The modern states of the Arab world reflect the interests and policies of the great powers of the 20th century -- Great Britain and France before the Second World War and the United States and the Soviet Union thereafter. By and large, European imperialism came relatively late to the Middle East and North Africa and was characterized by a preoccupation with the geostrategic -- as opposed to economic -- value of the region.

To ensure low-cost access to the region and to guarantee their global strategic interests, the European powers first attempted to identify and support compliant local political authorities in protectorates of varying degrees of formality. When the regional political system collapsed with the demise of the Ottoman Empire in the First World War, the European powers reconfigured the political and economic landscape of the region, inventing new states and imposing European-style administrations, thereby creating a regional system that would secure European political interests with relatively little investment of imperial resources. [6]

Because of the high priority accorded to geostrategic concerns, neither the imperial powers nor their Cold-War successors were highly motivated to invest in the region. With the exception of oil, private foreign investment was low throughout the 20th century. Industrialization was discouraged -indeed, Charles Issawi argues that the first half of the 20th century was a period of "deindustrialization" -- and by many conventional indicators, the Arab world lagged behind even other developing regions.[7] By the final quarter of the century, the region' s profound reliance on the industrialized countries was virtually unrequited, and the region was conspicuously absent from the growing integration of the world economy. In the late 1980s, the Middle East was a minor trading partner of the industrial powers (the U.S., Europe and Japan), and if oil were factored out, export figures would fade into insignificance. Indeed, in 1989 and in 1990, just before the Gulf War, foreign investment in Malaysia alone approached that for the entire Middle East, just over $2 billion a year.[8]

Despite the relatively minor contribution of the region's economies to international trade, however, international finance and investment have been essential to these states or, more precisely, to their regimes. From their inception, Arab states have derived substantial government revenues from sources outside domestic production, typically from what have been called exogenous rents. The importance of this profile first became apparent in the large oil producers in the region and was described in the literature on the "rentier state."[9] In fact, however, it has proven to be only a subset of a more general pattern of international rent-seeking on the part of local governments. In the early days of oil exploration and production, Middle Eastern governments quite literally drew rents -- or royalties -from the exploration and exploitation concessions they granted to foreign oil companies. Over time, each government took increasing control of the oil operations within its borders, but, as the title-holder of all subsoil property rights, the state remained the recipient of substantial revenues that far exceeded domestic productive activity.

Other externally generated revenues may also behave like oil income. Payments that result from international recognition of sovereign control of territory, for example, such as basing or transit rights, or from international political competition for allies and clients, such as foreign or military aid, may also provide governments with substantial revenues in the absence of productive activity in the local economy. This serves to release governments from reliance on domestic taxes (and taxpayers). Before independence, for example, the imperial countries provided funding to build and sustain colonial state administrations so disproportionately elaborate that they would later be characterized as "overdeveloped" by local societal standards. [10] After independence, some local governments in the former colonies were able to prolong and even to expand their access to revenues derived from outside the domestic economy.

In the Middle East, governments used foreign-exchange reserves accumulated during the Second World War; nationalized foreign-owned property immediately after independence; obtained foreign aid, first from the superpowers as a result of the region's geostrategic location during the Cold War and, after 1973, from Arab oil producers competing for regional influence; and, during the 1980s, incurred foreign debt from both private and official sources.

As a result, and particularly in conjunction with the continued frailty of the domestic tax bases and the absence of multiple links with the world market, politically motivated external financing constituted an unusually large and important element in the budgets of the governments of the Arab world. Not only had the interwar mandate system favored political over economic interests in the relations of local governments with their international patrons but, during the Cold War, political criteria were routinely accorded primacy by the superpowers who competed for allies with aid, credit and concessionary trade policies. In one of the most notorious but hardly exceptional instances, which set the stage for U.S.Egyptian relations for decades, U.S. (and World Bank) funding of the Egyptian Aswan High Dam was withdrawn in 1955 when Egyptian President Gamal Abd al-Nasir defied a Western embargo on arms transfers to states at war with Israel by concluding a deal for advanced Soviet weaponry with Czechoslovakia.[11]

As Stephen Krasner has argued, Third World states rarely embrace the liberal principles of the international market; "as a group, the developing countries have consistently endorsed principles and norms that would legitimate more authoritative as opposed to more market-oriented modes of allocation."[12] Although Krasner attributes this aversion to the liberal international order to "poverty and vulnerability," it may equally be interpreted as an effort to formalize and institutionalize the de facto primacy of non-market criteria in the developing countries' economic relations with other states, particularly with the industrialized states of the North.

Because of the exceptional importance of non-market, concessional or politically motivated external financing in the Middle East after the Second World War, the regimes of the region came to participate in the international system in much the same way as managers of state- owned enterprises operate in command or socialist economies. Like the firm managers who are accustomed to the authoritative allocation of command economies, the rulers of the developing world are subject to "soft-budget constraints." In such circumstances, firm managers are expected to meet political as well as (sometimes even instead of) economic targets -- such as full employment or national security production --whether or not the operation is profitable or stays within its allotted budget. As a result, they grow to expect additional allocations, and bailouts of firms in the red become institutionalized as regular and predictable elements of the budget process.[13]

Soft-budget constraints result not only in slovenly bookkeeping and inefficient production -- of which there is ample evidence in the Arab world -- but, just as importantly, in reliance on economically perverse mechanisms of resource acquisition.[14] Bailouts are negotiated individually in patterns of asymmetrical bargaining between powerful and less powerful players on a case-by-case basis, in response to special pressures or pleading. As a result, like firms in socialist economies, many states in the Arab world are characterized by uneconomically large bureaucracies managing what are often inefficient and unproductive enterprises-"showcase" steel factories operating at half-capacity, nearly empty tourist hotels providing employment for redundant labor, government bureaus that produce little more than red tape and endless cups of coffee -- all sustained in their unprofitability by the availability of government subsidies.[15]

The domestic political consequences of soft-budget financing

Dependence on internationally based soft budgeting hinders domestic democratization or liberalization, and distorts the assessment of the costs and benefits of foreign-policy options.[16] As far as domestic politics are concerned, several factors contribute to undermining the prospects for democracy. First, the availability of exogenous revenues releases governments from their reliance on domestic taxes for significant (if variable) components of their income and, therefore, from many of the ordinary obligations of domestic accountability. Many governments in the Arab world reproduced at home the system of international subsidies that sustained them, using low-cost foodstuffs and other consumer goods, guaranteed employment, free education and affordable health care to become, in essence, pre-industrial welfare states. The foreign economic rewards for guarantees of political stability are replicated in payments to domestic political clienteles for their political acquiescence.

Resource distribution through subsidies and patronage militates against political democratization or liberalization not only because it releases governments from marginal reliance on domestic taxpayers but also because it creates a citizenry that is financially dependent on the state. With little independent standing from which to demand rights to participate in or to challenge state policy making, ordinary citizens are loathe to risk their entitlements. Even in relatively open countries like Morocco, for example, where the King presents the country's newspaper editors with their annual subsidy checks in an annual public display of royal largesse, the freedom of expression essential to liberal politics is profoundly compromised.

Moreover, the importance of both the policy preferences of international actors and the linchpin role of government incumbents are magnified, further eroding the bases for democratic politics. In exchange for politically motivated infusions of revenues, individual rulers must guarantee a political quid pro quo, be it reliability in the U.N., stability at home, palatable oil prices and supplies or even willingness to sue for peace. As in most patronage-based bargaining between unequal actors, the importance of personal attributes and informal relationships is amplified at the expense of formal, impersonal institutions or institutionalized linkages. Thus Egyptian president Anwar al-Sadat relied greatly on his personal ties with U.S. president Jimmy Carter and, in much the same way, Morocco's King Hassan, Jordan's King Hussein, Libya's Muammar al-Qaddafi and Iraq's Saddam Hussein are held personally responsible for the state of their countries' relations with the rest of the world by both their citizens and other governments. Neither political institutions (democratic legislatures, for example, or organized interest groups) nor market forces (trade deficits or inflation rates) are as closely monitored as are the health and moods of the rulers of the Arab world.

The international political consequences of soft-budget financing

Thanks to records of reliability and compliance, authoritarian regimes in much of the Middle East and North Africa have enjoyed fairly consistent international tolerance, and often active support. Indeed, despite the U.S.'s rhetorical attachment to the export of liberal democratic institutions, the U.S. and its allies often have been reluctant to pursue policies that might undermine client governments. Particularly when the interests of international actors are thought to be directly at stake -- for example, when the U.S. became worried that opponents of the Camp David peace treaty with Israel were gaining power in Egypt, or, more recently, when France grows apprehensive about the prospect of migrants fleeing Islamists in Algeria -- regimes have been permitted, if not encouraged, to repress domestic opposition. This can occur even at the cost of repressing free speech or violating electoral processes.

Reliance on internationally based soft-budget financing of regimes also has predictable and perceptible consequences in interstate relations. Decisions to wage war or sue for peace are less likely to reflect assessments of long-term shifts in international or regional balances of power than calculations of short-term changes in the fortunes of regimes. Because the structure of domestic patronage reinforces the centrality of the government to the domestic economy and society, the personal or institutional interests of rulers are difficult to distinguish from the national interests of countries. Foreign policy in much of the Middle East and North Africa is marked by the conflation of regime and national interests and by efforts on the part of the regimes to use national security as an avenue of access to resources in the international system.[17]

The incentive to use the rhetoric of national interest and national security to meet the needs of regimes is heightened by the fact that these countries play a very small role in the global economy yet loom large as potentially disruptive forces in the delicate international balance of strategic power. As a result, both war and peace have been less conditions than instruments -- or extensions, to paraphrase Clausewitz' s well-known dictum -- of patronage politics by other means. Both war and peace have been policy options pursued because they promise to produce a bounty for the government. Insofar as initiatives towards war and peace serve to draw resources from the international system --as the 1973 war contributed to increases in oil prices, for example, and the Camp David peace treaty to higher levels of foreign aid - - neither can be said to contribute to enhancing prospects for democracy in the region. Thus, somewhat paradoxically, when peace is pursued as a revenue-enhancement device, its achievement lessens rather than enhances the likelihood of increased domestic accountability on the part of the signatories.

The dynamics of revenue enhancement through war and peace in the soft- budget environment of the strategically important and economically subordinate Middle East can be seen throughout the region's history after the Second World War. From this perspective, war and peace share far more attributes than they exhibit differences. They are not goals to be sought or avoided in themselves, but instruments used in the service of other goals, principally the desire of rulers to maximize revenues without extracting significant domestic taxes that would precipitate demands for increased domestic accountability.

THE BENEFITS OF WAR

During much of the Cold War, the Middle East was a crucial arena of superpower competition. Like the European powers a century earlier, the U.S. and the USSR sought to limit each other's influence in the region while expanding their own; like their predecessors, they worked through local client regimes.[18] As a result, many governments availed themselves of the diplomatic game of nonalignment and national-security brinkmanship to parlay the superpowers' desire for influence into resources.

Of course, war has its costs, and clearly the costs of war have been high in the Arab world. Military spending in the Middle East since the Second World War has been higher than in any other region in the world. By the mid-1980s, the Middle East was receiving half of all arms deliveries to the Third World; the regional average spent on the military in Middle Eastern countries was between 13 and 15 percent of GNP, almost twice the rate of the next highest region, the Warsaw Pact countries. Even after its defeat in the Gulf War, Iraq deployed 50 percent more battle tanks than the Great Britain.[19] Although the absolute cost of defense spending has been exceptionally high and the associated cost in human lives has been staggering -- perhaps one million people died in the eight-year Iran-Iraq War in the 1980s -- it is not clear that the opportunity cost of these expenditures has been as high as it might be supposed.

To begin with, substantial proportions of the military imports into the Arab world since the Second World War were paid for by foreign military-assistance programs, concessionary loans and uncollectible debt from the exporting countries, or with oil revenues that otherwise exceeded the absorptive capacity of the countries at the time. Between 1955 and 1970, the Soviet Union transferred between 2.5 to 4.4 percent of its total defense production to Egypt, Iraq and Syria, and for the several years after 1970, aid to Egypt alone may have amounted to 5 percent. At the outset the Egyptians paid the USSR in cotton and rice, but in 1965 payments were suspended and an arms debt of $460 million was written off. Until 1973, when oil-producing states began to fund Egyptian and Syrian arms purchases, the Egyptians appear to have paid little for Soviet aid, although they did amass a substantial debt for the services of the Soviet advisors in Egypt, for whom they paid in hard currency.[20]

Moreover, the local recipients of this aid got both state-of-the-art technology and real value. The superpowers had signalled their strategic interest in the region quite early, and by the 1960s they were giving their Middle Eastern clients priority in weapons delivery over their European allies. Arab governments often demanded, and almost as often obtained, the most up-to-date weapons systems. The willingness of the superpowers to comply with these requests enhanced domestic stability among the recipients of such aid by equipping their governments with sophisticated domestic intelligence and security services and by providing a significant form of patronage for the military establishment itself. [21] Perhaps more importantly, however, military aid was channelled into local military, and often civilian, development. For example, the USSR improved Iraqi inland waterways and the port of Basra after the 1958 military coup brought an anti-Western regime to power. In the 1960s, the USSR, developed ports and airfields in Yemen and Syria, built the Aswan High Dam in Egypt and supervised land-reclamation projects. In the mid-1970s, the U.S. built some branches of the Saudi armed forces from scratch, contributing substantially to improvements in general education levels.[22]

Indeed, in this context the sharp distinction between security and development implied in the traditional counterpoising of guns or butter is probably mistaken.[23] Richards and Waterbury found "no correlation in the Middle East between defense expenditure as a proportion of GDP and rates of growth"; high levels of military expenditure, therefore, are not necessarily a drain on the civilian economy.[24] Civilian economic development -- infrastructure, industrialization and even education -- has often been justified (and financed) by its contribution to the defense effort. In a number of countries, the "military-industrial complex" is among the most dynamic sectors in the economy. In Syria, the Military Housing Establishment was the largest firm in the country by 1984, employing half of the 150,000 Syrian construction workers in building the international airport, hotels, sports complexes, schools and housing throughout the country. In Iraq, the Military Industries Commission, not only produced war materials but also oversaw the construction of bridges, roads and port facilities and sold 70 of its factories in 1988 to concentrate on "high-technology and export-oriented industries. " In Egypt, as Springborg observes, the military National Service Projects Organization moved into agricultural development and land reclamation, arguing that "national security, for which the military is officially responsible, depends on 'food security'," and soon became the country's most efficient producer of citrus, dairy and poultry products.[25]

Finally, the region's governments learned early on not only that the potential benefits of foreign-policy adventurism were high but that the constraints were soft: Failure in such apparently high-risk games was rarely fatal. From a financial perspective, war -- or, more broadly, military expenditure -- has rarely been a dead loss in the Middle East and North Africa; spending on defense has often served as seed money, expended to attract more revenues. As Martin Malin has argued, while Egypt's intervention in Yemen's civil war in the mid 1960s "may have been a net drain on Egyptian resources it may also have been Egypt's most important magnet for drawing resources from outside of the region. The Yemen policy was as much directed at the superpowers as it was at Saudi Arabia and the Yemeni royalists."[26] Similarly, when Egypt assented to Soviet encouragement to intervene on Syria' s behalf against Israel in 1967, they did so in the knowledge that the Soviets had promised substantial support to both Egypt and Syria. As Malin concludes, "Nasser's alliance with Syria . . . was, most importantly, an attempt to use foreign policy as a tool to attract resources from the Soviet Union."[27]

The outcome of this policy was, of course, the disastrous war of June 1967 in which Syria, Egypt and Jordan lost equipment, lives, territory and prestige to Israel. Yet the belief on the part of the Arab governments that if they took risks, the superpowers would make them whole again was not unwarranted, for by the end of October the USSR had replaced 80 percent of the Arab military losses. This meant, among other things, that the Arab states were not required to sue for peace on the basis of the military costs produced by the war, nor did any of the regimes face serious domestic challenges despite their dismal performances. Just as there is no bankruptcy in the politicized soft-budget economy, there is no defeat in the politicized soft-budget war.

THE COSTS OF PEACE

If war has been used as a revenue-enhancement device, so too has peace. In 1977, for example, Sadat faced a major economic crisis as riots by tens of thousands of Egyptians prevented the regime from imposing necessary cuts in the massive food-subsidy program. Sadat correctly estimated that the better relations with the U.S. to be won by peace with Israel would also produce badly needed financial aid. Shibley Telhami suggests that, although the economic dilemma was a serious one, Egypt may have turned to the Arab oil producers for assistance without reversing its position on relations with Israel. Yet as he concedes, the Arab oil producers were demonstrably less reliable than the U.S. --indeed, Arab aid to Egypt fell from $1.2 billion in 1974 to $600 million in 1976 -- and they imposed far more troublesome domestic conditions. The American quid pro quo for aid was only that Egypt come to terms with Israel, leaving Sadat a free hand at home, whereas the Arab oil producers routinely interfered in domestic politics as well as foreign policy. As a top Egyptian Foreign Ministry official explained:

Arab states have often made some impressive offers of aid, but when it came down to it, they set unacceptable conditions. I mean, you will have the Saudi government calling and threatening to cut off aid to us, because one of our magazines wrote an unfavorable story about a given prince. They want to dictate our domestic and foreign policies. That is unacceptable. American aid is stable and predictable. [28]

And, perhaps most importantly, U.S. aid is generous in both its financial terms and its political conditions. The Egyptian government received massive U.S. foreign-aid increases after the signing of the Camp David peace treaty with Israel and retained a virtually completely free hand at home. As Sadat's subsequent political crackdown would demonstrate, liberal domestic policies were not necessarily a requirement for continued U.S. aid.

After the 1990-91 Gulf War, the PLO confronted many of the same dilemmas. Like other governments in the Arab world, the PLO faced a serious economic crisis that threatened its continued position at the helm of the Palestinian "state." The loss of remittances, subsidies and trade deprived the Palestinians of "hundreds of millions of dollars that annually came from external sources," cutting per capita income to half of 1987 levels. In the Gaza Strip, supplementary feeding programs were initiated by the United Nations Relief and Works Agency, as 10, 000 families were added to the list of Palestinians needing emergency food relief.[29]

By convening the Madrid peace talks in October 1991, the Bush administration delivered on its promise to address the regional inequities which Saddam Hussein had so effectively used to garner support in the Arab world. The terms of the talks did not require the Israelis to recognize the PLO, however, and it was a "joint Jordanian-Palestinian delegation" that sat at the conference table. The recognition of Jordanian interests constituted a significant challenge to the 25-year-old PLO regime at the head of the Palestinian national movement. Since 1974, as the Arab League formula put it, the PLO had been "the sole legitimate representative of the Palestinian people." Moreover, the possibility, however remote, that Palestinians unaffiliated with the PLO might reach an agreement with Israel threatened to exclude Arafat, his supporters in Fatah and possibly the entire PLO from reaping the benefits of peace.

At the same time, increasingly vocal complaints about the lack of accountability within the PLO emerged in accordance with the growing strength of Islamist movements, particularly Hamas, among the Palestinians in the Occupied Territories, threatening Arafat's control of his movement. The PNC meeting in September 1991, when the Council agreed to participate in the Madrid talks despite its failure to win explicit recognition for the PLO, had also been expected to address internal politics. As it happened, however, the discussion of internal reform was postponed, and by the summer of 1993, the organization was in even more dire straits. The failure of the peace process to produce tangible results -- including hoped-for material resources -- combined with the financial crisis precipitated by the severing of aid from Saudi Arabia and Kuwait, prompted even louder complaints of financial mismanagement. Non-Fatah Palestinian groups were said to be distancing themselves from the PLO, and discontent among Palestinians in the Territories and the refugee camps in Jordan and Lebanon was growing. More seriously for Arafat, it was reported that "for the first time there is a growing feeling that safeguarding Palestinian national rights no longer hinges on defending the PLO's role."[30]

It was in this context that Arafat virtually single-handedly sued for peace, signing an agreement with Israel that had been negotiated without the knowledge, not to mention the consent, of the Palestinian leadership involved in the Madrid peace talks. The benefits to Arafat and his regime were immediate: One week after the accords were signed, U.S. Secretary of State Warren Christopher announced that a "Conference to Support Middle East Peace" would be convened to raise $3 billion for economic development in the West Bank and the Gaza Strip. Secretary Christopher drew the parallel with the financing of war quite explicitly: "Just as the United States organized a successful international coalition to wage war in the Gulf, we will now organize a new coalition -- a coalition to breathe life into the Israeli-Palestinian declaration. " The immediate goal, he said, was to produce results, "quickly and vividly."[31]

That these results were intended to shore up support for the PLO and its leadership was unmistakable. At the donors' conference held in Washington, D.C. on 1 October 1993, 43 countries pledged $2 billion in emergency aid over the next 5 years for the Palestinians in the West Bank and the Gaza Strip. As Secretary Christopher reminded the group, "We must demonstrate the tangible benefits of peace, and we must do so quickly if the advocates of peace are to be strengthened and the enemies of peace to be discredited."[32] Ten days later, Arafat secured the PLO Central Council's ratification of the Oslo accords, prompting a knowledgeable observer, the Jordanian journalist Lamis Adoni, to observe that:

the PLO has been transformed from a popular national liberation movement into a struggling regime, even before the establishment of a state . . . . In fact, the way Arafat handled the Tunis consultation meetings reinforced accusations by his critics and opponents of the agreement that the PLO leadership accepted the Oslo Accords, in spite of the dangers they entail, to ensure its own survival.[33]

The PLO attempted to retain control of the expected influx of development aid into the Occupied Territories by reserving the prerogative of naming the governing members of the new Palestinian Economic Development and Reconstruction Agency (PEDRA), established as the local interlocutor for the World Bank and other aid agencies and as the administrative agency for distribution of the billions of dollars of expected aid. When interviewed about his priorities for PEDRA and the development aid, the "chief economic advisor to the state-in-formation," Samir Hleileh, was frank:

In the first phase, our economic planning is completely determined by political reasoning . . . . We want a small emergency program directed to gain popular support for the agreement. Infrastructure, or what we call rehabilitation of our economy and institutions, needs maybe two or three years. This would be phase two. In the first phase we have to focus on unemployment . . . income generation and social welfare programs . . . . We should be professional from a political point of view, not from an economic point of view. Money spent on salaries doesn't create development, but it creates survival, it creates momentum for peace and for the agreement.[34]

Despite the hopes of the many liberal democrats among the Palestinian nationalists, democracy did not appear to be high on the agenda of the PLO and its local organizations.

That peace was seen as an effective revenue-enhancement device, however, was illustrated by the alacrity with which King Hussein of Jordan swallowed his pride, wounded by Arafat's failure to consult him, and embraced the Oslo Accords. On the day the donors' conference met in Washington, D.C., Jordan's Crown Prince Hassan and Israel's Foreign Minister Shimon Peres met publicly for the first time at the White House to announce the establishment of several committees to promote economic cooperation, while U.S. president Bill Clinton promised that the U.S. would work with other countries to tackle Jordan's $16 billion foreign debt.[35]

THE PROSPECTS FOR PEACE AND DEMOCRACY

The role of the incumbent rulers of the states of the Arab world is amplified by the premium placed on personal political bargaining by the rules of the game they play. Because they are not operating in a formal and impersonal market, regime decision makers are not obliged to give much credence to the formal and impersonal institutions of the bureaucratic state and democratic polity. As Steven R. David has observed, "it is the leadership of the state and not the state itself that is the proper unit of analysis for understanding Third World foreign policy."[36] International support of the system of juridical states that came into being at the end of the Second World War created circumstances in which political entrepreneurs on the periphery, particularly in the Arab world, could draw resources from international actors -- the superpowers, the oil companies, the IMF and the World Bank. The continued flow of such resources depended on the capacity of regimes to repeatedly renew their access to international subsidies; this, in turn, periodically required the invention of novel rationales for renewed support. In the context of the prolonged regional stalemate in the Middle East, initiatives towards both war and peace have served to draw renewed attention and justify discretionary support.

For many of the regimes in the Middle East and North Africa, both war and peace have served as important devices used to gamer infusions of revenues from the international system and thereby to purchase continuing political control at home. Decisions to wage war and sue for peace are pursued not as reflections of national interests or projections of national power, but rather because they may permit faltering authoritarian regimes renewed access to resources from the international system necessary to shore up their domestic positions. Because they have so far succeeded in producing such infusions of foreign revenues, both the initiation of war and the conclusion of peace in the Middle East and North Africa have proved inimical to political liberalization and democratization. Indeed, they have allowed -- and sometimes required -- the incumbent authoritarian rulers to resist and repress domestic political demands. As John Waterbury observed of Sadat after the signing of the Camp David treaty with Israel, " In his dealings with the superpowers and international creditors, [he] learned that while they may grumble about pouring good money after bad, they did not want to push him to the brink. Both he and Nasser learned to trade Egypt's geopolitical significance against international tolerance of, if not support for, their domestic political and economic experiments."[37]

This conclusion presents genuine and important dilemmas for policy makers, faced with hopes not only for peace and democracy but also for a stable, pacific and democratic world that is inexpensive to create and maintain. For the moment, peace and democracy appear to be mutually exclusive for the Palestinians; Arafat made himself the sole guarantor of a Palestinian-Israeli agreement precisely because the rewards would allow him to exercise virtually unlimited and discretionary (the less flattering expression is "arbitrary and capricious") power at home. No more than supporters of peace should be prepared to sacrifice hopes of democracy, however, should advocates of democracy oppose peace in the Middle East. To be effective, promoters of both peace and democracy must acknowledge and calculate the costs that each entails, and must begin to consider how and by whom those costs should be borne.[37]

1. The Declaration of Principles, Preamble and Article III.
2. See, for example, Michael Doyle, "Liberalism and World Politics, " American Political Science Review, 80, no. 4 (December 1986); and Bruce Russett, "Political and Alternative Security: Towards a More Democratic and Therefore More Peaceful World," in Alternative Security: Living without Nuclear Deterrence, ed. Bums H. Weston (Boulder, CO: Westview Press, 1990).
3. Edward Said, "The Morning After," London Review of Books (21 October 1993) pp. 4-5.
4. Naseer Atari and John Carroll, "The Palestinian 'constitution' and the 'old regime'," Middle East International (15 April 1994) p. 16.
5. Elie Kedourie, Democracy and, Arab Political Culture (Washington, DC: Washington Institute for Near East Policy, 1992)p. 1.
6. As Michael Doyle observed about the European scramble for Africa, of which the dismemberment of the Ottoman Empire was the epilogue, "[t]he predictable effects of a multipolar, noncollective competition on the periphery [were] a series of preemptire, formal annexations that, when complete, left little of the world unclaimed." (Michael W. Doyle, Empires [Ithaca: Cornell University Press, 1986] p. 251. ) That the superpowers viewed much of the Third World in terms little different from their imperial predecessors -- as an arena of relatively "safe" competition -- is suggested by Mohammed Ayoob's observation that "analysts have argued that conflict in the Third World has until recently been encouraged by superpower policies largely aimed at testing each other's political will and power projection capabilities in those areas of the globe that are not of vital concern to either superpower and, therefore, do not threaten the maintenance of the central strategic balance." (Mohammed Ayoob, "The Security Problematic of the Third World," World Politics, 43, no. 2 [January 1991] p. 273.)
7. Charles Issawi,/An Economic History of the Middle East and North/Africa (New York: Columbia University Press, 1982) p. 150 ff. See also Samir Amin, The Arab Nation (London: Zed Press, 1978) and the useful review by Abbas Alnasrawi, "Dependency Status and Economic Development of Arab States," Journal of Asian and African Studies, 21, nos. 1 and 2 (1986).
8. Douglas Henwood, "Global Integration: The Missing Middle East," Middle East Research and Information Project [MERIP] no. 184 (September- October 1993).
9. See, within the now considerable literature on rentier states in the Middle East, the original statement in Hossein Mahdavi, "The Pattern and Problems of Economic Development in Rentier States: The Case of Iran," in Studies in the Economic History of the Middle East, ed. M.A. Cook (London: Oxford University Press, 1971) and the refinements collected in Hazem Beblawi and Giacomo Luciani, eds., The Rentier State (London: Croom Helm, 1987).
10. Hamza Alavi, "The State in Post-Colonial Societies," New Left Review, 74 (July-August, 1972).
11. John Waterbury, The Egypt of Nasser and Sadat (Princeton: Princeton University Press, 1983) pp. 67-8.
12. Stephen D. Krasner, Structural Conflict: The Third World Against Global Liberalism (Berkeley: University of California Press, 1985) p. 5.
13. Janos Komai, The Socialist System: The Political Economy of Communism (Princeton: Princeton University Press, 1992) pp. 140, 143-4.
14. In Jordan, for example, "except for published numbers of job applications to the Civil Service Bureau in Amman, no one knows exactly how many Jordanians are out of work . . . . " (Jamil E. Jreisat, "Bureaucracy and Development in Jordan," in Bureaucracy and Development in the Arab World, ed. Joseph G. Jabbara [Leiden, UK: E. J. Brill, 1989] p. 97.) Indeed, even the figure for the total population of Saudi Arabia remains a matter of speculation, with estimates ranging from the U.N.'s 15 million to the official Saudi figure of 12 million to the implicit estimate used in domestic Saudi planning and budgeting of 8 million nationals and 3 or 4 million resident foreigners. (See "Appendix A: Note on the Population of Saudi Arabia," in Jean-Francois Seznec, "The Politics of the Financial Markets in Saudi Arabia, Kuwait and Bahrain" [Ph.D. Dissertation, Yale University, 1994].) The data on inefficient production in the Arab world are too voluminous to rehearse.
15. Laurie Brand's provocative formulation of the importance of"budget security" in the alliance decisions of the Jordanian monarch is entirely consistent with this argument. While we both attribute an important causal role to regime calculations of financial well-being, Brand seeks to explain foreign-policy decisions while I argue that the outcomes of those decisions account for domestic political configurations, namely prolonged authoritarian rule in the face of widespread popular disenchantment. See Laurie Brand, Jordan's Inter-Arab Relations: The Political Economy of Alliance Making (New York: Columbia University Press, 1994).
16. Although it takes a different point of departure, this argument has much in common with those of Robert H. Jackson and Carl G. Rosberg, "Why Africa's Weak States Persist: The Empirical and Juridical in Statehood," Worm Politics, 35, no. 1 (October 1982); and Stephen Krasner, "Sovereignty: An Institutional perspective," Comparative Political Studies, 21, no. 1 (April 1988). Similarly, in important respects I am making what Peter Gourevitch has called a "second image reversed" argument. Interestingly, however, he is more tentative about the power of the international environment than , for he argues that, "the international system, be it an economic or politico-military form, is underdetermining. The environment may exert strong pulls but short of actual occupation, some leeway in the response to that environment remains. A country can face up to the competition or it can fail." (Gourevitch, "The Second Image Reversed: The international sources of domestic politics," International Organization, 32, no. 4 [Autumn 1978] p. 900.) In contrast, I am suggesting that because of their strategic role in the international security system, the states with which I am concerned cannot fail. This is one of the masons, both as a cause and an effect, that they are not internationally competitive but are reliant instead on periodic infusions of resources.
17. The failure to fully distinguish exactly what is being threatened is one of the difficulties in Stephen Walt's nonetheless provocative reformulation of the balance of power as a balance of threat in The Origins of Alliances (Ithaca: Cornell University Press, 1987). In contrast, the distinction is well made by Jack Levy and Michael Barnett, but they may overstate the need for a clear and present domestic "threat" or "rival." Many of these regimes are designed to co-opt potential power-holders well before they coalesce into recognizable opposition. The "threat" posed by diminished state income is to the government's capacity to sustain the domestic patronage system. See Jack Levy and Michael Barnett, "Domestic Sources of Alliances and Alignments," International Organization, 45, no. 3 (Summer 1991); and "Alliance Formation, Domestic Political Economy, and Third World Security," The Jerusalem Journal of International Relations, 14, no. 4 (December 1992).
18. The parallel is drawn at length in L. Carl Brown, International Politics and the Middle East: Old Rules, Dangerous Game (Princeton: Princeton University Press, 1984). Although from the point of view of international relations theory, the number of poles in the international system may have varied over the course of the last century and a half, by and large, the Middle East and North Africa have experienced the world as bipolar, with the U.S. and the USSR replacing Great Britain and France as the principal outside powers after the Second World War. The historical parallel did not escape local observers: Sadat is said to have remarked, for example, that "there was a time in 1968, 1969 and 1970, before Abd al-Nasir's death when it was openly said that the road to any post in Egypt was through Moscow. This is a fact. The Soviet Ambassador here in Egypt donned the garb of the British High Commissioner of old times . . . . " (Anwar al-Sadat, 3 February 1977, cited in Peter Marigold, Superpower Intervention in the Middle East [New York: St. Martin's Press, 1978] p. 141.) In fact, the superpowers were more constrained in their dealings. with local client states than were their 19th century predecessors. The passing of the era of formal imperial control and the threat of nuclear escalation inhibited resorts to gunboat diplomacy and militated for policies of persuasion rather than intimidation.
19. Joe Stork and Jim Paul, "Arms Sales and the Militarization of the Middle East," MERIP (February 1983); Yahya Sadowski, "Scuds vs. Butter: The Political Economy of Arms Control in the Arab World," MERIP (July- August 1992); see also Charles Tilly, "War and State Power, MERIP (July-August 1991).
20. Marigold, Superpower Intervention, p. 175. In fact, although the extent to which financial costs and benefits are part of the calculations of various foreign-policy moves can probably be overstated, it is not surprising that the most expensive element of the Soviet military- aid package -- the advisors -- was the first to be jettisoned by Sadat in his preparations for the 1973 war.
21. As Hurewitz put it 25 years ago, "armies in the region were needed primarily for internal security." (J. C. Hurewitz, Middle East Politics. ' The Military Dimension [New York: F.A. Praeger for the Council on Foreign Relations, 1969] p. 492.) For more detailed versions of the argument that military procurement patterns are better explained by governments' domestic political priorities than by conventional conception of international threats, see Nadav Safran, Saudi Arabia.' The Ceaseless Quest for Security (Cambridge: Harvard University Press, 1985); Rachel Bronson, "Thinking Rationally About Islamic Fundamentalism: State and Societal Explanations in Tunisia," unpublished paper (1993).
22. Marigold, Superpower Intervention, pp. 45, 89; John Waterbury, The Egypt of Nasser and Sadat (Princeton: Princeton University press, 1983) p. 298; also see J. C. Hurewitz, Middle East Politics: The Military Dimension (New York: Octagon Books, 1974).
23. As Ayoob observes, "development, measured as a serious objective and not merely on the basis of the rhetoric of Third World leaders . . . is hardly ever considered an autonomous goal that deserves to be fulfilled independently of security considerations." (Ayoob, "The Security Problematic of the Third World," p. 279.)
24. Alan Richards and John Waterbury, A Political Economy of the Middle East: State, Class, and Economic Development (Boulder, CO: Westview Press, 1990) p. 360.
25. Fred Lawson, "Neglected Aspects of the Security Dilemma," in The Many Faces of National Security in the Arab World, ed. Baghat Korany et al. {New York: St. Martin's Press, 1993) p. 110; Robert Springborg, Mubarak's Egypt (Boulder, CO: Westview Press, 1989) p. 112. On the military industries in Egypt, see also Rodney Wilson, The Economies of the Middle East (London: The MacMillan Press, 1979) pp. 31-5.
26. Martin Malin, "Entrepreneurial Statecraft in Egyptian Foreign Policy: The Case of Yemen, 1962-1966," paper presented at the annual meeting of the Middle East Studies Association (Research Triangle, NC: 11 to 14 November 1993) p. 1; see also Malin, "Entrepreneurial Statecraft and the Strategic Value of Small States: Egypt and the Superpowers, 1952-1981" (Ph.D. Dissertation, Department of Political Science, Columbia University, 1995).
27. Martin Malin, "Trying to Make Foreign Policy Pay: The Egyptian Decision to Ally with Syria in 1966," paper presented at the annual meeting of the American Research Center in Egypt (Baltimore, MD: 23 to 24 April 1993) p. 2; see also Marigold, Superpower Intervention, p. 117.
28. Minister of State for Foreign Affairs Boutros Boutros-Ghali, cited in Shibley Telhami, Power and Leadership in International Bargaining. ' The Path to the Camp David Accords (New York: Columbia University Press, 1990) p. 104. For Telhami's own argument on the economic impetus, see pp. 10 and 94-106. Telhami attributes Egyptian preference for dependence on superpowers over regional powers to "international variables, " specifically changes in "the regional distribution of military and economic power."
29. Philip Mattar, "The PLO and the Gulf Crisis," The Middle East Journal, 48, no. 1 (Winter 1994) p. 43.
30. Lamis Adoni, "Arafat and the PLO in crisis," Middle East International, no. 457 (28 August 1993); see also Yezid Sayigh, "The issues the PLO must tackle," Middle East International, no. 411 (25 October 1991).
31. Cited in Middle East International, no. 459 (24 Sept 1993).
32. Cited in Middle East International, no. 460 (8 October 1993). The $2 billion included contributions from the European Community ($600 million), the U.S. ($500 million), Japan ($200 million), Saudi Arabia ($100 million) and Israel ($25 million), among others.
33. Lamis Adoni, "Arafat asserts his control," Middle East International, no. 461 (22 October 1993).
34. Interview: Samir Hleileh," MERIP, 186 (January-February 1994).
35. Middle East International, no. 460 (8 October 1993).
36. Steven R. David, "Explaining Third World Alignment," World Politics, 43, no. 2 (January 1991) p. 243. See also F. Gregory Gause Ill, " Revolutionary Fevers and Regional Contagion: Domestic Structures and the Export of Revolution in the Middle East," Journal of South Asian and Middle Eastern Studies, 14, no. 3 (Spring 1991) pp. 1-23.
37. John Waterbury, The Egypt of Nasser and Sadat, p. 388.
38. Anderson, Lisa, Peace and democracy in the Middle East: The constraints of soft budgets.., Vol. 49, Journal of International Affairs, 06-01-1995, pp 25.