Elusive Economic Development in the Maghreb and Beyond

By Taha Oudghiri and M'hammed Benjellous
Cornell International Affairs Review
2010, Vol. 3 No. 2 | pg. 1/2 |

Translated by Professor M’hammed Benjellous

How many political, economic, and social mistakes will a population accommodate before it rebels? Due to the self-checking mechanism of elections in democracies this question can be superfluous, yet it still haunts politicians, high ranking officials, and wealthier classes in developing countries characterized by inequality and precarious equilibriums. These are countries where ballot boxes do not settle the voting of political figures nor assign true power to trustees. This leads to disputed legitimacies which inadvertently nurture an instinct of political survival among these leaders. In turn, the unaccountability of leaders to their publics leads them to avoid becoming entangled in situations that are difficult to control. This ‘avoidance' policy is truly an implementation of alleged development policies, but mocks the democratic process.

In the long run, this often leads to a waste of vast amounts of energy nationwide and bouts of empty rhetoric, the sole result of which is power devoid of true force. Indeed, the political families, created by leaders or satellite institutions, are organized to form a force of opposition to the more genuine, and supposedly more ambitious and more sovereign ‘opposition'. It is the task of these families to channel the ideas of or even absorb the opposition groups. Ultimately, the real opposition groups are trapped by the confrontational style of the fake political groups, and by entering such verbal battles, the opposition groups end up sacralizing those truly empowered.

This process deflects issues of national debate and real concern to the periphery. They get caught up in a face-to-face confrontation which, while contributing to the sacralization of those real power holders, gears the national debate to issues that are peripheral to what should be the central concern. The key concern to the nation here, that is being ignored, should be the seat of responsibility for the country's economic and social development (or underdevelopment). Such common situations of poverty and deflected governmental power cannot be a sheer coincidence; there must be accountability even if it is diluted in the multidimensionality of the problem.

The government, political families, financial communities, intellectuals and other economic agents have made a pattern of continually criticizing and blaming one another. In doing so, these groups constantly deflect problems back and forth between each other. Should the responsibility of a country's development be entirely and exclusively placed upon the government, as is done usually? Should the government be accountable for all of the socio-economic, institutional, educational, cultural, and religious policies it implements? Can the community relieve any of these charges or does it rather lack entrepreneurial vigor? Within the community does a section exist that is change-resistant and modernity-proof, which could possibly constitute a political force? Could such a force exist that is politically and socially active and economically inert enough?

Do the economic theories supplied about development in underdeveloped places indeed supply an understanding on how to bring about growth or are they just adapted aspects of other less specified economic theories? Perhaps this is a case of deficient basic understanding and knowledge about developmental economic theory, or could development economics as a type of applied economics recommend some economic policies that might favor growth? Finally, do these democratic prerequisites, which might have remained unfulfilled, give an explanation for the development levels in several countries? Can any informative conclusion be surmised from the relationship between development and democratization?

Young villagers outside their home in southern Morocco.

Young villagers outside their home in southern Morocco.

All these issues interact and contribute, on different levels, either to the reduction or increase of poverty. Modeling their effect is particularly laborious. After all, what information should be gathered and in what order to work out a given development model? The numerous failures observed in the elaboration, implementation, and conducting of economic development policies raise questions about the attributes of the development economists.

The transversality1 of the new economic, political, anthropological, and sociological approaches have certainly contributed to the development and improvement of knowledge related to this issue. On the other hand, it has also brought to attention the extent of ignorance and the complexity of the problems yet to be solved for a substantial improvement in living standards. That is — to put it more prosaically — a significant drop in poverty. Certainly, some antithetical economic development models (capitalist, socialist, and even collectivist ones) have been adopted and forsaken.

Accordingly, they can be interventionist and liberal, or inward looking (e.g. the substitution of imports for national production), the economy can be subject to introversion or extraversion, according to a process called "the Washington Consensus" (banning protective measures, currency devaluation, financial liberalization, not to say the abolition of money exchanges). A form of eclecticism is formed in favor of this empiricism. This, nonetheless, took a heavy toll on populations that remain desperately poor. Today's lessons2 shed more light on the policies that should not be implemented rather than on those which have been carried out because this matter is not a zero sum game. To do nothing and not engage policies could come to be more gratifying and less costly to the wealthy than implementing policies dictated by emotions, ideologies, nationalism, egocentrism, and the perennial fears of politicians.

Lost Opportunities and New Hindrances to Development

In this regard, the Algerian example is instructive. Paralyzing centralism, all-out interventionism, self-satisfying economic and social policies, and the quest for a preponderant role among developing countries have all proven to waste resources, although these policies were expected to be the very opposite: generating resources for the community. Algeria's industrialization has been an utter failure and the collateral damage persists. This is most notably seen in the abandonment of agriculture which formerly positioned Algeria as France's main wheat supplier, yet which presently leads the country to allocate a considerable part of its oil revenues for the importation of food products.

The increase in the Arabian population, additionally, limited the availability of farming land and crushed the prospects of many citizens to produce agricultural products by curtailing their visions and effectively restraining their perspectives; the influx of Arabs contributed to the poverty and injustice at the start of a population predisposed to religious indoctrination. By being active, this part of the population is not only out of phase with the development model which had gathered the greatest number of supporters, but the new religious fanaticism among some sees the model as a hindrance and as dangerous. These groups think it necessary to protect themselves against the new economic policies by crusading against its principles.

The involvement of human capital considerably complicates the economic and social modernization and development choices facing the state. Unlike a model where it is possible to restructure, revise and improve, an important faction of the population that did not adhere to the model or wished to rather follow a model of society, which a large percentage did, creates a circumstance where the model cannot be revised or improved. More succinctly, to develop an operative model is already a challenge, but trying to develop a policy while facing issues of a rebellious population that may counter the initiatives of socio-economic progress and adopt uninhibited attitudes and postures against the development strategies adds to the complexity of development and renders the development process even more difficult.

The ground gained by religious groups that generally remain in a state of precariousness allows them to threaten the balance of power within the community. This is an issue based on the community condition in which the government makes its socio-economic choices (as the state of precariousness is the consequence of an economic polarization, accentuated not only by weak economic growth but also by a heedlessness in the problems of resource allocation). That is to say that—even when kept away from the decision centers—the political and economic influence exercised by politicians relying on religion is already visible in the Maghreb and beyond. However, when dealing with economic development issues, these religiously inspired politicians insist that these issues are dealt with in their religious references, which moves further from the unanimously accepted model; these leaders pursue this in order to claim another one which is yet to be defined.3

This would consist in undertaking a social leveling downwards, which only an upward planning would make possible. One can wonder about the pertinence of their ideas in economic terms, about the value of the debate these ideas can raise, and finally about the best choices to be made in order to decrease— not just appease—poverty. These religious groups see showing the credible alternatives to the policies put forth by the government as their work through reticular organizations. The mitigation of poverty, the time to harness, to recruit, to indoctrinate and to resort to clientele-centric practices is nothing but posturing. Religious groups have been very careful, perhaps as a result of feeling at the risk of being impervious to recommendations for economic development, even when emphasizing, in a scattered way, a preference for an interdependent capitalism, which they have vaguely regulated.

Morocco and Tunisia seem to be relatively better off with respect to their capacities to contain the ambitions of their political figures, whose references sit in the religious texts.

Algeria, which has more financial resources, has often been, despite its will, a laboratory for the Maghreb where experimentation and subsequent abortion of economic and social policies are commonly observed. The modest means and resources of the two other countries, Morocco and Tunisia, have been spared some extravagances and, instead, are in need of economic policies that rehabilitated profit in order to develop more innovative capacities. However, due to a budget surplus reached in the midseventies, Morocco too, decreed the "morrocanisation" of its economy. At the same time, it brought under state control an important aspect of its industry, which was moroccannized through the SNI [Société National d'Investissement (trans. National Investment Company)]. The "morrocanisation" process saw capitalists offering to buy some enterprises, the founding of which the capitalists could not afford at the time.

Through this process, the country simply deprived itself of an important enterprising human capital with a tradition and an industrial experience, and substituted it for civil servants and trades people who acted as industrialists. Morocco was breaking with a developing policy that could have acted in a path-forging way, like a catalyst, for a twofold economic and social plan. Today, Morocco is using its seductive treasures to return to the economic situation it enjoyed before. "Morrocanisation," recovering farming-lands, streamlining the economy and the politics of education, was related to the anti-development movements for which one has yet to finish paying the price even though these policies were enacted in the 1970s.

"Morrocanisation" and Arabization constitute the stock in trade of the Istiqlal Party, which is now in power in Morocco. Even today some of these members, who sit in the second chamber, out of what appears to be atavism and in the name of an insatiable "quest for identity", still demand more Arabization. It is certainly for these political positions that these declarations are made, which is a disconcerting attitude to say the least.4

Much closer to us is the Moroccan economic leveling policy. This policy has led to national mobilization and to the allocation of some considerable political, economic and financial resources. Without questioning this aforementioned policy, Morocco seems to be headed quietly towards these policy objectives. After all, the country could gain great benefit in implementing these policies even if many highly ranked officials think that this objective cannot be ignored and insist on its pursuit. Yet, the chances to fulfill this seem negligible for what is being recommended is not immobilism. What is desired is improved managerial efficiency and modernization of production tools. This modernization process, however, should not be undertaken in accordance with business opportunities, nor should it seek to satisfy the investments of politicians, whose quest for financial leverage lead to indebtedness.

These investments may hinder the firms that incur them; discourage their industrial restructuring; compromise their stand-by strategies; and, when all is said and done, increase the risk of these enterprises' disappearance because the industrial fabric is made up of small and medium-sized and weakly capitalized enterprises. The textile industry is a good case in point. Leveling a country's economy, and more particularly its industry, means considering that the level aspired to is fixed before hand and can be achieved. Hence, the industrial organization and the optimization of the combination of the production factors (capital and labor) are subject to a dynamic equilibrium which makes "the optimum" – the level to be reached – always pushed upwards for a permanent improvement of the overall production factor.

Such are the teachings of Schumpeter. He calls these innovations (of intelligent combinations of production modes and factors; in the labor factor it also includes the leaders' performance), which he distinguishes from inventions (ideas and concepts) and which precede innovations. These perspectives do not constitute matters that Morocco needs or should explore and follow as development axes; Morocco's delays are already considerable and the failures of its experiences important. Some lucid and pertinent diagnoses have been conducted with a dissuasive effect on any new attempts to be made to that effect.

The Development "Strategies" Presently at Work

Morocco will need to reconcile this idea that while everything is concurrently changing, it and its competitors, there is never any true change. Industrial disparities will persist or might even grow wider. In the harsh competition of the international economic order, no respite is possible for industrial redeployments, especially when the gaps are so abysmal. Such are the facts that will confront Morocco in the choices it must make when deciding its development strategy towards a tertiary economy oriented to industrial assembly (specifically in airplanes and cars), and tourism development. While these choices might look less ambitious, they are much more appropriate for the country's "competitive advantages," although there is still a question of the labor force's qualification, though this is an easily solvable issue.

On the other hand, what might jeopardize the success of this policy is the rise of protectionist policies, which the present economic crisis seems to favor. Another factor will be the pressure from the European governments on the enterprises that will be benefiting from public funds—this could cause an end to outsourcing activities. The arbitrations between the firms' political and social costs, on one hand, and the economic ones, on the other, will henceforth be in favor of the latter at the expense of the former. Thus, early stirrings towards de-globalization are beginning. The other development axis, which Morocco has succeeded relatively in implementing, is the improvement of its attractiveness for foreign direct investments (FDI). Seen as a strong development vehicle, these were the origins of the impressive development of Ireland. The FDI effects deserve a closer look. The policies relayed by the press are numerous.

These policies extol the breaking up of a state's property and highlight the importance of FDI attracted by privatization of enterprises and by opportunities offered to Morocco. Indeed, Morocco does remain a privileged destination for FDIs in the Maghreb.6 Still, concerning Morocco's attractiveness and the contribution made by FDIs to its economic development, selfcongratulatory discourse should be tempered. By focusing on the big investors' economic and financial strategies, their vision, and their objectives, one understandably comes to the conclusion that the major concern is the latter of these enterprises,7 which is by no means developmental.

These enterprises are rather obsessed with the extraordinary contraction of a time-table for the pay-back of invested capital, as it is vouched for by the equally extraordinary extension of their payout (the distributed profit rate in comparison to the profit made). VivendiUniversal8 illustrates this example in the policy it implements in Maroc Telecom, its Moroccan subsidiary.9 At a time of stock market collapse, Maroc Telecom has been short listed among the CAC 40 top ten most performing enterprises – the only ones to have experienced a marked rise in share prices during the eleven months of 2008. While Vivendi registers at –37%, and France Telecom at –20%, Maroc Telecom registers +16.5%. The dividend policy conducted by Vivendi in its Moroccan subsidiary impacts its price and accounts for this performance. In 2008 it distributed 100.68 % of the profit made against only 53% made in France.

"What is desired is improved managerial efficiency and modernization of production tools. This modernization process, however, should not be undertaken in accordance with business opportunities, nor should it seek to satisfy the investments of politicians, whose quest for financial leverage lead to indebtedness."

Sonasid, Areclor, Mital's Moroccan subsidiary has done even better. The level of benefit distribution that Arcelor-Mital has fixed its subsidy can be characterized as smoking policy. The payout in 2008 was of 213% against 19.7% in France. But that which is at stake is not investment or development, but rather disinvestment and growth potential impoverishment.

A different case is Renault Maroc which, like most transnational companies' subsidiaries, controls neither its products, the costs of its material, nor its prices or performance. Numerous are the multinationals companies which, in normal times, would plan profit level to be made by their different industrial or commercial branches worldwide in a centralized manner. These performances would be modest, not to say unprofitable if the host country's tax system is deemed impounding, and the number of local shareholders relatively important. On the other hand, it would be considered consistent should the tax system be deemed favorable and the number of local shareholders insignificant (which is more often the case).

Multinationals organize themselves by means of transfer prices, by the marking up or down of profits through abroad transfer, and by according to the group's sales or purchase prices. Renault Maroc imports a great deal from Renault Romania. The corporate tax was 16% in 2007 but increased to 30% in Morocco in 2008, plus a 10% tax on proceeds of stock in the two countries.10 Luckily, the tax law now encompasses measures which could be taken against these practices, namely article 213 of the Moroccan General Tax Code, or Article 57 of its French counterpart.

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