The Changing Economic Scene: Past Heritage and Future Plans

by WILLIAM R. POLK AND WILLIAM O. THWEATT

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INLAND from the shores of the Eastern Mediterranean lies the Arab World. Although not a geographical unit, it is an area which time after time during the past three thousand years has been welded into empires and then shattered into tiny autocephalous townships. Periods of intensive internal economic activity and flourishing external trade have given way to periods of devastation, neglect, and isolation. Yet, under all ruling systems and in spile of great diversity in climate, natural resources, and population in the component parts, the area has retained a basic economic framework.

Some economies can be approached through statistics, but, for the Arab World, these are often not available, and, when they are, frequently inconsistent. Worse, even when correct, they can be misleading. For example, one basic figure is the “man-land ratio”: in the Arab World forty million people live in an area half the size of the U.S.A. Seeing this, it may come as a surprise to learn that the area is now overpopulated; but when the vast deserts are subtracted — and the figure is corrected to “man-usable land” — the true picture becomes both clear and tragic. To visualize the situation we might toss a handful of coins on a small rug. Thai part covered by the coins would represent the area now being farmed; another handful tossed among them would show the additional potentially arable land, which, in all, would total less than 5%, as compared with 60% in the United States. Moreover, while less than 15% of the American population is rural, the vast majority of Arabs are agricultural workers who must glean an existence from a farmable area the size of Missouri.

Frequently it is claimed that deserts can be made into gardens by huge capital investments for irrigation. Capital can improve the use of potential resources, but in the Arab World a basic scarcity of water sets strict limits on agriculture, for only around the fringes of the area is rainfall sufficient (more than eight inches) to support crops. Rivers must do the main job. The Nile now irrigates about six million acres and can, it is hoped (if Egypt secures the capital to construct the “High Dam”), make fertile another two million. The Tigris and Euphrates river system now irrigates seven million acres and may be able to supply another four and a half million. There are other rivers, of course, but they are fairly small, like the Jordan, which, unfortunately, is “mighty” only in Negro spirituals. Oases in the deserts support clusters of farms, but a heavy drain on underground water would be dangerous. The Bedouins of the deserts, with their sheep, camels, and “scratch” plows, are able, by migrating, to subsist in regions where year-round farming would be impossible. Distillation of sea water is useful for such towns as Kuwait, which has had formerly to import water from Iraq by ship, but as yet is far too expensive for agriculture. Thus, it is illusory to think in terms of vast development schemes: these can ameliorate but not basically alter the picture of the coins on the rug. Most of the area in the Arab World is always going to remain desert.

In Arab cities and towns, considerable economic progress has recently been made. A number of light industries exist and others are planned, but all are limited by scarcity or lack of raw materials and the poverty of local markets. Population, meanwhile, has multiplied. In the past fifty years, the population of Egypt, where statistics are most reliable, has doubled and today most Egyptians are under thirty. Thus, with the “man-farmed land ratio” worsened by 40% since 1907 there have been vast migrations to the cities. And, even if every present government development plan works out perfectly, another 12% deterioration in the ratio is forecast by 1975.

It should be noted, however, that population is not the chief problem in certain of the Arab states: both Iraq and Syria have considerable slack to take up in the exploitation of their resources. And Lebanon, thanks to its location on the Mediterranean, can benefit as “middle man" both from transit trade handled by its ports and from passing rain clouds caught by its mountains. Saudi Arabia and the Persian Gulf Sheikhdoms are necessarily thinly populated and, although they have huge oil revenues, they have small scope for domestic investment. Yemen, aloof and isolated until quite recently, is still an unknown quantity. Lastly, Libya and Jordan lack important resources and depend on foreign, British and American subsidies. In spite of their close cultural ties with the eastern parts of the Arab World, Tunisia, Algiers, and Morocco cannot be adequately treated in this article. Not only do their economic problems and the heritage of the past which affects those problems differ, but their present state of political flux makes it impossible to foresee what settlement will be arrived at with the French to whom they have attachments of various sorts.

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BEFORE treating the Arab World economy in greater detail, it may be useful to examine how it became what it now is. The Middle East is profoundly conscious of history, partly, no doubt, because history has treated it roughly. In many ways the present is mortgaged to the greed and carelessness of the past.

The great river systems of the Nile, Tigris, and Euphrates were developed before recorded history. Under the Romans and Parthians, the Byzantines and Sassanians, large tracts of now-ruined land were profitably worked. Wars often devastated provinces, but the Arabs, invading in the seventh century A.D., found a prosperous, well-organized civilization. To them, it was indeed a “Fertile Crescent.” Pleased with what they found, the Arabs patterned their administration on those of their Byzantine and Sassanian predecessors and also provided a Pax Islamica. Security of travel from Central Asia to Spain, in the “Abode of Peace,” stimulated trade. Industry and agriculture flourished. Baghdad, capital of the Abbasid caliphate and a city of almost a million people in the ninth century, with justification considered itself the metropolis of the world.

Hardly had Baghdad reached its prime, however, before the great empire began to crumble. Province after province broke away politically and economically, though still remaining in the Islamic religious community. In its weakness, the central government of the caliphate came to rely on mercenaries, mostly Central Asians, for its army and police, and these hirelings ravaged the civilian administration. The Abbasid treasury floundered and was replaced by a semifeudal system in which government departments and army units were assigned provinces to “milk” for their upkeep. Government became piracy, and, for the individual, the only reward for industry and success was confiscation. Little thought was given to the future, and untended, the intricate system of irrigation and drainage works disintegrated. Civil wars and Crusades followed; then, like a scourge from Central Asia came the Mongols. Having already conquered and devastated much of Russia and China, the Mongols swept into the heart land of the caliphate and in one ferocious assault virtually wiped out Baghdad in 1258.

More was to come. In 1400 Tamerlane ravaged Baghdad, Aleppo, and Damascus, carrying off the artisans and other skilled workers. Dreary generations of floods and plagues followed. Towns were abandoned, canals silted in, and the tradition of Arab craftsmanship, the wonder of the medieval world, died out. Today this legacy is painfully obvious. South Iraq is now a vast salt swamp while the patient work of centuries is mocked by miles of ruined irrigation dikes near Baghdad. Mosul, whose name was given by medieval Europeans to fine cloth, like most of the once-great cities, shriveled inside the ruins of its past glory.

Markets contracted, small townships became autarchic, and the desert invaded the town. Travel was no longer safe without armed escort, and by the end of the seventeenth century, the Arab parts of what had become the Ottoman Empire, were just a series of fortified town “islands" in a hostile sea of nomadic tribes. Early nineteenth-century travelers paint vivid pictures of the terror of travel even between Cairo and Suez or Jerusalem and the coast, not to mention the eight hundred miles between Damascus and Baghdad along what had been one of the world’s great commercial highways, the Syrian Desert.

Restricted travel, however, promoted local arrangements which became an integral part of the social system. Local handicraft industries flourished, iron (in small quantities for local usage) was mined and smelted in Syria, the hills of Lebanon were shaded by silkworms’ mulberry leaves, and the mills were busy with the olive crops; the wealth of the desert was in camels and sheep, but most Bedouins plowed land and wove cloth. Kuwait, Bahrein, Sidon, and Tripoli were shipping centers and Jidda a great entrepôt on the Indian and African trade routes. In short, the area had an accepted economic life which, even if not so efficient as that we know today, did work. The breakdown in modern times of this old system has dislocated many familiar and accepted social and political institutions.

What has happened to the Arab World economy in the last century? Local industries have disappeared under the competition of Manchester’s cotton and China’s silk; the camel has lost the race to the automobile; and the introduction of the concept of private ownership of tribal lands, together with crop specialization and the rise of a money economy, has converted free tribesmen into peasants bound to the soil. Technological improvement in irrigation has brought both the blessing of bigger crops and the bane of the fearful disease Bilharzia. Even measures for improving public health, shocking as this may seem, have increased poverty for, without balancing factors, they have tended merely to multiply the population without raising its living standard.

Above all, the total impact of the West has been disruptive. Economically, entry into world markets, specialization of crops, new patterns of transportation, and the birth of the oil industry produced shattering changes. Psychologically, an expanded view of the world has led to greater hopes and dissatisfaction among the masses. And, politically, the European heirs of the defunct Ottoman Empire left behind a new set of ruling groups and new barriers and hostilities. Syria and Lebanon — as well as Tunisia, Algeria, and Morocco — were cut off culturally, politically, and economically from their neighbors and bound to France; Libya, was attached to Italy; Egypt, Palestine, and TransJordan to England; and Iraq to both England and British India. Thus, the various parts of the Arab World tended to develop differently, to have conflicting loyalties, and often, on achieving independence, to inherit the hostilities of their former overlords.

Finally, Arab cities, adopting Western economic and military techniques, have as in the heyday of the caliphate extended their control over the countryside. Whole groups of villages are often owned by town merchants, and, to the villager, the city, though a place of enchantment, is the den of the tax collector and the usurer. Centuries of exploitation have left sears of distrust, ignorance, and apathy. Thus, programs of social betterment today are apt to be viewed sullenly by “the men of the black land” merely as new guises for old abuses.

On the basis of these legacies of a harsh past, it is perhaps easier to see the immensity of the task facing Arab social and economic planners and to evaluate their available resources, both material and human.

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THE, Arab World is a poor area. Not only is most of the land nonarable but it contains few minerals capable of economic exploitation. Oil is the famous exception, of course, but known deposits of iron, gold, lead, manganese, phosphates, sulphur, and zinc are small. Extensive surveys have been made to discover resources, but even if found their exploitation will require the creation of so-called “social-overhead” facilities — the large-scale development of transportation, irrigation, and power plants. Such projects form the nucleus of the various Arab governments’ new development schemes.

These plans are ambitions. They call for the most modern engineering techniques for dams, hydroelectric plants, and port facilities. Western methods have strong appeal, but in some applications their efficacy is questionable. Poured concrete may not be so efficient for the heat of Baghdad as mud brick. And under certain soil and weather eonditions, the “scratch ” plow may cause less soil erosion than large tractor-drawn deep plows. Again, with limited capital available the combination of a few trunk roads fed by smaller tracks, which are often excellent in the desert, may be more rational than the planned networks of expensive highways. In short, Western techniques, based as they are on maximum capital and minimum labor, may not always be best in an area where capital is scarce in relation to land and labor.

Since the Arab economy, taken as a whole, has little accumulated wealth to invest, “ambitious” may be an understatement to describe plans for which most Arab countries lack sufficient capital to finance even top-priority projects. In development terms, oil is the area’s most valuable resource. More than half of the world’s proven oil reserves — about eleven and a half million metric tons — is in the Arab World. (This figure does not include Iran, which is not Arab.) Of this total, Iraq, Kuwait, and Saudi Arabia account for 92%, but Qatar, Egypt, and Bahrein also have important fields. All oil operations are now run by foreign concessionaires who employ large numbers of local nationals (in Iraq, for example, about fifteen thousand). Profits, split fifty-fifty, form a high percentage of state incomes (in 1955 Saudi Arabia received $258 million, Kuwait $189 million, and Iraq $213 million), and local expenses of the oil companies and their employees provide additional income. All in all, the foreign corporations are the most highly organized and powerful business units in their areas of operation. Hence, they are both coveted and feared.

Large as they are, the oil reserves will one day be exhausted, and if this temporary wealth is to bring lasting benefit to the Arab World, far-reaching changes must be made in its application to the total economy of the area. It is one of Fate’s grim jokes that the countries richest in oil have the thinnest populations and fewest other resources. The classic example is Qatar. A thumb of land sticking out into the Persian Gulf, Qatar has a population of twenty-five thousand. “ Before Oil,”Qatar’s B.C., the people subsisted by fishing offshore and grazing camels on the eight thousand square miles of waterless desert. Then oil was found in 1940, and by 1952 Qatar was producing 25.2 million barrels a year — worth, to the sheikh, about $20,000 a day. Rags to riches? Surely, but how could the money be invested? Qatar has no water, and even its sand is of too poor quality to be used for cement. If its ruler follows the lead of Kuwait and Bahrein, he will build schools, hospitals, and sea-water distillation plants and then invest his surplus abroad.

To be put to work, constructively, “surplus" oil revenues must be moved to densely populated centers where there is scope for investment. Realizing this, the Arab ministers of finance have asked the Arab League to study a project for an Arab Development Bank. But past heritages beset this plan with obstacles: how will Syria or Egypt — much less Saudi Arabia — react to an extension of Iraqi influence by the development of Jordan, upsetting the balance of power between the Arab states? What will Great Britain do if Iraq sells its commonwealth securities to invest in Arab countries? And how will Lebanese Christians view a closer merger with Muslim Syria? Answers to these noneconomic questions must precede economic integration.

There is agitation for land reform throughout the Arab World, but above all in Egypt, where, as late as 1949, one per cent of the landowners owned about, half of the country’s productive land. Naturally, where big landowners dominate the government — and this, incidentally, has been the most visible concomitant of parliamentary rule in the Arab World to date — any land reform presupposes political change. Whence much of the recent political ferment. When political change came to Egypt in 1952 the new regime made land reform a priority project. And since the landowning ruling group has relied in the past upon foreign support to maintain the status quo, landowners and foreign powers have become identified in popular opinion as forces opposed to social and economic advance. Consequently, domestic reform agitation often parades under the banner of nationalism.

A related internal problem in such capitaldeficient countries as Lebanon, Jordan, and Egypt is the general failure of the rich landowning class to invest the wealth derived from agriculture in local industry, which would provide employment for part of the excess rural population and generally stimulate the whole economy. Instead, most of the big landowners either buy more land, hoard their money, or spend it on imported luxuries. In fairness, we must add that present conditions make profit prospectives for most private investment exceedingly discouraging. Consequently the large task of economic expansion has fallen by default where historically in the great river economies it has always been, on the state.

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So MUCH for the general picture. What is the present situation in the individual countries of the Arab World?

Egypt with twenty-two million people has the world’s highest number of agricultural workers per acre of cultivated land. Therefore, beside “socialoverhead” projects, Egypt aims at reclaiming 300,000 acres of desert by 1959, while improved seeding and better drainage on existing land should provide support for an additional 880,000 persons. Even so, as noted earlier, steady deterioration in the manland ratio is expected to continue.

Since 1950, Egypt’s electric supply has increased more than 50%, and completion of the Aswan hydroelectric project on the upper Nile in 1959 should double present capacity. Near Cairo, a German firm, guaranteed a minimum profit by the Egyptian government, is to construct an iron and steel plant capable of producing 200,000 tons a year, or about 85% of Egypt’s needs, by 1958. At Suez, the government oil refinery’s capacity has been raised from 300,000 to 1.3 million tons, and fertilizer production is expanding to meet all domestic needs. But, at the present rate of expenditure, it will take twenty years to complete the larger projects Egypt has begun to map out.

Jordan with 1.5 million people is almost exclusively agricultural, yet has only enough arable land to support half its population at subsistence levels. Moreover, it has one of the world’s highest rates of population growth. After the 1948 war in Palestine, half a million Arab refugees fled to Jordan. They will probably stay but even excluding them — and counting on optimum development, of new land projects — deterioration of the “manland" ratio will only be temporarily checked and will again accelerate after 1975. Furthermore, much hinges on the Yarmuk hydroelectric and irrigation project, which will require a $50 million investment and is now blocked by hostility between Jordan and Israel. Some improvement in productivity of existing land may be expected from work financed by British loans of $20 million since 1950 (this figure does not include British military grants) and U.S. Point IV grants of $30 million since 1951.

Development of the Red Sea port of Aqaba should increase the export of phosphates, of which Jordan has the most important deposits between Tunisia and the Pacific Ocean, but not nearly enough to cancel out its trade deficit. Much of this shortage is now made good by British aid, but Jordan hopes to stimulate tourism at its Christian holy places and develop the Dead Sea potash deposits which may eventually meet its foreign currency requirements.

In Lebanon, which has a population of 1.3 million and also largely depends on tourism, several small irrigation and power projects are under way, but only the Litani River plan could materially affect the economy. The one-hundred-mile-long Litani, small by world standards, but with a drop of over half a mile in its last sixty miles, is tailor-made for power generation. Since the whole river lies inside Lebanon, this will dispense with the sort of political friction involved in development plans for the Nile (between Egypt and the Sudan), the Euphrates (shared by Turkey, Syria, and Iraq), and the Jordan. It is hoped that the Litani might add as much as 40% to Lebanese irrigated farm land. It would also quadruple the now insufficient electric supply, and thereby stimulate light industry. But, as the $100 million required is ten times the country’s total annual development budget, Lebanon has had to obtain a $27 million World Bank loan.

A serious obstacle to rural development in Lebanon has been the high cost of credit. Interest rates run up to 40%; so a projected credit institution should be helpful to small farmers. In the present plan the government would put up about 40% of the capital and leave the rest for local investment.

Syria, with 3.3 million people, has no immediate population problem. Its current seven-year plan, started in 1953 and budgeted at $185 million, is mainly of the “social-overhead" sort and is concentrated in the northwest triangle bounded by Aleppo, Latakia, and Homs. One major project is the draining of the Ghab marsh to reclaim 180,000 acres of once-prosperous land on the Orontes River. In transport, the Syrians plan a network of modern roads and an extension of the rail system to bring the northeastern “Jezira" farm lands into easier contact with the commercial center of Aleppo and the port of Latakia. Latakia is being developed as a rival to Beirut, and today, after a spectacular fortyfold rise since 1945, handles almost half as much cargo as the Lebanese port.

On the Euphrates at Meskine, about sixty miles east of Aleppo, the Yusif Pasha Dam is part of the second phase of the Syrian development plan. Expected to double the country’s electric supply by 1960, it suggests the new tempo of development as it will cost half the amount spent by Syria on all similar projects in the preceding seven years.

Iraq, with 5.1 million people, is the most fortunate of the Arab states. Its problem is not where to find money but how to use what it has without causing runaway inflation. For several years, Iraq’s Development Board has been spending oil royalties at the rate of $70 million annually on irrigation, new industry and mining, building roads and bridges, and other “social overhead” projects. Under a new five-year plan begun last year the annual investment will rise to $170 million yearly. Yet even at this rate Iraq will still have a large investable surplus. Will Iraq follow the lead of its southern neighbors, the British protectorates Kuwait and Bahrein, whose English advisers have channeled oil royalties into Sterling Area investments? Or will Iraq find it both more brotherly and profitable to invest its surplus in some of the other Arab stales which do not have the oil bonanza? On this decision may well depend the success of all that is envisaged in the plan for the projected Arab Development Bank.

Libya, with a population of 1.1 million, is the other side of the coin to Iraq. As yet, few natural resources have been found in Libya although some American companies are now looking there for oil With a huge surface area, Libya has only a shallow fringe of arable land within the rainfall belt and no rivers. Like Jordan, it depends largely on Western military expenditure to balance its $28 million annual trade deficit.

As we said before, Saudi Arabia and the Persian Gulf Sheikhdoms have vast oil royalties — over half a billion dollars last year — but, ironically, they have little else in their otherwise poor soil on which the money can be used with profit. Kuwait and Bahrein are wisely investing their surplus wealth abroad while carrying out a sort of welfare-state program for their people. Saudi Arabia offers few evidences of careful use of its revenues. Members of the royal family control vast investments in Egyptian real estate and little is done to better the lives of its people. Though it should be said that previous attempts at internal investment have proved unworkable for lack of water.

In summary, the Arab World offers no modern setting for the Arabian Nights: it has one spectacular resource — oil but relatively little else. Improvement in the utilization of what resources it has, natural and human, can and will raise the standard of living somewhat over the coming decade, but, given the legacy of past waste and neglect and the competition of industrial Europe, profitable use of these resources will require a base of great public works. These must, for lack of sufficient private capital, be undertaken by the various governments. The Arab states have accepted the challenge and are now engaged in a race against a rapid population rise and, with it, among the masses in every country, increasing demand for a better standard of living. Whether the governments can do the job or not is the great political and economic question of the decade.