Varieties of Protectionism

This chapter examines the relationship between ethnic politics and business politics through the lens of trade reform in Jordan. It argues that ethnic boundaries shape the types of protection liberalizing regimes can extend to import-competing industrialists. When pressured to lower trade barriers, ethnic ties between policymakers and import-competing industrialists enable protectionist deals—lax tax and regulatory enforcement, uncompetitive government contracts, insider information—in exchange for liberalizing policies. Lacking the networks and social sanctioning mechanisms to maintain these informal arrangements across ethnic lines, policymakers are more likely to offer more formalized forms of protection, like tariffs to non-coethnic import-competing industrialists. Whether ethnic boundaries blur or reinforce state–capital lines may structure how regimes bargain, accommodate, and ultimately sustain alliances with private sector elites under the strains of economic reform.

Moroccan Cronyism

This chapter looks at cronyism as a pillar of Morocco’s political economy and studies its manifestation and impact in the manufacturing sector. Cronyism and patronage have helped the Makhzen to strengthen its control on Moroccan society and prevent any countervailing power from taking root, especially in the economic sphere. After Morocco became independent, the state–business nexus was consolidated through “Moroccanization,” import-substitution strategy, and privatization. The network of cronyism and patronage was reinforced and extended during the liberalization era. This chapter uses a unique database to identify politically connected firms and measure their performance in comparison with non-connected ones. Political privileges are granted to connected firms through preferential access to finance, protection from foreign competition, and discriminatory implementation of rules and regulations. This chapter also provides some illustrative evidence showing that political connectedness tends to impede firms’ dynamics and innovation.

Anatolian Tigers and the Emergence of the Devout Bourgeoisie in the Turkish Manufacturing Industry

It has widely been asserted that an important dimension of social dynamics that eventually carried the Justice and Development Party (Adalet ve Kalkınma Partisi, AKP) to political power is the emergence of a “devout bourgeoisie” especially in the new growth centers of Anatolia. This chapter uses firm-level data since the 1980s to trace the economic and especially productivity dynamics in the manufacturing industries of new growth centers in Anatolia (“Anatolian Tigers”) in comparison to traditional growth centers (the “West”). It observes that what happened in the 1990s in the Tigers was a significant change in the size distribution of employment with the emergence of a significant number of medium-sized enterprises. In the late 2000s, there was a more visible convergence between labor productivity in the Tigers and the West and this convergence was more visible among large firms. The chapter examines the evolution of members of religious business associations among the largest 1000 manufacturing firms in Turkey, observing that the number of such firms increased substantially especially after the mid-1990s. These firms are export oriented, on average smaller than firms associated with business associations that represent the traditional industrial elite, and more concentrated in relatively labor-intensive industries that display lower productivity. The chapter argues that the evidence is broadly consistent with a story of increased inclusion and competition in manufacturing. It discusses the role of political connections and concludes that they possibly had a more diminished role in the emergence of devout businesses in manufacturing compared to rent-thick activities such as public procurement, construction, or regulated industries.

Introduction

The popular Arab uprisings in 2011 that overthrew dictators in North Africa (which became known as “the Arab Spring”) were not just a revolt against dictatorships. They were also a rebuke to crony capitalism—against insider businessmen who were connected to the ruling circle and ended up monopolizing all economic opportunities. As the curtain of authoritarianism fell, stories of insider privilege became public knowledge. In Egypt, leading businessmen, such as the steel magnate Ahmed Ezz, became the subject of public resentment due to their close connections with Mubarak. But the circle of privilege was wider, including a narrow clique of businessmen associated with the National Democratic Party that supported Mubarak’s rule and derived all kinds of economic privileges denied to unconnected firms. In Tunisia, the president Ben Ali, his wife, and extended family were believed to have owned about 220 firms in some of the most lucrative sectors of the economy....

The Future of the Private Sector in an Age of Uncertainty

The chapter is concerned with the future of state–business relations (SBRs) in the MENA region, and about the potential for private sector growth. Can the new environment of heightened popular demands and lower oil prices encourage the political regimes in place to improve their efforts at boosting economic growth, even at the political risk of tolerating a larger private sector? The chapter outlines four types of relatively successful SBRs models that have taken hold in the MENA region in the recent past, and asks if particular models can be replicated in the rest of the region. It outlines how the intensity of social movements, and the ways the state reacts to them, influences the formation of SBRs. The main conclusion is that for many regimes, there seem to be only bad options to choose from, ushering an age of dilemma with uncertain choices and prospects.

Iran’s Commanding Heights

Who owns the commanding heights in the Islamic Republic of Iran? Examining the top 300 firms on the Tehran Stock Exchange, this chapter finds a diverse set of ownership categories existing across economic sectors, associated with public, parastatal, pension, and provincial institutional investors. The main similarity between investors is the form through which ownership took place: the diversified business group. The persistence of the diversified business group is not unique to Iran. Instead, diversified business groups profitably thrive in Turkey and the Gulf emirates, as they do in liberalized economies such as South Korea, Israel, Mexico, and South Africa. As foreign capital comes to Iran, new cleavages will likely appear in the economic commanding heights. Many existing business groups will shrink or change ownership. But the organizational form of the diversified conglomerate will likely persist and remain dominant in Iran’s political economy through the next wave of business restructuring and beyond.

The Role of the State in MENA Capital Markets

Within the Middle East and North Africa (MENA) region, a common feature of corporate financial structures is that governments have always been majority owners of many commercial companies. This chapter provides a detailed picture of state ownership in the region. It finds evidence of a decline in the privatization effort in the 2000s. Privatization may be important for the development of institutional ownership, yet, in some cases, it may not be in the best interests of the public, when cronyism is prevalent. In this context, it is important to understand the role of the state in the growth of capital markets in the region, and the efficiency of the overall development model.

Elections and Economic Cycles

This chapter studies the presence of political cycles in Turkey’s recent economic history. It first discusses the incentives and the ability of the central government to engage in opportunistic behavior to boost economic activity around local elections. It then describes how the tools available to the government on the fiscal and banking fronts have changed since the 2001 crisis. The chapter documents suggestive evidence that state-owned banks engage in selective lending in the run-up to local elections when compared with private banks. This selective lending seems to favor provinces where the governing party faces greater competition from the opposition. There is less evidence regarding fiscal spending. The chapter discusses the implications of politically motivated policies on financial inclusion and aggregate efficiency.

The Politics of Trade Protection in North Africa

What are the institutional and political foundations of trade policy? Is such politics of policy still relevant in the age of liberalization when trade tariffs have fallen in prominence? To answer these questions, this chapter sheds light on the politics of partial liberalization using the strategic trade policy shift induced by the European Union’s trade agreements with Egypt and Morocco that resulted in an across-the-board reduction in tariffs and was followed by a wave of non-tariff measures in the decade of the 2000s. Using fine-grained data on the presence of politically connected businesses across different manufacturing sub-sectors, the chapter demonstrates that politically connected sectors received disproportionately higher levels of non-tariff protection in the wake of the EU-induced tariff liberalizations. The bulk of these non-tariff measures were technical barriers to trade that require greater administrative oversight through bureaucratic inspections and conformity assessments, and are therefore susceptible to political abuse.

I’ve Got the Power

This chapter explores the extent to which local commercial banks in Lebanon are linked to the country’s political class, and how this impacts their efficiency. By compiling detailed ownership and political affiliation data on the 20 major commercial banks in 2014, the chapter shows that in 2014, as many as 18 of the 20 banks had major shareholders linked to political elites, who together controlled 43Â?percent of the assets of the sector. “Crony capital” within the banking sector is also shown to be associated with a lower quality of banks’ loans, and with a higher exposure to public debt.