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In Egypt, merchant ships sit tied up along the shore as they wait to complete their transit of the Suez Canal. |
DOD, Defense Visual Information Center, March Air Force Base, CA |
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National economies throughout the Middle East struggled in the 19th
and 20th centuries to develop their natural and human resources, to
modernize their societies, and to raise their standards of living. They
have made significant, hard-won progress on many fronts (like
broad-based education), and some countries are blessed with abundant
natural resources (oil, natural gas, phosphates, and other minerals,
for example). In general, however, Middle Eastern economies have faced
significant obstacles to successful development.
One major obstacle has been Western efforts to control the region's
resources. Other challenges include rapidly increasing populations,
uneven distribution of resources like water and oil, protracted armed
conflicts and the resultant high military spending, rapid urbanization,
and incorporation into a global economy. How has the Middle East tried
to deal with these challenges?
Capitulations lead to European influence
In 1526, Sultan Suleyman the Magnificent (known as the "Lawgiver" to
the Ottomans) granted the first of what came to be called the
" capitulations"
to the French. The agreements gave France, and
later other European powers, the right to trade within the Ottoman
Empire without paying taxes and other economic concessions -- a sort of
pre-modern free-trade agreement.
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A painting of Sultan Suleyman the Magnificent, who ruled the Ottoman Empire from 1520 until his death in 1566 [ enlarge ] |
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The Ottomans granted the capitulations from a position of strength.
They were eager to encourage imports to supply their population with
goods and could afford to do so without heavy import duties. The
Europeans wanted markets in which to sell their exports. In the
beginning, it was a win-win situation.
Three hundred years later, however, the capitulations gave Europeans
an enormous advantage over local merchants in the Ottoman market. Not
only were Europeans (and any local prot�g�s they hired, especially
local Christians) still exempt from taxation, but they were also now
mass-producing cheap manufactured goods that were displacing local
products. The Ottomans no longer had the political power to rescind the
capitulations which had helped the European powers gain control over
the economy of the Empire, and thus control over its political and
economic decisions.
Borrowing and bankruptcy
As Egypt and the Ottoman Empire watched themselves fall behind
Europe's military power, they tried to copy Europe's sources of
strength. They began to borrow heavily from European banks, on bad
terms, in order to finance the modernization of their armies, social
institutions, infrastructure, and industry. The Ottomans took out the
first major loan in 1854 at the outset of the
Crimean War.
As time went on, expensive efforts at reform continued, and the
Ottomans were unable to repay the loans on schedule. When they declared
bankruptcy in 1875, the Western powers took direct control over parts
of the economy.
A similar situation had developed in Egypt. Enormous efforts had
been made to modernize the military and infrastructure and to begin
industrialization throughout the 19th century.
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Opened in 1869, Egypt's 100-mile-long Suez Canal connects the Red Sea with the eastern Mediterranean. [ enlarge ] |
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Egypt had two advantages: First, the American Civil War meant that
cotton from the South was no longer available on the world market.
Cotton prices rose, and Egyptian cotton became an extremely valuable
export. Second, the
Suez Canal
opened in 1869.
Despite the potential represented by these developments, Egypt's
expensive reform program, lavish royal spending, and European pressure
led to bankruptcy. Partly to ensure economic stability and repayment of
debt, and partly to squelch a nationalist uprising, Britain colonized
the country in 1882.
Economic challenges of independence
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British soldiers in formation before the ancient Sphinx and pyramids on Egypt's Giza Plateau, c. 1893 [ enlarge ] |
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Local forces resisted the imposition of European colonial rule
across the Middle East. Even as Britain and France carved up what was
left of the
Ottoman Empire
between themselves after World War I, pressure
was growing for them to leave and allow the states of the Middle East
to govern themselves.
The process of achieving independence was uneven: Egypt, for example, achieved nominal independence from Britain in 1922, but Britain retained enormous influence until the Free Officers' Coup under Gamal Abd al-Nasser deposed King Faruq in 1952. Syria achieved independence from France in 1946, while Britain
unilaterally left Palestine in 1948, leading to the creation of a
political division between Israel and the Palestinians in the West Bank
and Gaza.
Nationalist regimes that came to power upon independence from the Western
mandates
tended to maintain significant control over their economies. Using a
socialist
economic model, countries like Egypt, Iraq,
Algeria, and Syria wished to pool national resources and spend them
centrally to spur economic development.
One common strategy in the 1960s was
import-substituting industrialization
(ISI). This was an attempt to build local
industries that would create jobs, use local resources, and allow
countries to stop importing Western goods. Governments raised trade
barriers and heavily subsidized infant industries (often owning them
outright) to stimulate rapid economic development.
ISI failed when these industries became bloated, inefficient
enterprises riddled with bureaucracy and corruption. They couldn't meet
local demands and were a drain on national resources.
By the late 1970s, Egypt, under President Anwar Sadat, abandoned the strategy of ISI in favor of
infitah,
opening up the economy to foreign investment.
More and more countries decided to encourage foreign investment in
order to stimulate their economies this way.
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Outside an Iranian McDonald's restaurant [ enlarge ] |
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The strategy of infitah, however, has also been a disappointment.
Much of the sought-after foreign investment has been in Western
consumer goods and luxuries, like McDonald's and name-brand clothing,
rather than in local industry. This importation of Western culture does
little to raise the general standard of living in the region. Instead,
it tends to increase the cultural and economic gap between a wealthy
class that has benefited from Western investment and adopted a more
Western lifestyle, and a much larger population of the poor.
Many feel that the importation of Western goods and cultural values
challenges important social traditions. This is one factor in the rise
of resentment against the West and the increasing popularity of Islamic
opposition groups that promise to restore cultural and economic
independence to the region.
The economy of oil
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An Iraqi oil refinery from the air [ enlarge ] |
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The discovery of enormous oil deposits in the Middle East coincided
with increasing dependence upon oil in the West in the early 20th
century. Money from oil has created enormous opportunities for
development in those countries where it is concentrated, such as Saudi
Arabia, Kuwait, Bahrain, the United Arab Emirates, Qatar, Iraq, Iran,
and Algeria.
States without significant oil resources have benefited by sending
laborers to work in the richer states. The money these workers send
home has contributed to the economies of places like the West Bank and
Gaza, Egypt, and Jordan.
The financial benefits from oil, however, have been offset by other
problems associated with the economy of a rentier state. A rentier
state is one that gets most of its income from selling its natural
resources to outside buyers.
Because the government gets its income directly from selling this
resource, there is no need to tax its citizens. Nor is there a need to
give them a voice in running the country. Rentier states in the Middle
East usually have strong,
autocratic
governments that buy off political dissent by distributing the wealth derived from oil through extensive social programs.
In some ways, money comes in too easily in rentier economies. There
is little incentive to increase efficiency in resource production or to
diversify the sources of wealth. The state
bureaucracy
and public industries become bloated. The
population may develop unrealistic social expectations, but at the same
time has no way to express opposition to those in power. Connections to
the source of wealth come to count for more than individual ability.
The consequences of unequal distribution of wealth
In addition, the gap between rich and poor countries can be a source
of tension. While guest workers earn good money working in oil-rich
nations, they are often treated as second-class members of society.
Another major source of tension in the region is
foreign aid.
People on the street may be suspicious of the
motives behind foreign aid, whether it comes from the U.S. to Egypt and
Israel or from Saudi Arabia and Kuwait to poorer Arab countries in the
region.
U.S. aid to Israel is an especially great bone of contention in the
Middle East. Many in the region believe that the current state of
Israel is simply an extension of earlier Western colonialism: After
all, the original Zionists came from Europe, and Israel's economy and
military receive financial support from the U.S. Many Arabs believe
that the U.S. cannot be a fair broker of the peace process while it is
tied so closely to Israel by massive aid.
The economic effect of political crisis
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Kuwaiti buildings bomb-damaged during Iraq's 1990 occupation, under
skies darkened by the smoke of burning oil wells [ enlarge ] |
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Political turmoil has had a devastating effect on economies in the
Middle East. Iraq, for example, had been using its oil wealth to
provide a high level of education and health care to its population,
among other benefits. But military expenditures during theIran-Iraq War (1980-88) put a significant strain on Iraq's resources, reducing social spending. Saddam Hussein's decision to
invade Kuwait in 1990, the U.S.-led bombing and U.N. embargo on Iraqi
oil that ensued, and the continued use by the government of oil
revenues for military purposes have reversed many of the social gains
that had been made earlier.
The Palestinians of the West Bank and Gaza have faced
extraordinarily difficult economic conditions since Israel has occupied
these regions as a result of the1967 Six-Day War. Some families have lived in crowded refugee camps since they fled or were expelled from Israel in 1948 during
Israel's war of independence. Gaza has one of the highest population
densities in the world. Unemployment is extremely high, particularly
since many Palestinians have been unable to get to their jobs in Israel
after Israel closed its borders to Palestinians for security reasons
during the first
intifada.
Other economic challenges
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A crowded street in Cairo, Egypt [ enlarge ] |
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A further strain on Middle Eastern economies is a rapidly rising
population. The introduction of modern medicine and public health and
sanitation in the 19th century caused the population of the Middle East
to double in only a century (the previous population doubling had taken
thousands of years). Now it takes only about 25 years for the region's
population to double.
Unfortunately, most of the countries with the highest population
growth rates do not enjoy significant oil revenue -- only Iraq, Iran,
and Algeria are exceptions. How the region's governments will provide
jobs, education, and health care to a fast-growing population is a
matter of global concern.
Back to top
Related sites
Country Studies:
http://memory.loc.gov/frd/cs/
The research division of the Library of Congress provides extensive overviews of various nations.
The World Factbook 2001:
http://www.odci.gov/cia/publications/factbook/index.html
The Central Intelligence Agency publishes information on the
geography, people, government, and economy of each Middle Eastern
country.
Country Briefings:
http://www.economist.com/countries/
These country profiles from The Economist include economic structure, outlook, and basic data.
Middle East Studies Report: Stability and Instability in the Gulf:
http://www.csis.org/mideast/reports/EconNME.html
These reports summarize economic, demographic, energy, military spending, and arms-transfer trends.
Is America Stuck in the Middle East?:
http://www.pbs.org/thinktank/show_978.html
Is Middle East oil still crucial to American security?
Commanding Heights Web Site:
http://www.pbs.org/wgbh/commandingheights/
An economist's look at world history and development from 1910 to the present
Arab Human Development Report 2002:
http://www.undp.org/rbas/ahdr/
A report on the Arab world's attempts to advance human development
The Palestinian Perspective:
http://www.pbs.org/newshour/bb/middle_east /july-dec02/almasri_8-09.html
Maher al-Masri, the Palestinian economy, industry, and trade minister, laments the negative effects of Israeli occupation.
Creating a Textile Museum Piece from the Islamic Empire:
http://www.pbs.org/empires/islam/lesson4.html
Students will learn about the importance of the textile industry to
the strength and stability of the Islamic Empire in the 11th and 12th
centuries.
Six Billion and Beyond Web Site:
http://www.pbs.org/sixbillion/
On October 12, 1999, the Earth's population reached six billion.
PBS travels the globe talking to people about the population issues
affecting their lives and countries.
Related topics
What role have natural resources played in the politics and economy of the Middle East?
What is religious militancy and its relationship to terrorism?
Geography: An Ancient and Modern Crossroads
Culture: A Rich Mosaic
Related maps
Historic Political Borders of the Middle East
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