The rise and fall of socialism

NA emerged from colonization as poor, uneducated, underdeveloped and, in the case of Algeria radicalized socially and ideologically. The ‘politics of decolonization' and the legacy of backwardness, poverty and underdevelopment played a key role in shaping the evolution of economic thinking in NA in the immediate post-independence period (Richards and Waterbury, 1996, 174).

Strong leaders emerged in Egypt (Gamal Abd al-Nasser, 1952—70), Algeria (Houari Boumediene, 1965—78), Tunisia (Habib Bourguiba, 1956—88), Morocco (Mohammed V, 1956—61) and Libya (Colonel Muamer Gaddafi, 1969—2011). These nationalist leaders, except Nimiri and Gaddafi in Sudan and Libya, not only architected their countries' political independence, but also the economic/social revolutions that followed. All NA leaders shared a vision of autonomous, equal, prosperous and strong states. They were determined to change the status of their nations and to rid them of the legacies of underdevelopment. It was against this background that a new model of development, specific to the Arab world, emerged after independence first in NA, before spreading to the rest of Arab Middle East. The literature refers to this new model of development as ‘Arab Socialism', the ‘Arab socialist model' or ASM (Kadri, 2012, 1).

The ASM first emerged in Egypt and was shaped by the ideas of its president, Gamal Abd al-Nasser, before spreading to NA and other Arab states. As Ayubi (1996, 289, 310) noted, the policies that emerged in the Arab world after independence were influenced ‘by the Egyptian transfer of their own experience to the rest of the Arab World... the impact of the Egyptian model... as an exemplar' model of development was imitated in the entire Arab world, ‘regardless of size, politico-institutional history, wealth or socio-political doctrine'.

Nasser was born on 15 January 1918 in Alexandria, Egypt. He was one of the key army officers who led the military Junta, known as the Free Officers, that deposed King Farouk and terminated British control in 1952. His main ambition was to modernize Egypt and create a secular Arab Empire in North Africa and the Middle East. He put his ideas into a book in 1954 entitled The Philosophy of Revolution (Cairo, Information Department). Here Nasser distinguished between AS and other forms of socialism, including nineteenth-century European socialism, in several ways. Nasser based AS on the Arabs' own history and experience, and it was not simply an attempt to imitate the experiences of others. Since nations' history and circumstances varied tremendously, Nasser asserted, it was not suitable to import models of development from other regions.

There were important differences, of course, in the models of governing that emerged after independence in NA. But all NA countries followed similar policies, and created/used a single party as a mechanism to oversee economic strategies and to mobilize support. Regardless of size, wealth, form of governing, history or political doctrine, all Arab states embraced strong government intervention in the economy, state-led development and a large public sector. As Ayubi (1996, 290) wrote:

In the economic sphere the expansion of state policies has been most remarkable and has included practically all Middle Eastern countries regardless of size, politico-institutional history, wealth or socio-political doctrine... all the Arab countries had a very large public sector.

Richards and Waterbury (1996, 174—5) elaborated on the rationale behind government intervention in the post-independence NA era:

it is more the politics of decolonization and development than history and culture that account for the interventionist, organic state in the Middle East. The caretaker states of the colonial era... have logically evoked their opposites, states that impinge upon all aspects of their citizens' lives. Moreover, the postcolonial state has seen as its duty the reparation of all the economic damage resulting from colonial policies. It has had to mobilize human and material resources on an unprecedented scale... The leaders of the state saw the need for intervention in order to avoid wasting scare resources... A more equitable distribution of assets became a universal goal throughout the area.

In addition, the assumed weakness of the private sector and the bourgeoisie class in most North African countries on independence also encouraged state-led development and heavy state investment. The ‘Private sector might be tolerated, but nowhere... did they enjoy legitimacy. Reliance on private entrepreneurs and on the law of supply and demand to allocate resources would be wasteful...' (Richards and Waterbury, 1996, 175).

NA's AS and developmental approach relied on several strategies to achieve its objectives. The first step was to elevate the state to the position of the only policy-making body and controller of natural resources. The aim was to harness the surplus to be redeployed in national development projects. ‘Economic planning and government intervention in relative autarky represented the means by which the foremost binding constraint of underdevelopment, which is the financing needed to galvanise national resources, was to be overcome' (Kadri, 2012, 6). This was followed by nationalisation of large-scale financial and industrial institutions. Planning and intervention in the economy were implemented in tandem with large-scale land reform to redistribute wealth and to limit the power of the landlords, seen as collaborators with the colonial powers.

Keynes argued that, in order to overcome depression in an economy, state inducement was needed. This can take either the form of lowering interest rates or state investment in infrastructure, or both. This injection of state capital, Keynes argued, leads to more general spending in the economy, which in return stimulates more investment and production, generating even more income and spending (Keynes, 1936). In the immediate post-independence era, NA lowered its interest rates and its national currencies circulated without any intervention from or consultation with international financial institutions (IFIs). In fact, several interest and exchange rates were at play to attenuate the impact of foreign exchange shortages on the national issue of currency. Investing heavily in infrastructure and industry represented other important state inducements in NA in the post-independence era. The current account real and capital balances were also devised in order to promote industrialization (Kadri, 2012, 6; Ayubi, 1999; Richards and Waterbury, 1996; Owen, 1992; Hayashi, 2007).

Typically, North African regimes supported an import-substitution industrialization strategy (ISI) based on a large public sector and public sector enterprises. ISI is based on the premise that a country should reduce its dependency on foreign imports by ‘replacing] commodities that are being imported, usually manufactured goods, with domestic sources of production and supply' (Todaro, 1989, 435). The strategy is first to erect tariff barriers or quotas on the importa­tion of certain commodities, then to set up local industry to produce these goods. It is thus a state-induced strategy to achieve rapid industrialization. While the initial cost of production may be higher than the former imported prices, the rationale for ISI is that either the industry will be able to reap economies of scale and reduce costs of production (the infant industry argu­ment), or that the balance of payments will improve as a result of fewer imports, or a combination of both.

It has been suggested that ISI was first advocated by the mercantilist school of economic thinking in Europe between the sixteenth and eighteenth centuries, which supported protection of the economy in order to industrialize, reduce imports and attain favourable terms of trade (ibid.). Ha-Joon Chang (2002, 1) argues that almost all of today's developed countries used such policies when they were developing. As Chang stated, policies associated with ISI based on government intervention:

were used by the developed countries when they themselves were developing countries. Contrary to the conventional wisdom, the historical fact is that the rich countries did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries... Almost all of today's rich countries used tariff protection and subsidies to develop their industries. Interestingly, Britain and the USA... are actually the ones that had most aggressively used protection and subsidies.

In the 1930s, ‘ISI was initiated in many Latin American countries as a response to the disruption caused by World War I, the economic depression of the 1930s and World War II... but ISI became more widespread in the post-1945 world' (Colman and Nixon, 1986, 282).

From the 1950s onwards, ISI was incorporated in the works of such structuralist economists as Raul Prebisch and Hans Singer. The Prebisch-Singer thesis ‘concerned the long-term deterioration of poor countries' terms of trade. It analysed why, in the long run, the price of primary products tended to decline relative to that of manufactured goods. [Their] conclusion was that the benefits of trade were distributed unequally between the countries that imported agricultural commodities and those that exported them, to the disadvantage of the exporters' (The Economist, 2006). The Prebisch-Singer thesis became the basis of dependency theory ‘developed in the late 1950s under the guidance of the Director of the UN Economic Commission for Latin America, Raul Prebisch... and his colleagues [who] were troubled by the fact that economic growth in the advanced industrialized countries did not necessarily lead to growth in the poorer countries... Such a possibility was not predicted by neoclassical theory, which had assumed that economic growth was beneficial to all (Pareto optimal)' (Ferraro, 2008).

In NA, ISI started first in Egypt after the end of the Second World War and continued until at least 1974, when Sadat introduced his infitah (open door) policy. It was replicated in Algeria (1962-89), Tunisia (1962-86), and Morocco (after independence until 1983). Although ISI started after independence in Sudan, it was accelerated after Ga'afar Nimeri seized power in 1969 (1969-84). ISI fitted perfectly the objectives of AS, which sought political and economic liberation and de-linking of economic ties to former colonial power (Ayubi, 1999; Richards and Waterbury, 1996).