roughly constant compared to the fourth reform period (1999–2003). The health dimension of human capital improved, with average “life expectancy at birth” rising from 69 years in 2004 to 71 years in 2011. At 39

Qualitative information hints at negative short-term and long-term effects of Egypt’s mid2000s privatization wave on employment. These effects became indirectly visible through the swelling labor protests since the mid-2000s (see section 6.1.4).

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the same time, progress in the education dimension of human capital was nonuniform: the average “gross enrollment ratio” in secondary education for both sexes first declined from 81 percent of the respective age group in 2004 to 69 percent in 2009, before it rose again to 82 percent in 2011. Concomitantly, the average “gross enrollment ratio” in tertiary education for both sexes increased from 29 percent of the respective age group in 2004 to 31 percent in 2010, before it fell to 27 percent in 2011 (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Egypt’s fifth reform period (2004–2011): First, during the period 2004–2008, the second oil boom boosted the value of Egypt’s oil and gas exports, positively affecting economic growth. Rising oil and gas prices also drove up remittances from oil-rich countries, Suez Canal fees, tourism revenues from countries benefitting from the boom, and FDI (in the energy sector, but also in services due to Dutch Disease). All these revenue streams might have positively affected economic growth and socioeconomic development. However, the second oil boom also increased basic commodity prices, leading to high inflation rates, which negatively affected the income dimension of socioeconomic development. Second, the global economy entered an upturn since the early-mid 2000s, further boosting economic growth, with a dose of trickle-down on socioeconomic development. Third, the World Financial Crisis, as a major disruptive international event, brought the mid2000s boom to an end. It visibly affected the growth rates of the Egyptian economy since 2009, blurring the effect of other factors such as economic liberalization (see section 6.2.1) (see also: Demmelhuber 2009: 200, 207; Farah 2009: 44–45; Henry and Springborg 2010: 184–185; Soliman 2011 [2006]: 101; World Bank 2017). Within-case analysis: Tunisia In Tunisia, the implementation of economic liberalization was most intense during the early 1970s, from the mid-1980s up to the mid-1990s, and during the 2000s (see section 6.1.5). The Tunisian GDP rose from USD 1.4 billion (current) in 1970 to USD 9.6 billion (current) in 1980, USD 13.5 billion (current) in 1990, USD 21.5 billion (current) in 2000, and USD 45.8 billion (current) in 2011. During 1970–2011, there were six periods during which GDP in current USD declined (1980–1982, 1983– 1984, 1992–1993, 1996–1997, 1999–2000, and 2008–2009). Real GDP growth (calculated on the basis of GDP in national currency) averaged 7.2 percent p.a. during 1970–1979, 3.6 percent p.a. during 1980–1989, 5.2 percent p.a. during 1990–1999, and 4.6 percent p.a. during 2000–2009. Economic growth was very volatile throughout the examination period, making it difficult to identify boom periods and bust periods (the exception being the bust of 2007–2011). Nevertheless, six mini-booms

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(1970–1972, 1977–1980, 1982–1985, 1988–1990, 2002–2004, 2005–2007) and two mini-busts (1980–1982, 1996–1998) can be observed during the period 1970–2007, when annual real GDP growth increased or decreased for two or three years in a row. But the volatility of annual real GDP growth declined over time, from a standard deviation of 4.2 percent during the first reform period (1970–1981) to 2.8 percent in the second reform period (1985–1995) and to 2.1 percent in the third reform period (1995–2011). The standard deviation per decade continuously declined from 4.6 percent during 1970–1979 to 3.1 percent during 1980–1989, 1.8 percent during 1990–1999, and 1.3 percent during 2000–2009. Population growth increased from 1.3 percent in 1960 to 2.7 percent in 1980 and then declined to 2 percent in 1984. During the subsequent period 1985–1996, it became extremely volatile (averaging 2.1 percent p.a.), before it declined further to less than 1 percent p.a. during 2003– 2007. It finally increased again to 1.2 percent in 2011. Ultimately, its average was 1.8 percent p.a. during 1960–1969, 2.3 percent p.a. during 1970–1979, 2.5 percent p.a. during 1980–1989, 1.7 percent p.a. during 1990–1999, and 1 percent p.a. during 2000–2009. On this basis, GDP per capita increased from USD 284 (current) in 1970 to USD 1,370 (current) in 1980, USD 1,507 (current) in 1990, USD 2,248 (current) in 2000, and USD 4,292 (current) in 2011. From 1970 up to 2011, there were four periods, when GDP per capita in current USD declined significantly (1980–1985, 1992–1993, 1999–2000, 2008–2009). Thus, real GDP per capita growth (calculated on the basis of GDP in national currency) averaged 4.8 percent p.a. during 1970–1979, 1 percent p.a. during 1980–1989, 3.3 percent p.a. during 1990–1999, and 3.3 percent p.a. during 2000–2009. Socioeconomic development, in the dimensions measured by the HDI, increased from an HDI value of 0.486 in 1980 to 0.567 in 1990 (rank 70 of 130 countries worldwide), 0.654 in 2000 (rank 101 of 174 countries worldwide), and 0.714 in 2010 (rank 81 of 169 countries worldwide). The measure of HDI rank divided by the number of countries in the respective HDI sample first increased from 0.538 in 1990 to 0.580 in 2000 and then decreased to 0.479 in 2010 (implying an improvement of Tunisia’s position in global comparison from 1990 to 2010). In the income dimension of socioeconomic development, official unemployment first increased from 13.1 / 15 percent of the total labor force in the mid-1980s to 16.8 percent in 1991, declined again to 14.5 percent in 1995 (with a temporary increase in 1994), increased to 17.3 percent in 1998, and then entered a declining trend down to 12.4 percent in 2008. Afterwards, it increased to 13 percent in 2010 and finally shot up to 18.3 percent in 2011 (ILO estimates since 1991). Following the same trends, official “youth unemployment” (in percent of the labor force ages 15–24; ILO estimate) first decreased from 33.7 percent in 1991 to 29.5 in 1995 (with a temporary increase in 1994), then increased to 35.9 percent in 1998, before it followed a declining trend down to 27.5 percent in 2006. Afterwards,

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it rose again to 30.5 percent in 2009 and finally shot up to 42.7 percent in 2011. Inflation (“change of average consumer prices”) averaged 8.7 percent p.a. during 1980–1989, 4.9 percent p.a. during 1990–1999, and 2.8 percent p.a. during 2000– 2009.40 “Personal remittances received” fluctuated between 3 percent and 5 percent of GDP during 1976–1993, between 3 percent and 4 percent during 1993–1999, and finally entered a slowly rising trend, stabilizing between 4 percent and 5 percent of GDP during 2001–2011 (with much lower volatility than before the year 2000). There were four periods, when “personal remittances received” followed a rising trend in relative terms (1976–1979, 1985–1988, 1998–2002, 2005–2010) and three periods, when they followed a declining trend in relative terms (1982–1985, 1988– 1993, 1994–1998). The official national poverty rate decreased from 40 percent of the population in 1970 to 22 percent in 1975, 12.9 / 20.1 percent in 1980, 7.7 / 9.6 / 11.0 percent in 1985, and 6.7 / 8.0 percent in 1990, before it stayed roughly constant at 8.1 percent in 1995.41 It then decreased further to 4.1 percent in 2000. Poverty figures published by the WB are starkly different: According to the WB, the “poverty headcount ratio” (percent of population below the national poverty line) stood at 32.4 percent in 2000 and then decreased to 23.3 percent in 2005 and to 15.5 percent in 2010. Income inequality (measured by the Gini index; WB estimates) first decreased from 43.4 percent in 1985 to 40.2 percent in 1990, before it increased again to 41.7 percent in 1995, and finally entered a decreasing trend to 40.8 percent in 2000, 37.7 percent in 2005, and 35.8 percent in 2010 (El-Ghonemy 1998: 136, 179–180; Murphy 1999: 92, 95; Harrigan and El-Said 2009: 139; World Bank 2017; El-Said and Harrigan 2014: 113, 115–116; IMF 2014; UNDP 2015b, e). In the following part, the pattern of economic growth and the evolution of the income side of socioeconomic development in Tunisia’s different reform periods, as well as the possible contribution of economic-liberalization policies to these outcomes will be discussed. Reform period 1 (1970–1981) During the first reform period (1970–1981), the Tunisian GDP in current USD rose from 1.4 billion in 1970 to 9.6 billion in 1980, and then fell to 9.2 billion in 1981. GDP per capita rose steadily from USD 284 (current) in 1970 to USD 1,370 (current) in 1980, before it declined to USD 1,286 (current) in 1981. This evolution yielded 40

Information on inflation in Tunisia before 1980 was not available to the author. For most of the period 1975–1990, (official) poverty rates were higher for urban areas. In urban areas of Tunisia, the poverty rate fell from 26 percent of the urban population in 1975 to 11.8 percent in 1980, 8.4 percent in 1985, and 7.3 percent in 1990. In rural areas, it fell from 18 percent of the rural population in 1975 to 14.2 percent in 1980, 7 percent in 1985, and 5.7 percent in 1990 (El-Ghonemy 1998: 136).

41

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average real GDP growth (calculated on the basis of GDP in national currency) of 7.1 percent p.a. during 1970–1981, with a standard deviation of 4.2 percent, and average real GDP per capita growth of 4.6 percent p.a. during the same period, with a standard deviation of 4.1 percent. The evolution of average real household income is unclear due to a lack of data: GDP per capita in current USD increased continuously during 1970–1980, “personal remittances received” rose slightly from 3.2 percent of GDP in 1976 to 4.3 percent in 1981, and inflation (“change of average consumer prices”) was at an average 9.5 percent during 1980–1981 (World Bank 2017; IMF 2014). The official national poverty rate decreased from 40 percent (“poverty headcount index”) of the population in 1970 to 22 percent in 1975 and to 12.9 / 20.1 percent in 1980 (El-Ghonemy 1998: 136, 180; Harrigan and El-Said 2009: 139; El-Said and Harrigan 2014: 115–116).42 Data on unemployment and income inequality was not available to the author. Policies of economic liberalization might have affected economic growth and the income dimension of socioeconomic development in Tunisia’s first reform period (1970–1981) (see section 6.1.5): On the demand side, trade liberalization since 1972 / 1973 might have depressed economic growth in the short run, while it might have increased it in the long run (H49, H52). The theoretical effect of the liberalization of international payments (for exporting companies and for foreign investors) on economic growth is theoretically ambiguous and thus not discussed here. On the supply side, the expected effect of the liberalization of domestic private investment on economic growth was positive both in the short run and in the long run (H47, H56). Concomitantly, the expected effect of the liberalization of FDI was positive in the long run (H57). In fact, average real GDP growth was markedly higher during the first half of the first reform period (1970–1976: 7.9 percent p.a.) than during the second half (1977–1981: 5.9 percent p.a.). It then declined further to an average 3.9 percent p.a. during 1982–1985. Trade liberalization could have slowed down the growth spurt of the first half of the 1970s, while the liberalization of domestic private investment might have boosted it. Although all policies of economic liberalization that were implemented in the first reform period (except the liberalization of international payments) theoretically should have raised economic growth in the long run (a prediction that does not align with the empirical data at first sight), they could still have slowed down the growth decline. Regarding the income dimension of socioeconomic development, the liberalization of domestic private investment should have raised total investment and should thereby have reduced unemploy42

In urban areas of Tunisia, the poverty rate plunged from 26 percent of the urban population in 1975 to 11.8 percent in 1980. In rural areas, it fell from 18 percent of the rural population in 1975 to 14.2 percent in 1980 (El-Ghonemy 1998: 136).

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ment, both in the short run and in the long run (H61, H66). However, figures on unemployment were not available to the author. Both the short-term and long-term effects of trade liberalization, of the liberalization of international payments, and of FDI on the income dimension of socioeconomic development are theoretically ambiguous and thus not discussed here (see also: IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the first reform period (1970–1981): Physical capital formation, proxied by “total investment,” rose from an average of 22 percent of GDP during 1970– 1973 to 26 percent in 1974, 28 percent in 1975, and an average of 30 percent during 1976–1981. Population growth increased from 2.2 percent in 1970 to 2.7 percent p.a. during 1980–1981. The health dimension of human capital improved, with average “life expectancy at birth” rising from 51 years in 1970 to 63 years in 1981. At the same time, there was progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased (after a temporary decline during the mid-1970s) from 22 percent of the respective age group in 1971 to 26 percent in 1981. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes rose from 3 percent of the respective age group in 1971 to 5 percent in 1981 (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Tunisia’s first reform period (1970–1981): First, the oil boom drove up oil and gas prices as well as the price of phosphates, another major Tunisian export product. This price rise should have had a positive effect on economic growth and by way of trickle-down on socioeconomic development as well (although the oil boom triggered high inflation rates, which reduced real GDP growth and average real household income). Second, economic growth and the income dimension of socioeconomic development were bolstered by other revenue streams, which also swelled due to the oil boom, such as remittances (especially from Libya), tourism receipts, and ODA from oil-rich Arab countries. Third, a factor dampening economic growth and possibly raising unemployment was the unfolding recession in Europe (Tunisia’s major export market) since the mid-1970s (see section 6.2.1) (see also: A. Findlay 1984: 224–226; El-Ghonemy 1998: 136, 180; Murphy 1999: 84–86, 91; Perkins 2004: 160–162, 164; Harrigan and El-Said 2009: 139; Erdle 2010: 80–81; El-Said and Harrigan 2014: 115–116; Alexander 2016: 114–115). Gap period (1982–1985) During the gap period (1982–1985), the Tunisian GDP in current USD stagnated, falling from 9.2 billion in 1981 to 8.9 billion in 1982, rising back to 9.2 billion

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in 1983, once again falling to 9.1 billion in 1984, and finally rising slightly to 9.3 billion in 1985. Thus, GDP per capita followed a negative trend, falling from USD 1,286 (current) in 1981 to USD 1,209 (current) in both 1982 and 1983, and declining further to USD 1,172 (current) in 1984 and to USD 1,158 (current) in 1985. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 3.9 percent p.a. during 1982–1985, with a standard deviation of 2.6 percent, and average real GDP per capita growth of 1.3 percent p.a. during the same period, with a standard deviation of 2.6 percent. The evolution of real household income might have been negative: On the one hand, GDP per capita in current USD fell more or less continuously during 1982–1985, while “personal remittances received” declined as well in relative terms from 4.6 percent of GDP in 1982 to 3.2 percent in 1985 (with an average of 4 percent of GDP during 1982– 1985). On the other hand, inflation (“change of average consumer prices”) decreased from 13.7 percent in 1982 to 9 percent in 1983 and to 7.6 percent in 1985 (with an average of 9.7 percent p.a. during 1982–1985) (World Bank 2017; IMF 2014). The empirical pattern of unemployment is unclear, with official unemployment at around 15 percent of the labor force in the mid-1980s (while “nearly two thirds of those unemployed were under 24 years old”) (Murphy 1999: 92, 95). Despite the economic crisis, the official national poverty rate further decreased from 12.9 / 20.1 percent of the population in 1980 to 7.7 / 9.6 / 11.0 percent in 1985 (El-Ghonemy 1998: 136, 180; Harrigan and El-Said 2009: 139; El-Said and Harrigan 2014: 113, 115–116).43 The Gini index (which measures income inequality) stood at 0.43 (WB estimate) in 1985 (World Bank 2017). During the gap period (1982–1985), very few policies of economic liberalization were implemented by the Tunisian government. One exception is partial consumerprice liberalization / subsidy cuts, which took place in 1983 / 1984. This policy was later rescinded after the 1984 riots. It remains unclear, how big actual and sustained subsidy cuts were during this period (see section 6.1.5). If they had been truly substantial and not temporary (which is more than doubtful), they could have increased economic growth both in the short run and in the long run (H46, H53). At the same time, they could have negatively affected the income dimension of socioeconomic development in the short run (through higher inflation, leading to higher poverty and to higher income inequality) (H62), while their long-term effect is theoretically ambiguous. In fact, real GDP growth increased from a negative 0.5 percent in 1982 to an average 5.7 percent p.a. during 1984–1985. During 1986– 43

In urban areas of Tunisia, the poverty rate fell from 11.8 percent of the urban population in 1980 to 8.4 percent in 1985. In rural areas, it fell from 14.2 percent of the rural population in 1980 to 7 percent in 1985 (El-Ghonemy 1998: 136).

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1990, it fell to an average 3 percent p.a. (although with high volatility). From a superficial view, the empirical data align with the theoretical predictions on shortterm effects of consumer-price liberalization, while they contradict the predictions on long-term effects. Nevertheless, consumer-price liberalization could still have slowed down the growth decline after 1985. Inflation (“change of average consumer prices”) decreased from 14 percent in 1982 to 6 percent in 1986 and then levelled off at an average 7.7 percent p.a. during 1987–1989. At the same time, official national poverty decreased significantly during 1980–1985 (see above). These empirical patterns contradict the theory on consumer-price liberalization affecting the income dimension of socioeconomic development in the short run. However, consumer-price liberalization might still have influenced inflation, poverty, and income inequality positively, and thereby might have kept these variables at higher levels than in a situation where the policy had not been implemented (see also: World Bank 2017; IMF 2014). Apart from consumer-price liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the gap period (1982–1985): Physical capital formation, proxied by “total investment,” increased from 31 percent of GDP in 1982 to 34 percent in 1984, before it fell to 29 percent in 1985. Its average during 1982–1985 was 31 percent of GDP and thus slightly higher than during the period 1976–1981 (30 percent). Population growth fluctuated between 2 percent and 3 percent p.a. during 1982–1985, yielding an average of 2.6 percent (1980–1981: 2.7 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 64 years in 1982 to 66 years in 1985. At the same time, progress in the education dimension of human capital was nonuniform: while the average “gross enrollment ratio” in secondary education for both sexes increased from 29 percent of the respective age group in 1982 to 37 percent in 1985, the average “gross enrollment ratio” in tertiary education for both sexes stagnated at 5 percent of the respective age group (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Tunisia’s gap period (1982–1985): First, the continuous decline of the oil price during 1980–1986 (first major plunge in 1982), which reduced export earnings from oil and gas, brought down remittances (especially from Libya), ODA from oil-rich Arab countries, and tourism receipts; second, the continuing recession in Europe; and third, the drought of 1982, which reduced agricultural output (see section 6.2.1).

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Reform period 2 (1985–1995) During the second reform period (1985–1995), the Tunisian GDP in current USD increased from 9.3 billion in 1985 to 10.7 billion in 1987 and then stagnated at 11.1 billion during 1988–1989. It subsequently rose to 13.5 billion in 1990 and to 17 billion in 1992, before it fell to 15.9 billion in 1993, and finally rose to 19.7 billion in 1995. GDP per capita declined from USD 1,172 (current) in 1984 to USD 1,158 (current) in 1985, and then increased to USD 1,285 (current) in 1988. From there, it fell to USD 1,269 (current) in 1989, subsequently increased to USD 1,825 (current) in 1992, once again declined to USD 1,704 (current) in 1993, and finally rose to USD 2,013 (current) in 1995. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 3.8 percent p.a. during 1985–1995, with a standard deviation of 2.8 percent, and average real GDP per capita growth of 1.4 percent p.a. during the same period, with a standard deviation of 2.9 percent. The evolution of average real household income is unclear, although it might have followed a positive trend: On the one hand, GDP per capita in current USD rose significantly from 1985 to 1995 (although with a very volatile pattern). Concomitantly, inflation (“change of average consumer prices”) fell from an average 7.3 percent p.a. during 1985–1991 to an average 5.3 percent p.a. during 1992–1995—yielding an average of 6.6 percent p.a. during 1985–1995 and thus lower by 3 percent p.a. compared to the preceding gap period 1982–1985. On the other hand, “personal remittances received” did not increase in relative terms, hovering between 3 percent and 5 percent of GDP during 1985–1995 (approximately the same level as during the early 1980s) (World Bank 2017; IMF 2014). At the same time, official unemployment rose from 13.1 / 15 percent of the labor force in the mid-1980s to 17 percent in 1991 (ILO estimate), and then declined back to an average 15 percent during 1992–1995 (ILO estimate). Likewise, official “youth unemployment” (in percent of the labor force ages 15–24, ILO estimate) fell from 34 percent in 1991 to an average 31 percent during 1992–1995 (El-Ghonemy 1998: 179; Murphy 1999: 92, 95; World Bank 2017). The official national poverty rate declined from 7.7 / 9.6 / 11.0 percent of the population in 1985 to 6.7 / 8.0 percent in 1990, and then stayed roughly constant at 8.1 percent in 1995 (El-Ghonemy 1998: 136, 180; Murphy 1999: 128; Harrigan and El-Said 2009: 139; El-Said and Harrigan 2014: 115–116).44 The Gini index (which measures income inequality) first decreased from 0.43 (WB estimate) in 1985 to 0.40 in 1990 (indicating a reduction

44

In urban areas of Tunisia, the poverty rate fell from 8.4 percent of the urban population in 1985 to 7.3 percent in 1990. In rural areas, it fell from 7 percent of the rural population in 1985 to 5.7 percent in 1990 (El-Ghonemy 1998: 136, 180).

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of income inequality) and then increased again to 0.42 in 1995 (indicating a rise of income inequality) (World Bank 2017). Policies of economic liberalization might have affected economic growth in Tunisia’s second reform period (1985–1995) (see section 6.1.5): On the demand side, trade liberalization and exchange-rate liberalization (which were both implemented most intensively during the second half of the 1980s) as well as the partial liberalization of interest rates might have depressed economic growth in the short run (H49, H50, H51). In contrast, consumer-price liberalization through subsidy cuts might have increased it (H46). In the long run, exchange-rate liberalization might still have negatively affected economic growth (H59), while the expected effects of trade liberalization, of consumer-price liberalization, and of the liberalization of interest rates were positive (H52, H53, H54). The short-term and long-term effects of the liberalization of international payments are theoretically ambiguous and thus not discussed here. On the supply side, the liberalization of domestic private investment during 1990–1995 and the start of privatization operations since 1989 should have positively affected economic growth both in the short run and in the long run (H47, H48, H56, H58). Producer-price liberalization in agricultural and manufactured products should also have increased economic growth, although probably only in the long run (H55). In fact, real GDP growth averaged 3 percent p.a. during 1986–1990 (down from an average 3.9 percent p.a. during 1982–1985) and then increased to 4.2 percent p.a. during 1991–1995 and to 5.6 percent p.a. during 1996–2000. The figures do at first sight align with the theory that predicts negative short-term effects of trade liberalization, of the liberalization of interest rates, and of exchange-rate liberalization on economic growth (the bulk of these reforms had been implemented before 1990) (H49, H50, H51). More than five years after their implementation, economic growth rates effectively rose, as predicted by the theory. The presumed long-term negative effect of exchange-rate liberalization (H59) could have dampened the growth recovery. Supply side reforms might have further boosted economic growth since the first half of the 1990s and into the second half of the 1990s as well (the empirical pattern of real GDP growth seems to support this reasoning from a superficial view) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in the second reform period (1985–1995) (see section 6.1.5): Consumer-price liberalization (through higher inflation, fuelling poverty and income inequality), the liberalization of interest rates (through lower investment, leading to a rise in unemployment and through increasing poverty directly), and exchange-rate liberalization (through higher inflation, fuelling poverty and income inequality) might have had negative short-term effects (H62, H63, H64). Concomitantly, the short-term effects of trade liberalization and of the liberaliza-

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tion of international payments are theoretically ambiguous. In the long run, the effects of all demand-side policies are theoretically ambiguous and thus not discussed here. On the supply side, the liberalization of domestic private investment should have had positive short-term effects on socioeconomic development (through higher investment and lower unemployment) (H61), while the short-term effects of privatization might have been negative (through higher unemployment and higher income inequality) (H65). The short-term effect of producer-price liberalization is theoretically ambiguous and thus not discussed here. In the long-run, both the liberalization of domestic private investment and privatization might have improved the income dimension of socioeconomic development (through lower unemployment) (H66, H67). At the same time, the effect of producer-price liberalization is once again theoretically ambiguous. In fact, inflation (“change of average consumer prices”) decreased from the second half of the 1980s to the first half of the 1990s (see above). Concomitantly, “total investment” at first declined from 34 percent of GDP in 1984 to 20 percent in 1988 and then hovered between 22 percent and 27 percent during 1989–2000. Official unemployment increased during the latter half of the 1980s and then fell during the first half of the 1990s (see above), before it rose again in the late 1990s. The official national poverty rate declined slightly from 1985 to 1990 and then stayed roughly constant until 1995 (see above). The Gini index (which measures income inequality) first decreased in the second half of the 1980s and then increased again during the first half of the 1990s (see above). If the second reform period (1985–1995) is analyzed separately, the empirical pattern of inflation (higher during the late 1980s than during the early 1990s) aligns with the theory on positive short-term effects of consumer-price liberalization and of exchange-rate liberalization on inflation (H62, H64). Compared to the gap period 1982–1985, these two demand-side policies thus might have attenuated the falling trend of inflation and the concomitant fall of poverty and income inequality. However, if the time horizon is extended to the past, inflation was in fact lower during 1985–1990 (7.2 percent p.a.) than during 1980–1984 (10 percent p.a.), which seems to contradict the theory on positive short-term effects of consumer-price liberalization and of exchange-rate liberalization on inflation (H62, H64). The liberalization of interest rates in the first half of the second reform period (1985–1995) might have contributed to the fall of total investment until 1988 (H63), while the liberalization of domestic private investment in the first half of the 1990s might have supported its subsequent increase (H61). Unemployment seems to have reacted to lower investment during the late 1980s and to higher investment during the first half of the 1990s, while privatization might have slowed down the decline of unemployment in the early 1990s (H65). The increase of unemployment in the latter half of the 1990s does, from a superficial view, not align with the theory on long-term negative effects

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of investment liberalization and of privatization on unemployment (H66, H67) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the second reform period (1985–1995): Physical capital formation, proxied by “total investment,” at first declined from 34 percent of GDP in 1984 to 20 percent in 1988, increased again to 27 percent in 1993, and then fell to 22 percent in 1994 and 1995. Its average during 1985–1995 was 24 percent of GDP and thus markedly lower than during the preceding gap period (1982–1985: 31 percent). Population growth was very volatile, averaging 2.2 percent p.a. and thus lower than during the period 1982–1985 (2.6 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 66 years in 1985 to 71 years in 1995. At the same time, there was significant progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased from 37 percent of the respective age group in 1985 to 60 percent in 1995. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased from 5 percent of the respective age group in 1985 to 12 percent in 1995 (World Bank 2017; IMF 2014). Notwithstanding possible direct effects of economic liberalization on economic growth and on the income dimension of socioeconomic development in Tunisia, economic-liberalization policies during the second reform period (1985–1995) also had an indirect effect, as their implementation ensured the flow of IMF and WB credit (H60). Thus, the 1986 IMF Standby Arrangement and the 1988 IMF-EFF brought in foreign currency of SDR 311 million / about USD 500 million (amount drawn: SDR 298 million), while WB loans during the period 1986–1991 amounted to USD 914 million. These funds might have increased economic growth and could also have bolstered the income dimension of socioeconomic development (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Tunisia’s second reform period (1985–1995): First, the Tunisian government implemented a range of macroeconomic-stabilization measures (cuts in state spending and investment, wage freeze for public-sector workers, tax reform) as part of the Mzali / Sfar austerity budgets and later as condition of the 1986 IMF Standby Arrangement. Second, the 1990–1991 Gulf crisis was a highly disruptive event for the Tunisian economy, as both the United States and the Gulf states slashed their economic assistance and military aid after President Ben Ali’s refusal to support the Desert Storm coalition (visible in a stark decline of total ODA from three to 0.4 percent of GNI during the first half of the 1990s) (see section 6.2.1).

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Several other authors discuss the implications of economic-liberalization policies on economic growth and on socioeconomic development in Tunisia during the 1980s and 1990s: As for economic growth, Harrigan and El-Said (2009: 131–134) run a linear panel regression for the period 1971–2003, testing an endogenousgrowth model with a dummy variable for the effect of structural adjustment during the period 1987–1994. They find no significant correlation of this dummy with economic growth in Tunisia during the examination period. As for socioeconomic development, S. J. King (2003: 38–40) comes to the conclusion that economic liberalization in Tunisia from the mid-1980s up to the late 1990s first and foremost aggravated the unemployment problem. Allegedly, even official unemployment figures rose from 1984 to 1993, with actual figures “estimated to be much higher” and disguised by absorption to the shadow economy.45 In addition, “average real wages” declined in all sectors during 1983–1993. The author also suspects that income inequality deepened with economic liberalization, although he admits that existing figures are unreliable. The interpretation of Murphy (1999: 126–130, 153– 159) for the period 1987–1996 is more balanced: From her point of view, the Ben Ali regime’s job-creation efforts were not fruitless, but they could not keep up with rapidly rising demand. Economic liberalization and structural adjustment created and destroyed jobs at the same time. Demographic evolution also increased pressure on the labor market, with new entrants being more highly educated than previous generations. Short-term macroeconomic shocks of all sorts further blur the picture. Overall, it thus remains unclear which precise effects economic liberalization and structural adjustment had on employment figures. What could be observed after all was rising unemployment and higher poverty rates. The government then tried to react with higher social transfers to the poorer sections of society. Reform period 3 (1995–2011) During the third reform period (1995–2011), the Tunisian GDP in current USD increased from 19.7 billion in 1995 to 23 billion in 1999 (with a slight fall during 1996–1997), declined to 21.5 billion in 2000, and then steadily rose to 44.8 billion in 2008. Thereafter, it declined to 43.6 billion in 2009, and finally rose to 45.8 billion in 2011. GDP per capita increased from USD 2,013 (current) in 1995 to USD 2,426 (current) in 1999, before it fell to USD 2,248 (current) in 2000. It then increased steadily to USD 4,343 (current) in 2008, fell to USD 4,163 (current) in 2009, and finally increased to USD 4,292 (current) in 2011. This evolution yielded 45

Data on the manufacturing industry collected by Cassarino (2004) confirm this observation. According to Cassarino (2004: 228), the number of operative firms in the sector more than doubled from 1986 up to 1990, before it declined again to just one third in 1995. Ultimately, the number of jobs in the sector apparently followed the same trend.

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average real GDP growth (calculated on the basis of GDP in national currency) of 4.3 percent p.a. during 1995–2011, with a standard deviation of 2.1 percent, and average real GDP per capita growth of 3 percent p.a. during the same period, with a standard deviation of 2.1 percent. Average real household income might have risen further: First of all, GDP per capita in current USD more than doubled from 1995 to 2011. Further to that, inflation (“change of average consumer prices”) declined steadily from 6.2 percent in 1995 to 1.9 percent in 2001 and 2002. Afterwards, it climbed up again to 4.4 percent in 2008, then declined to 3.3 percent in 2010, and finally rose to 3.6 percent in 2011—yielding an average inflation rate of 3.2 percent p.a. during 1995–2011, compared to 6.6 percent p.a. during 1985–1995. Besides, “personal remittances received” first decreased in relative terms from 3.8 percent of GDP in 1995 to 3.3 percent during 1997–1999, but then increased steadily to 4.6 percent in 2002, and subsequently hovered around 4.5 percent during 2003– 2011. After all, remittances averaged 4.1 percent of GDP during 1995–2011, that is the same level as during the second reform period (1985–1995: 4 percent of GDP) (World Bank 2017; IMF 2014). Concomitantly, official unemployment (ILO estimate) first increased from 14.5 percent of the total labor force in 1995 to 17.3 percent in 1998, but then declined continuously to 12.4 percent in 2007 and 2008. It then rose back to 13 percent during 2009–2010, and finally shot up to 18.3 percent in 2011. Likewise, official “youth unemployment” (in percent of the labor force ages 15–24, ILO estimate) first increased from 29.5 percent in 1995 to 35.9 percent in 1998, before it declined steadily to 27.5 percent in 2006. Afterwards, it rose back to around 30 percent during 2009–2010, and finally skyrocketed to 42.7 percent in 2011 (World Bank 2017; see also: Ben Romdhane 2011: 167–169). Besides, the “poverty headcount index” decreased from 8.1 percent of the population in 1995 to 4.1 percent in 2000 (Harrigan and El-Said 2009: 139; El-Said and Harrigan 2014: 116). Although the WB reports significantly higher figures for the post-2000 period, the estimated trend was also downward: according to the WB, the “poverty headcount ratio” (percent of the population below the national poverty line) decreased from 32 percent in 2000 to 23 percent in 2005 and to 16 percent in 2010 (World Bank 2017). At the same time, the Gini index (which measures income inequality) decreased steadily—although there is no information on year-to-year fluctuations— from 0.42 in 1995 to 0.41 in 2000, 0.38 in 2005, and 0.36 in 2010 (indicating a reduction of income inequality) (World Bank 2017). Policies of economic liberalization might have affected economic growth in Tunisia’s third reform period (1995–2011) (see section 6.1.5): On the demand side, the liberalization of imports since 1995 might have decreased economic growth in the short run (H49), while consumer-price liberalization in the early 2000s might have increased it (H46). In the long run, both consumer-price liberalization and

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trade liberalization on the import side might have had a positive effect on economic growth (H52, H53). The short-term and long-term effects of the liberalization of international payments on economic growth are theoretically ambiguous and thus not discussed here. On the supply side, both the liberalization of domestic private investment in several sectors and privatization since the latter half of the 1990s might have increased economic growth in the short run and in the long run (H47, H48, H56, H58). The liberalization of FDI in 1997 and once again in 2005 could have affected economic growth positively in the long run (H57), while its short-term effect is theoretically ambiguous. In fact, real GDP growth during the third reform period (1995–2011) first declined from 6.9 percent in 1996 to 1.7 percent in 2002, before it followed an increasing trend up to 6.3 percent in 2007. It then once again decreased to 2.6 percent in 2010, and finally fell to an abysmal -1.9 percent in 2011. The initial growth decline might have been driven partially by trade liberalization on the import side (H49). The growth hike during the period 2002–2007 might have been amplified by consumer-price liberalization in the early 2000s (H46) and by long-term effects of import liberalization implemented in the latter half of the 1990s (H52). Short-term effects of the liberalization of domestic private investment and of privatization from the late 1990s onwards might also have contributed to increasing growth (H47, H48). Nevertheless, the growth decline since 2008 happened despite expected positive long-term effects on economic growth of trade liberalization (H52), of consumerprice liberalization (H53), of the liberalization of domestic private investment (H56), and of privatization (H58). Thus, from a superficial view, the empirical pattern of economic growth in the post-2007 period does not align with the theory, although the four policies of economic liberalization could still have slowed down the growth decline (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Tunisia’s third reform period (1995–2011) (see section 6.1.5): Consumer-price liberalization might have had a negative effect in the short run (through higher inflation that could have driven poverty and income inequality) (H62). The expected short-term effects of trade liberalization and of the liberalization of international payments are theoretically ambiguous and thus not discussed here. The same applies to the expected long-term effects of all three demandside policies of economic liberalization implemented during the third reform period (1995–2011). On the supply side, the expected short-term effect of privatization is negative (through higher unemployment and income inequality) (H65), while the liberalization of domestic private investment might have had a positive short-term impact (through higher investment, bringing down unemployment) (H61). In the long run, both privatization and investment liberalization should have had a positive effect (by reducing unemployment) (H66, H67). The short-term and long-term

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effects of FDI on the income dimension of socioeconomic development are theoretically ambiguous and thus not discussed here. In fact, inflation (“change of average consumer prices”) fell from 1995 to 2002, then rose until 2008, and declined again until 2010 (see above). As consumer-price liberalization was mainly implemented in the early 2000s, the increase of inflation after 2002 might have been partially driven by this policy (H62). However, both poverty and income inequality declined continuously during the third reform period (1995–2000 and 2000–2011; with different sources reporting different levels, although the trend is always downward) (see above)—which does at first sight not align with the theory on socioeconomic effects of consumer-price liberalization. Nevertheless, consumer-price liberalization could still have slowed down the decline of poverty and income inequality in the 2000s (H62). At the same time, “total investment” first increased from 22 percent of GDP in 1995 to 26 percent in 2001, then declined back to 22 percent in 2005, and finally increased back to 26 percent in 2010. Official unemployment shortly increased between 1995 and 1998, and then declined steadily until 2008, before it once again reached higher levels since 2009 (see above). The rise of total investment in the second half of the 1990s might have been driven by rising private investment, itself triggered by investment liberalization (H61). What is puzzling and not corresponding to the theory on short-term effects of the liberalization of domestic private investment (H61), is the initial rise of unemployment during 1995–1998. It might have been partially due to the acceleration of privatization since 1995, as short-term effects of privatization on unemployment are expected to be positive (H65). After the year 2000, short-term and long-term effects of the liberalization of domestic private investment and of privatization overlap, although the general tendency should have been an increase in investment and a decline of unemployment (H61, H65, H66, H67). This is not the case for total investment, which once again decreased between 2001 and 2005. But it is the case for unemployment, which in fact declined between 1998 and 2008. Thus, the empirical data on Tunisia’s third reform period does only partly align with the theoretical predictions (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the third reform period (1995–2011): Physical capital formation, proxied by “total investment,” at first increased from 22 percent of GDP in 1995 to 26 percent in 2001, then declined back to 22 percent in 2005, increased back to 26 percent in 2010, and finally fell to 23 percent in 2011. Its average during 1995– 2011 was 24 percent of GDP and thus the same as during the second reform period (1985–1995). Population growth fell significantly from 2.2 percent p.a. during 1985– 1995 to 1.2 percent p.a. during 1995–2011. The health dimension of human capital

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improved, with average “life expectancy at birth” rising from 71 years in 1995 to 74 years in 2011. At the same time, there was significant progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased from 57 percent of the respective age group in 1995 to 92 percent in 2011. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased from 12 percent of the respective age group in 1995 to 35 percent in 2011 (World Bank 2017; IMF 2014). Apart from possible direct effects, policies of economic liberalization apparently had an indirect effect on economic growth and on the income dimension of socioeconomic development during the third reform period (1995–2011), as their implementation ensured the flow of WB credit (H60). During the period 1996–2005, the Tunisian government contracted four loans with the WB, with a total lending volume of USD 637 million. The use of these loans might have increased economic growth and could also have had positive effects on the income dimension of socioeconomic development (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Tunisia’s third reform period (1995–2011): First, the period 1995–2011 was full of major disruptive events, such as the Asian Financial Crisis of 1997–1998 and its global ramifications, the burst of the Dotcom Bubble in the United States and in Western Europe in 2000–2001 (which dampened demand for Tunisian exports and reduced other revenue streams), the terrorist attacks of 11 September 2001, the 2002 bombing on the island of Jerba (which brought down tourism receipts during 2002–2003), and the World Financial Crisis with its peak during 2008–2009. Second, the mid-2000s oil boom affected Tunisia by increasing both export value of oil and gas (and thus raising economic growth) and the value of basic import commodities (with potentially negative effects on the income dimension of socioeconomic development). Third, the rise in ODA to higher levels during 1999–2006 (mainly due to United States contributions after 2001, related to the War on Terror and to the Trans-Sahara Counterterrorism Initiative), the structural rise of remittances in the 2000s (1995–2000: 3.5 percent of GDP; 2001–2010: 4.5 percent), and the rise of tourism receipts during the period 2004–2010 (2000–2003: USD 2 billion p.a.; 2004–2010: USD 3.2 billion p.a.) were three other factors that might have influenced economic growth and socioeconomic development (see section 6.2.1) (see also: Erdle 2010: 362; Henry and Springborg 2010: 32–33; World Bank 2017). Several other authors discuss the implications of economic-liberalization policies on economic growth and on socioeconomic development in Tunisia during the 1990s and 2000s: As for economic growth, Harrigan and El-Said (2009: 131– 134) run a linear panel regression for the period 1971–2003, testing an endogenous

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growth model with a dummy variable for the effect of structural adjustment during the period 1995–2002. They find no significant correlation of this dummy with economic growth during the examination period. As for socioeconomic development, Erdle (2010: 362) comes to the conclusion that the “economic policy [of the Ben Ali regime; C.N.] [produced] quite remarkable results.” He assumes a link between the Ben Ali regime’s economic reforms (which focused on economic liberalization) and the “sustained growth rates of over 5 percent since the early 1990s,” which were “well above the MENA average.” Especially, (2010: 362) points out that this GDP growth since 1985 “[was] largely trade driven” (“export-led growth”) and thus presumedly due to sustained export-promotion policies. In addition, growth seems to have been “intensive” (and not only due to factor accumulation), as labor productivity grew on average by 2.1 percent annually during the period 1986–2004 (Harrigan and El-Said 2009: 129–130; Harrigan and El Said 2010: 15–17). Besides, during 1980–2000, the growth rate of total factor productivity was steadily increasing (after a deep plunge from the 1970s to the early 1980s), reaching 2.3 percent during 1995–2000, that is nearly the rate during the period 1970–1980 (Ben Romdhane 2011: 165–167) . This could be another hint that economic reforms (including economic liberalization) were an important factor behind the remarkably high average growth rates. According to (Erdle 2010: 362–363), “these high economic growth rates [translated] into substantial welfare gains for broad social strata”—poverty was reduced, access to basic services and “national health figures improved,” life expectancy and literacy levels were raised.46 However, Erdle (2010: 364–367) also points to the “fragility” of Tunisia’s apparent economic success: its dependency on few foreign markets and on few domestic sectors; the low value added of manufacturing industry; persistent regional disparities; and rising unemployment, especially among the younger parts of the population. Within-case analysis: Jordan In Jordan, economic liberalization could first be noticed in the 1970s. However, the scope of policies was still limited. Reforms including economic liberalization then picked up speed since 1986. During the period 1986–1999 (with the exception of the gap period 1990–1991), economic liberalization was intense, while the Jordanian government concentrated on demand-side reforms. From the late 1990s onwards, policies of economic liberalization increasingly comprised supply-side reforms, while policies on the demand side became confined to trade liberalization 46

But Erdle (2010: 363) also draws attention to the significant fall in population growth rates from the 1960s onwards, which should have positively influenced socioeconomicdevelopment levels.

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and consumer-price liberalization (see section 6.1.5). The Jordanian GDP in current USD rose from 789 million in 1972 to 3.9 billion in 1980, 4.2 billion in 1990, 8.5 billion in 2000, and 29 billion in 2011. During 1972–2011, there was only one period, in which GDP in current USD declined (1987–1990). In this period, an economic crisis coincided with currency devaluation. Real GDP growth (calculated on the basis of GDP in national currency) averaged 15 percent p.a. during 1976–1979, 3 percent p.a. during 1980–1989, 4.3 percent p.a. during 1990–1999, and 6.5 percent p.a. during 2000–2009. During 1986–2011, there were two identifiable boom periods, when annual real GDP growth increased (1989–1992, 1996–2002), and two bust periods, when annual real GDP growth decreased (1986–1989, 2004–2010). Before 1986, real GDP growth was very volatile and without a clear trend. The volatility of annual real GDP growth (measured by its standard deviation) declined over time, displaying an average 5.4 percent before 1990 (1976–1982: 6.6 percent; first gap period 1982– 1985: 4.2 percent; second reform period 1986–1990: 5.5 percent; second gap period 1990–1991: 1 percent) and 2.6 percent during 1991–2011. The trend of annual real GDP growth after 1990 was not uniform, with a standard deviation of 3.7 percent during the third reform period (1992–1999), 1.7 percent during the fourth reform period (1999–2004), and 2.4 percent during the fifth reform period (2004–2011). Nevertheless, the standard deviation per decade continuously decreased from 7.6 percent during 1976–1979 to 7.4 percent during 1980–1989, 3.8 percent during 1990–1999, and 1.6 percent during 2000–2009. Population growth was very volatile, with four peaks during 1960–2011 (1967: 8.7 percent, 1983: 4.2 percent, 1992: 5.6 percent, 2008: 4.3 percent) and four lows (1962: 3.7 percent, 1977: 2.6 percent, 1987: 3.4 percent, 1999: 1.5 percent). It averaged 6.1 percent p.a. during 1960–1969, 3.5 percent p.a. during 1970–1979, 3.7 percent p.a. during 1980–1989, 3.8 percent p.a. during 1990– 1999, and 2.9 percent p.a. during 2000–2009. Thus, GDP per capita increased from USD 435 (current) in 1972 to USD 1,714 (current) in 1980, USD 2,265 (current) in 1987 (followed by a decline to USD 1,239 (current) in 1990), USD 1,774 (current) in 2000, and USD 4,266 (current) in 2011. There were two periods during 1972–2011, when GDP per capita in current USD declined significantly (1983– 1985 and 1987–1991). Real GDP per capita growth (calculated on the basis of GDP in national currency) averaged 12.2 percent p.a. during 1976–1979, 0.2 percent p.a. during 1980–1989, 1 percent p.a. during 1990–1999, and 3.5 percent p.a. during 2000–2009. Socioeconomic development, in the dimensions measured by the HDI, increased from an HDI value of 0.595 in 1980 to 0.623 in 1990 (rank 57 of 130 countries worldwide), 0.705 in 2000 (rank 92 of 174 countries worldwide), and 0.743 in 2010 (rank 82 of 169 countries worldwide). The measure of HDI rank divided by the number of countries in the respective HDI sample first increased from 0.438 in 1990 to 0.529 in 2000, and then decreased to 0.485 in 2010 (implying a worsening

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of Jordan’s position in global comparison from 1990 to 2010). In the income dimension of socioeconomic development, official unemployment first increased from a situation of almost full employment during the 1970s to 4.5 percent unemployed within the labor force in 1983, before it rose further to 8 percent in 1987 and to 15–20 percent at the end of the 1980s. In 1991, it stood at 15.4 (ILO estimate) / 17.1 percent of the total labor force, and then increased to 17.5 / 19.2 percent in 1992 and to 19.7 percent in 1993. Afterwards, it more or less continuously declined to 11.5 percent in 1999, before it rose back to 13.7 percent in 2000 and to 15.3 / 16.2 percent in 2002. It then followed a declining trend down to 12.5 percent in 2010—interrupted by a stark fall in 2004 and by a rerise in 2005. Following the same trends, official “youth unemployment” (in percent of the labor force ages 15– 24; ILO estimate) first increased from 30.8 percent in 1991 to 41.2 percent in 1993, and then followed a declining trend down to 25.3 percent in 1999. From there, it rose back to 34.7 percent in 2002, before it decreased to 28.6 percent in 2009— interrupted by a stark fall in 2004 and by a rerise in 2005. It finally increased to 30.1 percent in 2010 and to 31.6 percent in 2011. Inflation (“change of average consumer prices”) averaged 10.8 percent p.a. during 1970–1979, 7.8 percent p.a. during 1980–1989, 5.1 percent p.a. during 1990–1999, and 3.7 percent p.a. during 2000– 2009. “Personal remittances received” hovered between 15 percent and 25 percent of GDP during 1976–1986 and during 1992–2008. During the periods 1972–1975, 1987–1991, and 2009–2011, they were constantly below 15 percent of GDP. There were three periods, when “personal remittances received” followed a rising trend in relative terms (1972–1976, 1991–1997, and 1998–2001) and three periods, when they followed a declining trend in relative terms (1976–1979, 1981–1991, and 2001– 2011). In comparison to the other aggregate socioeconomic indicators, estimates of poverty differ most widely: In 1980, the “poverty headcount” apparently stood at 24 percent of the population. Measurements in the late 1980s and early 1990s differ significantly, although poverty seems to have been on the increase. During 1987– 1992, poverty apparently rose from 3 / 19 / 29 percent to 14 / 21 / 33 percent of the population. It then persisted at roughly the same level during the 1990s, while other sources report a slight decline from 14 percent of the population in 1992 to 12 percent in 1997. During the 2000s, poverty seems to have decreased from a level of 15– 30 percent of the population in 2002—when prior estimates were corrected by the Jordanian government—, until the official national “poverty headcount ratio” (percent of the population below the national poverty line) stood at 13.3 percent in 2008. Finally, it increased to 14.4 percent in 2010.47 Likewise, data on income inequality 47

In 2010, rural-urban differences in poverty were slight, with the rural “poverty headcount ratio” (percent of the rural population below the official rural poverty line) at 16.8 percent,

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is sparse and subject to debate, although the Gini index apparently decreased from 0.40 in 1980 to 0.361 in 1987, before it increased again to 0.40 / 0.434 in 1992. It then declined back to 0.36 / 0.364 in 1997, and once again rose to 0.388 / 0.39 in 2002 / 2003 (Feiler 1994: 49, 52, 54–55; El-Ghonemy 1998: 196; Schlumberger 2002: 234; Wils 2003: 149; Robins 2004: 182; Bertelsmann 2008b: 10; Harrigan and El-Said 2009: 79; Vogt 2011: 62; World Bank 2017; El-Said and Harrigan 2014: 103; IMF 2014; UNDP 2015b, c). In the following part, the pattern of economic growth and the evolution of the income side of socioeconomic development in Jordan’s different reform periods, as well as the possible contribution of economic-liberalization policies to these outcomes will be discussed. Reform period 1 (1972–1982) During the first reform period (1972–1982), the Jordanian GDP in current USD increased continuously from 789 million in 1972 to 4.7 billion in 1982. GDP per capita steadily increased from USD 435 (current) in 1972 to USD 1,900 (current) in 1982. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 13.8 percent p.a. during 1976–1982, with a standard deviation of 6.6 percent, and average real GDP per capita growth of 9.7 percent p.a. during the same period, with a standard deviation of 7.5 percent. Average real household income might have followed an increasing trend: First of all, GDP per capita in current USD rose continuously. Further to that, inflation (“change of average consumer prices”) first increased from 8 percent in 1972 to 19 percent in 1974, then hovered around an average level of 12 percent p.a. during 1975–1980, and finally fell to an average 7.6 percent p.a. during 1981–1982—yielding an average inflation rate of 11 percent p.a. during 1972–1982. Besides, “personal remittances received” rose starkly from 2.6 percent of GDP in 1972 to 24 percent in 1976, then fell to 18.4 percent in 1979, and finally increased again to 23.6 percent in 1981 and to 23.1 percent in 1982. They averaged 16.2 percent of GDP over the whole first reform period (World Bank 2017; IMF 2014). Finally, unemployment was very low during the 1970s (a situation of “almost full employment”) (Feiler 1994: 49). In 1980, the poverty headcount stood at 24 percent of the population, while income inequality, as measured by the Gini index, was calculated at 0.40 (Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). Policies of economic liberalization might have affected economic growth in Jordan’s first reform period (1972–1982) (see section 6.1.5): On the demand side, the limited liberalization of imports might have decreased economic growth in the while the urban “poverty headcount ratio” (percent of the urban population below the official urban poverty line) stood at 13.9 percent (World Bank 2017).

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short run (H49), but could have increased it in the long run (H52). The short-term and long-term effects of the liberalization of international payments on economic growth are theoretically unclear and thus not discussed here. On the supply side, the liberalization of domestic private investment might have increased economic growth both in the short run and in the long run (H47, H56). The easing of FDI restrictions might have bolstered economic growth in the long run (H57), while its short-term effect is theoretically unclear. In fact, average real GDP growth was exceptionally high during the period 1976–1982 (data was available to the author since 1976) at 13.8 percent p.a., before it plunged to an average 1.4 percent p.a. during 1983–1987 (see above). As trade liberalization was very limited, its effects on economic growth were probably dwarfed by other factors. At least, the empirical pattern of economic growth does not—at first sight—align with the theoretical predictions, although trade liberalization during the first reform period could still have slowed down the growth spurt during the 1970s and the growth decline since the mid-1980s (H49, H52). The liberalization of domestic private investment probably contributed to the high economic growth rates of the 1970s, and it might have slowed down the growth decline during the 1980s (H47, H56). The latter (long-term) effect could also have unfolded from the liberalization of FDI (H57) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development during Jordan’s first reform period (1972–1982) (see section 6.1.5): The short-term and long-term effects of both demand-side policies (import liberalization and the liberalization of international payments) are theoretically ambiguous and thus not discussed here. On the supply side, the liberalization of domestic private investment might have increased investment both in the short run and in the long run, and thus could have reduced unemployment (H61, H66). In fact, “gross capital formation” / “total investment” was constantly over 30 percent of GDP during 1976–1983 (with an average of 37 percent of GDP and a peak at 46 percent in 1981). It then declined to around 20 percent of GDP during 1985–1987. Unemployment was very low during the 1970s, before it rose to around 20 percent of the labor force by the late 1980s (see above and below). From a superficial view, the empirical patterns of investment and unemployment align with the theory on short-term effects of the liberalization of domestic private investment (H61), but they run counter to it in the long run (H66). Nevertheless, the liberalization of domestic private investment could still have slowed down the decline of investment since the mid-1980s and the concomitant increase of unemployment (H66) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the first reform period (1972–1982): Physical capital forma-

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tion, proxied by “total investment,” increased from 34 percent of GDP in 1976 to 40 percent in 1977, then decreased to 32 percent in 1979, shot up to 46 percent in 1981, and finally decreased to 39 percent in 1982 (with an average of 37 percent of GDP during 1976–1982). Population growth decreased from 4 percent in 1972 to 2.6 percent in 1977, and then increased back to 4 percent in 1982 (with an average of 3.2 percent during 1972–1982). The health dimension of human capital improved, with average “life expectancy at birth” rising from 62 years in 1972 to 67 years in 1982. At the same time, there was significant progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased from 47 percent of the respective age group in 1972 to 80 percent in 1982. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased from 3 percent of the respective age group in 1972 to 20 percent in 1982 (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Jordan’s first reform period (1972–1982): First, the years 1972–1973 still witnessed the ramifications of the 1970–1971 civil war. Second, the 1973 and 1979 oil crises massively increased ODA (mostly from the Gulf countries; net ODA rose from 9 percent of GNI in 1971 to 44 percent in 1979), remittances, and export revenues (especially from phosphates). These revenue streams should have raised economic growth and, by way of trickle-down, might also have improved the income side of socioeconomic development. Third, climatic conditions during the 1970s were poor, depressing agricultural output independently from Dutch Disease— and thus negatively affected economic growth and the incomes of people working in the agricultural sector. Fourth, the plunge of the oil price at the end of the first reform period immediately reduced ODA from oil-rich Arab countries (total ODA plummeted from 44 percent of GNI in 1979 to 28 percent in 1981, and to 19 percent in 1982), with expected negative effects on both economic growth and socioeconomic development (see section 6.2.1). Gap period 1 (1982–1985) During the first gap period (1982–1985), the Jordanian GDP in current USD increased from 4.7 billion in 1982 to 4.9 billion in 1983, and then stagnated at five billion in both 1984 and 1985. GDP per capita stagnated at USD 1,900 (current) in 1982 and USD 1,916 (current) in 1983, and then decreased to USD 1,856 (current) in 1984 and to USD 1,794 (current) in 1985. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 1.6 percent p.a. during 1982–1985, with a standard deviation of 4.2 percent, and average real GDP per capita growth of 1.2 percent p.a. during the same period, with a standard deviation

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of 2.6 percent. The trend of average real household income is unclear: On the one hand, inflation (“change of average consumer prices”) fell from 7.6 percent in 1982 to 2.8 percent in 1985—yielding an average inflation rate of 4.9 percent p.a. during 1982–1985 and thus markedly lower than during the first reform period (1972–1982: 11.2 percent p.a.). On the other hand, GDP per capita in current USD first stagnated and then decreased. Concomitantly, “personal remittances received” declined from 23.1 percent of GDP in 1982 to 22.6 percent in 1983, rose again to 24.9 percent in 1984, and finally fell to 20.5 percent in 1985. They averaged 22.8 percent of GDP during 1982–1985 and were thus still higher by nearly 7 percent of GDP compared to the first reform period (1972–1982: 16.2 percent of GDP) (World Bank 2017; IMF 2014). At the same time, the economic crisis increased unemployment, which began to rise from a level of almost full employment during the 1970s. In 1983, it reportedly stood at 4.5 percent of the labor force, before rising further to 8 percent in 1987 (Feiler 1994: 52; El-Said and Harrigan 2014: 103). Despite the economic crisis, the “poverty headcount” apparently plunged from 24 percent of the population in 1980 to 3 percent in 1987. Concomitantly, income inequality, as measured by the Gini index, seems to have fallen from 0.40 in 1980 to 0.36 in 1987. However, it remains unclear how much of the decline in poverty and income inequality actually happened during 1982–1985 (Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). Due to the difficult economic situation, policies of economic liberalization were put on hold during this period. The government in fact turned to economic deliberalization (especially in international trade) (Richter 2011: 160–161) . Several control variables influenced economic growth and the income dimension of socioeconomic development during Jordan’s first gap period (1982–1985): Physical capital formation, proxied by “total investment,” decreased continuously from 39 percent of GDP in 1982 to 21 percent in 1985. Its average during 1982–1985 was 31 percent of GDP and thus 6 percent lower than during the first reform period (1972–1982). Population growth increased from 4 percent in 1982 to its temporary peak of 4.2 percent in 1983, before it declined to 3.9 percent in 1985. Its average during 1982–1985 was 4.1 percent p.a. and thus markedly higher than during the first reform period (1972–1982: 3.2 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 67 years in 1982 to 68 years in 1985. At the same time, there was progress (albeit small) in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased from 79.8 percent of the respective age group in 1982 to 81.5 percent in 1985. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased from 19.8 percent of the respective age group in 1982 to 20.4 percent in 1985 (World Bank 2017; IMF 2014).

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Reform period 2 (1986–1990) During the second reform period (1986–1990), the Jordanian GDP in current USD first increased from 6.4 billion in 1986 to 6.8 billion in 1987, and then declined continuously to 6.3 billion in 1988, 4.3 billlion in 1989, and 4.2 billion in 1990— affected by the devaluation of the JOD against the USD, concomitant with a harsh economic crisis. Likewise, GDP per capita first increased from USD 2,220 (current) in 1986 to USD 2,265 (current) in 1987, and then decreased to USD 2,034 (current) in 1988, to USD 1,315 (current) in 1989, and to USD 1,239 (current) in 1990. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of -0.3 percent p.a. during 1986–1990, with a standard deviation of 5.5 percent, and average real GDP per capita growth of -4.5 percent p.a. during the same period, with a standard deviation of 6.8 percent. Average real household income seems to have fallen during the second reform period: Concomitant with falling GDP per capita in current USD after 1987, inflation (“change of average consumer prices”) was very volatile, turning from deflation of 0.2 percent in 1987 to inflation of 6.7 percent in 1988, before skyrocketing to 25.7 percent in 1989 and to 16.2 percent in 1990—yielding an average inflation rate of 12 percent p.a. during 1987–1990 and thus markedly higher than during the first gap period (1982–1985: 5 percent p.a.). Further to that, “personal remittances received” were in the midst of a downward trend, falling in relative terms from 18.5 percent of GDP in 1986 to 13.9 percent in 1987, before they rose back slightly to 14.9 percent in 1989, and finally declined to 12 percent in 1990. They averaged 14.7 percent of GDP during 1986–1990 and were thus significantly lower than during the first gap period (1982–1985: 22.8 percent of GDP) (World Bank 2017; IMF 2014). At the same time, unemployment rose to 15–20 percent of the labor force by the late 1980s (Feiler 1994: 54; El-Ghonemy 1998: 196; Robins 2004: 182). Poverty increased “from 28.9 percent of the total population in 1987 to 32.7 percent in 1992”—“while another [estimate; C.N.] [put] this at 18.7 percent and 21.3 percent in 1987 and 1992, respectively”. A third source estimates the “poverty headcount” at 3 percent of the population in 1987 and 14.4 percent in 1992 (showing the stark disparities of poverty estimates) (El-Ghonemy 1998: 196; Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). Income inequality, as measured by the Gini index, rose back from 0.36 in 1987 to 0.40 / 0.434 in 1992 (El-Ghonemy 1998: 196; Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). Policies of economic liberalization might have affected economic growth in Jordan’s second reform period (1986–1990) (see section 6.1.5): On the demand side, reforms started relatively late, with exchange-rate liberalization taking place during 1988–1990, tariff reductions on imports and consumer-price liberalization through subsidy cuts starting in 1989, and the liberalization of interest rates being

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implemented in 1990. Trade liberalization on the import side, the liberalization of interest rates, and exchange-rate liberalization might have negatively affected economic growth in the short run (i.e. during the early 1990s) (H49, H50, H51). In contrast, consumer-price liberalization might have had a positive short-term effect (H46). In the long run (i.e. in the second half of the 1990s), the expected effect of exchange-rate liberalization on economic growth was still negative (H59), while the effect of import liberalization, of consumer-price liberalization, and of the liberalization of interest rates was expected to be positive (H52, H53, H54). On the supply side, reforms started earlier, with producer-price liberalization in the agricultural sector and the liberalization of FDI from Arab countries being implemented in 1986, followed by the further liberalization of domestic private investment during 1988–1989. The liberalization of domestic private investment might have increased economic growth both in the short run and in the long run (H47, H56), while the short-term effect of the liberalization of FDI is theoretically ambiguous. In the long run, the expected effect of all three supply-side policies on economic growth was positive (H55, H56, H57). In fact, real GDP growth was very volatile, plunging from 1.5 percent in 1988 to an abysmal -10.7 percent in 1989. It then skyrocketed to 14.4 percent in 1992, and finally declined to an average 5.2 percent p.a. during 1993–1995 and to an average 3 percent p.a. during 1996–1999. The hypothesized negative short-term effect of three of the four demand-side policies does not align with the empirical data, although these policies could have accelerated the fall of real GDP growth after its 1992 peak. The long-term decline of real GDP growth since the mid-1990s does not align with the theoretical long-term effects of neither the implemented demand-side policies nor of the implemented supply-side policies (with the exception of exchange-rate liberalization). However, the results of a multivariate analysis could be different, so import liberalization, consumer-price liberalization, the liberalization of interest rates, the liberalization of domestic private investment, and the liberalization of FDI could still have slowed down the growth decline after 1992 (H52, H53, H54, H56, H57). At the same time, exchange-rate liberalization might have accelerated it (H59) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Jordan’s second reform period (1986–1990) (see section 6.1.5): Consumer-price liberalization (through higher inflation that could fuel poverty and income inequality), the liberalization of interest rates (through lower investment that is expected to drive up unemployment and to directly affect poverty), and exchange-rate liberalization (through higher inflation that could fuel poverty and income inequality) might have had a negative short-term effect (H62, H63, H64). In contrast, the short-term effect of the liberalization of domestic private investment was expected to be positive (through higher investment that is expected

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to reduce unemployment) (H61). The expected effect of the liberalization of domestic private investment was also positive in the long run (H66). The short-term effects of trade liberalization, of producer-price liberalization, and of the liberalization of FDI are theoretically ambiguous and thus not discussed here. The same applies to the long-term effects of trade liberalization, of consumer-price liberalization, of the liberalization of interest rates, of exchange-rate liberalization, of producer-price liberalization, and of the liberalization of FDI. In fact, inflation (“change of average consumer prices”) skyrocketed from 6.7 percent in 1988 to 25.7 percent in 1989, before it fell more or less continuously to 2.4 percent in 1995. “Total investment” increased with ups and downs from 23 percent of GDP in 1988 to 37 percent in 1993 (with a fall by 6 percent of GDP during 1990–1991), and then declined back to 22 percent during 1998–1999. Unemployment increased from the mid-1980s up to the early 1990s. In 1991, it stood at 15.4 percent of the labor force and continued to increase to 19.7 percent in 1993, before it decreased to 11.5 percent in 1999. Poverty levels increased during 1987–1992, and then stayed relatively constant during the 1990s, while income inequality first increased during 1987–1992 and then decreased during 1992–1997 (see above and below). Both consumer-price liberalization and exchange-rate liberalization might be partly responsible for the inflation spike in 1989 (with still relatively high rates in 1990 and 1991). The concomitant increase in poverty and income inequality also aligns with the theoretical predictions (H62, H64). The liberalization of interest rates in 1990 might be partly responsible for the plunge of total investment in 1991, although its subsequent increase does not align with the theoretical predictions (it should have remained depressed) (H63). Both the rise of unemployment and of poverty during the early 1990s follow the theoretical predictions on short-term effects of the liberalization of interest rates (transmitted through lower investment and through lower net household income) (H63). At the same time, the rise in unemployment during the early 1990s contradicts the theory on short-term effects of the liberalization of domestic private investment (H61), although the fall of unemployment during the second half of the 1990s once again aligns with the theoretical predictions on the policy’s long-term effects (H66) (see also: Wils 2003: 148; World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the second reform period (1986–1990): Physical capital formation, proxied by “total investment,” increased from 20 percent of GDP in 1986 to an average 23 percent during 1987–1989 and to 31 percent in 1990. Its average during 1986–1990 was 24 percent of GDP, compared to 31 percent during the first gap period (1982–1985). Population growth increased from 3.4 percent in 1987 to 4.5 percent in 1990. Its average during 1986–1990 was 3.8 percent p.a. and thus

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lower by 0.3 percent p.a. compared to the first gap period (1982–1985). The health dimension of human capital improved, with average “life expectancy at birth” rising from 69 years in 1986 to 70 years in 1990. At the same time, the education dimension of human capital deteriorated: the average “gross enrollment ratio” in secondary education for both sexes decreased from 81 percent of the respective age group in 1985 to 78 percent in 1986 and to 76 percent during 1989–1990. Concomitantly, the average “gross enrollment ratio” in tertiary education for both sexes stagnated during 1985–1990, with around 20 percent of the respective age group enrolled (World Bank 2017; IMF 2014). Apart from possible direct effects, policies of economic liberalization during the second reform period had two important indirect effects on economic growth and on the income dimension of socioeconomic development: First, the intent to implement economic reforms (which included economic liberalization) induced the IMF and the WB to negotiate the first policy-lending contracts with the Jordanian government (H60). During the period 1989–1991, loan commitments amounted to SDR 60 million from the IMF under the 1989 Standby Arrangement (amount drawn: SDR 27 million) and to USD 150 million from a 1989 WB-ITPAL. These foreign-currency inflows increased the leeway of the Jordanian government to increase spending on growth-enhancing and development-enhancing projects. Second, submission to the IMF’s terms of the 1989 Standby Arrangement induced Jordan’s main bilateral creditors to partly reschedule their debt claims (H60). Thus, Paris-Club countries rescheduled an amount of USD 1.2–1.4 billion of debt (principal and interest) falling due during the period 1989–1990 over ten years. On top of that, the Soviet Union rescheduled an amount of approximately USD 200 million. These reschedulings should as well have enabled the Jordanian state to raise economic growth and socioeconomic development through public spending (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Jordan’s second reform period (1986–1990): First, the declining oil price (major plunges in 1982 and 1986) continued to reduce ODA (decline from 10.1 percent of GNI in 1986 to 8.4 percent in 1989) and remittances (18 percent of GDP in 1986, 12 percent in 1990), although the decline was starker during the first gap period (1982–1985). Second, the government implemented a range of pure stabilization policies shortly before and after the 1989 IMF Standby Arrangement (cancelling of development projects, public-sector wage freeze, import ban on luxury goods, introduction of several fees and taxes), which should have influenced economic growth and socioeconomic development independently from policies of economic liberalization. Third, the Gulf crisis at the end of the second reform period

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was a major disruptive international event that affected the Jordanian economy in all macroeconomic and social indicators (see section 6.2.1). Gap period 2 (1990–1991) During the second gap period (1990–1991), the Jordanian GDP in current USD was practically stagnant, decreasing from 4.3 billion in 1989 to 4.2 billion in 1990, and increasing back to 4.3 billion in 1991. GDP per capita fell from USD 1,315 (current) in 1989 to USD 1,239 (current) in 1990 and to USD 1,228 (current) in 1991. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 0.7 percent p.a. during 1990–1991, with a standard deviation of 1 percent, and average real GDP per capita growth of -3.4 percent p.a. during the same period, with a standard deviation of 0.07 percent. The evolution of average real household income is unclear: On the one hand, inflation (“change of average consumer prices”) fell from 16.2 percent in 1990 to 8.2 percent in 1991—yielding an average inflation rate of 12.2 percent during 1990–1991 and thus roughly the same as during the second reform period (1986–1990). On the other hand, GDP per capita in current USD decreased continuously, and “personal remittances received” reached a temporary low, declining from 12 percent of GDP in 1990 to 10 percent in 1991. They averaged 11 percent of GDP during 1990–1991 and were thus lower in relative terms than in the second reform period (1986–1990: 15 percent of GDP). At the same time, official unemployment (ILO estimate) stood at 15.4 / 17.1 percent of the total labor force in 1991, relatively constant from approximately 15–20 percent during the late 1980s—although the massive return of Jordanian expatriate workers from the Gulf after 1990 should rather have increased unemployment.48 But differences between the age groups were stark, with official “youth unemployment” (percent of the labor force ages 15–24; ILO estimate) at a much higher 30.8 percent in 1991 (Feiler 1994: 54–55; El-Ghonemy 1998: 196; Robins 2004: 182; World Bank 2017; IMF 2014). Concomitantly, poverty increased “from 28.9 percent of the total population in 1987 to 32.7 percent in 1992” (“while another [estimate; C.N.] [put] this at 18.7 percent and 21.3 percent in 1987 and 1992, respectively”). A third source estimates the “poverty headcount” at 3 percent of the population in 1987 and 14.4 percent in 1992 (showing the extreme disparities of poverty estimates) (El-Ghonemy 1998: 196; Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). Likewise, income inequality as measured by the Gini index increased from 0.361 in 1987 to 0.40 /

48

According to El-Ghonemy (1998: 196), “unemployment increased from 14.8 percent of the total workforce in 1988 to 17.1 percent in 1991,” with the unemployment rate among poor Jordanian people as high as 27 percent.

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0.434 in 199249 (El-Ghonemy 1998: 196; Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). The Jordanian government stopped economic liberalization during the second gap period (1990–1991), as the country came into great economic difficulties, due to the decision of the regime not to join the coalition forces against Iraq (Feiler 1994: 55; Ryan 2002: 73–75; Robins 2004: 176–181; Knowles 2005: 81, 121–122; Milton-Edwards and Hinchcliffe 2009 [2001]: 49–50, 79–82). Several control variables probably influenced economic growth and the income dimension of socioeconomic development during the second gap period (1990– 1991): Physical capital formation, proxied by “total investment,” decreased from 31 percent of GDP in 1990 to 25 percent in 1991. Population growth further increased from 4.5 percent in 1990 to 5.2 percent in 1991. The health dimension of human capital improved, with average “life expectancy at birth” rising from 69.9 years in 1990 to 70.2 years in 1991. At the same time, there was progress (however small, given the period of only two years) in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased from 76 percent of the respective age group in 1990 to 79 percent in 1991. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased from 20 percent of the respective age group in 1990 to 22 percent in 1991 (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Jordan’s second gap period (1990–1991): Above all, the 1990– 1991 Gulf crisis was a disruptive event. Not only did the country lose the Iraqi market, but it also faced the closing of the Saudi Arabian market and the massive expulsion of Jordanian guest workers from the Gulf countries. As a consequence, external revenue streams dried up, with remittances down from 15 percent of GDP in 1989 to 10 percent in 1991, tourism revenue losses at USD 200–400 million, and a virtual drying up of Arab bilateral aid after 1990. In addition, the IMF terminated its 1989 Standby Arrangement in January 1991, cutting off the Jordanian state from substantial funds (IMF loans and loans by other bilateral creditors) that could have enhanced economic growth and socioeconomic development (see section 6.2.1).

49

According to El-Ghonemy (1998: 196), “the share of the poorest fifth of the population declined from 7.3 percent of total income in 1987 to 5.9 percent in 1991 / 1992, while the share of the richest fifth increased rapidly from 43.9 percent to 50.1 percent over the same period.”

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Reform period 3 (1992–1999) During the third reform period (1992–1999), the Jordanian GDP in current USD increased continuously from 5.4 billion in 1992 to 8.1 billion in 1999. GDP per capita increased from USD 1,419 (current) in 1992 to USD 1,737 (current) in 1999. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 5.2 percent p.a. during 1992–1999, with a standard deviation of 3.7 percent, and average real GDP per capita growth of 2.1 percent p.a. during the same period, with a standard deviation of 4 percent.50 Average real household income seems to have followed an increasing trend: While GDP per capita in current USD rose continuously, inflation (“change of average consumer prices”) was relatively low, oscillating between 2 percent and 4 percent p.a., with exceptional values of 6.5 percent in 1996 and 0.6 percent in 1999. The average inflation rate for the third reform period was 3.3 percent p.a. and thus markedly lower than during the second gap period (1990–1991: 12.2 percent p.a.). Besides, “personal remittances received” rose from 16 percent of GDP in 1992 to 25 percent in 1997, then fell to 20.5 percent in 1998, and rose back to 21.5 percent in 1999. They averaged 21 percent of GDP during the third reform period (1992–1999) and were thus significantly higher than during the second gap period (1990–1991: 11 percent of GDP). At the same time, official unemployment (ILO estimate) first rose from 15.4 / 17.1 percent of the total labor force in 1991 to 17.5 / 19.2 percent in 1992 and to 19.7 percent in 1993. Subsequently, it more or less continuously declined to 11.5 percent in 1999. Likewise, official “youth unemployment” (in percent of the labor force ages 15–24, ILO estimate) first increased from 35.9 percent in 1992 to 41.2 percent in 1993, before it declined to 25.3 percent in 1999 (El-Ghonemy 1998: 196; Harrigan and El-Said 2009: 79; World Bank 2017; IMF 2014; El-Said and Harrigan 2014: 103). Despite rising average income, poverty seems to have persisted, with the “absolute number of poor people” virtually “constant” during the 1990s (Schlumberger 2002: 234; Wils 2003: 149). Other sources report a decline in the “poverty headcount” from 14.4 percent of the population in 1992 to 11.7 percent in 1997 (Harrigan and ElSaid 2009: 79; El-Said and Harrigan 2014: 103). Income inequality seems to have decreased, with the Gini index falling from 0.4 in 1992 to 0.36 in 1997 (the same level as in 1987) (Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). 50

It is important to note that average annual real GDP per capita growth during the period 1992–1999 (2.1 percent) is driven by the high value for 1992 (12.2 percent). The average for the period 1993–1999 is much lower, at only 0.6 percent p.a., depressed by the high population growth rates. The same holds true for average annual real GDP growth, where the rate for the year 1992 was also exceptionally high (14.4 percent). Thus, the average for the period 1993–1999 is significantly lower (3.9 percent p.a., compared to 5.2 percent p.a. for the period 1992–1999) (World Bank 2017).

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Policies of economic liberalization might have affected economic growth in Jordan’s third reform period (1992–1999) (see section 6.1.5): On the demand side, import liberalization in the late 1990s might have decreased economic growth in the short run (i.e. during the late 1990s and early 2000s), while it might have increased it in the long run (i.e. since the mid-2000s) (H49, H52). Consumer-price liberalization through subsidy cuts in the early 1990s might have increased economic growth both in the short run and in the long run (H46, H53). The short-term and long-term effects of the liberalization of international payments are theoretically ambiguous and thus not discussed here. On the supply side, producer-price liberalization in the agricultural sector during the late 1990s might have increased economic growth in the long run (i.e. since the mid-2000s) (H55). The liberalization of domestic private investment in several sectors starting in the mid-1990s might have increased economic growth both in the short run and in the long run (H47, H56). The liberalization of FDI in 1995 and once again in 1997 could also have had a positive long-term effect on economic growth (H57), while its short-term effect is theoretically ambiguous. Finally, privatization, which picked up speed from the late 1990s onwards, was expected to have a positive effect on economic growth both in the short run and in the long run (H48, H58). In fact, real GDP growth plunged from an exceptional 14.4 percent in 1992 to 4.5 percent in 1993, then increased again to 6.2 percent in 1995, and once again declined to 2.1 percent in 1996. From there, it followed a slowly rising trend up to 5.8 percent in 2002, declined shortly to 4.2 percent in 2003, and then more than doubled to 8.6 percent in 2004. During 2004–2007, it stayed flat at over 8 percent p.a. The expected negative short-term effect of trade liberalization on the import side does not align with the empirical pattern of economic growth, although this demand-side policy might still have slowed down the rise of growth from the late 1990s onwards (H49). In contrast, the expected short-term effect of consumer-price liberalization seems to be consistent with the temporary growth hike during 1993–1995 (H46). The same holds true for the expected short-term effects of the liberalization of domestic private investment and of privatization (whose implementation occurred together with rising rates of economic growth) (H47, H48). In the long run (i.e. five to eight years after the end of the third reform period), growth rates were markedly higher than during the late 1990s and early 2000s. This accords with the theory on positive long-term effects on economic growth of all demandside and supply-side policies of economic liberalization implemented during the third reform period—with the sole exception of the liberalization of international payments (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Jordan’s third reform period (1992–1999) (see section 6.1.5): Consumer-price liberalization through subsidy cuts in the early

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1990s might have had a negative short-term effect (through higher inflation, driving poverty and income inequality) (H62). Likewise, the short-term effect of privatization on the income dimension of socioeconomic development was expected to be negative, due to a purported positive impact on unemployment and on income inequality (H65). In contrast, the liberalization of domestic private investment since the mid-1990s should have had a positive effect both in the short run and in the long run (through higher investment that could have reduced unemployment) (H61, H66). Finally, the long-term effect of privatization was expected to be positive, due to a negative effect on unemployment (H67). The short-term effects of trade liberalization, of the liberalization of international payments, of producer-price liberalization, and of the liberalization of FDI are theoretically ambiguous and thus not discussed here. The same holds true for the long-term effects of all three demand-side policies implemented during the third reform period, as well as for the long-term effects of the two supply-side policies producer-price liberalization and the liberalization of FDI. In fact, inflation (“change of average consumer prices”) was relatively constant between 2 percent and 4 percent p.a. during 1992–1998 (with an exceptional spike of 6.5 percent in 1996) (see above). Thus, the empirical data do by and large not align with the theory on positive short-term effects of consumer-price liberalization on inflation (H62). Nevertheless, inflation might still have been higher than in a counterfactual situation, where consumer-price liberalization had not been implemented. “Total investment” first increased from 33 percent of GDP in 1992 to 37 percent in 1993, before it declined to 20 percent in 2002 and to 21 percent in 2003. It then increased again to 27 percent in 2004 and to 34 percent in 2005, and finally levelled off at an average 30 percent during 2006–2008. Official unemployment (ILO estimate) declined from 20 percent in 1993 to 11.5 percent in 1999 (see above), then increased again to 16.2 percent in 2002, before it once again followed a declining trend to 13 percent during 2007–2008. Income inequality decreased during the second half of the 1990s (see above), before it increased again during the early 2000s (see below). The empirical pattern of total investment up to 2002 does not align with the theory on positive short-term effects of the liberalization of domestic private investment (H61). However, liberalization of domestic private investment could still have slowed down the fall of total investment during 1993–2002. In contrast, the rise of unemployment in the early 2000s is consistent with the theory on unemployment-increasing short-term effects of privatization (a policy that started on a larger scale in the late 1990s) (H65). The same holds true for the pattern of income inequality, which rose in the early 2000s (immediately after privatization picked up speed) and thus corresponds to the theory speculating about positive short-term effects of privatization on income inequality (H65). Likewise, the fall of official unemployment during 2003–2008 aligns with the theory of unemployment-

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decreasing long-term effects of privatization and of the liberalization of domestic private investment (H66, H67) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the third reform period (1992–1999): Physical capital formation, proxied by “total investment,” first rose from 33 percent of GDP in 1992 to 37 percent in 1993, before it continuously declined to 22 percent in 1999. Its average during 1992–1999 was 29 percent of GDP and thus higher by 5 percent than the average during the second reform period (1986–1990). Population growth decreased steadily from 5.6 percent in 1992 to 1.5 percent in 1999. Its average during 1992–1999 was 3.5 percent p.a. and thus slightly lower than during the second reform period (1986– 1990: 3.8 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 70 years in 1992 to 72 years in 1999. At the same time, the education dimension of human capital improved: average “gross enrollment ratio” in secondary education for both sexes increased from 81 percent of the respective age group in 1992 to 86 percent in 1999. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes rose from 21 percent of the respective age group in 1992 to 28 percent in 2000 (World Bank 2017; IMF 2014). Besides, the policies of economic liberalization implemented under the IMF agreements of the 1990s (1992, 1994, 1996, 1999) and their policy conditionalities had political effects with economic consequences (H60): As a quid pro quo of reform anchoring, the Paris-Club creditor countries granted five further rounds of debt rescheduling (1992, 1994, 1996, 1997, 1999), with a total amount of external debt (principal and interest) rescheduled of USD 4.1 billion. In addition, the London Club of commercial creditors rescheduled an amount of USD 800–900 million (principal and interest) of Jordan’s external debt in 1993, as a result of the government’s compliance with the 1992 IMF Standby Arrangement. Furthermore, the United States cancelled external debt of USD 700 million during the period 1994–1997— being Jordan’s sole bilateral creditor to do so. Debt reschedulings and cancellation should have increased the leeway of the Jordanian state to finance projects with the potential to raise economic growth and socioeconomic development. Furthermore, the continuous implementation of economic-liberalization policies (signaling abidance by the loan conditions) brought in further IMF and WB lending. During the period 1992–1999, the Jordanian government contracted four loan agreements with the IMF (one Standby Arrangement and three EFFs with total loan commitments of SDR 600 million; SDR 505 million actually drawn) and five loan agreements with the WB (worth USD 480 million in total). These foreign-currency inflows should

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have increased public spending and investment, with potential positive effects on economic growth and on socioeconomic development (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Jordan’s third reform period (1992–1999): First, the 1994 peace treaty with Israel significantly increased ODA, especially from the United States (“net ODA” rose from 5.9 percent of GNI in 1993 to 8.4 in 1995, although this effect quickly dissipated after 1997). Second, remittances rose to structurally higher levels during the 1990s, from an average 13 percent of GNI during 1987–1991 to an average 21 percent during 1992–1999. Third, the government continued with pure macroeconomic-stabilization policies after 1992 (e.g. the 1994 introduction of a general sales tax). Fourth, the financial crisis emanating from East Asia since 1997–1998 that affected developing countries around the globe also dampened economic fundamentals in Jordan, with probable effects on economic growth and on the income dimension of socioeconomic development (see section 6.2.1). Several other authors discuss the implications of economic-liberalization policies on economic growth and on socioeconomic development in Jordan during the third reform period (1992–1999): According to Harrigan et al. (2006: 281), GDP per capita growth “during the post-1992 reform period” “paled into insignificance compared with the late 1970s.” It was also “lower than in the recession years of the early 1980s and only registered any sign of improvement when compared [...] with the crisis and shock period of 1988–1992.” Harrigan and El Said (2010: 9–14) add that the IMF / WB reform program “did not generate any significant change in labor productivity [nor in total factor productivity; C.N.], despite the numerous structural reforms undertaken.” Thus, the growth that occurred in Jordan in the 1990s was “extensive (due to factor accumulation), rather than intensive (due to productivity gains).” (see also: Harrigan, El Said, and Wang 2006: 278–280; Harrigan and El-Said 2009: 92–95). Likewise, the effects of economic liberalization on socioeconomic development in Jordan during the 1990s are speculative. What can be said with certainty is that economic liberalization did not substantially improve the socioeconomic situation. Thus, “the absolute number of poor people” virtually stayed “constant” during the 1990s (Wils 2003: 149).51 Likewise, unemployment 51

However, numbers are fraught with uncertainty: Milton-Edwards and Hinchcliffe (2009 [2001]: 81), referring to a UNICEF survey in 1991 quoted by another author, reports an increase in poverty from 20 percent of the “population living below the official poverty line” (“family income of less than USD 130 a month”) before 1990 to 30 percent in 1991, that is after the second Gulf War. According to Knowles (2005: 79), “poverty increased from 2 percent in 1987 to 16 percent in 1992,” although the measurement and threshold remains unclear. Wils (2003: 148) cites a study by the WB in 1991, according to which “almost 20 percent of

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was estimated to have been persistently high, at 20–30 percent of the population during the 1990s and 2000s (Schlumberger 2002: 234; Carroll 2003: 95; Wils 2003: 149). Reform period 4 (1999–2004) During the fourth reform period (1999–2004), the Jordanian GDP in current USD increased continuously from 8.1 billion in 1999 to 11.4 billion in 2004. GDP per capita rose from USD 1,737 (current) in 1999 to USD 2,206 (current) in 2004. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 5.2 percent p.a. during 1999–2004, with a standard deviation of 1.7 percent, and average real GDP per capita growth of 3.3 percent p.a. during the same period, with a standard deviation of 1.4 percent. Average real household income might have further increased compared to the third reform period (1992– 1999): First of all, GDP per capita in current USD rose continuously. Further to that, inflation (“change of average consumer prices”) was exceptionally low, rising from an average 0.6 percent p.a. during 1999–2000 to an average 1.7 percent p.a. during 2001–2003, and to 3.4 percent in 2004—yielding an average inflation rate of 1.6 percent p.a. during 1999–2004, compared with 3.3 percent p.a. during the third reform period (1992–1999). Besides, “personal remittances received” increased from 21.5 percent of GDP in 1999 to their temporary peak at 22.4 percent in 2001, before they slowly declined to 20.1 percent in 2004. They averaged 21.6 percent of GDP during 1999–2004 and were thus slightly higher in relative terms than during the third reform period (1992–1999: 20.6 percent of GDP). At the same time, official unemployment (ILO estimate) increased from 11.5 percent of the total labor force in 1999 to 13.7 percent in 2000 and to 15.3 / 16.2 percent in 2002, before it declined back to 12.4 percent in 2004. Likewise, official “youth unemployment” (in percent of the labor force ages 15–24, ILO estimate) increased from 25.3 percent in 1999 to 34.7 percent in 2002, before it fell to 27.3 percent in 2004 (Harrigan and El-Said 2009: 79; World Bank 2017; El-Said and Harrigan 2014: 103; IMF 2014). There are no reliable figures on poverty, although one estimate puts it between 15 percent and 30 percent of the population in 2002 (“depending on the poverty measure used”) the Jordanian population lived below the poverty line” (less than JOD 137 annual per capita expenditure). 8.7 percent of the population lived “below the threshold of severe poverty.” He also mentions a United Nations (UN) study that still classified 23 percent of the Jordanian population as “poor” in 1995. Wils (2003: 148) attributes the growing poverty levels to a “decline in Arab financial aid in the second half of the 1980s” (which led to a lower capability of the Jordanian state for public spending and for subsidization of marginalized groups) and to “the dramatic decline of the JOD’s exchange rate during the financial crisis of 1988 / 1989.” The latter factor is a direct result of the Jordanian regime’s economic-liberalization policies.

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(Alissa 2007: 7–8; Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103).52 At the same time, income inequality seems to have increased in the early 2000s, with the Gini index at 36.0 / 36.4 in 1997, 36.0 in 2002, and 38.8 in 2002 / 2003 (scale 0–100) (Bertelsmann 2008b: 10; Harrigan and El-Said 2009: 79; El-Said and Harrigan 2014: 103). Policies of economic liberalization might have affected economic growth in Jordan’s fourth reform period (1999–2004) (see section 6.1.5): On the demand side, the liberalization of imports might have decreased economic growth in the short run (H49), while consumer-price liberalization through subsidy cuts might have increased it (H46). In the long run, both trade liberalization on the import side and consumer-price liberalization might have had a positive effect on economic growth (H52, H53). On the supply side, the liberalization of domestic private investment in several service sectors and the intensification of privatization might have raised economic growth both in the short run and in the long run (H47, H48, H56, H58). In addition, the liberalization of producer prices in the agricultural sector could have increased economic growth in the long run (H55). In fact, real GDP growth increased from 3.4 percent in 1999 to 5.8 percent in 2002, then fell to 4.2 percent in 2003, and afterwards increased to an average 8.2 percent p.a. during 2004–2007. It then plunged to 7.2 percent in 2008, 5.5 percent in 2009, and a mere 2.5 percent p.a. on average during 2010–2011. The more or less continuous rise of real GDP growth in the early 2000s does at first sight align with the theory on growth-enhancing short-term effects of consumer-price liberalization (H46), of the liberalization of domestic private investment (H47), and of privatization (H48). Concomitantly, it seems to contradict the theory on negative short-term effects of the liberalization of imports on economic growth (H49). Nevertheless, the observation of bivariate correlations does not take control variables into account. In the long run (2004– 2008), real GDP growth rates reached their highest levels during the period 1999– 2008. This pattern seems to align with the theory speculating about positive longterm effects on economic growth of all demand-side and supply-side policies of economic liberalization implemented during the fourth reform period (1999–2004) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Jordan’s fourth reform period (1999–2004) 52

The unreliability of poverty figures for Jordan during the 1990s and 2000s is underlined by a 2002 statement of the Jordanian government, quoted in Harrigan and El-Said (2009: 84): “No one knows exactly how many Jordanians are poor today, where they live, or what their demographic characteristics are.” The same source presumed that “poverty [was] on the increase in Jordan” in the early 2000s and that it might be anywhere between 15 percent and 30 percent, the same range as for unemployment.

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(see section 6.1.5): Consumer-price liberalization (through higher inflation, which could drive poverty and income inequality) and privatization (through higher unemployment and higher income inequality) might have had negative effects in the short run (H62, H65), while the liberalization of domestic private investment might have had a positive effect (through higher investment, bringing down unemployment) (H61). The short-term effects of trade liberalization and of producer-price liberalization on the income dimension of socioeconomic development are theoretically ambiguous and thus not discussed here. In the long run, the liberalization of domestic private investment (through higher investment, which might reduce unemployment) and privatization (through lower unemployment) might have had positive effects (H66, H67). At the same time, the long-term effects of consumerprice liberalization, of trade liberalization, and of producer-price liberalization are theoretically ambiguous and thus not discussed here. In fact, inflation (“change of average consumer prices”) rose from an exceptionally low 0.6 percent p.a. during 1999–2000 to an average 1.7 percent p.a. during 2001–2003 and to an average 3.4 percent during 2004–2005 (see above). It then became very volatile, rising to 6.3 percent in 2006, falling to 4.7 percent in 2007, and finally skyrocketing to 14 percent in 2008. “Total investment” hovered between 20 percent and 22 percent of GDP during 1999–2003, and then increased markedly to an average 30 percent during 2004–2008. Official unemployment (ILO estimate) first increased from 1999 to 2002, and then declined again, until it was at 12.4 percent in 2004 (see above). It then once again rose to 14.9 percent in 2005, before declining slowly to 12.7 percent in 2008 and to 12.5 percent in 2010. Income inequality rose during the period 1997– 2003, while reliable data on poverty was not available to the author (see above). The slowly rising inflation rates of the early 2000s at first sight align with the theory speculating about positive short-term effects of consumer-price liberalization on inflation. Concomitantly, income inequality was on the rise, as predicted by the same theory (H62). In contrast, the lingering of total investment during the early 2000s does from a superficial view not follow the theory on positive short-term effects of the liberalization of domestic private investment (H61). However, total investment could also have been depressed through a cut of public investment. The initial fall of unemployment in the fourth reform period aligns with the theory on positive short-term effects of privatization on unemployment (H65). The same holds true for the expected positive short-term effects of privatization on income inequality (H65). Turning to the long run, the significant rise of total investment from 2004 onwards seems to align with the theory on positive long-term effects of the liberalization of domestic private investment on total investment (H66). At the same time, the declining trend of official unemployment during 2003–2010 seems to corroborate the theoretical predictions on unemployment-reducing long-term effects of the

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liberalization of domestic private investment and of privatization (H66, H67) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the fourth reform period (1999–2004): Physical capital formation, proxied by “total investment,” hovered between 20 percent and 22 percent of GDP during 1999–2003, and finally rose to 27 percent in 2004. Its average during 1999– 2004 was 22 percent of GDP and thus markedly lower than during the third reform period (1992–1999: 29 percent). Population growth was historically low, although it increased continuously from 1.5 percent in 1999 to 2.5 percent in 2004. Its average during 1999–2004 was 1.9 percent p.a. and thus significantly lower than during the third reform period (1992–1999: 3.5 percent p.a.). The health dimension of human capital did not change, with average “life expectancy at birth” at 72 years in both 1999 and 2004. At the same time, the education dimension of human capital improved: the average “gross enrollment ratio” in secondary education for both sexes increased from 86 percent of the respective age group in 1999 to 91 percent in 2004. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes rose from 28 percent of the respective age group in 2000 to 39 percent in 2004 (World Bank 2017; IMF 2014). Besides, policies of economic liberalization might have had indirect effects on economic growth and on the income dimension of socioeconomic development in Jordan through another round of debt rescheduling—itself a result of the government’s abidance by the conditions of external lenders (which included economic liberalization) (H60). Thus, in 2002 the Paris Club rescheduled another USD 1.2 billion of external debt (principal and interest) in the aftermath of the 2002 IMF Standby Arrangement. This rescheduling increased the leeway of the Jordanian state to spend on growth-enhancing and development-enhancing projects. Furthermore, the actual implementation of economic-liberalization policies induced the IMF and the WB to offer new lending (H60). During the period 2000–2004, loan commitments amounted to SDR 85 million (SDR 11 million actually drawn) from the 2002 IMF Standby Arrangement and USD 240 million from two WB loans. These foreign-currency inflows might as well have indirectly raised economic growth and socioeconomic development (see section 6.2.1). Finally, further factors (not related to economic liberalization) probably had an effect on economic growth and on the income dimension of socioeconomic development during Jordan’s fourth reform period (1999–2004): Above all, these factors were major disruptive international events, such as the downturn of the US economy and of the Western European economies after the burst of the Dotcom Bubble in 2000–2001, the outbreak of the second Intifada in the Palestinian Territories in late

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2000, the 11 September 2001 terrorist attacks and its international ramifications (including the United States War on Terror), and the 2003 United States invasion of Iraq (which triggered the influx of thousands of Iraqi refugees, but also brought skyrocketing aid from the United States during 2003–2004 and the restart of revenue streams from the Gulf countries) (see section 6.2.1). Reform period 5 (2004–2011) During the fifth reform period (2004–2011), the Jordanian GDP in current USD increased continuously from 11.4 billion in 2004 to 28.8 billion in 2011. GDP per capita increased from USD 2,206 (current) in 2004 to USD 4,266 (current) in 2011. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 6.3 percent p.a. during 2004–2011, with a standard deviation of 2.4 percent, and average real GDP per capita growth of 2.5 percent p.a. during the same period, with a standard deviation of 2.6 percent.53 The trend of average real household income is unclear, although it might have stagnated: On the one hand, GDP per capita in current USD increased steadily. On the other hand, inflation (“change of average consumer prices”) rose from an average 3.4 percent p.a. during 2004–2005 to 6.3 percent in 2006 and 4.7 percent in 2007, before it skyrocketed to 14 percent in 2008. Afterwards, it plunged to -0.7 percent in 2009 (indicating deflation), and then levelled off at an average 4.5 percent during 2010– 2011—yielding an average inflation rate of 5 percent p.a. during 2004–2011, compared with 1.6 percent p.a. during 1999–2004. Concomitantly, “personal remittances received” declined more or less continuously from 20.1 percent of GDP in 2004 to 12.8 percent in 2011—with the exception of 2007, when they rose by 1 percent of GDP compared to 2006. They averaged 16.8 percent of GDP during the fifth reform period (2004–2011) and were thus relatively lower than during the fourth reform period (1999–2004: 21.6 percent of GDP). At the same time, official unemployment (ILO estimate) first increased from 12.4 percent of the total labor force in 2004 to 14.9 percent in 2005, before it fell to 12.7 percent in 2008, and then levelled off at around 13 percent during 2009–2011. Likewise, official “youth unemployment” (in percent of the labor force ages 15–24, ILO estimate) first increased from 27.3 percent in 2004 to 32.5 percent in 2005, before it declined to 28.6 percent in 2009, and then levelled off at an average 31 percent during 2010–2011. The “poverty headcount ratio” (percent of the population below the national poverty line) stood 53

Annual real GDP per capita growth displayed large differences during the fifth reform period, as it fell from an average 4.3 percent p.a. during 2004–2008 to an average -0.5 percent p.a. during 2009–2011, due to faltering real GDP growth (2004–2009: 7.6 percent p.a.; 2010– 2011: 2.5 percent p.a.) (World Bank 2017).

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at 13.3 percent in 2008, and then increased to 14.4 percent in 201054 (Vogt 2011: 62; World Bank 2017; IMF 2014). Data on income inequality was not available to the author. Policies of economic liberalization might have affected economic growth in Jordan’s fifth reform period (2004–2011) (see section 6.1.5): The implemented policies were the same as during the fourth reform period (1999–2004), with the exception of producer-price liberalization. On the demand side, the liberalization of imports might have decreased economic growth in the short run (H49), while consumerprice liberalization through subsidy cuts might have increased it (H46). In the long run, both trade liberalization on the import side and consumer-price liberalization might have had a positive effect on economic growth (H52, H53). On the supply side, the liberalization of domestic private investment in several service sectors and ongoing privatization might have raised economic growth both in the short run and in the long run (H47, H48, H56, H58). In fact, real GDP growth was constantly over 8 percent p.a. during 2004–2007 (average 8.2 percent p.a.), before it plunged to 7.2 percent in 2008, 5.5 percent in 2009, and an average 2.5 percent p.a. during 2010–2011. Consumer-price liberalization, the liberalization of domestic private investment, and privatization might be partly responsible for the high growth rates during 2004–2008 (H46, H47, H48). Concomitantly, the empirical data does at first sight not align with the theory on negative short-term effects of trade liberalization on economic growth (H49). Nevertheless, trade liberalization on the import side could still have depressed real GDP growth rates during the mid-2000s. From a superficial view, the long-term pattern of real GDP growth (especially its plunge after 2007) does not align with the theory on positive long-term effects of all four demand-side and supply-side policies. However, it is possible that these four policies still slowed down the growth decline after 2007 (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Jordan’s fifth reform period (2004–2011) (see section 6.1.5): Consumer-price liberalization (through higher inflation that could drive poverty and income inequality) and privatization (through higher unemployment and higher income inequality) might have had negative effects in the short run (H62, H65). In contrast, the liberalization of domestic private investment might have had a positive effect (through higher investment that could reduce unemployment) (H61). The short-term effect of trade liberalization on the income dimension of socioeconomic development is theoretically ambiguous and thus not discussed here. 54

Rural-urban differences were visible but not stark: the official urban “poverty headcount ratio” (percent of the urban population below the official urban poverty line) stood at 13.9 percent in 2010, while the official rural “poverty headcount ratio” (percent of the rural population below the official rural poverty line) stood at 16.8 percent (World Bank 2017).

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In the long run, the liberalization of domestic private investment (through higher investment that could bring down unemployment) and privatization (through lower unemployment) might have had positive effects (H66, H67), while the long-term effects of consumer-price liberalization and of trade liberalization are theoretically ambiguous and thus not discussed here. In fact, inflation (“change of average consumer prices”) first rose from 3.4 percent in 2004 to 6.3 percent in 2006, then became very volatile during 2007–2009, and finally levelled off at an average 4.5 percent p.a. during 2010–2011 (see above). “Total investment” hovered around an average level of 30 percent of GDP during 2004–2008, before it declined continuously from 30 percent in 2008 to 26 percent during 2009–2010 and to 23 percent in 2011. Official unemployment (ILO estimate) first increased from 12.4 percent of the total labor force in 2004 to 14.9 percent in 2005, and then declined asymptotically to a level of around 13 percent during 2007–2011. Poverty increased during 2008–2010, while data on income inequality was not available to the author (see above). Consumerprice liberalization during the period 2006–2008 might in fact be partly responsible for the higher inflation rates of 2006–2008, although the declining trend of inflation after 2008 does not align with the theoretical predictions (H62). Nevertheless, consumer-price liberalization could still have kept inflation in the late 2000s higher than it would have been without the implementation of this policy. Thus, the rise of poverty in the late 2000s also seems to align with this theory (H62). Likewise, the liberalization of domestic private investment in several service sectors might be partly responsible for the relatively high levels of “total investment” during the period 2004–2008 (H61), although the declining trend of “total investment” after 2008 does not align with the theoretical predictions on the long-term effects of investment liberalization (H66). However, the policy’s impact could still have kept “total investment” higher than in a hypothetical counterfactual situation without the implementation of investment liberalization. The continuous fall of unemployment after 2005 follows the theory speculating about negative short-term and long-term effects of investment liberalization on unemployment (H61, H66). In contrast, the empirical pattern of unemployment does not follow the theory on positive shortterm effects of privatization on unemployment (H65) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the fifth reform period (2004–2011): Physical capital formation, proxied by “total investment,” hovered around an average level of 30 percent of GDP during 2004–2008, before it declined continuously from 30 percent in 2008 to 26 percent during 2009–2010 and to 23 percent in 2011 (see above). Its average during 2004–2011 was 28 percent of GDP and thus 6 percent higher than during

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the fourth reform period (1999–2004)—approximately the same level as during the third reform period (1992–1999). Population growth rose from 2.5 percent in 2004 to 4.3 percent in 2008, before it declined again to 3.7 percent in 2011. Its average during 2004–2011 was 3.7 percent p.a. and thus nearly twice as high as during the fourth reform period (1999–2004: 1.9 percent p.a.)—approximately the same rate as during the third reform period (1992–1999: 3.5 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 72 years in 2004 to 74 years in 2011. At the same time, progress in the education dimension of human capital was nonuniform: the average “gross enrollment ratio” in secondary education for both sexes declined from 91 percent of the respective age group in 2004 to 87 percent in 2011. In contrast, the average “gross enrollment ratio” in tertiary education for both sexes increased from 39 percent of the respective age group in 2004 to 40 percent in 2011. It is important to note that both variables had already reached higher levels in the course of the fifth reform period, before they declined again towards its end (World Bank 2017; IMF 2014). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Jordan’s fifth reform period (2004–2011): First of all, the country was shaken by a big terrorist attack in Amman in November 2005, which might have slowed down the increase in tourism receipts. Second, the mid-2000s oil boom spilled over to Jordan, positively affecting economic growth by raising tourism revenues (which increased from USD 1.3 billion in 2003 to USD 4.4 billion in 2010) and exports to oil-rich countries (Jordanian exports increased from 44 percent of GDP during 1999–2003 to 54 percent during 2004–2008).55 At the same time, the exploding international prices of basic import commodities in the slipstream of the oil boom could have had negative effects on the income dimension of socioeconomic development. Third, the World Financial Crisis affected Jordan since the year 2008, negatively impacting on most macroeconomic and social indicators (see section 6.2.1). Within-case analysis: Morocco Economic liberalization started in Morocco during the period 1980–1982, as part of policies of macroeconomic stabilization under two IMF-EFFs and one IMF Standby Arrangement. However, it was the 1983 IMF Standby Arrangement and the ensuing WB lending that broadened and deepened the reforms. Economic liberalization was 55

Surprisingly, remittances seemed not to be positively affected by the mid-2000s oil boom, as they declined in relative terms from an average level of 22 percent of GDP during 1999–2003 to 19 percent during 2004–2008 (World Bank 2017).

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most intense on the demand side during the second and third reform period (1983– 1993), and on the supply side during the fourth and fifth reform period (1993–2011) (see section 6.1.5). The Moroccan GDP in current USD rose from 22 billion in 1980 to 30 billion in 1990, 39 billion in 2000, and 101 billion in 2011. During 1980– 2011, there were five periods in which GDP in current USD declined (1980–1981, 1982–1984, 1992–1993, 1996–1997, 1998–2000). Real GDP growth (calculated on the basis of GDP in national currency) averaged 5.3 percent p.a. during 1970– 1979, 3.9 percent p.a. during 1980–1989, 3.3 percent p.a. during 1990–1999, and 4.8 percent p.a. during 2000–2009. During 1980–2011, no sustained boom and bust periods (as e.g. in Egypt and Jordan) are identifiable, as real GDP growth was very volatile throughout these 30 years. Nevertheless, four mini-booms (1983–1986, 1989–1991, 1992–1994, 1999–2001) and two mini-busts (2003–2005, 2008–2010) can be observed, when annual real GDP growth increased or decreased for two or three years in a row. The volatility of annual real GDP growth (measured by its standard deviation) first declined from 5.1 percent during the first reform period (1980– 1982) to 2.9 percent during the second reform period (1983–1985), before it rose again to 4.6 percent during the third reform period (1986–1993) and the temporary high of 6.2 percent during the fourth reform period (1993–1999). It then plunged to its lowest value during the examination period, a mere 1.9 percent during the fifth reform period (1999–2011). The standard deviation per decade increased from 2.4 percent during 1970–1979 to 4.6 percent during 1980–1989 and to 5.6 percent during 1990–1999, before it fell markedly to 1.8 percent during 2000–2009. Population growth followed a declining trend during 1960–1972 and 1982–2003, interrupted by two periods when it temporarily rose (1973–1982 and 2003–2011). It averaged 2.7 percent p.a. during 1960–1969, 2.2 percent p.a. during 1970–1979, 2.2 percent p.a. during 1980–1989, 1.6 percent p.a. during 1990–1999, and 1 percent p.a. during 2000–2009. Thus, GDP per capita decreased from USD 1,074 (current) in 1980 to USD 658 (current) in 1985 and then rose to USD 1,199 (current) in 1990 and to USD 1,552 (current) in 1996. Afterwards, it declined back to USD 1,328 (current) in 2000, before it rose to USD 3,067 (current) in 2011. There were five periods during 1980–2011, when GDP per capita in current USD declined significantly (1980–1985, 1992–1993, 1996–1997, 1998–2000, and 2008–2010). Real GDP per capita growth (calculated on the basis of GDP in national currency) averaged 2.5 percent p.a. during 1980–1989,56 1.6 percent p.a. during 1990–1999, and 3.6 percent p.a. during 2000–2009. Socioeconomic development, in the dimensions measured by the HDI, increased from an HDI value of 0.396 in 1980 to 0.457 in 56

During 1970–1979, that is before the onset of economic liberalization, it had averaged 3 percent p.a. (World Bank 2017).

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1990 (rank 86 of 130 countries worldwide), 0.528 in 2000 (rank 124 of 174 countries worldwide), and 0.611 in 2010 (rank 114 of 169 countries worldwide). The measure of HDI rank divided by the number of countries in the respective HDI sample first increased from 0.662 in 1990 to 0.713 in 2000, and then declined again to 0.675 in 2010 (implying a worsening of Morocco’s position in global comparison from 1990 to 2010). In the income dimension of socioeconomic development, official unemployment increased from 9 percent of the labor force in 1980 to 14 percent in 1986 and to 16.3 percent in 1989—while nonofficial estimates ranged from 20 percent to 40 percent of the “active population.” Subsequently, the ILO estimated unemployment to have been 12.5 percent of the labor force in 1991. From there, official unemployment (ILO estimate) increased to its temporary peak of 16.6 percent of the labor force in 1998, before falling more or less continuously to 8.9 percent in 2011. Following similar trends until 2004, official “youth unemployment” stood at around 30 percent during the 1980s (people below 30 years of age). In 1991, the ILO estimate for “youth unemployment” (in percent of the labor force ages 15–24) was 17.7 percent. From there, the ILO estimate (“official youth unemployment”) increased to 34.9 percent in 1998, and then fell to its temporary low of 15.4 percent in 2004. Afterwards, it increased back to 18.4 percent in 2008, and once again decreased to 17.8 percent in 2011. Inflation (“change of average consumer prices”) averaged 7.6 percent p.a. during 1980–1989,57 4.5 percent p.a. during 1990–1999, and 1.9 percent p.a. during 2000–2009. “Personal remittances received” hovered between 5 percent and 7 percent of GDP during 1980–1993, before they stayed flat at an average 4.9 percent of GDP during 1994–1999. Afterwards, they increased significantly to 8.3 percent of GDP in 2001, and then oscillated between 6.8 percent and 8.5 percent of GDP during 2001–2011. There were four periods, when “personal remittances received” followed a rising trend in relative terms (1982–1987, 1999– 2001, 2002–2007, 2009–2011) and three periods, when they followed a declining trend in relative terms (1987–1989, 1992–1999, 2007–2009). Official poverty levels first decreased from 21 percent of the population in 1984 to 13 percent in 1991, before they increased back to 16 percent in 1998 (WB estimate) and possibly to 19 percent in 2000. The “poverty headcount ratio” (percent of the population below the official national poverty line) as reported by the WB then declined from 16.3 percent in 1998 to 15.3 percent in 2000, 14 percent in 2005, and 8.9 percent in 2007.58 Income 57

Before the onset of economic liberalization, inflation (“change of average consumer prices”) in Morocco had averaged 7.8 percent p.a. during 1970–1979 (World Bank 2017). 58 There were marked differences between poverty in rural and urban areas: According to Achy (2010: 3), the “rural poverty rate” increased from 18 percent in 1990 to 24.1 percent in 1999, whereas the “urban poverty rate” increased only from 7.6 percent to 9.5 percent during the same period. According to the World Bank (2017), the rural “poverty headcount ratio”

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inequality stayed roughly constant during 1985–1998, with a Gini index value of 0.393 in 1990 and 0.395 in 1998. It then increased to 0.406 in 2000, and once again stayed flat at 0.407 in 2006 (WB estimate, without information on year-to-year fluctuations) (Morrisson 1991b: 97; El-Ghonemy 1998: 189–190, 212–213; Pennell 2000: 359, 361; Denoeux 2001: 70; Achy 2010: 13; Sater 2010: 60, 99–100; Vermeren 2010: 81, 96; World Bank 2017; El-Said and Harrigan 2014: 110; IMF 2014; UNDP 2015b, d). In the following part, the pattern of economic growth and the evolution of the income side of socioeconomic development in Morocco’s different reform periods, as well as the possible contribution of economic-liberalization policies to these outcomes will be discussed. Reform period 1 (1980–1982) During the first reform period (1980–1982), the Moroccan GDP in current USD decreased from 22 billion in 1980 to 17.9 billion in 1981, and then stagnated at 18 billion in 1982. GDP per capita declined from USD 1,074 (current) in 1980 to USD 858 (current) in 1981 and to USD 833 (current) in 1982. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 3.6 percent p.a. during 1980–1982, with a standard deviation of 5.1 percent, and average real GDP per capita growth of 1.1 percent p.a. during the same period, with a standard deviation of 4.3 percent. Average real household income seems to have declined: Concomitant with a fall of GDP per capita in current USD, inflation (“change of average consumer prices”) rose from 9.4 percent in 1980 to 12.5 percent in 1981, before it fell slightly to 10.5 percent in 1982—yielding an average inflation rate of 10.8 percent p.a. during 1980–1982. Besides, “personal remittances received” rose from 4.9 percent of GDP in 1980 to 5.7 percent in 1981, and then declined back to 4.8 percent in 1982. Their average over the whole first reform period was 5.1 percent of GDP (World Bank 2017; IMF 2014). At the same time, official unemployment was around 15 percent of the labor force during the 1980s, while nonofficial estimates ranged from 20 percent to 40 percent of the “active population.” Youth unemployment (people below 30 years of age) seems to have been markedly higher, at around 30 percent (Pennell 2000: 359, 361; Sater 2010: 60, 98; Vermeren 2010: 81). Data on poverty and income inequality was not available to the author. Policies of economic liberalization, which were confined to the demand side, might have affected economic growth in Morocco’s first reform period (1980–1982) (see section 6.1.5): Consumer-price liberalization through subsidy cuts might have (percent of the rural population below the official rural poverty line) stood at 24.2 percent in 1998, 25.1 percent in 2000, and 14.4 percent in 2007. The urban “poverty headcount ratio” (percent of the urban population below the official urban poverty line) stood at 9.5 percent in 1998, 7.6 percent in 2000, and 4.8 percent in 2007.

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increased economic growth both in the short run and in the long run (H46, H53). Concomitantly, the partial liberalization of interest rates in April 1982 might have had a negative effect on economic growth in the short run (H50), but a positive effect in the long run (H54). Further to that, the first steps toward an eventual liberalization of the exchange rate might have decreased economic growth both in the short run and in the long run (H51, H59). In fact, real GDP growth was highly volatile throughout the 1980s, without clear trends. Solely during 1983–1986 and during 1989–1991 did it follow a discernible (increasing) trend for more than two years. Therefore, speculations are only justified for the short-term effects of the above-mentioned policies: Consumer-price liberalization might have been a factor behind the rise of real GDP growth during 1983–1986 (H46), while both the partial liberalization of interest rates and the first steps toward exchange-rate liberalization might have slowed down the growth rise (H50, H51) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Morocco’s first reform period (1980–1982) (see section 6.1.5): All three demand-side policies might have had a negative effect in the short run, while their long-term effects are theoretically ambiguous. Both consumer-price liberalization and the partial liberalization of the exchange rate might have driven inflation, and thus could have raised poverty and income inequality (H62, H64). The partial liberalization of interest rates (leading to their rise) might have depressed investment, and thereby might have increased unemployment. It might also have increased poverty through lower net household income (H63). In fact, inflation (“change of average consumer prices”) structurally decreased from an average 9.7 percent p.a. during 1980–1986 to an average 2.7 percent p.a. during 1987–1989. Within the period 1980–1986, it was very volatile without a clear trend. “Total investment” oscillated between 24 percent and 32 percent of GDP during 1980–1990, while its trend was downward (1980–1985: 29 percent of GDP; 1986– 1990: 24 percent). Unemployment seems to have been relatively sticky around 15 / 20–30 percent of the labor force throughout the 1980s, without reliable data on its precise pattern (see above). Official poverty decreased markedly during the second half of the 1980s (see below), while its empirical pattern before 1984 is unknown to the author. Besides, there was no data available on income inequality during the 1980s (see above and below). After all, the empirical pattern of inflation does not align with the theory on inflation-increasing short-term effects of consumer-price liberalization and of exchange-rate liberalization (H62, H64). Nevertheless, these two policies might have kept inflation higher on average during the first half of the 1980s than in a counterfactual situation, in which these policies had not been implemented. Besides, the partial liberalization of interest rates in 1982 might have been one factor behind the structural decrease of “total investment,” although its

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short-term empirical pattern is not as clear as its long-term downward trend (H63). Poverty figures are only available for the long run (if viewed from 1980–1982), so a judgement is not possible. That is also the case for income inequality, due to a complete lack of data (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the first reform period (1980–1982): Physical capital formation, proxied by “total investment,” increased from 27.2 percent of GDP in 1980 to 29.3 percent in 1981 and to 31.7 percent in 1982—yielding an average of 29.4 percent of GDP during 1980–1982. Population growth was nearly constant at 2.4 percent p.a. during 1980–1982. The health dimension of human capital improved, with average “life expectancy at birth” rising from 58 years in 1980 to 59 years in 1982. At the same time, there was progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes rose from 21 percent of the respective age group in 1980 to 25 percent in 1982. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased from 5.5 percent of the respective age group in 1981 to 5.9 percent in 1982 (World Bank 2017; IMF 2014). Apart from that, the intent of the Moroccan government to implement economic reforms including economic liberalization (as well as the actual implementation during the first reform period (1980–1982)) might have had indirect effects on economic growth and on the income dimension of socioeconomic development through renewed IMF lending (H60). Under the two IMF-EFFs during 1980–1981, the 1982 IMF Standby Arrangement, and the 1982 CFF, Morocco received loan commitments worth SDR 2.1 billion.59 The actual disbursement of several loan tranches provided the Moroccan government with additional resources that could have been spent on growth-increasing and development-enhancing projects (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Morocco’s first reform period (1980–1982): First, the government implemented several contractionary and expansive policies. On the one hand, it pursued pure macroeconomic stabilization policies, such as the public-sector wage freeze and the tax increases of 1982. On the other hand, it conducted expansive policies, such as the 3-percent wage increase for public-sector employees and the 59

Additional funds from the WB did not materialize, as negotiations between the WB and the Moroccan government over a USD 500 million SAL failed in 1981 (see section 6.2.1). Actual drawings under the 1980–1981 EFFs were very small, amounting to only SDR 284 million from total loan commitments of SDR 1.6 billion (Harrigan and El-Said 2009: 197).

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partial cancellation of subsidy cuts in the aftermath of the 1981 Casablanca riots, as well as the 30-percent increase of public investment in 1982. Second, the 1979 oil crisis had pushed up the oil price (which remained high until 1982), raising the price of energy imports and that of other basic import commodities. Third, the effects of the two 1970s oil crises had plunged the major industrialized countries into recession, depressing demand for Morocco’s export products. Fourth, interest rates in the United States were high—after their skyrocketing rise during the period 1977–1981—, driving capital outflows from Morocco and further raising import prices for Moroccan consumers due to the appreciation of the USD. Fifth, foreign aid from Gulf countries was exceptionally high during 1980–1981, especially after the Casablanca riots. Sixth, the costs of war and infrastructure building in the Sahara were particularly high during the period 1976–1985, binding public means that might have been spent more conducively for economic growth and socioeconomic development. Seventh, Morocco experienced one of the harshest drought periods (1980–1984) in its recent history, which slashed agricultural output, reduced incomes from agriculture, and starkly increased agricultural imports (see section 6.2.1). Reform period 2 (1983–1985) During the second reform period (1983–1985), the Moroccan GDP in current USD continued to fall, from 18 billion in 1982 to 16.3 billion in 1983 and to 14.9 billion in 1984. It then stagnated at 15 billion in 1985. GDP per capita declined from USD 833 (current) in 1982 to USD 747 (current) in 1983, USD 666 (current) in 1984, and USD 658 (current) in 1985. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 3.4 percent p.a. during 1983–1985, with a standard deviation of 2.9 percent, and average real GDP per capita growth of 2.2 percent p.a. during the same period, with a standard deviation of 2.3 percent. The evolution of average real household income is unclear: While GDP per capita in current USD declined further, inflation (“change of average consumer prices”) decreased. Inflation fell from 10.5 percent in 1982 to 6.2 percent in 1983, and then doubled to 12.5 percent in 1984, before it finally declined back to 7.7 percent in 1985—yielding an average inflation rate of 8.8 percent p.a. during 1983–1985 and thus lower by 2 percent p.a. compared to the first reform period (1980–1982). Concomitantly, “personal remittances received” continuously rose from 4.8 percent of GDP in 1982 to 6.5 percent in 1985. They averaged 6 percent of GDP during 1983–1985, higher by roughly 1 percent of GDP compared to the first reform period (1980–1982: 5.1 percent of GDP) (World Bank 2017; IMF 2014). At the same time, official unemployment stood around 15 percent of the labor force during the 1980s, while nonofficial estimates ranged from 20 percent to 40 percent of

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the “active population.” Youth unemployment (people below 30 years of age) seems to have been markedly higher, at around 30 percent (Pennell 2000: 359, 361; Sater 2010: 60, 98; Vermeren 2010: 81). According to El-Ghonemy (1998: 188, 212), unemployment increased from 9 percent of the labor force in 1980 to 14 percent in 1986. Data on poverty and income inequality was not available to the author. Policies of economic liberalization might have affected economic growth in Morocco’s second reform period (1983–1985) (see section 6.1.5): On the demand side, the liberalization of imports, the partial liberalization of interest rates in 1985, and the further liberalization of the exchange rate (leading to a devaluation of the MAD against major currencies) might have decreased economic growth in the short run (H49, H50, H51). In contrast, consumer-price liberalization through subsidy cuts (H46) and trade liberalization on the export side might have increased it. In the long run, exchange-rate liberalization might still have had a negative effect on economic growth (H59), while trade liberalization on both the import side and the export side, consumer-price liberalization, and the liberalization of interest rates might have had a positive effect (H52, H53, H54). The liberalization of international payments has a theoretically ambiguous effect on economic growth in the short run and in the long run, and is thus not discussed here. On the supply side, the liberalization of domestic private investment might have increased economic growth in the short run (H47), while the short-term impact of the liberalization of FDI on economic growth is theoretically ambiguous and thus not discussed here. In the long run, both the liberalization of domestic private investment and the liberalization of FDI might have had a positive effect on economic growth (H56, H57). In fact, real GDP growth first rose continuously from -0.6 percent in 1983 to 8.3 percent in 1986. Afterwards, it became very volatile again, without a discernible trend (except during 1989–1991, where it rose steadily from 2.4 percent in 1989 to 7.2 percent in 1991). Consumerprice liberalization, trade liberalization on the export side, and the liberalization of domestic private investment might have been partly responsible for the temporary growth hike during 1983–1986 (H46, H47). At the same time, trade liberalization on the import side, the partial liberalization of interest rates, and exchange-rate liberalization might have dampened the growth rise (H49, H50, H51). No justified hypothesizing on the basis of qualitative bivariate correlations can be undertaken for the long run, as real GDP growth did not show a clear trend after 1986 (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Morocco’s second reform period (1983– 1985) (see section 6.1.5): Consumer-price liberalization through subsidy cuts (by raising inflation, and thereby increasing poverty and income inequality), the partial liberalization of interest rates (by reducing investment, which is expected to raise

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unemployment, and by raising poverty directly), and exchange-rate liberalization (by raising inflation, and thereby increasing poverty and income inequality) might have had negative effects in the short run (H62, H63, H64). Concomitantly, the liberalization of domestic private investment might have had positive short-term effects (by raising investment, and threeby reducing unemployment) (H61). In the long run, the expected effect of the liberalization of domestic private investment was still positive (by raising investment, and thereby reducing unemployment) (H66), while the effects of consumer-price liberalization, of the liberalization of interest rates, and of exchange-rate liberalization are theoretically ambiguous. Besides, the short-term and the long-term effects of trade liberalization, of the liberalization of international payments, and of the liberalization of FDI on the income dimension of socioeconomic development are theoretically ambiguous and thus not discussed here. In fact, inflation (“change of average consumer prices”) structurally decreased during the period 1983–1985 compared to the period 1980–1982 (see above). In the second half of the 1980s, it fell markedly from 8.7 percent in 1986 to 2.4 percent in 1988, and then began a new rise up to 9 percent in 1991. “Total investment” rose from 27 percent of GDP in 1983 to 30 percent in 1985, and then decreased to 24 percent during 1987–1988. It then increased back to 28 percent of GDP in 1990, before decreasing continuously to 22 percent in 1996. Official unemployment fell slightly from 15 percent of the labor force during the mid-late 1980s to around 13 percent during 1991–1993 (see above and below). Official poverty levels decreased from 21 percent of the population in 1984 to 13 percent in 1991, while data on income inequality was not available to the author (see above and below). The empirical pattern of inflation during the second reform period—and further up to 1988—does, at first sight, not align with the theory on short-term inflation-increasing effects of consumer-price liberalization and of exchange-rate liberalization (H62, H64). A clear short-term trend of “total investment” is not discernible. Thus, its empirical pattern does not—from a superficial view—align with neither the theory on short-term investment-increasing effects of the liberalization of domestic private investment nor with the theory of short-term investment-decreasing effects of the liberalization of interest rates (H61, H63). However, there might still be a correlation of both policies with “total investment,” one that would only become visible in a multivariate setup. Nevertheless, by zooming in on year-to-year fluctuations, the rise of “total investment” during 1983–1985 (1983: 27 percent of GDP; 1985: 30 percent) could be interpreted as a partial result of the liberalization of domestic private investment since 1983 (H61). At the same time, the fall of “total investment” during 1985–1988 (1985: 30 percent of GDP; 1988: 24 percent) might have been partly due to shortterm investment-decreasing effects of the liberalization of interest rates on deposits above 12 months (H63)—this reform was implemented in 1985, and it led to a rise

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of rates. The decrease of official unemployment from the mid-1980s up to the early 1990s seems to have occurred despite a falling trend of “total investment” over the whole 1980s. On the basis of a bivariate and visual analysis, this seems not to align with neither the theory on short-term and long-term unemployment-decreasing effects of the liberalization of domestic private investment (H61, H66), nor with the theory on short-term unemployment-increasing effects of the liberalization of interest rates (H63). Likewise, the decline of official poverty rates during 1984–1991 does not at first sight align with the theory on poverty-increasing short-term effects of the liberalization of interest rates (through lower household net income of indebted households) (H63) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the second reform period (1983–1985): Physical capital formation, proxied by “total investment,” increased from 26.9 percent of GDP in 1983 to 30.4 percent in 1985—yielding an average of 28.6 percent of GDP during 1983– 1985. Population growth decreased from 2.4 percent in 1983 to 2.2 percent in 1985. The health dimension of human capital improved, with average “life expectancy at birth” rising from 60 years in 1983 to 61 years in 1985. At the same time, there was progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes rose from 27 percent of the respective age group in 1983 to 30 percent in 1985. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased slightly from 5.2 percent of the respective age group in 1983 to 5.9 percent in 1984 (World Bank 2017; IMF 2014). Apart from possible direct effects on economic growth and on the income dimension of socioeconomic development, policies of economic liberalization during the second reform period (1983–1985) had indirect political effects, as their implementation under IMF and WB guidance ensured further debt rescheduling by Morocco’s foreign creditors (H60). During the second reform period, five rounds of debt rescheduling took place: two by the Paris Club (1983, 1985; total rescheduled amount: USD 1.5 billion); two by commercial creditors / London Club (1983, 1985; total rescheduled amount: USD 2.2 billion); and one by Saudi Arabia (1984; rescheduled amount: USD 1.2 billion). These reschedulings created leeway for the Moroccan state to spend on projects with the potential to foster economic growth and socioeconomic development. Apart from debt rescheduling, the Moroccan government’s abidance by loan conditionalities induced the IMF and the WB to offer new lending (H60). During the second reform period, total loan commitments amounted to SDR 610 million from the IMF (two Standby Arrangements and one CFF; actual drawings under the Standby Arrangements: SDR 310 million) and USD 450 million from three WB loans. The disbursement of these loan tranches and their use

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by the Moroccan state might also have driven economic growth and socioeconomic development (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Morocco’s second reform period (1983–1985): First, the Moroccan government implemented extensive macroeconomic-stabilization policies, most notably the slashing of public investment (by 40 percent during 1982–1983 and by another 12–25 percent during 1983–1984), in addition to spending cuts in social expenditures (1983 partial hiring and wage freeze in the public sector, reduction of per capita social expenditures, of education expenditures, of health expenditures, and of social-security expenditures by 15 percent on average during 1982–1985) and tax raises (1983 further increase of the manufacturer’s sales tax). Second, it also conducted expansive policies, such as the high spending on war and infrastructure in the Sahara, the increase of subsidies during 1984–1985 (after the 1984 riots), and the 1984 abolition of agricultural taxes for the rest of the century. Third, international revenue streams with a rent component reached structurally different levels compared to the first reform period, such as remittances (which rose by 1 percent of GDP) and ODA (which were lower by 3 percent of GDP during 1983–1984). Fourth, interest rates in the United States slowly declined, but remained at a high level, fostering capital outflows and keeping import prices high due to a strong USD. Fifth, the significant decline of the oil price in 1982 brought down import values, not only for petroleum products but also for other basic commodities. Sixth, the first two years of the second reform period were still affected by the 1980–1984 drought, which starkly reduced domestic agricultural output (see section 6.2.1). Several other authors discuss the implications of policies of economic liberalization on economic growth and on socioeconomic development during the mid-late 1980s in Morocco: According to Morrisson (1991b: 43), the structural-adjustment program of the mid-1980s (especially the devaluation of the MAD and trade liberalization) fostered economic growth through a “stark rise in [manufactured; C.N.] exports” of downstream phosphate products and of consumer goods (they nearly doubled in MAD terms between 1982 and 1985) (see also: Horton 1990: 77–79; Harrigan and El Said 2010: 16). A point of contention is whether economic liberalization enhanced intensive growth (i.e. growth due to productivity gains): For the period 1984–1989, Haddad (1993) analyze firm-level panel data from an “industrial survey” conducted by the Moroccan Ministry of Commerce and Industry. They apply three different econometric models, using cross-section linear regression as their estimation technique (made imperative due to the nonvariance of dependentvariable estimates derived from a first-stage regression). They come to the conclusion that “import liberalization” and “export promotion” (proxied by sectoral

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“import penetration” and by “export share in total sales”) were significantly and positively correlated with total factor productivity (measured in absolute terms and in intrasectoral “dispersion”) in Moroccan manufacturing firms during the examination period. The result also held, when the sample was subdivided into firms in “protected” and “unprotected” sectors (with the median of “the average tariff level within a two-digit sector” as the dividing threshold). Thus, for this particular part of the Moroccan economy, economic liberalization might have driven growth in an intensive manner (although causality remains unclear). Reform period 3 (1986–1993) During the third reform period (1986–1993), the Moroccan GDP in current USD continuously rose from 19.9 billion in 1986 to 33.7 billion in 1992, before it fell to 31.7 billion in 1993. Likewise, GDP per capita steadily increased from USD 836 (current) in 1986 to USD 1,292 (current) in 1992, and then fell to USD 1,192 (current) in 1993. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 3.4 percent p.a. during 1986–1993, with a standard deviation of 4.6 percent, and average real GDP per capita growth of 2 percent p.a. during the same period, with a standard deviation of 4.6 percent. Average real household income might have increased: First of all, GDP per capita in current USD rose for almost the whole period 1986–1993. Concomitantly, inflation (“change of average consumer prices”) first declined from 8.7 percent in 1986 to 2.4 percent in 1988, and then rose back to 9 percent in 1991. Afterwards, it fell to an average 5.5 percent p.a. during 1992–1993—yielding an average inflation rate of 5.4 percent p.a. during 1986–1993 and thus lower by 3.4 percent p.a. compared to the second reform period (1983–1985). Besides, “personal remittances received” fell from an average 7.3 percent of GDP during 1986–1987 to an average 5.1 percent during 1988–1989, and finally rose back to an average 6.4 percent during 1990–1993. They averaged 6.3 percent of GDP during the third reform period (1986–1993), slightly higher in relative terms than during the second reform period (1983–1985: 6 percent of GDP) (World Bank 2017; IMF 2014). At the same time, official unemployment was around 15 percent of the labor force during the 1980s, while nonofficial estimates ranged from 20 percent to 40 percent of the “active population.” Youth unemployment (people below 30 years of age) seems to have been markedly higher, at around 30 percent (Pennell 2000: 359, 361; Sater 2010: 60, 98; Vermeren 2010: 81; El-Said and Harrigan 2014: 110). According to El-Ghonemy (1998, 188), unemployment increased from 14 percent of the labor force in 1986 to 16.3 percent in 1989. Within the young cohorts, those with higher education were affected the most: according to Sater (2010: 99), university “graduate unemployment” (“including those with doctoral degrees”) “increased from 6.5 percent in 1984

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to 26.2 percent in 1995,” while “unemployment among high school graduates doubled from 14.6 percent in 1984 to 31.2 percent in 1993.” In 1991, official unemployment (ILO estimate) stood at 12.5 percent of the total labor force and increased to 13.5 percent by 1993. Being structurally higher and more volatile, “youth unemployment” (percent of the labor force ages 15–24; ILO estimate) stood at 17.7 percent in 1991 and increased to 21.8 percent by 1993 (World Bank 2017). As for poverty, the official share of the population living under the official poverty line decreased from 21 percent in 1984 to 13 percent in 1991 (Morrisson 1991b: 97; Sater 2010: 99–100; El-Said and Harrigan 2014: 110). According to El-Ghonemy (1998: 189–190, 213), “absolute poverty at the national level” declined from 15.9 percent of the population in 1985 to 7.1 percent in 1990 (with a USD 40 per month threshold at 1985 purchasing-power parity (PPP)) or from 27 percent to 15 percent during the same period (if a USD 50 per month threshold at 1985 PPP is applied).60 Finally, income inequality stayed roughly constant during 1985–1991, with the total-income share of the lowest 20 percent in the income distribution falling slightly from 6.9 percent in 1985 to 6.6 percent in 1990–1991, while the share of the highest 20 percent in the income distribution increased from 46.1 percent in 1985 to 46.3 percent in 1990– 1991 (El-Ghonemy 1998: 213). Policies of economic liberalization might have affected economic growth in Morocco’s third reform period (1986–1993) (see section 6.1.5): On the demand side, the liberalization of imports (1986–1993) and the liberalization of interest rates (1989–1992) might have decreased economic growth in the short run (H49, H50). In contrast, consumer-price liberalization through subsidy cuts (1986–1988, 1991–1993) might have increased it (H46). In the long run, trade liberalization on the import side, consumer-price liberalization, and the liberalization of interest rates might have had a positive effect on economic growth (H52, H53, H54). The liberalization of international payments (1988–1989, 1992–1993) has a theoretically ambiguous effect on economic growth both in the short run and in the long run, and is thus not discussed here. On the supply side, the long-term effects of producer-price liberalization in the agricultural sector (1987–1988) and of the liberalization of FDI (1988–1989, 1992–1993) on economic growth were expected to be positive (H55, H57). The short-term effect of the liberalization of FDI is theoretically ambiguous and thus not discussed here. Privatization, as another supply-side policy, was still 60

However, El-Ghonemy (1998: 189) points to the arbitrariness of poverty figures, which depend on the poverty threshold and on the sample being used. An example, where figures vary widely, is poverty in rural areas of Morocco. This type of poverty in 1985 would have been 32 percent of the rural population, if the threshold had been “the average annual expenditure” of the poorest 20 percent of the Moroccan population. Instead, official figures put it at 17 percent of the rural population, measured against the threshold of the poorest 10 percent nationwide.

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in its preparatory phase (1988 draft law, Privatization Law 39 of 1989) and not yet implemented—with the exception of some spontaneous privatizations by administrative decree. Concomitantly, the liberalization of domestic private investment was confined to minor actions in the banking sector. It is thus obsolete to discuss the effects of these two policies. In fact, real GDP growth was exceptionally volatile during the period 1986–1998 (maximum value: 12.4 percent in 1996, minimum value: -5.4 percent in 1995), with upward or downward movements for not more than two years in a row (such as the upward movements of 1989–1991 and of 1992–1994). Thus, the task of identifying and interpreting qualitative bivariate correlations is nearly impossible (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Morocco’s third reform period (1986–1993) (see section 6.1.5): Consumer-price liberalization (through raising inflation, and thereby increasing poverty and income inequality) and the liberalization of interest rates (through reducing investment, and thereby raising unemployment, as well as through reducing household net income and thus fuelling poverty) might have had a negative short-term effect (H62, H63). Their expected long-term effects are theoretically ambiguous and thus not discussed here. The same applies to the expected short-term and long-term effects of trade liberalization, of the liberalization of international payments, and of producer-price liberalization in the agricultural sector. In fact, inflation (“change of average consumer prices”) first declined significantly from 1986 to 1988, before rising back to its 1986 value by 1991. It then once again declined to a level between the 1986 value and the 1988 value (see above). “Total investment” first fell from 26 percent of GDP in 1986 to 24 percent during 1987–1988, before it increased back to 28 percent in 1990, and finally declined to 25 percent in 1993 and to 22 percent in 1996. Official unemployment seems first to have slightly increased from around 14–15 percent of the labor force during the mid-1980s to 16 percent by 1989. It then decreased again to 12.5 percent in 1991, increased by 1 percent during 1991–1993, and finally rose further to 17 percent in 1998 (see above and below). Official poverty decreased from 21 percent of the population in 1984 to 13 percent in 1991, before it increased again to around 16 percent in 1998 (see above and below). Income inequality stayed roughly constant during 1985–1991 (see above). According with theory on first sight, consumer-price liberalization through subsidy cuts implemented during 1986–1988 might have been one factor behind the temporary rise of inflation during the period 1988–1991 (1988: 2.4 percent, 1991: 9 percent) (H62). During the second implementation phase (1991– 1993), consumer-price liberalization does not occur together with a significant rise in inflation—inflation actually decreased markedly during 1992–1997, with an outlying value in 1995—contradicting theory from a superficial view (H62). Likewise,

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the rise of inflation during 1988–1991 does not correlate positively with poverty, which actually decreased during this period—contradicting the part of the theory that predicts poverty-increasing effects of a rise in inflation (H62). The same holds true for income inequality, which—contrary to the theory on short-term inequalityincreasing effects of inflation (H62)—does not increase during 1985–1991. The liberalization of interest rates during 1989–1992 might effectively have depressed “total investment,” which continuously fell during 1990–1996 (H63). From a superficial view, the increase of official unemployment during 1991–1998 also seems to align with theory—which predicts a rise of unemployment after a fall of investment (H63). This also applies to official poverty levels, which rose as well during the 1990s. The liberalization of interest rates (by reducing net income of indebted households) might have been one factor behind this increase in poverty (H63) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the third reform period (1986–1993): Physical capital formation, proxied by “total investment,” first fell from 26 percent of GDP in 1986 to 24 percent during 1987–1988, before it increased back to 28 percent in 1990, and finally declined to 25 percent in 1993 (see above). Its average during the period 1986–1993 was 25.5 percent of GDP and thus lower by 3 percent of GDP compared to the second reform period 1983–1985. Population growth decreased continuously from 2.1 percent in 1986 to 1.7 percent in 1993—yielding an average of 1.9 percent p.a. during 1986–1993 and thus lower than during the second reform period (1983– 1985: 2.3 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 62 years in 1986 to 66 years in 1993. At the same time, there was progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes rose from 33 percent of the respective age group in 1986 to 37 percent in 1993. Likewise, the average “gross enrollment ratio” in tertiary education for both sexes increased slightly from 8 percent of the respective age group in 1986 to 11 percent in 1993 (World Bank 2017; IMF 2014). Apart from possible direct effects on economic growth and on the income dimension of socioeconomic development, policies of economic liberalization during the third reform period (1986–1993) had indirect political effects with economic consequences: First, abidance by the loan conditions induced the IMF and the WB to contract new lending (H60). During the third reform period, loan commitments amounted to SDR 632 million from the IMF (four Standby Arrangements; SDR 506 million actually drawn) and to USD 1.3 billion from six WB loans. These loans might have been spent on growth-generating and development-enhancing projects.

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Second, the Moroccan government’s willingness to follow the loan conditions of the Washington institutions induced its bilateral lenders to agree to further rounds of debt rescheduling (H60): thus, during the period 1987–1992, four further rounds by the Paris Club (1987, three rounds during 1988–1992) brought reschedulings of USD 5.4 billion of interest and principal payments, while London-Club creditors rescheduled USD 5.6 billion of debt in two further rounds (1987, 1990). On top of these reschedulings, Saudi Arabia cancelled USD 2.7 billion of bilateral debt in 1990, as a quid pro quo for Morocco’s support of the Desert-Storm coalition during the 1991 Gulf War. Debt reschedulings and debt cancellation created leeway for the Moroccan state to raise public spending and investment, with potential effects on economic growth and socioeconomic development (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Morocco’s third reform period (1986–1993): First, the Moroccan government conducted several pure macroeconomic-stabilization policies (1986 introduction of a VAT and a petroleum levy, 1989 introduction of a global personalincome tax, further reduction of public investment during the late 1980s and the first half of the 1990s). Second, international revenues with a rent component reached structurally different levels: Remittances, which had risen starkly in the second reform period, declined by an average 1 percent of GDP after 1987. ODA deviated from its declining trend after 1989, and rose to levels higher than before by around 2 percent of GNI. Likewise, tourism receipts reached structurally higher levels since the mid-1980s, and kept increasing throughout the first half of the 1990s. Third, real interest rates in Morocco were higher in the third reform period (4 percent p.a. on average) than in the second reform period (0 percent p.a. on average), with potential consequences for investment (and thus for economic growth) and socioeconomic development (through the credit market). Fourth, the oil price plunged to significantly lower levels in 1986, reducing energy costs and dragging down the price of other basic commodities. A temporary upsurge in 1990–1991 due to the Gulf crisis did not fundamentally alter its course, as it returned to low levels thereafter. The oil-price decline also had important political effects, as it slowed down the Sahara conflict, reducing military and security spending of the Moroccan government. Fifth, rainfall in Morocco was much higher during the second half of the 1980s compared to the first half. In the early 1990s, the weather once again became more unstable: while in 1991 Moroccan producers brought in a record harvest, the period 1992–1993 was marked by renewed drought. Sixth, the Gulf crisis of 1990–1991 was a major international event with ramifications in Morocco, although its effects were more confined than in countries geographically closer to Iraq (such as Jordan) (see section 6.2.1).

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Several other authors discuss the implications of economic-liberalization policies on economic growth and on the income dimension of socioeconomic development from the mid-1980s up to the early 1990s in Morocco. Three of them analyze the potential effects of policies of economic liberalization on economic growth. They point out that, during the mid-late 1980s, these potential effects were blurred by the dampening influence of macroeconomic stabilization and by the stimulating influence of (mostly) good weather (Sutton 1987: 11–12; Morrisson 1991b: 42; Harrigan and El Said 2010: 17).61 A similar picture emerges if one tries to track the independent effects of economic liberalization on variables of socioeconomic development, although the number of existing studies is considerably larger. Morrisson (1991b) undertakes the most comprehensive analysis, although only on a descriptive basis. He tries to carve out the socioeconomic consequences of IMF and WB-guided stabilization and liberalization policies during the period 1982–1988, by looking at several variables—such as employment, household income, poverty, and level of education.62 Regarding employment and unemployment, Morrisson (1991b: 49–52) presents descriptive statistics for the different sectors, which he classifies by type of output (agricultural, nonagricultural), formality (formal, informal), and form of ownership (public, private). He comes to the conclusion that urban unemployment increased somewhat during the examination period, while rural unemployment probably decreased. However, the relation to policies of economic liberalization remains unclear, as a range of influencing factors (weather, intersectoral terms of exchange, growth of the working-age population, rural-urban migration) and various interdependencies between the variables blur the picture. The only link that appears to be beyond dispute is the negative employment effect of pure stabilization policies (especially the curbing of public investment, which increased unemployment by reducing activity in the building and public-works sector). The only other study known to the author, which tries to trace the actual employment effects of economic reforms in Morocco during the 1980s, is the one by Currie and Harrison (1997). Reverting to data from the Moroccan Census of Manufacturing, Currie and Harrison (1997) analyze a panel of 4,000–5,200 manufacturing firms during the period 1984–1990 (a cumulative total of about 24,000 observations actually used in the analysis). They employ mathematical modelling and panel regression to explain the dynamics of employment at the industry and firm level through several 61

Apart from “good weather,” Harrigan and El Said (2010: 17) identify four more factors behind “Morocco’s boom in the latter half of the 1980s:” “high aid inflows;” “extensive debt rescheduling;” “low oil import prices;” and “ a decline in the value of the dollar.” 62 The results from the OECD study (in French) by Morrisson (1991b) are reproduced in an English article in World Development (Morrisson 1991a).

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independent variables—which are assumed to capture the effects of trade liberalization (directly, but also indirectly through market power and through the productivity of domestic firms). In addition, they insert control variables into their model, such as international prices, average sectoral wages, inputs to production other than labor, and “plant specific fixed effects.” Their results indicate that “for the average firm [on a disaggregated “firm level” as well as on an aggregated “industry level;” C.N.], trade policy measured using tariffs or quotas [had] no effect on employment.” However, significant correlations appear, if “firm characteristics” (“parastatals,” “private” firms in sectors most affected by trade liberalization, and the degree of export orientation) are taken into account: for “parastatal” firms, “decreases in tariffs were associated with significant increases in employment.” In contrast, for “firms in the most highly affected sectors,” “tariff reductions” were significantly correlated with decreases in employment. Besides, tariff reductions were associated with higher employment reduction in private sector firms “with larger mean export shares” than in firms “with small mean export shares” (25 percent “of sales” threshold) (Currie and Harrison 1997: 59–60) . Applying a GMM, Currie and Harrison (1997: 61–66) come to the conclusion that the slow adjustment of employment by the majority of sample firms was not due to “imperfections in the labor market” (such as “minimum wages” or “hiring and firing laws”). Rather, firms—other than the ones “in highly affected industries” and intense “exporters”—apparently adjusted by “cutting profit margins” and / or by “raising productivity” instead of reducing employment. Ultimately, the explanatory power of the study is limited, as the panel setup does not allow for the inclusion of firms entering or exiting the market during the examination period—which could lead to underestimation of “the total effects of the trade reforms.” Besides, the examination period of six years seems to be too short to capture mid-term or long-term effects (Currie and Harrison 1997: 70). Regarding aggregate income and household income, the effects of post-1983 economic-liberalization policies in Morocco during the period 1983–1992 are even more difficult to establish. On a superficial level, annual average real GDP per capita growth amounted to only 1.4 percent during these nine years (IMF 2014). At the same time, family income and household income evolved differently for different societal groups: for the period 1983–1986, the study by Morrisson (1991b, 52–55, 137) comes to the conclusion that average primary incomes of agricultural proprietors (including subsistence farmers) rose during the mid-1980s due to better weather, while those of higher-qualified urban workers, employees, and entrepreneurs fell. Likewise, public-sector employees saw their real income fall during this period. In contrast, low-skilled rural and urban workers received higher incomes, driven—among other things—by a rise in the minimum wage. However, the independent effect of policies of economic liberalization remains unclear, as

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many other factors should have influenced income levels, such as population growth, weather conditions, and expatriate remittances (which increased notably during the period) (Morrisson 1991b: 117–118) . Apart from that, the reduction of state spending in the fields of education, health, and social security reduced disposable household income, although these policies represent pure stabilization measures. To the knowledge of the author, the only study that tries to isolate the effect of a policy of economic liberalization on a specific type of income is once again Currie and Harrison (1997: 60–61). By using the same sample, model, and methodological setup as described above, they come to the conclusion that the correlation between wages in the Moroccan manufacturing sector and public “trade policy” (level of tariffs and quotas) was insignificant for the period 1984–1990 (i.e. trade liberalization through tariff and quota reductions could not have influenced wages, neither on the sectoral level nor on the plant level). Nevertheless, in a subdivided sample, the “coefficient on tariffs” is significant and positive for “parastatal” firms (i.e. a reduction of tariffs was associated with a decline of public-sector wages). Regarding poverty, the effects of economic-liberalization policies in Morocco during the period 1983–1992 are tightly connected with the effects of these policies on income—as poverty has an income dimension. According to official figures, aggregate poverty levels diminished from 21 percent of the Moroccan population in 1984 to 13 percent in 1991 (as measured by the national poverty line) (Morrisson 1991b: 97; El-Ghonemy 1998: 189–190; Sater 2010: 99–100; El-Said and Harrigan 2014: 110). According to Morrisson (1991a: 1639), poverty probably decreased markedly in rural areas during the period 1982–1986, mainly due to good weather and due to substantial remittances. Economic liberalization might have had an indirect poverty-reducing effect through its facilitation and stimulation of remittances—which should have been driven upwards through “the creation of special foreign currency accounts” (payments liberalization) and through the devaluation of the MAD (partial exchange-rate liberalization). Another indirect povertyreducing effect of economic liberalization might have unfolded through supply-side reforms, especially the change of incentives in the agricultural sector—“increased producer prices” (producer-price liberalization) and “the liberalization of supply and distribution markets”—which “led to increased production.” In addition, some “poor farmers” benefitted from the “drop in prices of manufactured goods” due to “the liberalization of foreign trade.” In contrast to rural areas, average poverty among the urban poor probably increased, especially for households depending on work in the “informal sector” (with the exception of informal “textile, clothing, and leather workers”). It was probably different for households, who had access to remittances, and / or households, where members worked in activities related to the “external economy” (tourism, export industries) rather than in activities oriented

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towards the domestic market. “For the families of [urban; C.N.] formal sector workers,” “poverty did not worsen,” as “the minimum wage increased by 7 percent during 1983–1987.” However, the probable increase of urban poverty was in large measure due to policies of macroeconomic stabilization (especially cuts of state spending, which affected the “building and public works” as well as the domestic service sector more generally). After all, the conclusions remain tentative, as longitudinal household surveys do not exist (Morrisson 1991b: 97–101; Morrisson 1991a: 1639– 1640). El-Said and Harrigan (2014: 110) draw a similar picture: They conclude that “rural poverty in Morocco [...] declined in the later part of the 1980s largely due to good weather, which facilitated rapid growth in the agricultural sector.” Apart from that, “the rise in the agricultural minimum wage [...] helped alleviate rural poverty.” Policies of economic liberalization apparently played an important role through the partial liberalization of interest rates and exchange rates, which presumedly led to “a surge in remittances” (“boosting incomes, including those of the poor”). The government’s “effort to protect social expenditures” (only small relative reductions “between 1982 and 1991”), which rose again in the late 1980s after a “sharp reduction” during 1983–1988, also had a positive impact, both on the decline of rural and of urban poverty (El-Said and Harrigan 2014: 110–111) . Regarding other dimensions of socioeconomic development, such as health and education, a possible impact of economic liberalization is not discernible–at least not on a direct level of attribution. Nevertheless, one can assume policies of macroeconomic stabilization had some effects in these fields (Morrisson 1991b: 91–94; Morrisson 1991a: 1638–1639). Finally, Morrisson (1991b) compares the presumed effects of economic liberalization and stabilization on socioeconomic development in Morocco during the 1980s with a (hypothetical) counterfactual situation. For this purpose, Morrisson (1991b: 59–86, 117) conducts a counterfactual analysis (reproduced in Morrisson (1991a: 1640–1650)) by means of a general equilibrium model, running micromacro simulations. He comes to the conclusion that the “deterioration of socioeconomic indicators would have been much more marked” without “adjustment” (including economic liberalization). Especially the increase in poverty would have been “catastrophic,” “because of the shortage of foreign currency.” Reform period 4 (1993–1999) During the fourth reform period (1993–1999), the Moroccan GDP in current USD first rose from 31.7 billion in 1993 to 43.2 billion in 1996. It then fell to 39.1 billion in 1997, increased to 41.8 billion in 1998, and finally declined to 41.6 billion in 1999. Likewise, GDP per capita rose from USD 1,192 (current) in 1993 to USD 1,552 (current) in 1996, before it fell to USD 1,388 (current) in 1997. It then increased to

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USD 1,463 (current) in 1998, and finally declined to USD 1,440 (current) in 1999. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 3.4 percent p.a. during 1993–1999, with a standard deviation of 6.2 percent, and average real GDP per capita growth of 1.9 percent p.a. during the same period, with a standard deviation of 6.1 percent. The evolution of average real household income is unclear: While GDP per capita in current USD rose in four years and fell in two years during the period 1993–1999, inflation (“change of average consumer prices”) decreased from an average 5.5 percent p.a. during 1993– 1995 to an average 1.9 percent p.a. during 1996–1999—yielding an average inflation rate of 3.4 percent p.a. during 1993–1999 and thus lower by 2 percent p.a. than in the third reform period (1986–1993). Concomitantly, “personal remittances received” continuously decreased from 6.2 percent of GDP in 1993 to 4.7 percent in 1999. They averaged 5.1 percent of GDP during the fourth reform period (1993–1999), and were thus relatively lower than during the third reform period (1986–1993: 6.3 percent of GDP). At the same time, official unemployment (ILO estimate) continuously increased from 13.5 percent of the labor force in 1993 to 16.6 percent in 1998, before it fell to 13.9 percent in 1999. Likewise, official “youth unemployment” (percent of the labor force ages 15–24; ILO estimate) increased from 21.8 percent in 1993 to 34.9 percent in 1998, and then fell starkly to 20.4 in 1999 (World Bank 2017; IMF 2014). After a decrease during the latter half of the 1980s, official poverty once again increased from 13 percent of the population in 1991 to 19 percent in 2000 (Denoeux 2001: 70; Sater 2010: 100; Vermeren 2010: 96; El-Said and Harrigan 2014: 110). According to the World Bank (2017), the “poverty headcount ratio” (percent of the population below the official national poverty line) stood at 16.3 percent in 1998.63 Finally, income inequality was rising slightly, implied by a Gini index value of 0.393 in 1990 and of 0.395 in 1998 (Achy 2010: 13; World Bank 2017). Policies of economic liberalization might have affected economic growth in Morocco’s fourth reform period (1993–1999) (see section 6.1.5): On the demand side, the liberalization of imports (which probably became empirically significant only at the end of the fourth reform period)64 might have negatively affected eco63

There were marked differences between poverty in rural and urban areas: According to Achy (2010: 3), the “rural poverty rate” increased from 18 percent in 1990 to 24.1 percent in 1999, whereas the “urban poverty rate” increased only from 7.6 percent to 9.5 percent during the same period. According to the World Bank (2017), the rural “poverty headcount ratio” (percent of the rural population below the official rural poverty line) stood at 24.2 percent in 1998, while the urban “poverty headcount ratio” (percent of the urban population below the official urban poverty line) stood at 9.5 percent. 64 Around the mid-1990s, the empirical pattern assumedly resembled deliberalization of imports, due to the increase in average tariffs—itself a result of the tariffication of quan-

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nomic growth in the short-run (i.e. during the early 2000s) (H49). In contrast, its long-term effect was expected to be positive (H52). Consumer-price liberalization through subsidy cuts during the latter half of the 1990s might have increased economic growth both in the short run and in the long run (H46, H53). The possible effect of the liberalization of international payments (1993–1997) on economic growth is theoretically ambiguous and thus not discussed here. On the supply side, both the liberalization of domestic private investment in several sectors (1993–1999) and privatization since 1993 might have increased economic growth in the short run and in the long run (H47, H48, H56, H58). In fact, real GDP growth was very volatile during the period 1993–1998 (maximum value: 12.4 percent in 1996, minimum value: -5.4 percent in 1995), without a clear trend. There were three recessions (1993, 1995, 1997) and three boom years (1994, 1996, 1998), all within a period of only seven years. The volatility of economic growth then decreased markedly during the period 1998–2011, with real GDP growth oscillating between 1 percent and 8 percent p.a. During 1999–2005, there were two subperiods when real GDP growth followed the same direction for two years in a row (an increase during 1999–2001 and a decrease during 2003–2005). Its average shifted slightly upwards, from 3.9 percent p.a. during 1999–2005 to 5.1 percent p.a. during 2006–2011. The liberalization of domestic private investment, privatization, and consumer-price liberalization in the second half of the 1990s might have been factors behind the short-term rise of economic growth during 1999–2001 (H47, H48, H46). Together with trade liberalization, they might also have helped increasing the long-term average rate of economic growth during the 2000s (H52, H53, H56, H58). In contrast, the empirical pattern of real GDP growth during the early 2000s does not align with the theory on short-term growth-decreasing effects of the liberalization of imports, at least from a superficial view (H49). However, import liberalization could still have diminished the average growth rate of the early 2000s. Further to that, the empirical pattern of real GDP growth during the 1990s is too volatile to justify deriving hypotheses on the possible effects of the liberalization of domestic private investment and of privatization on economic growth (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in Morocco’s fourth reform period (1993–1999) (see section 6.1.5): Consumer-price liberalization (through higher inflation that is expected to fuel poverty and income inequality) and privatization (by increasing unemployment and income inequality) might have had a negative short-term effect (H62, H65). In contrast, the liberalization of domestic private investment might have titative restrictions within the new WTO framework (Nsouli et al. 1995: 32; WTO 1995: 56; WTO 2003: 30; Achy and Sekkat 2007: 137; Richter 2011: 98).

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had a positive short-term effect (through higher investment, reducing unemployment) (H61). In the long run, both privatization and the liberalization of domestic private investment might have had a positive effect (H66, H67), while the expected long-term effects of trade liberalization, of consumer-price liberalization, and of the liberalization of international payments are theoretically ambiguous and thus not discussed here. The same holds true for the expected short-term effects of trade liberalization and of the liberalization of international payments. In fact, inflation (“change of average consumer prices”) first increased from around 5 percent p.a. during 1993–1994 to 6.1 percent in 1995, before it plunged to 3 percent in 1996 and to 1 percent in 1997. Afterwards, it oscillated between 0.6 percent and 2.8 percent p.a. during 1998–2005. It then increased to 3.3 percent in 2006, declined to 2 percent in 2007, and finally rose to a temporary high of 3.9 percent in 2008. “Total investment” first declined from 25 percent of GDP in 1993 to its temporary low of 22 percent in 1996. It then began a more or less continuous increase up to 28 percent of GDP in 2006, before rising steeply to 34 percent in 2007 and to 39 percent in 2008. Finally, it fell to an average 35 percent of GDP during 2009–2011. Official unemployment (ILO estimate) increased from 13.5 percent of the labor force in 1993 to 16.6 percent in 1998. It then more or less continuously declined, until it reached 9 percent in 2011. Following roughly the same trend, official poverty first increased from 13 percent of the population in 1991 to 16 percent in 1998. It then decreased to 15 / 19 percent in 2000 and to 9 percent in 2007. Income inequality rose slightly during 1990–1998 and then more markedly during 1998–2000. Afterwards, it stayed roughly constant during 2000–2006 (see above and below). The empirical pattern of inflation during the early 2000s does—at first sight—not align with the theory on short-term inflationincreasing effects of consumer-price liberalization (H62). However, consumer-price liberalization during the second half of the 1990s might still have kept inflation rates higher in the late 1990s and in early 2000s than they would have been without the implementation of this policy. The liberalization of domestic private investment during 1993–1999 might have been one factor behind the short-term and long-term rise of “total investment” during 1996–2008 (H61, H66). The rise of official unemployment during 1991–1998 does—from a superficial view—not align with the second part of the theory, which assumes negative effects of investment on unemployment (H61, H66). In contrast, the empirical pattern of official unemployment up to 1998 seems to accord more with the theory on unemployment-raising short-term effects of privatization (H65). Besides, privatization might also have been one factor behind the rise of income inequality during 1990–2000 (H65). Nevertheless, the long-term pattern of official unemployment (i.e. during the 2000s) once again follows theory on unemployment-decreasing long-term effects of the liberalization of domestic private investment (through higher investment) and of privatization (through job

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creation by privatized companies) (H66, H67) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the fourth reform period (1993–1999): Physical capital formation, proxied by “total investment,” first declined from 25 percent of GDP in 1993 to 22 percent in 1996. It then rose back to 25 percent of GDP in 1998 and fell to 24 percent in 1999. Its average during the period 1993–1999 was 23.6 percent of GDP and thus lower by 2 percent of GDP compared to the third reform period (1986– 1993). Population growth declined further, from 1.7 percent in 1993 to 1.2 percent in 1999—yielding an average of 1.5 percent p.a. during 1993–1999 and thus lower than during the third reform period (1986–1993: 1.9 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 66 years in 1993 to 68 years in 1999. At the same time, there was no progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes stayed flat at 37 percent of the respective age group during 1993–1999, while the average “gross enrollment ratio” in tertiary education for both sexes declined from 11 percent of the respective age group in 1993 to 10 percent in 1999 (World Bank 2017; IMF 2014). Apart from possible direct effects, policies of economic liberalization might have had indirect effects on economic growth and on the income dimension of socioeconomic development by convincing external lenders to offer further loans (H60). Thus, during the period 1995–1999, the WB contracted four loans with the Moroccan government, with loan commitments totalling USD 700 million. The inflow of these funds enlarged the capacity of the Moroccan state to spend and invest in growth-generating and development-enhancing projects (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Morocco’s fourth reform period (1993–1999): First, the Moroccan government continued with policies of (pure) macroeconomic stabilization, especially with the cutback on public investment. Second, international revenue streams with a rent component reached structurally different levels compared to the previous reform period. Thus, international tourism receipts continued their rise since the second half of the 1980s, reaching USD 1.5 billion (current) in 1995 and USD 2.2 billion (current) in 1999. At the same time, “net ODA” fell to structurally lower levels with the end of the Cold War and the passing of the Gulf crisis (1990–1993: 3.6 percent of GNI on average; 1994–1999: 1.5 percent). Likewise, remittances declined from an average 6.4 percent of GDP during 1990–1993 to an average 4.9 percent during 1994–1999. Third, Moroccan real interest rates were markedly higher during

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the second half of the 1990s than during the first half (1990–1991: 2.3 percent p.a. on average; 1994–1995: 6.4 percent p.a. on average; 1996–1999: 12 percent p.a. on average). Nevertheless, this seems not to have affected gross national savings, which hovered around 23 percent of GDP during 1990–1995 and 22 percent during 1996– 2000. Fourth, the oil price was exceptionally low during the period 1997–1999, falling from USD 26 (current) per barrel in December 1996 to USD 11 (current) per barrel in November 1998, before rising back to USD 26 (current) per barrel in December 1999. Fifth, weather conditions in Morocco were extremely volatile during the second half of the 1990s. There were three excellent years (1994, 1996, 1998) and two droughts (1995: “Drought of the century;” 1997). Sixth, as in other developing countries, the Asian Financial Crisis of 1997–1998 probably dampened economic growth in Morocco (see section 6.2.1). Several other authors discuss the implications of economic-liberalization policies on economic growth and on the income dimension of socioeconomic development in Morocco during the 1990s: In general, studies on the possible effects of economic liberalization on socioeconomic development during the fourth and fifth reform period are less numerous and less comprehensive than during the second and third reform period. Unemployment, mostly in urban areas, apparently rose during the 1990s, “fuelled by rural-urban migration, and to a lesser extent, by population growth and rising labor force participation rates.” In addition, “the appreciation of the real exchange rate during this period also had adverse effects on unemployment by encouraging a return to more capital-intensive production methods” (El-Said and Harrigan 2014: 112). As for the possible independent effects of economic liberalization on employment, Achy and Sekkat (2007: 141–144) run a linear panel regression for 18 Moroccan “manufacturing industries” during the period 1990–2000 (180 observations in total, yearly and on an industry level) to explain employment growth by the growth of “import penetration,” “export orientation,” “domestic sales,” “labor productivity,” “average salaries,” industry-level investment, and by the “real effective exchange rate” (five equations with different variable combinations). Their results show that the growth of import penetration (as an empirical manifestation of trade liberalization) was significantly and negatively correlated with employment growth (indicating a decline in employment growth) during the observation period. The growth of export orientation (which might have partly been driven by policies of economic liberalization) and employment, on the other hand, were positively and significantly correlated. With the same data set, Achy and Sekkat (2007: 144–148) also explore into the relation between economic liberalization and wage levels in Morocco during the 1990s. Their panel regression for the period 1990–2000 strives to explain the

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“annual variation of gross average salaries” in 18 Moroccan “manufacturing industries” (same observational units and number of observations as above) by the variation of “import penetration” and by “export orientation” in the respective industry. The model contains several control variables, including the “official minimum salary in the manufacturing sector,” “labor productivity,” average firm profitability in the industry, “urban unemployment rate,” “average wage level” in other sectors of the Moroccan economy, and the share of foreign capital in the industry. They come to the conclusion that the variables of economic liberalization (the variation of import penetration, and possibly of export orientation) are not significantly correlated with the variation of the average wage level for these 18 manufacturing industries. However, a correlation in the case of (nonaverage) specific wage levels (for different levels of qualification within the workforce) cannot be ruled out. Concomitant with unemployment (and presumedly in part due to its increase), poverty levels increased in Morocco during the fourth reform period (1993–1999), largely due to very low real GDP growth. Rural areas were disproportionately affected due to a succession of severe droughts. Together with poverty, income inequality, as measured by the official Gini index, became more pronounced. At the same time, educational indicators improved during the 1990s, especially for primary schooling (Denoeux 2001: 70; Joffè 2009: 160; Achy 2010: 3, 13; Sater 2010: 100; Vermeren 2010: 96; El-Said and Harrigan 2014: 110–112). Ultimately, the independent effect of economic liberalization on poverty in Morocco during the 1990s remains unclear. According to El-Said and Harrigan (2014: 112), there are some hints that the stabilization measures of the 1980s–1990s “adversely affected” poverty levels “by the fact that not enough income was channeled into categories of public spending that help the poor, such as primary health and education, and essential infrastructure services.” But they do not back up their observations with quantitative data. Once again, to what extent the stabilization measures of the period 1993–1999 contained elements of economic liberalization (e.g. privatization) is an open question.65 Reform period 5 (1999–2011) During the fifth reform period (1999–2011), the Moroccan GDP in current USD first fell from 41.6 billion in 1999 to 38.9 billion in 2000. It then continuously rose to 101 billion in 2011 (with very small increases during 2008–2010). GDP 65

Apart from the studies by Achy and Sekkat (2007) and El-Said and Harrigan (2014), which analyze what actually happened on the ground, other studies mainly present scenario analyses (often based on general equilibrium models), predominantly in connection with trade liberalization under the EMAA and its hypothesized socioeconomic effects (including employment effects) (Martín 2004; Achy and Sekkat 2007: 141).

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per capita declined from USD 1,440 (current) in 1999 to USD 1,328 (current) in 2000, and then increased continuously to USD 2,906 (current) in 2008. Afterwards, it fell to USD 2,884 (current) in 2009 and to USD 2,858 (current) in 2010, before it increased to USD 3,067 (current) in 2011. This evolution yielded average real GDP growth (calculated on the basis of GDP in national currency) of 4.5 percent p.a. during 1999–2011, with a standard deviation of 1.9 percent, and average real GDP per capita growth of 3.3 percent p.a. during the same period, with a standard deviation of 1.9 percent. The evolution of average real household income seems to have been clearly positive: GDP per capita in current USD more than doubled from 1999 to 2011. Inflation (“change of average consumer prices”) fell to historical lows at an average 1.7 percent p.a. during 1999–2011 (with a temporary increase to 3.1 percent p.a. during 2006–2008), markedly lower than during the fourth reform period (1993–1999: 3.4 percent p.a.). “Personal remittances received” climbed to historical highs, first rising from 4.7 percent of GDP in 1999 to 8.3 percent in 2001, before they declined back to 6.8 percent in 2002, and once again began a new rise up to 8.5 percent in 2007. Afterwards, they fell to 6.8 percent of GDP in 2009, and finally rose back to 7.2 percent in 2011. During the whole fifth reform period (1999–2011), remittances averaged 7 percent of GDP and were thus higher by roughly 2 percent of GDP compared to the fourth reform period (1993–1999). At the same time, official unemployment (ILO estimate) followed a decreasing trend from 13.9 percent of the labor force in 1999 to 8.9 percent in 2011. In contrast, official “youth unemployment” (percent of the labor force ages 15–24; ILO estimate) first fell from 20.4 percent in 1999 to 15.4 percent in 2004, but then increased again to around 18 percent during 2008–2011. The “poverty headcount ratio” (percent of the population below the official national poverty line) declined from 16.3 percent in 1998 to 15.3 / 19 percent in 2000, 14 percent in 2005, and 8.9 percent in 2007.66 Income inequality as measured by the Gini index (WB estimates) increased from 0.395 in 1998 to 0.406 in 2000 and to 0.407 in 2006 (World Bank 2017; El-Said and Harrigan 2014: 110; IMF 2014). Policies of economic liberalization might have affected economic growth in the fifth reform period (1999–2011) (see section 6.1.5): On the demand side, trade liberalization concerning imports remained the only policy of economic liberalization that continued to be implemented. It might have decreased economic growth in the 66

Differences between poverty levels in rural and urban areas remained stark: According to the World Bank (2017), the rural “poverty headcount ratio” (percent of the rural population below the official rural poverty line) increased from 24.2 percent in 1998 to 25.1 percent in 2000, before it decreased to 14.4 percent in 2007. The urban “poverty headcount ratio” (percent of the urban population below the official urban poverty line) decreased from 9.5 percent in 1998 to 7.6 percent in 2000 and to 4.8 percent in 2007.

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short run (H49), while it might have increased it in the long run (H52). On the supply side, the liberalization of domestic private investment in services and the gearing up of privatization might have increased economic growth in the short run (H47, H48). Both policies might also have driven up economic growth in the long run (H56, H58), together with producer-price liberalization in the service sector (H55). In fact, real GDP growth first rose from 1 percent in 1999 to 7 percent in 2001. It then oscillated between 3 percent and 8 percent p.a. during 2002–2007 and between 4 percent and 6 percent p.a. during 2008–2011. Its average shifted slightly upwards, from 3.9 percent p.a. during 1999–2005 to 5.1 percent p.a. during 2006–2011. Nevertheless, the pattern of economic growth remained volatile (although less volatile than during the 1990s), without clear trends. Ultimately, trade liberalization on the import side (which was implemented throughout the 2000s) might have kept economic growth lower during the whole 2000s (H49), although the first positive longterm effects might have unfolded from the mid-2000s onwards (H52)—potentially constituting a factor behind the higher average growth rates in the second half of the 2000s. The higher average economic growth rate in the latter half of the 2000s (compared to the first half of the 2000s) might have been driven by the short-term and long-term effects of the liberalization of domestic private investment in services and by privatization (implemented throughout the 2000s) (H47, H48, H56, H58). Another contributing factor might have been the long-term effects of producer-price liberalization in services (implemented during 1999–2004) (H55) (see also: IMF 2014). Policies of economic liberalization might also have affected the income dimension of socioeconomic development in the fifth reform period (1999–2011) (see section 6.1.5): Privatization might have had a negative short-term effect (by raising unemployment and income inequality) (H65), while its expected long-term effect was positive (through lower unemployment) (H67). In contrast, the short-term and long-term effects of the liberalization of domestic private investment were expected to be positive (through higher investment, reducing unemployment) (H61, H66). Both the short-term and long-term effects of trade liberalization and of producerprice liberalization on the income dimension of socioeconomic development are theoretically ambiguous and thus not discussed here. In fact, “total investment” rose more or less continuously from 24 percent of GDP in 1999 to 28 percent in 2006, before it skyrocketed to 34 percent in 2007 and to 39 percent in 2008. It then slipped back to an average 35 percent of GDP during 2009–2011. Official unemployment (ILO estimate) decreased relatively steadily from 13.9 percent of the labor force in 1999 to 8.9 percent in 2011. Income inequality stayed flat from 2000 to 2006 (see above). The steady increase of “total investment” during 1999–2008 lends credibility to the hypothesis that the liberalization of domestic private investment and its

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continuous implementation throughout the fifth reform period (1999–2011) could in fact have been a factor stimulating investment (H61, H66). Besides, the fall of official unemployment throughout the fifth reform period (1999–2011) suggests—without considering other control variables—that the unemployment-reducing short-term effects of the liberalization of domestic private investment might have been stronger than the unemployment-increasing short-term effects of privatization (H61, H65). The second variable relation stipulated by the theory on short-term effects of privatization (i.e. a correlation with income inequality) is not corroborated at first sight by the empirical data on income inequality (H65). However, privatization could still have halted the fall of income inequality in the short run–that is throughout the fifth reform period, given that privatization operations took place until the World Financial crisis hit the Moroccan economy around the year 2008. The predicted long-term effects of both the liberalization of domestic private investment and of privatization on “total investment” and unemployment are—from a superficial view—in line with empirical data (until 2008 for “total investment,” until 2011 for unemployment) (H66, H67) (see also: World Bank 2017; IMF 2014). Apart from policies of economic liberalization, a host of control variables probably influenced economic growth and the income dimension of socioeconomic development during the fifth reform period (1999–2011): Physical capital formation, proxied by “total investment,” rose more or less continuously from 24 percent of GDP in 1999 to 28 percent in 2006, before it skyrocketed to 34 percent in 2007 and to 39 percent in 2008. It then slipped back to an average 35 percent of GDP during 2009–2011 (see above). Its average during the period 1999–2011 was 29.6 percent of GDP and thus higher by 6 percent of GDP compared to the fourth reform period (1993–1999). Population growth first continued to fall from 1.2 percent in 1999 to a temporary low of 0.93 percent in 2003. It then increased again to 1.3 percent in 2011—yielding an average of 1.1 percent p.a. during 1999–2011 and thus lower than during the fourth reform period (1993–1999: 1.5 percent p.a.). The health dimension of human capital improved, with average “life expectancy at birth” rising from 68 years in 1999 to 73 years in 2011. At the same time, there was significant progress in the education dimension of human capital: the average “gross enrollment ratio” in secondary education for both sexes increased from 37 percent of the respective age group in 1999 to 66 percent in 2011. Concomitantly, the average “gross enrollment ratio” in tertiary education for both sexes increased from 10 percent of the respective age group in 1999 to 16 percent in 2011 (World Bank 2017; IMF 2014). Apart from possible direct effects, policies of economic liberalization might have had indirect effects on economic growth and on the income dimension of socioeconomic development, as their implementation induced external lenders to offer further credit (H60). Thus, during 2001–2010, the WB contracted four further

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loans with the Moroccan government, with loan commitments amounting to USD 200 million. WB loans increased the leeway of the Moroccan state to spend and to invest in growth-generating and development-enhancing projects (see section 6.2.1). Finally, further factors (not related to economic liberalization) might have had an effect on economic growth and on the income dimension of socioeconomic development during Morocco’s fifth reform period (1999–2011): First, the Moroccan government implemented several policies of (pure) macroeconomic stabilization, such as tax reforms (VAT reform in 2005, introduction of a General Tax Code in 2007) and cutbacks on public-sector employment (2004 / 2005 introduction of an early retirement scheme). Second, the Moroccan government also pursued expansive policies, above all the reintroduction of petroleum subsidies in 2003 and the concomitant raise of sugar and wheat subsidies. In addition, the mid-2000s oil boom triggered a flaring up of the Sahara conflict (after the rejection of the Baker Plan) and a new arms race with Algeria (further fuelled by Morocco’s eligibility since 2004 to buy sophisticated weapons as a major non-NATO ally of the United States), diverting public funds into military spending. Third, international revenue streams with a rent component reached structurally different levels compared to the fourth reform period: Remittances rose starkly from 5.1 percent of GDP during 1993–1999 to 7.4 percent during 2001–2011. Likewise, “international tourism receipts” increased continuously from USD 2.2 billion (current) in 1999 to USD 8.9 billion (current) in 2008, before levelling off at USD 8–9 billion (current) during 2009–2011.67 Fourth, the economy of the United States and the Western European economies experienced a downturn after the burst of the Dotcom Bubble in 2000–2001, depressing Moroccan exports. Around the mid-2000s, the global economy entered a boom period (affecting industrialized and developing countries alike), concomitant with the second oil boom and with the explosion of commodity prices. The mid-2000s boom ended when the World Financial Crisis set in. It made itself felt in Morocco since the year 2008. Fifth, the weather in Morocco was much better on average during the fifth reform period than during the fourth (while volatility of climatic conditions was also markedly less). Sixth, the 2003 terrorist attacks in Casablanca were a major disruptive event that negatively affected tourism receipts—and thus economic growth and possibly socioeconomic development as well. Seventh, the terrorist attacks of 11 September 2001 influenced the Moroccan economy through the ensuing War on Terror of the United States (which brought additional financial contributions, but also more fiscal responsibilities in the field of security) (see section 6.2.1). 67

In contrast, “net ODA” did not reach structurally different levels during the fifth reform period (if compared to the fourth), still hovering between 1 percent and 2 percent of GNI (World Bank 2017).

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Several other authors discuss the implications of policies of economic liberalization on economic growth and on socioeconomic development in Morocco during the 2000s: Harrigan and El Said (2010: 14) analyze the sources of economic growth in Morocco during the period 1998–2004. Referring to a 2006 growth-accounting study by the WB, they contend that “productivity growth, as measured by total factor productivity growth, [did] not contribute to growth in the expansionary period of 1998–2004.” Rather, economic growth in this period was probably due to “factor accumulation.” The puported efficiency effects of economic-liberalization policies thus did not seem to have materialized (while the effects of economic liberalization on factor accumulation remain unclear). In terms of sectoral activity, economic growth during the period 1998–2004 was mainly driven by rising “service sector exports” (especially in tourism) and by increases in agricultural output (due to good weather) (Harrigan and El Said 2010: 16). To the knowledge of the author, there are no studies on Morocco during the period 2000–2011 that try to link the policies of economic liberalization implemented during this period with variables of socioeconomic development. A partial exception is El-Said and Harrigan (2014: 112–113), who doubt the size of improvements in unemployment and in poverty—while they criticize the measures and the surveying institutions. But contrary to their intention professed in the article’s introduction, they do not assess the possible effects of economic liberalization and of stabilization policies on variables of socioeconomic development in Morocco during the 2000s. Summary of non-analytical hypothesis testing In this subchapter, I strove to shed light on the effects of policies of economic liberalization on economic growth and on the income dimension of socioeconomic development—and thus on economic stabilization—in the four MENA countries under examination (Egypt, Tunisia, Jordan, and Morocco). For this purpose, I descriptively tested the 22 hypotheses H46–H67 (derived in sections 3.2.1–3.2.3; summarized in the appendix-chapter 8, tables 8.4–8.6) against the empirical data of the four MENA countries. On a theoretical level, some policies of economic liberalization seem more conducive for economic stabilization than others. Regarding economic stabilization via economic growth, three policies of economic liberalization should have both a positive short-term and a positive long-term effect: Consumer-price liberalization; the liberalization of domestic private investment; and privatization. Two policies should have a negative short-term effect and a positive long-term effect: Trade liberalization on the import side; and the liberalization of interest rates. One policy should have a negative short-term effect and a negative long-term effect: Exchange-rate liberalization. One policy should have an ambiguous short-term effect and a positive

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long-term effect: the liberalization of FDI. One policy should have an ambiguous short-term effect and an ambiguous long-term effect: the liberalization of international payments (see section 3.2.5). Regarding economic stabilization via the income dimension of socioeconomic development, one policy should have both a positive short-term effect and a positive long-term effect: the liberalization of domestic private investment. One policy should have a negative short-term effect and a positive long-term effect: Privatization. Three policies should have a negative short-term effect and an ambiguous longterm effect: Consumer-price liberalization; the liberalization of interest rates; and exchange-rate liberalization. Four policies should have both an ambiguous shortterm effect and an ambiguous long-term effect: Trade liberalization on the import side; the liberalization of international payments; producer-price liberalization; and the liberalization of FDI (see section 3.2.5). However, as in the case of the state budget and the international accounts, it is not possible to come to a conclusion about the role of policies of economic liberalization in economic stabilization via economic growth and the income dimension of socioeconomic development for the four authoritarian regimes under examination. The reason for this negative assessment is—as before—that the empirical effects of economic liberalization on economic growth and on the income dimension of socioeconomic development are hard to detect: a first problem is once again the difficulty of measuring the IV, which itself is due to a lack of information (see section 6.2.1). A second problem is that—compared to a state’s budgetary balance and its international accounts—the operationalization of the DV “socioeconomic development” is even more difficult (less so of the DV “economic growth”).68 Here, I solely analyzed the income dimension of socioeconomic development (omitting the health, education, human-rights, political-rights, and general-well-being dimensions). Nevertheless, measurement remains difficult, as proxy variables do not fully capture the underlying empirical manifestations (e.g. real household income, which is proxied in this study by unemployment, inflation, and remittances—with operationaliza-

68

In fact, the measurement of economic growth might be similarly difficult, as growth accounting is often inaccurate in MENA countries, due to insufficient technical capabilities and deficient institutional infrastructure. This problem also exists for data on socioeconomic development. Apart from that, regimes in MENA countries sometimes withhold or deliberately distort official figures for political purposes. Reports by international organizations are often not free of political considerations either. In many cases, there is no independent data collection by international organizations, so the figures used are from official national sources (Wurzel 2009a: 17–19).

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tions / measurements from the WB Open Data).69 A further inaccuracy is inherent in the fact that proxy variables are measured as nationwide aggregates, smoothing intrasocietal differences in socioeconomic-development levels. Ultimately, the analysis yields no information on how policies of economic liberalization could have affected different social groups and individuals. A third problem is that—as in the case of the state budget and the international accounts—a myriad of other variables theoretically and empirically influence economic growth and socioeconomic development (while interaction effects between these variables are likely complex)—meaning that the independent effect of economic-liberalization policies is hard to isolate. This is even more so, as we consider both short-term and long-term effects of economic liberalization (see section 6.2.1). The academic literature mentions a whole range of possible control variables “driving” economic growth, such as physical capital, population size, human capital (determined by health and education), productivity (determined by technology, “efficiency,” and “openness” of an economy), and other “fundamental” growth drivers (“government,” income inequality, “culture,” “geography,” “climate,” and “natural resources”) (Weil 2009). All these variables are as well relevant for explaining socioeconomic development—as economic growth is assumed to be one of its major drivers. Besides, other control variables mentioned in the case of the state budget and the international accounts might also have explanatory power for economic growth and for the income dimension of socioeconomic development: macroeconomic-stabilization policies that do not contain elements of economic liberalization (e.g. expenditure cuts, tax increases);70 rent inflows not connected with economic liberalization (e.g. due to natural resources, strategic importance of a country for international donors, internationally important infrastructure, tourist attractions, etc.); the global and local economic situation (upturn or downturn);71 the international prices of basic commodities (affecting a country as importer and exporter); the vagaries of nature (weather, natural catastrophes); and major disrup-

69

For the operationalization of “real household income,” I excluded the proxy variable “wage level”—which I treated in the theoretical part of this chapter (see above)—due to data limitations. 70 Agénor (2004b: 359–362) mentions some macroeconomic-stabilization policies with possible direct effects on poverty—itself a dimension of socioeconomic development—, such as public-sector layoffs, freezes on the wage bill, and cuts in government expenditures on transfers and subsidies. 71 According to Agénor (2004b: 369–372), economic crises that lead to sharp output contractions could have an asymmetric effect on poverty (compared to a more limited effect of an economic upturn).

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tive national and international events (economic and political crises, wars, terrorist attacks, etc.) (see section 6.2.1). After all, to obtain information about the independent effect of economic liberalization on economic growth and on the income dimension of socioeconomic development, we would have to be able to build an apt theoretical model (which we are not) and to operationalize all variables correctly (likely elusive too). The hypotheses would then have to be tested in a multivariate setup. Be that as it may, in the end it is impossible to detect all relevant variables—let alone operationalize them correctly. Thus, the true independent effect of economic-liberalization policies on economic growth and on the income dimension of socioeconomic development cannot be identified. We are left instead with mere speculation (albeit speculation based on scientific reasoning), in observing macro-level correlations (which are distorted through the effects of many independent and intervening variables) and in generating, at most, some more or less well-founded propositions and hypotheses on possible effects of economic-liberalization policies on economic growth and on the income dimension of socioeconomic development in the four countries under investigation. This is what I strove to do by testing the 22 hypotheses H46–H67 (derived in sections 3.2.1–3.2.3; summarized in the appendix-chapter 8, tables 8.4– 8.6) against the empirical data of the four MENA countries. Finally, it is important to note that even if we had ex post knowledge on the precise independent effects of economic liberalization, the problem remains that we still lack information on counterfactual situations. That is, regarding what would have happened to economic growth and to the income dimension of socioeconomic development if policies of economic liberalization had not been implemented at all, or had been in a different manner to the ones in which they were.

6.2.3

Test of “Integrated Hypotheses” in a MSSD (Periods 1965–1986, 1993–2004, 2005–2010)

In addition to the hypotheses linking policies of economic liberalization with the variables of economic stabilization (these are the state budget, the international accounts, economic growth, and socioeconomic development), I test the three “integrated hypotheses” IH1–IH3 as specified in section 4.2.1. These “integrated hypotheses” link economic liberalization with the stability of an authoritarian regime through the transmission channel of economic stabilization:

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IH1: Economic liberalization aggravates economic underdevelopment by increasing poverty among the population of a country, and thereby increases the stability of an authoritarian regime. IH2: Economic liberalization increases economic inequality among the population of a country, and thereby increases the stability of an authoritarian regime. IH3: The implementation of economic liberalization by a debtor as part of a loanconditionality agreement increases financial contributions of international creditors / donors, and thereby increases the stability of an authoritarian regime.

I test these hypotheses analytically in a MSSD comprising the four MENA countries (Egypt, Tunisia, Jordan, and Morocco), as explained in section 5.2.3. In the MSSD, variance on the DV “regime stability” stratifies the sample. In each temporallybound case comparison, the sample of the four countries is split into two groups, among which values of the DV differ significantly: The first comparison is between Egypt and the group consisting of Tunisia, Jordan, and Morocco during the period 1965–1986. On the basis of the chosen operationalization of the DV, the empirical observation is that the Egyptian regime was less stable during the given period than its three MENA counterparts. The second comparison is between the pair of Tunisia and Jordan and the pair of Egypt and Morocco during the period 1993–2004. The empirical observation is that the Tunisian and Jordanian regimes were less stable than the Egyptian and Moroccan regimes during the given period. The third comparison is between Morocco and the group consisting of Egypt, Jordan, and Tunisia during the period 2005–2010. The empirical observation is that the Moroccan regime was more stable than its three MENA counterparts during the given period. For the hypothesis testing, I split each “integrated hypothesis” into its two constituent parts. I begin by testing its second theoretical link, that is the one between the variables of “economic stabilization” and “regime stability.” Subsequently, I test its first theoretical link, that is the one between the variables “economic liberalization” and “economic stabilization.” Hypothesis IH1 Hypothesis IH1 integrates together hypothesis H12 and hypotheses H62, H63, H64, H71, and H79 (see section 4.2.1). Hypothesis H12 assumes a higher stability of an authoritarian regime, the higher the poverty level (as a manifestation of economic underdevelopment) in its country is. The other hypotheses contained by the “integrated hypothesis” IH1 speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H62 and H79 on the short-term and long-term effects of consumer-price liberalization; hypothesis H63 on the shortterm effect of the liberalization of interest rates; hypothesis H64 on the short-term

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effect of exchange-rate liberalization; and hypothesis H71 on the effect of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH1 against the empirical data and information on the four MENA countries (see sections 6.1.5 and 6.2.2) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, poverty figures are not available before 1970 for Tunisia and Egypt, before 1980 for Jordan, and before 1984 for Morocco. Notwithstanding severe methodological problems that constrain the accuracy and comparability of figures, poverty was on the decline in all four countries during the 1970s–1980s. In absolute terms, poverty seems to have been highest in Egypt, even after its decline (see section 6.2.2). The observation that Egypt’s regime was less stable than its three MENA counterparts during the first MSSD period, while it was concomitantly the country with the highest poverty rates of the time, contradicts hypothesis IH1—which assumes a higher stability of an authoritarian regime, the higher the poverty rate among its population is. Likewise, the first part of hypothesis IH1 cannot be substantiated in the empirical observations either (see section 6.1.5): Although Egypt, Tunisia, and Jordan started with economic liberalization during the early 1970s (not so Morocco, where these policies only came on the agenda during the early 1980s), they concentrated in a first phase on trade liberalization, on the liberalization of international payments, and on the liberalization of domestic and foreign investment. Policies of economic liberalization potentially increasing poverty were implemented later: Consumer-price liberalization in the late 1970s / early 1980s; exchange-rate liberalization in the mid-1980s (with the exception of Morocco, which started in the early 1980s); and the liberalization of interest rates in the late 1980s / early 1990s (with the exception of Morocco, which started in the early 1980s). These policies might have had a positive effect on poverty in the first half of the 1980s. However, only in Egypt, Jordan, and Morocco are the available figures compatible with the possibility that poverty rates over the whole population actually increased. Nevertheless, even if the overall trend in poverty was downward in the four countries, economic liberalization might still have slowed down this decline of poverty rates, bearing in mind that poverty was as well influenced by other factors. Second MSSD period (1993–2004) During the second MSSD period, poverty was on the increase in Egypt and in Morocco, at least during the 1990s: In Egypt, it apparently increased during the period 1991–1996, before it decreased again during the late 1990s—with estimated nationwide average poverty rates between 17 percent and 50 percent of the popu-

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lation. Poverty then once again increased in the early 2000s, affecting 17 percent of the Egyptian population in 1999 and 20 percent in 2004. In Morocco, official poverty rates increased from 13 percent of the population in 1991 to 19 percent in 2000. In contrast, poverty rates were on the decline during the 1990s in both Tunisia and Jordan. At the same time, the level of poverty in these two countries was markedly lower: in Tunisia, the poverty headcount index apparently decreased from 8 percent in 1995 to 4 percent in 2000. In Jordan, the poverty headcount reportedly declined from 14 percent of the population in 1992 to 12 percent in 1997 (see section 6.2.2). After all, hypothesis IH1 seems to have some explanatory power for the second MSSD period (1993–2004)—especially for the years of the 1990s—, as the regimes that faced higher and increasing poverty among their populations (these are the Egyptian and the Moroccan regime) were also more stable politically—if we believe in the given operationalizations of the IV and the DV. In a second step, I analyze whether economic-liberalization policies might plausibly have influenced poverty in the four countries during the second MSSD period. I have to restrict the analysis to the subperiod 1993–2000, during which data on poverty is available for all four countries. The policies of economic liberalization relevant here are consumer-price liberalization (H62, H79), the liberalization of interest rates (H63), and exchange-rate liberalization (H64). The hypotheses in parentheses speculate about the short-term effects of these three policies on poverty. I therefore check the occurrence of these three economic-liberalization policies during the period 1988–2004, that is maximum five years (the time span in which short-term effects unfold according to my definition) before the beginning of the second MSSD period (see section 6.1.5): in the first country with a politically more stable regime—Egypt—consumer-price liberalization occurred during 1992–1997. Liberalization of interest rates took place in the first half of the 1990s. Exchangerate liberalization occurred during the period 1987–1990, in the early 1990s, and once again during 2000–2004. In the second country with a politically more stable regime—Morocco—consumer-price liberalization occurred during 1986–1988, in the early 1990s, and in the second half of the 1990s. Liberalization of interest rates took place during 1989–1992. Exchange-rate liberalization had already been implemented before 1985. In the first country with a politically less stable regime— Tunisia—consumer-price liberalization occurred during the period 1985–1993 and in the early 2000s. Liberalization of interest rates took place in the late 1980s, starting in 1987. Exchange-rate liberalization also occurred in the late 1980s, although the bulk of devaluation had already happened before 1988. In the second country with a politically less stable regime—Jordan—consumer-price liberalization occurred in 1989, during the first half of the 1990s, and in the early 2000s. Interest rates were liberalized in 1990. Exchange-rate liberalization occurred during 1988–1990.

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Evaluating the empirical information, there is the possibility that the short-term effects of policies of economic liberalization were behind the diverging trajectories of poverty in the four MENA countries during the second MSSD period: Poverty increased during the 1990s in Egypt and Morocco, while it decreased in Tunisia and Jordan. Besides, the level of poverty at the time was higher in Egypt and Morocco than in Tunisia and Jordan (see above). At the same time, Egypt and Morocco were the two countries, where the three policies of economic liberalization deemed to be poverty-enhancing (consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization) occurred predominantly during the period 1993–2000—while these policies were marginal or absent in Tunisia and Jordan. Egypt was the only country among the four, where the liberalization of interest rates and exchange-rate liberalization continued to be implemented at the beginning of the period 1993–2000. In addition, consumer-price liberalization took place in Egypt during the period 1993–1997. Morocco was the only country among the four, where consumer-price liberalization was implemented on a significant scale during the second half of the 1990s. Thus, the short-term effects of these policies might have increased poverty in Egypt and Morocco during the period 1993–2000, leading to divergent patterns of poverty compared to Tunisia and Jordan, whose governments did not or only marginally implemented these policies during the same period. Thereby, policies of economic liberalization—via poverty—might have made the Egyptian and the Moroccan regime more stable than their Tunisian and Jordanian counterparts. After all, hypothesis IH1 seems to have some explanatory power in relating policies of economic liberalization to regime stability via poverty in the four MENA countries under examination during the second MSSD period (1993–2004), especially during the subperiod 1993–2000. Third MSSD period (2005–2010) During the third MSSD period, poverty was on the increase in Egypt and Jordan, while it declined in Tunisia and Morocco. In the late 2000s, its level seems to have been highest in Tunisia and Egypt. While Jordan had somewhat lower rates, the poverty rate in Morocco seems to have been significantly lower than in the other three countries: in Egypt, the poverty headcount ratio reportedly increased from 20 percent in 2004 to 22 percent in 2008 and to 25 percent in 2010. In Jordan, the same indicator increased from 13 percent in 2008 to 14 percent in 2010. In Tunisia, it decreased from 23 percent in 2005 to 16 percent in 2010. In Morocco, the decrease of the poverty headcount ratio was starkest, from 14 percent in 2005 to 9 percent in 2007 (see section 6.2.2). Thus, the second theoretical link proposed by hypothesis IH1 between poverty and regime stability does not align with the empirical observations: Morocco, whose regime seems to have been politically most stable during the third

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MSSD period, should also have faced the highest poverty rate among its population. However, it is the country among the four with the lowest poverty rate and with the starkest decrease of poverty during the period 2005–2010 (which is exactly the opposite of what hypothesis IH1 predicts). Regarding the first theoretical link proposed by hypothesis IH1 between policies of economic liberalization and poverty (H62–H64, H79), the explanatory power is somewhat higher (see section 6.1.5): during the third MSSD period, consumer-price liberalization was only implemented in Egypt and Jordan, but not in Morocco and Tunisia. The liberalization of interest rates and exchange-rate liberalization were not implemented in any of the four countries at the time. Thus, it is possible that consumer-price liberalization was partly responsible for the diverging poverty rates, if we compare Morocco with Egypt and Jordan during the period 2005–2010 (excluding the Tunisian case). Conclusion on hypothesis IH1 for the three MSSD periods To conclude, hypothesis IH1 seems to have some explanatory power during the second MSSD period (1993–2004), but it does not seem capable of explaining the differences in stability among the four MENA regimes neither during the first MSSD period (1965–1986) nor during the third MSSD period (2005–2010). During the subperiod 1993–2000 of the second MSSD period, three policies of economic liberalization might have been partly responsible for the divergence of poverty and thus of regime stability in Egypt and Morocco compared to Tunisia and Jordan. These policies are consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization in the Egyptian case, and consumer-price liberalization in the Moroccan case. Empirically, these policies seem to have driven the higher and increasing poverty rates in Egypt and Morocco during the period 1993– 2000, and thereby might have made the Egyptian and the Moroccan regime more stable than their Tunisian and Jordanian counterparts. Hypothesis IH2 Hypothesis IH2 integrates together hypothesis H15 and hypotheses H62, H64, and H65 (see section 4.2.1). Hypothesis H15 assumes (for a developing country context with high economic inequality) a higher stability of an authoritarian regime, the higher income inequality (as a manifestation of economic inequality) in its country is. The other hypotheses contained by the “integrated hypothesis” IH2 speculate on the short-term and long-term effects of different policies of economic liberalization: Hypothesis H62 on the short-term effect of consumer-price liberalization; hypothesis H64 on the short-term effect of exchange-rate liberalization; and hypothesis H65 on the short-term effect of privatization (see appendix-chapter 8). Testing hypothesis IH2 against the empirical data and information on the four MENA countries (see

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sections 6.1.5 and 6.2.2) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, case comparisons are not possible, as there is no data on income inequality for Egypt—the country that should be contrasted in the MSSD with the other three MENA countries (see section 6.2.2). Second MSSD period (1993–2004) During the second MSSD period, income inequality declined continuously in Tunisia, while it declined during the 1990s in Jordan. In contrast, it increased in Morocco, followed by a subsequent / further increase in Jordan and in Morocco during the early 2000s. For Egypt, once again no data was available. In Tunisia, income inequality—as measured by the Gini index—decreased from 0.42 in 1995 to 0.41 in 2000 and to 0.38 in 2005. In Jordan, income inequality first decreased, with the Gini index falling from 0.4 in 1992 to 0.36 in 1997. It then increased again to 0.39 in 2002 / 2003. In Morocco, income inequality increased slightly during the 1990s, from a Gini index value of 0.39 in 1990 to 0.40 in 1998. It then continued to increase during the early 2000s and reached a value of 0.41 during the period 2000–2006 (see section 6.2.2). After all, hypothesis IH2 seems to have some explanatory power for the second MSSD period (1993–2004), as one of the two regimes deemed to be more stable (i.e. the Moroccan) was also the one where income inequality among the population was increasing during the 1990s—while it was decreasing until 1997 in the other two countries for which data was available—and where the absolute level of income inequality was highest in the first half of the 2000s. In a second step, I analyze whether economic-liberalization policies might plausibly have influenced income inequality in Jordan, Morocco and Tunisia during the second MSSD period (1993–2004). The policies of economic liberalization relevant here are consumer-price liberalization (H62), exchange-rate liberalization (H64), and privatization (H65). The hypotheses in parentheses speculate about the short-term effects of the three policies on income inequality. Due to missing data for Egypt (see above), I have to restrict the analysis to Tunisia, Jordan, and Morocco. I therefore check the occurrence of these three economic-liberalization policies during the period 1988–2004, that is maximum five years (the time span in which short-term effects can unfold according to my definition) before the beginning of the second MSSD period (see section 6.1.5): in the country with a politically more stable regime—Morocco—consumer-price liberalization occurred during 1986–1988, in the early 1990s, and in the second half of the 1990s. Exchange-rate liberalization had already been implemented before 1985. Privatization was implemented from

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1993 onwards, although its pace was slow until the end of the 1990s. It then visibly picked up speed in the early 2000s. In the first country with a politically less stable regime—Tunisia—consumer-price liberalization occurred during the period 1985–1993 and in the early 2000s. Exchange-rate liberalization also occurred in the late 1980s, although the bulk of devaluation had already happened before 1988. Privatization started during the period 1988–1993, and accelerated after 1995. In the second country with a politically less stable regime—Jordan—consumer-price liberalization occurred in 1989, in the first half of the 1990s, and in the early 2000s. Exchange-rate liberalization occurred during 1988–1990. Privatization only started in the late 1990s, and then continued at a moderate pace until the mid-late 2000s. Evaluating the empirical information, there is the possibility that the short-term effects of policies of economic liberalization were behind the diverging trajectories of income inequality in Jordan, Morocco, and Tunisia during the second MSSD period: Income inequality increased in Morocco throughout the 1990s and in the early 2000s, while it continuously decreased in Tunisia. In Jordan, income inequality decreased during the period 1992–1997, and then increased again until 2003. Besides, the level of income inequality during the early 2000s was highest in Morocco (see above). At the same time, Morocco was the only country among the three, where consumer-price liberalization was implemented during the second half of the 1990s. In the early 2000s, the policy was implemented in Tunisia and Jordan, but not any more in Morocco. Privatization was implemented in both Tunisia and in Morocco during the second half of the 1990s, although its intensity was higher in Tunisia. During the early 2000s, the policy occurred in all three countries, with the highest intensity in Morocco and with the lowest intensity in Jordan. Exchange-rate liberalization was not implemented in any of the three countries during or maximum five years prior to the second MSSD period. Thus, the short-term effects of consumer-price liberalization might have increased income inequality in Morocco during the period 1995–2000, while Tunisia and Jordan did not suffer from these effects due to the absence of the policy. In contrast, the pattern of privatization runs counter to the predictions of hypothesis H65. Although it was more intensive in Tunisia compared to Morocco during the second half of the 1990s, it apparently did not drive up income inequality among the Tunisian population. Nevertheless, the implementation of privatization could still have slowed down the decline of income inequality in Tunisia during the period 1995–2000. Ultimately, one can assume the effects of consumer-price liberalization on income inequality were stronger than the effects of privatization, due to the confined scope of privatization—in terms of the affected share of the total national workforce— compared to the large-scale social implications of a policy such as consumer-price liberalization. Therefore, consumer-price liberalization might effectively have been

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the economic-liberalization policy mainly responsible for the increasing economic inequality during the 1990s in Morocco, and for its relatively higher level in Morocco during the 2000s compared to Tunisia and Jordan. It thereby might have made the Moroccan regime more stable than its Tunisian and Jordanian counterparts. After all, hypothesis IH2 seems to have some explanatory power in relating policies of economic liberalization to regime stability via income inequality in three of the four MENA countries under examination during the second MSSD period (1993–2004), especially during the subperiod 1995–2000. Third MSSD period (2005–2010) During the third MSSD period, case comparisons are not possible, as there is no data on income inequality for Egypt and Jordan, while only one measurement of income inequality exists for Morocco (in 2006). Tunisia is the only country, where two measurements are available (in 2005 and 2010) (see section 6.2.2). These data limitations inhibit meaningful case comparisons within a MSSD. Conclusion on hypothesis IH2 for the three MSSD periods To conclude, hypothesis IH2 seems to have some explanatory power during the second MSSD period (1993–2004), while it is not possible—due to data limitations— to judge its power in explaining the differences in stability among the four MENA regimes during the first MSSD period (1965–1986) and during the third MSSD period (2005–2010). During the subperiod 1995–2000 of the second MSSD period, one policy of economic liberalization might have been partly responsible for the divergence of income inequality, and thus for the divergence of regime stability in Morocco compared to Tunisia and Jordan: this policy is consumer-price liberalization. Empirically, consumer-price liberalization seems to have increased income inequality in Morocco during the period 1995–2000 to higher levels than in Tunisia and Jordan, and thereby might have made the Moroccan regime more stable than its Tunisian and Jordanian counterparts. Hypothesis IH3 Hypothesis IH3 integrates together hypothesis H24 and hypothesis H60 (see section 4.2.1). Hypothesis H24 assumes foreign aid and other financial contributions of donor states and of international organizations increase the stability of an authoritarian regime. Hypothesis H60 speculates that the implementation of economicliberalization policies by a debtor as part of a loan-conditionality agreement increases the benevolence of international creditors, resulting in further lending, debt rescheduling, and debt cancellation (see appendix-chapter 8). Testing hypothesis IH3 against the empirical data and information on the four MENA countries (see

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sections 6.1.4, 6.1.5, 6.2.1, and 6.2.2) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, hypothesis IH3 can only be tested during the final years of the period, that is after 1980. Before 1980, the codification of economic liberalization in loan-conditionality agreements was not given empirically in the four countries under examination. During the subperiod 1980–1986, the implementation of economic liberalization, which possibly lead to higher financial contributions of international creditors / donors, does not seem to have been an important factor behind the stability of the four MENA regimes. None of the four regimes—with the exception of the Moroccan—contracted any conditionality-backed foreign lending before 1986. The Moroccan state was also the only one, whose debt was partly rescheduled: during the period 1980–1985, Morocco received loan commitments worth around SDR 3 billion from the IMF and the WB, in addition to several rounds of debt rescheduling by bilateral and commercial creditors. The implementation of economic liberalization seems to have been an important factor behind the decision of Morocco’s creditors to offer new finance or to ease repayment terms. In contrast, the three other MENA regimes did neither receive conditionality-backed foreign lending nor debt rescheduling, nor debt cancellation, during the period 1980–1985. Tunisia contracted its first conditionality-backed loan agreement (IMF Standby Arrangement) in 1986, so potential effects on regime stability could only have unfolded after the first MSSD period. Jordan did not contract its first conditionalitybacked loan agreement (IMF Standby Arrangement) before 1989. Egypt implemented its first conditionality-backed loan agreement (IMF Standby Arrangement) from 1987 onwards, concomitant with a first round of debt rescheduling by the Paris Club. Nevertheless, it had already received high amounts of bilateral lending from the United States during the first half of the 1980s—as a reward for its peace treaty with Israel (see sections 6.1.4, 6.2.1, and 6.2.2). Ultimately, the variance on the IV “economic liberalization” and its potential transmission channel (economic liberalization fostering economic stabilization through an increase in external finance) is not consistent with the variance of the DV “regime stability.” After all, the Egyptian regime does not seem to have been less stable than its three MENA counterparts during the period 1980–1986 (as a subperiod of the first MSSD period 1965–1986) for the reason that it implemented fewer economic-liberalization policies resulting in lower inflows of external finance.

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Second MSSD period (1993–2004) During the second MSSD period, a clear correlation between the IV “economic liberalization”, the inflow of external finance as a manifestation of the transmission channel “economic stabilization”, and the DV “regime stability” is not discernible either. Values on the IV and on the variables of the transmission channel are not consistently lower for the less stable regimes of Tunisia and Jordan than for the more stable regimes of Egypt and Morocco. In fact, these variable values differ significantly among the countries of each pair: As for the more stable pair, the Egyptian regime benefitted from a 50 percent cut of its foreign debt over the first half of the 1990s (totalling USD 25 billion), of which half was dependent on the implementation of economic-liberalization policies during the period 1990–1996. In addition, it received conditionality-backed loans from the IMF and the WB over the course of the whole 1990s, worth around SDR 1 billion. IMF and WB lending then stopped after 1998. In contrast, the Moroccan regime benefitted from the rescheduling of around USD 7 billion of debt, whose terms covered the first half of the 1990s. Until the end of the second MSSD period, it received no further IMF lending—due to the fact that IMF-supervized stabilization had already taken place throughout the 1980s and in the early 1990s—and only seven WB loans worth around USD 800 million. Compared with Egypt, the inflow of foreign finance (including the slowdown of foreign-currency outflows as a result of debt rescheduling and debt cancellation) to Morocco was markedly lower (see sections 6.1.4, 6.2.1, and 6.2.2). Differences on the IV and on variables of the transmission channel are similar for the second country pair, whose regimes apparently were less stable during the second MSSD period: the Jordanian regime concluded four IMF lending arrangements (worth USD 640 million) while it also contracted seven WB loans (worth USD 720 million). In addition, six rounds of debt rescheduling took place from 1993 to 2002, and the United States cancelled USD 700 million of its bilateral debt claims against Jordan during the period 1994–1997. In contrast, the Tunisian regime solely contracted three WB loans (worth around USD 500 million) during the second MSSD period, while it did not receive neither debt rescheduling nor debt cancellation (see sections 6.1.4, 6.2.1, and 6.2.2). Ultimately, the pattern of variance on the IV, on variables of the transmission channel, and on the DV does not suggest that economic liberalization leading to higher inflows of foreign finance might have been an important factor affecting the stability of the four MENA regimes during the second MSSD period. Third MSSD period (2005–2010) During the third MSSD period, variance on variables of the transmission channel “economic stabilization” was close to zero for the four MENA regimes: none of the

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four countries received IMF lending. Concomitantly, WB lending was also marginal. The only two countries that contracted WB loans during the period were Tunisia (in 2005) and Morocco (in 2010). However, the lending volumes were insignificant— USD 150 million for Tunisia, USD 60 million for Morocco—for potential effects on regime stability. Further to that, none of the four regimes received any debt rescheduling or debt cancellation during the third MSSD period (see sections 6.1.4, 6.2.1, and 6.2.2). Therefore, the empirically observable difference in stability among the Moroccan regime and its three MENA counterparts during the third MSSD period cannot be plausibly explained by the occurrence of economic liberalization leading to higher inflows of foreign finance. Conclusion on hypothesis IH3 for the three MSSD periods To conclude, hypothesis IH3 does not seem capable of explaining the differences in stability of the four MENA regimes in any of the three MSSD periods.

6.2.4

Preliminary Conclusion: the Effect of Economic Liberalization on Regime Stability via Economic Stabilization

In this subchapter, I analyzed the effects of policies of economic liberalization on the stability of the four authoritarian regimes through the transmission channel of economic stabilization. Economic stabilization was conceptualized as a twodimensional phenomenon: its first dimension is stabilization through the state budget and through the international accounts, while its second dimension is stabilization through economic growth and through the income dimension of socioeconomic development. I proceeded in three steps: In a first step, I compared the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) descriptively in a diachronic setup, focusing on the main parameters in each of the two dimensions of economic stabilization. In a second step, I descriptively tested 42 hypotheses out of the 71 derived from the literature survey on the effects of economic liberalization in section 3.2. These 42 hypotheses (H26–H67; see appendix-chapter 8, tables 8.2–8.6) speculated about the effects of economic liberalization on the variables of economic stabilization—20 of them via the state budget and the international accounts, 21 of them via economic growth and socioeconomic development, one hypothesis via all four variables. I checked these 42 hypotheses against the empirical information on each of the four MENA countries, with the aim to assess how policies of economic liberalization might have influenced the operationalized variables of economic stabilization. The

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hypothesis testing at this stage was non-analytical, as I did not compare the four MENA countries among each other. In a third step, I analytically tested the three “integrated hypotheses” IH1–IH3 on the link between economic liberalization and regime stability transmitted through economic stabilization (see section 4.2.1) in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010. Descriptive diachronic comparison of the four MENA countries Analyzing variable relations descriptively, one can at first sight observe a general correlation between the implementation of policies of economic liberalization and the amelioration of macroeconomic indicators. In the first dimension of economic stabilization, all variables had structurally improved, if the 2000s are compared with the 1980s (when economic liberalization had started in all four MENA countries): the balance of the state budget; the trade balance; the current-account balance (with the exception of Jordan); absolute and relative FDI net inflows; the external debt stock; and international reserves. With minor exceptions, most of these variables had already structurally improved in the four MENA countries from the 1980s up to the 1990s. However, if one looks at interdecade movements of the variables, the long-term trend (1970–2009) was clearly improving only in the case of the currentaccount deficit, of relative FDI net inflows, and of international reserves. In contrast, the long-term trend was ambiguous for the budget deficit, for the trade deficit, and for the external debt stock (see table below and section 6.2.1). In the second dimension of economic stabilization, the correlations were different and not as clear-cut: Regarding economic growth, the decade average of real GDP growth (overall period 1970–2009) was highest during the 1970s in all four MENA countries—i.e. at a time, when policies of economic liberalization had only been implemented in two of the four countries, and there only to a limited extent. Afterwards, the decade average of real GDP growth rose continuously from the 1980s up to the 2000s (the three decades when economic-liberalization policies were implemented in all four countries) only in Jordan. In Egypt and Morocco, it decreased from the 1980s up to the 1990s, and it only increased again in the 2000s. In Tunisia, it increased from the 1980s up to the 1990s, and decreased again in the 2000s. At the same time, the volatility of real GDP growth (measured by its standard deviation) continuously decreased in three of the four countries from the 1970s up to the 2000s (the exception being Morocco) (see table below and section 6.2.2). Taking population growth into account, three of the four countries—the exception being Morocco—recorded the highest average real GDP per capita growth during the 1970s (overall period 1970–2009). Afterwards, the decade average of real GDP per capita growth rose continuously from the 1980s up to the 2000s only in Jordan. In both Egypt and Morocco, it declined from the 1980s up to the 1990s, and then

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increased again during the 2000s—Morocco’s 2000s average was at least higher than its 1980s average, which was not the case in Egypt. In Tunisia, the decade average of real GDP per capita growth increased from the 1980s up to the 1990s and then stayed flat during the 2000s (see table below and section 6.2.2). Regarding socioeconomic development, the HDI—which measures several dimensions of socioeconomic development—increased continuously in all countries from the 1980s up to the 2000s. Egypt recorded the greatest absolute progress in the HDI from 1980 to 2010, followed by Tunisia, Morocco, and Jordan. Relative progress was highest in Morocco, followed by Egypt, Tunisia, and Jordan. In global comparison—as measured by the rank in the Human Development Reports (1990, 2000, 2010) based on HDI values, divided by the number of countries in the underlying global HDI sample—, all four countries fell back in the global HDI ranking from 1990 to 2000, before they all improved their position from 2000 to 2010. However, only Egypt and Tunisia improved their position if 2010 is compared with 1990, while Morocco and Jordan fell back. Comparing 2010 with 1990, Tunisia realized the greatest step forward in the global HDI ranking, while Jordan fell back the most (see table below and section 6.2.2). In the income dimension of socioeconomic development, official unemployment in all four countries increased significantly from the 1970s up to the mid-late 1980s. Thereafter, three of the four countries had lower average rates of official unemployment in the 2000s than in the 1990s—the exception being Egypt, where it stayed roughly flat. Likewise, three of the four countries had lower average rates of official “youth unemployment” in the 2000s than in the 1990s—the exception being once again Egypt, where it rose by around 1 percent during the 2000s. The decade average of inflation (“change of average consumer prices”) was constantly falling from the 1970s up to the 2000s in Jordan and in Morocco. The same holds true for Tunisia from the 1980s up to the 2000s (measurements for Tunisia start in 1980). In Egypt, inflation skyrocketed from the 1970s up to the 1980s, before its decade average fell steadily during the 1990s and the 2000s. Average “personal remittances received” declined in three of the four countries from the 1980s up to the 1990s, before they rose again in the 2000s—the exception being Egypt, where the decade average declined continuously from the 1980s up to the 2000s. As for poverty, a comparative assessment is complicated by the fact that figures are sparse and noncontinuous, while they are plagued by problems of measurement and comparability: official poverty apparently declined in the second half of the 1980s in both Tunisia and in Morocco—the declining trend in Tunisia seems to have begun already in the mid-1970s—, while it rose in Jordan. During the first half of the 1990s, official poverty rose in Egypt, Tunisia, and Morocco, before it decreased again in Egypt and in Morocco in the second half of the 1990s (although resting at higher levels com-

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pared to the early 1990s). During the 2000s, official poverty declined markedly in Tunisia, Jordan, and Morocco, while it rose significantly in Egypt. Average income inequality—as measured by the Gini index—shows a different pattern in each country: in Tunisia, it seems to have decreased from the 1980s up to the 2000s. In Jordan, it seems to have increased from the 1980s up to the 1990s, and then apparently stayed flat in the 2000s. In Morocco, it seems to have increased from the 1980s up to the 2000s. Egypt could not be included in the analysis due to a complete lack of data (see table below and section 6.2.2). Thus, among the variables of the second dimension of economic stabilization, only the volatility of real GDP growth and inflation show a relatively clear longterm trend (downward). In contrast, the long-term trend is ambiguous for real GDP growth, real GDP per capita growth, the countries’ relative position in the global HDI ranking, official unemployment, official youth unemployment, relative remittance income, official poverty, and income inequality. At the same time, the levels of these variables (excluding the volatility of real GDP growth and inflation) were not necessarily more favorable during the 2000s than during the 1970s (when policies of economic liberalization began to be implemented in two of the four countries). To the contrary, both average real GDP growth and average real GDP per capita growth had been structurally higher in all countries during the 1970s—with the sole exception of Morocco for the case of real GDP per capita growth—compared to the subsequent three decades. Both the 1980s and 1990s were difficult decades economically: while there were winners and losers for most variables, the 1990s were even worse than the 1980s for the majority of countries in the case of relative remittance income and of the position in the global HDI ranking. In contrast, the 2000s were a more favorable decade, as several variables improved in the majority of countries compared to the 1990s: real GDP growth; real GDP per capita growth; the relative position in the global HDI ranking; official unemployment; official youth unemployment; and relative remittance income. Nevertheless, if the 2000s are compared with the 1980s, an improvement for the majority of countries—excluding the volatility of real GDP growth and inflation—is only discernible in real GDP growth and in real GDP per capita growth, but not for example in relative remittance income (while comparison on the other variables is hampered by a lack of data) (see table below and section 6.2.2). Table 6.2 summarizes the interdecade movements and long-term trends of the main variables of economic stabilization. It remains an open question whether economic liberalization influenced these variable movements. From all the variables of economic stabilization, five seem to correlate strongly with the implementation of economic-liberalization policies in the long run (i.e. over a 30–40 years time horizon): the current-account deficit (neg-

1990s (1990–1999)

Up

Up: Jordan Down: Egypt, Tunisia, Morocco Up: Tunisia, Jordan, Morocco Down: Egypt Up: Jordan, Tunisia Down: Egypt, Morocco

Down

International reserves Up Up Dimension 2: Economic growth and socioeconomic development Real GDP growth Down Up: Tunisia, Jordan Down: Egypt, Morocco Volatility of real GDP Down: Egypt, Tunisia, Down: Egypt, Tunisia, growth Jordan Jordan Up: Morocco Up: Morocco

External debt stock

Up: Egypt, Tunisia Down: Jordan, Morocco Current account deficit Up: Jordan Down: Egypt, Tunisia, Morocco Relative FDI net inflows Up

Trade deficit

Dimension 1: State budget and international accounts Budget deficit Ambiguous Down

1980s (1980–1989)

Up: Egypt, Jordan, Morocco Down: Tunisia Down

Down: Egypt, Jordan, Morocco Flat: Tunisia Up

Up

Up

Down

Ambiguous

Up

Ambiguous

Ambiguous Down

Ambiguous

1970s–2000s (1970–2009)

Up: Jordan, Morocco Down: Tunisia Ambiguous: Egypt Up: Jordan, Morocco Down: Egypt, Tunisia Down

2000s (2000–2009)

(Continued)

Table 6.2 Interdecade movements and long-term trends of the variables of economic stabilization in Egypt, Tunisia, Jordan, and Morocco (1970s–2000s)

6.2 Economic Stabilization 427

Up: Egypt Down: Jordan, Morocco No data: Tunisia No data

Inflation

Down: Egypt, Tunisia, Jordan No data: Morocco

No data

Official poverty

Income inequality

Relative remittance income

No data

No data Up

Down

1980s (1980–1989)

Up: Jordan Down: Tunisia Flat: Morocco No data: Egypt

Down: Morocco Ambiguous: Egypt, Tunisia, Jordan

Down

Down

No data

Up: Tunisia, Jordan Down: Egypt, Morocco Down Ambiguous

1990s (1990–1999)

Up: Tunisia, Jordan, Morocco Down: Egypt Up: Egypt Down: Morocco Ambiguous: Tunisia, Jordan Up: Morocco Down: Tunisia Flat: Jordan No data: Egypt

Up: Egypt, Jordan, Morocco Flat: Tunisia Up Down: Tunisia, Jordan, Morocco Flat: Egypt Up: Egypt Down: Tunisia, Jordan, Morocco Down

2000s (2000–2009)

Ambiguous

Ambiguous

Ambiguous

Down

Ambiguous

Ambiguous Ambiguous

Ambiguous

1970s–2000s (1970–2009)

6

Official youth unemployment

Real GDP per capita growth Global HDI ranking Official unemployment

Table 6.2 (Continued)

428 Empirical Analysis—Economic Liberalization and the Stability ...

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429

atively); relative FDI net inflows (positively); international reserves (positively); the volatility of real GDP growth (negatively); and inflation (negatively). However, it would be scientifically unsound to infer causality between policies of economic liberalization and the movements of these five variables out of superficial correlations. The more so as theory predicts different effects of single policies of economic liberalization on several variables of economic stabilization. Descriptive hypothesis testing Looking at the four MENA countries individually and proceeding chronologically through their reform periods (defined by the intensity of economic liberalization), I strove to shed light on possible effects of specific policies of economic liberalization on variables of economic stabilization in the short run and in the long run. I did this by testing the 42 hypotheses H26–H67 drawn from the literature survey presented in sections 3.2.1–3.2.3 (specified in the appendix-chapter 8, tables 8.2–8.6) descriptively against the empirical material of the four countries. Ultimately, I could not come to general or even qualified conclusions about the role of economic-liberalization policies in economic stabilization for the four authoritarian regimes under examination. The reason for this negative assessment is that the empirical effects of economic liberalization on the variables of economic stabilization (the state budget, the international accounts, economic growth, and socioeconomic development) are hard to detect: a first problem is the difficulty to operationalize and to measure the IV “economic liberalization.” We lack information on the precise empirical implementation of economic-liberalization policies in most countries (which kind of policies were implemented, when, and where and to what degree). Thus, we are left with incomplete information on the characteristics of the IV. A second problem is that the DVs of “economic stabilization” are also difficult to operationalize—this is especially true for the DV “socioeconomic development” (less so for the state’s budgetary balance, for the international accounts of a state, and for economic growth). Here, I solely analyzed the income dimension of socioeconomic development (omitting the health, education, human-rights, political-rights, and general-well-being dimensions). Nevertheless, measurement remains difficult, as proxy variables do not fully capture the underlying empirical manifestations—this is especially true for the variable “socioeconomic development” and its income dimension (e.g. real household income, which is proxied here by unemployment, inflation, and remittances—with operationalizations / measurements from the WB Open Data). Several other problems complicate variable measurements: First, macroeconomic accounting is often inaccurate in MENA countries, due to insufficient technical capabilities and deficient institutional infras-

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tructure. Second, regimes in MENA countries sometimes withhold or deliberately distort official figures for political purposes—while reports by international organizations may not be free of political considerations either. In many cases there is no independent data collection by international organizations, so the figures used stem from official national sources. Third, variables are often measured as nationwide aggregates, and therefore smooth intrasocietal differences—an inaccuracy that especially affects the proxy variables of socioeconomic development. Thus, the analysis yields no information on how policies of economic liberalization could have affected different societal groups and individuals. A third problem is that a myriad of other variables both theoretically and empirically influence the DVs of economic stabilization, while interaction effects between these influencing variables are likely complex. Thus, the independent effect of economic-liberalization policies on economic stabilization is hard to isolate. This problem is further compounded, as we consider both the short-term and the longterm effects of economic liberalization (see sections 6.2.1 and 6.2.2). In the case of economic growth, the academic literature mentions a whole range of possible “growth drivers,” such as physical capital, population size, human capital (determined by health and education), productivity (determined by technology, “efficiency,” and “openness” of an economy), and other “fundamental” growth drivers (“government,” income inequality, “culture,” “geography,” “climate,” and “natural resources”) (Weil 2009). All these variables should also be relevant for explaining socioeconomic development—as economic growth is assumed to be one of its major drivers. Besides, other control variables might have an influence on the state budget, on the international accounts, on economic growth, and on socioeconomic development: macroeconomic-stabilization policies that do not contain elements of economic liberalization (e.g. expenditure cuts, tax increases); rent inflows not connected with economic liberalization (e.g. due to natural resources, strategic importance of a country for international donors, internationally important infrastructure, tourist attractions, etc.); the global and local economic situation (upturn or downturn); the international prices of basic commodities (affecting a country as importer and exporter); the vagaries of nature (weather, natural catastrophes); and major disruptive national and international events (economic and political crises, wars, terrorist attacks, etc.). After all, to obtain information about the independent effect of economic liberalization on the variables of economic stabilization, we would have to be able to build an apt theoretical model (which we are not) and to operationalize all variables correctly (likely elusive too). The hypotheses would then have to be tested in a multivariate setup. Be that as it may, in the end it is impossible to detect all relevant variables—let alone operationalize them correctly. Thus, the true independent

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effect of economic-liberalization policies on the variables of economic stabilization cannot be identified. We are left instead with mere speculation (albeit speculation based on scientific reasoning), in observing macro-level correlations (which are distorted through the effects of many independent and intervening variables) and in generating, at most, some more or less well-founded propositions and hypotheses on possible effects of economic-liberalization policies on the variables of economic stabilization in the four countries under examination. Finally, it is important to note that even if we had ex post knowledge on the precise independent effects of economic liberalization, the problem remains that we still lack information on counterfactual situations. That is, regarding what would have happened to economic stabilization if policies of economic liberalization had not been implemented at all, or had been in a different manner to the ones in which they were. Ultimately, the maximum we can say is that this study leads to the assumption or the hypothesis that economic liberalization as a bundle of policies might have been one of several factors that contributed to economic stabilization by bringing down the current-account deficit, the volatility of real GDP growth, and inflation in the four MENA countries during the period 1970–2009. Besides, policies of economic liberalization might also have helped raising relative FDI net inflows and international reserves in these countries during the same period. For the effect of single policies of economic liberalization on economic stabilization, general or even qualified conclusions cannot be drawn due to the problems of operationalization, empirical measurement, the complexity of control variables, and missing counterfactual situations. Analytical hypothesis testing The final question is whether economic liberalization, via economic stabilization, influenced the stability of authoritarian regimes in the four MENA countries under investigation. On the basis of the theoretical model outlined in section 4.1, I assumed the following relationship: if economic liberalization could be shown to impact on the variables of economic stabilization, this should automatically entail a positive or negative effect on regime stability. However, this assumption might not be correct. To arrive at possible answers, I constructed three more hypotheses (IH1–IH3) based on the reviewed literature. I derived these additional hypotheses by combining and integrating hypotheses from different strands of theory (see section 4.2.1). The resulting “integrated hypotheses” speculate on the links between economic liberalization and the stability of an authoritarian regime, conceptualizing the transmission channel of economic stabilization as driven by socioeconomic variables (poverty and economic inequality) and by the action of external actors. Two of these hypotheses (IH1

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and IH2) contradict my earlier assumption that less poverty and lower economic inequality increase the stability of an authoritarian regime (second dimension of economic stabilization). Testing the three “integrated hypotheses” IH1–IH3 analytically against the empirical material of the four MENA countries in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010 led to the following conclusions: Hypothesis IH1 seems to have some explanatory power during the second MSSD period (1993–2004), but it does not seem capable of explaining the differences in stability among the four MENA regimes neither during the first MSSD period (1965–1986) nor during the third MSSD period (2005–2010). During the subperiod 1993–2000 of the second MSSD period, three policies of economic liberalization might have been partly responsible for the divergence of poverty and thus of regime stability in Egypt and Morocco compared to Tunisia and Jordan. These policies are consumer-price liberalization, the liberalization of interest rates, and exchangerate liberalization in the Egyptian case, and consumer-price liberalization in the Moroccan case. Empirically, these policies seem to have driven the higher and increasing poverty rates in Egypt and Morocco during the period 1993–2000, and thereby might have made the Egyptian and the Moroccan regime more stable than their Tunisian and Jordanian counterparts. Hypothesis IH2 seems to have some explanatory power during the second MSSD period (1993–2004), while it is not possible—due to data limitations—to judge its power in explaining the differences in stability among the four MENA regimes during the first MSSD period (1965–1986) and during the third MSSD period (2005– 2010). During the subperiod 1995–2000 of the second MSSD period, one policy of economic liberalization might have been partly responsible for the divergence of income inequality, and thus for the divergence of regime stability in Morocco compared to Tunisia and Jordan: this policy is consumer-price liberalization. Empirically, consumer-price liberalization seems to have increased income inequality in Morocco during the period 1995–2000 to higher levels than in Tunisia and Jordan, and thereby might have made the Moroccan regime more stable than its Tunisian and Jordanian counterparts. In contrast to hypotheses IH1 and IH2, hypothesis IH3 does not seem to be powerful in explaining the differences in stability of the four MENA regimes in any of the three MSSD periods. Table 6.3 summarizes the conclusions of the analytical hypothesis testing on the link between economic liberalization and the stability of authoritarian regimes via economic stabilization. To summarize the results from the analytical hypothesis testing on the nexus between economic liberalization, economic stabilization, and regime stability, one can draw the following conclusions: Three policies of economic liberalization (most

IH2

–

IH3 – – X Hypothesis can explain empirical observations (X) Hypothesis can partly explain empirical observations – Hypothesis cannot explain empirical observations

–

IH1

Second theoretical link –

First MSSD period (1965–1986)

First theoretical link –

Hypothesis No. First theoretical link X Consumer-price liberalization, liberalization of interest rates, exchange-rate liberalization (subperiod 1993–2000) X Consumer-price liberalization (subperiod 1995–2000) – –

X

Second theoretical link X

Second MSSD period (1993–2004)

Table 6.3 Summary of analytical hypothesis testing: economic stabilization (IH1–IH3)

–

–

–

–

Second theoretical link –

Third MSSD period (2005–2010) First theoretical link –

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importantly consumer-price liberalization) might effectively have stabilized two of the four resource-poor authoritarian regimes analyzed here as sample cases for the MENA region—although these findings only apply to a very confined subperiod (i.e. the mid-late 1990s) within the 60-year period of investigation. In this subperiod of the mid-late 1990s, consumer-price liberalization seems to have increased regime stability in Egypt and Morocco through its positive impact on poverty. In the Moroccan case, it might have had an additional stabilizing effect through its positive impact on income inequality. In the Egyptian case, two more policies of economic liberalization—these are the liberalization of interest rates and exchangerate liberalization—might have contributed to stabilizing the regime through their positive impact on poverty. However, the problems already encountered when testing the hypotheses on economic stabilization in a descriptive / non-analytical way also hamper the analytical hypothesis testing: Problems of operationalization and empirical measurement (including now the DV “regime stability”) (see the discussion in section 5.2.3); the complexity of control variables; and missing counterfactual situations. Ultimately, it remains a matter of speculation whether economic liberalization—via economic stabilization and the links proposed by the two “integrated hypotheses” (IH1 and IH2) identified as potentially explanatory—did in fact influence the stability of resource-poor authoritarian regimes in the four examined MENA countries during the mid-late 1990s.

6.3

Political Stabilization

In this subchapter, I analyze the effects of economic-liberalization policies on the stability of the four authoritarian regimes under investigation through the transmission channel of political stabilization. Political stabilization, as defined in section 2.4, is the result of political and economic factors that unfold their influence on the micro level, meso level, or macro level. A second criterion of differentiation is whether these factors operate through policies, the arena of politics, or processes at the polity level. In contrast to economic stabilization, which might have indirect political effects, the factors behind political stabilization have direct political effects. I proceed in two steps: In a first step, I seek to establish the effects of policies of economic liberalization on political stabilization by comparing the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) descriptively in a diachronic setup, on the basis of ten phenomena of politics and policies. These ten phenomena were carved out from a comprehensive review of the academic and nonacademic literature

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on resource-poor MENA countries and on economic reform. All of these phenomena contain elements of political stabilization. Their selection is eclectic, that is not based on a theoretical model (see section 5.2.2). To structure the empirical observations, I subdivided the analysis in two parts: The first part comprises phenomena partly driven by policies, partly by a dynamic interplay of actors that directly affect the position and relations of political actors (i.e. “politics”). The second part comprises policies with a technical purpose that indirectly affect political actors (i.e. “policies” in a narrow sense). In a second step, I analytically test the nine “integrated hypotheses” IH4-A– IH6-D on economic liberalization and regime stability transmitted through political stabilization (see section 4.2.2) in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010.

6.3.1

Politics: Centralization of Power; Narrowing of Regime Coalitions; and Growing Influence of Private Business Actors

On the politics level, economic liberalization in MENA countries correlated with changes in the constellation of political actors (either individual or collective) and the distribution of political power among them. It also correlated with policies that assumedly aimed to increase the stability of the regimes. I carved out five phenomena of politics from a review of academic literature that empirically occurred together with economic liberalization: “Centralization of power;” “technocratization;” “changing roles for state, labor, and capital;” “incorporation of business actors into the regime;” and “presidential and royal families as business actors.” In this subchapter, I first describe and subsequently compare these phenomena among the four MENA countries in a diachronic setup, while I highlight the role of economic liberalization (as possible cause and effect) throughout the analysis.

6.3.1.1 Centralization of Power Centralization of power—meaning the process whereby the distribution of political power within a regime changes in favor of certain regime actors—was both a result of economic liberalization and one of its key drivers. The two single-party-led “republics” (Egypt, Tunisia) and the two monarchies (Jordan, Morocco) started off from different points: during the 1950s–1960s, political power in the single-partyled “republics” of Egypt and Tunisia was relatively dispersed among the single parties and their affiliated organizations (e.g. worker unions, professional associations). When the corporatist model of political rule and the corresponding model

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of state-led development became unsustainable in the two republics during the late 1960s (above all due to persistently low economic growth), the turn to economic liberalization was unavoidable. It was fuelled by the differentiation of economic interests within the ruling coalitions—a result of ISI policies, which had spawned a state-sponsored bourgeoisie—and unleashed factional conflict, especially between capital holders and workers. Nascent economic liberalization reinforced this process. Ultimately, these dynamics led to the breakup of the single parties and initiated the turn to multi-partyism (a political system already present in similar form in the two monarchies). The new fragmentation of the political systems fostered the centralization of power in the hands of the President and of top regime personnel.72 Thus, the initiation of policies of economic liberalization was one factor behind the centralization of political rule in the two “republics” Egypt and Tunisia. Apart from economic liberalization, another factor facilitated the centralization of power: the 1970s oil boom. With access to rent income of unprecedented size, the political systems of Egypt and Tunisia evolved towards a neopatrimonial type. Sustained by a larger distributive capacity of the regimes, political negotiation between the members of the ruling coalitions receded, while economic-dependency relations became more important (S. Amin 1970: 159–162; Waterbury 1983: 36–38, 97, 112, 124, 127–130, 354–388; Hinnebusch 1985: 59, 86–91, 158–160, 186, 294–299; Springborg 1989: 30–37; Wahba 1994: 140–141, 148; Ehteshami and Murphy 1996: 761; 72

A detailed account of these processes can be found in the study of (Murphy 1999: 13–16), who analyzes economic liberalization and political change in MENA “post-independence states where traditional dominant social forces have been overthrown by reformist / revolutionary regimes employing populist policies.” She outlines the common path these regimes have taken: being the leaders of the independence struggle, they incorporated all anticolonialist forces in their newly founded states. State building was advanced through corporatist political systems centered around single parties and a statist economic model based on ISI. In the corporatist system, interests were aggregated vertically through the single party and channelled to the state and regime. The institutional boundaries between party, state, regime, and interestbased national organizations were blurred and overlapping. The economic-development model that emerged (statist ISI) benefited all interests within the ruling coalition and thus prevented horizontal class-based struggle. However, it was highly dependent on sustained economic growth. When growth declined in these countries due to the inefficiency of ISI policies, the “populist alliances [began] to dissolve.” Resource accumulation was not sufficient any more to satisfy the demands of the whole ruling coalition. Thus, regimes increasingly used authoritarian measures to keep conflicting interests in check. At the same time, state building based on ISI had led to the evolution of new social classes with an interest in economic liberalization (“industrial, commercial, and bureaucratic bourgeoisie”). These interests prevailed inside the regime and imposed economic liberalization through the state. To shift economic policy, they dismantled the single party (by introducing political liberalization) and centralized decision making power within a small circle of regime members (Murphy 1999: 20–27, 32, 37–39).

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Murphy 1999: 13–16, 20–27, 32, 37–39, 57–59, 74, 101–102; Beattie 2000: 188– 196, 199–200, 235–239; Beinin 2009: 19; Erdle 2010: 76–78; G. A. Amin 2011: 34, 36; Alexander 2016: 111–113). In contrast, political power in the two monarchies Jordan and Morocco was already highly concentrated in the hands of the monarchs and of a small number of core regime members, when economic liberalization set in during the 1970s (Jordan) and 1980s (Morocco). The basis of power centralization was an opposition fragmented into different political parties and groups, which the Kings (who held wide-ranging executive powers) manipulated as arbiters above partisan lines. As in the two “republics,” the 1970s rent influx sustained the centralization of political power in the two monarchies, by deepening the neopatrimonial traits of the regimes. When economic liberalization came on the agenda during the 1970s–1980s, the question for the two monarchs and their core regime personnel was whether to centralize power further by continuing to close channels of political participation. They were thus in a different situation than the Presidents and their core regime personnel in the two “republics,” who had to introduce multi-partyism in the first place to initiate economic liberalization. In Jordan, where Parliament was suspended during 1967–1984, the space for further centralization of power was limited. Despite the high degree of power centralization, economic reforms remained superficial until 1985–1986. In Morocco, where Parliament had been newly elected in 1977, power was once again centralized after the 1984 parliamentary elections (“defused politics” until 1993), while economic reforms (including economic liberalization) became thoroughgoing since 1983. In 1989 (Jordan)73 and 1993 (Morocco), both regimes readjusted power relations through decentralization of power (visible in renewed parliamentary elections after years of stalled parliamentary politics) (Satloff 1986: 44–51, 69–74; Faath 1987: 57, 63, 66–67, 78–79, 120–122, 136–138, 154–155, 169–170, 189–190; Tessler 1987: 214–215; Brand 1992: 181; Brynen 1992: 79–83; A. Hermassi 1994: 234; Denoeux and A. Maghraoui 1998b: 75, 1998a: 112–113; Joffè 1998: 107; Piro 1998: 60; Pennell 2000: 296; Ryan 2002: 21–22; Carroll 2003: 42–43; Wils 2003: 92, 97–101; Owen 2004: 46; Robins 2004: 156–157, 171, 174–175; Ryan and Schwedler 2004: 149; Lucas 2005: 27–44; Milton-Edwards and Hinchcliffe 2009 [2001]: 45, 52–54; Sater 2010: 40–43, 48–49, 51, 61–63; Vermeren 2010: 31, 35, 77–78, 84–85; Bogaert 2011: 711–719; Gilson Miller 2013: 156–157). 73

The Jordanian regime had actually readjusted its political system already in 1984, when King Hussein reconvened the suspended 1967 Parliament, concomitant with by-elections for parliamentary seats having become vacant in the meantime (Satloff 1986: 44–51, 71–74; Brand 1992: 181; Robins 2004: 156–157; Milton-Edwards and Hinchcliffe 2009 [2001]: 45). Therefore, Jordan and Morocco had similar political systems at the end of the 1980s, as parliamentary politics based on regular elections were revived in both countries.

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After all, the appearance of economic liberalization on the policy agenda in Jordan and Morocco did not drive the centralization of political power to the same extent as in Egypt and Tunisia—largely due to different levels of centralization before the policy change. As mentioned above, centralization of political power was also a key driver of economic liberalization (signifying theoretical reverse causality), as it facilitated the formal implementation of economic-liberalization policies. In a politically more decentralized system, social groups adversely affected by the reforms of economic liberalization could have exerted more effective pressure to stop the reforms from being implemented. This is why key actors in all four MENA regimes tried at various times to centralize political power, in order to push through reforms of economic liberalization and of economic stabilization.74 However, the downside of higher centralization was more direct responsibility of the regime for policy outcomes. Thus, the two monarchies revived their multiparty systems in the late 1980s (Jordan) and in the early 1990s (Morocco). One reason for this decision was to spread the blame for the hardships of economic reforms (including economic liberalization) (Brand 1992: 185; Leveau 1997: 98– 99; Denoeux and A. Maghraoui 1998b: 55, 75, 79, 1998a: 112–113; Joffè 1998: 107; Layachi 1999: 49, 58; Denoeux 2001: 68; Mednicoff 2002: 95; Ryan 2002: 15–16, 21–22; Schlumberger 2002: 227; Wils 2003: 134; Robins 2004: 170–171; Lucas 2005: 27–31; Milton-Edwards and Hinchcliffe 2009 [2001]: 52–53; Sater 2010: 61–63).75 This process was partly reversed in the monarchies during the 2000s, when political power once again became more centralized, with the Palace and government gaining power to the detriment of other actors—visible for example in the suspension of Parliament in Jordan during 2001–2003 and during 2009–2010, or in the dissipation of Alternance in Morocco, which culminated in the nomination of the technocratic Jettou government in 2002. In both Jordan and Morocco, the 74

According to Kannankulam (2008), similar tendencies were visible in formally “democratic” regimes at the time, that is the attempt to facilitate the implementation of “neoliberal” reforms by centralizing power in the executive—to the detriment of the legislative and of other actors—in the post-war corporatist political systems. His empirical examples are Germany and Britain from the early 1980s up to the early 2000s. 75 Apart from legitimation towards the populace, the foreign supervision of economic reforms could also have played a role in the reviving of parliamentary politics. The transfer of political responsibilities to local institutions could have disburdened the central government in terms of policy outcomes, and thus might have ameliorated its reform record in the eyes of international donors—Nsouli et al. (1995: 20) makes this claim for Morocco. Besides, decentralization of power could also be a result of the regimes’ lower capacity of material redistribution due to the dissipation of oil-related rent income during the 1980s and 1990s.

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recentralization of power in the 2000s apparently facilitated the implementation of economic reforms, including economic liberalization (Sater 2003: 139–141; Robins 2004: 202–203; Ryan and Schwedler 2004: 139, 144, 146–148; Lucas 2005: 133– 135, 139; Choucair 2006: 9; Ottaway and Riley 2006: 9; White 2008: 91, 99; Harrigan and El-Said 2009: 84; Peters and P. Moore 2009: 277; Sater 2009b: 184–185; 2009a: 386; Vermeren 2009: 18; Sater 2010: 77–79, 116; Zemni and Bogaert 2010: 89, 97–100; Vogt 2011: 62; Bertelsmann 2012b: 2, 8; Gilson Miller 2013: 229; OECD 2013: 54–55). Economic liberalization was thus part of a dynamic process, with alternating periods of centralization and decentralization of political power. Since the mid-1990s, all four countries had firmly established multi-party systems with recurrent parliamentary elections, although the freedom to establish political parties differed (higher in Morocco and Jordan than in Egypt and Tunisia). Despite the existence of parliaments, centralization of power around key actors of the executive was still relatively high in all four countries, as political parties (other than the ruling parties in the two “republics”) had practically no or only very confined political decision-making power (Denoeux and A. Maghraoui 1998a: 105–106; Kassem 1999: 31–32; Murphy 1999: 102, 231; S. J. King 2003: 3; Bank 2004: 167; Hibou 2004: 202–211; Kassem 2004: 43; Owen 2004: 46; Perkins 2004: 196–197; Ryan and Schwedler 2004; Zerhouni 2004: 67; Mc Faul and Wittes 2008: 20; Gobe 2009: 94–99; Milton-Edwards and Hinchcliffe 2009 [2001]: 62–63; Erdle 2010: 91–93, 159, 177, 183; Sater 2010: 105, 116; Bertelsmann 2012b: 2; Gilson Miller 2013: 203, 229; Alexander 2016: 62). After all, if the 2000s are compared to the period before policies of economic liberalization were first implemented in each country (1950s–1960s / 1970s), the degree of centralization of power was higher in the two “republics” Egypt and Tunisia and lower in the two monarchies Jordan and Morocco.

6.3.1.2 Technocratization Technocratization—meaning the intrusion of technocrats (individuals with technical and managerial expertise) into positions of political power—was a phenomenon visible in all four countries under examination already before economic liberalization set in. In the phase of state-led or statist development, technocrats were needed to run the economy based on technically-complex economic planning (e.g. as managers of SOEs, engineers in industrial plants, planners in ministries, etc.). When economic liberalization came on the agenda, the structural position of technocrats within the regimes changed. They now increasingly entered top-level governmental positions (e.g. as ministers—including prime ministers—and advisors of the heads of state), while they also extended their influence in the bureaucracy. In the two monarchies Jordan and Morocco, technocrats also increasingly dominated the Royal

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Cabinets (Waterbury 1983: 11, 96–97; Hinnebusch 1985: 87, 93, 99–112; Satloff 1986: 72–73; Zartman 1987: 30–31; Springborg 1989: 40; Payne 1993: 144, 150, 153; Denoeux and A. Maghraoui 1998b: 62–63, 75–76; Joffè 1998: 107–108; Piro 1998: 61–62; Pennell 2000: 376; Wils 2001: 131; Hibou and Tozy 2002: 114–116; Maghraoui 2002: 30; Ryan 2002: 117; Carroll 2003: 44; Sater 2003: 139–141; Wils 2003: 92, 97, 99–101, 160; Bank 2004: 167; Robins 2004: 105–111; Zerhouni 2004: 71, 73–74; Alissa 2007: 9, 14; Benhaddou 2009: 101, 104–105; Milton-Edwards and Hinchcliffe 2009 [2001]: 59–60; Erdle 2010: 77, 91–93, 121, 154–155, 181; Sater 2010: 66, 77–78, 98–99; Vermeren 2010: 94; Gilson Miller 2013: 205, 230). According to Wils (2003: 160), technocratization was both a result of economic liberalization and one of its drivers. On the one hand, the preparation and implementation of policies of economic liberalization required technical and managerial expertise, which made the state and regime dependent on technocrats. In addition, technocrats were indispensable international negotiators (e.g. for foreign credit and debt relief), who could be on a par with the officials of the IMF, of the WB, and of donor countries sitting around the negotiation table. Many of the technocrats were educated in the same foreign institutions as the other negotiators, and they were members of the same professional networks. Economic liberalization further strengthened the position of technocrats, as they could sell their expertise as well in the growing private sector of the domestic economy (see also: Payne 1993: 166– 167). On the other hand, technocrats also used their positions of agenda setting and policy-making power to push economic liberalization forward. This fact coincided with the interest of the regimes, which also appreciated the technocrats’ apolitical stance. Officially loyal to their employers and “[lacking] populist appeal,” technocrats planned and executed policies without questioning the political supremacy of the regimes (Payne 1993: 166–167) .

6.3.1.3 Changing Roles for Labor, Capital, and the State In all four countries under investigation, the relations between the state, labor, and capital would change in similar ways from the 1950s up to the 2000s—while economic liberalization would turn out to be a major driver of these dynamics. Labor In three of the four countries (the exception being Jordan), labor unions played an important role in the independence struggle (Patai 1958: 58–61, 64; Ashford 1961: 273–274; E. Hermassi 1972: 112–127; Menouni 1979: 373, 377; Ruf 1984: 102–104; Faath 1987: 277; Benseddik 1990: 559–570, 579–581; Ayache 1993: 181–182; Botman 1998: 285–308; Murphy 1999: 46–49; Perkins 2004: 10–129;

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Perry 2004: 73–88; Robins 2004: 56–58, 91–94, 97; Farah 2009: 65–71; Alexander 2010: 14–34; Bradshaw 2012: 108–111, 185–187, 200; Chouikha and Gobe 2015: 10–13, 15–16; Alexander 2016: 18–32). In Tunisia and Morocco, the national monopolistic labor-union federation (General Union of Tunisian Workers / Union Générale des Travailleurs Tunisiens (UGTT), Moroccan Union of Work / Union Marocaine du Travail (UMT)) became an integral part of the postindependence regime—significantly more so in the case of Tunisia, where the UGTT was fused with the governing single party (Ashford 1961: 270, 278–285; Robert 1963: 232– 235; C. H. Moore 1965: 160–163, 166–175; C. H. Moore 1970: 174–181; Menouni 1979: 63–66, 373–384; Clement and Paul 1984; Faath 1987: 277; Ayache 1993: 206; Murphy 1999: 53; Perkins 2004: 133–134; Farah 2009: 35–36; Erdle 2010: 208; Chouikha and Gobe 2015: 20; Alexander 2016: 35–38, 181). In contrast, the Free Officer regime in Egypt first repressed the labor movement after the coup of 1952 (O’Brien 1966: 74–76; Mabro 1974: 152–154; Beinin and Lockman 1987: 418–447; Pripstein Posusney 1997: 2, 40–58). But the turn to state-led development in Egypt (1956–1973) fundamentally changed the status of Egyptian labor as a collective actor and anchored it firmly in the regime (which needed it as an ally in industrialization). The same developments are visible in Tunisia during its shift to state-led development (1961–1969), although labor had already been a pillar of the regime before the policy change. Thus, from the 1960s onwards, labor was in a comparably strong position in the two presidential “republics” of Egypt and Tunisia. However, despite a significant expansion of worker rights and benefits, both the Egyptian and the Tunisian regime strove to control their labor unions and made them politically tame (by exchanging worker protection for political obedience) (Mabro 1974: 154– 156; Pripstein Posusney 1997: 2–3, 58–79; Murphy 1999: 53; Bellin 2002: 92–98; Erdle 2010: 208, 353). The situation was different in the two monarchies of Jordan and Morocco: there, postindependence labor activism was repressed with the proclamation of a state of emergency (1957 in Jordan, 1965 in Morocco). Nevertheless, in Morocco labor remained represented in state institutions, although it was fully coopted. In Jordan, the unions’ limited political power (fundamentally a result of the limited industrial capacity of the Jordanian economy) induced the regime to reverse its stance. Thus, it permitted more union activity after the issuance of the 1961 Labor Law (C. H. Moore 1970: 182–190; Menouni 1979: 70–73, 384–406; Clement and Paul 1984; Faath 1987: 120–122, 278–280; Al-Hourani 2001: 11–22; Robins 2004: 89–104). With the turn to Infitah and to economic liberalization, the corporatist model of interest representation gradually dissolved in Egypt (since 1974) and in Tunisia (since 1970). Thus, workers in these two countries lost many of their former privileges. In Tunisia, wage negotiations started to become tripartite (that is between

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labor unions, employer associations, and the state). Rising inflation during the 1970s pitted the unions fiercely against the regimes, visible in the multiplication of wildcat strikes—a confrontation that culminated in bloody regime clampdowns on the labor movement (1977 in Egypt, 1978 in Tunisia) (Ruf 1984: 109; Rivlin 1985: 177–182; Seddon 1986: 187; Wahba 1994: 148–152, 192–195; Alexander 1996: 181–185; Murphy 1999: 59–63; Beattie 2000: 206–211; El-Mikawy and Pripstein 2002: 59, 71; Perkins 2004: 165, 167–168; Perry 2004: 125–126; Farah 2009: 79; Erdle 2010: 84, 208–209, 353–354; Ben Romdhane 2011: 196; Soliman 2011 [2006]: 39–40; Chouikha and Gobe 2015: 28, 34; Alexander 2016: 44–45). In contrast, the two monarchies of Jordan and Morocco were not yet in this phase: during the 1970s, the first oil boom initiated (Jordan) or solidified (Morocco) the shift of economic policy towards state-led development. Thus, the Jordanian and Moroccan regimes still pursued economic success through the political integration of labor (although coupled with tight control). In Morocco, the consensual approach was forced upon the labor unions through the “national consensus” imposed by the monarchy in the unfolding Sahara conflict. However, mounting economic difficulties since the late 1970s antagonized the Moroccan labor movement from the regime, until both finally clashed in the riots of 1981—while no such watershed event is discernible for Jordan (Mazur 1979: 213–214, 256; Menouni 1979: 74–76, 406–412; Clement and Paul 1984; Satloff 1986: 9; Seddon 1986: 187; Damis 1987: 205–206; Faath 1987: 157, 162, 280; El Malki 1989: 19–21, 137–139; Horton 1990: 18, 36; Perrault 1990: 283–288; Layachi 1998: 99; Piro 1998: 47, 60; Pennell 2000: 347, 354–355; Al-Hourani 2001: 11–22; White 2001: 133; Knowles 2005: 33, 36–38; Sater 2010: 40, 42–43; Vermeren 2010: 76, 79–80; Gilson Miller 2013: 185). When the economic crisis reached its apex in all four countries during the mid1980s, union action at first unexpectedly did not increase. The main reasons seem to have been rising unemployment—which had reduced union strength—and the fact that the regimes had already dismantled or continued to dismantle the labor movements (with the exception of Jordan). However, the continuing economic malaise, reinforced by the implementation of economic liberalization and stabilization, triggered a new period of labor unrest from the late 1980s onwards in Egypt and Morocco. Labor activity—though also visible—was less in Tunisia (where economic liberalization intensified from 1986 onwards) and in Jordan (where economic liberalization came back on the agenda in 1985) (Sutton 1987: 45–46; Vatikiotis 1991: 453–454; Payne 1993: 154–155; Sabagh 1993; Murphy 1999: 75; Pennell 2000: 352; Al-Hourani 2001: 17–22; El-Mikawy and Pripstein Posusney 2002: 54– 56; Perry 2004: 138; Erdle 2010: 85–86; Sater 2010: 99; Ben Romdhane 2011: 196, 199; Chouikha and Gobe 2015: 35–37).

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In the subsequent period (early 1990s up to the mid-2000s), the political position of labor differed significantly among the four countries: In Jordan, labor activism did not take off, despite deep economic reforms (including economic liberalization) and an unprecedented political opening. In fact, until the early 2000s, the Jordanian labor movement was increasingly marginalized in national politics (Al-Hourani 2001: 21–22, 68–75; Jordan Labor Watch 2012: 6–7). In Tunisia, the regime propped up politically tamed (UGTT) and previously powerless organizations (Tunisian Union of Industry, Commerce, and Crafts / Union Tunisienne de l’Industrie, du Commerce, et de l’Artisanat (UTICA)) as new “social partners,” while it steered the newly instituted corporatism from the top. By controlling the national union leadership, the Tunisian regime used the UGTT to control the local member unions—which thus did not interfere in the economic reform program (Pripstein Posusney 2003: 278; Erdle 2010: 209–210; Ben Romdhane 2011: 205; Chouikha and Gobe 2015: 61–62). In Egypt, the response of labor to enhanced structural adjustment was muted at first, although labor activism began to rise anew during the mid-late 1990s (mostly due to privatization) (Farah 2009: 46). In Morocco, labor activism became stronger with the difficult economic situation of the 1990s (1990 general strike, 1991–1993 strike wave, breakdown of the “social dialogue” in the late 1990s). In contrast to Egypt, the major bone of contention for Moroccan labor was not economic liberalization, but the pending agreement on the new Labor Code (which was finally passed by Parliament in 2003) (Denoeux and A. Maghraoui 1998b: 78; Pennell 2000: 371; Denoeux 2001: 68–70, 77, 80–83; El-Mikawy and Pripstein Posusney 2002: 66– 68; Pripstein Posusney 2003: 287; Catusse 2008: 264–268; WTO 2009b: 31; OECD 2010: 67–68; Sater 2010: 113; Vermeren 2010: 90). From the late 1980s up to the early 2000s, all four regimes (Tunisia in the late 1980s, Morocco in 1995 / 1996, Jordan in 1996, Egypt in 2003) institutionalized tripartite negotiations over wages and labor legislation between labor unions, employer associations, and the state. In return for concessions on job security, unions obtained a limited right to strike (with the exception of Moroccan unions) (Denoeux and A. Maghraoui 1998b: 79, 1998a: 126–127; El-Mikawy and Pripstein Posusney 2002: 54–57, 67; Pripstein Posusney 2003: 285–286; Sater 2007: 153–154; Catusse 2008: 252–255; Erdle 2010: 209– 210, 354–355; see also: Catusse 2009: 209–210). From the mid-2000s until the Arab Spring in 2011, rising inflation boosted labor activism in Egypt, Tunisia, and Jordan (while Moroccan labor stayed relatively calm). In Egypt, the unprecedented broadening and deepening of privatization was another contributing factor. During this period, national labor-union federations increasingly lost control of their constituent unions—whose members organized wildcat strikes or founded independent labor unions (as in Egypt and Jordan). In both Egypt and Tunisia, independent labor activists played a central role in the 2011 oust-

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ing of the Presidents and core regime members (Rhandi 07.05.2005: 26–27; Beinin and El-Hamalawy 2007; Rutherford 2008: 225–229; Smyej 21.02.2009: 18–24; Bertelsmann 2010a: 9, 2010d: 25; Erdle 2010: 128–129; Adely 2012; Bertelsmann 2012d: 50; Bishara 2012: 99–101; Jordan Labor Watch 2012: 6, 9, 11; Lübben 2012: 23–24; Shehata 2012: 119–121; Willis 2012: 243; Albrecht 2013: 83–92; Gana 2013: 6–12; Rutherford 2013: 38–43; Bertelsmann 2014b: 11–12; Chouikha and Gobe 2015: 62, 73–80; Alexander 2016: 76–79). In Jordan and Morocco, labor was not among the main protesting groups in 2011—although in Jordan, daily laborers helped igniting the protests. The organizing core in Morocco was a loose movement of young middle-class activists and several traditional opposition figures from the leftist camp (while the Islamist opposition joined the protests later) (Desrues 2012: 23–25, 33–34, 2013: 415–421; Mekouar 2013: 143, 148). In Jordan, “youth activists” also played a role, but “many of [the] [2011; C.N.] protests had, for the most part, been organized by the same groups that [had] always organized protests [in Jordan; C.N.]—political parties across the political spectrum” (Vogt 2011: 65–72; Ryan 2013: 122; Schwedler 2013: 243–246, 258–259). Capital In contrast to labor, capital as a collective actor played a nonsignificant role in the independence struggle in all four countries—in Morocco, organizations representing capital owners even collaborated with the colonial powers to fight labor activism, hampering labor’s nationalist agitation (although some individual business actors helped to finance the independence movement) (Waterbury 1970: 98, 101, 103–104; Ayache 1990: 275–298, 1993; Tangeaoui 1993: 135; Perrin 2002: 52–53; Cammett 2007b: 89–90; Rami 2007: 61; Affaya and Guerraoui 2009: 65; Vermeren 2010: 15–16). As in the case of labor, collective interest representation of capital was integrated in the postindependence corporatist system in Egypt and Tunisia. Tightly controlled by the regime, collectively-organized capital owners remained politically tame (even more so than labor) (C. H. Moore 1965: 159, 163–166, 1970: 165–166; Hinnebusch 1985: 50; Springborg 1989: 70–72, 165, 169; Gobe 1999: 117–124, 128–155, 167; Dodge 2002: 185–186; Wurzel 2004: 109–110; Rutherford 2008: 205–206; Erdle 2010: 203). In Morocco, during the 1950s–1960s, capital owners took on a conciliatory stance towards workers, who had been a central pillar of the independence struggle and whose organizations formed a key part of the postindependence regime. Splitting themselves along party lines (creation of the Istiqlal offspring Moroccan Union of Commerce, Industry and Crafts / Union Marocaine du Commerce, de l’Industrie et de l’Artisanat (UMCIA) in 1956), they remained politically powerless, although their representatives entered several high political bodies. In 1960, Moroccan capital owners welcomed the anti-leftist turn with the

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dismissal of the Ibrahim government and the takeover of government by the King. They continued to support the monarchy throughout the period of emergency rule (1965–1970) (Ashford 1961: 376–381; C. H. Moore 1970: 162–163; Waterbury 1970: 105–106; Faath 1987: 120–122, 248, 286; Ayache 1993: 204–205; Sater 2002: 15). In Jordan, the political weight of capital owners in the immediate postindependence period was higher, as the state faced a scarcity of financial means. The Jordanian state thus had to draw private investors into public-private partnerships (as part of its industrialization program), and thereby increased the political power of organizations representing the collective interest of capital (Amman Chamber of Commerce (ACC), Amman Chamber of Industry). Nevertheless, the democratization of the ACC in the early 1960s reduced its political weight, leading to more patrimonial state-capital relations (P. Moore 2000: 183–185, 2001: 135–136; Carroll 2003: 26–32; Wils 2003: 168–170, 2004: 138–142; P. Moore 2009 [2004]: 62–68). When economic liberalization set in with Infitah in Tunisia and Egypt in the early 1970s, capital owners were politically strengthened, as the state needed their collaboration in the implementation of economic reforms. Higher private investment, a rise in exports, and job creation by the private sector were the main economic objectives, which could only be reached through the commitment of capital owners. Despite the structural changes, capital as a collective actor stayed politically weak in both Egypt and Tunisia—although in Egypt, some capital owners gained political power on an individual basis (Hinnebusch 1985: 96–100; Gobe 1999: 209– 219; Erdle 2010: 219). In Jordan and Morocco, the rent influx due to the 1970s oil boom financially strengthened the state to the detriment of capital owners (as private capital became less important for investment). Thus, patron-client relationships evolved—which were reinforced in Morocco by the policy of Moroccanization. The result was an apolitical stance of capital as a collective actor, which was observable throughout the 1980s in all four countries (Khrouz 1988: 104–105; El Oufi 1990: 17–39, 51–59; Horton 1990: 117; Piro 1998: 60; P. Moore 2000: 183–184, 2001: 133–134; Sater 2002: 15–16; Carroll 2003: 32–47; Wils 2004: 142–145; Knowles 2005: 58–59; Greenwood 2008: 849; P. Moore 2009 [2004]: 109–118; Vermeren 2010: 64–65). The turn to more forceful structural adjustment (including economic liberalization) in Morocco (1983) and in Tunisia (1986) also had an impact on capital: in Tunisia, the position of capital owners was enhanced, but not so in Morocco (at least not initially). In Tunisia, the regime propped up the politically powerless organization UTICA as a collective representative of Tunisian capital and as an official “social partner” in its resurrected system of corporatist interest mediation (Tangeaoui 1993: 249–251, 264–266; Perrin 2002: 85–86; Erdle 2010: 203, 327–328).

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By the 1990s, the political opening and the continuing economic crisis increased the political activity of business associations in Jordan and in Morocco. Their nascent opposition to the government was an expression of doubt over the state’s ability to reform the economy in a way that national businesses could face the globalization of markets. In Morocco, an additional trigger of business opposition was the 1995–1996 Cleanup Campaign. In Jordan, the state gave in to the rising pressure and opened new formal channels for business influence in government (most notably through the Economic Consultative Council (ECC)). In Morocco, the regime strengthened the General Confederation of Moroccan Enterprises / Confédération Générale des Entreprises du Maroc (CGEM) as the main representative body of capital owners and tried to make it an official “social partner,” equal in weight to the unions (although that attempt did not fully succeed). Since the mid-2000s, the Moroccan regime tightened its grip on the organization, thus muting critical voices. New formal channels of interest representation were not opened, although a certain number of Moroccan capital owners became politically influential, including as members of government (Leveau 1997: 98–100; Denoeux 1998; Joffè 1998: 122–123; Denoeux 2000: 172–174; P. Moore 2000: 181, 185–188; Dalle 2001: 160–164; Perrin 2002: 87–89, 92–93; Sater 2002: 13–26; Carroll 2003: 57–68, 72–73, 79–80, 88–99, 154– 158, 181–188, 202–206; Cammett 2004: 246–247, 254–266, 2005: 386–390, 393– 395; Knowles 2005: 175–180, 197–200; A. Jamai and Tounassi 17.06.2006: 16–23; Tritki 13.05.2006; Cammett 2007b: 99–103, 148–189, 2007a: 1898–1900; Sater 2007: 153–154; Catusse 2008: 174–186, 199–201, 211–213, 228–229, 231–233, 238; Sater 2010: 104–106; Vermeren 2010: 95; Gilson Miller 2013: 203). In contrast, in Egypt and Tunisia, capital as a collective actor was not nearly as critical: in Egypt, it remained divided and politically tame until the end of the examination period in 2011—although individual capital owners assumed unprecented political power, especially in the 2004–2011 Nazif governments (Demmelhuber and Roll 2007: 24–25; Rutherford 2008: 223; Roll 2010: 217, 223–224). In Tunisia, capital gradually gained political weight, for example by directly advising the government in economic issues. By the 2000s, it had become “an essential part of the ruling coalition.” However, in this role, it never fundamentally criticized, let alone rivalled the regime (Erdle 2010: 205, 207, 217–218, 221; Chouikha and Gobe 2015: 62–63). In Egypt and Morocco, the stronger political influence of capital owners76 since the turn to structural adjustment and to policies of economic liberalization was reflected in their increasing intrusion into official positions of political power. In Egypt, individual capital owners were appointed to positions in the ruling NDP 76

For a distinction of “capital owners,” “business actors,” and “business elites” see the introduction to section 6.3.1.4.

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and in the bureaucracy since the regime’s turn to Infitah in the early 1970s. The most notable example during President Sadat’s reign is the businessman Osman Ahmad Osman, who even assumed a ministerial post in the Egyptian government. Thereafter, President Mubarak continued to integrate business elites into politics. From the 1990s onwards, an increasing number of capital owners ran for the NDP in local and national elections. From the early 2000s onwards, they also entered top-level positions in the NDP. During 2004–2011, business actors finally came to dominate the government (Hinnebusch 1985: 97; Springborg 1989: 164–166; Gobe 1999: 209–219; Soliman 2011 [2006]: 144–148). In Morocco, individual capital owners had occasionally been members of government from the 1970s up to the 1990s (most notable example: three times Prime Minister Mohammed Karim Lamrani). Since 1992, more and more capital owners began to enter politics through local and national elections. By the first decade of the 2000s, some of them had become mayors of a number of Moroccan cities and heads (wollat) of several larger regional administrative entities (wilayat). During the 2000s, Moroccan capital owners also advanced to top positions in the government (examples: Driss Jettou, Aziz Akhannouch) (Perrin 2002: 96–98; Catusse 2008: 130, 137, 274, 288–291; Iraqi 16.02.2008; Kingdom of Morocco 2016). In contrast, capital owners in Tunisia and Jordan seldomly assumed high political offices. In Jordan, business actors seemed to have gradually entered Parliament since the mid-2000s, although the number of capital owners among them remains unclear. Besides, two capital owners advanced to positions in the central government (Ali Abu al-Raghib, who was Prime Minister during 2000–2003, and Fawwaz Zu’bi, who was Minister of Post and Telecommunications under al-Raghib’s tenure). Further to that, several business actors with a technocratic background obtained posts in the government and in the bureaucracy since the mid-1990s (P. Moore 2000: 188; Carroll 2003: 128–134; Reiter 2004: 86– 87; Schlumberger 2004: 153–157; Barwig 2012: 438). In Tunisia, capital owners were totally absent from governmental positions until the end of the examination period—although business families often had family members occupying posts in the ruling party Constitutional Democratic Union / Rassemblement Constitutionnel Démocratique (RCD) or in the state bureaucracy (Erdle 2010: 199–203, 220–221). State The political empowerment of capital owners correlated in all four countries with a redefinition of the role of the state and with its partial retreat from the economy and from social-service provision (Guazzone and Pioppi 2009a: 12). These developments were driven by both economic liberalization and by macroeconomic stabilization, themselves a defensive reaction against the fiscal crisis of the state as well as a deliberate (partly foreign-induced) policy turnaround (Ayubi 1995: 336–339;

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Al-Sayyid 2001: 156–157, 165–173). On a general level, economic liberalization emphasized private initiative instead of public regulation and thus curbed state interference in the economy. Some policies of economic liberalization reduced public revenues, and thereby the state’s power of material redistribution (most notably trade liberalization). Other policies of economic liberalization reduced the state’s capability to influence the real income of certain social groups (consumer-price liberalization, liberalization of interest rates, liberalization of the exchange rate, producer-price liberalization). A third set of economic-liberalization policies disempowered the state in its responsibility to guarantee employment in certain sectors (liberalization of domestic private investment, liberalization of foreign investment, privatization). At the same time, macroeconomic stabilization implied the cut of public investment and spending (including cuts on social-service provision). Thus, both economic liberalization and macroeconomic stabilization reduced the state’s leeway of material redistribution and undermined its position of primary caretaker in social matters. As a result, in all four countries, the role of the state underwent a redefinition. The state thus evolved from an “omnipotent regulator and administrator” (especially in Egypt and Tunisia) and from a “leading investor, employer and social provider” (in all four countries) into a “super-ordinate arbiter and facilitator,” with reduced direct economic and social responsibilities—a process of “re-regulation” rather than an outright “retreat” of the state (Denoeux and A. Maghraoui 1998b: 65–66; Layachi 1998: 102–103; Perrin 2002: 70–71, 74; Catusse 2008: 142–143, 156–157, 161; Aggestam et al. 2009: 334–335; Erdle 2010: 195, 329, 332, 358; Sater 2010: 98–101, 104, 106; Zemni and Bogaert 2010: 98; Soliman 2011 [2006]: 144; see also: Ayubi 1995: 335; Hibou 1998: 154, 164–166; Al-Sayyid 2001: 161– 162; Owen 2001: 232–234, 238–240, 244–246; Hibou 2004 [1999]: 23–25; Catusse 2009: 187–188, 208). The partial retreat of the state became visible in numerous phenomena, such as in the rising share of private investment in total investment, in the reduction of consumer subsidies, in less public-health provision, and in privatization of SOEs (Roll 2010: 123; Soliman 2011 [2006]: 144; see also: Al-Sayyid 2001: 162). The four MENA states thereby (partially) breached the “social contract” with their populations, which stipulated an exchange of material well-being for political obedience. As a result, opposition from affected social groups mounted, while regime coalitions changed (Ben Ali 1991; A. Hermassi 1994: 227–237; Denoeux and A. Maghraoui 1998b: 65; Sater 2010: 98–101, 104, 106). Ultimately, former public responsibilities were taken over by public-private partnerships (especially in infrastructural investment projects) or by private actors (private users of services, capital owners, religious foundations, family and kinship associations, etc.). For example, in all four countries, capital owners took over social responsibilities for certain subnational communities: in Egypt, Tunisia, and

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Morocco, capital owners paid (sometimes mandatory) contributions to privatepublic funds, which financed infrastructure investment and social services. These funds either had a local / regional (Egypt) or national focus (Tunisia, Morocco), and they were administered by local / regional government agencies (Egypt), by the central government (Egypt, Tunisia), by the Presidency (Tunisia), or by bodies consisting of core regime members (Morocco).77 In addition, capital owners contributed to local investment projects with project-specific contributions (especially in Morocco). Further to that, public-private foundations, financed by public and private means, disbursed former state spending (such as the Mohammed V Solidarity Foundation in Morocco) (Murphy 1999: 157–158; Hibou and Tozy 2002: 111–114; Carroll 2003: 265–266; Hibou 2004: 213–215, 2004 [1999]: 12–13; Alissa 2007: 8– 9; Catusse 2008: 130–134, 136, 141–144, 150, 152–153, 156–157, 159–161, 2009: 206–207; Achy 2010: 5–6; Erdle 2010: 355–360; Sater 2010: 75–76, 103; Ben Romdhane 2011; Soliman 2011 [2006]: 78–90, 125–128, 145; Zemni and Bogaert 2011: 406–409; Tsourapas 2013: 28, 31; El-Said and Harrigan 2014: 115; Alexander 2016: 72; see also: Guazzone and Pioppi 2009a: 11–12). Besides, other private actors such as religious foundations (Egypt, Morocco), civil-society associations (Egypt, Morocco), as well as family and kinship associations (Jordan) stepped in to provide former public services (e.g. in health, education, housing, and poverty reduction) (Clark 2000: 157, 162–164, 166–167; Alissa 2007: 8–9; Pioppi 2007; Catusse 2008: 141–143; Khrouz 2002: 45; Catusse 2009: 203–205; Achy 2010: 9–10; Zemni and Bogaert 2010: 100; Bogaert and Emperador 2011: 247; see also: Aggestam et al. 2009: 331–332). Classifying and comparing the four countries under investigation by the degree to which the state effectively retreated, one could make the tentative conclusion that this phenomenon was most pronounced in Egypt and least pronounced in Tunisia. Jordan and Morocco fall in between, while an ordering is not possible given the sparse material available to the author (see also: Carroll 2003: 265–266; Erdle 2010: 332, 353, 356–357, 433–436; Ben Romdhane 2011: 217–226). The new predominance of capital owners Comparing the 2000s to the 1950s–1960s, capital owners had gained in political weight in all four countries, while labor as a collective actor had lost political influence. But only in Tunisia had capital significantly extended its influence as a collec77

The system of financial contributions was much more institutionalized (making contributions de facto mandatory) in Tunisia (National Solidarity Fund / Fonds de Solidarité Nationale (FSN)) and in Egypt (special funds of governorates) than in Jordan and Morocco. For example, capital owners in Morocco contributed to the public-private Hassan II Fund in a more or less voluntary manner (Catusse 2009: 206–208) .

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tive actor—although artificially created and tightly controlled by the regime. Thus, the Tunisian organization representing capital owners (UTICA) became a “social partner” in tripartite wage bargaining and an official advisor to the government. Comparably, the Moroccan regime tried to build up an organization representing the collective interest of capital owners (CGEM) that should become a “social partner.” However, it largely failed in that attempt. In Egypt and Jordan, capital owners did not gain any significant political influence as collective actors. Concomitantly, Egyptian, Jordanian, and Moroccan capital owners disposed of more political power as individual actors than their Tunisian counterparts: in Tunisia, individual capital owners largely stayed out of politics. In Jordan, the regime created a new channel of interest articulation for selected capital owners (mainly through the ECC), who obtained the possibility to influence government policy—while a handful of capital owners advanced to governmental positions. In Egypt and Morocco, a greater number of individual capital owners entered high political positions since the mid-1990s / early 2000s, including positions in the central government (most pronounced in Egypt) (Alexander 1996: 190–195; Murphy 1999: 226–228; Amar and Mansouri 18.11.2000: 16–17; Perrin 2002: 85–86, 93–94; Alissa 2007: 13; Catusse 2008: 221–229, 231–244; Erdle 2010: 215, 217–219, 327–328, 353–355; Jordan Labor Watch 2012: 11; Chouikha and Gobe 2015: 62). Following an opposite trend, the political influence of labor representatives declined, once economic liberalization came on the agenda. Evidence is sparse, but in Egypt the number of labor representatives in the Egyptian Parliament fell during the 2000s (mostly a result of the smaller number of workers nominated by the NDP as parliamentary candidates). In Tunisia, labor representatives stayed out of politics, as capital holders did. No information was available to the author for the cases of Jordan and Morocco (Erdle 2010: 221; Soliman 2011 [2006]: 147–148). Together with the political empowerment of capital owners and their takeover of former public responsibilities, the four regimes (at least rhetorically) made capital owners the primary responsibles for national economic progress and for socioeconomic development. This tactic allowed the regimes to shift the blame for economic and social ills to private actors, and thereby to change their own policies of legitimation (scaling back the material component). Besides, the Presidents of Egypt and Tunisia further withdrew from daily “government” to a position of final arbiter above the political quarrels (a position the Moroccan and Jordanian Kings had already occupied) (Bellin 1991: 60; Henry 1997: 200; Cassarino 1999: 60, 70–72; Murphy 1999: 161; Sater 2002: 16, 27; Catusse 2008: 85–86; Sater 2010: 101, 104; see also: Harik 1992b: 16; Aggestam et al. 2009: 331–332; Catusse 2009: 205). For capital owners, taking over this burden was the price to pay in return for new possibilities to increase their private fortunes created by economic liberalization. At

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the same time, the social status of capital owners changed from a reputation of profiteers, gamblers, and “conmen” prior to the mid-1980s to one of “wealth-creating” “entrepreneurs” “with a social conscience” and the “new heros of national development” in the 1990s / 2000s (Perrin 2002: 86; Catusse 2008: 207–210, 230–231, 295–297; Erdle 2010: 202; Soliman 2011 [2006]: 126). In order to not risk their political supremacy, all four regimes tried to limit the political power of capital owners by controlling their economic power—among other things through restriction of market access supervised by state institutions, through continuous control of credit allocation by public banks or by private banks controlled by the regime, through mandatory taxes feeding special funds directly administered by the regime, through indirect control of the judiciary, through interference by state agencies in company affairs, and through corruption. Besides, capital owners were incorporated into the regime by bringing them into high political positions (such as in Egypt and Morocco and partially in Jordan) (Sater 2002: 23–26; Erdle 2010: 195, 222–223, 355; Sater 2010: 106–107; Hibou 2011 [2006]; Soliman 2011 [2006]: 150–151; Tsourapas 2013: 29). After all, the turn to economic liberalization played an important role in the strengthening of capital and in the weakening of labor. While the regimes needed capital owners for private investment, exports, and job creation (i.e. to make policies of economic liberalization effective), policies of economic liberalization brought them into conflict with labor—through the quest for favorable international investment conditions and for cheap export products, which demanded wage restraint and flexible labor laws, but also through the initiation of privatization. For these reasons, the regimes tried to ameliorate the economic and political stance of capital owners, while they concomitantly tried to curb labor’s political influence (Al-Sayyid 2001: 163–164) .

6.3.1.4 Incorporation of Business Actors into the Regime When economic liberalization came on the policy agenda of the four MENA regimes during the 1970s–1980s, it increased the leeway for private actors to accumulate economic capital. This accumulation of capital threatened the authoritarian regimes, which feared a transformation of economic capital into political capital—and thus the emergence of rival centers of power. With increasing private wealth, business actors in the four MENA countries in fact became more active in politics. However, the regimes reacted by incorporating them into their ruling network in order to preclude any threats to their political hegemony. Due to political and geographic reasons, the indigenous business communities in the four countries under examination historically disposed of different quantities of capital. In Morocco and Egypt, the size of the domestic market (determined by terri-

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torial boundaries drawn by the colonial powers), the favorable geographic position, and the lively economic interaction with the colonial center facilitated capital accumulation on a larger scale. In contrast, the small domestic market hindered capital accumulation in Tunisia and Jordan—the latter was also disadvantaged due to its peripheral geographic position. Thus, at the time of de-facto political independence, business actors78 in Morocco and Egypt wielded considerably more economic and political power than their counterparts in Tunisia and Jordan (Waterbury 1970: 94–96, 98, 100, 102–103, 106; Clement 1986; Tangeaoui 1993: 131–134; Kingston 1994: 188; Beinin 1998; Piro 1998: 18–19, 24–25; Gobe 1999: 40–46; Pennell 2000: 91; Wils 2001: 123; Bellin 2002: 13–17; El-Said 2002: 257; Perrin 2002: 50–51; Carroll 2003: 25–30; Cammett 2004: 250, 2005: 395; Knowles 2005: 54; Cammett 2007b: 62–65, 68, 85, 87–89; Rami 2007: 35–40, 45–47, 58–60; Affaya and Guerraoui 2009: 51–55, 63; Benhaddou 2009: 26–29; Milton-Edwards and Hinchcliffe 2009 [2001]: 72; P. Moore 2009 [2004]: 57–59; Vermeren 2010: 14–15; Benhaddou 2011: 87–93). In the immediate postindependence period, the form of emerging political regime and its policies determined the fate of business actors: whereas the new (“presidential-republican”) regimes in Egypt and Tunisia had social revolutionary traits and legitimated themselves mainly through material advancement of the population, the emerging (monarchic) regimes in Morocco and Jordan kept the existing social order in place and legitimated themselves primarily by tradition (although material legitimation also played a role). Thus, preindependence business elites lost their economic capital through nationalization of land and commercial / industrial assets in Egypt and Tunisia, while private business elites became a central pillar of the postindependence regime coalitions in Morocco and Jordan—although more so in Morocco due to business elites’ larger capital holdings and the promi78

I distinguish here between “business actors,” “business elites,” and “capital owners.” “Business actors” are people with a background in business or economics, either by profession, or by education, or by both. Sometimes, I also include institutions (such as business associations) under the term “business actors.” In this context, I further distinguish between “private business actors” (people or business associations without direct affiliation to the state) and “public business actors” (people with public function or state institutions active in business). “Capital owners” are people who own physical or financial capital. The assumption is that the large majority of them invest their capital in business activities (either directly or through financial intermediaries). They thus constitute a special category of business actors. Another category of “business actors” are “business elites.” These are people who distinguish themselves from the totality of business actors in a country by their exceptional wealth or by their significantly higher social and political status. Apart from that, I carve out another subcategory from the group of “business elites,” one labelled “top business elite” or “core business elite,” meaning an especially rich or politically powerful segment of the “business elite.”

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nent role of individual business actors in the independence struggle (Stewart 1964: 178; O’Brien 1966: 83; S. Amin 1970: 146–147, 172–180; Waterbury 1970: 130, 138–143; E. Hermassi 1972: 186–188; Salmi 1979: 30; Waterbury 1983: 68–70, 73– 76; A. Findlay 1984: 222–223; Clement 1986; Faath 1987: 127; Swearingen 1987: 154–156, 164–165, 168–169, 1988: 145–147, 155; Vatikiotis 1991: 396; Wahba 1994: 57, 84, 102–103; Piro 1998: 45–53; Zaki 1999: 74; Pennell 2000: 306; Wils 2001: 124–126, 2003: 64–72; Cammett 2004: 250, 252; Perkins 2004: 150; Cammett 2005: 392, 395, 2007b: 62–65, 68, 79, 88–94; Benhaddou 2009: 20; Farah 2009: 32, 34; Sater 2010: 90, 93, 95; Vermeren 2010: 15; Ben Romdhane 2011: 118–119; Gilson Miller 2013: 173; Chouikha and Gobe 2015: 22–23). The shift to Infitah and economic liberalization in the early 1970s fostered the formation of a new private business elite in Egypt and Tunisia, supported by the oil-induced rent influx. Rent also increased the capital holdings of the Jordanian business elite during that period. In Morocco, the Moroccanization Decrees of 1973 created a top business elite that set itself apart from its peers by the formation of family conglomerates. However, the future paths were different: while the Egyptian and the Tunisian regime fragmented its nascent private business elite by state action (legal barriers to capital concentration, incentive policies), the Jordanian and Moroccan business elite continued unabatedly to accumulate and concentrate capital (especially in Morocco) (Waterbury 1970: 132–133; Leveau 1985 [1976]: 258; Swearingen 1987: 168–169; Khrouz 1988: 110; M. S. Saâdi Saâdi 1989: 67, 114, 140–157; El Oufi 1990: 17–39, 51–59, 118, 127–148; Henry 1996: 233–234; Gobe 1999: 52–73, 80–82; Wils 2001: 126–129; Bellin 2002: 23–28, 42; Mitchell 2002: 282–286; Wils 2003: 87–117; Cammett 2004: 252–253; Wils 2004: 143–145; Wurzel 2004: 123; Cammett 2005: 396; Knowles 2005: 55–56; Cammett 2007b: 77, 94–96, 98, 136–137; Rami 2007: 71–72; Catusse 2008: 109–115; Affaya and Guerraoui 2009: 73–75; Benhaddou 2009: 74–75; Roll 2010: 170–172; Sater 2010: 38; Vermeren 2010: 58, 64–65). When structural adjustment set in during the mid-1980s, more thoroughgoing economic liberalization further enlarged the possibilities of capital accumulation for private business actors in all four countries. Privatization was a key lever in these developments. In Egypt, structural adjustment gave rise to a new core business elite that profited disproportionately from economic liberalization due to its access to preferential state credit. In Tunisia and Morocco, business actors with familial ties to the regime were the main beneficiaries. In Jordan, the pre-1990 business elite, although rivalled by new players, could largely assert its position. In all four countries, the core or top segment of business elites became disproportionately more powerful from the 1990s onwards (Egypt, Tunisia, Jordan) or from the 2000s onwards (Morocco), due to regime policies that favoured the rise of

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conglomerates (A.D.N. 17.11.1994; Henry 1996: 144; Hibou 1996: 27; Khosrowshahi 1997: 250; Amourag 17.07.1999: 27; Cassarino 1999: 69–70; Murphy 1999: 226–228; Denoeux 2000: 172; Wils 2001: 133–134; El-Said 2002: 270–271; Iraqi 20.09.2003: 10-11; Wils 2003: 162–168; Sfakianakis 2004: 78, 84, 92; M. Jamai and Iraqi 05.03.2005: 38–39; Tounassi 15.07.2006: 40-41; Cammett 2007b: 78, 138–140; Hamdani and Iraqi 23.06.2007; Rami 2007: 79, 119–121, 127, 277–279; Bencheikh and Hamdani 12.10.2008; Catusse 2008: 97–98; Affaya and Guerraoui 2009: 75–76; Tounassi 12.09.2009: 38-40; Vermeren 2009: 291–292; Henry and Springborg 2010: 218; Roll 2010: 173–174, 185–199, 215–219, 224; Hibou 2011 [2006]: 248–249; Graciet and Laurent 2012: 68–69, 79–80, 104, 115–127). In all four MENA countries, business actors more or less kept out of politics until economic liberalization and structural adjustment set in during the 1970s. With this policy turn, business actors were strengthened economically and financially. The regimes thus incorporated them into their ruling network (which included placement in political positions), in order to preclude political threats emanating from their enhanced economic power. In Jordan, the cooptation of private business actors into public positions during the period of state dominance (1970s–1980s) served as reinsurance that the business elite would not rival the regime in the political arena. Concomitantly, neopatrimonial structures, incentives by the regime (e.g. “lucrative land deals”), a weak Jordanian Parliament, and the business elite’s status as “social pariahs” contributed to keeping down the political ambitions of business actors. In Egypt, Infitah to a certain extent blurred the boundaries between political and economic elites—the most prominent businessman of the country even became minister in the central government—, while many of the new business elites started out from state positions. In Morocco, similar processes were observable, although the preconditions were different: as members of the Moroccan business elite had been central figures in the independence movement, economically powerful business actors (or members of their extended families) had been “incorporated” into the regime even before the onset of economic liberalization—in the sense that they were placed in positions within the state administration or assumed regime posts, for example in the ruling party or as royal advisors and members of the Royal Cabinet. In Tunisia, no such processes of incorporation are visible, even after the onset of economic liberalization in the early 1970s (at least on the basis of the sources available to the author) (Waterbury 1970: 106–107; Hinnebusch 1985: 96– 100; Springborg 1989: 34–35; Gobe 1999: 209–219; Carroll 2003: 36–38; Wils 2003: 105; Cammett 2004: 250, 2005: 392; Greenwood 2008: 845–848). Concomitant with the intensification of economic liberalization and structural adjustment from the 1980s up to the 2000s, business actors became more active in national politics. This is especially true for Egypt and Morocco, where the number

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of business actors, who ran as candidates in parliamentary elections, continuously increased. The same process started later in Jordan (it picked up speed from the early 2000s onwards, although some business actors had been members of the Jordanian Parliament already since the mid-1980s). It was not visible on a comparable scale in Tunisia (Springborg 1989: 164–166; Tangeaoui 1993: 252; Gobe 1999: 107–109, 111–112; P. Moore 2001: 140; Bellin 2002: 84–85; Carroll 2003: 128–134; Cammett 2007b: 77; Rutherford 2008: 219; Soliman 2011 [2006]: 145–146; Barwig 2012: 438). In Egypt, business elites began to enter top positions in the central government and in the ruling party from the 2000s onwards—to a point when they dominated these institutions during the period 2004–2011. The same evolution, although on a significantly smaller scale, can be observed in Morocco, where the Premiership was three times held by a business actor during the 1980s–2000s. Apart from that, several top businessmen became ministers, and a number of business actors assumed posts in the local and regional administration. In Jordan, the phenomenon is less obvious, although the Premiership during 2000–2003 and occasional ministerial positions were held by business actors. Concomitantly, economic policy in Jordan was mainly conceptualized by the ECC, an institution outside the state administration that was dominated by business actors. In Tunisia, no comparable processes can be observed (Tangeaoui 1993: 143, 145; Maghri 17.02.2000; Perrin 2002: 96–98; Carroll 2003: 187–188; Reiter 2004: 86–90; Schlumberger 2004: 153–157; Alissa 2007: 13; Demmelhuber and Roll 2007: 24–25; Catusse 2008: 111, 130, 137, 274, 286, 288–291, 295–297; Iraqi 16.02.2008; Rutherford 2008: 219, 223; Vermeren 2009: 291–292; Roll 2010: 217, 223–224; Soliman 2011 [2006]: 145–146; Michbal 28.01.2012; Kingdom of Morocco 2016). Facing economically and politically more powerful business actors, the regimes in the four countries tried to control them with similar policies: all regimes used their indirect control over state institutions to influence the distribution of financial assets among the players in the economy—be it through privatization, state procurement, fiscal incentives, allocation of land, or judicial decisions (M. S. Saâdi and Berrada1992: 362–365; Gobe 1999: 221–222; Wils 2003: 167–168; Schlumberger 2004: 105–107; Sfakianakis 2004: 96–97; Knowles 2005: 146–147; Amar and Tounassi 18.11.2006: 18–23; Tounassi 15.07.2006: 40–41, 16.12.2006: 20–21; Bencheikh and Hamdani 12.10.2008; M. Jamai and Tounassi 19.07.2008: 24–27, 30–31; Peters and P. Moore 2009: 277; Wurzel 2009b: 112–113; Bertelsmann 2010b: 8; Roll 2010: 174–178, 194–207, 239–241; Hibou 2011 [2006]: 154–155; Bertelsmann 2012c: 15, 2012d: 13, 16; Loewe 2013: 70; Alexander 2016: 123–124). In Tunisia, the Economic Upgrading Program / Programme de Mise à Niveau Globale (PMN), set up after the ratification of the EMAA in 1998, served as an additional

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instrument. It enabled the regime to interfere in business actors’ investment decisions and thus to structure the Tunisian business world according to its preferences (Cassarino 1999: 70–71; Erdle 2010: 341–344). Furthermore, three of the four regimes (the possible exception being Jordan) tried to place members of the presidential or royal family in pivotal positions in the economy, either as private investors or as state officials. This was most visible in Morocco (where the leading conglomerate in the national economy was controlled by the royal family) and in Tunisia (where members of the presidential family controlled key sectors through market leading enteprises and / or smaller conglomerates). To a much smaller extent, this was also visible in Egypt (in the financial sector) and in Jordan (possibly in the tourism sector) (Amourag 17.07.1999: 27; Beau and JeanPierre 1999: 152–157; Benzekri 12.06.1999; M. Jamai, et al. 27.09.2003: 10–13; M. Jamai and Iraqi 31.07.2004: 72–75; Amar and Tounassi 07.10.2006: 20–25; Cammett 2007b: 138–139; Demmelhuber and Roll 2007: 24–25; Rami 2007: 120–127, 277–279, 286–290; Laraichi 01.12.2008: 77–79; Rutherford 2008: 223; Beau and Graciet 2009: 41–46, 65–79, 81–95, 113–127; Benchemsi and Iraqi 18.07.2009: 48–61; Erdle 2010: 196–201, 511; Henry and Springborg 2010: 182–184, 217–218; Roll 2010: 178–184, 217, 223; Sater 2010: 106–107; Bertelsmann 2012d: 6–7, 33– 34, 39; Gana 2013: 17; Rijkers et al. 2014: 2–7, 10–11, 14–22; Alexander 2016: 72). In order to control capital allocation in the economy (and thus investment projects of the business elite), the Egyptian, Tunisian, and Moroccan regime directly interfered in the banking sector: in Egypt, privatization left the market-leading position of state-owned banks unchanged, so the regime indirectly remained in control of a large share of credit allocation in the economy. In Tunisia, clientelist privatization ensured that the new private banks came under the tutelage of members of the presidential family. At the same time, the Tunisian banking sector continued to be dominated by state-owned banks. In both Tunisia and Egypt, a large quantity of nonperforming loans constituted the basis of a system of “bad debt” (not present on a comparable scale in Morocco and Jordan), which made the business elite dependent on regime benevolence (Henry 1996: 142–159, 239–243, 1997: 189; Schlumberger 2004: 121; WTO 2005a: 66, 2005b: 102; Hamdani and Iraqi 23.06.2007; Iraqi 26.05.2007; Unknown author 02.06.2007: 27; Harrigan and ElSaid 2009: 126; Vermeren 2009: 284; Bertelsmann 2010c: 14; Erdle 2010: 131, 189–194; Henry and Springborg 2010: 218; Roll 2010: 127–136, 237–241; Hibou 2011 [2006]: 25–75, 144–147; Bertelsmann 2012d: 33–34; Graciet and Laurent 2012: 92–93, 95–114; OECD 2012: 58, 139, 2013: 151, 154; WTO 2016: 135). In Morocco, the royal-controlled conglomerate Omnium Nord-Africain (ONA) began to invest in banking in the late 1980s and later—by takeover of a competitor—

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created the unchallenged market-leading private bank in the early 2000s. As the only other bank of similar size remained state-controlled, the hegemony of the Moroccan regime in the banking sector was assured (Diouri 1992: 202–203, 207; Henry 1996: 144, 150–151, 158–159; Amar 01.05.1999; Amourag 29.01.2000: 27; Hachimi Alaoui and A. Jamai 29.11.2003: 8–9; Iraqi 29.11.2003a: 10–11; Iraqi 29.11.2003b: 9; M. Jamai 12.06.2004: 50–51; El Abbassi 15.06.2007; Rami 2007: 123–124, 283; Catusse 2008: 101–102; Vermeren 2009: 283; Henry and Springborg 2010: 217–218; Graciet and Laurent 2012: 105). In Jordan, no comparable processes can be observed, as the long-term market-leading bank was private, without any visible direct involvement of members of the royal family (Creane et al. 2003; Schlumberger 2004: 151–152; WTO 2009a: 78; Bertelsmann 2012b: 17–18). Finally, three of the four regimes used repression as a measure of last resort to discipline politically too aspiring business actors (most obvious in Tunisia and Egypt, less so in Morocco, with the exception of the 1995–1996 Cleanup Campaign) (Leveau 1997: 98–100; Denoeux 1998: 111–112, 117–118; Joffè 1998: 122–123; Gobe 1999: 221–222; Dalle 2001: 160–164; Perrin 2002: 90–92; Sater 2002: 13– 14, 18–25; Hibou 2004: 204–209; Schlumberger 2004: 105–107; Catusse 2008: 174–186; Sater 2010: 104–106; Vermeren 2010: 95; Hibou 2011 [2006]: 154–155; Gilson Miller 2013: 203; Loewe 2013: 70).

6.3.1.5 Presidential and Royal Families as Business Actors Concomitant with economic liberalization (which created manifold private investment possibilities), the presidential and royal families in all four countries under investigation entered the national economies as private investors. Their pivotal position at the core of the regimes, combined with regime influence over state institutions, facilitated business dealings. However, the extent of their activity differed significantly. In Egypt and Jordan, the private economic activities of the presidential or royal families seemed to be confined to specific economic sectors and only involved operations of a limited size. This is especially true for Egypt: While the family of President Sadat kept out of business completely (although it seems to have profited from business deals through channels of rent-seeking), the sons of President Mubarak founded a private-equity company and a financial-services company in 1996, both of them legally registered outside Egypt. In 1997, the financial-services company took over the management of one of the investment funds of Egypt’s biggest private investment company EFG-Hermes—the fund’s value at the time was USD 54 million, which doubled to approximately USD 100 million by 2001. In 2002, the private-equity company owned wholly or in part by the elder Mubarak son acquired a 35 percent stake in the newly-founded private-equity division of EFG-Hermes.

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Until the end of 2007, the market value of this participation soared to over USD 100 million. Apart from these activities, the Mubarak family seems to have kept out of business. Thus, until President Mubarak was ousted in 2011, his family did not figure as anchor investor in any big company within the Egyptian economy or abroad (Springborg 1989: 34; Roll 2010: 241, 254–257). For Jordan, information is very scarce or not publicly available (for the period 2003–2011, no sources were available to the author). What is known is that a member of the royal family, Sharif Shakir Ibn Zayd (son of the former Prime Minister and cousin of King Hussein, Sharif Zayd Ibn Shakir), was a prominent business actor already during the 1990s, with dealings in several sectors (most notably in tourism, but also in banking and in industrial activities). Further to that, rumours had it that the family of King Abdullah II’s wife (Queen Rania) became more involved in business during the 2000s, but details did not leak to the public. Nevertheless, the extent of the Jordanian royal family’s business activities seems to have been limited (at least until the end of the period of investigation in 2011) (Wils 2001: 133–134, 2003: 162, 167–168, 189, 191–196, 201–202, 206; Reiter 2004: 88–90; Schlumberger 2004: 152–153; Milton-Edwards and Hinchcliffe 2009 [2001]: 63–64). In contrast to Egypt and Jordan, the business activities of the royal family in Morocco and of the presidential family in Tunisia (the Ben Ali - Trabelsi clan) were extensive. In Morocco, a member of the royal family founded a holding company during the 1960s that began to invest in numerous sectors of the Moroccan economy. In 1980, this royal holding bought controlling stakes in two conglomerates (including the biggest private conglomerate of the Moroccan economy—ONA). This deal boosted the business activities of the Moroccan royal family. Thus, by the 1990s, the royal family had already become one of the most important private investors in the Moroccan economy (the basis being its stake in ONA). After the death of King Hassan II in 1999, the royal family stepped up its private economic engagement in unprecedented fashion: already in 1999, it took over indirect control (via ONA) of the second-biggest private conglomerate of the Moroccan economy—the SNI (privatized in the mid-1990s). In 2003, the royal family increased its direct participation in SNI-ONA and thus rose to the position of majority shareholder. After several other takeovers, it would finally be on a par with the major players in all important sectors of the Moroccan economy—while it held the position of market leader in several key sectors (including banking). In 2010, it finally merged ONA and SNI into one holding (the new SNI), eliminated the entity ONA, and withdrew the quotation of the SNI-holding from the Casablanca stock exchange. Given that the sales volume of the conglomerate SNI-ONA had made up 5.5 percent of Moroccan GDP in 2009, the size of the Moroccan royal family’s business activities at the end of the period of investigation was truly substantial (Leveau 1985 [1976]: 257;

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M. S. Saâdi Saâdi 1989: 140–141, 146; Diouri 1992: 121–122, 182–196, 200–210, 213–214; A.D.N. 17.11.1994; Henry 1996: 150–151, 156; S. Belghazi 1997: 96– 97; Amourag 17.07.1999: 27, 09.10.1999; Benzekri 12.06.1999; Hachimi Alaoui and A. Jamai 29.11.2003: 8–9; Iraqi, M. Jamai, et al. 27.09.2003: 10–13; Iraqi 29.11.2003a: 10–11, 29.11.2003b: 9; Unknown author 12.04.2003: 25; M. Jamai and Iraqi 31.07.2004: 72–75; Rami 2007: 66, 87–89, 120–124, 281–290; Catusse 2008: 97–98, 101–102; Vermeren 2009: 283; A.D.N. 31.05.2010; Gharbaoui 01.05.2010: 69–71; Henry and Springborg 2010: 217; Iraqia and Michbal 03.04.2010: 18–28; Iraqi 24.04.2010; J.-M. Meyer and Pauron02.04.2010; Unknown author 26.03.2010; Iraqi 15.01.2011; Graciet and Laurent 2012: 41, 159, 201–206; Iraqi 20.01.2016). In Tunisia, President Bourguiba and his family did not enter the economy as private investors. This changed with President Ben Ali’s takeover in 1987. In contrast to former times, members of the Ben-Ali family made use of their close links to the center of power to start off as investors in the Tunisian economy or to enlarge their existing businesses. This trend became stronger after President Ben Ali’s marriage with Leila Trabelsi in 1992. In the following years, two members of the Trabelsi clan extended their business activities to the size of conglomerates. Apart from that, a son-in-law of President Ben Ali became a prominent investor during the 2000s, building up a diversified business holding in a few years. According to one source, the enterprises of the Ben Ali - Trabelsi clan accounted for 5 percent of total private sector output of the Tunisian economy during the period 1996–2010 (Beau and Jean-Pierre 1999: 152–157; Cammett 2007b: 138–139; Beau and Graciet 2009: 41– 46, 65–79, 81–95, 113–127; Erdle 2010: 196–201; Henry and Springborg 2010: 182–184; Bertelsmann 2012d: 6–7, 33–34, 39; Gana 2013: 17; Rijkers et al. 2014: 2–7, 10–11, 14–22; Alexander 2016: 72). If one compares Tunisia with Morocco during the period 1987–2011, the business activities of the Tunisian presidential family appear more predatory than the ones of the Moroccan royal family. While the Ben Ali clan seems to have openly abused state institutions for private gain and occasionally acted in a “quasi-mafia”-like79 manner (expropriation of entrepreneurs, forced participations in successful ventures), the Moroccan royal family had to work more through the national and international capital market, through cooptation of decision makers in the state administration, and through abuse of the market-dominating position of its existing businesses in order to solidify its hegemony in the Moroccan economy (Iraqi, M. Jamai, et al. 27.09.2003; Drissi 23.04.2005; Beau and Graciet 2009: 65–79, 81–95, 113–127; 79

The term “quasi-mafia” is used by Gana (2013: 17), while Bertelsmann (2012d: 17) speaks of “mafia-like corruption and practices of crony capitalism,” which “[seemed] to have gained traction toward the end of the Ben Ali era.”

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Bertelsmann 2010d: 18, 2012d: 29–30; Graciet and Laurent 2012; Gana 2013: 17; Chouikha and Gobe 2015: 63; Alexander 2016: 72). The major factor driving these intercountry differences seems to be historical capital accumulation. Due to the larger size of the Egyptian and the Moroccan market, the ruling families in these two countries had always faced powerful private economic actors (first merchants, later also industrialists), with whom they had to come to terms in order to rule the country. The size of the total economic surplus and its manifold sources made this arrangement inevitable. In contrast, the small size of the Tunisian and Jordanian market made capital accumulation for private economic actors more difficult and enabled the ruling families to better control the distribution of economic surplus. In Tunisia, this structural advantage of the presidential family was amplified by the social revolution that had taken place after independence (expropriation of the old business elite, mostly landowners from the Beylical aristocracy and locally important merchants). In Jordan, where no social revolution had taken place, the royal family stayed in a relatively weak position, as it continuously faced a number of big merchants (and later industrialists), with whom even the state had to cooperate in big investment projects. Nevertheless, the individual wealth of Jordanian private business actors was not extraordinary. Thus, single business actors did not constitute a political threat to the ruling family. Compared to their Moroccan counterpart, the Jordanian royal family had less economic and political capital at its disposal that would have enabled more extensive business activities. In fact, it had much smaller landholdings and—due to the shorter period of historical rule (which started in the 1920s)—probably also less legitimacy among the population to use the state for private gain (see sections 6.1.1, 6.1.2, and 6.3.1.4). The main difference between Egypt and Morocco is that the Moroccan royal family (whose rule dates back to the seventienth century) historically disposed of a much larger amount of private capital than the Egyptian presidential families (who came on the scene only since the mid-1950s, while each Egyptian President stayed in office between 11 and 30 years). The basis of the Moroccan royal family’s private wealth was land, which it had accumulated over the centuries.80 Besides, legitimacy as historical rulers was higher in the case of the Moroccan royal family. This fact gave it a more thoroughgoing influence in state institutions (propitious for opportunities of wealth creation) and also higher acceptance among the population to accumulate capital. Ultimately, the larger private capital of the Moroccan royal 80

Although most royal landholdings in Morocco probably originate in the postindependence period (1956 onwards), when French colon land was redistributed (Tounassi 06.12.2008; Benchemsi and Iraqi 18.07.2009: 61; Vermeren 2009: 285; Graciet and Laurent 2012: 140– 142).

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family and its deeper penetration of the state—compared to the Egyptian presidential families—made it better prepared to enter the business world (see section 6.3.2.3). Ultimately, economic liberalization seems to have played a crucial role in the decision of the presidential and royal families in the four countries under examination to enter their national economies as private investors. In general, economic liberalization pushed back the state as an investor, creating space for private actors. The resulting redistribution of economic surplus increased the economic power of private actors who could transform it into political power. Thus, the ruling families in the four countries entered the business world to substitute state control (and thus regime control) of markets by private control—thereby trying to forestall potential threats by aspiring private economic actors to their political rule . Besides, economic liberalization created economic possibilities—and thus financial incentives—that the ruling families probably wanted to exploit for private gain. At the same time, economic liberalization destroyed patronage channels (mostly through the rollback of the state, e.g. in privatization of SOEs), so ruling families stepped in and tried to make up for this loss as agents of the regime. In the end, the systems of patronage thus became more centralized towards the core of the regimes, with the President or King as the ultimate patron. But entering the economy as private investors also had two important downsides for presidential and royal families: First, it made the private gains of these families more publicly visible. And second, it made ruling families more directly accountable for national economic progress, especially if they controlled market-leading enterprises in key economic sectors (as in Morocco and Tunisia).

6.3.2

Policies: Struggling for Legitimacy; and Controlling Economic Surplus

On the policy level, economic liberalization in MENA countries correlated with other policies in which the regimes were the main but not the only drivers. By driving these policies, the regimes presumedly tried to counter the adverse effects of economic liberalization on the stability of their rule. I carved out five policies from a review of academic literature that empirically occurred together with economic liberalization: “political liberalization;” “repression;” “adapting legitimation;” “slow, incomplete, and clientelist privatization;” and “market protection and imperfect competition.” After all, these policies reflected the regimes’ struggle for legitimacy and / or their attempt to control the distribution of economic surplus. However, as numerous actors contributed to these policies, the regimes could not deliberately steer them, and they could thus not precisely determine their outcome. In this

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subchapter, I first describe and subsequently compare the five policies among the four MENA countries in a diachronic setup, while I highlight the role of economic liberalization (as possible cause and effect) throughout the analysis.

6.3.2.1 Political Liberalization The reasons for political liberalization81 in the four MENA countries under investigation were manifold and changed over time. However, it becomes clear with hindsight that economic liberalization was one of the major drivers of these processes. During the 1950s–1960s, political liberalization was confined to the politically more open monarchies of Jordan and Morocco, whose regimes tried to garner popular support after independence by introducing multi-party systems based on regular parliamentary elections. However, the initial opening was soon stalled due to the polarization of domestic politics (1957 in Jordan, during 1960–1965 in Morocco) (Leveau 1985 [1976]: 53, 80; Satloff 1986: 69–72; Faath 1987: 67–69, 121, 125, 130–131, 192; Perrault 1990: 85–91; Brand 1992: 181–182; Brynen 1992: 77; Ryan 1998a: 181; Pennell 2000: 314, 323; Milton-Edwards and Hinchcliffe 2009 [2001]: 45–46; Vermeren 2010: 31, 36, 44–45; Gilson Miller 2013: 168–169). From the early 1970s up to the early 1980s, political liberalization took place mostly in the two presidential “republics” of Egypt and Tunisia. Both Presidents Sadat and Bourguiba wanted to widen the socio-political base of their regimes, and to win over the bourgeoisie, which they needed as an ally for the initiation of economic liberalization (the chosen remedy for the economic crisis). Once economic liberalization was underway, it triggered social change through socioeconomic stratification. Above all, economic liberalization strengthened the bourgeoisie, which then gradually demanded more of a say in politics. The regimes of Bourguiba and Sadat catered to this new constituency with political liberalization—by initial toleration of offshoots from the single party and later by the official breakup of the single party through the introduction of multi-partyism. Constituting a desired side effect, the breakup of the single party (leading to progressing multi-partyism) and the rallying of bourgeois constituencies within the new ruling party allowed the regimes to continue with economic liberalization (Ruf 1984: 109; Hinnebusch 1985: 96–100, 279– 280; Seddon 1986: 187; Springborg 1989: 34–36; Brumberg 1992: 88–89; Owen 1994: 183–184, 191; Gobe 1999: 209–219; Murphy 1999: 32–34, 57–64, 103–131, 172–177; Beattie 2000: 82–83, 188–196, 199–200, 235–239; Perkins 2004: 165, 167–168, 185–189; Perry 2004: 132; Ikram 2006: 24; Farah 2009: 77, 80; Erdle 2010: 82–85, 97–101, 219; Henry and Springborg 2010: 194; Chouikha and Gobe 81

The term “political liberalization” as used in this study has two empirical manifestations: the widening of civil liberties; and / or an increase in the democratic accountability of political decision makers.

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2015: 33–34). Contrary to Egypt and Tunisia, political liberalization was shelved in Jordan until the mid-1980s. In Morocco, the Western Sahara conflict allowed a revival of multi-party politics (which had been stymied by the 1965–1970 state of emergency and by the 1971 / 1972 coup attempts), although the arrangement was steered by the Palace and guided by its policy of “national consensus” / “sacred union” between the political parties and the monarchy. This superficial liberalization phase particular to Morocco came to an end in the early 1980s, giving way to a period of “defused politics,” where parliamentary opposition was completely sidelined. However, political liberalization came back on the agenda, first during the mid-1980s in Jordan, and from the 1990s onwards in Morocco. The main reasons seem to have been the monarchies’ need to widen their support base for imminent economic reforms and to deflect the socioeconomic hardships caused by the implementation of reforms. Other reasons were the approaching monarchical succession (in both Jordan and Morocco) and the fundamental change of the international context (end of the Cold War), which fostered political openings of formerly closed regimes around the globe—supported by pressure of the United States and of European countries for democratization (Satloff 1986: 69–72; Damis 1987: 205–208; Faath 1987: 149, 153–154, 160–162, 254–256, 262–263, 266; Horton 1990: 18, 36; Perrault 1990: 284–288; Brand 1992: 181–182, 184–185; Brynen 1992: 77, 91–92; Satloff 1992: 141; Denoeux and A. Maghraoui 1998b: 72, 76–78, 1998a: 110, 113– 117; Joffè 1998: 108, 111–118; Layachi 1998: 92; Ryan 1998a: 176, 181; Mufti 1999: 106; Ben Ali 2000: 206; Pennell 2000: 347, 354–355, 366, 375–376; Desrues and Moyano 2001: 38, 42; Moutadayene 2001: 74–80; Mednicoff 2002: 95–97; Ryan 2002: 15–16; Robins 2004: 165, 170, 174–176, 188–189; Knowles 2005: 80– 81; Lucas 2005: 25, 31–44, 54–70, 72–81; Joffè 2009: 156–157; Milton-Edwards and Hinchcliffe 2009 [2001]: 45–46; Willis 2009: 231; Sater 2010: 39–40, 42–43, 50–51, 65–68; Vermeren 2010: 69, 76, 79–80, 84–85, 89, 91, 96, 98–100; Gilson Miller 2013: 185, 202, 205–206). Three purported reasons for political liberalization seemed to be prevalent in all four countries during the 1970s–1990s: First, when the economic crisis became harsh during the early-mid 1980s, the Egyptian, Tunisian, and Jordanian regime resorted to political liberalization to deflect the socioeconomic hardships, which might have been aggravated (at least in popular perception) by the reform program of macroeconomic stabilization and of economic liberalization. These hardships also implied a partial breach of the “social contract” between the regime and the population, which fostered demands for political compensation (Satloff 1986: 71; Brand 1992: 185; Brynen 1992: 70, 91–92; Satloff 1992: 141; Owen 1994: 191; Rath 1994: 538; Leveau 1997: 98–99; Denoeux and A. Maghraoui 1998b: 55, 79; G. E. Robinson 1998: 389, 391; Ryan 1998a: 176; Layachi 1999: 49, 58; Mufti

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1999: 103–104, 106; Murphy 1999: 65–79; Denoeux 2001: 68; Mednicoff 2002: 95; Ryan 2002: 15–16; Perkins 2004: 174–175; Robins 2004: 165, 170; Lucas 2005: 25; Peters and P. Moore 2009: 281; Erdle 2010: 85–87; Blaydes 2011: 38). Second, political liberalization allowed the four regimes to share the responsibility for the socioeconomic grievances with other political actors. These links between economic and political liberalization can also be observed during the 1990s in Jordan and Morocco, while the Egyptian and the Tunisian regime at that time switched to political deliberalization and repression82 in order to push forward their economic reform programs (Brumberg 1992: 88–97; Leveau 1997: 98–99; Denoeux and A. Maghraoui 1998b: 55, 79; Layachi 1999: 49, 58; Kienle 2000; Denoeux 2001: 68; Mednicoff 2002: 95; Wils 2003: 134; Perry 2004: 134; Rutherford 2008: 218; see also: Payne 1993: 167; Bratton and van de Walle 1997: 179; Murphy 1998: 84; Wiktorowicz 2000: 43; Alhamad 2008: 37–38). Third, the regimes needed to balance opposition forces, especially as the Islamist opposition had become stronger than the secular opposition, at least from the early 1980s onwards (Denoeux and A. Maghraoui 1998b: 77–78; Murphy 1999: 64; Mednicoff 2002: 96–97; Perkins 2004: 165–175; El Amrani 2009: 311; Willis 2009: 231; Chouikha and Gobe 2015: 33–34). During the 2000s, political liberalization dissipated in all four countries, while this process had already started during the 1990s in Egypt and Tunisia. The minuscule political reforms—that were nevertheless implemented during the 2000s—were above all due to external pressure, especially by United States democracy promotion after 2003. This observation applies to the cases of Egypt and Tunisia, while the seemingly more democratic regimes of Jordan and Morocco were largely spared by the United States government (which turned a blind eye to political deliberalization and repression). Thus, during the period 1996–2006, the Jordanian regime backtracked on many previous political reforms. After 2006, it then maneuvered a zig-zag-course between political liberalization and deliberalization. In Morocco, the picture was more mixed: the new King Mohammed VI (crowned in 1999) at first continued with political liberalization. But the 2003 Casablanca terrorist attacks reversed the regime’s stance, which then switched to political deliberalization and to 82

The term “repression” is used in this study as a general term that comprises several empirical manifestations: physical “coercion” (beatings, killings, arrests, imprisonment, supervision, psychological mistreatment); restriction of civil liberties by law and through agents of the state or of the regime; a decrease of democratic accountability of state institutions, of regime institutions, or of political decision makers; and financial repression through credit relations and shareholdings. The restriction of civil liberties and the decrease of democratic accountability of state or regime institutions and of political decision makers is subsumed under the term “deliberalization.”

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repression. Nevertheless, the Moroccan regime still implemented selective measures of political liberalization to shore up popular support and to counter the growing influence of the Islamist camp (e.g. through the 2004 reform of the Family Code and the 2004 foundation of the Equity and Reconciliation Commission / Instance Équité et Réconciliation (IER)) (Murphy 1999: 193–220; Ryan 2002: 30–40, 120– 121; Haddadi 2003: 76–77; Lucas 2003b: 87–91; Perkins 2004: 189–190, 193–195; Robins 2004: 192, 202–203; Ryan and Schwedler 2004: 142, 144; Lucas 2005: 99– 116, 133–135, 139; White 2005: 611; Choucair 2006: 9; Ottaway and Riley 2006: 7–8; Zemni and Bogaert 2006: 110, 112; Hamzawy 2008: 5; Henry 2008: 294– 298; Rutherford 2008: 257; White 2008: 102–103; Harrigan and El-Said 2009: 84; Kausch 2009: 168; Milton-Edwards and Hinchcliffe 2009 [2001]: 54–55; Peters and P. Moore 2009: 277; Sater 2009b: 184, 186–187; Vermeren 2009: 19–20, 141–144, 178–184; Bertelsmann 2010b: 7–8; Erdle 2010: 104–113, 122, 128; Sater 2010: 79–83, 137; Zemni and Bogaert 2010: 92–93; Vogt 2011: 62; Bertelsmann 2012b: 2; Bertelsmann 2012c: 10; Dalmasso 2012: 222–223, 226; Cavatorta and Dalmasso 2013: 127; Gilson Miller 2013: 227–228; OECD 2013: 54–55; Chouikha and Gobe 2015: 69–71; Alexander 2016: 144–145; Markakis 2016: 85–95). Overall, political liberalization from the 1950s up to the 2000s was very confined in all four countries, with the regimes trying to control the process as tightly as possible. Besides, political liberalization was a discontinuous process in all four MENA countries under investigation. Most of the time, it happened in phases that were usually succeeded by phases of political deliberalization and increasing repression (Denoeux and A. Maghraoui 1998b: 56, 69; G. E. Robinson 1998: 387; Wiktorowicz 2000: 47–48; Mednicoff 2002: 98–99; Ryan 2002: 15–16, 18; Lucas 2005: 47; Demmelhuber and Roll 2007: 15–16; Ottaway and Dunne 2007: 9–10; Mc Faul and Wittes 2008: 27–31; Rutherford 2008: 248–253; Farah 2009: 84–85; D. Maghraoui 2009: 145, 148; Peters and P. Moore 2009: 281; Willis 2009: 234). To conclude, one can assume the (actual or intended) implementation of economic-liberalization policies to have been one among several factors driving political liberalization: First, economic liberalization made political liberalization inevitable, given the fact that it fostered socioeconomic differentiation (which finally entailed political demands of emerging or economically affected social strata). This observation applies above all to the Infitah period in Egypt and Tunisia. Second, political liberalization—coupled in the first instance with the dissolution of the single party—was a necessary policy for the regimes of Egypt and Tunisia to garner support for initiating and continuing with economic liberalization. Third, political liberalization served all four MENA regimes as a safety valve to deflect the socioeconomic hardships that were partly caused by the implementation of economic-liberalization

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policies. At the same time, political liberalization allowed the four regimes to share the responsibility for these hardships with other political actors.

6.3.2.2 Repression Throughout the period of investigation (1950–2011), the regimes in the four countries under examination (Egypt, Tunisia, Jordan, and Morocco) used repression83 to stabilize their political rule. In some of these instances, economic liberalization seems to have been in a two-way relationship with repression: On the one hand, the implementation of economic liberalization raised the probability of repression, as it triggered societal resistance to the imposed socioeconomic hardships. On the other hand, repression facilitated the continuous implementation of economic liberalization. Ultimately, the four MENA regimes applied repression for similar but also different reasons, depending on the circumstances at a specific point in time. From the 1950s up to the 1970s, repression in all four MENA countries was mostly a result of the closed political systems. As societal discontent could hardly find formal outlets, it came to the fore through informal channels. The regimes did not have adequate nonrepressive policies at their disposal, which induced them to use repression. During this period, repression was (with minor exceptions) not directed at a large share of the population, but the regimes used it selectively against perceived opponents (Patai 1958: 55–72; Ashford 1961: 211–217; E. Hermassi 1972: 145– 148; Waterbury 1983: 338–342, 373; Satloff 1986: 69–70; Damis 1987: 203; Faath 1987: 48–52, 120–122, 126–127, 136–138, 140, 146–147, 153–154; Dann 1989: 21– 117; Perrault 1990: 71–84, 195–205, 221–235, 251–265; Brand 1992: 181; Murphy 1999: 49–57; Pennell 2000: 313–314, 347, 366; Hughes 2001: 157–158, 197–212; Erdle 2010: 60–72, 77–78; Sater 2010: 32–33, 38–39, 48; Vermeren 2010: 26–27, 36–37, 48–52, 56, 61–63, 66, 69, 76; Gilson Miller 2013: 157, 167; Chouikha and Gobe 2015: 13–15, 23–24; Alexander 2016: 28–32, 35, 38–41). In Egypt and Tunisia, this situation changed with the intensifying economic crisis since the mid-1970s, while newly implemented policies of economic liberalization aggravated popular grievances. In both Egypt (1977) and Tunisia (1978), the governments’ attempt to cut consumer subsidies triggered countrywide riots, which the regimes crushed with brutal force. The regimes’ reaction was so fierce 83

The term “repression” is used in this study as a general term that comprises several empirical manifestations: physical “coercion” (beatings, killings, arrests, imprisonment, supervision, psychological mistreatment); restriction of civil liberties by law and through agents of the state or of the regime; a decrease of democratic accountability of state institutions, of regime institutions, or of political decision makers; and financial repression through credit relations and shareholdings. The restriction of civil liberties and the decrease of democratic accountability of state or regime institutions and of political decision makers is subsumed under the term “deliberalization.”

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because their turn to Infitah and to policies of economic liberalization (and thus their own economic and political survival) was dependent on wage restraint of workers and on political stability to attract foreign investment (Waterbury 1983: 373–375; Springborg 1989: 140; Vatikiotis 1991: 420; Murphy 1999: 36–37, 58, 60–62, 233; Farah 2009: 77; Erdle 2010: 84; Chouikha and Gobe 2015: 28–29; Alexander 2016: 44–45). During the 1980s, the link between economic reforms (which focused on macroeconomic stabilization and on economic liberalization) and repression became obvious in all four countries. Due to a deep and prolonged economic crisis, which finally brought all four countries to the brink of state bankruptcy, the governments were forced to implement more thoroughgoing stabilization and structural-adjustment measures. These economic reforms entailed additional socioeconomic hardships for the populations. Thus, repression became inevitable if governments still wanted to implement the reform measures despite mounting opposition triggered by the economic crisis: in Tunisia, the government’s announcement to cut wheat and cereal-product subsidies (consumer-price liberalization) led to countrywide riots in 1984, which the army and state security forces crushed with brutal violence (Paul 1984; Seddon 1984, 1986: 177, 180–186; Murphy 1999: 65–66, 68–70, 74–76; Perkins 2004: 169–170; Erdle 2010: 86–87, 112–113; Ben Romdhane 2011: 197– 198; Chouikha and Gobe 2015: 37–38; Alexander 2016: 46–49). In Jordan, the turn to belated Infitah in 1985 / 1986 induced the regime to use repression to speed up the implementation of economic reforms. Thus, the new Prime Minister Rifa’i (who took office in 1985) emasculated the Lower House and initiated a clampdown on freedom of expression ( Robins 2004: 154–157) . In Morocco, the intent of the government to implement subsidy cuts (consumer-price liberalization) already led to disturbances in the early 1980s (1981 Casablanca riots). Major riots again took place in 1984 and in 1990. The regime reacted with massive physical coercion, while it (partly) rescinded the subsidy cuts to calm down the situation (Paul 1984; Seddon 1984, 1986: 177–179; Faath 1987: 162–163, 167–169, 171; Horton 1990: 18, 36; Perrault 1990: 284–288, 316–318; Morrisson 1991b: 88, 100; Payne 1993: 155; Pennell 2000: 354–355, 363, 370; Sater 2010: 60, 137; Vermeren 2010: 79–80, 84– 85, 90; Gilson Miller 2013: 185, 190). Egypt might be an exception among the four countries, as the Mubarak regime—in an initial period—scaled back repression and tried to dampen the adverse socioeconomic effects of the economic reform program with political liberalization. But by the late 1980s / early 1990s, the Mubarak regime changed course and once again geared up repression (Springborg 1989: 135–137; Kienle 2000: 131; Mitchell 2002: 296–298; Soliman 2011 [2006]: 63–65). Contrary to the 1980s, the first half of the 1990s were a period of political liberalization and easing of repression in Jordan and Morocco (see section 6.3.2.1). In

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Jordan, this period already came to an end in 1996, when the government put down countrywide riots with force. Thereafter, the regime turned to legislative deliberalization. The main factors behind the shift back to repression seem to have been the peace treaty with Israel (1994), which led to the emergence of a domestic “antinormalization” front, and external pressure to deepen economic reforms (Schwedler and Andoni 1996; Ryan 1998b: 57–60, 2002: 53–63; Lucas 2003b: 87–93, 2003a: 141; Wils 2003: 143; Ryan and Schwedler 2004: 138–139, 142; Knowles 2005: 159; Lucas 2005: 99–121; Milton-Edwards and Hinchcliffe 2009 [2001]: 54–55; Peters and P. Moore 2009: 278–279 ). In Morocco, the regime kept the level of repression relatively low throughout the 1990s (with the exception of the 1995–1996 Cleanup Campaign against private business actors) (Leveau 1997: 98–100; Denoeux 1998; Joffè 1998: 122–123; Dalle 2001: 160–164; Sater 2002: 13–14, 18–22; Catusse 2008: 174–186; Sater 2010: 67–70, 104–106; Vermeren 2010: 95; Gilson Miller 2013: 203). Concomitantly, the Egyptian and the Tunisian regime once again intensified repression—after a period of relaxation—from the early 1990s onwards. In both countries, the gearing up of repression was connected with the speedup of the economic reform program, which focused on macroeconomic stabilization and on economic liberalization (Brumberg 1992: 88–97; Murphy 1999: 164–220; Clark 2000: 164–166; Kienle 2000: 131, 154–158, 168; S. J. King 2003: 40; Perry 2004: 134; Rutherford 2008: 218; Erdle 2010: 97–117, 305–308; Chouikha and Gobe 2015: 44–54; Alexander 2016: 49–57). Apart from that, repression in Egypt and Tunisia was also a defensive reaction against the (unintended) political effects of earlier political liberalization (early-mid 1980s in Egypt, 1987–1990 in Tunisia), itself partly due to the adverse socioeconomic effects of the economic reform program (Murphy 1999: 230–231; Clark 2000: 164–166; Kienle 2000; Brumberg 2002). In both Egypt and Tunisia, the prime target was the Islamist opposition, which had been gaining political strength, after the regimes had dismantled their secular leftist opposition. As the clash between the regimes and secular opposition actors was primarily due to policies of economic liberalization and stabilization, the rise of the Islamist opposition was thus partly (and indirectly) a result of these policies as well (Murphy 1999: 72–74, 76, 193–209; Kienle 2000; Erdle 2010: 84–85, 108–113; Chouikha and Gobe 2015: 33, 35–36, 41–43; Alexander 2016: 47–48; see also: Murphy 1998: 83). During the 2000s, all four regimes intensified repression to advance economic reforms, while political liberalization as a support policy was largely shelved. When political liberalization nevertheless took place, it was very confined and mostly driven by external pressure (see also section 6.3.2.1): in Egypt, the regime sticked to the repressive approach of the 1990s, although it implemented some policies of political liberalization in the first half of the 2000s, mostly due to United States

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pressure for democratization (policies that were partially reversed in the second half of the 2000s) (Bertelsmann 2008a: 8–9; Rutherford 2008: 257; Farah 2009: 83–84; Bertelsmann 2010a: 4, 8–9; Albrecht 2013: 54, 56, 69, 113–114, 138–140, 150–153, 158–160). Likewise, the Ben-Ali regime in Tunisia did not fundamentally lower the level of repression during the 2000s. As in Egypt, some very confined policies of political liberalization were implemented (Erdle 2010: 122, 128; Chouikha and Gobe 2015: 69–70). For both Egypt and Tunisia, repression during the 2000s does not seem to be as closely linked to the economic reform program as during the 1990s. The crumbling legitimacy of the two regimes, combined with the growing strength of the informal opposition, appear to be the most important factors that drove repression. In Jordan, the regime steadily geared up repression since the second half of the 1990s. It kept Parliament on hold twice during the 2000s by postponing parliamentary elections (2001–2003 and 2009–2010), while legislation was characterized by deliberalization (reinforced after the 2005 djihadist attacks in Amman). At the same time, the Jordanian regime apparently used the closure of Parliament to enact controversial economic laws (including policies of economic liberalization) by administrative decree (Ryan 2002: 30–40, 120–121; Lucas 2003b: 87–91, 93–94; Robins 2004: 192, 202–203; Ryan and Schwedler 2004: 142, 144; Lucas 2005: 99–116, 133–135, 139; Choucair 2006: 9, 12; Bertelsmann 2008b: 8; Harrigan and El-Said 2009: 84; Milton-Edwards and Hinchcliffe 2009 [2001]: 67; Peters and P. Moore 2009: 277; Bertelsmann 2010b: 7–8; Vogt 2011: 62; Bertelsmann 2012b: 2; OECD 2013: 54–55). In Morocco, the regime of King Mohammed VI became more repressive after the 2003 Casablanca terrorist attacks, although the trend was not as clear as in the other three countries. Being more firmly in the saddle, the Moroccan regime partly continued the process of political liberalization begun in 1999 (examples: 2004 reform of the Family Code and 2004 creation of the IER) (see also section 6.3.2.1). However, since the mid-2000s, the regime became visibly fiercer (most notable in its assault on the press) (Zemni and Bogaert 2006: 110, 112; Hamzawy 2008: 5–6; Cavatorta and Dalmasso 2009; Kausch 2009: 168–170; Sater 2009b: 186–187; Vermeren 2009: 19–20, 22–23, 148–152; Sater 2010: 79–80; Vermeren 2010: 102; Bertelsmann 2012c: 2, 8, 10; Dalmasso 2012: 226; Graciet and Laurent 2012: 142–143; Cavatorta and Dalmasso 2013: 127; Gershovich 2013: 100–105; Gilson Miller 2013: 225; Bertelsmann 2014b: 8). In both Jordan and Morocco, external influences (above all the United States War on Terror) hardened the security-oriented stance of the regimes, which entailed physical coercion of regime opponents and deliberalization in the political field (White 2005: 611; Bertelsmann 2008b: 7; Henry 2008: 294–298; Joffè 2008: 318; White 2008: 102–103; Sater 2010: 137; Zemni and Bogaert 2010: 92–93; Zisenwine 2013: 78– 79). As in the two “republics” Egypt and Tunisia, it remains unclear what role the

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continuation of economic reforms (including economic liberalization) played in the increase of repression in Jordan and Morocco during the 2000s. It is important to mention that repression in the four countries during the 1990s– 2000s comprised not only physical coercion and political deliberalization, but also financial repression: In Egypt and Tunisia, financial repression mainly took place within a system of bad debt, in which private debtors were tied to state-owned banks through nonperforming loans (Henry 1996: 239–243; Schlumberger 2004: 121; Roll 2010: 60–109; Hibou 2011 [2006]: 27–75) (see also section 6.3.2.5). In Morocco, financial repression unfolded its effect primarily through a network of cross-shareholdings, in which powerful conglomerates controlled by the Makhzan (with the royal family at its core) secured their influence on the most important enterprises in the kingdom. In addition, the regime wielded influence through its control of the banking sector (credit relations of market-leading banks with all main economic actors, although with a relatively small nonperforming loan portfolio) (see sections 6.3.1.5 and 6.3.2.5). In contrast, financial repression by the Jordanian regime was minimal or even absent—as the Jordanian banking sector was dominated by private banks not directly linked to the regime (Schlumberger 2004: 150, 152) (see also section 6.3.2.5). After all, repression in all its forms in the four MENA countries during the examination period seems to be partly a result of economic-liberalization policies. Several mechanisms are observable: In the beginning, policies of economic liberalization triggered societal resistance, when some of its adverse socioeconomic effects unfolded. This resistance challenged the regimes and induced them to react with repression. Concomitantly, repression was not only an instrument of legitimation, but it also enabled the regimes to continue with economic reforms. Empirically, a dynamic interplay between repression and political liberalization—the alternative policy to deal with societal resistance—can be observed. Regimes in the four MENA countries seem to have used both policies at the same time to stabilize their rule. Nevertheless, there were periods in each of the four countries, when either repression or political liberalization was the predominant policy. Retrospectively, repression was the preferred policy choice in all four countries during the 1950s–1960s and during the 2000s.

6.3.2.3 Adapting Legitimation In all four countries under examination, economic liberalization reduced the ability of the regimes to pursue policies of material legitimation. The presidential regimes of Egypt and Tunisia were more affected by this structural break than the monarchical

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regimes of Jordan and Morocco, as they had fewer sources of legitimacy84 at their disposal. Ultimately, all four regimes adapted their policies of material legitimation by redefining the group of beneficiaries and / or by modifying the content of policies. In addition, they introduced new policies of legitimation or intensified existing ones that emphasized nonmaterial performance and other characteristics of their rule. Before economic liberalization set in during the early 1970s, the legitimation policies of the Egyptian and Tunisian regimes focused primarily on material performance (including “social reform” and “wealth redistribution”). In Egypt, the post-1957 Nasser regime legitimated itself primarily by Pan-Arabism and by “Arab Socialism,” the latter implying the buildup of a welfare state. Similar to Egypt, the Tunisian statist-development model of the 1960s legitimated the Bourguiba regime above all through material well-being of the population. Thus, material legitimation led to the emergence of a “social contract” with the populations, under which the Egyptian and Tunisian regimes exchanged welfare for political obedience. A second common policy of legitimation—most extensive during the 1950s–1960s— was “anti-colonialism” and “anti-imperialism.” Thus, both Presidents Nasser and Bourguiba drew legitimacy from the fact that their armies fought the former colonial powers (1956 Suez crisis, 1961 Tunisian attack on French troops at Bizerte). Besides, both Presidents emphasized their crucial role in the independence struggle to garner legitimacy (Bourguiba more than Nasser) (O’Brien 1966: 130–131; S. Amin 1970: 147, 212–216; E. Hermassi 1972: 189–190; Waterbury 1983: 68; Pawelka 1985: 133–137; Grissa 1991: 111; Vatikiotis 1991: 391–393, 402; Wahba 1994: 78; Murphy 1999: 51–52, 55; Perry 2004: 87, 91, 93–100; Perkins 2004: 130–133, 142–144; Alexander 2010: 90–91, 100–102; Erdle 2010: 63, 67, 73–74; Chouikha and Gobe 2015: 21; Alexander 2016: 108–111, 131–132, 142–143; see also: Murphy 1998: 73–75; Albrecht and Schlumberger 2004: 377). In contrast, the monarchical regimes of Jordan and Morocco could tap more sources of legitimacy: A first source was tradition. In Jordan, legitimation policies based on tradition focused on the Hashemites’ leadership of the Great Arab Revolt against the Turks (1916) and on the continuous rule of Amir Abdullah’s family over Transjordan since the early 1920s. But traditional legitimacy was greatest in Morocco, where the Alaoui family traced back their rule to the seventienth century. Both the Jordanian and the Moroccan Kings blended their role as traditional heads of 84

I distinguish between “legitimation” and “legitimacy” following Weber (1978 [1922], 212215), who emphasizes that “legitimate domination” only becomes effective if “in a given case the particular claim to legitimacy is to a significant degree and according to its type treated as valid” by the ruled (see section 2.4). In general, “it is very difficult” to make inferences for legitimacy from observable policies of legitimation (Albrecht and Schlumberger 2004: 386; Bank 2004: 158).

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their communities with a form of “modernist cosmopolitanism”—a mix that allowed them to weather social change, while avoiding the trap of anachronistic government (Hudson 1977: 210–211, 221–222; Cubertafond 2001: 74–75; Mednicoff 2002: 92–94, 100; Albrecht and Schlumberger 2004: 378; Schwarz 2004: 194). A second source of legitimacy for the monarchical regimes was religion. Both the Jordanian and Moroccan royal families emphasized their Sharifian status endowing them (in popular perception) with a special ability to wisely lead the community. The Jordanian Hashemites could also point to their role as defenders of the holy places of Islam (Mecca and Medina until 1925, Jerusalem during 1950–1967). The Moroccan Sultan (since 1957 crowned Moroccan King) officially held the titles of first imam of the Muslim community and of Commander of the Faithful (Amir al-Mouminin). In addition, the Moroccan Sultans / Kings claimed the role of protectors of the Sufi brotherhoods and their centers of learning (turuq, zawaya) as well as protectors of the holy places (Hudson 1977: 210–211, 222; Faath 1987: 106; Benomar 1988: 544– 545, 550–552; Cubertafond 2001: 74–75, 84–87; Mednicoff 2002: 100; Schwarz 2004: 194). A third source of legitimacy was the personal charisma of the monarch. In Morocco, Sultan Sidi Mohammed had been the symbolic leader of the independence struggle and later became the father of the newly independent nation. His son Hassan lacked this prestige, but he drew his charisma from a popular belief in his divine blessing (baraka) and from the fact that he “miraculously survived” two coup attempts (1971–1972). Similarly, King Hussein of Jordan built up legitimacy from personal charisma, as the population adored him because he “survived so many challenges” (Hudson 1977: 218, 221, 224, 227; Faath 1987: 106–108; Benomar 1988: 552; Cubertafond 2001: 74, 81–83; Sater 2010: 44–45). A fourth source of legitimacy for the monarchical regimes was nonmaterial performance. In Jordan, Amir Abdullah could point to his successful record in building up a viable Transjordanian state. His grandson Hussein then defended the new Jordanian state against the forces of Arab radicalism. Similarly, the Moroccan regime (especially its core, i.e. the royal family) legitimated itself through nationalism (which initially comprised anticolonialism). Thereby, it first referred to Sidi Mohammed’s role in the independence struggle and to his status as the head of the postindependence Moroccan state. Later, legitimation through nationalism became even more powerful with the arising Sahara conflict and its symbolic appropriation by the monarchy (1975 Green March) (Hudson 1977: 223–224, 227–228; Faath 1987: 37–38; Benomar 1988: 552; Sayigh 1991: 168–170; A. Maghraoui 2002: 29; Sater 2010: 118). A fifth source of legitimacy for the monarchical regimes—as for the presidential regimes—was material performance. In both Jordan and Morocco, legitimation

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policies based on material performance were considerably extended with the oil boom of the 1970s and the concomitant increase of rent inflows. Thus, both regimes built up a middle class through state employment and welfare policies. Comparable to Egypt and Tunisia, though on a smaller scale, a “social contract” between the regimes and their populations emerged, under which popular material well-being was exchanged for acceptance of the regime’s political supremacy (Hudson 1977: 215; Faath 1987: 148; Sutton 1987: 13; Horton 1990: 17, 132; Morrisson 1991b: 32; R. J. King 1998: 113; Murphy 1999: 59; Erdle 2010: 80–81; Sater 2010: 97–98; Chouikha and Gobe 2015: 27; Alexander 2016: 114–115; see also: Murphy 1998: 73, 75–76; Albrecht and Schlumberger 2004: 377). When the economic conditions worsened since the mid-1970s / early 1980s (aggravated by high population growth), the social contract in all four countries came under strain. It was further damaged by the initiation of macroeconomic stabilization and of economic liberalization as part of structural adjustment (Payne 1993: 142–143, 167; Murphy 1998: 77–81; Albrecht and Schlumberger 2004: 377– 378).85 In Egypt, the Sadat regime could in a first phase uphold the Nasserist “social contract” due to soaring rent income. But it had to cut back on the Nasserist model, when economic difficulties mounted since the mid-1970s. Thus, the character of the regime changed from a “populist-authoritarian” to a “bureaucratic-authoritarian” type. The Mubarak regime, which followed on its heels, tried to halt the erosion of legitimacy from material performance by slowing down economic liberalization and by pursuing an active industrial policy. But it was forced to make further adjustments to the social contract, when the economic crisis reached its apex in the mid-1980s. During the 1990s, the implementation of the ERSAP (which contained many measures of economic liberalization) added additional strain and worsened the legitimacy crisis of the regime (Rivlin 1985: 177–182; Wahba 1994: 148–152, 158–159; G. A. Amin 1995: 7–13; El-Ghonemy 1998: 182–186; WTO 1999: 3, 75–76; Beattie 2000: 206–211, 261; El-Ghonemy 2003: 82; Perry 2004: 125–126; Ikram 2006: 24–25, 66–67, 255; Noland and Pack 2007: 47; Wurzel 2007: 27; Beinin 2009; Farah 2009: 79; Soliman 2011 [2006]: 38–42, 47, 58–60). As in Egypt, the Tunisian regime had to cut back on the “social contract,” when economic difficulties increased in the mid-1970s. Reacting to diminishing resource inflows, President Bourguiba (as the Egyptian President Sadat) made the system more neopatrimonial by strenghtening patron-client relations (which enabled a 85

Apart from diminishing the patronage possibilities of the regime in the form of social spending, public investment, and state employment (the three pillars of material legitimation), economic liberalization also damaged the legitimacy drawn from “nationalism,” as the economic reforms were perceived by the populations as foreign-imposed ( Murphy 1998: 79–82) .

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more direct channeling of resources) (see section 6.3.1.1). Nevertheless, the Tunisian regime’s legitimacy based on material performance crumbled under the prolonged economic crisis. It received a further blow, when macroeconomic stabilization and economic liberalization picked up speed since 1986 (Payne 1993: 147; El-Ghonemy 1998: 178–179; Murphy 1999: 101–108; Harrigan and El-Said 2009: 113, 120-121; Erdle 2010: 61–93, 101–102, 136–137; OECD 2012: 42). Both the Egyptian and the Tunisian regime tried to counter the loss of legitimacy from material performance with political liberalization (Egypt: early-mid 1980s; Tunisia: late 1980s) and repression86 (see sections 6.3.2.1 and 6.3.2.2) (see also: Murphy 1998: 76–77, 84–85; Albrecht and Schlumberger 2004: 380–382). Comparable to Egypt and Tunisia, though on a smaller scale, the economic crisis of the 1980s and the beginning of structural adjustment (including economic liberalization) strained the “social contracts” in Jordan and Morocco (Satloff 1986: 22–25; Ben Ali 1991; Brand 1992: 170–171; Feiler 1994: 52; Piro 1998: 67; El-Said 2002: 270; Knowles 2005: 54–55, 64; Catusse 2009: 199; Sater 2010: 97–101, 106; Richter 2011: 160–161; see also: Albrecht and Schlumberger 2004: 378). As in the case of Egypt and Tunisia, the Jordanian and Moroccan regimes tried to counter the loss of legitimacy with political liberalization and repression. However, political liberalization in the two monarchies was more thoroughgoing and lasted longer. Its high phase was from the mid-1980s up to the mid-1990s in Jordan and from the early 1990s up to the early 2000s in Morocco. At the same time, the level of repression during the 1990s–2000s seemed to be lower in Jordan and Morocco than in Egypt and Tunisia, presumedly due to the availability of more potential sources of legitimacy (see sections 6.3.2.1 and 6.3.2.2) (see also: Albrecht and Schlumberger 2004: 378–382).87

86

Following (Easton 1965: 275–277), “repression” (as a substitute for the term “coercion” used by Easton (1965)) is treated here as one form of legitimation. The policy of repression can thus potentially raise the legitimacy of a regime. Other authors, like Albrecht and Schlumberger (2004: 373, 375) and Schwarz (2004: 189), distinguish between “legitimacy” and “repression” as two different factors that influence “the survival and continuing existence of political rule.” 87 The search for nonmaterial sources of legitimacy in times of financial straits does not seem particular to the four regimes under investigation: looking inside the black box of the regime, Ouaissa (2010: 166, 313–318) shows for the case of Algeria 1962–2000, how periods of declining rent income correlated with the “segmentation” of the ruling “state class.” The “segments” of the Algerian “state class” reacted to the rent crises by substituting material legitimation based on “economic capital” with other forms of legitimation based on “cultural, social, and symbolic capital” (see also: Ouaissa 2009: 84-96).

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In all four countries, the dissipation of the oil boom and the cutback on the “social contract” since the mid-1970s occurred together with (and partly drove) the rise of Islamist groups, which became the strongest opposition actors: in Egypt, both the Sadat regime and the Mubarak regime reacted by enhancing Islamic legitimation policies (Perry 2004: 137; ; Farah 2009: 112–116). In Tunisia, the Bourguiba regime at the beginning of the 1980s supplemented its largely repressive approach towards the Islamist opposition with “conservative cultural and educational policies.” From the 2000s onwards, Ben Ali (in contrast to Bourguiba) intensified this policy by shoring up his personal Islamic credentials, although by then repression had already sidelined the formal Islamist opposition (Murphy 1999: 64, 70–76, 179–180; Perkins 2004: 165–166, 168, 171–172, 174–175; Erdle 2010: 85–87, 98; Chouikha and Gobe 2015: 31–34, 41–43; Alexander 2016: 47–49). Likewise, the Jordanian and Moroccan regimes reacted by bolstering their (already existing) Islamic legitimacy, either through emphasizing the monarch’s personal piety or through framing their involvement in international politics in religious terms—mostly by portraying the Jordanian and / or Moroccan King as spokesman for the Islamic umma, for example in the Israeli-Palestinian conflict. Ultimately, the policy of enhanced Islamic legitimation should have been more credible in the two monarchies than in the two “republics” and thus might have more effectively curbed the influence of Islamist opposition groups in Jordan and Morocco (Satloff 1986: 38–49, 54; Benomar 1988: 552–555; Bras 1991: 173; see also:Albrecht and Schlumberger 2004: 378; Schwarz 2004: 190–191). By the 2000s, macroeconomic stabilization and economic liberalization had significantly reduced the four regimes’ spending power. All of them reacted by narrowing their regime coalitions and by channeling resources more exclusively to groups indispensable to their rule. In Egypt, the focus of material legitimation became less ambitious, shifting from “prosperity for a majority of the population” to “relief from economic misery and social decline” for the most affected groups (Wurzel 2007). Similarly, the Tunisian and the Moroccan regime redirected resources towards the poorest sections of society, making them better off to the detriment of the lower middle class (Murphy 1999: 225; Bank 2004: 168; Sater 2009a: 386; Erdle 2010: 172–176, 217–218; Sater 2010: 106–109; see also: Murphy 1998: 87). Besides, to compensate for declining financial resources, all four regimes curtailed social services provided by the state and transferred some former state responsibilities to the private sector (i.e. private business actors, civil society actors) (Carroll 2003: 167, 178; Knowles 2005: 165–166) (see also section 6.3.1.3). This strategy was often complemented by the attempt to shift the blame for societal ills from the regime to other actors and institutions (private business actors, international actors, international treaties, etc.). Similar mechanisms were at work inside the regimes, when the

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core (the Presidency, the Palace) covered behind the government (Prime Minister, Cabinet) in times of societal turmoil (Cassarino 1999: 60; Murphy 1999: 34; Mednicoff 2002: 101; Ryan 2002: 53, 58–59; Catusse 2009: 195; Erdle 2010: 407–408; Sater 2010: 106; Vogt 2011: 65; see also: Harik 1992b: 16; Murphy 1998: 87–88). Apart from redirecting resource flows and sharing responsibility for socioeconomic development with other actors, regimes in the four countries conceptualized new legitimation policies or extended existing ones: First, all four regimes reframed their economic reform programs (which, from the 2000s onwards, focused on economic liberalization, while macroeconomic stabilization continued on a smaller scale) as an expression of “modernization” that necessitated austerity in the present for benefits in the future. The Tunisian regime linked economic reforms and modernization through the concept of “reformism,” a historical “myth of Tunisian governmentality.” This frame connected its economic reform program with the terms “modernization,” “moderation,” and the creation of “new opportunity” (Bras 1995: 198–202; Denoeux and A. Maghraoui 1998b: 62; Murphy 1999: 225; Albrecht and Schlumberger 2004: 378; Bank 2004: 168; Schwarz 2004: 192, 195; Choucair 2006: 9; Cavatorta and Dalmasso 2009: 495; Sater 2010: 70, 103–104; Hibou 2011 [2006]: 213–214). In all four countries, modernization driven by economic liberalization included the creation of new consumption possibilities for the battered middle class (a larger range and more affordable import goods, broad availability of consumer credit, new infrastructure, etc.) (A.D.N. 19.09.1996; Beau and Jean-Pierre 1999: 150–152; Beau and Graciet 2009: 73; N. Belghazi 13.02.2009; A.B. 2010; Le Bec 16.03.2010; Hibou 2011 [2006]: 47–49; Michbal 27.05.2011; Tagornet 02.12.2011; El Arif 26.01.2012). Second, with the rise of djihadist activity and the return of large-scale war to the Middle East (United States invasion of Iraq in 2003) during the 2000s, regimes in the four countries intensified existing legitimation policies that emphasized security and political stability—which also included a rise in the level of repression. Above all, the regimes claimed to be the sole force that could inhibit the breakup of society through fitna (intrasocietal turmoil / sectarian strife / civil war). This kind of legitimation was also directed at external actors (especially international donors and allies) (Bank 2002: 104–105; Brownlee 2002b: 13; Bank 2004: 165; Bank and Schlumberger 2004: 50; Schwarz 2004: 195–197; Wurzel 2007: 25; Cavatorta and Dalmasso 2009: 490; Kausch 2009: 176; Sater 2009b: 191; Willis 2009: 233; Erdle 2010: 400–412; Sater 2010: 137–138; Bertelsmann 2012c: 13, 24–25; Gilson Miller 2013: 209; Chouikha and Gobe 2015: 64–65; see also: Albrecht and Schlumberger 2004: 376– 377, 384).

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Third, the regimes intensified legitimation towards external actors in general,88 with the aim to substitute declining domestic resources with international funding. Apart from political stability, legitimation policies towards external actors emphasized economic success as a result of structural adjustment, which included economic liberalization—signified through abidance by IMF / WB loan conditions or through the effectiveness of economic reforms in the post-IMF reform period (Albrecht and Schlumberger 2004: 378, 388; Bank 2004: 164–165; Demmelhuber 2009: 201; Willis 2009: 232–233; Erdle 2010: 400–412; Sater 2010: 131–138; Bertelsmann 2012c: 24–25; Chouikha and Gobe 2015: 64–65; see also: Albrecht and Schlumberger 2004: 376–377, 384–385). After all, economic liberalization seems to have played an important role in the change of the four regimes’ legitimation policies from the 1970s up to the 2000s: On the one hand, economic liberalization was a major factor damaging the “social contracts,” which had been an outgrowth of policies of material legitimation. Thereby, it was partly responsible for the decline of legitimacy based on material performance—implying the necessity to search for new forms of legitimation (see also: Murphy 1998: 79–81). On the other hand, economic liberalization itself provided the four regimes with new possibilities of legitimation through its connection with modernization and through its importance for international actors.

6.3.2.4 Slow, Incomplete, and Clientelist Privatization Privatization—a supply-side policy of economic liberalization—came on the policy agenda of the four MENA countries both deliberately (as a tool to make an ailing public sector more efficient) and through pressure of external lenders (before all of the WB). By curbing channels of patronage that ran through SOEs, it was potentially threatening for the political rule of the four authoritarian regimes. They thus had to find ways to attenuate the political effects of privatization, while concomitantly satisfying external actors who watched over the compliance with lending conditions. These necessities led to the emergence of several response policies that made privatization slow, incomplete, and clientelist.

88

Some authors distinguish between “internal and external dimensions” of legitimacy. According to Albrecht and Schlumberger (2004: 376-377), “internal legitimacy” “refers to the explicit or diffuse support of political regimes by domestic society,” while “external legitimacy signifies the extent to which political regimes are considered legitimate by the leading external powers, that is, Western governments and international organizations.”

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Before privatization89 came on the agenda in the four MENA countries under examination, the aim of the governments was to reform their SOEs. The reason was the public sector’s inefficiency, which had been exposed and aggravated by the unfolding economic crisis from the late 1970s onwards. Thus, in a first step governments either tried to restructure the existing SOEs by introducing “a higher level of managerialism and commercialization” into their operations, or they increasingly outsourced certain activities to the private sector. Nevertheless, the decision to privatize after restructuring was taken relatively soon in all four countries: in Egypt in the early 1970s; in Morocco in the late 1970s; in Tunisia in the early 1980s; and in Jordan in the mid-1980s (Harik 1992b: 215; Bouachik 1993: 30–39; Wahba 1994: 160, 168; Ben Ali 1995: 185–188; Bouachik 1995: 118–122; Nsouli et al. 1995: 31; Ayubi 1996: 51; Hillebrand 1996: 10; Knowles 2005: 144–145; Catusse 2008: 64–68; see also: Harik 1992b: 14).90 But in three of the four countries (the exception being Morocco, where “silent” privatizations of shares in SOEs had taken place from the 1960s onwards), the sale of SOEs or divestments of shares held by the state only started once the IMF and the WB involved themselves under lending arrangements with policy conditions. Since the mid-late 1980s, privatization thus began on a case-by-case basis (“spontaneous privatizations,” i.e. without the basis of a privatization law) in all four countries. In most cases, the divested assets were small-scale projects, where the decision 89

According to Plane (1997: 162), “the conceptual frame of [...] [privatization; C.N.] is not clearly defined.” In fact, the term “privatization” as used by academic authors and practitioners can have different meanings: the introduction of “private management practices” in a “parapublic company” (without a “transfer of property rights”); “contractual arrangements including subcontracting with a private management of public assets;” the “transfer of government’s property rights to private shareholders” (“divestiture”); or, in its most general form, “a tenuous process leading to an increase of the relative share of the private sector through internal deregulation or external trade liberalization” (for the case of privatization in Jordan, see (Wils 2003: 186–187). (Ayubi 1995: 333–335) specifies “three main approaches and seven main modalities for privatization:” 1. “Managerial approaches:” more leeway for the “boards of directors of parastatal corporations;” “contracting out” of the management of state-owned assets to “a private entrepreneur in return for a fee;” 2. “Populist approaches:” “Sale of a public service or enterprise to a cooperative association;” “Employees Stock Ownership Plan with entitlements to purchase stock either equitably or in relation to each employee’s wage level;” 3. “Capitalist approaches:” “partial sale of publicly owned assets;” “total privatization through the sale to the public or to an entrepreneur of all assets held;” the general withdrawal of the state from “all government monopolies and privileges in the field of economics and services.” 90 The fact that the decision to privatize came significantly earlier in Egypt than in the three other MENA countries might have been due to the greater relative size of Egypt’s public sector and to the comparatively deeper economic crisis the country experienced since 1967.

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to privatize was least controversial (especially state-owned hotels).91 During this initial period, the legal and organizational infrastructure for privatization was still rudimentary. Besides, several common obstacles hampered the process until the mid-1990s: the “unattractiveness” of many SOEs for potential buyers; the lack of capital among domestic investors; the unpreparedness of the domestic capital market for the sale of larger assets; and the risk aversion of the domestic private sector. Therefore, the overall progress of privatization in terms of divested assets remained marginal—with the exception of Egypt, where about 1,700 small-scale projects, most of them in the agricultural sector, were sold to private investors and to existing cooperatives until 1991 (Horton 1990: 60, 72, 110; Diouri 1992: 121–122, 185– 187, 193–194; Harik 1992a: 215–220; Bouachik 1993: 27, 35–39, 52; Marks 1993: 172; Saghir 1993: 2–3, 7, 16, 21–24; Saulniers 1993: 212–213, 218–219; Ben Ali 1995: 180–182, 188–192; Bouachik 1995: 122–123; Nsouli et al. 1995: 30–32, 120; WTO 1995: 48; Ayubi 1996: 51–52, 55; Hillebrand 1996: 10–11, 16; Khosrowshahi 1997: 244; Pripstein Posusney 1997: 195, 211; Denoeux and A. Maghraoui 1998b: 61–62; Piro 1998: 80; Gobe 1999: 199; Murphy 1999: 106–107, 141, 254; Belev 2000: 20; El Said 2001: 152, 154; El-Said 2002: 261–264; Wils 2004: 149; Knowles 2005: 145; Rami 2007: 105–106, 110–111, 281–282; Catusse 2008: 64, 66–69, 92; Harrigan and El-Said 2009: 120–121, 154; Erdle 2010: 333; Alexander 2016: 118; see also: Harik 1992b: 18–19; Dillman 2001: 207). In the late 1980s–early 1990s, three of the four countries passed Privatization Laws, which constituted the legal basis for further operations: Tunisia in 1987 and in 1989; Morocco in 1989; and Egypt in 1991. Apart from the modalities of privatization, the Privatization Laws specified the organizational infrastructure to be set up for the implementation of privatization and the responsibilities of the actors involved (restructuring, valuation, executing, and supervisory bodies). In all three cases, the Prime Minister figured as the highest decision-making authority. The Moroccan Privatization Law included a “positive list” of 112 SOEs to be privatized in the future. The Egyptian and the Tunisian law specified criteria for privatizable enterprises—resulting in about 400 privatizable companies in Egypt and about 200 in Tunisia.92 In contrast to the other three countries, Jordan continued with privatization 91

The exception is Morocco, where the “spontaneous” privatizations of the 1980s also involved larger entities, such as the Moroccan Sugar Company / Compagnie Sucrière Marocaine (COSUMAR), the African Tourism Company / Société Africaine de Tourisme (SAT), and the African Insurance Company / Compagnie Africaine d’Assurances (CAA) (Diouri 1992: 121–122, 185–187, 193–194; Bouachik 1993: 27; Rami 2007: 281–282). 92 The total number of SOEs was dependent on the official definition of an SOE, which usually specified a certain threshold of state participation in a company. In the Tunisian case, the official definition was changed three times during the 1980s, reducing the number of

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on a case-by-case basis until 2000, when its Parliament finally passed a Privatization Law (the process was partly retarded by the Gulf crisis 1990–1991) (Joffè 1991: 58, 60, 62; Diouri 1992: 123; Harik 1992a: 215–218; Bouachik 1993: 117–118, 137– 160, 180, 183–193, 201; Saghir 1993: 2–3, 10–15 ; Saulniers 1993: 215–217; A.D.N. 26.01.1995; WTO 1995: 48, 92–94; Assouali 1996: 221–238, 253–265; Ayubi 1996: 60–61; Hillebrand 1996: 11–12, 16–17, 19–20; Pripstein Posusney 1997: 215–216; Denoeux and A. Maghraoui 1998b: 60–61; Murphy 1999: 106–107; WTO 1999: 59–61; Wils 2003: 187; Knowles 2005: 151, 154–155; Ikram 2006: 80; Rami 2007: 112–114; Catusse 2008: 55–57, 68, 77–81; WTO 2009a: 51; Erdle 2010: 333; Sater 2010: 101; OECD 2012: 41–42). Backed by Privatization Laws (with the exception of Jordan), the privatization process accelerated since the mid-1990s. Gradually, larger SOEs were privatized as well, although few divestments took place in strategic sectors, such as in banking, energy, transport, and telecommunications—with the exception of the energy sector and the transport sector in Jordan, and with the exception of the energy sector and the banking sector in Morocco. Nevertheless, governments in the four countries began to prepare privatization in these sectors: during the mid-late 1990s, Egypt, Jordan, and Morocco already sold the first mobile-telecom licences, thereby opening the telecommunications sector to private operators. However, privatization of the former state-owned monopolist providers was still pending in all four countries (the first sales of shares in these companies occurred in Jordan in 2000 and in Morocco in 2001). After all, progress in privatization from the mid-1990s up to the early 2000s was modest—in some cases, notably in Morocco and Jordan, the number of SOEs even continued to grow, despite official intentions to downsize the public sector. With the economic crisis of the late 1990s and early 2000s, privatization entered a period of slowdown (with the exception of Tunisia). The number of SOEs privatized until the early 2000s stood at around 150 in Tunisia (in 2001), 134 in Egypt (in mid2000; companies on the basis of Law 203 of 1991), 59 in Morocco (end of 2000), and 51 in Jordan (in mid-2002) (Belyazid and Mear 31.12.1992; J.B. 02.12.1993; A.D.N. 17.11.1994, 12.01.1995; El Mariki and Salah 20.04.1995; Kably and El Mariki 27.04.1995; Assouali 1996: 284–287, 303–307, 335–341, 344–350; Hillebrand 1996: 16–17, 21–22, 24; Kably 21.03.1996, 04.07.1996; Khosrowshahi 1997: 243, 245; Kably 09.10.1997; Ndour and Mossadeq 08.05.1997; Pripstein Posusney 1997: 215–216, 218–219; Denoeux and A. Maghraoui 1998b: 62; Dillman 1998: 18; Gregson 1998; Gobe 1999: 202, 204; Murphy 1999: 141–142; B. Saâdi 03.07.1999: 6; WTO 1999: 59–60, 62, 91, 95–97; Belev 2000: 21; S. Ma. et al. 09.09.2000: official SOEs from around 500 in the early 1980s to less than 200 in the late 1980s (Saghir 1993: 7; [107]Murphy.1999[333]Erdle.2010.

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26–27; Denoeux 2001: 70; Najem 2001: 57–58; El-Said 2002: 264–265; Schlumberger 2002: 231–232; Carroll 2003: 186; Wils 2003: 187, 190–201; WTO 2003: 61; Unknown author 12.07.2003; Perkins 2004: 202; Schlumberger 2004: 147– 148; Wils 2004: 150–151, 153; Knowles 2005: 146–155; Tritki 10.12.2005; WTO 2005a: 47–48, 2005b: 66, 92; Ikram 2006: 80; Agueniou 16.02.2007; Alissa 2007: 12; Mohieldin and Nasr 2007: 712; Rami 2007: 115–117; Catusse 2008: 77, 81, 92; Harrigan and El-Said 2009: 84; WTO 2009a: 51–53, 83; Erdle 2010: 333–334; Roll 2010: 115–116, 124–137; Sater 2010: 103; Bertelsmann 2012b: 19; OECD 2012: 43; Alexander 2016: 118; WTO 2016: 79). Since the mid-2000s, privatization in the four countries was extended to large SOEs and to sensitive sectors. As a result, overall proceeds rose significantly. In all four countries (with the partial exception of Egypt), revenues were driven by deals in the telecommunications sector (sale of capital shares in the former state-owned provider, sale of new licenses to private operators). Thus, the Egyptian government privatized 20 percent of the state-owned provider Telecom Egypt in 2005 and sold a third GSM licence in 2006. The Tunisian government sold two GSM licences and a fixed telephony licence (2002 and 2009) and privatized 35 percent of the former state-owned provider Tunisie Télécom in 2006. The Jordanian government privatized 50.5 percent of the former state-owned provider Jordan Telecommunications Company (JTC) in 2000 and in 2002. Apart from that, it awarded a third GSM licence and a second fixed-telephony licence during 2004–2005. In 2006 and 2008, it finally sold its remaining stakes in the JTC. The Moroccan government privatized 70 percent of the state-owned provider Maroc Telecom during the period 2001– 2007. Besides, it sold a third GSM licence and two fixed-telephony licences during 2005–2009. Other major revenues came from privatization in the banking sector (most notably in Egypt and Tunisia). Ultimately, the overall trend during the 2000s (in terms of the total number of privatized SOEs) differed in the four countries: whereas privatization shifted into higher gear in Egypt, the number of privatized SOEs grew more slowly in Tunisia and only advanced incrementally in Jordan and in Morocco. However, the number of privatized SOEs did not always reflect total revenue, which skyrocketed during the 2000s in three of the four countries (the exception being Jordan). With the onset of the World Financial Crisis since 2007– 2008, privatization then came to a halt in all four countries. Operations were put on hold or cancelled altogether, at least until the end of the examination period in early 2011 (WTO 1999: 91; A. Jamai and Iraqi 17.02.2001: 37; Iraqi 05.04.2003: 22; M. Jamai and Iraqi 07.06.2003, 18.12.2004: 51; Unknown author 19.11.2004; N. Belghazi 13.07.2005, 22.09.2005; Iraqi 16.07.2005: 56; M. Jamai 26.02.2005: 40–41, 01.10.2005: 64–67; S.A. 15.07.2005; Tritki 10.12.2005; WTO 2005a: 47– 48, 2005b: 93; Graciet 2006: 134–138; Tounassi 25.02.2006: 52–53; Unknown

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author 31.07.2006, 19.03.2006, 08.09.2006; Demmelhuber and Roll 2007: 10; El Bouzaïdi 29.06.2007; OECD 2007: 49; Unknown author 2007, 30.03.2007; Bertelsmann 2008a: 17–18; Catusse 2008: 92; Rutherford 2008: 223; Agueniou 23.11.2009; F.A. 06.02.2009; Harrigan and El-Said 2009: 71–72; Iraqi 14.02.2009; M.C 27.07.2009; Tounassi 28.03.2009: 34–36; WTO 2009a: 53, 83–84, 91, 2009b: 64–65; Bertelsmann 2010a: 20–22; Erdle 2010: 131, 192, 334; Roll 2010: 112– 137; Sater 2010: 113; Serraj 01.04.2011; Bertelsmann 2012b: 19, 2012c: 17; OECD 2012: 41–43, 58, 135; Bertelsmann 2014a: 22; WTO 2015: 71; Unknown author 02.06.2015; Alexander 2016: 118; WTO 2016: 80, 138). Ultimately, governments in the four countries partly or fully privatized the following number of SOEs: Egypt 393 (until mid-2008); Tunisia 219 (until December 2009); Morocco 73 (until 2009); and Jordan 70 (until June 2008). Total privatization revenues until 2008 / 2009 amounted to MAD 101 billion / USD 12.8 billion in Morocco, EGP 56 billion / USD 10.2 billion in Egypt, TND 6 billion / USD 4.5 billion in Tunisia, and USD 2.2 billion in Jordan (WTO 2005b: 66; Catusse 2008: 92; Agueniou 23.11.2009; Harrigan and El-Said 2009: 127; WTO 2009a: 52–53, 2009b: 64; Erdle 2010: 334, 339; Mahfoud 12.04.2010; Roll 2010: 115; OECD 2012: 14, 41–42; Alexander 2016: 118; WTO 2016: 80).93 Analysing privatization in the four countries with hindsight, it becomes clear that the process was slow, incomplete, and clientelist. The slowness of privatization was due to political, economic, and technical factors: First, the regimes in power wanted to preserve existing channels of patronage that ran through SOEs, while they also feared the political consequences of mass layoffs. They therefore slowed down privatization through their influence on the state administration. Second, economic factors—such as the lack of domestic private capital, risk aversion of domestic investors, and the underdevelopment of domestic capital markets—slowed down the pace of privatization. Third, the state administration often did not dispose of the necessary technical expertise to ensure a smooth privatization process, especially as the legal and organizational infrastructure was new, while personnel was often unexperienced (Ayubi 1996: 52, 54, 58, 63–64; Khosrowshahi 1997: 246–248; Denoeux and A. Maghraoui 1998b: 61; Piro 1998: 81, 83–87; WTO 1999: 59–60; Belev 2000: 119–146; Wurzel 2000: 225–278; Denoeux 2001: 70; El Said 2001: 154–158; Najem 2001: 57; Perrin 2002: 71; Ryan 2002: 116; Pripstein Posusney 2003: 281–282; Wils 2003: 187–188; Wurzel 2004: 114; Ikram 2006: 84; Wurzel 2007: 15; Catusse 2008: 68–81; Erdle 2010: 334–335; Roll 2010: 116–117; Hibou 2011 [2006]: 245–246; Alexander 2016: 117–118). 93

Exchange rates between the USD and the EGP, the TND, and the MAD are average rates for the year 2009, calculated by Fxtop (2017).

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Apart from that, privatization was incomplete: First, during the initial phase of privatization, governments spared sectors deemed strategic (banking, telecommunications, energy, transport). However, this situation changed since the mid1990s, when privatization was extended to large employment-intensive companies in strategic sectors. Second, the state often remained a controlling shareholder in privatized companies, either by law (as in Tunisia and Jordan) or through the relative size of the remaining public shareholdings. Frequently, privatized assets were bought by other SOEs, such as state-owned banks or public investment holdings (Oudghiri 10.06.1993; A.D.N. 17.11.1994; Kably and El Mariki 27.04.1995; Mossadeq 14.12.1995; Kably 09.10.1997; Khosrowshahi 1997: 245–246; Piro 1998: 87; Benmansour 03.07.1999: 7; El-Said 2002: 270; Cassarino 2004: 229; Knowles 2005: 154, 156, 179, 185; Choucair 2006: 15–16; Ikram 2006: 82; El Bouzaïdi 29.06.2007; Catusse 2008: 109; Harrigan and El-Said 2009: 120–121; Peters and P. Moore 2009: 277; Erdle 2010: 335–336;Chafai Alaoui 01.06.2011: 92; Hibou 2011 [2006]: 246; Maury 24.05.2011; Hamdani and Michbal 15.07.2016).94 Finally, privatization was clientelist, as persons close to the regimes were the main beneficiaries. Although the outcomes were often driven by self-selection—it was precisely the business actors close to the regimes who had the largest financial power—, one can assume the regimes also used their influence in the state administration to move the process towards the desired end—although they could not fully control every aspect of it (especially if the number of suitable beneficiaries was limited).95 Regimes also made use of their influence in the banking sector (through state-owned banks or through private banks controlled by regime members) to endow favored actors with the necessary lines of credit—especially in Egypt, on a smaller 94

Apart from direct shareholdings, the state in the four countries disposed of numerous indirect channels of influence, which still existed even in the case of complete privatization. As Harik (1992b: 7–8, 21) points out, even if the state withdrew completely from the capital of an SOE, it could remain in the position to influence the fate of the privatized company through its role of “regulator” (safety and labor laws, antitrust and antifraud measures, quality controls, price controls, management of social security), “promoter” (subsidies, export facilities, information, research), “gatekeeper” (entry and exit into / from sectors), and “mediator between labor and management.” 95 In many instances the most suitable beneficiaries of privatization were foreign investors, due to their know-how and international market power. It was harder for the regimes to control foreign investors (especially multinational companies) compared to domestic investors, as they disposed of greater financial power independent from a single host country. At the same time, they were often politically protected by their home-country governments (T. H. Moran 1978: 95–100) . Therefore, regimes in the four countries tried to influence the MNCs’ choice of domestic coinvestors in privatization deals, while they strove to integrate foreign investors in their patronage networks.

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scale also in Tunisia and Morocco. Privatization thus served as an instrument of patronage, enabling regime-loyal actors to reap abnormal profits from buy-resale operations or through the conversion of public into private monopolies—in some cases, notably in Egypt, privatization degenerated into an instrument of “semilegal and illegal self-enrichment.” At the same time, picking winners allowed the regimes to influence the distribution of surplus in the economy, and thereby to make sure privatization would not empower actors threatening their political supremacy (Joffè 1991: 63–64; Henry 1996: 152; Hibou 1996: 27; Khosrowshahi 1997: 250– 251; Denoeux and A. Maghraoui 1998b: 78; Belev 2000: 138–142; Najem 2001: 61; Perrin 2002: 71–73, 75; Wils 2003: 167–168, 192; Sfakianakis 2004: 96–97; Wils 2004: 150; Knowles 2005: 147; Beau and Graciet 2006: 134–138, 142–146; Choucair 2006: 15–16; Boushaba 29.08.2007; Rami 2007: 115–121, 124–131; Bertelsmann 2008b: 11; Catusse 2008: 51, 93–103, 113–125, 2009: 193–194; Farah 2009: 50, 81; Joffè 2009: 160; Peters and P. Moore 2009: 277; Wurzel 2009b: 103, 109; Bertelsmann 2010c: 15; Erdle 2010: 335; Henry and Springborg 2010: 218– 219; Sater 2010: 103; Hibou 2011 [2006]: 248–249; Chouikha and Gobe 2015: 67; Alexander 2016: 123; see also: Dillman 2001: 208; Aggestam et al. 2009: 333; Guazzone and Pioppi 2009a: 5, 11–12).96

6.3.2.5 Market Protection and Imperfect Competition In all four countries under examination, international treaties and agreements (e.g. GATT / WTO, EMAAs, other bilateral trade and investment treaties, IMF / WB loan agreements) demanded the implementation of economic-liberalization policies. The key policies were the liberalization of trade and investment—domestic and foreign— in various sectors. Thus, the treaty stipulations potentially undermined the regimes’ control over their national economies and the distribution of surplus. However, the regimes still disposed of some levers of control, while the changing structures of the economy enabled them to establish new channels of influence. The regimes’ response policies could thus water down the potentially negative effects of economic liberalization on their (authoritarian) political rule.

96

Nevertheless, privatization was pervaded by principal-agent problems, as it led to holdup situations empowering agents to shirk, once the deal was concluded and the benefits appropriated. In Morocco, the late-1990s showdown between the investor Othman Benjelloun (who had been the main beneficiary of the privatization of the state-owned Moroccan Bank of Foreign Commerce / Banque Marocaine du Commerce Extérieur (BMCE)) and the conglomerate ONA, itself controlled by the Moroccan royal family through the holdings ERGISSIGER, exemplifies this problem (Amar 03.07.1999; Amourag 26.06.1999: 4, 17.07.1999: 27, 09.10.1999; Benzekri 12.06.1999; Slaoui 03.04.1999; Unknown author 20.03.1999; Amar 28.10.2000: 13; Amourag 08.07.2000: 51; Rami 2007: 121; Vermeren 2009: 282).

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Several (deliberate or incidentally emerging) policies were observable that attenuated the adverse political effects of market opening through economic liberalization: First, private investment in several sectors remained restricted, either due to state monopolies (de jure or de facto) or due to obligatory licensing and other forms of administrative authorization. Sometimes, sectors were exempted from the provisions of international treaties, which temporarily stalled investment liberalization.97 By the late 2000s, state monopolies still existed in the following sectors in all four countries under examination: Electricity transmission; water provision; rail transport / railways; and national postal services. In three countries (with the exception of Morocco), electricity distribution was also still completely in the hands of the state. Sectors that two of the four countries allowed to remain state monopolies were phosphates (Tunisia and Morocco), petroleum production (Egypt and Tunisia), petroleum refining (Tunisia and Jordan), import of petroleum products (Tunisia and Jordan), and gas distribution (Egypt and Tunisia) (WTO 2005a: 57– 60, 67, 70, 2005b: ix–x, 65–66, 82–84, 94–96; OECD 2007: 33, 63–64; WTO 2009a: 14, 51–52, 67–73, 2009b: 29, 97, 104–105, 110, 119; OECD 2010: 82–84, 2012: 50, 62, 2013: 67).98 Apart from state monopolies, obligatory licenses attributed by state institutions or other forms of administrative authorization blocked market access of private investors in numerous formally liberalized sectors.99 Thus, by the late 2000s, licenses were a prerequisite for investment in all four countries in the sectors of telecommunications, banking, insurance, electricity generation, mining, and air transport. In at least three of the four countries (with the possible exception of Egypt), engineering required public authorization. In two of the four countries, entry restrictions for private investors existed in the sectors of maritime transport (Egypt and Jordan), tourism (Egypt and Jordan), architecture (Tunisia and Morocco), and

97

It is important to note that investment restrictions (for domestic and foreign investors alike) can not only be observed in developing countries under authoritarian rule, which are subjected to economic liberalization. These restrictions are also a common feature in industrialized highincome countries with democratic political systems (Golub 2003). 98 Thus, Morocco was the only country of the four where no state monopoly existed anywhere in the hydrocarbon sectors (i.e. at no stage of the value chain). 99 Here it is important to note that the prerequisite of a licence attributed by state authorities can be an entry barrier in various degree, depending on the restrictiveness of formal requirements for attribution and / or on public policy regarding market structure, transmitted by the state administration (e.g. how many players the government wants to have in a certain market, i.e. how competition should look like). Ultimately, it becomes clear that public authorization only constitutes a barrier to market entry if licenses are scarce.

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accounting (Tunisia and Morocco)100 (WTO 2005a: 59–60, 66–74, 2005b: 84, 99– 101, 103–106; OECD 2007: 63; WTO 2009a: x, 66–67, 69, 77–79, 81–94, 2009b: 30, 92–97, 110, 120–129; Erdle 2010: 347; OECD 2012: 49–50, 55, 2013: 62). Second, additional restrictions for private foreign investors (foreign portfolio investment and FDI) shielded domestic companies from foreign competition. The usual modes of restriction were a foreign-equity threshold of 49 percent or 50 percent and outright prohibition of foreign investment. Apart from that, there could be other sector-specific restrictions. The sectors in which at least two of the four countries placed restrictions on foreign investment during the late 2000s were air transport (49-percent limit in all four countries), road transport (prohibited in Jordan, 50percent limit in Tunisia), maritime transport (49-percent limit in Egypt, 50-percent limit in Tunisia and Jordan), banking (50-percent limit in Tunisia, prohibition to take over large banks in Morocco), insurance (50-percent limit in Tunisia, prohibition to sell services through foreign-owned insurance agencies in Egypt), tourism (50-percent limit on certain activities in Tunisia and Jordan, nationality requirement for tourist guides in Morocco), construction (49-percent limit in Egypt and Tunisia), advertising (50-percent limit in Tunisia and Jordan), wholesale distribution and retail trading (prohibited in Tunisia, 50-percent limit in Jordan), import / export (49-percent limit in Egypt, 50-percent limit in Jordan), real-estate services (prohibited in Jordan, 49-percent limit in Tunisia), engineering (prohibited in Egypt, 50-percent limit in Jordan, restricted with exceptions in Morocco), architecture (prohibited in Egypt, restricted with exceptions in Morocco), legal services (prohibited in Egypt, restricted with exceptions in Morocco), and accounting (prohibited in Egypt, restricted with exceptions in Morocco). Overall, the Tunisian and the Jordanian economy were significantly more restricted for foreign investors than the Egyptian and the Moroccan economy (at least on a legal level). The most restrictive regulations existed in Tunisia—due to the wide range of service sectors covered and the prohibition to invest in retail and distribution, which meant that foreign investors always needed a Tunisian partner to sell their products in the domestic market. In contrast, Morocco seems to have been the economy with the fewest formal restrictions for foreign investors among the four countries studied (Murphy 1999: 145; Knowles 2005: 150; WTO 2005a: 58–59, 67 2005b: 22–23, 89; OECD 2007: 31–32; Bertelsmann 2008b: 13; WTO 2009a: 18–19, 87–88, 91, 94, 2009b: 29–30, 110–114, 125–129; Erdle 2010: 347, 360–361; OECD 2010: 24–26, 79–82;

100

For architecture and accounting (which are part of “professional services”) the conclusion is tentative, as information available to the author on sectoral regulations in Egypt and Jordan was scarce.

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Ben Romdhane 2011: 145–146; Richter 2011: 107, 158; OECD 2012: 49–54, 57, 64–67, 2013: 54, 56–58, 60–62; WTO 2016: 34–35). Besides, additional restrictions for foreign investors existed for the purchase of land. Thus, the acquisition of land by foreigners for agricultural use was prohibited in Egypt, Tunisia, and Morocco (although long-term leases were possible). Nevertheless, foreign investors could buy land for nonagricultural business purposes in all four countries: in Egypt since 2005, even without prior state authorization; in Jordan all types of land with prior authorization from state institutions or from the Royal Cabinet (although state-owned land was excluded); and in Morocco all nonagricultural land and agricultural land outside urban areas if the purpose of use was nonagricultural (WTO 2005a: 16; OECD 2007: 61; Bertelsmann 2008b: 13; OECD 2010: 24–25; Ben Romdhane 2011: 146; Bertelsmann 2012b: 19; OECD 2012: 49, 55–56, 103, 2013: 59). Ultimately, several cases are observable where formal market-entry restrictions facilitated private monopolies or oligopolies (in addition to state monopolies). These market hegemons then defended their position by erecting additional entry barriers, and thereby shielded markets from the full effects of investment liberalization. However, information on this subject is sparse. By the late 2000s, private oligopolies existed in telecommunications (in all four countries), in mining (with the exception of Jordan), in banking (in Jordan and Morocco), and in cement (Egypt and Morocco). A private monopoly existed in the sector of steel in Egypt and Morocco. In other sectors, private monopolies and oligopolies were most prevalent in Morocco: private monopolies existed in the Moroccan economy in the sectors of oil refining, sugar, edible oils, milk and dairy products, low-medium standard housing, import of hydrocarbons, and tobacco. The most prominent private oligopolies of the Moroccan economy could be found in the sectors of insurance, electricity generation, and big retail. Furthermore, private monopolies and oligopolies existed in Jordan in the sector of commerce, and in Egypt in the sector of fertilizer production. Nevertheless, the sources reviewed by the author for the Egyptian, Tunisian, and Jordanian economy were not comprehensive enough to come to a definite conclusion— in fact, it is probable that significantly more private monopolies and oligopolies existed in these three economies (Henry 1996: 142–158; Wils 2003: 163–164; Cassarino 2004: 232–233; Schlumberger 2004: 102–104; WTO 2005a, b; Rami 2007: 120; Catusse 2008: 98–99, 104; WTO 2009a: ix, b; Erdle 2010: 352; Roll 2010: 178–184; Graciet and Laurent 2012: 68–69, 79–80, 104; Loewe 2013: 69). When markets were truly formally opened (through tariff reduction and / or through investment liberalization), the four regimes under investigation nevertheless disposed of several levers of direct control: First, the threat to lose control over the distribution of surplus was minimal in markets with no big domestic producers.

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In these markets, opening through tariff reduction transferred government revenue and producer surplus to a large number of domestic consumers, precluding capital accumulation by a small number of actors. Besides, the regimes could still retain some indirect control, if low-tariff or tariff-free import in these sectors was conditional on an import licence that the regimes could give to loyal business actors (Wurzel 2009b: 100–101) . Second, the regimes could slow down the opening of markets by retarding the process of investment liberalization. What could be observed was the conversion of former state monopolies into temporary (but prolonged) private monopolies—examples are the Jordanian mobile-telecommunications sector, the Moroccan tobacco sector, and the Moroccan banking sector—and the toleration of existing private monopolies after formal market opening—the most prominent example is the Moroccan sugar sector (Henry 1996: 142–158, 1997: 198–199; Wils 2003: 191–195, 2004: 150–151; Knowles 2005: 149, 152; S.A. 15.07.2005; S.B. 28.04.2006; Tounassi 25.02.2006: 52–53, 16.09.2006: 52–54; Catusse 2008: 98–99, 104; Martin 16.11.2009; WTO 2009a: x, 53, 59, 70, 72–73; Belhouari 01.10.2010: 61–63; Challot 18.10.2010; Sater 2010: 103; Belhouari 01.03.2011: 19–22; Hari 12.02.2011; Bertelsmann 2012b: 19, 2014a: 19). Third, slow trade liberalization and “contingency measures” had the effect to directly protect markets longer than stipulated by international treaties or intended by the signatories of the treaties.101 Thus, until the late 2000s, the four countries under examination had bound a different share of their total tariff lines under the WTO-MFN framework: 99 percent in Egypt (since 1998); 100 percent in Morocco (since 2002); 100 percent in Jordan (since 2006); but only 61 percent in Tunisia (since 2005). In some cases, “applied” rates exceeded the “bound” rates for certain tariff lines (which constituted a breach of WTO treaty obligations). This holds true for 19 tariff lines in Egypt (in 2005), for 50 in Tunisia (in 2005), and for 1,373 in Morocco (in 2009). Further to that, the pace of trade liberalization differed: in Jordan, the “simple average applied MFN tariff rate” declined from 14.7 percent in 2000 to around 11 percent during 2006–2008. In Egypt, it declined from 26.8 percent in 1998 101

Once again it is important to note that “contingency measures” were not a characteristic particular to trade policy in developing countries under authoritarian rule. In fact, these measures were also used by the adherents to international trade treaties (such as the GATT / WTO) that had democratic political systems and a high level of socioeconomic development. Thus, during the period 1995–2007, a total of 85 “safeguard measures” were enacted by WTO members—30 of them by OECD countries and 55 by developing countries. For “anti-dumping” actions, the number sums up to about 2,000 during the period 1995–2007— about 900 of them enacted by WTO members classified as OECD countries and about 1,100 enacted by WTO members classified as developing countries (Hoekman and Kostecki 2009: 427, 432).

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to 20 percent in 2005. In Morocco, it fell from 33.4 percent in 2002 to 23.8 percent in 2008 and to 20.2 percent in 2009. In Tunisia, it fell from 32.7 percent in 2004 to 31.7 percent in 2005 and to 18.8 percent in 2010. Taking as well bilateral trade liberalization into account (in addition to multilateral trade liberalization under the WTO), simple (weighted) average applied tariff rates were markedly lower for the four countries (above all due to trade liberalization under the EMAAs): 5.6 percent in Jordan (in 2008); 8 percent in Egypt (in 2009); 11 percent in Morocco (during 2007–2009); and 18 percent in Tunisia (in 2006). In all four countries, import liberalization was much more advanced for nonagricultural products—thus, simple average applied MFN tariff rates for agricultural products (WTO definition) still stood at 17–18 percent in Jordan (during 2006–2008), 51 percent in Morocco (in 2002; falling to 45 percent in 2009), 66 percent in Egypt (in 2005), and 69 percent in Tunisia (in 2004; falling to 34 percent in 2015). In contrast, for nonagricultural products (WTO definition), simple average applied MFN tariff rates remained at only 10 percent in Jordan (during 2006–2008), 13 percent in Egypt (in 2005), 24 percent in Tunisia (in 2004; falling to 14 percent in 2015), and 31 percent in Morocco (in 2002; falling to 16 percent in 2009) (WTO 2005a: 27, 30–31, 2005b: viii, 27–30, 2009a: viii, 26–28, 2009b: 33, 39–40, 42–44; Bertelsmann 2010a: 20, 2010c: 14, 2012a: 19, 2012b: 17, 2012d: 32; WTO 2016: 42–43, 46–47). Despite substantial reductions of average tariffs—although tariff dispersion remained high, with some prohibitively high tariffs in certain tariff lines—, the four economies were still shielded by numerous non-tariff barriers. The governments seem to have kept some of them deliberately in place. Examples are “non-transparent sanitary and phytosanitary measures,” technical controls and norm-setting, cumbersome customs procedures, corruption at the border, weak enforcement of intellectual property rights, requirements to export through a local intermediary acting as official importer, and limited convertibility of the national currency for importers (Bertelsmann 2008a: 17, 2010a: 20, 2010b: 14, 2010c: 14, 2010d: 15; Erdle 2010: 360; Hibou 2011 [2006]: 233–234; Bertelsmann 2012a: 19, 2012b: 17, 2012d: 32). Furthermore, international treaties gave the four regimes the legally codified possibility to invoke “contingency measures”—“safeguarding actions,” “countervailing actions,” and “anti-dumping” actions—to protect domestic sectors from foreign competition for a limited period of time. Thus, Egypt imposed antidumping duties in 14 cases during August 1999 and January 2005. In addition, it enacted safeguarding measures on two products, while it did not take any countervailing action. Jordan did not take any countervailing or antidumping actions until 2008, although it imposed safeguarding measures in six cases during 2001–2007. Likewise, Morocco did not take any countervailing or antidumping actions, but it used safeguarding measures in three cases during the period 2000–2010. In contrast to the other three countries,

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Tunisia did not take any safeguarding, countervailing, or antidumping measures until the end of the examination period in 2011 (WTO 2005a: 36–37, 2005b: 41, 2009a: 33–34, 2009b: 49–51; Belhouari 01.03.2010; M.C. 04.01.2010; WTO 2016: 56). Apart from these possible channels of direct control, the four regimes additionally disposed of several channels of indirect control, once markets were truly opened to private investment and imports: First, they could use their influence over the state administration to favor and to punish market participants, and thereby to change the distribution of economic surplus. This channel of indirect influence opened, whenever state administrations were the gatekeepers of private investment and profits— such as for the attribution of licenses in highly regulated sectors or for land use / acquisition, privatization,102 state subsidies, and public procurement. The regimes’ leeway was further widened by the combination of contradictory and fast-changing legislation, by obscure administrative regulations, by “ overlapping responsibilities of various authorities," and by a bureaucracy embedded in patron-client networks. Ultimately, these structures allowed the regimes to favor specific actors while punishing others—for example through the withholding of authorizations, restrictions to the flow of information, partial application of laws, and intervention of state agencies (tax authorities, job safety inspectors, environmental agencies, etc.) (M. S. Saâdi and Berrada 1992: 362–365; Gobe 1999: 221–222; Wils 2003: 167–168; Schlumberger 2004: 105–107; Knowles 2005: 146–147; Peters and P. Moore 2009: 277–278; Wurzel 2009b: 112–113; Erdle 2010: 336; Hibou 2011 [2006]: 154–155; Bertelsmann 2012c: 15; Loewe 2013: 70; Alexander 2016: 123–124). Moreover, in all four countries the judiciary was not completely independent from the executive branch of government. This fact enabled the regimes to initiate public prosecution (sometimes of previously tolerated transgressions) or to intervene in ongoing trials to punish or reward certain actors (Hibou 1996: 40; Leveau 1997: 98–100; Denoeux 1998; Joffè 1998: 122–123; Bertelsmann 2008b: 8; Catusse 2008: 174–186; Bertelsmann 2010b: 8; Sater 2010: 104–106; Bertelsmann 2012d: 13, 16. As a result, markets formally opened to private (domestic and foreign) investment were characterized by imperfect competition—a situation that the regimes tried to perpetuate. The deficiencies of competition came to the fore in the field of competition policy, which all four regimes had to implement in some form due to obligations under international treaties (WTO, EMAAs). Despite numerous reforms, competition policy remained fragmentary, with loopholes in the legal texts103 and 102

The four regimes’ influence on market opening and market structure through privatization is analyzed in section 6.3.2.4. 103 The four governments issued Competition Laws at different points of time: 1991 in Tunisia (subsequently amended five times); 1999 in Morocco (in force since 2001); 2004 in Jordan; and 2005 in Egypt.

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with tightly circumsribed powers of the newly created watchdog institutions. Thus, in all four countries, the legally-codified threshold market share for a company to potentially come under scrutiny of the competition authorities was relatively high (de facto shielding oligopolies in several sectors): 25 percent for a single company in Egypt; 30 percent as a combined share for potentially colluding companies in Tunisia; and 40 percent for a single company in Jordan and Morocco. Moreover, in all four countries, the investigative institution (Competition Authority in Egypt; Competition Council / Board in Tunisia and Morocco; Competition Directorate in Jordan) only had advisory competencies, while the prosecution of violations was entirely at the discretion of the government and of the judiciary. Similar structural deficiencies affected newly-created sectoral-oversight bodies, which should supervize investment liberalization in their respective sectors and regulate sectoral competition (e.g. in telecommunications, banking, insurance, the stock market, and transport) (Murphy 1999: 155; Iraqi 23.09.2000: 37; F.S. 17.03.2001: 32–33; Hibou 2002: 93, 97–105; Ben Jelili 2005: 73–83; WTO 2005a: 45, 2005b: 61; Bertelsmann 2006b: 11; Benmansour and Belouas 29.06.2007; Demmelhuber and Roll 2007: 12; OECD 2007: 44–46; Bertelsmann 2008b: 11–12, 2008c: 14; Tounassi 02.02.2008: 36–39; Demmelhuber 2009: 202; El Yaakoubi 21.11.2009: 36–39; WTO 2009a: 49–50, 2009b: 5, 67–68, 120–121; Wurzel 2009b: 101; Bertelsmann 2010b: 13, 21; Erdle 2010: 359; Jaros 2010: 2–5, 8–9, 11, 14; OECD 2010: 65; Raqui 01.12.2011: 62; Bertelsmann 2012b: 17, 26, 2012c: 16; OECD 2012: 130–132, 2013: 133–137; Bertelsmann 2014b: 14). In all four countries, corruption lubricated the system (although the extent differed). These structures allowed the regimes to embed market participants in networks of dependency, which raised incentives for political obedience. Although Parliaments in all four countries had ratified the UN Convention against Corruption (2005 in Egypt and Jordan, 2007 in Morocco, 2008 in Tunisia), obliging the governments to intensify anticorruption policy (which formally all of them did), corruption as measured by the Corruption-Perceptions Index (CPI) of the NGO Transparency International actually worsened during the 2000s in Tunisia and Morocco, while its level stayed constant in Egypt and Jordan. In 2010, the CPI (scale from 10—“very clean” to 0—“highly corrupt”) stood at 3.1 in Egypt, 3.4 in Morocco, 4.3 in Tunisia, and 4.7 in Jordan (Schlumberger 2004: 119–120; Bertelsmann 2006a: 7, 2006c: 5; OECD 2007: 50; Bertelsmann 2008a: 24; Loewe et al. 2008: 264–265; Bertelsmann 2010a: 12, 29, 2010b: 22–23, 2010c: 9, 20, 2010d: 9; Henry and Springborg 2010: 224; Hibou 2011 [2006]: 152–153; Bertelsmann 2012b: 10–11, 27–28; A. MaghraouiMaghraoui 2012: 50–52, 55–58; OECD 2012: 85–89, 2013: 125–133; Alexander 2016: 123–124; Transparency International 2016).

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A second channel of indirect control was the regimes’ pivotal position in the banking sector, which in all cases was an oligopolistic market. In Egypt and Tunisia, state-owned banks continued to control the largest share of total banking assets and thus the bulk of domestic credit allocation in the economy (despite privatization affecting some banks). In Morocco, privatization in the banking sector was more extensive, but the regime retained control, as the royal family became the controlling shareholder of the largest private bank after sectoral consolidation from the mid1990s up to the mid-2000s. At the same time, the largest bank of the Moroccan market remained in public hands. The involvement of the core of the regime (royal and presidential families) in private banking was also visible in Tunisia, although to a much smaller extent than in Morocco. Jordan is an exception, as the market controlling institute (and by far the largest player of the Jordanian banking oligopoly) had been in private hands for decades, without direct involvement of the royal family (Diouri 1992: 202–203, 207; Henry 1996: 142–159; Creane et al. 2003; Hachimi Alaoui and A. Jamai 29.11.2003: 8–9; Iraqi 19.07.2003, 29.11.2003a: 10– 11, 29.11.2003b: 9; Schlumberger 2004: 151–152; WTO 2005a: 66, 2005b: 102; Agoumi et al. 02.06.2006; Rami 2007: 120–127, 277–279, 283, 286–290; Catusse 2008: 98–99, 101–102, 104; N. Belghazi 03.08.2009; Harrigan and El-Said 2009: 126; Vermeren 2009: 277–278, 283; WTO 2009a: 78; Erdle 2010: 131, 189–194; Henry and Springborg 2010: 217–218; Roll 2010: 127–136; Bertelsmann 2012b: 17–18, 2012d: 33–34; OECD 2012: 58, 139; WTO 2016: 135). Apart from debt financing, some of the four regimes (notably in Egypt and Morocco) were also in the position to influence equity financing through the domestic capital market— that is equity publicly traded at the stock exchange and private equity—, due to the personal involvement of regime members as private business actors or through the investment arms of regime-controlled banks and financial conglomerates (Rami 2007: 120–127, 277–279, 286–290; Roll 2010: 241, 254–257; Henry and Springborg 2010: 218). As a result of the regimes’ indirect control over the market-dominating banks (with the exception of Jordan), bad credit relations emerged between these banks and private debtors. In these dependent relations, nonperforming loans constituted favors by the regime that enabled exorbitant profits, but only as long as political obedience was given in return. Once an actor diverged from the expected path, dependency relations enabled the regime to punish him by demanding repayment of debts—which could lead as far as company liquidation and / or personal judicial punishment. This system of bad debt was most extensive in Tunisia and Egypt, and to a lesser extent also in Morocco—although it was seemingly nonexistant in Jordan. According to WB data, the share of “non-performing loans” in total loans granted by domestic banks showed different patterns in the four countries

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under examination: in Egypt, it increased from 13 percent in 2000 to more than 25 percent in 2007. In Tunisia, it declined from 20–25 percent during 2000–2005 to 13 percent in 2010. In Jordan, it decreased from 17 percent in 2002 to 4 percent in 2006, before it increased again to 8 percent during 2008–2010. In Morocco, it fell from 17 percent during the first half of the 2000s to around 5 percent in the late 2000s (Henry 1996: 13, 142–159, 210–211, 239–243; Schlumberger 2004: 121, 150–153; Bertelsmann 2006c: 9; Harrigan and El-Said 2009: 126; Bertelsmann 2010c: 14, 2010d: 17; Erdle 2010: 336–340; Henry and Springborg 2010: 107, 218; Roll 2010: 60–109; Hibou 2011 [2006]: 25–75, 144–147; Bertelsmann 2012b: 17–18, 2012d: 34–35; OECD 2012: 139, 2013: 151, 154; Bertelsmann 2014b: 15). Bad credit relations could be perpetuated not the least due to the regimes’ influence over the Central Banks, which remained formally linked to the government, without becoming institutionally independent (with the possible exception of Jordan). As oversight bodies for the financial sectors, the Central Banks in the four countries took rather lenient action against bad credit portfolios of domestic banks, while their dependency on the executive branch of government allowed the regimes to interfere in competition in the financial sector (Henry 1996: 258–275; Creane et al. 2003; Bertelsmann 2006c:9, 2008c: 14; WTO 2009b: 5, 68, 120–121; Bertelsmann 2010b: 14, 2010c: 14, 2010d: 16–17; Erdle 2010: 193, 338; Roll 2010: 126–127, 239–241; Bertelsmann 2012b: 18, 2012c: 16). Pulling a third lever of indirect control after formal market opening, at least two of the four regimes under investigation—the possible exceptions are Egypt and Jordan—directly intervened in liberalized markets, both through regime-loyal private market participants and through governmental policies. Thus, apart from the financial sector (discussed above), the Tunisian and Moroccan regimes indirectly controlled other liberalized sectors through regime-loyal private market participants—which were either regime members (from the presidential / royal families or from families of noncore regime members) or other regime-loyal private actors from outside the regime. These business actors and the companies they controlled were at pivotal positions within their respective markets and could thus influence competition (Amourag 17.07.1999: 27, 09.10.1999; Benzekri 12.06.1999; Wils 2001: 133–134; Iraqi, M. Jamai, et al. 27.09.2003: 10–13; Wils 2003: 162, 167– 168, 189, 191–196, 202; M. Jamai and Iraqi 31.07.2004: 72–75; Reiter 2004: 88–90; Schlumberger 2004: 152–153; Demmelhuber and Roll 2007: 24–25; Rami 2007: 120–123, 287–289; Catusse 2008: 101; Rutherford 2008: 223; Beau and Graciet 2009: 41–46, 65–79, 81–95, 113–127; Vermeren 2009: 283; Bertelsmann 2010c: 9; Erdle 2010: 511; Roll 2010: 178–184, 217, 223; Sater 2010: 103, 107; Bertelsmann 2012c: 15, 2012d: 33–34; Alexander 2016: 72).

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Further to that, the Tunisian and the Moroccan regime directly intervened in markets through governmental policies. A first example are the Mise à Niveau programs, drafted with the official goal to prepare domestic companies for international competition arising from the implementation of the EMAAs. In Tunisia, governmental interference through the program was extensive, as the Economic-Upgrading Program / Programme Mise à Niveau Globale (PMN) and the Law for Enterprises in Difficulty enabled the government (and thus the regime) to restructure markets. After scrutinizing the internal affairs of companies—an unprecedented possibility on such a scale—, the government determined their survival and the fate of their shareholders by granting or withholding subsidization and by potentially initiating judicial prosecution (Erdle 2010: 341–344; Sater 2010: 101, 111). A second example is the policy to build up conglomerates: in three of the four countries (the possible exception being Egypt), regimes pursued this policy with the official intent to create “national champions”—meaning companies or holdings of sufficient size to survive market opening as internationally competitive players (while size also protected from immediate takeover by foreign investors). Thus, the regimes tolerated and even fostered capital concentration and imperfect competition for the sake of alleged national benefit. More often than not, the policy benefitted regime members, who sometimes had direct links to the presidential and royal families (Wils 2003: 163–164; Cassarino 2004: 232–233; Rami 2007: 120; Erdle 2010: 352; Graciet and Laurent 2012: 68–69, 79–80, 104). Nevertheless, despite a myriad of possible channels of intervention, the four regimes were far from being omnipotent. As several authors remark, all four regimes were entangled in structures of “mutual dependencies,” making control indirect rather than direct. Economic liberalization, which provided economic actors with numerous new possibilities for capital accumulation, thus certainly threatened incumbent regimes, which were unable to fully control its effects. At the same time, the regimes were heterogenous, consisting of many actors with divergent agendas, which precluded coherent policy making and thus seamless control (O. Alaoui 2008: 40, 44–45; Ben Ali 2008: 47–52; Hibou 2008: 68; Sater 2010: 104; Hibou 2011 [2006]: 156–158).

6.3.3

Test of “Integrated Hypotheses” in a MSSD (Periods 1965–1986, 1993–2004, 2005–2010)

In addition to the descriptive comparison of the four MENA countries on the phenomena of political stabilization, I test the nine “integrated hypotheses” IH4-A– IH6-D as specified in section 4.2.2. These “integrated hypotheses” link economic

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liberalization with the stability of an authoritarian regime through the transmission channel of political stabilization: IH4-A: Economic liberalization inflicts economic losses upon the bourgeoisie, decreasing its size and political strength, and thereby increases the stability of an authoritarian regime. IH4-B: Economic liberalization inflicts economic losses upon the bourgeoisie, decreasing its size but increasing its political strength, and thereby reduces the stability of an authoritarian regime. IH4-C: Economic liberalization brings economic gains to the bourgeoisie, increasing its size and political strength, and thereby reduces the stability of an authoritarian regime. IH4-D: Economic liberalization brings economic gains to the bourgeoisie, increasing its size but decreasing its political strength, and thereby increases the stability of an authoritarian regime. IH5: Despite its growth and political strengthening through economic liberalization, the bourgeoisie does not push for democratization, due to internal cleavages and due to cooptation and repression by the state and the regime (which makes the bourgeoisie politically weaker and thus increases the stability of an authoritarian regime). IH6-A: Economic liberalization inflicts economic losses upon the working class, decreasing its size and political strength, and thereby increases the stability of an authoritarian regime. IH6-B: Economic liberalization inflicts economic losses upon the working class, decreasing its size but increasing its political strength, and thereby reduces the stability of an authoritarian regime. IH6-C: Economic liberalization brings economic gains to the working class, increasing its size and political strength, and thereby reduces the stability of an authoritarian regime. IH6-D: Economic liberalization brings economic gains to the working class, increasing its size but decreasing its political strength, and thereby increases the stability of an authoritarian regime.

I test these hypotheses analytically in a MSSD comprising the four MENA countries (Egypt, Tunisia, Jordan, and Morocco), as explained in section 5.2.3. In the MSSD, variance on the DV “regime stability” stratifies the sample. In each temporallybound case comparison, the sample of the four countries is split into two groups, among which values of the DV differ significantly: The first comparison is between Egypt and the group consisting of Tunisia, Jordan, and Morocco during the period 1965–1986. On the basis of the chosen operationalization of the DV, the empirical observation is that the Egyptian regime was less stable during this period than its three MENA counterparts. The second comparison is between the pair of Tunisia

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and Jordan and the pair of Egypt and Morocco during the period 1993–2004. The empirical observation is that the Tunisian and Jordanian regimes were less stable than the Egyptian and Moroccan regimes during this period. The third comparison is between Morocco and the group consisting of Egypt, Jordan, and Tunisia during the period 2005–2010. The empirical observation is that the Moroccan regime was more stable than its three MENA counterparts during this period. For the hypothesis testing, I split each “integrated hypothesis” into its two constituent parts. I begin by testing the second theoretical link, that is the one between the variables of “political stabilization” and “regime stability.” Subsequently, I test the first theoretical link, that is the one between the variables of “economic liberalization” and “political stabilization.” Hypothesis IH4-A Hypothesis IH4-A integrates together hypothesis H13 and hypotheses H72, H76, H78 and H82 (see section 4.2.2). Hypothesis H13 assumes a higher stability of an authoritarian regime, the politically weaker the national bourgeoisie in this country is. The other hypotheses contained by the “ integrated hypothesis" IH4-A speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H72, H76, and H78 on the (long-term) socioeconomic effects of trade liberalization; and hypothesis H82 on the socioeconomic effect of the liberalization of international payments in combination with the liberalization of foreign investment (see appendix-chapter 8). Testing hypothesis IH4-A against the empirical data and information on the four MENA countries (see sections 6.1.5, 6.3.1.3, 6.3.1.4, and 6.3.2.4) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, the economic and political strength of private capital owners (who constitute the class of the bourgeoisie) differed among the four MENA countries under examination: until the beginning of Infitah in the early 1970s, private capital owners in Egypt and Tunisia had been marginalized by the state through expropriation right after independence, through legislative barriers to private capital accumulation, and through the dominance of SOEs. As in the case of labor, collective interest representation of capital in these two countries was integrated in the postindependence corporatist system. Tightly controlled by the regime, collectively organized capital owners remained politically tame (even more so than labor). In contrast, capital owners in Morocco and Jordan had not been marginalized by a social revolution after independence and thus held more economic assets. Nevertheless, they were politically powerless in Morocco (supporting the anti-leftist turn of the monarchy in the early 1960s), although some of them entered several high

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political bodies. In Jordan, private capital owners wielded some political power, as the state—due to scarce public funds—was dependent on their financial capital for industrialization (see sections 6.3.1.3 and 6.3.1.4). When economic liberalization set in with Infitah in Tunisia and Egypt in the early 1970s, it strengthened capital owners politically, as the state needed their collaboration in the implementation of economic reforms. Higher private investment, a rise in exports, and job creation by the private sector were the main economic objectives. These could only be reached with the commitment of private capital owners. However, despite these structural changes, capital as a collective actor stayed politically weak in both Egypt and Tunisia—although in Egypt, some capital owners gained political power on an individual basis. In Jordan and Morocco, the rent influx of the 1970s oil boom financially strengthened the state to the detriment of capital owners—so private capital became less important for investment. As a result, patron-client relationships evolved, which were reinforced in Morocco by the policy of Moroccanization. Ultimately, capital as a collective actor—even more than before—kept its apolitical stance, a situation that continued throughout the 1980s in all four countries (see sections 6.3.1.3 and 6.3.1.4). To summarize, the bourgeoisie gained political strength in Egypt and Tunisia from the 1960s up to the 1970s, and then lost a part of it again from the 1970s up to the mid-1980s. In Jordan, the bourgeoisie lost political strength from the 1960s up to the mid-1980s. In Morocco, the political net effect is unclear: on the one hand, the rent influx of the 1970s phosphate boom strengthened the state vis-à-vis private capital. On the other hand, Moroccanization significantly enlarged the economic assets of the Moroccan bourgeoisie, increasing its potential political power. Ultimately, the second theoretical link proposed by hypothesis IH4-A—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—cannot be substantiated in the empirical information available for the first MSSD period (1965–1986): given that the Egyptian regime was less stable than its three MENA counterparts during this period—if we believe in the operationalization and measurement of the DV “regime stability” as laid out in section 5.2.2—, it is not discernible that this observation might have been due to a politically stronger Egyptian bourgeoisie. Such a conclusion might be valid only in comparison with Tunisia, where the path of history (social revolution after independence, strengthening of capital owners during Infitah) was similar. However, it is more than doubtful that the Egyptian bourgeoisie amassed more political power during the first MSSD period than the Moroccan bourgeoisie—which historically possessed much larger assets and which benefitted from Moroccanization during the 1970s. A tentative ranking of the four national bourgeoisies according to polit-

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ical strength during the post-1970 phase of the first MSSD period would be (from strongest to weakest): Morocco; Egypt; Tunisia; Jordan. In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-A—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby decreases its political strength: to begin with, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors, types of companies, and types of investment (financial versus physical assets) for any of the four MENA countries. Assuming capital was a scarce production factor in all four countries during the first MSSD period, and assuming the bourgeoisie in each country had invested predominantly in internationally uncompetitive sectors and firms, trade liberalization should have inflicted economic losses upon the bourgeoisie (as proposed by hypotheses H72, H76, and H78). These effects should have reduced the bourgeoisie’s political strength (as assumed by hypothesis IH4-A). If we further assume a larger part of the bourgeoisie in each country held financial assets, the liberalization of international payments and the liberalization of foreign investment should have brought additional economic losses (as proposed by hypothesis H82). Thereby, these policies should have further reduced the bourgeoisie’s political strength (as proposed by hypothesis IH4-A). Evaluating the empirical information available for the first MSSD period (1965– 1986), it is not discernible that the Moroccan and the Egyptian bourgeoisie faced a lower intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment compared to their two MENA peers—a fact that could have explained their higher political strength relative to the two others. To the contrary, the Egyptian government was at the forefront in the implementation of these policies during the 1970s, and the Moroccan government was in the lead during the early 1980s (see section 6.1.5). Both observations contradict the first theoretical link proposed by hypothesis IH4-A. After all, hypothesis IH4-A does not seem capable of explaining the empirical observations during the first MSSD period (1965–1986): neither the first theoretical link between economic liberalization and political strength of the bourgeoisie nor the second theoretical link between political strength of the bourgeoisie and regime stability can be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the political opening of the 1990s and the continuing economic crisis increased the political activity of business associations (as

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representative bodies of capital owners) in Jordan and Morocco. Their nascent opposition to the government expressed their doubt over the state’s ability to initiate economic reforms that would prepare national businesses to face the globalization of markets. Both the Jordanian and the Moroccan regime reacted by creating formal channels for interest representation of capital owners (creation of the ECC in Jordan, strengthening of the CGEM with the aim of making it a “social partner” in Morocco). From the late 1980s onwards, the Tunisian regime had already pioneered the formalization of enhanced state-business relations by propping up the politically powerless organization UTICA as a collective representative of Tunisian capital and as an official “social partner” in its resurrected system of corporatist interest mediation. However, compared to its Moroccan counterpart CGEM, the UTICA remained politically tame. Nevertheless, by the 2000s the UTICA had become an integral part of the Tunisian ruling coalition. In contrast, no comparable processes took place in Egypt (see section 6.3.1.3). Concomitant with the growing visibility of capital as a collective actor in Tunisia and (partly) in Morocco, individual capital owners increasingly advanced into political positions in Morocco and Egypt: in Morocco, more capital owners engaged in politics through local and national elections during the 1990s. By the first decade of the 2000s, some of them had become mayors of several Moroccan cities and heads of several larger regional administrative entities (wilayat). In the early 2000s, a capital owner then became Prime Minister. In Egypt, individual capital owners increasingly ran for the ruling NDP in local and national elections, although capital as a collective actor was nearly invisible. From the early 2000s onwards, capital owners also entered top-level positions in the party. In 2004, when the government of Prime Minister Nazif took office, capital owners finally came to dominate the government. In Jordan, where capital as a collective actor had no formal channels of interest representation (as in Egypt), these processes started on a significant scale only in the mid-2000s. However, already by the early 2000s, prominent capital owners had assumed the positions of Prime Minister and of Minister of Post and Telecommunications. In contrast, capital owners by and large stayed out of politics in Tunisia, and they were totally absent from governmental positions (see sections 6.3.1.3 and 6.3.1.4). Taking into account the two dimensions “strength of collective interest representation” and “political power of individual capital owners,” it is possible to assess and compare the political strength of the bourgeoisie in the four MENA countries during the second MSSD period: the strongest bourgeoisie seems to have been the Moroccan, followed by the Egyptian and the Tunisian, while the Jordanian bourgeoisie apparently was the weakest. Ultimately, the second theoretical link proposed by hypothesis IH4-A—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an

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authoritarian regime—cannot be substantiated in the empirical information available for the second MSSD period (1993–2004): if we believe that the Tunisian and Jordanian regimes were less stable during the second MSSD period (given the operationalization of the DV “regime stability” as laid out in section 5.2.2), this was probably not due to the fact that their national bourgeoisie was politically stronger than in Egypt and Morocco. In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-A—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby decreases its political strength: once again, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors, types of companies, and types of investment (financial versus physical assets) for any of the four MENA countries. Assuming capital was a scarce production factor in all four MENA countries during the second MSSD period, and assuming the bourgeoisie in each country had invested predominantly in internationally uncompetitive sectors and firms, trade liberalization should have reduced the bourgeoisie’s economic strength (as proposed by hypotheses H72, H76, and H78). If we further assume a larger part of the bourgeoisie in each country held financial assets, the liberalization of international payments and the liberalization of foreign investment should have further reduced its economic strength (as proposed by hypothesis H82). Evaluating the empirical information available for the second MSSD period (1993–2004), it is not discernible that the Moroccan and Egyptian bourgeoisie faced a significantly lower intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment compared to their two MENA peers—a fact that could have been responsible for the greater economic and political strength of the Moroccan and Egyptian bourgeoisie relative to its two MENA peers (see section 6.1.5). After all, hypothesis IH4-A does not seem capable of explaining the empirical observations during the second MSSD period (1993–2004): neither the first theoretical link between economic liberalization and political strength of the bourgeoisie nor the second theoretical link between political strength of the bourgeoisie and regime stability can be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, capital owners in three of the four countries continued to enter the political arena, while the economic and political power of the business elite was enhanced by privatization: in Egypt, capital owners of the business elite

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dominated the two cabinets of Prime Minister Nazif (2004–2011). In Morocco, capital owners held the Premiership until 2007 and the Ministry of Agriculture (the incumbent was a member of the business elite) until at least 2011. In Jordan, capital owners did not obtain government posts, although an increasing number of them entered Parliament from the mid-2000s onwards. In Tunisia, capital owners continued to stay out of politics. As for collective interest representation of capital, it was only present to a significant extent in Tunisia, where the UTICA had become an integral part of the regime from the early 2000s onwards. In Morocco, the regime curbed the influence of the CGEM by assisting a regime-loyal actor to gain its presidency. In Egypt and Jordan, there was still no collective interest representation of capital owners (see sections 6.3.1.3, 6.3.1.4, and 6.3.2.4). Taking into account the two dimensions “strength of collective interest representation” and “political power of individual capital owners,” it is possible to assess and compare the political strength of the bourgeoisie in the four MENA countries during the third MSSD period: the strongest bourgeoisie seems to have been the Egyptian, followed by the Moroccan and the Tunisian, while the Jordanian bourgeoisie apparently was the weakest. Ultimately, the second theoretical link proposed by hypothesis IH4-A—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—cannot be substantiated in the empirical information available for the third MSSD period (2005–2010): if we believe that the Moroccan regime was more stable during the third MSSD period (given the operationalization of the DV “regime stability” as laid out in section 5.2.2), this was probably not due to the fact that its national bourgeoisie was politically weaker than in the other three countries. In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-A—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby decreases its political strength: once again, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors, types of companies, and types of investment (financial versus physical assets) for none of the four MENA countries. Assuming capital was a scarce production factor in all four MENA countries during the third MSSD period, and assuming the bourgeoisie in each country had invested predominantly in internationally uncompetitive sectors and firms, trade liberalization should have reduced the bourgeoisie’s economic strength (as proposed by hypotheses H72, H76, and H78). If we further assume a larger part of the bourgeoisie in each country held financial assets, the liberalization of inter-

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national payments and the liberalization of foreign investment should have further reduced its economic strength (as proposed by hypothesis H82). Evaluating the empirical information available for the third MSSD period (2005– 2010), it is not discernible that the Jordanian and Tunisian bourgeoisies faced a significantly higher intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment compared to its two MENA peers—a fact that could have explained the lower economic and political strength of the Jordanian and Tunisian bourgeoisies relative to the two others. In fact, all four governments pursued trade liberalization in similar intensity (measured by relative tariff reductions) during the second half of the 2000s, while the absolute level of average MFN-tariffs was significantly higher in Tunisia and Morocco than in Egypt and Jordan—shielding Tunisia’s and Morocco’s bourgeoisie to a greater extent from the policy’s adverse economic effects (see section 6.1.5). Although it had to bear the potentially negative economic effects of these policies to a greater extent, the Egyptian bourgeoisie still seemed to wield the greatest political power during the third MSSD period. Apart from that, none of the four governments implemented any measures to further liberalize international payments during the third MSSD period, and only one government (the Tunisian) undertook significant policy reforms to liberalize foreign investment (see section 6.1.5). After all, hypothesis IH4-A does not seem capable of explaining the empirical observations during the third MSSD period (2005–2010): neither the first theoretical link between economic liberalization and political strength of the bourgeoisie nor the second theoretical link between political strength of the bourgeoisie and regime stability can be substantiated in the empirical data and information. Conclusion on hypothesis IH4-A for the three MSSD periods To conclude, hypothesis IH4-A does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods: neither the first theoretical link between economic liberalization and political strength of the bourgeoisie—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby decreases its political strength—nor the second theoretical link between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—can be substantiated in the empirical data and information. Hypothesis IH4-B Hypothesis IH4-B integrates together hypothesis H13 and hypotheses H72, H76, H78, H82, and H91 (see section 4.2.2). Hypothesis H13 assumes a higher stability of

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an authoritarian regime in a country, the politically weaker its national bourgeoisie is. The other hypotheses contained by the “ integrated hypothesis" IH4-B speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H72, H76, and H78 on the (long-term) socioeconomic effects of trade liberalization; and hypothesis H82 on the socioeconomic effect of the liberalization of international payments in combination with the liberalization of foreign investment. Hypothesis H91 assumes economic liberalization fosters the growth and political strengthening of the bourgeoisie, which then pushes for democratization (see appendix-chapter 8). Testing hypothesis IH4-B against the empirical data and information on the four MENA countries (see sections 6.1.5, 6.3.1.3, 6.3.1.4, and 6.3.2.4) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger bourgeoisie, as suggested by the discussion of hypothesis IH4-A (see above). To the contrary, the Egyptian bourgeoisie seems to have been weaker than the Moroccan bourgeoisie, although possibly stronger than the Jordanian bourgeoisie, and clearly stronger than the Tunisian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH4-B between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically stronger bourgeoisie reduces the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-B—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby makes it politically stronger by increasing the political activism of its members: once again, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors, types of companies, and types of investment (financial versus physical assets) for any of the four MENA countries. Assuming capital was a scarce production factor in all four MENA countries during the first MSSD period, and assuming the bourgeoisie in each country had invested predominantly in internationally uncompetitive sectors and firms, trade liberalization should have inflicted economic losses upon the bourgeoisie (as proposed by hypotheses H72, H76, and H78). However, these losses should have increased the political strength of the class by nurturing the political activism of its members (as assumed by hypothesis IH4-B). If we further assume a larger part of the bourgeoisie in each country held

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financial assets, the liberalization of international payments and the liberalization of foreign investment should have brought additional economic losses (as proposed by hypothesis H82). These effects should have further increased the bourgeoisie’s political strength (as proposed by hypothesis IH4-B). Evaluating the empirical information available for the first MSSD period (1965– 1986), it becomes visible that the Moroccan and the Egyptian bourgeoisie (which were politically strongest at the time) faced a higher intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment compared to their two MENA peers—a fact that could explain their political strength relative to the two others. In fact, the Egyptian government was at the forefront in the implementation of these policies during the period of the 1970s, while the Moroccan government had the lead during the period of the early 1980s (see section 6.1.5). Both of these observations support the first theoretical link proposed by hypothesis IH4-B. After all, hypothesis IH4-B does only partially seem capable of explaining the empirical observations during the first MSSD period (1965–1986): while the first theoretical link between economic liberalization and political strength of the bourgeoisie might be partly supported by the empirical observations104 —albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—, the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and the Jordanian regime compared to the Egyptian and Moroccan regime cannot be explained by the politically stronger bourgeoisie in these two countries, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Tunisian and Jordanian bourgeoisies seem to have been significantly weaker than the Moroccan and Egyptian bourgeoisies during the second MSSD period. Thus, the second theoretical link proposed by hypothesis IH4-B between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically stronger bourgeoisie reduces the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993–2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA 104

The policies of economic liberalization driving this conclusion are trade liberalization, the liberalization of international payments, and the liberalization of foreign investment.

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countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-B—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby makes it politically stronger by increasing the political activism of its members: once again, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors, types of companies, and types of investment (financial versus physical assets) for any of the four MENA countries. Assuming capital was a scarce production factor in all four MENA countries during the second MSSD period, and assuming the bourgeoisie in each country had invested predominantly in internationally uncompetitive sectors and firms, trade liberalization should have inflicted economic losses upon the bourgeoisie (as proposed by hypotheses H72, H76, and H78). But these losses should have increased the political strength of the class by nurturing the political activism of its members (as assumed by hypothesis IH4-B). If we further assume a larger part of the bourgeoisie in each country held financial assets, the liberalization of international payments and the liberalization of foreign investment should have brought additional economic losses (as proposed by hypothesis H82). These effects should have further increased the bourgeoisie’s political strength (as proposed by hypothesis IH4-B). Evaluating the empirical information available for the second MSSD period (1993–2004), it is not discernible that the Moroccan and Egyptian bourgeoisies (which were politically strongest at the time) faced a significantly higher intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment compared to their two MENA peers—a fact that could have been responsible for their greater political strength relative to their two MENA peers (see section 6.1.5). After all, hypothesis IH4-B does not seem capable of explaining the empirical observations during the second MSSD period (1993–2004): neither the first theoretical link between economic liberalization and political strength of the bourgeoisie nor the second theoretical link between political strength of the bourgeoisie and regime stability can be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts cannot be explained by its politically weaker bourgeoisie, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Moroccan bourgeoisie seems to have been significantly stronger than the Tunisian and Jordanian bourgeoisie, although weaker than the Egyptian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH4-B—according to the hypothesis, a politically stronger bourgeoisie reduces the stability of an authoritar-

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ian regime—does not align with the empirical observations available for the third MSSD period (2005–2010). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-B—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby makes it politically stronger by increasing the political activism of its members: once again, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors, types of companies, and types of investment (financial versus physical assets) for none of the four MENA countries. Assuming capital was a scarce production factor in all four MENA countries during the third MSSD period, and assuming the bourgeoisie in each country had invested predominantly in internationally uncompetitive sectors and firms, trade liberalization should have inflicted economic losses upon the bourgeoisie (as proposed by hypotheses H72, H76, and H78). But these losses should have increased the political strength of the class by nurturing the political activism of its members (as assumed by hypothesis IH4-B). If we further assume a larger part of the bourgeoisie in each country held financial assets, the liberalization of international payments and the liberalization of foreign investment should have brought additional economic losses (as proposed by hypothesis H82). These effects should have further increased the bourgeoisie’s political strength (as proposed by hypothesis IH4-B). Evaluating the empirical information available for the third MSSD period (2005– 2010), it is not discernible that the Jordanian and Tunisian bourgeoisies faced a significantly lower intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment compared to their two MENA peers—a fact that could have explained the lower political strength of the Jordanian and Tunisian bourgeoisie relative to the two others. In fact, all four governments pursued trade liberalization in similar intensity (measured by relative tariff reductions) during the second half of the 2000s, while the absolute level of average MFN-tariffs was significantly higher in Tunisia and Morocco than in Egypt and Jordan—shielding Tunisia’s and Morocco’s bourgeoisie to a greater extent from the policy’s negative economic effects that could have increased their political strength (see section 6.1.5). Ultimately, the Egyptian bourgeoisie had to bear the potentially negative economic effects of trade liberalization to a greater extent than at least two of its MENA peers, while it concomitantly wielded the greatest political power during the third MSSD period—a coincidence that aligns with the predictions of hypothesis IH4-B. Besides, none of the four governments implemented any measures to further liberalize international payments during the

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third MSSD period, and only one government (the Tunisian) undertook significant policy reforms to liberalize foreign investment (see section 6.1.5). After all, hypothesis IH4-B does only partially seem capable of explaining the empirical observations during the third MSSD period (2005–2010): while the first theoretical link between economic liberalization and political strength of the bourgeoisie might be partly supported by the empirical observations105 —albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—, the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Conclusion on hypothesis IH4-B for the three MSSD periods To conclude, hypothesis IH4-B does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, there are some hints—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between policies of economic liberalization and political strength of the bourgeoisie proposed by the hypothesis—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby makes it politically stronger by increasing the political activism of its members—might find partial support in the empirical observations. The following policies of economic liberalization seem to empirically align with the theoretical predictions: 1. during the first MSSD period (1965–1986): Trade liberalization; the liberalization of international payments; and the liberalization of foreign investment; 2. during the third MSSD period (2005–2010): Trade liberalization. Hypothesis IH4-C Hypothesis IH4-C integrates together hypothesis H13 and hypotheses H68, H75, H77, H81, H83, H84, H86, and H91 (see section 4.2.2). Hypothesis H13 assumes a higher stability of an authoritarian regime in a country, the politically weaker its national bourgeoisie is. The other hypotheses contained by the “ integrated hypothesis" IH4-C speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H75 and H77 on the socioeconomic effects of trade liberalization; hypothesis H81 on the socioeconomic effect of the liberalization of international payments in combination with the liberalization of foreign investment; hypothesis H83 on the socioeconomic effect of exchange-rate liberalization; hypothesis H84 on the socioeconomic effect of the liberalization of domestic 105

The policy driving this conclusion is trade liberalization.

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private investment; hypothesis H86 on the socioeconomic effect of privatization; and hypotheses H68 and H91 on the socioeconomic and political effects of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH4-C against the empirical data and information on the four MENA countries (see sections 6.1.5, 6.3.1.3, 6.3.1.4, and 6.3.2.4) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger bourgeoisie, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Egyptian bourgeoisie seems to have been weaker than the Moroccan bourgeoisie, although possibly stronger than the Jordanian bourgeoisie, and clearly stronger than the Tunisian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH4-C between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically stronger bourgeoisie reduces the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-C—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength: to begin with, the liberalization of domestic private investment—that is one of the policies of economic liberalization potentially strengthening the bourgeoisie economically by increasing its capital and income (as proposed by hypothesis H84)— was not implemented relatively more extensively in Morocco and Egypt (the two countries with the politically strongest bourgeoisie during the first MSSD period) than in Jordan and Tunisia. To the contrary, the liberalization of domestic private investment started only in 1981 in Egypt—the investment reforms of the 1970s had targeted mainly foreign investment—and in 1983 in Morocco, that is much later than in Jordan (1972) and in Tunisia (1972). This observation contradicts the first theoretical link proposed by hypothesis IH4-C. The second policy of economic liberalization potentially bringing economic gains to the bourgeoisie—privatization (as proposed by hypothesis H86)—was not implemented in any of the four countries during the first MSSD period (see section 6.1.5). For the other four policies of economic liberalization potentially strengthening the bourgeoisie in economic terms, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors and types of companies for any of the

6.3 Political Stabilization

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four MENA countries under investigation. Assuming the bourgeoisie in each country had invested predominantly in internationally competitive and export-oriented sectors and firms, trade liberalization and exchange-rate liberalization should have increased its economic strength (as proposed by hypotheses H75, H77, and H83). If we also assume a larger part of the bourgeoisie in each country had invested in specific sectors and activities, the liberalization of international payments and the liberalization of foreign investment should have further increased its economic strength (as proposed by hypothesis H81). Evaluating the empirical information available for the first MSSD period (1965– 1986), the Moroccan bourgeoisie—although it was the strongest politically—did not benefit from a higher intensity of trade liberalization, of the liberalization of international payments, or of the liberalization of foreign investment. This holds true for the subperiod 1965–1979 of the first MSSD period. But during the first half of the 1980s, Morocco was the only country among the four that pursued economic liberalization (including trade liberalization and the liberalization of domestic and foreign investment) to a significant extent. Besides, for the subperiod of the 1970s, it is possible that the Egyptian bourgeoisie (the second strongest in the empirical ranking) benefitted from a significantly higher intensity of trade liberalization, at least compared to the Moroccan and the Jordanian bourgeoisie. The Egyptian bourgeoisie might also have benefitted from a higher intensity of the liberalization of international payments and of the liberalization of foreign investment. The remaining economic-liberalization policy—exchange-rate liberalization—was not implemented in any of the four MENA countries during the 1970s. It was then exclusively implemented in Morocco during the first half of the 1980s (see section 6.1.5). Therefore, the first theoretical link between economic liberalization and political strength of the bourgeoisie proposed by hypothesis IH4-C might have some empirical support—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—, especially during the subperiod 1980–1986 of the first MSSD period (1965–1986). During this subperiod of the early 1980s, the empirically strongest bourgeoisie—the Moroccan—might have effectively gained economic strength (which then might have nurtured its political strength) through a high intensity of some economic-liberalization policies. After all, hypothesis IH4-C does only partially seem capable of explaining the empirical observations during the first MSSD period (1965–1986): while the first theoretical link between economic liberalization and political strength of the bourgeoisie might be partly supported by the empirical observations106 —albeit sub106

The policies of economic liberalization driving this conclusion are trade liberalization, the liberalization of domestic and foreign investment, and exchange-rate liberalization.

510

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ject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—, the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and the Jordanian regime compared to the Egyptian and Moroccan regime cannot be explained by the politically stronger bourgeoisie in these two countries, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Tunisian and Jordanian bourgeoisies seem to have been significantly weaker than the Moroccan and Egyptian bourgeoisies during the second MSSD period. Thus, the second theoretical link proposed by hypothesis IH4-C between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically stronger bourgeoisie reduces the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993–2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-C—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength: to begin with, the liberalization of domestic private investment—that is one of the policies of economic liberalization potentially strengthening the bourgeoisie economically by increasing its capital and income (as proposed by hypothesis H84)—was not implemented relatively more extensively in Morocco and Egypt (the two countries with the politically strongest bourgeoisie during the second MSSD period) than in Tunisia and Jordan. To the contrary, the investment reforms of the 1990s already started in 1993 in Tunisia—two to four years earlier than in the other three countries. The second policy of economic liberalization potentially bringing economic gains to the bourgeoisie—privatization (as proposed by hypothesis H86)—also started earlier in Tunisia than in the other three countries. Thus, SOEs were sold on a regular basis since the late 1980s / early 1990s, that is five to ten years earlier than in Morocco, Egypt, and Jordan (see section 6.1.5). Both observations contradict the first theoretical link proposed by hypothesis IH4-C. For the other four policies of economic liberalization potentially strengthening the bourgeoisie in economic terms, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors and types of companies for any of the MENA countries under examination. Assuming the bourgeoisie in each country had invested predominantly in internationally competitive and export-oriented

6.3 Political Stabilization

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sectors and firms, trade liberalization and exchange-rate liberalization should have increased its political strength (as proposed by hypotheses H75, H77, and H83). If we additionally assume a larger part of the bourgeoisie in each country had invested in specific sectors and activities, the liberalization of international payments and the liberalization of foreign investment should have further increased its political strength (as proposed by hypothesis H81). Evaluating the empirical information available for the second MSSD period (1993–2004), it is not discernible that the Moroccan and Egyptian bourgeoisies benefitted from a significantly higher intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment than the Tunisian and Jordanian bourgeoisies. However, exchange-rate liberalization was in fact only implemented in Egypt during the second MSSD period, giving small substance—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—to the first theoretical link proposed by hypothesis IH4-C (see section 6.1.5). After all, hypothesis IH4-C does not seem capable of explaining the empirical observations during the second MSSD period (1993–2004): while there is one speculative hint—subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between economic liberalization and political strength of the bourgeoisie might find partial support in the empirical observations,107 the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts cannot be explained by its politically weaker bourgeoisie, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Moroccan bourgeoisie seems to have been significantly stronger than the Tunisian and Jordanian bourgeoisie, although weaker than the Egyptian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH4-C between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically stronger bourgeoisie reduces the stability of an authoritarian regime— does not align with the empirical observations available for the third MSSD period (2005–2010).

107

The policy of economic liberalization driving this conclusion is exchange-rate liberalization.

512

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In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-C—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength: to begin with, the liberalization of domestic private investment—that is one of the policies of economic liberalization potentially strengthening the bourgeoisie economically by increasing its capital and income (as proposed by hypothesis H84)—was not implemented relatively more extensively in Egypt and Morocco (the two countries with the politically strongest bourgeoisie during the third MSSD period) than in Tunisia and Jordan. But the second policy of economic liberalization potentially bringing economic gains to the bourgeoisie—privatization (as proposed by hypothesis H86)—was in fact implemented most extensively in Egypt (and possibly in Morocco as well, if we compare it with the other two countries) during the third MSSD period. These observations give some credibility to the first theoretical link proposed by hypothesis IH4-C (see section 6.1.5). For the other four policies of economic liberalization potentially strengthening the bourgeoisie in economic terms, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors and types of companies for any of the four MENA countries under examination. Assuming the bourgeoisie in each country had invested predominantly in internationally competitive and export-oriented sectors and firms, trade liberalization and exchange-rate liberalization should have increased its economic strength (as proposed by hypotheses H75, H77, and H83). If we additionally assume a larger part of the bourgeoisie in each country had invested in specific sectors and activities, the liberalization of international payments and the liberalization of foreign investment should have further increased its economic strength (as proposed by hypothesis H81). Evaluating the empirical information available for the third MSSD period (2005– 2010), it is not discernible that the Egyptian and Moroccan bourgeoisies benefitted from a significantly higher intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment than their two MENA peers. In fact, all four governments pursued trade liberalization in similar intensity (measured by relative tariff reductions) during the second half of the 2000s, while the absolute level of average MFN-tariffs was significantly higher in Tunisia and Morocco than in Egypt and Jordan—giving Egypt’s and Jordan’s bourgeoisie more possibilities to profit from the favorable effects of trade liberalization (see section 6.1.5). This could partially explain the strength of the Egyptian bourgeoisie, although the Moroccan bourgeoisie—which faced higher trade barriers—was nevertheless politically stronger than the Jordanian bourgeoisie. Apart from that, none of

6.3 Political Stabilization

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the four governments implemented any measures to further liberalize international payments nor to further liberalize the exchange rate during the third MSSD period, while only one government (the Tunisian) undertook significant policy reforms to further liberalize foreign investment (see section 6.1.5). After all, hypothesis IH4-C does only partially seem capable of explaining the empirical observations during the third MSSD period (2005–2010): while the first theoretical link between economic liberalization and political strength of the bourgeoisie finds partial support in the empirical observations,108 the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Conclusion on hypothesis IH4-C for the three MSSD periods To conclude, hypothesis IH4-C does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, there are some hints—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between policies of economic liberalization and political strength of the bourgeoisie proposed by the hypothesis—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength—might find partial support in the empirical observations. The following policies of economic liberalization seem to empirically align with the theoretical predictions: 1. during the first MSSD period (1965–1986): Trade liberalization; the liberalization of domestic and foreign investment; and exchange-rate liberalization; 2. during the second MSSD period (1993–2004): Exchange-rate liberalization; 3. during the third MSSD period (2005–2010): Privatization. Of these, the findings on the policy of privatization during the third MSSD period are subject to the least far-reaching assumptions. Hypothesis IH4-D Hypothesis IH4-D integrates together hypothesis H13 and hypotheses H68, H75, H77, H81, H83, H84, and H86 (see section 4.2.2). Hypothesis H13 assumes a higher stability of an authoritarian regime in a country, the politically weaker its national bourgeoisie is. The other hypotheses contained by the “integrated hypothesis” IH4D speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H75 and H77 on the socioeconomic effects of trade liberalization; hypothesis H81 on the socioeconomic effect of the liberalization of international payments in combination with the liberalization of foreign invest108

The policy of economic liberalization driving this conclusion is privatization.

514

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ment; hypothesis H83 on the socioeconomic effect of exchange-rate liberalization; hypothesis H84 on the socioeconomic effect of the liberalization of domestic private investment; hypothesis H86 on the socioeconomic effect of privatization; and hypothesis H68 on the socioeconomic effect of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH4-D against the empirical data and information on the four MENA countries (see sections 6.1.5, 6.3.1.3, 6.3.1.4, and 6.3.2.4) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger bourgeoisie, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Egyptian bourgeoisie seems to have been weaker than the Moroccan bourgeoisie, although possibly stronger than the Jordanian bourgeoisie, and clearly stronger than the Tunisian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH4-D between political strength of the bourgeoisie and regime stability— according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-D—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby makes the bourgeoisie politically weaker by decreasing the political activism of its members: to begin with, the liberalization of domestic private investment—that is one of the policies of economic liberalization potentially bringing economic gains to the bourgeoisie by increasing its capital and income (as proposed by hypothesis H84)—was in fact implemented less extensively in Morocco and Egypt (the two countries with the politically strongest bourgeoisie during the first MSSD period) than in Jordan and Tunisia. Thus, the liberalization of domestic private investment started only in 1981 in Egypt—the investment reforms of the 1970s had targeted mainly foreign investment—and in 1983 in Morocco, that is much later than in Jordan (1972) and in Tunisia (1972) (see section 6.1.5). This observation aligns with the first theoretical link proposed by hypothesis IH4-D, which would suggest that the Tunisian and Jordanian bourgeoisies were weakened politically by the economic gains accruing to them from a higher intensity of the liberalization of domestic private investment. At the same time, the Egyptian and the Moroccan bourgeoisies did not reap the economic gains of these policies, and thus retained their political

6.3 Political Stabilization

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strength. The second policy of economic liberalization potentially strengthening the bourgeoisie economically—that is privatization (as proposed by hypothesis H86)— was not implemented in any of the four countries during the first MSSD period (see section 6.1.5). For the other four policies of economic liberalization potentially bringing economic gains to the bourgeoisie, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors and types of companies for any of the four MENA countries under examination. Assuming the bourgeoisie in each country had invested predominantly in internationally competitive and export-oriented sectors and firms, trade liberalization and exchange-rate liberalization should have brought economic benefits (as proposed by hypotheses H75, H77, and H83). If we additionally assume a larger part of the bourgeoisie in each country had invested in specific sectors and activities, the liberalization of international payments and the liberalization of foreign investment should have further increased its economic strength (as proposed by hypothesis H81). Evaluating the empirical information available for the first MSSD period (1965– 1986), the Moroccan bourgeoisie (which at the time was politically strongest) did in fact face a lower intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment than its three MENA peers. This holds true for the subperiod 1965–1979. However, during the first half of the 1980s, Morocco was the only country among the four that pursued economic liberalization (including trade liberalization and the liberalization of domestic and foreign investment) to a significant extent (see section 6.1.5). The resulting economic gains should have weakened the Moroccan bourgeoisie, but this is empirically not distinguishable. For the subperiod of the 1970s, it is puzzling that the Egyptian bourgeoisie (the second strongest in the empirical ranking) benefitted from a significantly higher intensity of trade liberalization, at least compared to Morocco and Jordan. It also might have profited from a higher intensity of the liberalization of international payments and of the liberalization of foreign investment. Nevertheless, the Egyptian bourgeoisie remained politically stronger than the Jordanian bourgeoisie—a fact that contradicts hypothesis IH4-D. The last policy—exchange-rate liberalization— was not implemented in any of the four MENA countries during the 1970s. It was then exclusively implemented in Morocco during the first half of the 1980s (see section 6.1.5). Therefore, the first theoretical link between economic liberalization and political strength of the bourgeoisie proposed by hypothesis IH4-D might have some empirical support—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—, especially during the subperiod 1965–1979 of the first MSSD period. During this subperiod of the 1960s–1970s, the

516

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empirically strongest bourgeoisie—the Moroccan—might have effectively retained its political strength due to a low intensity of some economic-liberalization policies. After all, hypothesis IH4-D does only partially seem capable of explaining the empirical observations during the first MSSD period (1965–1986): while the first theoretical link between economic liberalization and political strength of the bourgeoisie might be partly supported by the empirical observations,109 the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and the Jordanian regime compared to the Egyptian and Moroccan regime cannot be explained by the politically stronger bourgeoisie in these two countries, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Tunisian and Jordanian bourgeoisie seem to have been significantly weaker than the Moroccan and Egyptian bourgeoisie during the second MSSD period. Thus, the second theoretical link proposed by hypothesis IH4-D between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993–2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-D—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby makes the bourgeoisie politically weaker by decreasing the political activism of its members: to begin with, the liberalization of domestic private investment—that is one of the policies of economic liberalization potentially bringing economic gains to the bourgeoisie by increasing its capital and income (as proposed by hypothesis H84)—was not implemented less extensively in Morocco and Egypt (the two countries with the politically strongest bourgeoisie during the second MSSD period) than in Tunisia and Jordan—although the investment reforms of the 1990s already started in 1993 in Tunisia, that is two to four years earlier than in the other three countries. The second policy of economic liberalization potentially increasing the economic strength 109

The policy of economic liberalization driving this conclusion is, above all, the liberalization of domestic private investment. Other economic-liberalization policies of relevance here are—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—trade liberalization, the liberalization of international payments, and the liberalization of foreign investment.

6.3 Political Stabilization

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of the bourgeoisie—that is privatization (as proposed by hypothesis H86)—in fact started earlier in Tunisia than in the other three countries. Thus, SOEs were sold on a regular basis since the late 1980s / early 1990s, that is five to ten years earlier than in Morocco, Egypt, and Jordan (see section 6.1.5). While the observations on the liberalization of domestic private investment rather contradict the first theoretical link proposed by hypothesis IH4-D, the observations on privatization seem to partly align with it, as the country experiencing the highest intensity of privatization— Tunisia—concomitantly had a politically weaker bourgeoisie (at least compared with Egypt and Morocco). For the other four policies of economic liberalization potentially bringing economic gains to the bourgeoisie, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors and types of companies for any of the four MENA countries under examination. Assuming the bourgeoisie in each country had invested predominantly in internationally competitive and export-oriented sectors and firms, trade liberalization and exchange-rate liberalization should have made it economically better off (as proposed by hypotheses H75, H77, and H83). If we additionally assume a larger part of the bourgeoisie in each country had invested in specific sectors and activities, the liberalization of international payments and the liberalization of foreign investment should have further increased its economic strength (as proposed by hypothesis H81). Evaluating the empirical information available for the second MSSD period (1993–2004), it is not discernible that the Moroccan and Egyptian bourgeoisie benefitted politically from a significantly lower intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment than the Tunisian and Jordanian bourgeoisie. To the contrary, exchange-rate liberalization was only implemented in Egypt during the second MSSD period, contradicting the first theoretical link proposed by hypothesis IH4-D (see section 6.1.5). After all, hypothesis IH4-D does only partially seem capable of explaining the empirical observations during the second MSSD period (1993–2004): while the first theoretical link between economic liberalization and political strength of the bourgeoisie might be partly supported by the empirical observations,110 the second theoretical link between political strength of the bourgeoisie and regime stability cannot be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts cannot be explained by the politically weaker 110

The policy of economic liberalization driving this conclusion is privatization.

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bourgeoisie in Morocco, as suggested above in the discussion of hypothesis IH4A. To the contrary, the Moroccan bourgeoisie seems to have been significantly stronger than the Tunisian and Jordanian bourgeoisie, although weaker than the Egyptian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH4D between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—does not align with the empirical observations available for the third MSSD period (2005–2010). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH4-D—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby makes the bourgeoisie politically weaker by decreasing the political activism of its members: to begin with, the liberalization of domestic private investment—that is one of the policies of economic liberalization potentially bringing economic gains to the bourgeoisie by increasing its capital and income (as proposed by hypothesis H84)—was not implemented less extensively in Egypt and Morocco (the two countries with the politically strongest bourgeoisie during the third MSSD period) than in Tunisia and Jordan. The second policy of economic liberalization potentially benefitting the bourgeoisie economically—that is privatization (as proposed by hypothesis H86)—was implemented most extensively in Egypt (and possibly in Morocco, if we compare it with the other two countries) during the third MSSD period (see section 6.1.5). This fact should have reduced the political strength of the Egyptian and Moroccan bourgeoisie. However, both bourgeoisies seemed to be politically stronger than their two MENA peers. Thus, both observations contradict the first theoretical link between economic liberalization and political strength of the bourgeoisie proposed by hypothesis IH4-D. For the other four policies of economic liberalization potentially bringing economic gains to the bourgeoisie, the difficulty arises that we do not have information on the distribution of the bourgeoisie’s assets among economic sectors and types of companies for any of the four MENA countries under examination. Assuming the bourgeoisie in each country had invested predominantly in internationally competitive and export-oriented sectors and firms, trade liberalization and exchange-rate liberalization should have made it economically better off (as proposed by hypotheses H75, H77, and H83). If we additionally assume a larger part of the bourgeoisie in each country had invested in specific sectors and activities, the liberalization of international payments and the liberalization of foreign investment should have further increased its economic strength (as proposed by hypothesis H81).

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Evaluating the empirical information available for the third MSSD period (2005– 2010), it is not discernible that the Egyptian and Moroccan bourgeoisies benefitted politically from a significantly lower intensity of trade liberalization, of the liberalization of international payments, and of the liberalization of foreign investment than their two MENA peers. In fact, all four governments pursued trade liberalization in similar intensity (measured by relative tariff reductions) during the second half of the 2000s, while the absolute level of average MFN-tariffs was significantly higher in Tunisia and Morocco than in Egypt and Jordan—giving Tunisia’s and Morocco’s bourgeoisie more possibilities to avoid the economic gains of trade liberalization, and thereby to evade the policy’s unfavorable political effects (see section 6.1.5). These observations could partially explain the political strength of the Moroccan bourgeoisie, although the Egyptian bourgeoisie—which faced lower trade barriers (and should thus have been weakened politically by a higher intensity of trade liberalization)—was nevertheless politically stronger than its Moroccan and Tunisian counterparts. Apart from that, none of the four governments implemented any measures to further liberalize international payments nor to further liberalize the exchange rate during the third MSSD period, while only one government—the Tunisian—undertook significant policy reforms to further liberalize foreign investment (see section 6.1.5). After all, hypothesis IH4-D does not seem capable of explaining the empirical observations during the third MSSD period (2005–2010): neither the first theoretical link between economic liberalization and political strength of the bourgeoisie nor the second theoretical link between political strength of the bourgeoisie and regime stability can be substantiated in the empirical data and information. Conclusion on hypothesis IH4-D for the three MSSD periods To conclude, hypothesis IH4-D does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, there are some hints—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between policies of economic liberalization and political strength of the bourgeoisie proposed by the hypothesis—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby makes the bourgeoisie politically weaker by decreasing the political activism of its members—might find partial support in the empirical observations. The following policies of economic liberalization seem to empirically align with the theoretical predictions: 1. during the first MSSD period (1965–1986): the liberalization of domestic private investment; trade liberalization; the liberalization of international payments; and the liberalization of foreign investment; 2. during the second MSSD period (1993–2004): Privatization.

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Of these, the findings on the liberalization of domestic private investment during the first MSSD period and on privatization during the second MSSD period are subject to the least far-reaching assumptions. Hypothesis IH5 Hypothesis IH5 integrates together hypothesis H18 and hypothesis H92 (see section 4.2.2). Hypothesis H18 stipulates that a politically strong state weakens the bourgeoisie, and thereby increases the stability of an authoritarian regime. Hypothesis H92 assumes the bourgeoisie does not push for democratization—due to internal cleavages and due to cooptation by the regime—, despite its growth and political strengthening through economic liberalization (see appendix-chapter 8). Testing hypothesis IH5 against the empirical data and information on the four MENA countries (see sections 6.1.5, 6.3.1.3, 6.3.1.4, 6.3.2.2, 6.3.2.4, and 6.3.2.5) throughout the three MSSD periods yields the following results: First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger bourgeoisie, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Egyptian bourgeoisie seems to have been weaker than the Moroccan bourgeoisie, although possibly stronger than the Jordanian bourgeoisie, and clearly stronger than the Tunisian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH5 between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether cleavages within the bourgeoisie, state / regime action towards the bourgeoisie, and economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link (Part 1 and 2) proposed by hypothesis IH5. Regarding Part 2 of the first theoretical link—according to the hypothesis, internal cleavages as well as cooptation and repression by the state and the regime make the bourgeoisie politically weaker—, one can make several observations: First, in three of the four MENA countries the bourgeoisie showed significant internal cleavages during the first MSSD period (1965–1986). In Egypt, it was stratified during the Infitah period into private businessmen catering to the public sector, former public-sector managers who became private entrepreneurs, and “a new generation of younger entrepreneurs” with relational capital outside the public sector. With

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the takeover of President Mubarak in 1981, protagonists from the Infitah al-Intaj— who had invested into industry—joined the higher echelons of the bourgeoisie (Gobe 1999: 52–73, 80–82; Mitchell 2002: 282–286; Wurzel 2004: 123). In Jordan, three new groups of “nouveaux riches” emerged during the 1970s that increasingly rivalled the traditional business elite: “agents and middlemen;” “land owners and real estate owners;” and entrepreneurs with Palestinian roots who had made their fortunes in the Gulf countries (Wils 2003: 106–109) . In Morocco, state functionaries who benefitted from business opportunities (due to more interventionist state policies since 1968) joined the top segment of the bourgeoisie as a second group distinct from the traditional business elite (Waterbury 1970: 132–133; El Oufi 1990: 141; Cammett 2007b: 96; Catusse 2008: 109–115; Benhaddou 2009: 74–75). Further to that, Moroccanization in the 1970s enabled business actors from the Souss to join the ranks of the Fassi-dominated business elite (Waterbury 1970: 133–134; Clement 1986; Tangeaoui 1993: 146–155; Cammett 2007b: 98). For Tunisia, no information on internal cleavages of the bourgeoisie during the first MSSD period was available to the author. Second, the regimes in three of the four countries tried to coopt their bourgeoisie by incorporating it into the state bureaucracy, into the government, and into the ruling party. In Egypt, several important businessmen took over positions in the bureaucracy and in the NDP during the 1970s (Hinnebusch 1985: 96–100; Gobe 1999: 209–219). During the 1980s, the new President Mubarak continued to tie the bourgeoisie to the ruling party, as a number of businessmen ran for the NDP in national elections—either as direct NDP candidates or as independents affiliated with the party (Springborg 1989: 164–166) . In Jordan, members of the private business elite were nominated for top posts in public or semipuplic enterprises throughout the 1960s–1970s (Carroll 2003: 36–38) . During the oil boom period, some were also appointed Ministers in the central government (Wils 2003: 105). In Morocco, the regime continued to coopt members of the business elite into high positions within the bureaucracy (as during the 1950s–1960s) (Waterbury 1970: 106–107; Cammett 2004: 250; Cammett 2005: 392; Greenwood 2008: 848). Besides, members of the bourgeoisie began to enter top governmental positions: during 1971–1972 and once again in 1983, a member of the business elite—Mohamed Karim Lamrani—became Prime Minister. He headed government until 1986, and once again became Prime Minister from 1992 to 1994 (Tangeaoui 1993: 145; Catusse 2008: 111, 274; Kingdom of Morocco 2016). In contrast to the other three countries, capital owners in Tunisia were not incorporated into the state bureaucracy, into the government, or into the ruling party. Third, the regimes integrated the most important segments of the bourgeoisie into their patronage networks, by making use of their gatekeeper position in state insti-

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tutions (contracts, tenders, licensing), including in state-owned banks (credit allocation). In Egypt during the 1980s, all larger private enterprises depended somehow on preferential treatment by the state—through subcontracting, credit allocation, and licensing (Henry 1996: 233–234; Roll 2010: 170–172). Likewise, in Tunisia the nascent bourgeoisie of the 1970s was completely dependent on the state, which controlled it through an elaborated system of incentives (Bellin 2002: 23–28; Cammett 2005: 396). In Jordan, neopatrimonial structures, incentives by the regime (e.g. “lucrative land deals”), a weak Parliament, and the business elite’s status as “social pariahs” contributed to keeping down the political ambitions of members of the bourgeoisie ( Greenwood 2008: 845–847) . In Morocco, the regime tied the business elite firmly to its patron-client network (lubricated by corruption) (Waterbury 1970: 106–107; Cammett 2004: 250, 2005: 392; Greenwood 2008: 848). Fourth, the regimes tried to limit the political power of the bourgeoisie through repression. In Tunisia, the regime inhibited the formation of cross-sectoral holding companies—which would have increased capital concentration—by a law that was only abolished in 1988 (Bellin 2002: 42; Cammett 2007b: 77, 136–137). In Morocco, repression of the bourgeoisie was more subtle, as the state created public-investment holdings that—after having appropriated major spoils from Moroccanization— rivalled and controlled private capital owners as coinvestors in investment projects (Clement 1986; Saâdi 1989: 75–76; El Oufi 1990: 141–142; Belghazi 1997: 96–97; Rami 2007: 110–111; Sater 2010: 95). In Egypt, repression of the bourgeoisie was more focused, as the new President Mubarak tried to slow down the capital accumulation and political influence of the family of Osman Ahmed Osman, an actor who had controlled a business empire under President Sadat (while Osman personally was also member of the government) (Gobe 1999: 209–219) . For Jordan, no information on repression of members of the bourgeoisie during the first MSSD period was available to the author. To summarize, internal cleavages of the bourgeoisie seem to have been most pronounced in Egypt and Jordan and less pronounced in Morocco during the first MSSD period (1965–1986), while no information was available for Tunisia. Cooptation into political positions seems to have been most pronounced in Morocco and Jordan (where the bourgeoisie had been strong since independence). It was less pronounced in Egypt (where the economic power of the bourgeoisie began to grow only from the 1970s onwards), and it was totally absent in Tunisia. Cooptation into patronage networks controlled by the regime seems to have been equally present in all four countries. Repression of the bourgeoisie by the state and the regime was most pronounced in Tunisia and less pronounced in Morocco and Egypt, while there was no information on Jordan available to the author.

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Relating these observations to the assessment that the Moroccan bourgeoisie was the strongest politically during the first MSSD period (1965–1986)—followed by the Egyptian, the Jordanian, and the Tunisian bourgeoisie—one can make the following conclusions: as theory predicts, the Moroccan bourgeoisie was characterized by less internal cleavages than at least two of its MENA peers, while it was also not as much repressed by the state and the regime. However, cooptation of the bourgeoisie into political positions seems to have been most pronounced in Morocco (although similar to Jordan), which contradicts the theoretical predictions. Thus, Part 2 of the first theoretical link proposed by hypothesis IH5—that is the one between internal cleavages of the bourgeoisie as well as state / regime action and political strength of the bourgeoisie—does only partly align with the empirical observations available for the first MSSD period (1965–1986). Regarding Part 1 of the first theoretical link proposed by hypothesis IH5— according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength—, the conclusions from the discussion of hypothesis IH4-C during the first MSSD period apply (both hypotheses assume the same empirical relations). Thus, Part 1 of the first theoretical link proposed by hypothesis IH5 might be partly supported by the empirical observations.111 However, as before, these conclusions are subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie. After all, hypothesis IH5 does only partly seem capable of explaining the empirical observations during the first MSSD period (1965–1986). Part 1 of the first theoretical link proposed by hypothesis IH5—that is the one between economic liberalization and political strength of the bourgeoisie—might be partly supported by the empirical observations, driven by the policies of trade liberalization, the liberalization of domestic and foreign investment, and exchange-rate liberalization—although these conclusions are subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie. Part 2 of the first theoretical link proposed by hypothesis IH5—that is the one between internal cleavages of the bourgeoisie as well as state / regime action and political strength of the bourgeoisie—also partly aligns with the empirical observations, driven by internal cleavages of the bourgeoisie and repression by the state / regime. But the second theoretical link proposed by hypothesis IH5—that is the one between political strength of the bourgeoisie and regime stability—does not align with the empirical observations.

111

The policies of economic liberalization driving this conclusion are trade liberalization, the liberalization of domestic and foreign investment, and exchange-rate liberalization.

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Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and Jordanian regimes compared to the Egyptian and Moroccan regimes cannot be explained by the politically stronger bourgeoisie in Tunisia and Jordan, as suggested above in the discussion of hypothesis IH4-A. To the contrary, the Tunisian and Jordanian bourgeoisies seem to have been significantly weaker than the Moroccan and Egyptian bourgeoisies during the second MSSD period. Thus, the second theoretical link proposed by hypothesis IH5 between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993–2004). In a second step, I analyze whether cleavages within the bourgeoisie, state / regime action towards the bourgeoisie, and economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link (Part 1 and 2) proposed by hypothesis IH5. Regarding Part 2 of the first theoretical link—according to the hypothesis, internal cleavages as well as cooptation and repression by the state and the regime make the bourgeoisie politically weaker—, one can make several observations: First, compared to the first MSSD period, internal cleavages of the bourgeoisie multiplied during the second MSSD period (1993–2004). In Egypt, a “core business elite” (consisting of around 20 families and / or individuals), which set itself apart from its peers through rapid accumulation of capital, began to form with the implementation of the ERSAP (Roll 2010: 173–174, 215–217, 224). Privatization, backed up by preferential state lending, played an important role in the formation of this new core business elite. Instead of “the established business elite,” “new networks that linked state officials, former bureaucrats,” and politically well-connected members of the business elite “captured [most of; C.N.] the benefits of privatization” (Sfakianakis 2004: 78, 84, 92). In Tunisia, the regime abrogated the law on holding companies in 1988 and began to actively foster the buildup of conglomerates (Cammett 2007b: 78). At the same time, it permitted the formation of large landholdings (S. J. King 2003: 25–26, 35–37). These legal changes further stratified the class, as they mainly benefited the “higher echelons of the consolidated entrepreneurial bourgeoisie,” whose “attributes [were] prosperity, opportunity, and state sponsorship” (Murphy 1999: 226–228) . In Jordan, economic liberalization and structural adjustment of the 1990s brought “new actors on the economic scene,” who made use of the changing business environment and who rivalled the established business elite: A first group “[included] some of the returnees from the Gulf who brought back with them their life savings and invested a great deal of them in

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Jordan.” The second group consisted of foreign “investors from the Arab World,” mostly from Saudi Arabia, Egypt, and Iraq. The third “set of actors [included] the progeny of the former state officials on whom King Hussein relied during the 1970s and through to the 1990s” (Wils 2001: 133–134; El-Said 2002: 270–271). Similar to the Tunisian case, the Jordanian regime fostered “monopoly positions” and the “concentration of enterprises” (through mergers and the buildup of “large holdings” / ”conglomerates”) from the 1990s onwards—a policy that benefitted a selective group of capital owners within the bourgeoisie (Wils 2003: 163–164) . In Morocco, the established business elite was further stratified “since the late 1980s” by newcomers who had benefitted from economic liberalization. This group of newcomers “consisted primarily of business executives in middle-sized firms” (Denoeux 2000: 172). Privatization, which picked up speed in the 1990s, reinforced this process. Above all, it was the top segment of the business elite within the bourgeoisie that benefitted from privatization, as it alone disposed of the capital to take over former SOEs in “strategic alliances” with foreign investors (Hibou 1996: 27; Rami 2007: 124; Affaya and Guerraoui 2009: 75–76). The policy to create “national champions” (after 2000) once again reshaped the business elite and made some business actors exceptionally wealthy and powerful (Rami 2007: 120, 129–130, 272–275; Graciet and Laurent 2012: 68–69, 79–80, 104). Second, two of the four regimes tried to incorporate the strengthened bourgeoisie into the state bureaucracy, the government, and the ruling party. In Egypt, the core business elite (which had formed in the 1990s) increasingly entered the political arena from the early 2000s onwards. A larger number of capital owners ran for parliamentary seats as NDP candidates or as independent candidates affiliated with the NDP. One capital owner even entered the General Secretariat of the ruling party (Rutherford 2008: 219; Soliman 2011 [2006]: 145–146). In 2004, several members of the core business elite were appointed to ministerial positions in the new government of Prime Minister Nazif (Demmelhuber and Roll 2007: 24–25; Rutherford 2008: 223; Roll 2010: 217, 223). In Morocco, members of the bourgeoisie continued to be nominated for top governmental positions. In 2002, a capital owner once again became Prime Minister (Tangeaoui 1993: 143; Maghri 17.02.2000: Catusse 2008: 111, 274). Further to that, many business actors obtained important positions in local politics (mayors, wollat) during the 2000s (Perrin 2002: 96–98; Catusse 2008: 130, 137, 274, 288–291). In contrast, Tunisian business actors from outside the presidential family, most notably those who were able to enlarge their fortunes during the 1990s and 2000s, were not incorporated into the regime—that is, they were neither placed in positions within the state administration nor assumed regime posts, for example in the ruling party (Henry 1997: 188–191; Henry and Springborg 2010: 182). The exception were several business actors with familial ties to

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the Ben Ali clan who held minor posts in the RCD (Beau and Graciet 2009: 78, 124; Erdle 2010: 127, 149, 156). In Jordan, business associations were increasingly involved in policymaking, although they refrained from founding business parties. As in Tunisia, influential Jordanian businessmen did not aspire to political posts (Carroll 2003: 128–134; Reiter 2004: 86–87). Third, in order to control the bourgeoisie’s rising economic and political power, the regimes integrated the most important segments of the bourgeoisie into their patronage networks, by making use of their gatekeeper position in state institutions (contracts, tenders, licensing, privatization), including state-owned banks (credit allocation). In Egypt, patronage channels for the regime opened up through preferential assignment of public contracts and clientelist allocation of land and building permits (Wurzel 2009b: 112–113; Loewe 2013: 70). Further to that, the Egyptian regime controlled credit via state-owned banks, which allowed it to integrate certain segments of the bourgeoisie into its patronage network (Roll 2010: 127–136) . In Tunisia, the regime tried to direct capital accumulation towards close allies, favoring actors with family ties to President Ben Ali and his entourage (through clientelist privatization, selective licencing, financial support, etc.) (Cammett 2007b: 138–140; Hibou 2011 [2006]: 154–155, 248–249). In Jordan, the regime used its influence on state institutions to structure markets, for example through the selective attribution of licenses, public subsidies, and acceptance of privatization bids. Privatization was especially clientelist, with regime members among the main beneficiaries (Wils 2003: 167–168, 192; Knowles 2005: 147; Peters and P. Moore 2009: 277). Besides, the Jordanian regime also favored certain members of the bourgeoisie through clientelist government procurement and “profit guarantees for select merchant-industrialists through the political backing of real-estate megaprojects” (Peters and P. Moore 2009: 278). Likewise, the Moroccan regime used its influence over state institutions to structure markets and to control the wealth of members of the private business elite, for example by favourable land allocation and by other administrative facilitations (Amar and Tounassi 18.11.2006: 18–23; Tounassi 15.07.2006: 40–41, 16.12.2006: 20–21; M. Jamai and Tounassi 19.07.2008: 24–27, 30–31; Bencheikh and Hamdani 12.10.2008). Fourth, the regimes tried to limit the political power of the bourgeoisie (resulting from its growing economic power) through repression. In Egypt, the regime used its influence on the judiciary to discipline too aspiring businessmen (1995 and 2003 trials with subsequent jailing of a number of businessmen) (Roll 2010: 174–178) . In general, the Egyptian regime used its influence over the state administration and the ambiguity of laws and procedures to control the accumulation of economic and political capital of the bourgeoisie: whenever a business actor fell out of grace, the regime could invoke existing laws and regulations to judicially

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prosecute former (and previously tolerated) transgressions (Gobe 1999: 221–222; Schlumberger 2004: 105–107; Loewe 2013: 70). Further to that, it used political force to determine the outcomes of the privatization process—most notable are the futile attempts of the Sawiris family to enter the domestic cement market through privatization in the early 2000s (barred by the state bureaucracy) (Sfakianakis 2004: 96–97) . Besides, it excercised “financial repression” in the banking sector on the basis of a huge nonperforming-loan portfolio held by public banks (Henry 1996: 239–243; Schlumberger 2004: 121; Roll 2010: 60–109). In addition—together with the Central Bank—the Egyptian regime denied the core business elite access to larger financial institutions operating in Egypt (Roll 2010: 194–207, 239–241). Finally, the Egyptian regime placed core members in pivotal positions within the business and financial community to control other players with unclear loyalties (although to a much smaller extent than in Tunisia and Morocco) (Demmelhuber and Roll 2007: 24–25; Rutherford 2008: 223; Roll 2010: 178–184, 217, 223; Soliman 2011 [2006]). In Tunisia, the regime repressed and controlled the bourgeoisie through legal and administrative means: The PMN, set up after the ratification of the EMAA in 1998, enabled the regime to interfere in business actors’ investment decisions, and thereby to structure the Tunisian business world according to its preferences (Cassarino 1999: 232–233; Erdle 2010: 341–344). Moreover, it created the FSN in 1992 / 1994, a fund nurtured by mandatory contributions of members of the bourgeoisie. When duties were not paid, repression (e.g. “visit of tax inspectors,” “denying of access to state contracts”) was the usual reaction (Murphy 1999: 157– 158; Hibou 2004: 213–215, 2004 [1999]: 12–13; Erdle 2010: 355–360; Tsourapas 2013: 28, 31; El-Said and Harrigan 2014: 115; Alexander 2016: 72). In general, the Tunisian regime restricted market access of the bourgeoisie through the withholding of authorizations, restrictions to the flow of information, partial application of laws, intervention of state agencies (tax authorities, job safety inspectors, environmental agencies, etc.), or “non-respect of sentences” (Hibou 2011 [2006]: 154–155; Alexander 2016: 123–124). Besides, the Tunisian regime tried to influence the privatization process on the legislative side and on the executive side—among other things by a 1994 law that assured state presence on the board of privatized companies and by meddling in the implementation of privatization, including indirect interference via the banking sector (partial privatizations, “strategy of dispersal,” allocation of credit to favoured actors) (Cassarino 2004: 229; Harrigan and El-Said 2009: 120–121; Erdle 2010: 335; Hibou 2011 [2006]: 246, 248–249; Chouikha and Gobe 2015: 67; Alexander 2016: 123). Further to that, it endowed regime-loyal actors with the necessary capital and legislative / regulatory possibilities to control the bourgeoisie in pivotal markets of the Tunisian economy—not the least through the state’s industrial policy that fostered the emergence of “national champions”

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(Cassarino 2004: 232–233; Beau and Graciet 2009: 41–46; Erdle 2010: 352, 511; Alexander 2016: 72). Finally, the Tunisian regime exerted repression within a complex system of “bad debts” (rooted in its control of the banking sector) (Henry 1996: 13, 210–211; Erdle 2010: 336–340; Hibou 2011 [2006]: 25–75, 144–147). In Jordan, the regime used legislative repression to structure the privatization process, as the 2000 Privatization Law fostered “partial privatization” by stipulating a “golden share” for the government (El-Said 2002: 270; Knowles 2005: 179). Besides, divestments were often to state-controlled institutions—in effect “a mere swap of ownership from one semi-autonomous government agency to another” (Piro 1998: 87; Knowles 2005: 154, 156, 185; Peters and P. Moore 2009: 277). Further to that, the Jordanian regime supported a clientelist privatization process, with sales to actors who were well-connected to the regime (especially when larger assets were on sale). More often than not, regime-loyal buyers profited not only from the privatization deal itself, but they were also rewarded with monopoly positions in the respective market (Wils 2003: 167–168, 192, 2004: 150; Knowles 2005: 147; Choucair 2006: 15–16). In the financial sector, the market-controlling bank was private, the Central Bank was relatively independent, and the share of nonperforming loans was low. These structural characteristics precluded financial repression by the Jordanian regime (Creane et al. 2003; Schlumberger 2004: 150–153; WTO 2009a: 78; Bertelsmann 2012b: 17–18). In Morocco, the 1995–1996 Cleanup Campaign made clear that the regime could discipline business actors through the judiciary at any point in time, as it kept them in a permanent state of tolerated illegality (due to widespread tax evasion, noncompliance with official regulations, etc.) (Leveau 1997: 98–100; Denoeux 1998: 111–112, 117–118; Perrin 2002: 90–92; Sater 2002: 13– 14, 18–25; Hibou 2004: 204–209; Catusse 2008: 174–186; Sater 2010: 104–106). In the field of privatization, the Moroccan regime supported partial privatizations (where the state stayed in as a shareholder), semi-privatizations (where assets were divested to state-controlled entities), and clientelist operations that favoured actors close to the regime (Oudghiri 10.06.1993; Kably and El Mariki 27.04.1995; Henry 1996; Hibou 1996: 27, 152; Khosrowshahi 1997: 245–246, 250–251; Denoeux and A. Maghraoui 1998b: 78; Benmansour 03.07.1999; Najem 2001: 61; Perrin 2002: 71–73, 75; Graciet 2006: 134–138, 142–146; Boushaba 29.08.2007; El Bouzaïdi 29.06.2007; Rami 2007: 115–119, 124–131; Catusse 2008: 51, 93–103, 109, 113–125, 2009: 193–194; Joffè 2009: 160; Henry and Springborg 2010: 218–219; Sater 2010: 103; Chafai Alaoui 01.06.2011: 92; Maury 24.05.2011). Further to that, the creation of Attijariwafa Bank in 2003—and the fact that the only other bank of similar size remained state-owned—allowed the Moroccan regime to control a sizeable share of credit allocation in the Moroccan economy. From this position, it could influence the capital endowment of the bourgeoisie (Henry 1996:

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144, 150–151, 158–159; Amar 01.05.1999; Amourag 29.01.2000; Hachimi Alaoui and A. Jamai 29.11.2003: 8–9; Iraqi 29.11.2003a: 10–11, 29.11.2003b: 9; Jamai 12.06.2004; El Abbassi 15.06.2007; Henry and Springborg 2010: 217–218; Graciet and Laurent 2012: 105). Finally, the building-up of the royal holdings ONA and SNI, whose subsidiaries held leading market positions in major sectors of the Moroccan economy, ensured royal control over the distribution of a large part of national economic surplus, while it kept potential rivals at bay (Benzekri 12.06.1999; Amourag 17.07.1999: 27; Iraqi, M. Jamai, et al. 27.09.2003: 10–13; M. Jamai and Iraqi 31.07.2004: 72–75; Amar and Tounassi 07.10.2006: 20–25; Rami 2007: 120–127, 277–279, 286–290; Laraichi 01.12.2008: 77–79; Benchemsi and Iraqi 18.07.2009: 48–61; Henry and Springborg 2010: 217–218; Sater 2010: 106–107). To summarize, internal cleavages of the bourgeoisie seem to have equally intensified in all four countries during the second MSSD period (1993–2004), driven by the policy to foster the formation of conglomerates and by privatization. Cooptation into political positions was most pronounced in Egypt and Morocco, while it was much more confined in Jordan, and nearly absent in Tunisia. ooptation into patronage networks controlled by the regime seems to have been equally present in all four countries. Repression of the bourgeoisie by the state and the regime was equally pronounced in Egypt, Tunisia, and Morocco (although the forms sometimes differed), and less pronounced in Jordan. Relating these observations to the assessment that the Moroccan and Egyptian bourgeoisies were politically stronger than the Tunisian and Jordanian bourgeoisies during the second MSSD period (1993–2004), one can make the following conclusions: the empirical observations largely run counter to the theoretical assumptions, as the Moroccan and Egyptian bourgeoisies seem to have faced more cooptation into political positions and more repression—with the exception of Tunisia—than their two MENA peers. At the same time, observations regarding internal cleavages and cooptation into patronage networks were similar for all four countries. Thus, Part 2 of the first theoretical link proposed by hypothesis IH5—that is the one between internal cleavages of the bourgeoisie as well as state / regime action and political strength of the bourgeoisie—does not align with the empirical observations available for the second MSSD period (1993–2004). Regarding Part 1 of the first theoretical link proposed by hypothesis IH5— according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength—, the conclusions from the discussion of hypothesis IH4-C during the second MSSD period apply (both hypotheses assume the same empirical relations). Thus, there is one highly spec-

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ulative hint that this theoretical link might find partial support in the empirical observations.112 After all, hypothesis IH5 does not seem capable of explaining the empirical observations during the second MSSD period (1993–2004): Part 1 of the first theoretical link proposed by hypothesis IH5—that is the one between economic liberalization and political strength of the bourgeoisie—is only faintly supported by the empirical observations, driven by the policy of exchange-rate liberalization. Part 2 of the first theoretical link proposed by hypothesis IH5—that is the one between internal cleavages of the bourgeoisie as well as state / regime action and political strength of the bourgeoisie—cannot be substantiated in the empirical data and information. Likewise, the second theoretical link proposed by hypothesis IH5—that is the one between political strength of the bourgeoisie and regime stability—does not align with the empirical observations. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts cannot be explained by the politically weaker bourgeoisie in Morocco, as suggested above in the discussion of hypothesis IH4A. To the contrary, the Moroccan bourgeoisie seems to have been significantly stronger than the Tunisian and Jordanian bourgeoisie, although weaker than the Egyptian bourgeoisie. Thus, the second theoretical link proposed by hypothesis IH5 between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—does not align with the empirical observations available for the third MSSD period (2005–2010). In a second step, I analyze whether cleavages within the bourgeoisie, state / regime action towards the bourgeoisie, and economic-liberalization policies might plausibly have influenced the political strength of the bourgeoisie in the four MENA countries during the third MSSD period (2005–2010). Thereby, I test the first theoretical link (Part 1 and 2) proposed by hypothesis IH5. Regarding Part 2 of the first theoretical link—according to the hypothesis, internal cleavages as well as cooptation and repression by the state and the regime make the bourgeoisie politically weaker—, one can make several observations: First, compared to the second MSSD period, internal cleavages of the bourgeoisie seem to have persisted during the third MSSD period, but they did not become starker.

112

The policy of economic liberalization driving this conclusion is exchange-rate liberalization.

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Second, as before—with the novelty of the phenomenon in Tunisia—, the regimes tried to incorporate the strengthened bourgeoisie into the state bureaucracy, the government, or the ruling party. In Egypt, members of the core business elite within the bourgeoisie continued to dominate the second Nazif government of 2006 (Demmelhuber and Roll 2007: 24–25; Rutherford 2008: 223; Roll 2010: 217, 223). Besides, after the 2005 parliamentary elections, three businessmen of the core business elite took over the chairmanship of important committees in the NDP (Roll 2010: 217, 224). In Tunisia, several members of the bourgeoisie were elected into the central committee of the RCD in 2008 (a completely new phenomenon at the time) (Beau and Graciet 2009: 78, 124; Erdle 2010: 127, 149, 156). In Morocco, a member of the top segment of the business elite became Minister of Agriculture and Fishery in 2007, a position he still held at the end of the examination period in 2011 (Iraqi 16.02.2008; Vermeren 2009: 291–292; Michbal 28.01.2012). In Jordan, the phenomenon was less visible during the third MSSD period than during the second MSSD period. Third, in order to control its rising economic and political power, the regimes integrated the most important segments of the bourgeoisie into its patronage networks, by making use of their gatekeeper positions in state institutions (contracts, tenders, licensing, privatization), including in state-owned banks (credit allocation). In Egypt, the link between credit allocation by state-owned banks to actors favoured by the regime—sometimes against prudential lending regulations—and successful privatization bids of these actors became especially obvious during the third MSSD period. Often, credit sums were minimized by “collusion between state bureaucrats and businessmen for the sale of public-sector enterprises at prices much lower than the market.” Profitability for the buyers further increased due to the fact that many “privatized state assets” had been public monopolies that “continued as [private; C.N.] monopolies” in an uncompetitive environment (Farah 2009: 81; Wurzel 2009b: 109). In contrast to Egypt, there seems to have been no visible changes in regime cooptation of the bourgeoisie from the second to the third MSSD period in the other three MENA countries. Fourth, the regimes tried to limit the political power of the bourgeoisie (resulting from its growing economic power) by repression—although differences in repression of the bourgeoisie were not substantial among the four MENA countries, if the third MSSD period is compared with the second. To summarize, internal cleavages of the bourgeoisie seem to have persisted at the same level during the third MSSD period (2005–2010)—that is the bourgeoisie was comparably stratified in all four MENA countries. Cooptation into political positions was most pronounced in Egypt. It was less pronounced in Morocco, while it only started in Tunisia, and it seems to have declined in Jordan. Cooptation into

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patronage networks controlled by the regime seems to have been more pronounced in Egypt (due to the post-2004 privatization wave) than in the other three countries. Repression of the bourgeoisie by the state and the regime seems to have persisted during the third MSSD period at the same absolute and relative level. It was thus still equally pronounced in Egypt, Tunisia, and Morocco (although the forms sometimes differed), and less pronounced in Jordan. Relating these observations to the assessment that the Egyptian bourgeoisie was politically strongest during the third MSSD period (2005–2010), followed by the Moroccan, the Jordanian, and the Tunisian bourgeoisie, one can make the following conclusions: the empirical observations largely do not align with the theoretical assumptions, as the Egyptian bourgeoisie (which seems to have been politically strongest) in fact faced the highest level of cooptation into political positions and the highest level of inclusion into patronage networks. Concomitantly, internal cleavages of the bourgeoisie and the level of repression by the state / regime did not differ fundamentally between the four MENA countries (with the exception of Jordan regarding repression). Thus, Part 2 of the first theoretical link proposed by hypothesis IH5—that is the one between internal cleavages of the bourgeoisie as well as state / regime action and political strength of the bourgeoisie—does not align with the empirical observations available for the third MSSD period (2005–2010). Regarding Part 1 of the first theoretical link proposed by hypothesis IH5— according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength—, the conclusions from the discussion of hypothesis IH4-C during the third MSSD period apply (both hypotheses assume the same empirical relations). Thus, this link finds partial support in the empirical observations.113 After all, hypothesis IH5 does only partly seem capable of explaining the empirical observations during the third MSSD period (2005–2010): Part 1 of the first theoretical link proposed by hypothesis IH5—that is the one between economic liberalization and political strength of the bourgeoisie—might be partly supported by the empirical observations, driven by the policy of privatization. Part 2 of the first theoretical link proposed by hypothesis IH5—that is the one between internal cleavages of the bourgeoisie as well as state / regime action and political strength of the bourgeoisie—cannot be substantiated in the empirical data and information. Likewise, the second theoretical link proposed by hypothesis IH5—that is the one between political strength of the bourgeoisie and regime stability—does not align with the empirical observations.

113

The policy of economic liberalization driving this conclusion is privatization.

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Conclusion on hypothesis IH5 for the three MSSD periods To conclude, hypothesis IH5 does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, the first theoretical link—with its two constituent parts—proposed by hypothesis IH5 seems to find partial empirical support during the first and third MSSD periods: During the first MSSD period (1965–1986), Part 1 of the first theoretical link proposed by hypothesis IH5—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby strengthens it politically—might be partly supported by the empirical observations, driven by the policies of trade liberalization, the liberalization of domestic and foreign investment, and exchange-rate liberalization. Before all during the subperiod of the early 1980s, the empirically strongest bourgeoisie (the Moroccan) might have effectively gained economic and political strength through a high intensity of some of these economic-liberalization policies—although these conclusions are subject to farreaching assumptions on the distribution of the capital invested by the bourgeoisie. At the same time, Part 2 of the first theoretical link proposed by hypothesis IH5— according to the hypothesis, internal cleavages as well as cooptation and repression by the state and the regime make the bourgeoisie politically weaker—partly aligns with the empirical observations of the first MSSD period, driven by internal cleavages of the bourgeoisie and repression by the state / regime. As theory predicts, the Moroccan bourgeoisie—which seemed to be politically strongest—was in fact characterized by less internal cleavages than at least two of its MENA peers. Concomitantly, it was also not as much repressed by the state and the regime. During the third MSSD period (2005–2010), Part 1 of the first theoretical link proposed by hypothesis IH5—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby strengthens it politically—might be partly supported by the empirical observations, driven by the policy of privatization. Thus, privatization had effectively been implemented most extensively in the two countries that seemed to have the politically strongest bourgeoisie at the time: Egypt and Morocco. Hypothesis IH6-A Hypothesis IH6-A integrates together hypothesis H14 and hypotheses H62, H63, H64, H65, H70, H71, H73, H76, H78, H79, and H96 (see section 4.2.2). Hypothesis H14 assumes a higher stability of an authoritarian regime in a country, the politically weaker a national working class is. The other hypotheses contained by the “ integrated hypothesis" IH6-A speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H62 and H79 on the short-term and long-term socioeconomic effects of consumer-price liberalization;

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hypothesis H63 on the short-term socioeconomic effect of the liberalization of interest rates; hypothesis H64 on the short-term socioeconomic effect of exchange-rate liberalization; hypothesis H65 on the short-term socioeconomic effect of privatization; hypotheses H73, H76, and H78 on the (long-term) socioeconomic effects of trade liberalization; and hypotheses H70, H71, and H96 on the socioeconomic and political effects of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH6-A against the empirical data and information on the four MENA countries (see sections 6.1.5 and 6.3.1.3) throughout the three MSSD periods yields the following results:114 First MSSD period (1965–1986) During the first MSSD period, the economic strength and political influence of the working class differed in the four MENA countries: In Egypt and Tunisia, the turn to state-led development and the push towards industrialization (since 1956 in Egypt, since 1961 in Tunisia) made the working class an integral part of the regime (exchange of worker benefits for political obedience). However, the beginning of Infitah and economic liberalization (since 1970 in Tunisia, since 1974 in Egypt) initiated the gradual dissolution of the corporatist model of interest representation, which curbed the political influence of the working class by sidelining its representatives from positions within the regime. Rising inflation during the 1970s reduced workers’ incomes and pitted the unions against the regime. Events culminated in bloody clashes of the regimes with the labor movement (1977 in Egypt, 1978 in Tunisia). In contrast to Egypt and Tunisia, the working class remained repressed or fully coopted in Jordan and Morocco during the 1960s, aided by the proclamation of a state of emergency (1957 in Jordan, 1965 in Morocco). With the oil boom of the 1970s—which triggered (Jordan) or solidified (Morocco) the turn to state-led development and industrialization—the working class was integrated into the regime in both countries, although not to the same extent as in Egypt and Tunisia during the previous decade. When economic difficulties mounted at the end of the 1970s and economic liberalization unfolded since 1980, the Moroccan regime clashed with the labor movement (1981)—three to four years after similar events in Egypt and Tunisia. Due to the limited strength of the Jordanian labor movement, no comparable events took place there. When the economic crisis reached its apex in all four countries during the mid-1980s, union action unexpectedly did not increase. The main reasons seem to have been rising unemployment, which had reduced union 114

For the first theoretical link between policies of economic liberalization and political strength of the working class I test the hypotheses on long-term effects of specific policies of economic liberalization only if the policy was implemented at least five years prior to the end of the MSSD period (see the definition of “short-term” and “long-term” in section 3.2).

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strength, and the fact that the regimes had already dismantled or continued to dismantle the labor movements (with the exception of Jordan) (see section 6.3.1.3). After all, the working class had lost economic and political power from the mid1960s up to the mid-1980s in Egypt and Tunisia. In Jordan and Morocco, it had gained economic and political power from the 1960s up to the 1970s and lost it again from the 1970s up to the mid-1980s. Thus, the Egyptian and Tunisian working classes might still have been stronger than the Jordanian and Moroccan working classes during the initial years of the first MSSD period. But the difference becomes blurred at least since the mid-1970s. Ultimately, it is not discernible from the available empirical information that the higher stability of the Tunisian, Jordanian and Moroccan regimes—compared to the Egyptian regime—during the whole length of the first MSSD period might be due to their politically weaker working class. Thus, the second theoretical link proposed by hypothesis IH6-A between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime— does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-A—according to the hypothesis, economic liberalization inflicts economic losses upon the working class, and thereby decreases its political strength. Evaluating the empirical information available for the first MSSD period (1965–1986) leads to the subsequent conclusion: economic liberalization— which set in on a significant scale since 1971 in Tunisia, 1974 in Egypt, and 1980 in Morocco—might have aggravated the economic difficulties that weakened the working class economically through declining real wages and rising unemployment. Being implemented despite the economic crisis, economic liberalization also triggered regime action culminating in bloody crackdowns on the labor movements. However, the pattern of economic liberalization is not consistent with the political strength of the working class in the four MENA countries: while there seem to be no significant differences in the average political strength of the four working classes during the first MSSD period (see above), the Egyptian and Tunisian governments of the 1970s implemented more economic-liberalization policies potentially harming the working class economically (as proposed by hypotheses H62–H65 and H79) than their Moroccan and Jordanian counterparts. In fact, the latter ones had at that time not yet started with economic liberalization (Morocco) or had only started on a very limited scale (Jordan) (see section 6.1.5). These differences should have left

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the Moroccan and Jordanian working classes politically stronger than their Egyptian and Tunisian counterparts, at least during the decade of the 1970s. After all, hypothesis IH6-A does not seem capable of explaining the empirical observations during the first MSSD period (1965–1986): neither the first theoretical link between economic liberalization and political strength of the working class nor the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the working class was politically stronger (visible in more labor action, especially more strikes) in Egypt and Morocco than in Tunisia and Jordan. In Tunisia, the regime controlled the national union UGTT (and thereby the local union branches) from the top and pacified it through cooptation and inclusion in tripartite wage negotiations. In Jordan, labor activism did not take off, despite deep economic reforms (including economic liberalization) and an unprecedented political opening. The situation was different in the other two countries: in Egypt, the response of labor to enhanced structural adjustment was muted at the beginning, but labor activism began to rise anew during the late 1990s (mostly due to privatization). In Morocco, labor activism became stronger already in the early 1990s due to the difficult economic situation which would last throughout the decade (see section 6.3.1.3). Ultimately, it is not discernible from the available empirical information that the higher stability of the Egyptian and Moroccan regimes during the second MSSD period might be due to their politically weaker working classes, if compared with the Tunisian and Jordanian cases. To the contrary, the working class seems to have been weaker in the countries with a politically less stable regime (Tunisia and Jordan), which is exactly the opposite of what hypothesis IH6-A predicts. Thus, the second theoretical link proposed by hypothesis IH6-A between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993– 2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-A—according to the hypothesis, economic liberalization inflicts economic losses upon the working class, and thereby decreases its political strength. Evaluating the empirical information available for the second MSSD period (1993–2004) leads to the subsequent conclusion: compared with the

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537

observable strength of the working class (indicated by the capacity and willingness of the labor movement to organize strikes), the pattern of economic liberalization in the four countries does not or does only weakly correspond to the predictions of hypothesis IH6-A. During the subperiod of the 1990s, policies of economic liberalization potentially harming the working class economically (as proposed by hypotheses H62–H65 and H79) were only implemented in Egypt (consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization) and in Morocco (consumer-price liberalization)—with the exception of privatization, which was implemented in all four countries (see section 6.1.5). Nevertheless, the labor movement was politically more active in Egypt and Morocco than in Tunisia and Jordan, a fact that hypothesis IH6-A would not have expected. During the subperiod 2000–2005, the intensity of economic-liberalization policies potentially harming the working class seems to have been somewhat stronger in Tunisia and Jordan (mostly due to consumer-price liberalization, which was absent in the other two countries) and thus more in line with hypothesis IH6-A—which predicts a politically weaker working class as a result of economic liberalization. Nevertheless, exchange-rate liberalization exclusive to Egypt during the given period contradicts this conclusion (see section 6.1.5). After all, hypothesis IH6-A does not seem capable of explaining the empirical observations during the second MSSD period (1993–2004): neither the first theoretical link between economic liberalization and political strength of the working class nor the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, labor activism grew on an unprecedented scale in Egypt, Tunisia, and Jordan, while Moroccan labor stayed relatively calm. During this period, national labor-union federations increasingly lost control of their constituent unions, whose members organized wildcat strikes or founded independent labor unions (as in Egypt and Jordan) (see section 6.3.1.3). If labor activism (reflecting the capacity and willingness to organize strikes) is an indicator for the political strength of the working class, and if we accept the operationalization of the DV “regime stability” as laid out in section 5.2.2, the empirical observations align with hypothesis IH6-A: the more stable Moroccan regime faced significantly less labor activism and thus a politically weaker working class during the third MSSD period than its three MENA peers. Thus, the second theoretical link proposed by hypothesis IH6A between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an

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authoritarian regime—seems to align with the empirical observations available for the third MSSD period (2005–2010). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-A—according to the hypothesis, economic liberalization inflicts economic losses upon the working class, and thereby decreases its political strength. Evaluating the empirical information available for the third MSSD period (2005–2010) leads to the subsequent conclusion: the pattern of economicliberalization policies potentially harming the working class economically (as proposed by hypotheses H62–H65 and H79), contrasted with the empirical strength of the four working classes, does not align with the theoretical predictions. While the liberalization of interest rates and exchange-rate liberalization were not implemented in any of the four countries during the third MSSD period, trade liberalization and privatization were implemented in comparable intensity. But the remaining economic liberalization policy relevant for hypothesis IH6-A—consumer-price liberalization—was implemented only in Egypt and Jordan during the given period, and not in Tunisia and Morocco. In Morocco, consumer-price liberalization through subsidy cuts was rescinded, and the government even reintroduced petroleum subsidies in 2003 (with short-term effects into the third MSSD period) (see section 6.1.5). Thus, the Moroccan working class had to bear significantly less economic losses than its Egyptian and Jordanian counterparts during the third MSSD period. Nevertheless, it seems to have been politically weaker. After all, hypothesis IH6-A does only partially seem capable of explaining the empirical observations during the third MSSD period (2005–2010): while the first theoretical link between economic liberalization and political strength of the working class cannot be substantiated in the empirical data and information, the second theoretical link between political strength of the working class and regime stability seems to find empirical support. Conclusion on hypothesis IH6-A for the three MSSD periods To conclude, hypothesis IH6-A does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, the second theoretical link proposed by the hypothesis between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime— seems to find empirical support during the third MSSD period (2005–2010).

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Hypothesis IH6-B Hypothesis IH6-B integrates together hypothesis H14 and hypotheses H62, H63, H64, H65, H70, H71, H73, H76, H78, H79, and H95 (see section 4.2.2). Hypothesis H14 assumes a higher stability of an authoritarian regime in a country, the politically weaker a national working class is. The other hypotheses contained by the “ integrated hypothesis" IH6-B speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H62 and H79 on the short-term and long-term socioeconomic effects of consumer-price liberalization; hypothesis H63 on the short-term socioeconomic effect of the liberalization of interest rates; hypothesis H64 on the short-term socioeconomic effect of exchange-rate liberalization; hypothesis H65 on the short-term socioeconomic effect of privatization; hypotheses H73, H76, and H78 on the (long-term) socioeconomic effects of trade liberalization; and hypotheses H70, H71, and H95 on the socioeconomic and political effects of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH6-B against the empirical data and information on the four MENA countries (see sections 6.1.5 and 6.3.1.3) throughout the three MSSD periods yields the following results:115 First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger working class, as suggested above in the discussion of hypothesis IH6-A. In fact, there seem to have been no significant differences in the political strength of the four working classes during the first MSSD period. Thus, the second theoretical link proposed by hypothesis IH6-B between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-B—according to the hypothesis, economic losses make the working class politically stronger by increasing the political activism of its members. Evaluating the empirical information available for the first MSSD period (1965–1986) leads to the subsequent conclusion: economic liberalization—which 115

For the first theoretical link between policies of economic liberalization and political strength of the working class I test the hypotheses on long-term effects of specific policies of economic liberalization only if the policy was implemented at least five years prior to the end of the MSSD period (see the definition of “short-term” and “long-term” in section 3.2).

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set in on a significant scale since 1971 in Tunisia, 1974 in Egypt, and 1980 in Morocco—might have aggravated the difficulties that weakened the working class economically through declining real wages and rising unemployment. Being implemented despite the economic crisis, economic liberalization also triggered regime action culminating in bloody crackdowns on the labor movements. However, the pattern of economic liberalization in comparison with the political strength of the working class in the four MENA countries does not follow theory: while there seem to be no significant differences in the political strength of the four working classes during the first MSSD period, the Egyptian and Tunisian governments of the 1970s implemented more economic-liberalization policies potentially harming their working classes economically (as proposed by hypotheses H62–H65 and H79) than their Moroccan and Jordanian counterparts. In fact, the latter ones had at that time not yet started with economic liberalization (Morocco) or had only started on a very limited scale (Jordan) (see chapter 6.1.5). These differences should have made the Egyptian and Tunisian working classes politically stronger than their Moroccan and Jordanian counterparts, at least during the decade of the 1970s. After all, hypothesis IH6-B does not seem capable of explaining the empirical observations during the first MSSD period (1965–1986): neither the first theoretical link between economic liberalization and political strength of the working class nor the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and Jordanian regimes compared to their two MENA counterparts cannot be explained by their politically stronger working classes, as suggested above in the discussion of hypothesis IH6-A. To the contrary, the Tunisian and Jordanian working classes seem to have been politically weaker than their Egyptian and Moroccan counterparts. Thus, the second theoretical link proposed by hypothesis IH6-B between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993– 2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-B—according to the hypothesis, economic losses make the working class politically stronger by increasing the political activism of its members. Evaluating the empirical information available for the second MSSD period

6.3 Political Stabilization

541

(1993–2004) leads to the subsequent conclusion: compared with the observable strength of the working class (indicated by the capacity and willingness of the labor movement to organize strikes), the pattern of economic liberalization in the four countries seems to accord relatively well with the predictions of hypothesis IH6-B. During the subperiod of the 1990s, policies of economic liberalization potentially harming the working class economically (as proposed by hypotheses H62–H65 and H79) were only implemented in Egypt (consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization) and in Morocco (consumerprice liberalization)—with the exception of privatization, which was implemented in all four countries (see section 6.1.5). Being present in both Egypt and Morocco, consumer-price liberalization seems to be the pivotal policy. Concomitantly, the labor movement was politically more active in Egypt and Morocco (indicating a politically stronger working class) than in Tunisia and Jordan. During the subperiod 2000–2005, the intensity of economic-liberalization policies potentially harming the working class seems to have been somewhat stronger in Tunisia and Jordan (mostly due to consumer-price liberalization, which was absent in the other two countries) and thus less in line with hypothesis IH6-B—which predicts a politically more powerful working class as a result of economic liberalization. Nevertheless, exchange-rate liberalization exclusive to Egypt during the given period once again supports the hypothesis (see section 6.1.5). After all, hypothesis IH6-B does only partially seem capable of explaining the empirical observations during the second MSSD period (1993–2004): The first theoretical link between economic liberalization and political strength of the working class seems to find empirical support—driven above all by the policy of consumerprice liberalization, especially during the subperiod of the 1990s. Thus, consumerprice liberalization seems to have economically harmed the working classes in both Egypt and Morocco during the 1990s, and thereby might have increased their political strength in relation to the Tunisian and Jordanian working classes (by boosting the political activism of its members). At the same time, the second theoretical link between political strength of the working class and regime stability cannot be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts could be explained by its politically weaker working class, as suggested above in the discussion of hypothesis IH6-A. Thus, the second theoretical link proposed by hypothesis IH6-B between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—seems to

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align with the empirical observations available for the third MSSD period (2005– 2010). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-B—according to the hypothesis, economic losses make the working class politically stronger by increasing the political activism of its members. Evaluating the empirical information available for the third MSSD period (2005–2010) leads to the subsequent conclusion: the pattern of economicliberalization policies potentially harming the working class economically (as proposed by hypotheses H62–H65 and H79) aligns relatively well with the theoretical predictions. While the liberalization of interest rates and exchange-rate liberalization were not implemented in any of the four MENA countries during the third MSSD period, trade liberalization and privatization were implemented in comparable intensity in all four countries. The remaining economic-liberalization policy relevant for hypothesis IH6-B—that is consumer-price liberalization—was implemented only in Egypt and in Jordan during the third MSSD period, but not in Tunisia and Morocco. In Morocco, consumer-price liberalization through subsidy cuts was rescinded, and the government even rolled back the policy by reintroducing petroleum subsidies in 2003 (with short-term effects into the third MSSD period) (see section 6.1.5). Thus, the Egyptian and Jordanian working classes had to bear significantly more economic losses than than their Moroccan and Tunisian counterparts during the third MSSD period. Despite these losses, they seem to have been politically stronger. After all, hypothesis IH6-B seems capable of explaining the empirical observations during the third MSSD period: both the first theoretical link between economic liberalization and political strength of the working class and the second theoretical link between political strength of the working class and regime stability can be (partially) substantiated in the empirical data and information. Conclusion on hypothesis IH6-B for the three MSSD periods To conclude, hypothesis IH6-B seems partially capable of explaining the differences in stability among the four MENA regimes: while it cannot explain the differences in stability during the first MSSD period (1965–1986), the hypothesis finds partial empirical support during the second MSSD period and strong empirical support during the third MSSD period. During the second MSSD period (1993–2004), the first theoretical link between policies of economic liberalization and political strength of the working class—according to the hypothesis, economic losses make the working class politically stronger by increasing the political activism of its members—does partially align with the empirical observations, driven by the policy of consumer-

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price liberalization, especially during the subperiod of the 1990s. Thus, consumerprice liberalization seems to have economically harmed the working classes in Egypt and Morocco during the 1990s, while it concomitantly might have increased their political strength in comparison with the Tunisian and Jordanian working classes. During the third MSSD period (2005–2010), the theoretical predictions of both the first theoretical link and the second theoretical link—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime— seem to largely align with the empirical data and information. In this period, once again consumer-price liberalization might have been the policy of economic liberalization especially relevant for the diverging political strength of the working class in Morocco compared with Egypt and Jordan (while the conclusions do not apply to Tunisia). Thus, the short-term effects of consumer-price liberalization seem to have hurt the Egyptian and Jordanian working classes economically, and thereby might have increased the political activism of its members. As a result, the Egyptian and Jordanian working classes might have become politically stronger than the Moroccan working class, which did not have to bear these effects due to the absence and reversal of the policy. Ultimately, a politically weaker Moroccan working class might have been one factor behind the higher stability of the Moroccan regime compared to its three MENA counterparts during the third MSSD period. Hypothesis IH6-C Hypothesis IH6-C integrates together hypothesis H14 and hypotheses H61, H66, H67, H74, H75, H77, H83, H85, and H95 (see section 4.2.2). Hypothesis H14 assumes a higher stability of an authoritarian regime in a country, the politically weaker a national working class is. The other hypotheses contained by the “integrated hypothesis” IH6-C speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H61, H66, and H85 on the short-term and long-term socioeconomic effects of the liberalization of domestic private investment; hypothesis H67 on the long-term socioeconomic effect of privatization; hypothesis H74, H75, and H77 on the (long-term) socioeconomic effects of trade liberalization; hypothesis H83 on the socioeconomic effects of exchange-rate liberalization; and hypothesis H95 on the political effect of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH6-C against the empirical data and information on the four MENA countries (see sections 6.1.5 and 6.3.1.3) throughout the three MSSD periods yields the following results:116

116

For the first theoretical link between policies of economic liberalization and political strength of the working class I test the hypotheses on long-term effects of specific policies of

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First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger working class, as suggested above in the discussion of hypothesis IH6-A. In fact, there seem to have been no significant differences in the political strength of the four working classes during the first MSSD period. Thus, the second theoretical link proposed by hypothesis IH6-C between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-C—according to the hypothesis, economic gains increase the political strength of the working class. Evaluating the empirical information available for the first MSSD period (1965–1986) leads to the subsequent conclusion: the liberalization of domestic private investment—that is, the policy of economic liberalization potentially strengthening the working class economically through employment-generating and growth-generating investment (as proposed by hypotheses H61, H66, and H85)—was not implemented relatively more extensively in Egypt than in the other three countries (with the possible exception of Morocco) (see section 6.1.5). Thus, economic liberalization does not seem to have brought more economic gains to the Egyptian working class compared with its three MENA counterparts. If that had been the case it could have explained the lower stability of the Egyptian regime during the first MSSD period. Therefore, hypothesis IH6-C does not seem capable of explaining the empirical observations during the first MSSD period (1965–1986): neither the first theoretical link between economic liberalization and political strength of the working class nor the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and Jordanian regimes compared to their two MENA counterparts cannot be explained by their politically stronger working classes, as suggested above in the discussion of hypothesis IH6-A. To the contrary, the Tunisian and Jordanian working classes seem to economic liberalization only if the policy was implemented at least five years prior to the end of the MSSD period (see the definition of “short-term” and “long-term” in section 3.2).

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have been politically weaker than their Egyptian and Moroccan counterparts. Thus, the second theoretical link proposed by hypothesis IH6-C between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993– 2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-C—according to the hypothesis, economic gains increase the political strength of the working class. Evaluating the empirical information available for the second MSSD period (1993–2004) leads to the subsequent conclusion: the policies of economic liberalization potentially strengthening the working class economically through higher employment, higher wage levels, and economic growth—that is the liberalization of domestic private investment and privatization (as proposed by hypotheses H61, H66, H67, and H85)—were not implemented less intensively in Tunisia and Jordan. To the contrary, the Tunisian government implemented the liberalization of domestic private investment from the beginning of the second MSSD period (starting in 1993)—earlier than the other three governments (which started in 1995). Subsequently, all four governments continued to implement the policy until the late 2000s. The same picture emerges for privatization: once again it was the Tunisian government that first implemented the policy (in the mid-1990s). The other three governments followed suit until the end of the 1990s, but no privatization program was as steady as the Tunisian one until the 2000s (see section 6.1.5). Therefore, the empirical observations contradict hypothesis IH6-C: Tunisia, whose government implemented policies of economic liberalization that theoretically bring economic and political gains to the working class most extensively, ended up with a politically weaker working class than Egypt and Morocco. After all, hypothesis IH6-C does not seem capable of explaining the empirical observations during the second MSSD period (1993–2004): neither the first theoretical link between economic liberalization and political strength of the working class nor the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts could be explained by its politically weaker working class, as suggested above in the discussion of hypothesis IH6-A. Thus, the

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second theoretical link proposed by hypothesis IH6-C between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—seems to align with the empirical observations available for the third MSSD period (1993– 2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-C—according to the hypothesis, economic gains increase the political strength of the working class. Evaluating the empirical information available for the third MSSD period (2005–2010) leads to the subsequent conclusion: Policies of economic liberalization potentially strengthening the working class economically (as proposed by hypotheses H61, H66, H67, and H85) were not implemented less extensively in Morocco than in the three other MENA countries during or maximum five years prior to the third MSSD period—this is true for the liberalization of domestic private investment. The second policy—privatization— might have even been most extensively implemented in Morocco, especially during the first half of the 2000s (see section 6.1.5). Therefore, the long-term effects of privatization should have strengthened the Moroccan working class during the third MSSD period, instead of weakening it. After all, hypothesis IH6-C seems partially capable of explaining the empirical observations during the third MSSD period (2005–2010): while the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information, the first theoretical link between policies of economic liberalization and political strength of the working class does not align with the empirical observations. Conclusion on hypothesis IH6-C for the three MSSD periods To conclude, hypothesis IH6-C does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, the second theoretical link between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—seems to find empirical support during the third MSSD period (2005–2010). Hypothesis IH6-D Hypothesis IH6-D integrates together hypothesis H14 and hypotheses H61, H66, H67, H74, H75, H77, H83, H85, and H96 (see section 4.2.2). Hypothesis H14 assumes a higher stability of an authoritarian regime in a country, the politically

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weaker a national working class is. The other hypotheses contained by the “ integrated hypothesis" IH6-D speculate on the short-term and long-term effects of different policies of economic liberalization: Hypotheses H61, H66, and H85 on the short-term and long-term socioeconomic effects of the liberalization of domestic private investment; hypothesis H67 on the long-term socioeconomic effect of privatization; hypotheses H74, H75, and H77 on the (long-term) socioeconomic effects of trade liberalization; hypothesis H83 on the socioeconomic effects of exchange-rate liberalization; and hypothesis H96 on the political effect of economic liberalization in general (see appendix-chapter 8). Testing hypothesis IH6-D against the empirical data and information on the four MENA countries (see sections 6.1.5 and 6.3.1.3) throughout the three MSSD periods yields the following results:117 First MSSD period (1965–1986) During the first MSSD period, the lower stability of the Egyptian regime compared to its three MENA counterparts cannot be explained by its politically stronger working class, as suggested above in the discussion of hypothesis IH6-A. In fact, there seem to have been no significant differences in the political strength of the four working classes during the first MSSD period. Thus, the second theoretical link proposed by hypothesis IH6-D between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—does not align with the empirical observations available for the first MSSD period (1965–1986). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the first MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-D—according to the hypothesis, economic gains make the working class politically weaker by decreasing the political activism of its members. Evaluating the empirical information available for the first MSSD period (1965– 1986) leads to the subsequent conclusion: the liberalization of domestic private investment—that is, the policy of economic liberalization potentially strengthening the working class economically through employment-generating and growthgenerating investment (as proposed by hypotheses H61, H66, and H85)—was not implemented less extensively in Egypt than in the other three countries (see section 6.1.5). Thus, economic liberalization could not have brought less economic gains to the Egyptian working class compared with its three MENA counterparts. 117

For the first theoretical link between policies of economic liberalization and political strength of the working class I test the hypotheses on long-term effects of specific policies of economic liberalization only if the policy was implemented at least five years prior to the end of the MSSD period (see the definition of “short-term” and “long-term” in section 3.2).

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Such a situation might have preserved the political strength of the Egyptian working class and thus could have explained the lower stability of the Egyptian regime during the first MSSD period. Therefore, hypothesis IH6-D does not seem capable of explaining the empirical observations during the first MSSD period (1965–1986): neither the first theoretical link between economic liberalization and political strength of the working class nor the second theoretical link between political strength of the working class and regime stability can be substantiated in the empirical data and information. Second MSSD period (1993–2004) During the second MSSD period, the lower stability of the Tunisian and Jordanian regimes compared to their two MENA counterparts cannot be explained by their politically stronger working classes, as suggested above in the discussion of hypothesis IH6-A. To the contrary, the Tunisian and Jordanian working classes seem to have been politically weaker than their Egyptian and Moroccan counterparts. Thus, the second theoretical link proposed by hypothesis IH6-D between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—does not align with the empirical observations available for the second MSSD period (1993– 2004). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the second MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-D—according to the hypothesis, economic gains make the working class politically weaker by decreasing the political activism of its members. Evaluating the empirical information available for the second MSSD period (1993–2004) leads to the subsequent conclusion: the policies of economic liberalization potentially strengthening the working class economically through higher employment, higher wage levels, and economic growth—these are the liberalization of domestic private investment and privatization (as proposed by hypotheses H61, H66, H67, and H85)—were in fact implemented more extensively in Tunisia than in Egypt and Morocco (while this observation is not true for Jordan). Thus, the Tunisian government implemented the liberalization of domestic private investment from the beginning of the second MSSD period (starting in 1993)—earlier than the other three governments (which started in 1995). Subsequently, all four governments continued to implement the policy until the late 2000s. The same picture emerges for privatization: once again it was the Tunisian government that first implemented the policy (in the mid-1990s). The other three governments followed suit until the end of the 1990s, but no privatization program was as steady as the Tunisian one

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until the 2000s (see section 6.1.5). Therefore, the empirical observations partially align with hypothesis IH6-D: Tunisia, whose government implemented policies of economic liberalization most extensively that theoretically bring economic gains but political losses to the working class, ended up with a politically weaker working class than Egypt and Morocco. However, the conclusion for Tunisia does not hold for Jordan. After all, hypothesis IH6-D seems partially capable of explaining the empirical observations during the second MSSD period (1993–2004): while the first theoretical link between policies of economic liberalization and political strength of the working class does partially align with the empirical observations—driven by the policies of the liberalization of domestic private investment and privatization—, the second theoretical link between political strength of the working class and regime stability cannot be substantiated in the empirical data and information. Third MSSD period (2005–2010) During the third MSSD period, the higher stability of the Moroccan regime compared to its three MENA counterparts could be explained by its politically weaker working class, as suggested above in the discussion of hypothesis IH6-A. Thus, the second theoretical link proposed by hypothesis IH6-D between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—seems to align with the empirical observations available for the third MSSD period (2005– 2010). In a second step, I analyze whether economic-liberalization policies might plausibly have influenced the political strength of the working class in the four MENA countries during the third MSSD period. Thereby, I test the first theoretical link proposed by hypothesis IH6-D—according to the hypothesis, economic gains make the working class politically weaker by decreasing the political activism of its members. Evaluating the empirical information available for the third MSSD period (2005– 2010) leads to the subsequent conclusion: the first policy of economic liberalization potentially strengthening the working class economically—that is the liberalization of domestic private investment (as proposed by hypotheses H61, H66, and H85)—was not implemented more extensively in Morocco than in the three other MENA countries during or maximum five years prior to the third MSSD period. But privatization—the second policy strengthening the working class economically, as proposed by hypothesis H67—might have been most extensive in Morocco, especially during the first half of the 2000s (see section 6.1.5). Therefore, the long-term effects of the policy could have effectively strengthened the Moroccan working class economically during the third MSSD period—more than in the other three

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MENA countries where privatization during the early 2000s was less extensive. As a result, the political strength of the Moroccan working class in relation to the other three working classes might have declined due to decreasing political activism of its members. If this is true, privatization might have been one factor behind the higher stability of the Moroccan regime compared to its three MENA counterparts during the third MSSD period. After all, hypothesis IH6-D seems capable of explaining the empirical observations during the third MSSD period (2005–2010): both the first theoretical link between economic liberalization and political strength of the working class (driven by the policy of privatization) and the second theoretical link between political strength of the working class and regime stability can be (partially) substantiated in the empirical data and information. Conclusion on hypothesis IH6-D for the three MSSD periods To conclude, hypothesis IH6-D seems partially capable of explaining the differences in stability among the four MENA regimes: while it cannot explain the differences in stability during the first MSSD period (1965–1986), the hypothesis finds partial empirical support during the second MSSD period and strong empirical support during the third MSSD period. During the second MSSD period (1993–2004), the first theoretical link between policies of economic liberalization and political strength of the working class—according to the hypothesis, economic gains make the working class politically weaker by decreasing the political activism of its members—does partially align with the empirical observations (driven by the policies of privatization and the liberalization of domestic private investment). Tunisia, whose government implemented these economic-liberalization policies that theoretically bring economic gains but political losses to the working class most extensively, ended up with a politically weaker working class than Egypt and Morocco (although this conclusion does not hold for Jordan). During the third MSSD period (2005–2010), the theoretical predictions of both the first theoretical link and the second theoretical link—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—seem to largely align with the empirical data and information. In this period, privatization might have been the policy of economic liberalization especially relevant for the diverging political strength of the working class in Morocco compared with Egypt, Tunisia, and Jordan. Thus, the long-term effects of privatization—which occurred most extensively in Morocco in the early 2000s—might have strengthened the Moroccan working class economically but weakened it politically (due to decreasing political activism of its members) during the third MSSD period (2005–2010). Ultimately, a politically weaker Moroccan

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working class might have been one factor behind the higher stability of the Moroccan regime compared to its three MENA counterparts during the third MSSD period.

6.3.4

Preliminary Conclusion: the Effect of Economic Liberalization on Regime Stability Via Political Stabilization

In this subchapter, I analyzed the effects of policies of economic liberalization on the stability of the four authoritarian regimes through the transmission channel of political stabilization. I proceeded in two steps: In a first step, I strove to establish the effects of economic-liberalization policies on political stabilization, as laid out in sections 6.3.1 and 6.3.2, by comparing the four MENA countries (Egypt, Tunisia, Jordan, and Morocco) descriptively in a diachronic setup. The basis of comparison were ten phenomena of politics and policies that I carved out from a comprehensive review of the academic and nonacademic literature on resource-poor MENA countries and on economic reform. All of these ten phenomena contain elements of political stabilization. Their selection was eclectic, that is not based on a theoretical model (see section 5.2.2). To structure the empirical observations, I subdivided the analysis in two parts: The first part comprised phenomena—partly driven by policies, partly by a dynamic interplay of actors—that directly affected the position and relations of political actors (i.e. “politics”). The second part comprised policies with a technical purpose that indirectly affected political actors as well (i.e. “policies” in a narrow sense). In a second step, I analytically tested the nine “integrated hypotheses” IH4-A– IH6-D on economic liberalization and regime stability transmitted through political stabilization (see section 4.2.2) in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010 (see section 6.3.3). Descriptive diachronic comparison of the four MENA countries All eight economic-liberalization policies discussed in section 6.1.5 were politically sensitive for the four MENA regimes. There are three main reasons for this assumption: First, economic liberalization implied a partial retreat of the state, and thus a cut into traditional patronage channels. Second, it allowed private actors to accumulate economic and political power. Third, it brought negative socioeconomic consequences for significant parts of the population—although nonnegligible parts of the population also benefitted. In the end, these effects had the potential to destabilize the regimes’ political rule. However, the implementation of policies of economic liberalization concomitantly opened up new possibilities for political stabilization.

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Ultimately, the descriptive comparison of the four MENA countries in this chapter yields an eclectic list of 27 observable policies that seemed to emerge in response to economic liberalization, modifying its socioeconomic and political effects (see sections 6.3.1.1–6.3.2.5). These “response policies” were not the product of deliberate design and implementation by specific actors who had a clear strategy. They rather evolved in a path-dependent way, shaped by the complex interplay of many actors, although the regimes were always in a pivotal position. Nevertheless, a longterm analysis can make the general trend of these policies visible—despite their sometimes contradictory contents in the short run. After all, three general types of response policies emerged from the empirical analysis of the four MENA countries: policies that modified the direct effects of economic liberalization (16 policies); adapted or new legitimation policies directed at the wider population or at international actors (seven policies); and policies reconfiguring intraregime structures (four policies). Type 1 response policies The first type of response policies (“policies modifying the direct effects of economic liberalization”) could be observed in response to consumer-price liberalization, trade liberalization, investment liberalization, and privatization. Several mechanisms become visible: First, consumer-price liberalization comprised the reduction of public subsidies and / or the abolition of price-fixing measures, both for goods (e.g. basic consumer goods) and for services (e.g. in health, education, or public utilities). This policy thus implied a partial retreat of the state from former areas of responsibility. In most cases, private actors stepped in and took over these responsibilities—most often tolerated, sometimes even supported by the state. Ultimately, partial state retreat and empowerment of private actors reshaped statesociety relations and changed the roles of the main economic actors (state, labor, and capital). A response policy to consumer-price liberalization thus emerged, which empowered private actors—especially capital owners—to the detriment of labor and the state. Second, trade liberalization gradually opened up markets for foreign competition. The observable response policy tried to slow down trade liberalization in markets where domestic production was significant. Before all, these observations apply to agricultural products. Third, investment liberalization opened up markets for private domestic and foreign investors. Several response policies evolved that tried to hamper market access by private investors, while preserving the state’s hegemonic role and giving regime-loyal actors a competitive advantage. The content of policies within this third category of type 1 response policies is diverse. What could be observed among others was the upholding of legal investment restrictions, slow dismantling of investment barriers, state interference in competition, financial

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repression by regime-loyal banks, control of sectoral competition by regime-loyal market participants, and public policies fostering the emergence of domesticallycontrolled conglomerates. Nevertheless, it is important to note that the political implications of investment liberalization were far from only threatening to the four regimes. In fact, this policy also created manifold opportunities for regime members or for regime-loyal actors to increase their fortune as private investors (including presidential and royal families). Fourth, privatization curbed patronage channels that ran through SOEs. Further to that, it transferred capital—sometimes large amounts from strategic parts of the economy—to private economic actors. Thus, response policies emerged that made privatization slow, incomplete, and clientelist. However, as in the case of investment liberalization, privatization was not only threatening to the incumbent regimes. In fact, it concomitantly opened up possibilities for regime members or for regime-loyal actors to increase their private wealth (see sections 6.3.1.4, 6.3.1.5, 6.3.2.4, and 6.3.2.5). After all, type 1 response policies can be divided into four subgroupings, each of these comprising several policies: Slowdown of economic liberalization; regime interference in competition; financial repression; and direct regime intervention. One type 1 policy remains (“private actors take over public responsibilities”), which is not subsumed under any of the four subgroupings. Type 2 response policies The second type of response policies that could be observed were legitimation policies directed at the wider population or at international actors. Among them, the policies directed at the wider population were a part of mass politics. These policies manifested themselves either as classical legitimation policies (political liberalization and repression), modified existing legitimation policies (redirection of material legitimation, Islamic credentials, political stability), or as new legitimation policies in the field of mass politics (modernization, economic success) (see sections 6.3.2.1–6.3.2.3). Type 3 response policies The third type of response policies led to the reconfiguration of intraregime structures. These policies comprised the centralization of rule within the regime to the benefit of the core (President, King, top personnel of the state administration and of regime institutions), the rise of technocrats to pivotal positions, the incorporation of private business actors into the regime, and the exclusion of representatives of labor from the inner circle of the regime (see sections 6.3.1.1–6.3.1.4).

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Comparison of response policies among the four MENA countries Analyzing the empirical pattern of policies responding to economic liberalization in the four MENA countries, similarities and differences among the countries and their regimes become apparent: Table 6.4 shows the degree to which the three types of response policies empirically manifested themselves in each country. In the case of legitimation policies, the change in degree to the pre-economic-liberalization period (instead of the level) is shown. Type 1 response policies are further divided into the four policy subgroupings (see above). The classification of a country within a certain policy (possible scores 0–3, representing the degree of empirical manifestation) is the result of a subjective assessment by the author, based on the long-term trend since the onset of economic liberalization in all four countries (1980s–2000s) (see sections 6.3.1.1–6.3.2.5). After all, the classification of the four countries and their regimes in each response policy allows to compare the occurrence of response policies among the four country cases examined. A simple addition of scores leads to the following results: Type 1 response policies (“policies modifying the direct effects of economic liberalization”) occurred most extensively in Tunisia (39 of a possible 48 points), closely followed by Morocco (38 of a possible 48 points). They were less prevalent in Egypt (31 of a possible 48 points) and occurred the least in Jordan (23 of a possible 48 points)—with a considerable gap between Jordan and the other three countries. Jordan’s outlier position is mainly due to its low scores in the policy subgroupings of financial repression (three of a possible 15 points) and of direct regime intervention (five of a possible 12 points). Analyzing the different policy subgroupings of type 1 response policies yields further insights: In the subgrouping “slowdown of economic liberalization,” response policies were most prevalent in Tunisia (six of a possible six points), while they occurred less in the other three countries—which displayed the same score (three of a possible six points in Egypt, Jordan, and Morocco). In the subgrouping “regime interference in competition,” response policies occurred most intensely in Morocco (12 of a possible 12 points). They were less present in the other three countries, summing up to the same average degree in Egypt, Tunisia, and Jordan (ten of a possible 12 points). In the subgrouping “financial repression,” response policies were most prevalent in Egypt (12 of a possible 15 points), followed by Tunisia (11 of a possible 15 points), and Morocco (ten of a possible 15 points). Response policies constituting financial repression empirically manifested themselves by a much lower degree in Jordan (three of a possible 15 points). In the subgrouping “direct regime intervention,” two pairs of countries emerge: in Tunisia and Morocco, these response policies were relatively intense (11 of a possible 12 points in both coun-

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Table 6.4 Response policies to economic liberalization in Egypt, Tunisia, Jordan, and Morocco (1980s–2000s) Response policy

Degree of empirical manifestation (1980s–2000s): 0—not present; 1—low; 2—medium; 3—high Egypt Tunisia Jordan Morocco

Type 1: Policies modifying the direct effects of economic liberalization Private actors take over public 3 1 2 responsibilities Slowdown of economic 2 3 1 liberalization 1: Trade liberalization Slowdown of economic 1 3 2 liberalization 2: Investment liberalization Regime interference in 3 3 3 competition 1: Licensing; subsidies; public procurement Regime interference in 2 3 2 competition 2: Nonindependent judiciary Regime interference in 2 2 3 competition 3: Weak competition policy Regime interference in 3 2 2 competition 4: Corruption Financial repression 1: 3 3 0 Public banks as market hegemons Financial repression 2: 1 1 1 Regime-loyal private banks Financial repression 3: 2 1 1 Control of market for investment capital Financial repression 4: 3 3 0 System of bad debt, nonperforming loans Financial repression 5: 3 3 1 Nonindependence of Central Bank Direct regime intervention 1: 1 2 1 Regime-loyal private business actors in market controlling positions

2 2

1

3

3

3

3 1 3 2

1

3 3

(Continued)

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Table 6.4 (Continued) Response policy

Degree of empirical manifestation (1980s–2000s): 0—not present; 1—low; 2—medium; 3—high Egypt Tunisia Jordan Morocco

Direct regime intervention 2: 1 3 1 3 Presidential and royal families as business actors Direct regime intervention 3: 1 3 1 2 Public restructuring and reform programs Direct regime intervention 4: 0 3 2 3 Building up conglomerates Type 2: Legitimation policies directed at the wider population (mass politics) or at international actors [change in degree] Political liberalization 2 2 3 3 Repression 2 2 1 1 Redirection of material 3 3 2 3 legitimation Islamic credentials 3 3 2 2 Modernization 2 3 3 3 Security and political stability 2 2 2 2 (domestic audience) Political stability and economic 3 3 3 3 success (international audience) Type 3: Policies reconfiguring intraregime structures Centralization of rule 3 3 2 2 Technocratization 3 3 3 3 Incorporation of business actors 3 0 1 2 Exclusion of labor 2 2 3 3

tries), while they were much less prevalent in Jordan (five of a possible 12 points) and Egypt (three of a possible 12 points). Type 2 response policies (“legitimation policies directed at the wider population or at international actors”) occurred relatively equally across the four countries, with Tunisia in the lead (18 of a possible 21 points), followed closely by Egypt and Morocco (17 of a possible 21 points), and Jordan slightly behind (16 of a possible 21 points). Likewise, type 3 response policies (“policies reconfiguring intraregime

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structures”) manifested themselves to a similar degree in all four countries, although variance was somewhat higher. These policies were most prevalent in Egypt (11 of a possible 12 points), followed by Morocco (ten of a possible 12 points), Jordan (nine of a possible 12 points), and Tunisia (eight of a possible 12 points). Overall, the average degree of empirical manifestation across all 27 response policies analyzed was highest in Tunisia and Morocco (65 of a possible 81 points), while Egypt (59 of a possible 81 points) has a slightly lower total score. The average degree of empirical manifestation was lowest in Jordan by a considerable gap (48 of a possible 81 points). The outlier position of Jordan is mainly due to its low scores in type 1 response policies, especially in the subgroupings of financial repression and direct regime intervention. These low scores are explainable: in contrast to the other three countries, the Jordanian banking sector was neither dominated by public banks, nor did the Jordanian regime wield influence through private banks of a significant size. Moreover, the Jordanian regime did not control the market for investment capital, there seemed to be no system of bad debt based on nonperforming loans, and the Jordanian Central Bank was relatively independent. Apart from low financial repression, direct regime intervention in the economy was not that prevalent: the Jordanian regime did not or did only weakly control markets through regime-loyal private business actors, the Jordanian royal family ventured into business only to a very confined extent, and public restructuring and reform programs in the economy were not thoroughgoing. Egypt’s slightly lower total score compared with Tunisia and Morocco is also due to its lower score in type 1 response policies, especially in the subgrouping of direct regime intervention: in contrast to Tunisia and Morocco, there were few clearly regime-loyal private business actors in market-controlling positions, the Egyptian presidential family did not venture into business to a significant extent, public restructuring and reform programs in the economy were not thoroughgoing, and there was no public policy fostering the buildup of conglomerates. We can only speculate about the reasons for the intercountry differences in scores. Ultimately, they might be due to historical accident, but also to deliberate policy choices by the regime and other actors. Over time, these differences became locked in through path dependency. Analytical hypothesis testing The final question is whether economic liberalization, via political stabilization, influenced the stability of authoritarian regimes in the four MENA countries under investigation. To arrive at possible answers, I constructed nine more hypotheses (IH4-A–IH6-D) based on the reviewed literature. I derived these additional hypotheses by combining and integrating hypotheses from different strands of theory (see section 4.2.2). The resulting “integrated hypotheses” IH4-A–IH6-D speculate on the

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links between economic liberalization and the stability of an authoritarian regime, conceptualizing the transmission channel of political stabilization as driven by social class action (i.e. by the bourgeoisie and the working class). Testing the nine “integrated hypotheses” IH4-A–IH6-D analytically against the empirical material of the four MENA countries in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010 led to the following conclusions: Hypothesis IH4-A does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods: neither the first theoretical link between economic liberalization and political strength of the bourgeoisie—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby decreases its political strength—nor the second theoretical link between political strength of the bourgeoisie and regime stability—according to the hypothesis, a politically weaker bourgeoisie increases the stability of an authoritarian regime—can be substantiated in the empirical data and information. Hypothesis IH4-B does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, there are some hints—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between policies of economic liberalization and political strength of the bourgeoisie proposed by the hypothesis—according to the hypothesis, economic liberalization inflicts economic losses upon the bourgeoisie, and thereby makes it politically stronger by increasing the political activism of its members—might find partial support in the empirical observations. The following policies of economic liberalization seem to empirically align with the theoretical predictions: 1. during the first MSSD period (1965–1986): Trade liberalization; the liberalization of international payments; and the liberalization of foreign investment; 2. during the third MSSD period (2005– 2010): Trade liberalization. Hypothesis IH4-C does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, there are some hints—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between policies of economic liberalization and political strength of the bourgeoisie proposed by the hypothesis—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby increases its political strength—might find partial support in the empirical observations. The following policies of economic liberalization seem to empirically align with the theoretical predictions: 1. during the first MSSD period (1965–1986): Trade liberalization; the liberalization of domestic and foreign investment; and exchange-rate liberalization; 2. during the

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second MSSD period (1993–2004): Exchange-rate liberalization; 3. during the third MSSD period (2005–2010): Privatization. Of these, the findings on the policy of privatization during the third MSSD period are subject to the least far-reaching assumptions. Hypothesis IH4-D does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, there are some hints—albeit subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie—that the first theoretical link between policies of economic liberalization and political strength of the bourgeoisie proposed by the hypothesis—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby makes the bourgeoisie politically weaker by decreasing the political activism of its members—might find partial support in the empirical observations. The following policies of economic liberalization seem to empirically align with the theoretical predictions: 1. during the first MSSD period (1965–1986): the liberalization of domestic private investment; trade liberalization; the liberalization of international payments; and the liberalization of foreign investment; 2. during the second MSSD period (1993–2004): Privatization. Of these, the findings on the liberalization of domestic private investment during the first MSSD period and on privatization during the second MSSD period are subject to the least far-reaching assumptions. Hypothesis IH5 does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, the first theoretical link—with its two constituent parts—proposed by hypothesis IH5 seems to find partial empirical support during the first and third MSSD periods: During the first MSSD period (1965–1986), Part 1 of the first theoretical link proposed by hypothesis IH5—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby strengthens it politically—might be partly supported by the empirical observations, driven by the policies of trade liberalization, the liberalization of domestic and foreign investment, and exchange-rate liberalization. Before all during the subperiod of the early 1980s, the empirically strongest bourgeoisie (the Moroccan) might have effectively gained economic and political strength through a high intensity of some of these economic-liberalization policies—although these conclusions are subject to far-reaching assumptions on the distribution of the capital invested by the bourgeoisie. At the same time, Part 2 of the first theoretical link proposed by hypothesis IH5—according to the hypothesis, internal cleavages as well as cooptation and repression by the state and the regime make the bourgeoisie politically weaker—partly aligns with the empirical observations of the first MSSD period, driven by internal cleavages of the bourgeoisie and repression by the state / regime. As theory predicts, the Moroccan bourgeoisie—

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which seemed to be politically strongest—was in fact characterized by less internal cleavages than at least two of its MENA peers. Concomitantly, it was also not as much repressed by the state and the regime. During the third MSSD period (2005– 2010), Part 1 of the first theoretical link proposed by hypothesis IH5—according to the hypothesis, economic liberalization brings economic gains to the bourgeoisie, and thereby strengthens it politically—might be partly supported by the empirical observations, driven by the policy of privatization. Thus, privatization had effectively been implemented most extensively in the two countries that seemed to have the politically strongest bourgeoisie at the time: Egypt and Morocco. Hypothesis IH6-A does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, the second theoretical link proposed by the hypothesis between political strength of the working class and regime stability—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—seems to find empirical support during the third MSSD period (2005–2010). Hypothesis IH6-B seems partially capable of explaining the differences in stability among the four MENA regimes: while it cannot explain the differences in stability during the first MSSD period (1965–1986), the hypothesis finds partial empirical support during the second MSSD period and strong empirical support during the third MSSD period. During the second MSSD period (1993–2004), the first theoretical link between policies of economic liberalization and political strength of the working class—according to the hypothesis, economic losses make the working class politically stronger by increasing the political activism of its members—does partially align with the empirical observations, driven by the policy of consumerprice liberalization, especially during the subperiod of the 1990s. Thus, consumerprice liberalization seems to have economically harmed the working classes in Egypt and Morocco during the 1990s, while it concomitantly might have increased their political strength in comparison with the Tunisian and Jordanian working classes. During the third MSSD period (2005–2010), the theoretical predictions of both the first theoretical link and the second theoretical link—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime— seem to largely align with the empirical data and information. In this period, once again consumer-price liberalization might have been the policy of economic liberalization especially relevant for the diverging political strength of the working class in Morocco compared with Egypt and Jordan (while the conclusions do not apply to Tunisia). Thus, the short-term effects of consumer-price liberalization seem to have hurt the Egyptian and Jordanian working classes economically, and thereby might have increased the political activism of its members. As a result, the Egyptian and Jordanian working classes might have become politically stronger than the

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Moroccan working class, which did not have to bear these effects due to the absence and reversal of the policy. Ultimately, a politically weaker Moroccan working class might have been one factor behind the higher stability of the Moroccan regime compared to its three MENA counterparts during the third MSSD period. Hypothesis IH6-C does not seem capable of explaining the differences in stability among the four MENA regimes in any of the three MSSD periods. Nevertheless, the second theoretical link between political strength of the working class and regime stability—according to the hypothesis, a politically stronger working class reduces the stability of an authoritarian regime—seems to find empirical support during the third MSSD period (2005–2010). Hypothesis IH6-D seems partially capable of explaining the differences in stability among the four MENA regimes: while it cannot explain the differences in stability during the first MSSD period (1965–1986), the hypothesis finds partial empirical support during the second MSSD period and strong empirical support during the third MSSD period. During the second MSSD period (1993–2004), the first theoretical link between policies of economic liberalization and political strength of the working class—according to the hypothesis, economic gains make the working class politically weaker by decreasing the political activism of its members—does partially align with the empirical observations (driven by the policies of privatization and the liberalization of domestic private investment). Tunisia, whose government implemented these economic-liberalization policies that theoretically bring economic gains but political losses to the working class most extensively, ended up with a politically weaker working class than Egypt and Morocco (although this conclusion does not hold for Jordan). During the third MSSD period (2005–2010), the theoretical predictions of both the first theoretical link and the second theoretical link—according to the hypothesis, a politically weaker working class increases the stability of an authoritarian regime—seem to largely align with the empirical data and information. In this period, privatization might have been the policy of economic liberalization especially relevant for the diverging political strength of the working class in Morocco compared with Egypt, Tunisia, and Jordan. Thus, the long-term effects of privatization—which occurred most extensively in Morocco in the early 2000s—might have strengthened the Moroccan working class economically but weakened it politically (due to decreasing political activism of its members) during the third MSSD period (2005–2010). Ultimately, a politically weaker Moroccan working class might have been one factor behind the higher stability of the Moroccan regime compared to its three MENA counterparts during the third MSSD period. Tables 6.5 and 6.6 summarize the conclusions of the analytical hypothesis testing on the link between economic liberalization and the stability of authoritarian regimes via political stabilization. The first table contains the hypotheses speculating on

(X) Part 1: Privatization

–

–

–

–

Second theoretical link – – –

Third MSSD period (2005–2010) First theoretical link – – (X) Privatization –

Second theoretical link – – –

Second MSSD period (1993–2004) First theoretical link – – –

(X) – (X) Liberalization of Privatization domestic private investment IH5 (X) – – Part 2: Cleavages, repression X Hypothesis can explain empirical observations (X) Hypothesis can partly explain empirical observations – Hypothesis cannot explain empirical observations

IH4-D

Second theoretical link – – –

First MSSD period (1965–1986)

First theoretical link – – –

6

IH4-A IH4-B IH4-C

Hypothesis No.

Table 6.5 Summary of analytical hypothesis testing: Political stabilization—the bourgeoisie as mediator variable (IH4-A–IH5)

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– –

IH6-C IH6-D

– –

– –

Second theoretical link

X Hypothesis can explain empirical observations (X) Hypothesis can partly explain empirical observations – Hypothesis cannot explain empirical observations

– –

IH6-A IH6-B

First theoretical link – X Consumer- price liberalization – (X) Liberalization of domestic private investment, privatization

First theoretical link

– –

– –

Second theoretical link – (X) Consumer- price liberalization – X Privatization

First theoretical link

X X

X X

Second theoretical link

Table 6.6 Summary of analytical hypothesis testing: Political stabilization—the working class as mediator variable (IH6-A–IH6-D)

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the bourgeoisie as mediator variable within the transmission channel of political stabilization, while the second table contains the hypotheses speculating on the working class as mediator variable within the same transmission channel:118 To summarize the results from the analytical hypothesis testing on the nexus between economic liberalization, political stabilization, and regime stability, one can draw the following conclusions: Two policies of economic liberalization—namely consumer-price liberalization and privatization—seem to have influenced the stability of some of the four resource-poor authoritarian regimes analyzed here as sample cases for the MENA region—although these findings only apply to a very confined subperiod (i.e. the mid-late 2000s) within the 60-year period of investigation. During this subperiod of the mid-late 2000s, I identified two empirical instances, where either consumer-price liberalization or privatization seem to have influenced regime stability through the actions of the working class. Ultimately, the presumed influence of these two economic-liberalization policies on regime stability differs: while consumer-price liberalization seems to have destabilized the authoritarian regimes under investigation, privatization seems to have stabilized them. In both cases, the working class is the decisive variable of political stabilization: thus, the short-term effects of consumer-price liberalization seem to have politically strengthened the working class in Egypt and Jordan in the late 2000s, and thereby might have destabilized the regimes in these countries—contrary to Morocco, where the policy was absent, the working class stayed politically calm, and the regime was more stable. In contrast, the long-term effects of privatization (being implemented most extensively in the early 2000s) seem to have politically weakened the working class in Morocco in the mid-late 2000s, and thereby might have stabilized the regime in this country—contrary to Egypt, Tunisia, and Jordan, where the policy was less pervasive, the working class became politically more active, and the regime was less stable. However, these results have to be interpreted with caution. As pointed out in the analysis of the nexus between economic liberalization, economic stabilization, and regime stability (see section 6.2), we cannot simply infer causality between economic liberalization, political stabilization, and regime stability. Even the correlations that are discovered may be uncertain. Once again, the following problems limit the reliability of the results: 118

In Table 6.5, economic-liberalization policies that emerge as relevant for a hypothesis are only reported if the analysis did not depend on far-reaching assumptions regarding the abundance and distribution of the capital invested by a national bourgeoisie (international competitiveness of sectors and firms) or the abundance and distribution of workers within a national economy (skilled versus unskilled labor, international competitiveness of sectors and firms).

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First, operationalization and measurement of the variables are difficult. We lack information on the precise empirical implementation of economic-liberalization policies in most countries (which kind of policies were implemented, when, and where and to what degree). Thus, we are left with incomplete information on the characteristics of the IV. At the same time, the DV “regime stability” is difficult to grasp theoretically, which complicates its operationalization and measurement (see sections 5.2.2, 5.2.3, and 6.2.4). The same challenges arise for the transmission channel of political stabilization: this channel is theoretically not well established, which makes operationalization—that is finding recordable and measurable proxy variables—even more difficult than for economic stabilization. I strove to overcome this problem with an inductive approach, ascribing a list of empirically observable phenomena of politics and a list of policies (all of them eclectically selected on the basis of a comprehensive literature review) to the transmission channel of political stabilization (see section 5.2.2). Nevertheless, this approach remains mere speculation about which empirical phenomena might be relevant for the subject of interest. Second, a myriad of other variables both theoretically and empirically influence the transmission channel of political stabilization and the DV “regime stability,” while interaction effects between these influencing variables are likely complex. Therefore the independent effect of economic-liberalization policies on regime stability via political stabilization is hard to isolate. This problem is further compounded if we consider both the short-term and long-term effects of economic liberalization (as I did in this study). After all, to obtain information regarding the independent effect of economic liberalization on regime stability via political stabilization, we would have to be able to build an apt theoretical model (which we are not) and to operationalize all variables correctly (likely elusive too). The hypotheses would then have to be tested in a multivariate setup. Be that as it may, in the end it is impossible to detect all relevant variables—let alone operationalize them correctly. Thus, the true independent effect of economicliberalization policies on regime stability via political stabilization cannot be identified. We are left instead with mere speculation (albeit speculation based on scientific reasoning), in observing macro-level and meso-level correlations (which are distorted through the effects of many independent and intervening variables) and in generating, at most, some more or less well-founded propositions and hypotheses for the case of the four countries under examination. Finally, it is important to note that even if we had ex post knowledge on the precise independent effects of economic liberalization, the problem remains that we still lack information on counterfactual situations. That is, regarding what would have happened to regime stability and to the transmission channel of political stabilization

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if policies of economic liberalization had not been implemented at all, or had been in a different manner to the ones in which they were. In such an alternative scenario without or with less implementation of economic-liberalization policies, political stabilization might have been more effective and regime stability higher. However, it could also be the case that the path actually taken would make resource-poor authoritarian regimes in the MENA region more stable, as economic liberalization opened up new means of political stabilization not previously available. If alternative scenarios would have even been feasible from an economic and political perspective is another question besides, and one that I was not able to delve into. Ultimately, it remains a matter of speculation whether economic liberalization— via political stabilization and the links proposed by the two “integrated hypotheses” (IH6-B and IH6-D) identified as potentially explanatory—did in fact influence the stability of resource-poor authoritarian regimes in the four MENA countries during the mid-late 2000s.

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7.1

The Effect of Economic Liberalization on the Stability of Resource-Poor Authoritarian Regimes: Egypt, Tunisia, Jordan, and Morocco, 1950–2011

Research question and main hypothesis In this study I have addressed the scientific puzzle that, in contrast to 90 other countries around the globe formerly ruled by authoritarian regimes, none of the 18 making up the MENA (with the exceptions of Israel, Lebanon and short periods of Syrian and Iraqi history) would achieve the transition from authoritarian to democratic rule in the period from their political independence up until the year 2011. This enigma has haunted political and academic observers of the MENA region for more than 30 years. What makes this observation even more confounding is the fact that the countries of the MENA region were subjected to the same forces of economic globalization as their democratizing counterparts in other world regions—forces that brought economic liberalization onto the policy agenda of developing countries worldwide. These developments especially affected resource-poor developing countries: due to both economic necessity and external pressure, they had to abandon their stateled development models in favour of export promotion, supported by economic liberalization and economic stabilization. Economic liberalization was bound to weaken the resource-poor authoritarian regimes that were in power in many of these countries. Two principal channels threatened incumbent regimes: Economic liberalization had the potential to dry up available sources of income for patronage, while it could also strengthen the bourgeoisie—as a potentially democratizing actor. However these adverse pressures unfolding from at least the early 1980s onward did not bring down a single resource-poor authoritarian regime in the MENA region © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_7

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up until the year 2011. These empirical observations are in stark contrast to the democratization of many other resource-poor authoritarian regimes around the globe during the same time period. To clarify the contradiction between the theoretical assumptions and the empirical observations, this study thus tackled the following research question: Why were authoritarian regimes in resource-poor MENA countries stable on a systemic level, meaning why didn’t they democratize, during the period 1950–2011 despite the pressure unfolding from economic liberalization?

I hypothesized that economic liberalization in these countries did not contribute to democratization. Instead, it might have stabilized authoritarian regimes in fact. This seemed counterintuitive given the arguments advanced by a large part of the literature. Specifically, I proposed that economic liberalization increased the stability of resource-poor authoritarian regimes in the MENA region during the period 1950– 2011 through the twin transmission channels of economic and political stabilization. Main findings I find that economic liberalization might have been one of several factors that influenced the stability of resource-poor authoritarian regimes in the MENA region within the confines of the country sample (Egypt, Tunisia, Jordan, and Morocco) and the period of investigation (1950–2011). However, three qualifications have to be made: First, my findings only apply to the decades of the 1990s and 2000s. That is, to a relatively short subperiod representing the most recent past within the 60 year period of investigation. Second, of the eight policies of economic liberalization defined in this study, only four appear to be relevant for the stability of resource-poor authoritarian regimes: Consumer-price liberalization; the liberalization of interest rates; exchange-rate liberalization; and privatization. Of these, consumer-price liberalization and privatization seem to play the most pivotal roles. Third, and contrary to the main hypothesis, the potential effect of economic liberalization on regime stability appears to be either positive or negative (i.e. either potentially stabilizing or destabilizing), depending on the policy, the country and the time period under observation. On the basis of analytical hypothesis testing I was able to identify five empirical instances (defined by country and time period) where economic-liberalization policies might have either stabilized or destabilized the incumbent regime: During the mid-late 1990s, consumer-price liberalization might have increased regime stability in Egypt and Morocco through its positive impact on poverty. In Morocco, consumer-price liberalization might have had an additional stabilizing effect through

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its positive impact on income inequality. In Egypt, two more policies of economic liberalization, the liberalization of interest rates and exchange-rate liberalization, might have contributed to stabilizing the regime through their positive impact on poverty. During the mid-late 2000s, privatization might have stabilized the regime in Morocco by politically weakening the working class. At the same time, consumerprice liberalization seems to have destabilized the regimes in Egypt and Jordan by politically strengthening the working class. Boundedness and tentative nature of the findings It is clear that, due to the limited nature of the phenomenon, the explanatory power of my findings vis-à-vis the addressed research question is ultimately relatively modest. Further to that, the answers I put forward are only tentative ones, as we cannot simply infer causality between economic liberalization, economic and political stabilization, and regime stability. Even the correlations that are discovered may be uncertain. Two main problems limit the reliability of results: First, operationalization and measurement of the variables are difficult. We lack information on the precise empirical implementation of economic-liberalization policies in most countries (which kind of policies were implemented, when, and where and to what degree). Thus, we are left with incomplete information on the characteristics of the IV. At the same time, the DV “regime stability” is difficult to grasp theoretically, which complicates its operationalization and measurement. The same challenges arise for the transmission channels of economic and political stabilization too. Second, a myriad of other variables both theoretically and empirically influence the transmission channels of economic and political stabilization as well as the DV “regime stability,” while interaction effects between these influencing variables are likely complex. Therefore the independent effect of economic-liberalization policies on regime stability via economic and political stabilization is hard to isolate. This problem is further compounded if we consider both the short-term and longterm effects of economic liberalization (as I did in this study). After all, to obtain information regarding the independent effect of economic liberalization on regime stability via economic and political stabilization, we would have to be able to build an apt theoretical model (which we are not) and to operationalize all variables correctly (likely elusive too). The hypotheses would then have to be tested in a multivariate setup. Be that as it may, in the end it is impossible to detect all relevant variables—let alone operationalize them correctly. Thus, the true independent effect of economicliberalization policies on regime stability via economic and political stabilization cannot be identified. We are left instead with mere speculation (albeit speculation based on scientific reasoning), in observing macro-level and meso-level correlations

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(which are distorted through the effects of many independent and intervening variables) and in generating, at most, some more or less well-founded propositions and hypotheses for the case of the four countries under examination. Finally, it is important to note that even if we had ex post knowledge on the precise independent effects of economic liberalization, the problem remains that we still lack information on counterfactual situations. That is, regarding what would have happened to regime stability and to the transmission channels of economic and political stabilization if policies of economic liberalization had not been implemented at all, or had been in a different manner to the ones in which they were. In such an alternative scenario without or with less implementation of economic-liberalization policies, economic and political stabilization might have been more effective and regime stability higher. However, it could also be the case that the path actually taken would make resource-poor authoritarian regimes in the MENA region more stable, as economic liberalization opened up new means of economic and political stabilization not previously available. If alternative scenarios would have even been feasible from an economic and political perspective is another question besides, and one that I was not able to delve into. Ultimately, it remains a matter of speculation whether economic liberalization— via economic and political stabilization, and the theoretical links proposed by the hypotheses in this study—did in fact influence the stability of resource-poor authoritarian regimes in the four examined MENA countries during the years 1950–2011. Procedure and more detailed results The main hypothesis of this study proposed that economic liberalization, contrary to the prevailing opinion of a large part of the literature, did not contribute to democratization, but instead increased the stability of resource-poor authoritarian regimes in fact. The theoretical model underpinning the main hypothesis conceptualized two transmission channels linking economic liberalization with regime stability: economic stabilization and political stabilization. To check the validity of the main hypothesis, I proceeded in three steps: First, I condensed the body of literature into 96 finer grained hypotheses. Of these 96, 25 speculated on the factors responsible for the stability of authoritarian regimes. The remaining 71 hypotheses revolved around the political, economic, socioeconomic, and international effects of economic liberalization meanwhile. In a second step, I derived 12 additional “integrated hypotheses” by combining one of the 25 hypotheses on possible factors underlying authoritarian stability with one or several of the 71 on the possible effects of economic liberalization. In a third step, I empirically tested 42 out of the 71 hypotheses on the effects of economic liberalization as well as the 12 “integrated” ones. As methods for hypothesis testing, I used the descriptive comparative case study as

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well as the comparative method in its comparative-historical variant. The following results emerged: Transmission channel 1: Economic stabilization To check the plausibility of economic liberalization buttressing authoritarian regimes through economic stabilization, I subdivided the related empirical analysis into three parts: In the first, I conducted a descriptive comparative case study of the four MENA countries (Egypt, Tunisia, Jordan, and Morocco), which included a diachronic comparison of variable patterns and descriptive hypothesis testing. The former showed a favorable long-term trend (period 1970–2009) in all four countries for three variables within the first channel of economic stabilization, running through the state budget and the international accounts: the current-account deficit (negative trend); relative FDI net inflows (positive trend); and, international reserves (positive trend). For the other variables (budget deficit, trade deficit, and external debt stock) the long-term trends were ambiguous and patterns differed across the four countries. In the other channel of economic stabilization, as running through economic growth and socioeconomic development, only the volatility of real GDP growth and inflation showed relatively clear long-term (downward) trends. In contrast, the long-term trends were ambiguous for real GDP growth, real GDP per capita growth, the countries’ respective positions in the global HDI ranking, official unemployment, official youth unemployment, relative remittance income, official poverty, and for income inequality. As policies of economic liberalization were implemented in three of the four MENA countries from the 1970s and in all four countries from the early 1980s, while the intensity of implementation would rise until the 2000s (with a short hiatus in the mid-1980s), it is at least empirically possible that economic liberalization was a factor behind the variable movements suggesting an enhancement of economic stabilization. However, causality is unclear and correlations are too crude to come to any meaningful conclusions. In particular, I neglected the possibility that different policies of economic liberalization might have different effects on the variables of economic stabilization, I also did not control for the effect of other IVs besides economic liberalization either. In the second part of the empirical analysis, I descriptively tested 42 of the 71 hypotheses on the effects of single policies of economic liberalization on the variables of economic stabilization, doing so for each of the four MENA countries in each of their reform periods occurring from the 1970s up to the 2000s. Once again, a number of problems precluded general conclusions being reached: a myriad of other variables theoretically and empirically influence economic stabilization (while interaction effects between these are, as noted, likely complex), so it is de facto impossible to isolate the independent effect of economic-liberalization

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policies. This problem was compounded by my consideration of the both shortterm and long-term effects of economic liberalization. Other issues emerging were the difficult operationalization and empirical measurement of both IVs and DVs as well as missing counterfactual situations. In the third and final part, I used the (analytical) comparative method to find an answer to the question of whether economic liberalization, via economic stabilization, did indeed influence the stability of authoritarian regimes in the four MENA countries studied. I therefore analyzed variable relations in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010. I tested three “integrated hypotheses” (IH1–IH3), derived by combining ones from the two strands of theory on possible factors enhancing authoritarian stability as well as on the effects of economicliberalization policies. These “integrated hypotheses” speculate on the links between economic liberalization and the stability of an authoritarian regime through the transmission channel of economic stabilization. Economic stabilization is assumed to be driven by socioeconomic variables (poverty and economic inequality) and by the deeds of external actors. Two of these three “integrated hypotheses” (IH1 and IH2) contradict my initial theoretical assumption that less poverty and lower economic inequality increase the stability of an authoritarian regime (the conceptualized second channel of economic stabilization). The following results emerge from the analytical hypothesis testing: There are only two short time windows within the whole period of investigation when the hypotheses seem able to explain the empirical observations. The first is the subperiod 1993–2000 of the second MSSD period (1993–2004), where hypothesis IH1 enjoys some empirical backing. The mechanism presumed by hypothesis IH1 is that economic liberalization aggravates economic underdevelopment by increasing poverty among the population of a country, and thereby increases the stability of an authoritarian regime (see section 4.2.1). In the four MENA countries during this period, the policies of consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization all seem to correlate with economic underdevelopment proxied by poverty—meaning the implementation of one or several of the three policies feature in tandem with increasing poverty. At the same time, poverty positively correlates with the stability of the four authoritarian regimes— that is, an increase in poverty features in tandem with higher regime stability. Thus poverty and regime stability were higher in Egypt and Morocco, where one or several of the three policies of economic liberalization were implemented during the subperiod 1993–2000, than they were in Tunisia and Jordan, where these three policies were not implemented. A hypothetical conclusion might serve to causally link these observations: the higher poverty rate and thereby the higher regime stability in Egypt and Morocco compared to Tunisia and Jordan during the subperiod 1993–

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2000 might have been driven by consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization in the Egyptian case and by consumerprice liberalization in the Moroccan one. The three economic-liberalization policies thus seem to have stabilized the regime in the countries where they occurred, as the main hypothesis of this study predicted. The second relevant time window is the subperiod 1995–2000 of the second MSSD period (1993–2004), where hypothesis IH2 sees some empirical backing. The mechanism presumed by hypothesis IH2 is that economic liberalization increases economic inequality among the population of a country, and thereby increases the stability of an authoritarian regime (see section 4.2.1). During this short subperiod, the policy of consumer-price liberalization seems to correlate with economic inequality—meaning the implementation of the policy runs parallel to increasing economic inequality. At the same time, economic inequality positively correlates with the stability of three of the four authoritarian regimes examined (Egypt being excluded due to missing data)—that is, an increase in economic inequality comes together with higher regime stability. Thus, economic inequality and regime stability were higher in Morocco, where consumer-price liberalization was implemented during the subperiod 1995–2000, than they were in Tunisia and Jordan, where this policy was not implemented. A hypothetical conclusion might serve to causally link these observations: the higher economic inequality and thereby the higher regime stability in Morocco compared to Tunisia and Jordan during the subperiod 1995– 2000 might have been driven by consumer-price liberalization. The latter thus seems to have stabilized the regime in the country where it occurred, as the main hypothesis of this study predicted. Transmission channel 2: Political stabilization To check the plausibility of economic liberalization buttressing authoritarian regimes through political stabilization, I subdivided the related empirical analysis into two parts: In the first, I conducted a descriptive comparative case study of the four MENA countries (Egypt, Tunisia, Jordan, and Morocco), based on a diachronic comparison of empirical observations. The diachronic comparison was structured along ten phenomena of politics and policies carved out from a comprehensive review of the academic and nonacademic literature on resource-poor MENA countries and on economic reform. It yielded an eclectic list of 27 observable policies that seemed to emerge in response to economic liberalization, ones seeking to modify its socioeconomic and political effects. These “response policies” were not the product of their deliberate design and implementation by specific actors with clear strategies. They, rather, evolved in a path-dependent manner, being shaped by the complex interplay of many actors—although the regimes themselves were always in a pivotal posi-

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tion. Thus, three general types of response policies seem to have emerged: those that modified the direct effects of economic liberalization (16 policies); adapted or new legitimation policies directed at the wider population or at international actors (seven policies); and, policies reconfiguring intraregime structures (four policies). After all, the average degree of empirical manifestation across all 27 response policies was highest in Tunisia and Morocco, while Egypt had a slightly lower overall score, followed by Jordan with a considerable gap. The outlier position of Jordan is mainly due to its low scores in response policies that modified the direct effects of economic liberalization, especially in the subgroupings of “financial repression” and “direct regime intervention.” Similarly, Egypt’s slightly lower overall score compared with Tunisia and Morocco is due to its lower score on this type of response policies, especially in the subgrouping of “direct regime intervention.” We can only speculate about the reasons for the intercountry differences. They might comprise historical accidents as well as deliberate policy choices by the incumbent regimes and other actors, being coupled also with path dependency. Ultimately, the descriptive comparative case study does not yield definite conclusions regarding the possible effects of economic liberalization on political stabilization. Not only do the problems of high complexity and the neglect of control variables once again rear their heads, but also economic liberalization and political stabilization cannot be conceived of as the IV and DV respectively. Political stabilization, as operationalized here, already takes economic liberalization into account and reacts to it (“response policies”). To meaningfully assess the effect of economic liberalization on the stability of authoritarian regimes we therefore have to consider political stabilization right from the very start. This is different from the first transmission channel that runs through economic stabilization: as economic stabilization does not take economic liberalization into account, the variable relation between economic liberalization and economic stabilization can be analyzed individually, and further to that between economic stabilization and regime stability. In the second part of the empirical analysis of political stabilization, I used the (analytical) comparative method to find an answer to the question of whether economic liberalization, via political stabilization, influenced the stability of authoritarian regimes in the four MENA countries examined. I therefore analyzed variable relations in a MSSD for the periods 1965–1986, 1993–2004, and 2005–2010. In total, I tested nine “integrated hypotheses” (IH4-A–IH6-D) derived by combining ones from the two strands of theory on the possible factors underpinning authoritarian stability as well as on the effects economic-liberalization policies. These hypotheses speculate on the links between economic liberalization and the stability of an authoritarian regime, conceptualizing the transmission channel of political

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575

stabilization as being driven by social-class action (that is by the bourgeoisie and the working class). The following results emerge from the analytical hypothesis testing: There is only one short time window within the whole period of investigation when two out of nine “integrated hypotheses” seem able to explain the empirical observations. This is the third MSSD period (2005–2010), when hypotheses IH6-B and IH6-D enjoy some empirical backing. The mechanism presumed by hypothesis IH6-B is that economic liberalization inflicts economic losses upon the working class, which decreases its size but increases its political strength—and thereby reduces the stability of the authoritarian regime in the country in question (see section 4.2.2). During the third MSSD period (2005–2010), the policy of consumer-price liberalization in fact seems to correlate with the political strength of the working class in three of the four MENA countries studied (excluding Tunisia as an outlier)—meaning implementation of the policy comes together with the increasing political strength of the working class. At the same time, the political strength of the working class negatively correlates with the stability of the authoritarian regime—that is, an increase in the political strength of the working class features in tandem with lower regime stability in the country at hand. Thus, regime stability was lower in Egypt and Jordan, where consumer-price liberalization was implemented during the third MSSD period, than in Morocco, where it was not. A hypothetical conclusion might serve to causally link these observations: the increasing political strength of the working class in Egypt and Jordan during the third MSSD period (2005–2010), and thereby the lower stability of the Egyptian and Jordanian regimes compared to the Moroccan one, might have been partly driven by the short-term effects of consumer-price liberalization. The latter thus seems to have destabilized the regime in the countries where it occurred, contrary to what the main hypothesis of this study predicted. The mechanism presumed by hypothesis IH6-D is that economic liberalization brings economic gains to the working class, which increases its size but decreases its political strength—and thereby increases the stability of the authoritarian regime in the country in question (see section 4.2.2). During the third MSSD period (2005– 2010), the policy of privatization in fact seems to correlate with the political strength of the working class in the four MENA countries examined—meaning implementation of the policy comes together with the decreasing political strength of the working class. At the same time, the political strength of the working classes negatively correlates with the stability of the authoritarian regimes—that is, a decrease in the political strength of the working class runs parallel to higher regime stability in the country at hand. Thus, the long-term effects of privatization—which occurred more extensively in Morocco in the early 2000s than it did in the other three MENA countries—might have weakened the Moroccan working class politically in the late

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2000s. Ultimately, a politically weaker Moroccan working class might have been one factor behind the higher stability of the Moroccan regime compared to the peer Egyptian, Tunisian, and Jordanian ones during the third MSSD period. Implication of the results As indicated above, the results from my analysis only apply to the case of resourcepoor authoritarian regimes in the MENA region (in contrast to resource-rich ones of the region, as in the Gulf states for example). As summarized above, three further qualifications are noteworthy: the time-boundedness of the results; the limited number of stability-relevant economic-liberalization policies; and, the bidirectional effect of economic liberalization on regime stability. It remains an open question what these qualifications imply for the interpretation of the findings. Regarding the time-boundedness of the results, this adjunct comes as no surprise. That policies of economic liberalization seem to have affected the stability of resource-poor authoritarian regimes in the four MENA countries examined only during the 1990s and the 2000s could be expected, given the fact that it was only from the 1990s onwards that all four countries would implement economic-liberalization policies broadly, thoroughly, and continuously. Regarding the observation that only four out of eight policies of economic liberalization seem to be relevant for the stability of authoritarian regimes, this is potentially revealing for both scientific researchers and policy analysts alike. The bundle of policies labelled “economic liberalization” have been disentangled in this study, bringing to light the pivotal role of consumer-price liberalization and privatization particularly, with a lesser role for the liberalization of interest rates and for exchange-rate liberalization. Economic-liberalization policies such as trade liberalization and the liberalization of foreign investment, whose economic, political, and social effects continue to be intensively debated in both academic and nonacademic circles, do not seem to influence the stability of resource-poor authoritarian regimes in the MENA region. Regarding the presumption that the possible effects of economic liberalization on regime stability can be either positive or negative (that is, stabilizing and destabilizing), depending on the policy, the country, and the time period under observation, this is interesting as it contradicts both the main hypothesis advanced in this study (economic liberalization stabilizes authoritarian regimes) and the one proposed by large swathes of the literature (economic liberalization destabilizes authoritarian regimes). Nevertheless, it is important to mention that in three out of the five identified empirical instances where economic-liberalization policies seem to have been relevant for regime stability (see above), economic liberalization did seemingly stabilize the regime. That effect is visible for all four stability-relevant economic-

7.1 The Effect of Economic Liberalization on the Stability …

577

liberalization policies as well as in both of the time periods where these effects seemed to be present (mid-late 1990s and mid-late 2000s). These are nonnegligible arguments in favor of the main hypothesis advanced here. The puzzle that remains concerns the role of consumer-price liberalization: while this policy seems to have had regime-stabilizing effects during the mid-late 1990s, it apparently became regime-destabilizing during the mid-late 2000s. The change is visible across the four countries in the sample, and even within one alone: Egypt. One explanation might be that there was a structural break in the political strength of the working class (the mediator variable between economic liberalization and regime stability) in Egypt and Tunisia some time between the 1990s and the 2000s. If such a break happened, it might have been due to the foundation and rise of new trade unions independent from the state-controlled national-union associations. Through these developments the working class might have been able to challenge the regime on economic liberalization during the 2000s, but not yet during the 1990s. Nevertheless, it is also possible that consumer-price liberalization affected the working class differently in the two respective decades. Therefore, consumerprice liberalization remains an ambivalent policy requiring further close research. As this study has showed, there are rival theories on the mechanism underlying how the economic effects of economic-liberalization policies are translated into socioeconomic and ultimately political effects. In the theoretical model, this economic-socioeconomic-political nexus is operationalized through the twin transmission channels of economic and political stabilization, which themselves are modified by the variable “regime policies.” The “integrated hypotheses” that were tested analytically are divided on the question of what the repercussions of economic liberalization are: Does the implementation of these policies lead to political passivity or to political activity? Will the populace at large or certain social classes specifically acquiesce to socioeconomic hardships, or will they be induced to rise up against the regime? Hypotheses IH1 and IH2 propose that mass economic suffering will lead to political passivity. Similarly, hypothesis IH6-D proposes that the economic well-being of a specific social class (the working class) will lead to political passivity. In contrast, hypothesis IH6-B proposes that the economic suffering of a specific social class (the working class) will lead to political activity (see section 4.2). Ultimately, hypotheses IH1, IH2, and IH6-B seem to align relatively well with the empirical manifestations of consumer-price liberalization. Which of these three hypotheses is most convincing for the case of consumer-price liberalization is open to debate. Either consumer-price liberalization makes the populace poorer and economically more unequal and thus makes them less able to rise up against the regime, or the negative socioeconomic effects of the policy spark the opposition of the work-

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ing class—which then becomes the spearhead of mobilization against the regime. It is also possible that these mechanisms exist simultaneously. But if the negative socioeconomic effects of consumer-price liberalization trigger political activity rather than political passivity, the theory seems to suggest that it is then the working class rather than the populace as a whole who is the driver of political action. Resource-poor authoritarian regimes have to understand these mechanisms in order to survive, given the policies’ macroeconomic reach: Consumer-price liberalization, the liberalization of interest rates, and exchange-rate liberalization (that is, three of the four stability-relevant economic-liberalization policies) are demandside policies. They directly affect the demand for consumption and investment goods by a large number of economic actors, be it individuals, private enterprises, or the state. In the case of individuals, all three policies curb consumption possibilities, assuming that in a developing-country context consumer-price liberalization (mostly through subsidy cuts) leads to rising nominal prices, the liberalization of interest rates leads to rising interest rates, and exchange-rate liberalization leads to rising inflation through a fall in the exchange rate of domestic (weak) currency to foreign (hard) currency. With consumers across the board impacted upon, the negative economic and socioeconomic effects of these policies thus affect a large segment of the population. The probability is consequently high that these effects will translate into mass politics (driven by specific social classes, or even larger coalitions transcending class boundaries) with repercussions for the stability of the authoritarian regime in power. Experimenting with these three policies, especially with consumer-price liberalization, is therefore a political gamble for these regimes, one coming with unpredictable and potentially dangerous outcomes for regime survival. In contrast, the economic and political effects of the fourth stability-relevant policy of economic liberalization are less pervasive: Privatization is a supply-side policy that affects the provision of goods and services by a limited number of producers within a given economy—although it might also have certain demand-side effects through the wages paid to employees of privatized SOEs. In its nature and effects, privatization is hence more restricted than the three demand-side policies are. Consumers are not affected across the board, but only certain segments (e.g. those buying the goods produced by privatized SOEs or those having worked in SOEs / working in privatized SOEs). Nevertheless, privatization might still disproportionately affect certain social classes—and especially the working class. This study posits that privatization might foster regime stability in the long run. Whereas academic and nonacademic literatures are full of accounts of the negative short-term socioeconomic effects of privatization, this study finds no suggestion vis-à-vis the four MENA countries in the sample that these short-term effects might have been relevant for regime stability. In fact, the study proposes that the long-

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579

term socioeconomic effects of privatization on average might be positive for certain social groups (especially the working class) and thus reduce opposition to incumbent regimes. Privatization thus seems to foster rather than undermine the stability of authoritarian regimes in the long run. Nevertheless, the element of taking a gamble is still there for authoritarian regimes: the regime-stabilizing long-term effects of privatization might only materialize if it is implemented in the right manner (in terms of picking the correct targets, of communication, of technical implementation, and of cushioning adverse social effects), while there is a nonnegligible risk of regime-destabilizing short-term effects. The latter are also dependent on the structural characteristics of the working class, meaning of how capable it is of politically responding to short-term economic losses induced by privatization. Within our period of investigation, this capability might have grown in the years from the early 1990s up to the late 2000s in the four MENA countries studied (maybe being fostered by the rise of independent trade unions). It is therefore possible that the short-term political effects of privatization have become regime-destabilizing from the end of our period of investigation onwards. Ultimately, the implications of my findings lay bare the shaky nature of political rule by authoritarian regimes in resource-poor developing countries: Despite their political risks, consumer-price liberalization, the liberalization of interest rates, exchange-rate liberalization, and privatization are often implemented by resourcepoor authoritarian regimes as emergency measures when tackling economic crises that strain the public budget and the international accounts. In contrast to other measures more dependent on the structural power of the state, such as the levying of taxes, they can be relatively easily implemented from a technical perspective (with the partial exception of privatization). Consumer-price liberalization, for example, in most cases means withdrawing public subsidies—to a large extent, a mere administrative act. This is why international lenders push for these easy-to-implement measures as a quid pro quo for emergency lending. But at the end of the day, in the MENA as in other world regions, authoritarian regimes in resource-poor developing countries did not have much of a choice during the 1980s–1990s: they had to implement consumer-price liberalization, the liberalization of interest rates, exchange-rate liberalization, and privatization, being in dire financial straits and being forced into policy reform by international lenders. Thus the choice to take this political gamble, especially by implementing consumer-price liberalization and privatization, was not a completely voluntary one. It is disquieting for such regimes that economic crises fostering the implementation of the four stability-relevant economic-liberalization policies will continue to arise in years to come. All the more likely so as resource-poor MENA countries are going to remain dependent on the import of basic commodities (especially energy and food) for the

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foreseeable future—a still-unresolved structural deficiency of their economies, one that continues to subject them to the vagaries of global price fluctuations.

7.2

Contributions to the State of the Art

This study makes four main contributions to the existing literature and the state of the art: First, it overcomes the deficiencies of the literature dealing with the effects of economic liberalization on the stability of authoritarian regimes. Contrary to previous studies, I define economic liberalization more precisely—conceptualizing it as a multidimensional phenomenon consisting of eight different policies. Furthermore, I assume the effect of economic liberalization on the stability of authoritarian regimes does not need to be inherently negative. While the main hypothesis of this study proposes that economic liberalization stabilizes authoritarian regimes, the theoretical model assumes economic liberalization can both stabilize and destabilize authoritarian regimes. Moreover, I use a theory-guided approach to analyze the effects of economic-liberalization policies on the stability of resource-poor authoritarian regimes—in contrast to previous studies, of which most remain engaged only at the empirical level. Second, the study identifies two policies of economic liberalization that seem to be especially relevant for the stability of resource-poor authoritarian regimes: consumer-price liberalization and privatization. The “integrated hypotheses” on their causal relations with regime stability can serve as the basis for further research. Third, the study adds to the empirical material available for conducting related research—that by systematically establishing where, when, and in what form economic liberalization was implemented in the four MENA countries examined over a 40-year period from the 1970s onward. Fourth, it rectifies the dearth of studies hitherto that situate economic liberalization in the MENA region in a long-term economic and political context. Thereby it is able to illuminate the path dependencies of economic liberalization in the four MENA countries investigated. The comparative political economy that emerges is comprehensive, both in terms of its time frame (60 years) as well as the number and diversity of sources used (English, French, German).

7.3

Avenues for Further Research

On the basis of my findings, I now propose four avenues for further research: First, the macro-level conclusion that consumer-price liberalization and privatization are

7.3 Avenues for Further Research

581

the policies of economic liberalization most relevant for the stability of resourcepoor authoritarian regimes could be further investigated on a micro level. In-depth case studies focusing on process tracing might reveal more precisely the mechanisms behind how consumer-price liberalization and privatization affect regime stability via economic and political stabilization. At the same time, intervening variables could be identified. For the purposes of micro-level research, variables should be further specified: For example, consumer-price liberalization as an IV could be differentiated according to which products are included and how sizable subsidy cuts are. Similarly, privatization as another IV could be disentangled according to sector, company size, and the labor-intensity of production. The working class as a mediator variable could be broken down into its constituent segments. Last but not least, regime stability as the DV could be split into several dimensions. Such a micro-level investigation could as well lead to a refinement of macro-level hypotheses by shedding further light on whether the socioeconomic consequences of consumer-price liberalization and privatization foster political passivity or political activity among the affected parts of the population. Second, the theoretical definitions and empirical operationalizations of all variables in the theoretical model, as well as those contained in the “integrated hypotheses,” should be further refined. This includes the IV (economic liberalization), mediator variables (socioeconomic structures, social classes), intervening variables (regime policies), and the DV (regime stability). Such refinement is necessary for both macro-level and micro-level research. Ultimately, more precise definitions facilitate more apt operationalizations. Third, on the basis of better empirical operationalizations it would be worthwhile to analyze the effects of consumer-price liberalization and privatization on the stability of authoritarian regimes in a large-N sample—most probably across a panel of resource-poor countries ruled by authoritarian regimes. To make the use of inductive statistical methods feasible, data sets on the enactment of economicliberalization policies have to be built up for a larger number of countries going forward. Ultimately, large-N studies could make use of the insights generated by in-depth case studies to continuously refine the tested model and thus to increase the validity of results. Fourth, comparative case studies on economic liberalization and the stability of authoritarian regimes could be extended to countries outside the MENA region. Thereby the hypotheses would be subjected to greater scrutiny, ruling out the possibility that the variable relations witnessed are region-specific. A first cursory case selection from a global sample of countries yields 18 non-MENA resource-poor countries ruled by authoritarian regimes that could be compared with the four MENA

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countries discussed in this study: Afghanistan, Belarus, Burundi, Cameroon, Chad, China, Democratic Republic of the Congo, Ethiopia, Gambia, Rwanda, Singapore, North Sudan, Tajikistan, Thailand, Togo, Turkey, Uganda, and Vietnam.1

1

I operationalized “authoritarian regimes” with “autocracies” and “closed anocracies” as classified by the Polity IV Project on the basis of the Polity2 Index measurement for the year 2016. These selection criteria lead to a global sample of 45 countries (Center for Systemic Peace 2017: 2018a). Taking resource endowment into account (data available for 39 out of 45 countries) narrows down the sample to 22 resource-poor countries ruled by authoritarian regimes—18 from outside the MENA region and four within it (Egypt, Jordan, Morocco, and Yemen). Of these 22 resource-poor countries ruled by authoritarian regimes, 19 are classified as “closed anocracies” and three as “autocracies” (Belarus, China, Vietnam). Regarding resource endowment, I used the same indicator as in this study (see sections 5.2.2 and 5.2.3): total natural-resources rents per capita in current USD. Due to a structural break in the pattern of values, I assumed an arbitrary threshold of USD 16,000 to distinguish resource-poor from resource-rich countries. The figures used in the calculation of the indicator relate to the year 2016, as published by the WB (World Bank 2017).

8

Appendix: Hypotheses Tables

The appendix gives an overview of the hypotheses implicitly contained in the reviewed literature. These hypotheses together constitute the body of theory and the state of the art in the two scientific fields (stability of authoritarian regimes and effects of economic liberalization) analyzed in this study. How to read the tables: Each hypothesis has an identification number (which is used as reference in the main text), a tag to which theoretical field and subfield it belongs, and an attribute that informs about its asserted geographical area of applicability.

Table 8.1 Hypotheses on the stability of authoritarian regimes Hypothesis Type of effect No.

Geographic scope

Hypothesis

H1

SAR - Political

Global

H2

SAR - Political

Global

H3

SAR - Political

Global

H4

SAR - Political

Global

Party-backed neopatrimonial regimes are the most stable form of authoritarian regimes. Regular elections increase the stability of an authoritarian regime. An authoritarian regime increases its stability by raising specific support among the populace through coercion. An authoritarian regime increases its stability by raising diffuse support among the populace through various legitimation policies. (Continued)

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2022 C. Neugebauer, Economic Liberalization and Authoritarianism, Politik und Gesellschaft des Nahen Ostens, https://doi.org/10.1007/978-3-658-35639-2_8

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Appendix: Hypotheses Tables

Table 8.1 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H5

SAR - Political

Global

H6

SAR - Political

Global

H7

SAR - Political

Global

H8

SAR - Political

Global

H9

SAR - Political

MENA

H10

SAR - Economic Global

H11

SAR - Economic MENA

H12

SAR - Social

Developing countries

H13

SAR - Social

Global

H14

SAR - Social

Global

The most prevalent types of legitimation policies conducted by an authoritarian regime are personal, ideological, and external. One of the most prevalent ideological legitimation policies conducted by an authoritarian regime focuses on economic success and material welfare. One of the most prevalent ideological legitimation policies conducted by an authoritarian regime focuses on the provision of internal and external security. An authoritarian regime prioritizes legitimation policies that aim to assure the loyalty of its key supporters. Politically weak formal opposition is a factor responsible for and the result of the stability of an authoritarian regime. Higher rent income accruing to an authoritarian regime increases its stability. A high share of rent income in total state income increases the stability of an authoritarian regime. Economic underdevelopment and the resulting lack of sociocultural transformations increase the stability of an authoritarian regime. The insignificant size and / or political weakness of the bourgeoisie increase the stability of an authoritarian regime. The insignificant size and / or political weakness of the working class increase the stability of an authoritarian regime. (Continued)

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Appendix: Hypotheses Tables

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Table 8.1 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H15

SAR-Social

Global

H16

SAR - Social

Global

H17

SAR - Social

MENA

H18

SAR - Social

MENA

H19

SAR - Social

MENA

H20

SAR - Social

MENA

H21

SAR International

Developing countries

H22

SAR International

Global

H23

SAR International

Global

Low or high economic inequality among the population increase the stability of an authoritarian regime. Low transferability of a country’s economic assets increases the stability of the country’s authoritarian regime. The lack of democratic coalitions of the bourgeoisie, the working class, and the middle class increases the stability of an authoritarian regime. A politically strong state weakens the bourgeoisie and the working class, and thereby it increases the stability of an authoritarian regime. Economic and political dependency weakens the bourgeoisie and the working class, and thereby it increases the stability of an authoritarian regime. A hierarchical structure of society increases the stability of an authoritarian regime. The interference of core elites, often in collaboration with noncore elites, in local politics increases the stability of an authoritarian regime. The lack of national unity, as a result of territorial boundaries drawn by the former colonial powers, fosters interstate and intrastate conflicts and thus increases the stability of an authoritarian regime. Effects of contagion from countries in the geographic neighborhood ruled by authoritarian regimes increase the stability of an authoritarian regime. (Continued)

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Table 8.1 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H24

SAR International

Global

H25

SAR International

MENA

Foreign aid and other financial contributions of donor states and international organizations increase the stability of an authoritarian regime. Region-specific transnational ideologies increase the stability of an authoritarian regime.

Table 8.2 Hypotheses on the effects of economic liberalization on the state budget Hypothesis Type of effect No.

Geographic scope

Hypothesis

H26

EL - Economic

Global

H27

EL - Economic

Global

H28

EL - Economic

Global

H29

EL - Economic

Global

Consumer-price liberalization (in the form of subsidy cuts) improves the balance of the state budget in the short run due to a reduction of public subsidies. Producer-price liberalization improves the balance of the state budget in the short run, as it eliminates parallel markets and thus makes more economic activity taxable. Liberalization of domestic and foreign investment improves the balance of the state budget in the short run due to an increase of private investment and employment, leading to a rise in tax income, a reduction of public investment, and less social spending. Trade liberalization deteriorates the balance of the state budget in the short run due to a loss of revenue from tariffs and domestic taxes. (Continued)

8

Appendix: Hypotheses Tables

587

Table 8.2 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H30

EL - Economic

Global

H31

EL - Economic

Global

H32

EL - Economic

Global

H33

EL - Economic

Global

Exchange-rate liberalization (if leading to a weakening of the domestic currency) deteriorates the balance of the state budget in the short run due to pressure on the state to cushion the resulting inflation with an increase in consumer subsidies. Consumer-price liberalization (in the form of subsidy cuts) improves the balance of the state budget in the long run due to a reduction of public subsidies. Producer-price liberalization improves the balance of the state budget in the long run, as it eliminates parallel markets and thus makes more economic activity taxable. Liberalization of domestic private investment improves the balance of the state budget in the long run due to an increase of private investment and employment, leading to a rise in tax income, a reduction of public investment, and less social spending.

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Appendix: Hypotheses Tables

Table 8.3 Hypotheses on the effects of economic liberalization on the international accounts Hypothesis Type of effect No.

Geographic scope

Hypothesis

H34

EL - Economic

Global

H35

EL - Economic

Global

H36

EL - Economic

Global

H37

EL - Economic

Global

H38

EL - Economic

Global

H39

EL - Economic

Global

Trade liberalization on the export side improves the balance of the international accounts (trade balance, current-account balance) in the short run due to a rise of exports. Consumer-price liberalization (in the form of subsidy cuts) improves the balance of the international accounts (trade balance, current-account balance) in the short run due to a decline of imports resulting from higher prices for imported products. The liberalization of interest rates (if leading to their rise) improves the balance of the international accounts (lower share of foreign debt in the capital account) in the short run due to an increase in foreign capital inflows. Producer-price liberalization (if leading to a rise of prices) improves the balance of the international accounts (trade balance, current-account balance) in the short run due to an increase of domestic production leading to a reduction of imports. The liberalization of FDI improves the balance of the international accounts (lower share of foreign debt in the capital account) in the short run due to a rise of foreign capital inflows. Privatization (if opened to foreign investors) improves the balance of the international accounts (lower share of foreign debt in the capital account) in the short run due to a rise of foreign capital inflows. (Continued)

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589

Table 8.3 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H40

EL - Economic

Global

H41

EL - Economic

Global

H42

EL - Economic

Global

H43

EL - Economic

Global

H44

EL - Economic

Global

H45

EL - Economic

Global

Trade liberalization on the import side deteriorates the balance of the international accounts (trade balance, current-account balance) in the short run due to a rise of imports. Trade liberalization on the export side improves the balance of the international accounts (trade balance, current-account balance) in the long run due to a rise of exports. Consumer-price liberalization (in the form of subsidy cuts) improves the balance of the international accounts (trade balance, current-account balance) in the long run due to a decline of imports resulting from higher prices for imported products. The liberalization of interest rates (if leading to their rise) improves the balance of the international accounts (lower share of foreign debt in the capital account) in the long run due to an increase in foreign capital inflows. Exchange-rate liberalization (if leading to a weakening of the domestic currency) improves the balance of the international accounts (trade balance, current-account balance) in the long run due to a decline of imports and a rise of exports. Producer-price liberalization (if leading to a rise of prices) improves the balance of the international accounts (trade balance, current-account balance) in the long run due to an increase of domestic production leading to a reduction of imports.

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Appendix: Hypotheses Tables

Table 8.4 Hypotheses on the effects of economic liberalization on economic growth Hypothesis Type of effect No.

Geographic scope

Hypothesis

H46

EL - Economic

Global

H47

EL - Economic

Global

H48

EL - Economic

Global

H49

EL - Economic

Global

H50

EL - Economic

Global

H51

EL - Economic

Global

Consumer-price liberalization (in the form of subsidy cuts) increases economic growth in the short run, as it frees public resources for spending and investment. Liberalization of domestic private investment increases economic growth in the short run by raising private investment, which effectuates further investment as well as consumption (multiplier effects). Privatization increases economic growth in the short run, as it makes former SOEs more efficient. Trade liberalization on the import side reduces economic growth in the short run due to crowding-out of domestic companies as a result of import competition. The liberalization of interest rates (if leading to their rise) reduces economic growth in the short run due to its depressing effect on investment and an increase in the number of projects defaulting on their debt. Exchange-rate liberalization (if leading to a devaluation of the domestic currency) reduces economic growth in the short run due to contractionary effects resulting from a deterioration of the terms of trade, the domestic redistribution of income from wage earners to capital holders, the increase of domestic currency costs of intermediate goods imports, an inflation-induced increase of wages, and a reduction in the supply of loans. (Continued)

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Appendix: Hypotheses Tables

591

Table 8.4 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H52

EL - Economic

Global

H53

EL - Economic

Global

H54

EL - Economic

Global

H55

EL - Economic

Global

H56

EL - Economic

Global

H57

EL - Economic

Global

Trade liberalization increases economic growth in the long run through static and dynamic productivity gains of the economy. Consumer-price liberalization (in the form of subsidy cuts) increases economic growth in the long run, as it frees public resources for spending and investment. The liberalization of interest rates (if leading to their rise) increases economic growth in the long run through its positive impact on financial depth / financial development and through raising the productivity of investment. Producer-price liberalization increases economic growth in the long run due to more efficient resource allocation in the economy. Investment liberalization (of domestic private and foreign portfolio investment) increases economic growth in the long run by raising private investment, which effectuates further investment as well as consumption (multiplier effects), and by improving the efficiency of production through private ownership. The liberalization of FDI increases economic growth in the long run due to crowding-in of domestic companies, productivity spillovers, and efficiency gains of the host economy from competition. (Continued)

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Appendix: Hypotheses Tables

Table 8.4 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H58

EL - Economic

Global

H59

EL - Economic

Global

Privatization increases economic growth in the long run, as it makes former SOEs more efficient, eliminates market distortions, and improves the efficiency of production through private ownership. Exchange-rate liberalization (if leading to a devaluation of the domestic currency) reduces economic growth in the long run due to contractionary effects resulting from a deterioration of the terms of trade, the domestic redistribution of income from wage earners to capital holders, the increase of domestic currency costs of intermediate goods imports, an inflation-induced increase of wages, and a reduction in the supply of loans.

Table 8.5 Hypothesis on the international effects of economic liberalization Hypothesis Type of effect No.

Geographic scope

Hypothesis

H60

Global

The implementation of economic-liberalization policies by a debtor as part of a loan conditionality agreement increases the benevolence of international creditors, resulting in further lending as well as debt rescheduling and cancellation.

EL International

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Appendix: Hypotheses Tables

593

Table 8.6 Hypotheses on the socioeconomic effects of economic liberalization on a macro level Hypothesis Type of effect No.

Geographic scope

Hypothesis

H61

EL Socioeconomic (macro level)

Global

H62

EL Socioeconomic (macro level)

Global

H63

EL Socioeconomic (macro level)

Global

H64

EL Socioeconomic (macro level)

Global

The liberalization of domestic private investment enhances socioeconomic development in the short run due to a rise in private investment which reduces unemployment. Consumer-price liberalization (in the form of subsidy cuts) harms socioeconomic development in the short run due to an increase in inflation, which reduces real incomes of wage earners, and thereby increases poverty and income inequality. The liberalization of interest rates (if leading to their rise) harms socioeconomic development in the short run due to an increase in unemployment as a result of lower investment and due to its negative effect on the net income of indebted households, which both increase poverty. Exchange-rate liberalization (if leading to a devaluation of the domestic currency) harms socioeconomic development in the short run due to an increase in inflation, which reduces real incomes of wage earners, and thereby increases poverty and income inequality. (Continued)

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Appendix: Hypotheses Tables

Table 8.6 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H65

EL Socioeconomic (macro level)

Global

H66

EL Socioeconomic (macro level)

Global

H67

EL Socioeconomic (macro level)

Global

Privatization harms socioeconomic development in the short run due to a rise in unemployment and a decline of wages resulting from the reduction of overstaffing and adjustments of wages to productivity levels in privatized SOEs (which could increase wage inequality over the whole economy). The liberalization of domestic private investment enhances socioeconomic development in the long run due to a rise in private investment, which reduces unemployment, and indirectly through higher economic growth. Privatization enhances socioeconomic development in the long run due to an expansion of company activities leading to more employment, rising wages as a result of productivity increases, the freeing of public resources for social spending and investment, and higher economic growth due to efficiency gains of the economy.

8

Appendix: Hypotheses Tables

595

Table 8.7 Hypotheses on the socioeconomic effects of economic liberalization on a meso level (I) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H68

EL Socioeconomic (meso level) EL Socioeconomic (meso level)

Global

Economic liberalization increases the size of the bourgeoisie.

Global

H70

EL Socioeconomic (meso level)

Global

H71

EL Socioeconomic (meso level)

Global

Economic liberalization leads to a polarization of the middle class, with those segments benefitting that make use of the new employment opportunities provided by the policy and those segments losing that continue to work in disaffected sectors. Economic liberalization weakens organized labor, which slows down wage increases and curbs labor-friendly patronage, resulting in a decline of workers’ real income. Economic liberalization increases poverty among members of the less well-off segment of the working class and among members of the lower classes.

H69

596

8

Appendix: Hypotheses Tables

Table 8.8 Hypotheses on the socioeconomic effects of economic liberalization on a meso level (II) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H72

EL Socioeconomic (meso level)

Developing countries

H73

EL Socioeconomic (meso level)

Developing countries

H74

EL Socioeconomic (meso level)

Developing countries

H75

EL Socioeconomic (meso level)

Global

H76

EL Socioeconomic (meso level)

Global

H77

EL Socioeconomic (meso level)

Global

Trade liberalization harms capital owners (assuming capital is a scarce production factor) in the long run, inflicting economic losses upon the bourgeoisie. Trade liberalization harms skilled labor (assuming it is a scarce production factor) in the long run, inflicting economic losses upon skilled workers within the middle class and the working class. Trade liberalization benefits unskilled labor (assuming it is an abundant production factor) in the long run, bringing economic gains to unskilled workers within the working class and the lower classes. Trade liberalization benefits capital owners and workers in internationally competitive sectors, bringing economic gains to members of all social classes who invest or work in these sectors. Trade liberalization harms capital owners and workers in internationally uncompetitive sectors, inflicting economic losses upon members of all social classes who invest or work in these sectors. Trade liberalization benefits capital owners and workers in internationally competitive firms, bringing economic gains to members of all social classes who invest or work in these firms. (Continued)

8

Appendix: Hypotheses Tables

597

Table 8.8 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H78

EL Socioeconomic (meso level)

Global

H79

EL Socioeconomic (meso level)

Global

H80

EL Socioeconomic (meso level)

Developing countries

H81

EL Socioeconomic (meso level)

Developing countries

H82

EL Socioeconomic (meso level)

Developing countries

H83

EL Socioeconomic (meso level)

Global

Trade liberalization harms capital owners and workers in internationally uncompetitive firms, inflicting economic losses upon members of all social classes who invest or work in these firms. Consumer-price liberalization in the form of subsidy cuts increases poverty among the less well-off segments of the working class and among the lower classes. The liberalization of international payments leads to a stratification of the middle class, of the working class, and of the lower classes, with those segments benefitting that have access to foreign exchange and those segments losing that do not. International financial integration (a result of the liberalization of international payments and the liberalization of foreign investment) benefits capital owners invested in specific sectors and activities, bringing economic gains to the bourgeoisie. International financial integration (a result of the liberalization of international payments and the liberalization of foreign investment) harms financial asset holders, inflicting economic losses upon the bourgeoisie. Exchange-rate liberalization (if leading to a devaluation of the domestic currency) benefits members of wage-earning classes who work in export-oriented sectors as well as members of the bourgeoisie who invest their capital in these sectors. (Continued)

598

8

Appendix: Hypotheses Tables

Table 8.8 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H84

EL Socioeconomic (meso level) EL Socioeconomic (meso level)

Global

EL Socioeconomic (meso level)

Global

The liberalization of domestic private investment increases the capital and income of the bourgeoisie. The liberalization of domestic private investment creates employment and thus raises the average income of members of the wage-earning classes. Privatization increases the capital and income of the bourgeoisie.

H85

H86

Global

Table 8.9 Hypotheses on the political effects of economic liberalization Hypothesis Type of effect No.

Geographic scope

Hypothesis

H87

EL - Political

Global

H88

EL - Political

Global

H89

EL - Political

Global

H90

EL - Political

Global

Economic liberalization weakens the state by undermining its legitimacy (through the reduction of rent income and through the curbing of its regulatory leeway) and by triggering protest of disaffected groups. Economic liberalization fosters the growth of a civil society, which challenges the political supremacy of an authoritarian regime, and thereby advances democratization. An authoritarian regime controls the political power of civil society, and thereby blocks democratization. Economic liberalization leads to social atomization resulting in political quiescence, which increases the stability of a regime. (Continued)

8

Appendix: Hypotheses Tables

599

Table 8.9 (Continued) Hypothesis Type of effect No.

Geographic scope

Hypothesis

H91

EL - Political

Global

H92

EL - Political

Global

H93

EL - Political

Global

H94

EL - Political

Global

H95

EL - Political

Global

H96

EL - Political

Global

Economic liberalization fosters the growth and political strengthening of the bourgeoisie, which then pushes for democratization. Despite its growth and political strengthening through economic liberalization, the bourgeoisie does not push for democratization due to internal cleavages and due to cooptation by the regime. Economic liberalization fosters the growth and political strengthening of the middle class, which contributes to the growth of a civil society pushing for democratization. Despite its growth and political strengthening through economic liberalization, the middle class does not push for democratization due to a higher expected net benefit from the status quo. Economic liberalization fosters the growth and political strengthening of the working class (especially through the growth of labor-intensive exporting industries), which then pushes for democratization. Economic liberalization decreases the size and political strength of the working class, which inhibits democratization.

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