You can do.
Good evening. I'm absolutely delighted to be able to introduce my friend and colleague, Stefan Kotok.
Stefan is an associate professor in comparative politics at the LSC and he is one of the leading political economists of the MENA region.
Today, we are absolutely delighted to be able to invite Stefan to present his new book,
Locked Out of Development Insiders and Outsiders in Our Political Economies.
I understand that it's currently unallocated on the CFP website for today.
That's what I've been told and you can download it.
I can see several of my students in the audience who have already read the book because I used it to teach it a couple of weeks ago.
Stephan is a really brilliant scholar. His first book, which is another book I teach Princes, Brutalism, Bureaucrats, Oil and the State,
and Saudi Arabia is probably the most important empirical account of frontier state theory applied to one case,
looking at variation in forms of profligate behaviour,
inefficiencies in public administration as a consequence of oil rents with a kind of empirical application to Saudi Arabia.
We're now going to hear Stephan travelled to the Arab republics moving from allocation states to production states.
I'm really excited for the talk. Stephan Floor, thanks so much.
Thanks. It's great to be back. I think my natural case is that I do a book talk every every six years.
I think it's fantastic to be back, I should say that.
It's a it's a very, very emotionally attached and rooted it.
So what I try to do in the next 40 minutes is to give you sort of a hypothesis driven
account of what went wrong in Arab economic development from a policy economy perspective.
And it's sort of a counternarrative to what I think is kind of the headline Morning View in the
literature that it's all about sort of neo liberal reform and privatisation and sort of market driven,
prying, open of Arab economies.
And it's the first time that a recent policy framework I've been set beyond the Gulf of I'm quite bored of the Gulf now.
I'm quite interested in the wider Middle East. So this is explicitly not about the Gulf, but it's about what I call the core Arab world,
namely the main countries in the moderate and the marsh wreck that have not gone through an extended kind of civil war periods.
Because obviously the cultural climate, those kinds of cases, is different.
And my argument is that they share a number of features of the political economy that are quite striking in international comparison,
and that those features are so causally linked to each other and lead to a kind of
equilibrium that both locks in inefficient political and inefficient economic behaviour.
And I get into what exactly I mean by that in a second,
but this is the title that you should be looking for in the Cambridge University Press Elements website.
It's very crisp. It only has like 38,000 words or something,
so hopefully it's quite readable and it should be currently freely available for download, at least until tomorrow.
It's a series called Cambridge Elements, which is halfway between articles and books which you for sort of a low energy
scholar in a mid-life crisis just about there that that kind of person can show out.
So I focus on the following seven core Arab states that Europe, Egypt, Jordan, Morocco, Syria, Tunisia and Yemen.
So those are all countries that have low to moderate levels of rents.
So they're not high hybrid countries like the Jesus of monarchies were.
Obviously, economic and political dynamics are very different and they have not until recently been involved in major long term conflicts.
Of course Syria has since I started the project.
It's very welcome conflict for quite a bit, but I'm looking at Syria up to 2010 where it fits.
So the general pattern described quite well until the outbreak of civil war there.
And I would argue that historically those countries to varying degrees have been part
of a shared ideological space that is influence development thinking since the 1950s.
There's quite a bit of historical evidence that the way that economic development was tackled was ideologically framed,
and one of those countries rebounded quite a bit among the needs of economic decision makers in the other countries.
So with partial exception of Morocco, which was fairly peripheral to a sort of Arab nationalist economic discourse.
Okay. So what are the main descriptive features of those capitalist systems or what are they?
Until today, no state capacity and deep state interventions.
So you have states state apparatus that try to do a lot and are not very good at it and short of resources at doing it.
And I think this tension between high ambition and limited ability to deliver is something that explains a lot about
the inefficiencies and distortions in those economies very heavily regulation and very heavy protection for insiders,
as I call them, both on the labour market and among businesses, labour market insiders,
mostly being public sector employees and business insiders, mostly being politically connected kind of crony businesses.
And that's really so is the descriptive crux of my argument that there's a very deep segmentation between those relatively protected insiders in
the case of workers in the public sector being sort of the the historic bedrock social constituency of Arab nationalist regimes and outsiders,
on the other hand, which on the labour market would be mostly informal workers in the private sector that have worse incomes,
much more precarious labour market status, no access to Social Security, no access to welfare.
And of course, the insiders on the labour market, the public sector, because they're not doing well, it's not a great position.
It's not a great status, but they're doing dramatically better than outsiders.
And that kind of cleavage is particularly strong, I argue, and hopefully evidence with some data in the Arab world after all the reasons for doing so.
Similarly, the distinction between well-connected sort of crony businesses that are close to
the state apparatus and then outside of businesses without that kind of connection,
again, mostly in form of small scale firms. That kind of distinction, that cleavages,
particularly people that you're going to have some data to hopefully back that up as a result of of those various cleavages.
I argue there are all sorts of inefficiencies in markets.
I mean, it's not mostly it's not an economics book. It's more of much more political.
But I think economic consequences following from those structures in a sense that the very
limited mobility between inside and outside of the state is the high protection of insiders,
the complete lack of protection for outsiders, that exposure to unmitigated market forces.
They all prevent, first of all, so the common negotiation of a social contract that would bring those different
factors together and would bring the region towards a new kind of development model,
and that everyone on the inside just clings to the privileges and is also just extremely
inefficient in market terms because the insiders are not exposed to competition.
The outsiders really can't compete because they don't have the resources.
And also as a result of this very low skill levels in labour market that get to it, that is linked to those other features.
But here is this very involved graph that's in every book or article that's based on what's called Varieties of capitalism theorising.
And that's sort of the broader comparative political economy framework that I've
been inspired to for this book that hasn't been used in the Middle East yet,
but that's quite dominant in thinking about comparative quality economy of countries and to some extent Latin America.
The idea behind varieties of capitalism is that you have different features of different markets,
different areas of economic exchange that are sort of interlinked and reinforce each other.
So this is essentially the quite involved and in some part speculative argument of the whole book in one slide.
And what you have on top, this interventionist state that's quite a vicious but relatively bereft of capacity,
and it protects insiders on the labour market through public jobs, to some extent, through of regulation, protection of form of private sector jobs.
So that's not not a big phenomenon. And that also protects insiders in the business sector.
Mostly. It's sort of informally emerging from from crony connections, from political connections,
but formally being articulated to all forms of market regulation and protection.
And there's a lot of detail on that in the chapter on the firms and business sectors.
And then in turn, because they have those insiders who have outside of constituencies who don't have access to these kinds of pages,
and the insiders tend to be better organised, much more politically visible to regime,
and they tend to be quite good at defending their entitlements and if anything demand more entitlements and choice how you
get better at that than the labour market in size that just a lot of erosion of privileges of labour market insiders.
But we're still in a situation where people in the public sector are quite significantly better off than the average private sector worker,
even private sector workers with formal contracts and Social Security on average.
If anything, when outsiders get mobilised, they also just ask for insider status.
Sometimes they do so successfully that the boundary between inside and outside gets shifted a little bit,
but it doesn't change anything about the system as a whole. Now, at the bottom of that scheme,
there's also one key component that I think holds back the integration of the markets for firms and labour markets, which is low skill levels.
And again, there are these kind of EEOC type mutual hours of causation where on the one hand to a segmented labour market,
it's quite actually gets quite weak incentives for people to seek meaningful skills because you're protected inside.
Insider You don't need good skills. You're safe.
There's very, very limited mobility from inside a state as to anything else, once you got inside a job, you're pretty much safe for life.
On the other hand, outside outsiders find it very hard to break into good jobs, so they also don't really have incentives to seek meaningful skills.
On the other hand, because of those skill levels,
in the few occasions when there would be an opportunity for mobility on the labour market, people can't use them,
can't use those opportunities because the skills only and there's a similar sort of interaction with the private sector where
again inside of firms are so well protected that they don't need to invest in skills or productivity and outside of firms,
don't really have the ability to invest in that because they're just about
scraping by for the sort of the jobs that just about managing outside of firms.
And that's actually something that's more generally thought of as a low skill equilibrium, where you've got sort of a chicken and egg problem.
People don't have good skills. So firms can't invest in technology that would require the skills.
And, you know, the causality also runs exactly the other way around.
It's just it's just more pronounced in the Arab world because of those particular deep patterns of segmentation in labour
markets and firms that prevent sort of mobility and that to depress returns to skills and returns to investment space.
So sorry, I was pretty involved in abstract,
but it gets a bit more concrete when I walk through you through some of the sort of historical facts of those individual components.
Quickly, the summary, because the item is a bit lengthy, is probably worth restating.
So we've got a stretched and over.
To the intervention to stay at that sort of rooted in the old era of Arab nationalist status development that creates deep inside,
outside of divides because its resources are relatively restricted.
So it can only cater to a limited or dwindling constituency that it continues to protect.
And as a result, you have those deep cleavages between inside and outside that make it hard to negotiate economic policy in any coherent way,
because the interest of inside and outside is so different, and you have an equilibrium flow of skills,
a little proactivity that emerges from those very, very inefficient cleavages.
And here's the main sort of, I guess, political argument that I differ quite a bit with literature,
just to just blames all of those of the region on neoliberal reforms and excessive marketisation.
Instead, I think what really characterises the reason is that there's just too much market for some,
which is the outsiders who enjoy no protection, who enjoy no Social Security, and in the case of informal workers in the private sector.
But there's also too much state and too much protection for the insiders. So you have too much state in some areas.
You have too little state in other areas.
So it's a very uneven distribution of the state and it's sort of protective efforts that really characterises the reason descriptively.
And that, I would say, is the cause of you. It's one of the main factors that pulls back economic development.
So this kind of neo liberalism for the poor chaps in the informal sector was actually a lot of old school
Nasserist protections still in the public sector for a very significant component of the population.
So the very uneven presence of the state, I think, is really what makes the region distinct.
So this is typical of all developing countries, but some of those factors are quite generic.
So low government capacity is a widespread issue of distinction between formal and informal is also relatively widespread.
But I think in some regards, the reason does stand out and there's a lot of statistics in the book that I think underlines that.
So the relative ambition and the relative importance of the state, the extent to which it continues to regulate,
the extent to which it still employs people,
to which it maintains sort of a dwindling Nasserist middle class constituency to public sector employment.
That is still unusual. And there's much higher levels of public sector employment in the region than anywhere else in the global south,
and with the exception of a few kind of communist regimes. So the relative side of the inside the coalition is really something that stands out.
And also the rigidity of the boundaries between inside and outside that stands out in Latin America youth as inside their employment.
When a new Mexican president gets elected, he breaks loads of people that tens of thousands of people with them as clients into the public sector.
Then another president gets elected and those tens of thousands of people, they leave again.
So there's actually quite a bit of turnover and we see that also labour market statistics just switch quite a bit between formal and informal,
a different kind of labour market statuses in the Arab world.
Once you're inside a good inside of your life, pretty much there's almost no downward mobility in terms of that form of labour market status.
And that means that the interests of those inside are much more rigid because they know that ten,
20 years down the line, they'll still be essentially in the same position as in Latin America.
You know, you might be inside of one day. You might be outside another day.
So you have sort of a veil of ignorance where your general economic policy interest is is perhaps more
aligned with a status that you don't have now because you might have it at some point in the future.
Similarly, the inside of protection for crony businesses seems to be stickier and more rigid.
Many Middle East firms are older, crony networks are more resilient.
So again, once you're on the inside, that status tends to be particularly persistent compared to other regions.
In a sense, it's sort of a more extreme version of some forms of segmentation that we also see in other parts of the world also.
Okay, so what goes through all of this in detail?
But there's a lot of data showing that although there's been a lot of formal liberalisation, economically speaking, Arab states,
by and large still intervene quite deeply in markets through price controls, through regulating access to markets, product standards, inspections.
It's all still quite a bit heavier than most other regions.
Perceptions of corruption are higher than in other regions, which is another sort of token of illicit state intervention.
And all of this then opens many, many opportunities to modulate this kind of intervention,
to benefit insights, to benefit inside of forms and qualifiers.
There's just some data showing that most countries are seen as quite heavy on the Fraser Institute's regulation schools.
That's, I mean slightly more liberally inflected that kind of school.
But those are other types of schools that are still growing in the same picture.
So that's just the lower you are here, the more heavily to regulate.
And on the on the Y-axis, you just have GDP per capita.
You also have deep state intervention in distributional terms, not only as a regular.
So you have, as I mentioned, protection of inside of the business and labour markets through regulation of business practices,
but also directly employment and subsidies that actually also benefit the privileged.
Without the benefit insiders and despite decades of past liberalisation and fiscal crisis,
this has survived remarkably unscathed compared to other parts of the global south.
Let's say in sub-Saharan Africa, when you had structural adjustment programs in the wake of major fiscal crisis in the 1980s,
they did things like let go half of their public sector workforce.
In some countries, the Arab world has never seen anything like this.
Even Egypt absolutely hates the bureaucracy and wants to get rid of it.
And there haven't been any mass redundancies. There are still millions of them sitting in has been demolished with notes to it.
Yeah. And that I think is emblematic.
That's emblematic that they've been trying to demolish and mukoma for decades is just simply to promised the to technology investors,
which is not to say that, you know, the old social contract has survived.
Well, the insiders aren't doing well because those are countries under severe resource constraints all through their stages,
has declined in real terms, but is still much better than the status of outsiders.
And critically, because this kind of insider cartel of the old master, the status quo based social contract,
eats up so many resources there's very little left for social safety mechanisms for the outsiders.
So everyone is really behind when it comes to unconditional cash grants, non-contributory pensions and social safety payments,
which is something that's weirdly overlooked in a lot of the policy economies that are trying the reason,
which is all about, you know, the poor bureaucrats, their real salaries are dropping every year.
And those are still people for like orders of magnitude better off than the army,
the vast army of informally employed workers that people don't really speak about that much.
So very high state employment with the exception of Morocco. Morocco is an interesting case with the employment is quite well paid,
but there are not many of those and I think Morocco is also the exception in many other regards.
It's really a peripheral case and it's not very close to the ideal type that I'm describing.
Similarly, quite high energy subsidies, although they have been in some cases further reduced in recent years,
and energy subsidies in principle are general.
But again, they have sort of a middle class bias because richer households tend to consume more, so they benefit more in absolute terms.
So even that which is seen as sort of a birthright of the poor in many ways is actually
something that's that's quite regressive that benefits inside us more so than absolute terms.
And here's one of my favourite survey results from the World Value Survey, which shows that this really, with the exception of Morocco,
very unusually high expectation of citizens of these countries that the government should provide for them.
And I think this is sort of an abiding legacy of this Nasserist type social contract that's been broken and sort of not lived up to in many ways.
But people still expect in principle that the state should in some way take care of them,
which is why I think the perception that insiders can't really be deprived of any of the promises is.
So it's a deep seated.
And I think that really goes back all the way to the fifties and sixties and the sky high promises that Nasser and others made where they said,
okay, every university graduate and every secondary school graduate is entitled to a government job.
And then everyone else, the in the region in Syria, Iraq, Tunisia, even Yemen copied these kinds of promises.
So we're in the era I'm not going into the history here.
There's a short history chapter in the book was published which actually spoke about more rather than through all these numbers that you.
But I think there's a very interesting history of the Arab nationalist competition,
the sort of Malcolm Kerr style on the nationalist economic program and the redistributive program of the time,
which is not very well established in the literature, which looks much more about a sort of nationalist ideology and security issues.
But if you look at the sort of economic programs that were adopted at the time with very ambitious redistributive programs,
huge programs of public sector expansion, that was really a lot of copycat behaviour and there was a lot of competition that even the conservative
monarchies felt they had to do a little bit of nationalism in order to prevent revolution.
So, you know, if you look at what those are today or even the Saudis did at the time was often almost like a carbon copy of what Nasser did,
just actually with better resources. In some ways, they could go further than anything else himself.
That's right. Okay.
So share of government spending in GDP still is higher than in other low to middle income countries, which is the bottom dotted line.
So you see all the fiscal crisis of the seventies and eighties and the states did shrink very significantly, but then it plateaued sort of the level.
Still considering above what you have in other developing countries and emerging markets, and no recent sign that this has been decided.
Okay. So a few points on labour markets very quickly,
and that for me should focus a bit more on the political economy rather than the
descriptive stats where labour markets in the Arab world really stand out is that,
first of all, you've got this very high state employment.
And secondly, related to that most form of employment.
So most employment where you have a contract,
a form of Social Security and a reasonable job security is in the public sector rather than the private sector.
And that's the opposite of what it is pretty much anywhere else in the global south.
So you have your cases like Syria, Yemen and Iraq, for example, where almost all fall jobs with Social Security and a contract on the public sector.
Latin America. In South Asia. In sub-Saharan Africa, it's the opposite.
The majority of formal jobs, of reasonably good jobs are actually the private sector.
So it means that the Arab middle class is still very, very state dependent.
And there's a very small constituency only that has good jobs in the private sector
and in that sense has sort of a vested interest in the private sector succeeding.
The private sector does a very little for people.
It provides tons of terribly informal jobs, you know, the taxi drivers and the street merchants and very, very few formal good jobs.
And I think that explains a lot of. So it's vested interest in that system,
what people think so much to the public sector entitlements because there's so little good opportunity available outside of public sector.
Informal employment, very large, although that is not unusual in countries in the global south, have very high informal employment generally.
What's really unusual is that among the formal put jobs, the majority is in the government sector.
Now here is are some margins plus don't have to look at this too closely I just verbalised that essentially all of the things being equal,
hourly pay is still by far the best in the public sector,
even compared to formal private sector jobs,
which is sort of the opposite of what it is in many other countries where you get a better salary in the private sector.
In return, you take the risk of, you know, relatively less job security or less Social Security provision in the Arab world.
You've got much higher job security. You got much better welfare provision and you got higher hourly wages still in the public sector.
And again, those are not good jobs. Those are not people who particularly cushy lives.
I'm just saying that they're still better off than the people in the private sector, even people with formal jobs in the private sector.
So it's quite it's really quite unusual. And again, explain to you why people cling to these types of privileges.
And then there's also extra low mobility between those different labour market segments,
between being a public sector insider, having a formal private sector job, or having a informal private sector job.
So there's all sorts of export labour market transition matrices that the labour
market economists have cobbled together that show that once you're on the inside,
you're very likely to stay on the inside. If you're an informal outsider, you likely to stay an informal outsider for very long.
Whereas in Latin America, you might be driving a taxi for many one year,
but the next year you might actually have a formal job in the company years and
you might some point potentially behind in government as much more turnover.
In the Arab world, the bonuses are very rigid. The ones who in one particular segment, you stay there.
And I think it's politically very, very consequential because it gives people a much stronger vested interests.
The share of long term unemployed among all unemployed is also comparatively high,
which is another sign that, you know, once you are in a bad spot, you tend to be stuck there for longer.
And conversely, if you're on the inside, your social benefits tend to be unusually generous and international comparison.
So we have seen gross replacement rates around the world by level of earnings growth.
Replacement rate is how much you get relative to your last salary when you retire.
So it's your pension relative to your last salary, and it'll make your assessment this week when you see that in some countries in MENA,
you actually get more the moment you retire and what's your last salary?
So you assess this somewhere here.
So again, a non-wage benefit that's very significant and that is only available to those insiders,
only available to this limited but politically very consequential.
If dwindling middle class constituency now is very expensive, you know,
those pension systems that even if those are still down populations, they're very expensive to maintain.
And as a result, there's very little cash left for other types of social spending.
So if you look at statistics on social safety spending, which is.
That's not contribution based.
That's not based on formal Social Security involvement, which is contingent on having a formal job, which is typically in the public sector.
There's very little of that. So there's been some experimentation, some expansion of those programs.
But by and large, the reason still lags behind are the reasons that do much more in terms of general state pensions.
That's including foreign workers, cash grants for people, minimum income guarantees, that sort of stuff.
Other reasons are really quite a bit ahead of the Arab world because the Arab
world is fiscally exhausted by catering to those inside the constituencies.
Now, the politics of the labour market are quite interesting, and I just wrote a little op eds,
hopefully coming out in foreign policy in a week or so on this.
Everyone loves the utility in Tunisia because it's gotten the Nobel Prize that was a guarantor of the temporary democratic transition.
So from a political perspective, it is a really problematic actor because it's the best organised inside a lobby in the whole Middle East.
There are actually organisations for outsiders, for the people on temporary contracts, for a young graduate unemployed.
And those organisations don't get along well with Egypt at all because the
resistance is essentially representing vested interests of public sector insiders,
pushing against any pensions reforms, against any redundancies in the public sector, pushing for a salary increases as a result of which Tunisia has,
I think, the highest of one of the highest shares of public sector salaries in GDP in the whole world.
So they're very good at representing those types of insiders.
But as a result, there's very little resources left for anyone else, including people who are actually poor.
And it's just a bit of an outlier in the sense that this is a very powerful union.
Most unions in the rest of the region are much more tightly controlled by the state,
but all across the board, unions tend to represent insiders, particularly public sector employees.
To the extent that there is sort of collective mobilisation over labour rights that
tend to be tends to be insiders who are better off representing their rights.
It's also very visible in Egypt during the temporary liberal period.
Precisely it was the first independent unions came into being was a tax collectors union and close to the public sector employees.
The only law under Sisi that the parliament rejected initially was a civil service reform,
but very tame Sisi Parliament actually did not dare to ratify a policy measure that would have that would have dented inside the privileges.
So there are also political feedback loops that reproduce this kind of system, because insiders tend to be better organised in many cases,
even when the system is very authoritarian, they can't really organise any particular fashion.
They're more recognised as a political constituency by by the regime.
And you know, to the extent that anyone started the Arab uprisings, it was easy in Tunisia.
And he's, of course, the quintessential outsider. He's a he's a street vendor who didn't have access to any of those inside of the.
So if you go back to the record of public mobilisation and contestation and unrest across the region,
it's it's very it's becomes very easily manageable through an insider outsider lens.
It's often insiders defending their privileges or it's outsiders claiming sort
of their share of the pie of not asking for wholesale reform of the system,
but rather asking to be made inside us, unfortunately. And that works.
You know, you have organisation in peripheral towns and in Tunisia where the demand is every
family should have at least one government job and in some cases that this works.
But of course it doesn't change. The system is just shifts the boundaries between inside and.
Okay. So that was that was essentially this part of the diagram.
So speed up a little bit and talk about business sectors and cronies.
So again, there's a legacy of deep state intervention that divides the private sector into insiders and outsiders like the legal market,
heavy regulation, unresponsive bureaucracy, extensive protection and subsidy regimes,
all sorts of mechanisms that make it very easy to protect certain connected firms in a discretionary way and
then create high barriers of entry to any outsider firms and prevent them from competing with the insiders.
And there's a great research agenda, and the Republicans in the audience who was a key protagonist of that,
there are a lot of great economists and political scientists have done
econometric research on the impact of cronyism on the sources of state business.
Cronyism in the Arab world so drawn that quite heavily in that chapter.
The really striking findings about the extent to which cronies are privileged take friends unproductive, suppress job creation.
So I'm not going to go into that in any detail other than point you to to this sprawling range of great papers.
I'll just say that a segmented market for firms where you have insiders are well and outsiders who can't really compete over small,
informal businesses like shops, mom and pop corner shops.
It's not a set up where you have incentives to invest in productivity,
either for inside outsiders or the ability to invest the productivity of outsiders.
Your fellow dynamism firms find it very hard to grow because growing means at some point having to kind of become an insider,
which is very hard, and that's the so-called missing middle.
So you've got all those ways, those gigantic, very well-connected crony firms,
and you have all of those tiny suffering, informal firms and almost nothing in between.
Often it's middle sized firms in other economies that are the most productive,
that are most innovative, and both those are missing in this kind of insight outside the system.
Yeah. Heavy regulatory environment is your body of work and your business rankings.
Very heavy perceptions of corruption, according to World Bank enterprise surveys.
Interesting exception of Jordan, you know, and very differential barriers to to administrative access.
So some companies are very good at getting administer paperwork done.
So they're doing 50 days, obviously 168 days, which just suggests that those guys are very well-connected.
They know how to work the system. And here's the bulk of everyone else who queues for 168 days in the government, which is a pretty modest 20 years.
Just some striking facts from colleagues.
92% of loans extended to the private sector in Egypt in 2010 went to firms with political
links to board members were identified as being close to Mubarak and the party in some way.
In Egypt, politically connected companies and Mubarak accounted for only 11% of total employment, but 60% of total net profits among listed firms.
So clearance of applicants, clearly they were not exposed to real competition and so on and so forth.
Similar statistic for Ben Ali and similar results also after the Arab Spring for those cases.
So these kind of protest structures have not really disappeared.
Even Ahmed is the emblematic, most hated crony in Egypt.
He's out of prison and his his companies are making three figure million dollar profits again.
Sign here that it's really hard to break into markets and become a normal mid-sized firm and that very few companies that are registered as LLC,
this limited liability company, which is sort of the typical form of that sort of dynamic mid-sized firms,
takes a very few of those that created in the cases where we have data and again,
very low mobility like on the labour market between inside and outside of certain.
So large firms tend to be older, small and informal firms tend to stay small and informal for longer.
So very limited mobility, very limited dynamism. Yeah, it's just a graph with this missing middle in Egypt here.
So you've got the winds here this morning from the companies here and then very little in between.
It would look quite different for a case like Turkey, for example.
And the politics again is sort of analogous to what's happening on the labour market,
but with inside has been even better organised, even better connected.
So you've got the equivalent of the city and all the business sectors in terms of
informal crony networks that are very effective at protecting their interests,
serving in the administration, also shaping policy. And so there's a great paper by actually find a table in that year that shows that in
sectors where there's a tariff reduction because of free trade agreements with Europe,
as suddenly loads of non-tariff trade barriers pop up.
If crony firms are present in that sector, that shows that even if there's formal liberalisation in one area,
cronyism can pull political strings in order to create new barriers to entry,
new forms of protection for themselves and in the shape of other protective tools and regulations.
As a result, business really isn't very popular, so most Arabs really have a deep distrust of large businesses.
So yes, the percentage of respondents with no confidence at all in large companies, according to recent World Value Survey on the Arab world,
really stands out that interestingly, the general attitudes to enter apprenticeship or private markets aren't that bad.
So it's really seems to be specifically large companies that I would interpret as cronies in the eye of the respondents that I particularly dislike.
Okay, so that was the right side of the story question of the state protecting insiders in the private
sector and that then that pattern reproducing itself and generally producing very weak trust.
The study, the wider population. And the last I just say something for two or 3 minutes.
The Arab world is also characterised by low skills as reflected in most standard statistic
that we have in terms of PISA or TIM Schools sort of scholarly aptitude measures.
Also, according to all sorts of enterprise surveys, the labour force is seen as is relatively unscathed or lacking practical skills.
And I think this again is to some extent at least a by-product of this kind of segmented system where you just
don't have strong incentives to invest in skills because you're going to be locked out quite likely anyway,
or you're an insider. So it doesn't matter either. You can be very unskilled, you know, to lose your job.
And similarly, firms either don't have strong incentives to invest in skills, the productivity for the insiders,
or they don't have the ability because to outsiders and they don't get any support and they're just about scrape by.
Firms do very little to provide skills, so very little in-house training,
although they complain that skills up at the actually don't do much about it,
but suggest that at least the insiders probably don't do because they simply don't have to that protected from competition.
And there was a particularly bad talent year according to the World Economic Forum, that measure of how good firms are at leveraging talent.
And there's also all sorts of evidence, some statistical, some anecdotal,
that sort of nepotistic hiring is particularly bad even in private sectors in the Arab world,
which again would kind of reinforce that kind of insight outside of that dynamic, even on the private parts of the labour market.
Okay. So that was the skill story that's in there because skills are often part of the field.
But I also think it's substantially important in this very imperative work on actually education and skills in the Arab world,
which I think is a very important and neglected topic.
I certainly do. It is trying to do so. We're very keen to get the views of the historians in the in the room about this.
I do think there's an interesting story that I tried to unearth a little bit based on
secondary sources in the history segment of the book where you had this nationalist,
populist, revolutionary regimes in most of Egypt, but then also Syria and Iraq that kind of created this template of very ambitious state led,
public sector led development that put the monarchies under pressure to keep up to some extent if they wanted to avoid revolution,
as we know, not all of them did about revolution, but those that didn't want revolution.
Jordan in particular, actually copied quite a bit of that sort of nationalist economic development template.
And I think the reason is also because stands out in international comparison of being a relatively integrated ideological space.
I think what Nasser said or what was inside a lot of redoubt and across the region,
much more ideologically put the fear of God into the minds of the monarchs across the
region in a way that you wouldn't have had in Latin America or sub-Saharan Africa.
There wasn't the same amount of ideological transnational competition.
I think this is part of why the region looks relatively homogenous on some of the indicators
that are shown and why there is sort of a shared type among at least some of those states.
But that's in some ways an open research agenda, because I haven't looked at any primary sources in that regard.
But I think it's a very interesting puzzle where the region came to look relatively, relatively similar in terms of its political economy.
All that being said, the republics are the worst offenders. So if you put all of those various indicators in the book on this nice fight each other,
the greater the social system put together for me, then the country at hand.
In this case, Algeria is the black line. The median grey line is low to middle income countries.
So these are just other developing countries. And the light blue line is the global average.
And if you're closer to the centre,
then you're closer to sort of the segmented dualist ideal type that I've developed in this book is that Algeria is like a perfect fit.
Like it's doing terribly in every regard.
So it's one of the republics that really messed up things quite badly with regard to economic development.
It's kept afloat, obviously, by oil. That's what has got to have to do something about this early on.
Morocco is the least best fit. Morocco is very badly behaved.
You know, it's sort of much more of a normal, average country in some regards, but it's still on the inside in more cases than its on the outside.
But if you look at Egypt, it looks pretty much as bad as Algeria.
Syria for the indicators where we have data looks quite bad and then gradually kind of countries move away a little bit from that ideal type.
Jordan still is pretty close to that as to that kind of material pattern.
And Morocco, is that the furthest away it? I don't think we need to talk about policy issues.
I don't think we need to talk about any of the things that are in the slides that remain,
because I think I've taken up enough time looking forward to take questions and.
Great. Thank you so much, Stefan. So it's always tradition.
I have to ask you the first question. So I've read this book nearly twice now.
Reading it and rereading it. I have some questions for you. We've had some exchange about this email, but I think it would be worth just areas.
What does it mean to be a labour market insider in Egypt in 2023, where forecasted inflation for this quarter is 33%?
All these insider benefits are real. And if they're not real, can we talk about processes of not segmentation, but segmentation?
That's a great question and I don't have the answer.
What I do know is that at previous evaluations,
there was always talk about the end of the Egyptian social contract and the insiders were doing quite badly.
And then when you looked at the household income and consumption statistics afterwards,
the insiders still did better and they also still got a worse hit from the devaluation than the insider.
It could be different this time because previously Sisi compensated the insiders through nominal wage increases for devaluation.
Often they were on a lower level in real terms than they were before.
But the hit to outsiders that didn't get that kind of compensation often was worse.
So the most recent labour market survey data we have is in 2019.
Those were these graphs and the insight is that we're doing very significantly better.
There is a potential that this time Sisi can't compensate or doesn't want to,
and that the system does get segmented through complete polarisation that essentially everyone becomes an outsider in terms of the material status,
just that you have more job security as an insider, that could happen.
I think it's a really critical moment to watch it, but it's the result of that moment,
of that model just having run for so long that everything's been destroyed and it's completely exhausted.
So the only way out of that model that way would be complete polarisation, desperation for everyone.
Great. So a follow up question then. So the thesis of labour market utilisation seems to me to be completely not just
plausible but compelling that you have extremely ambitious third orders development,
developmental states that embark on these processes of talking, industrialisation, import substitution policies.
And this I'm thinking here of Fernando Gil's work about, you know, social dictatorships,
that these are often autocratic regimes that then expand the kind of support coalition into society through having labour market insights.
How then and this is something that there's a slight tension I found running through the book.
How should we expect that labour market utilisation will pattern participation in things like anti systemic uses?
Yeah. So in the book, for example, you cite Kevin Liza's work a lot about Syria.
He finds that Syrian Sunnis who are public sector employees, labour market insiders,
are much less likely to mobilise against the regime than Syrian Sunni labour market outsiders.
And this is there's a lot of parallels here with the thesis put forward by another by the former Nuffield historic
Win Rosenfeld about the so-called autocratic middle class that we often think in kind of democratisation studies,
that the middle class should be the agent, the vanguard of globalisation.
But where you have labour market utilisation that this kind of privileged relationship
to the state that labour market inside is enjoys a basically demobilise you.
Yeah I wonder how sustainable that is looking looking across the media which is
certainly so sorry at least who's one of Stefan's former students you know,
looking at Algeria and Britain's participation in recent mobilisations there.
And in that case, labour market insiders are really the key constituency here, at least reporting in-person surveys that they're protesting,
you know, Egypt in 2011, again, it's the same kind of constituency that we get from kind of things like our barometer data.
So I wondered what is their expectation? But is your your argument that leaving look it outsiders will tend to not be anti systemic.
They'll just argue for insight. This latest thing is totally plausible and it shows up in all kinds of ways.
But then what is our expectation about about labour market inside this thesis?
That's another great question.
I've thought about this a bit recently, and I don't think my theory predicts that it's either one or the other protesting.
I think I think it can capture both of these.
It's more about the nature of demands and what triggers protests.
So I think you're quite right that in Tunisia tended to be more the outsiders they tend to be more the was easy to mobilise I think
2010 2011 in Egypt it was more the insiders probably because those was inside of that been on a longer trajectory of relative decline.
It was to better off than outsiders. So I don't think we can on the basis of this, predict that it's going to be constituency or constituency B,
but we can still make those protest legible in terms of the content of the demands.
And we can probably predict that insiders are more likely to protest when the material status is affected by an outside,
are more likely to to protest when they see a chance to become an insider.
But yeah, I think it's perfectly compatible. With insiders and outsiders protesting.
I think what what would sort of falsify it was inside and outside is went out at the same time asking for the same thing.
And I don't think we've I think we've seen that. They both protest in different ways.
So you also the 40 fluent and cogent. Let me let me try to think of something slightly more difficult.
So in the thesis that you have, you there's a question here which is your sub setting into a set of Arab Republic produce economies.
What is the status of the rentier states in this story?
Because one expectation you talk about, because there's a question about case independence is one is that you have this kind of development with
state to state diffusing from south to other or whatever through a number of contacts and then maybe,
maybe even some competition amongst the Arab publics about who has the more generous social contract.
What then happens, though, in 1970s, when you obviously have forms of retrenchment, the model no longer works, is no longer sustainable.
Nobody wants to buy Egyptian cars. But there's also coeval to this process unfolding where you have very significant forms of
South-South migration in which a lot of seemingly labour market insiders from contexts like Egypt,
from Syria, but really Egypt are going to the Gulf. How could it be?
Because one of the stories that I was kind of wanting to hear more about in the book is What is the status of remittances,
for example, in all things like remittances, maybe insulating labour market inside these people,
you have all kind of maybe privileged in these kind of South-South migration patterns because of the labour history,
because the university graduates almost exclusively.
And this may be heading a kind of Nasserist social cultural structure, allowing it to endure over time.
I think one thing that the book doesn't explain sufficiently is why the model is quite so resilient.
I think that's quite right. You put your finger on that quite rightly.
I mean, some of it is those political feedback loops. But at some point, if you completely run out of money, you know something?
I mean, this as economists said, something can't continue forever.
It has to stop at some point. And I think this moment is now there in Egypt.
We'll have to see. We'll have to see what's next.
I think remittances are probably a factor, certainly in Egypt, that Egypt consume much more than its productive capacity, warranted for decades.
And I think remittances are an important part of that. And also aid from the Gulf countries.
Also geo political patronage to some extent from the United States.
I think these are all auxiliary factors that lock this kind of system in place for longer than we
would have had some of the more ambitious kind of socialist regimes surviving in sub-Saharan Africa,
like Tanzania. It blew apart because no one was supporting it.
That said, you know, Syria lurched on for 20 years after the end of the Soviet Union with very little external support.
So there was something so internally coherent and strong about it.
One thing about the Gulf, so I think Saudi Arabia is actually the only country,
the only major Arab country that really fully implemented a Nasserist economic program.
Because if you read the ten points by King Faisal from 1962, when they had a number of failed military coups,
turmoil within the family, sort of bringing sort of Nasserist and Baathist ministers into his cabinet out of fear of of revolution.
They took the program and they had the money to run with it.
So if you look at the size of the public sector, the extent of public sector industrialisation, they did a lot more than Nasser ever promised.
And I've got a paper on labour market segmentation of the Gulf.
Then I'm happy to send it to you.
Well, Thomas Cook, I'm not convinced that what you're saying actually contradicts neo liberalism the way you say that it does.
And primarily because people academics, right. About neo liberalism aren't just equating liberalism with smart state.
They aren't actually even arguing that the state necessarily shrinks.
What they are doing is that there's an upward redistribution as well.
And I don't think that that actually contradicts what you're saying very much.
One thing that you are arguing, which may be a bit different than what most people.
Saying That's all I needed to hear is that you are claiming a larger group of insiders than.
You know, it was claim, but I think that there are tiers within your category of Labour insiders.
I don't think that's sort of denying it because you keep saying you keep putting a caveat.
You don't turn necessarily great jobs. I think actually at the lower tiers of these public sector workers,
it is true that people want these jobs because they do provide some level of security, but it's not a very high level of security.
And what they actually do very often I mean, you just alluded to this talking about.
Working in both of public sector jobs.
But many public sector employees actually moonlight in the private sector, and so they get their secure income from public sector jobs.
But they work in the private sector.
And there are other ways that we have realism effects for people that isn't necessarily just so you can reduce to jobs.
It's also things like the provision of education and healthcare, which are things that, you know, part of the is.
The state would provide these things and it actually doesn't provide.
Well for public sector workers or for people, the private sector, many people to have these public sector workers inside jobs are just,
as, you know, finding it just as necessary to go to the private sector with things like education and actual good health care.
People who are in this insecure private sector.
So I. I don't disagree with anything you're saying.
I just think that actually most of what you're saying fits perfectly well within the political analysis.
It is political. I mean, I agree that some of the more sophisticated authors are talking about stage redeployment rather than, say, withdrawal.
Well, I actually but I'm not going to give you even like the very general, like David Harvey's wisdom.
Well, that's always part of it. They're not arguing that neo liberalism is just part physician treating the state.
They're pretty much all saying that, you know, something else is going on. It's actually the state may actually be in there.
It's just that there's a we actually look at the history in Egypt during this era.
Most of the at the top insiders were people who had a foot in government, like government ministers also were making money off private sector.
Once you get into an apartheid era, then more of the top level like the Wales actually completely outside the public sector.
They're completely private. People are gone. It is like the really big capitalists.
They're no longer like innocent people, their cronies and, you know.
Neo liberal writing doesn't actually say anything about cronyism.
Not. Yeah. I mean, two answers.
One is that I think the labour market inside a constituency is really very significant.
It's the most important part, I think, of this political economy,
and I think that's really neglected or is misrepresented in a lot of the literature that focus on neoliberalism.
I think that the stickiness of this old middle class social contract is underestimated,
and the decline of that constituency is often attributed to kind of nefarious redistributive sort of conspiracies,
whereas in many ways it's just those models being exhausted and not being able to to live up to their promises because they're extremely inefficient.
So I think I think the efficiency questions that are that are very much neglected by both literature and a
lot of the exposure of people to markets and the shrinking of this old social contract is is structural,
is unintended. I think they would have been very happy to keep the Nasserist system if they could afford it, to keep the Nasser system.
And when those systems were fiscally exhausted, they just had to do something about creating,
try new sources to generate new sources of growth or something like this, which in many cases then led to cronyism and inequality.
I think a lot of the insight outside the cleavages emerged because of resource
constraints and not because of a deliberate kind of ploy to redistribute.
Did you get thinking of an earlier synthesis on political economy?
Springborg and Henry, he characterised a lot of the countries you focussed on.
Certainly Algeria. Egypt, Syria. Yemen as.
Bunker. Petroleum and the bunker was.
All of the features that you're referring to about control over aspects of the labour market and distribution of state goods.
But the Praetorian Guard reflected, of course,
their military origins that these were all countries that had governments that emerged in that moment of enthusiasm.
The 56 years military governments to power.
Each of which was to complicate the stage in a way that you don't seem to reflect here, in that the state and the army are often not the same thing.
Certainly in the case of Egypt, you had the sense that you take the army off the states books.
It was given free reign over bits of the economy, the limits of which we still haven't really been able to study with any precision.
So I just wonder whether there's a point to bringing the Army back in.
Certainly when one looks at this very ambiguous Algerian government and the role of the military there in Egypt.
I mean, Yemen and Syria are such messes now. But clearly the role of the military in holding it all together is absolutely central.
And is there something to complicate a little bit,
the discussion about the state that brings the army into it in a slightly competing way with the state?
Yeah, I think definitely if I was to I mean Henry and Springborg most to do kind of within reason comparisons.
So they take the Middle East as their universe and then they create subcategories within that.
So the distinctions are much finer than mine. But my perspective as global comparison,
I try to figure out what makes those core Arab says distinct and global sort of global global south comparative terms,
but with a more fine grained comparative lens within the region.
I think the army is is critical and is probably what's made a lot of the things worse in Egypt and Algeria.
But that being said, Tunisia is also quite close to my ideal type in the army was completely closed.
The it was obviously a republic and a very strong security apparatus.
But the army as such was not part of politics.
Perhaps it's more about having a strong Republican security apparatus rather than the army specifically,
but it's just the devolving of parts of the economy. Yeah.
I think would be different. Yeah. Yeah, he's in Egypt maybe compared to Turkey or something.
Yeah. I mean, there are definitely more state owned enterprises in Egypt and energy area compared to Tunisia because of those vested interests.
And those are part of the of the public sector. But looking at total employment, it's a fraction of what's in the rest of the bureaucracy.
So it's for the broader labour market story. It would make a huge difference.
You know.
I think at some point you said I could be supporting you, but the resources of the state is depleted in part because states declare war exhausted.
But there's also something that I think I have heard you talk about,
which is that at least two countries are already constrained in their resources
to begin with the goal and maybe it's on what level of expenditures on military.
So yes, maybe this in Asia on all their states they will not be spend roughly an average, maybe a small amount,
about 5% of GDP, but military that's significantly higher than all the global south and also all those countries.
And that rate by itself takes significant part of existing resources.
That would be then, you know, distributed, whether for Social Security, social welfare, health care, whatever.
And that, I think, is a very important part of their story. That seems like the.
So how does this fit in with. You know, but that's because the state is depleted, that the state is obsessed with trying to stay alive.
Yeah, I think it's an auxiliary factor, but it also links to the labour market story because a lot of employment of
young males in the military sector is kind of a form of insider employment.
So if you think of of Jordan and the work of Tyreke Teller,
much of the growth of the security sector is to absorb young male Jordanian citizens and give them a sort of middle class ish status,
often for for people who only have secondary education.
So I think that the labour market dimension of the military sector actually plays quite into what I say.
I think it would be a different story if there was huge procurement of foreign military kids.
So we need to see how much would they spend on salaries.
And then my hunch is they spent more in salaries, proportionally speaking than most other militaries.
How much do they spend on on sort of military kits, which then would be sort of a story of it's own?
It's almost like a thank you. A very interesting and very well communicated.
Yes. At the end, you skipped a few slides for lack of time.
And so some keywords to comment about to show students in the arts and humanities.
Yeah. I accidentally left in the the old grass there rather than the nice scatterplot.
But there's a general pattern that higher education.
The Arab world has a disproportionate amount of students in subjects that are sort of
considered a bit remote from the skills that you would need in the private sector,
and that includes people like us.
So just for the arts, humanities, religious studies and the reason for that, to the extent that I could find that out,
talking to people is that those programs are very cheap, comparatively speaking, to expand.
So it's much easier to make everyone ABC in literature or geography than make everyone A, B, C,
in engineering or anything that requires equipment and also teaching staff who are more
expensive because they're the they can be hired at higher wages in the private sector.
And I think it's, again, part of the old Nasserist social contract. We promised everyone higher education.
Everyone then can get a government job.
But how do we do this when we have resource constrained and we've got to grow our university system by 20% each year,
we go into the subjects that are completely irrelevant for the private labour market, but that we can expand on the cheap very quickly.
I think that legacy creates with some of the skewed or deficient skills distribution in the
private sector and was originally set up for people who then went on to work in the government.
And it didn't really matter if you had sort of a B.A. in geography, but nowadays in the private sector it would matter.
But you have this legacy of those mass programs that are not fit for purpose.
That's a great question and answer. Can we thank Speaker Stephan?