Industrialisation in the Arab world has fallen way behind other developing countries. This is the cause of the region's chronic underdevelopment, writes Salah El-Amrousi Industrial development in the Arab world has been sluggish. Indeed, it is non-industrial sectors that have been most successful in this region of the world. Oil has been Saudi Arabia and the Gulf countries' ticket into the cozy club of the world's wealthiest nations. In Egypt, tourism has helped stimulate economic growth and remittances from abroad have been a boon to per capita income. Still, industrial growth rates throughout the region are feeble. Industry continues to account for only a small proportion of GDP. Within this, manufacturing is dominated by "light" industries (i.e. textiles, food processing and furniture) and "assembler" industries (the electronics and automotive industries). This is particularly true of Egypt. Once thought to be the bastion of industrialisation in the Arab world, Egypt now lags in the race to industrial development. Historically, there has been a tendency to view the developing world as somewhat homogeneous. However, many indicators, such as rates of industrial development, the ratio of industry to total GDP, and the ratios of light to heavy manufactures, reveal this as an over-simplification. Perhaps the simplest indicator is that used by the United Nations Industrial Development Organisation (UNIDO) in its annual report on industrial development. Bearing in mind that the manufacturing value added (MVA) per capita, alone, cannot portray something as complex and multi-faceted as a country's industrial health, this index is still very telling. Taking a single year (1998) the MVA per capita in Egypt stood at $260, a figure well below the average MVA per capita of $291 for developing countries as a whole that year. Even though Egypt's figure was significantly higher than the average MVA per capita for Africa, ($80), it is still not misplaced to suggest that Egypt now lies at the tail end of the Third World, or at the head of the fourth, in industrial development. Meanwhile, many other developing countries have succeeded in achieving rapid industrial transformation, acquiring the status of newly industrialised nations. These include Brazil, with an MVA per capita of $702, Malaysia at $1,273, South Korea at $2,720 and Taiwan at $3,410. Even predominantly agrarian China manages a per capita MVA of $301. How was it that these countries leaped ahead, leaving Egypt and the Arab world in their wake? One strategy, adopted by Malaysia, Thailand and Indonesia, was to lend themselves to the new international division of labour, catering to the aims and interests of mammoth transnational corporations and leading to a form of dependent development. Another strategy is best exemplified by the massive drives launched in China, India, Brazil and Mexico, to close the gap with the industrialised world. These entailed creating a large, modern industrial and technological base, funded primarily by domestic capital. Such programmes gave rise to predominantly autonomous, state-guided development. Both strategies, mentioned above, are linked to the process of globalisation in different ways. Joining the international division of labour is based on globalising the productive capital of transnational firms, while the autonomous strategy is based on the globalisation of commodity capital. That is, export of the manufactured output from the modernising domestic industrial base. This latter strategy marks a major departure from earlier industrialisation drives that favoured isolationism and self-sufficiency. Thus, an important feature of the current "closing-the-gap" strategy is that it intensifies and extends capitalist relations to a new qualitative level, a level that forms the underlying foundation for a country's entry into capitalist globalisation. Naturally, the two strategies are not mutually exclusive. Indeed, China is a prime example of a country that has placed extraordinary emphasis on autonomous industrial development, but has simultaneously engaged itself forcefully in the new international division of labour through exports from the assembler industries that it founded in its industrial "free-zones". Mexico, by contrast, has a plethora of assembler industries, and thus entered the new international division of labour in the service of US-based transnationals. Indeed, it is to the Spanish that we owe the term for processing of assembler products for export: "maquila". However, Mexico also built up a sizable domestic heavy industry base, and, as such, also developed on the lines of the autonomous model. Clearly, then, the Third World can no longer be said to be a uniform entity, in view of the enormous progress achieved by so many countries in Asia and Latin America. However, Arab countries have remained mired in the backwaters of industrialisation, assuming they even reached that threshold to begin with. Somehow, then, Arab countries have slid down to the Fourth World, to join the countries of Africa (with the exception of South Africa) and South-Asian Islamic countries, such as Pakistan, Bangladesh and Afghanistan. The Arabs' industrial backwardness has been related to the chronic failure to create an Arab economic bloc, in the form of a free trade zone or common market. Inter-Arab trade accounts for only seven to eight per cent of total Arab exports abroad, which, in turn, make up no more than three to four per cent of the total volume of world trade. Since the current productive structure of Arab economies, as we mentioned above, is based on oil extraction and a handful of light consumer manufactures, it is not conducive to economic integration. On the contrary, it lends itself, virtually by definition, to integration with the economies of developed nations, which consume Arab raw materials and send back manufactured commodities (secondary products) along with the equipment necessary to manufacture consumer goods locally. Compare this with Asia, which has a 25.6 per cent share of world trade (of which Japan has only eight per cent), second only to Western Europe (41 per cent). North America is third, with a 16.2 per cent share. Asia has also realised a high level of regional integration. With inter-regional trade accounting for 52 per cent of the total volume of Asian export trade. This puts East Asia second only to Western Europe and before North America in inter-regional trade (68 and 36 per cent respectively). The low level of inter-Arab economic assimilation, in spite of all the resolutions and agreements over deregulating inter-Arab trade, can only be explained in terms of a positive correlation between the level of industrial development and the level of regional integration. Just as regional integration was absent in Asia prior to its industrial boom, so too will it remain impossible to realise a definitive leap in the level of economic assimilation in the Middle East, or between two Arab countries, without an appropriate transformation in the industrial productive structure. Industrial stagnation, or underdevelopment, in the Arab world is perplexing, especially in view of the enormous petroleum and cash resources at its disposal. However, oil, which many viewed as a blessing, has, in many ways, been a bane. The revenues from oil extraction encouraged a form of capital accumulation based on trade and real estate investment. The vast fortunes that fell into the hands of the Arab oil exporting countries, particularly after the 1973 War, were poured into the importation of every conceivable consumer good, whether perishable or durable, and into housing construction. Consequently, capital flows revolved around trade in these commodities, real estate investment and services related to these activities. To make matters worse, this form of capital accumulation spread to other Arab countries, such as Egypt, Syria and Sudan, whose labour exports to the oil rich countries and their remittances encouraged similar consumer and investment trends. This has had a particularly detrimental impact on a country such as Egypt, which in the beginning of the 1970s had an industrial base capable of catering to these "consumerist" tendencies. However, as demand increased, the consumer durable industries moved towards the assembly of imported components at the expense of previous efforts aimed at producing entirely Egyptian-made manufactures. Thus, the oil era propelled countries such as Egypt backwards, or at least dampened the drive for industrial development. It should also be noted that the assembler industries came into being behind high walls of customs protection. Such formidable protection for an industry, that was not truly domestic, diminished the incentive for export, or for attaining a level of quality that would render it competitive in export markets. Therefore, production was diverted to meet domestic demand. Additionally, a significant portion of Egyptian entrepreneurs who had made their fortunes in Saudi Arabia and the Gulf, with their investment partners in tow, returned to Egypt with a trade and real estate investment mindset, rather than investing in long term ventures and the domestic industrial base. In this context, there emerged an alliance between returning capital from the Gulf and the top state bureaucracy, or the bureaucratic bourgeoisie. The former supplied the money and the latter the expertise and influence to open closed doors. Indeed, as foreign capital encouraged the establishment of assembler industries, Egyptian workers returning from oil exporting countries were channelled into real estate investment. This mode of capital accumulation was a manifestation of the state's gradual retreat from the process of industrial development, leaving it entirely to the chaos of market forces. This decentralisation was militated by pressures from the World Bank and International Monetary Fund (IMF), and encouraged by the vested interests of the aforementioned class alliance. The structural adjustment programme, touted by the World Bank and IMF, was in essence a translation of the "Washington consensus", a programme in which the US administration plays a leading role and which serves the interests of US based transnationals. Ideologically, the programme has its roots in the market creed of the neo-classical school of economics. A fundamentalist creed that relies more on faith than on science, it holds that market forces are the panacea for all economic woes for all countries at all times. Its catchword is deregulation of market forces domestically, and of foreign trade. It prescribes the withdrawal of the state from economic activity, privatisation of public industries, the lifting of all forms of tariff and non-tariff trade safeguards, the encouragement of direct foreign investment, the deregulation of the movement of short term capital, tax incentives for entrepreneurial activities, austerity measures (lifting all forms of subsidies on food and housing), a high real interest rate, and labour market flexibility (which in the presence of a large labour force is translated as low wages). The neo-classical economic ideologues claimed that this prescription would transform Egypt into another net exporter, pointing to the Asian "tigers" as strict adherents to the neo-classical market creed. Ironically, the experience of those very "tigers", and China, puts paid to the neo- classicists' claims. It is sufficient, here, to point to South Korea, the model that best epitomises the circumstances of developing nations and was, simultaneously, the most successful. South Korea flouted every one of the free market pundits' prescriptions, from A to Z. Its model was based on direct and intensive state intervention which imposed a panoply of restrictions to regulate market forces. Instead of deregulating trade, it applied a strict protectionist policy. Instead of allowing commodity prices to be set by random market mechanisms, it set what one Korean economist described as "false" prices in order to support certain industries. Rather than let interest rates climb (in a country suffering from capital scarcity) it set a low interest rate (which, after deducting for inflation, became negative). Moreover, the state owned a number of economic ventures outright, the most famous being Bosco Steel, which became the third largest steel producing company in the world. Also, in spite of the fact that the public sector in Korea was not as relatively large as that in Egypt, or even India, the Korean government controlled the private sector with an iron grip stronger than the government's grip on the public sector in Eastern Europe. It placed stringent restrictions on licences to engage in particular commercial activities. It set production and export quotas even if that sometimes meant the companies had to operate at a loss. Furthermore, it kept an eagle eye on the process of mergers and whether to promote monopolies or to break them up. In sum, South Korea did not simply seek to stimulate the private sector through incentives and the channelling of activities, it intervened in every detail of its economic management in the interest of promoting domestic industries and indigenous technological know-how, until industry could stand on its own two feet. Finally, it set stringent restrictions on the influx of capital to ensure that investment conformed to its industrial development plans. As one expert put it, foreign capital entering South Korea had to pass through the eye of a needle. In all events, South Korea relied more on purchasing franchises and other non-capitalist arrangements than on direct foreign investment. Indeed, until the early 1990s, more foreign capital was entering Egypt than South Korea. The Arabs' industrial backwardness is one of the reasons for their economic weakness and their dependency on the US, which directly and indirectly controls the Arab political decision-making process. However, economic criticism is only half the story and must be linked to the social dimension. If we bring society under closer and more critical scrutiny, we will discover that our industrial development tasks must be part of a new social enterprise, emanating in the first order from the principles of justice, democracy, freedom and comprehensive development.
