Cyclopedia Of Economics 3rd edition

Putin harked back to the nanny state, calling Russian media immature and still in the development stage. They need assistance in developing ways to secure their future economic independence. The state will create the necessary conditions for the "economic freedom of the press".

The president's aide, Aleksei Volin, was quoted by REF/RL as having told radio Ekho Moskvy that state-ownership of the media is rendered meaningless in an age of multiple channels. The state, said the aide, should concentrate on programming and thus "ensure its role in television media".

Russia's then Media Minister, Lesin, hastened to make clear that the state has no intention of privatizing its television media holdings, ORT, the second channel (RTR), and Kultura, an educational cum entertainment network. The government - a minority shareholder in ORT - denies meddling in the editorial affairs and policies of either of these federally-funded channels. ORT and RTR just paid c. $40 million for the Russia World Cup rights.

A bill, introduced in the Duma by independents, failed to pass last week. It would have reduced state ownership of mass media outlets to 25 percent within 6 months. Anti-government deputies claimed that the state controls 90 percent of all the media in the vast country. Their colleagues from the coalition cited a figure of 10 percent.

In Moldova, a committee of lawyers, journalists, and deputies of parliament issued a report on May 3, 2002 advocating against privatization of the media. Both radio and television, they intoned, must remain in the safe hands of the state, though in the form of an "autonomous" public broadcasting authority. This flew in the face of recommendation issued earlier by the Parliamentary Assembly of the Council of Europe (PACE).

In response, incensed journalists, intellectuals, and lawyers established Public Television Company. Modeled after the BBC, it will be sponsored by private sector donations and advertising revenues - they told Infotag, the news agency. The head of an EU visiting delegation went as far as warning the Moldovan government that ignoring PACE's advice "will have catastrophic consequences both for the current government and the citizens".

The new Hungarian government is considering to shut down one or more of the state-owned TV channels and to reform the media law. But, EU-orientated statements to the contrary - Hungary's state media is still under the collective thumb of its politicians. According to the May 15, 2002 issue of "Nepszabadsag", the Socialist party media spokesman publicly "suggested" that the President of Hungarian Television should resign due to his bias during the elections.

Journalists on all levels readily collaborate with political masters. The staff of Hungarian Pannon Radio took over the previous location of the station and are broadcasting virulent nationalistic propaganda with the financial and political backing of the extremist MIEP - the Hungarian Justice and Life Party.

The ownership of electronic media is the electoral trump card in most countries in transition. Papers are little read. According to Emil Danielyan in RFE/RL:

In Macedonia, the circulation of "Dnevnik", the country's leading paper, is thought to be c. 20,000 copies on a weekday (its official figures of triple that notwithstanding) - compared to more than 500,000 regular viewers of A1, the dominant independent TV station, owned by business interests. No weekly sells more than 3000 copies in this country of 2 million people.

Foreign ownership of media is still a rarity. Xenophobia and crookedness combine to drive away potential investors. Central European Media Enterprise (CME), an American holding company for central European media properties, endured the most grueling experiences in the late 1990's in the Czech Republic and Slovenia.

Tele5, a new Polish television channel, is owned by Fincast, a Polish subsidiary of Italian Eurocast Italia and more than 70 percent of Poland's regional media are in the hands on two Western companies. The second largest paper, Rzeczpospolia, is owned by a Norwegian firm. But these are the Polish exceptions that only highlight the regional rule.

Poland is atypical on other fronts as well. Poles are avid devourers of broadsheets. More than 20 percent of them feast on the Gazeta Wyborcza every day. Amendments to the existing law prevent the formation of media monopolies by restricting media ownership to one nationwide broadcasting license or one nationwide daily. The Wyborcza would thus be prevented from taking possession of the private Polish TV station, Polsat, one of many.

Adam Michnik, an erstwhile dissident turned influential editor, remarked acidulously to "The Economist":

Admittedly, Poland is not above harassment and intimidation. The managers of Rzeczpospolita - 49 percent owned by the government - were hounded by tax inspectors and their passports were confiscated. "An action usually reserved for big-time criminals" - notes "The Economist" dryly.

The board of the state-owned television is packed with sycophants and cronies. Now, the widely-held theory goes, Miller has his sights on the print media. He wants to force the Norwegians to sell to Trybuna, the little-read mouthpiece of the ex-Communists.

But the media in the post-Communist territories may be simply reaping what they sowed.

In an article published by "Central Europe Review", I summed up the state of the media in Central and Eastern Europe thus:

"What sets the media in the countries in transition apart from its brethren in the West is its lack of (even feigned) professionalism, its venality and its tainted and ulterior motives. In these nether regions, journalism amounts to influence peddling. Journalists are easily bought and sold and their price is ever decreasing. They work in mouthpieces of business interests masquerading as media. They receive their instructions - to lie, to falsify, to ignore, to emphasize, to suppress, to extort, to inform, to collaborate with the authorities - from their Editor in Chief. They trade news for advertising.

The commercial media - the likes of 'Nova' TV in the Czech Republic - are poor people's imitations of the more derided aspects of American mass culture. Overflowing with lowbrow talk shows, freaks on display, malicious gossip which passes for 'news' and glitzy promos and quizzes - these TV stations and print magazines derive the bulk of their income from advertising. Then there is the mercenary media. These are groups of hired pens and keyboards - so called journalists - who offer their services to the highest bidder. Their price is often pathetic: a lunch a month, one hundred euros, a trip abroad and a dingy hotel room. They collaborate with their editors and share the spoils with them.

The mercenaries often work in 'business-sponsored media outlets'. These are TV stations, daily papers and periodicals owned by the oligarchs of malignant capitalism and used by them to rubbish their opponents and flagrantly and unabashedly further their business interests. This phenomenon used to be most pronounced in Russia, where virtually all the media was once identified with mafia-like interests - before it was taken over by the newly authoritarian state."

According to a poll conducted in May 2002 by a few Russian Web sites in collaboration with radio Ekho Moskvy, more than 57 percent of all respondents in all age groups supported state censorship. The main concerns were overt and excessive violence and pornography.

Aware of this popular mandate, Putin's alma mater, the FSB (formerly known as the KGB) moved to further its hijacking of the media. ITAR-TASS reported that FSB Lieutenant General Aleksandr Zdanovich, former chief spokesman and head of the public relations center of the spy organization, was appointed deputy director of the VGTRK, the state broadcasting company.

Middle Class (in Russia)

A conference held, at the beginning of December 2002, in St. Petersburg, was aptly titled "Middle Class - The Myths and the Reality". Russia is way poorer than Slovenia, the Czech Republic, Hungary, or even Poland. But, as income disparities grow, a group of discriminating consumers with the purchasing power to match, is re-emerging, having been submerged by the 1998 implosion of the financial sector.

The typical salary in the large metropolises is now more than $600 per month - four times the meager national average. Some 20 percent of the workforce in Moscow earns more than $1700 a month, comparable to many members of the European Union. Real average wages across Russia have surpassed the pre-1998 level in May.

Moreover, Russians are unburdened by debt and their utility bills and food are heavily subsidized, though decreasingly so. Few pay taxes - lately dramatically reduced and simplified - and even fewer save. Every rise in disposable income is immediately translated to unadulterated consumption. Takings are understated - Russia's informal economy is probably half as big as its formal sector.

A study, financed by the Carnegie Foundation, found that only 7 percent of Russians qualify as middle class. Another 12 percent or so have some bourgeois characteristics. Sixty percent of them are men, though the Komkon marketing research agency says that the genders are equally represented.

Figures culled from the census conducted this year throughout the Russian Federation - the first since 1989 - are expected to confirm these findings. About one fifth to one quarter of all Russian households earn more than the average monthly income of $150 per person.

Political parties which purport to represent the middle class - such as the Union of the Forces of the Right (SPS) - garnered 10-15 percent of the votes in the 1999 parliamentary elections. Direct action groups of the "third estate" may transform the political landscape in forthcoming elections.

In a recent study by sociologists from the Russian Academy of Sciences' Institute of Philosophy, more than half of all Russians self-flatteringly considered themselves middle class. This is delusional. Even the optimistic research firm Premier-TGI pegs the number at 19 percent at most.

Businesses adapt to these new demands of shifting tastes and preferences. The St. Petersburg-based cellular operator Delta Telecom, owner of the first license to provide wireless-communications services in Russia, intends to test the market among middle class clients.

Ikea, the Swedish home improvement chain, has plunged $200 million into a new shopping center. French, German and Dutch cash-and-carry and do-it-yourself groups are slated to follow. Russian competitors, every bit as sleek, have erupted on the scene. The investment spree has engulfed the provinces as well.

Last month, Citibank opened a retail outlet for affluent individuals in Moscow - though its standards of transparency may yet scare them off, as Gazeta.ru observed astutely. A private cemetery in Samara caters to the needs of the expired newly rich. Opulently-stocked emporiums have sprouted in all urban centers. TV shopping and even online commerce are on the up. According to the Washington Post, Moscow retail space will have tripled by the end of next year from its level at the beginning of 2002.

The Russian Expert magazine says that the middle class, minuscule as it is, accounted last year for a staggering 55 percent of all consumer goods purchased and generates one third of Russia's gross domestic product. The middle class is Russia's most important engine of wealth formation and investment, far outweighing foreign capital.

Russia's post-1998 fledgling middle class is described as young, well-educated, well-traveled, community-orientated, entrepreneurial and suffused with work ethic and a desire for social mobility. It is almost as if the crisis four years ago served as a purgatory, purging sins and sinners alike and creating the conditions for the revival of a healthier, longer-lived, bourgeoisie.

But being middle class is a state of mind more than a measure of wealth. It is an all-encompassing worldview, a set of values, a code of conduct, a list of goals, aspirations, fantasies and preferences and a catalog of moral do's and don'ts. This is where transition, micromanaged by western "experts" failed.

The mere exposure to free markets was supposed to unleash innovation and entrepreneurship in the long-oppressed populations of east Europe. When this prescription - known as "shock therapy" - bombed, the West tried to engender a stable, share-holding, business-owning, middle class by financing small size enterprises. It then proceeded to strengthen and transform indigenous institutions.

None of it worked. Transition had no grassroots support and its prescriptive - and painful - nature caused wide resentment and obstruction. When the dust settled, Russia found itself with a putative - and puny - middle class. But it was an anomalous beast, very different from its ostensible European or American counterparts.

To start with, Russia's new middle class is a distinct minority.

Prism, a publication of the Jamestown Foundation, quoted, in its August 2001 issue, the Serbian author Milorad Pavic as saying that "the Russian middle class is like a young generation whose fathers suffered a severe defeat in a war: with no feeling of guilt and no victorious fathers to boss them around, the children of defeat see no obstacles before them".

But this metaphor is misleading. The Russian middle class is a nascent exception - not an overarching rule. As Akos Rona-Tas, Associate Professor in the Sociology Department at the University of California, San Diego, notes correctly in his paper "Post Communist Transition and the Absent Middle Class in Central East Europe", a middle class that is in the minority is an oxymoron:

"In democracies the middle class is the nation proper. The typical member of a national community is a member of the middle class. When democratic governments need a social group they can address, a universal class that carries the overarching, common interest of the country, they appeal to the middle class. This appeal, while it calls on a common interest, also acknowledges that there are conflicting interests within society. The middle class is not everyone, but it is the majority and it represents what everyone else can become."

Russia has a long way to go to achieve this ubiquity. Its middle class, far from representing the consensus, reifies the growing abyss between haves and haves not. Its members' conspicuous consumption, mostly of imports, does little to support the local economy. Its political might is self-serving. It has no ethos, or distinct morality, no narrative, or ideology. The Russian middle class is at a Hobbesian and primordial stage.

Whether it emerges from its narcissistic cocoon to become a leading and guiding social force, is doubtful. The middle class' youth, urbaneness, cosmopolitanism, polyglotism, mobility, avarice and drive are viewed with suspicion and envy by the great unwashed - the overwhelming majority of Russia's destitute population. Empowered by their wealth, the new bourgeoisie, in turn, regards the "people" with naive admiration, patronizing condescension, or horror.

Granted, this muted, subterranean, interaction is not entirely deleterious. It is the social role of the rich to generate demand by provoking in the poor jealousy and attempts at emulation. The wealthy are the trendsetters, the early adopters, the pioneers, the buzz leaders. They are the engine that engenders social and economic mobility.

A similar dynamic is admittedly evident in Russia - but, again, it is tampered by a curious local phenomenon.

Writing for the Globalist, two Brookings Institution scholars, Carol Graham, a Senior Fellow of Economic Studies and Clifford Gaddy, a Fellow of Foreign Policy and Governance Studies described it thus:

"The eyes of Russia's middle class, on the other hand, are figuratively directed downward, towards the poor. In fact, as poverty in Russia increased dramatically in the 1990s, the middle class's reference norms shifted downward as well. As a result, Russia may be the only country in the world where the 'subjective poverty line' is falling. That is, the amount of money that Russians say that they need in order to stay out of poverty has been steadily falling over the past five years. It is even below the objective poverty line. For the time being, at least, these curious Russian attitudes, along with the existence of the non-monetary virtual economy, have insulated the country against political upheaval."

The list of anomalies is not exhausted.

The new middle class comprises the embryonic legitimate business elite - entrepreneurs, professionals and managers - but not the remnants of the financially strapped intelligentsia. It is brawn with little brains. In dissonance with western Europe, according to a survey published in the last two years by Expert magazine, the majority of its members are nationalistic, authoritarian and xenophobic. Their self-interested economic liberalism is coupled with social and political intolerance. But two thirds of them support some kind of welfare state.

Thus, there are major differences between the middle class in the West and its ostensible counterpart in Russia.

The Russian parvenus - many of them women - do not believe their state, their banks, or their compatriots. They fear a precarious future and its inevitable calamities though they are not risk averse and are rather optimistic in the short run. They keep their money under the proverbial mattress, invest it surreptitiously in their ventures, or smuggle it abroad. They are not - yet - stakeholders in their country's stability and prosperity.

Often bamboozled by other businessmen and fleeced by a rapacious bureaucracy, they are paranoid. Tax evasion is still rampant, though abating. They trust in equity and avoid debt. Some of them have criminal roots or a criminal mindset - or are former members of Russia's shady security services.

Three fifths, according to the Expert-Komkon survey, find it "hard to survive" when "observing all laws". "Strong leaders are better than all sorts of laws" is their motto, quoted by Izvestia. Generally, they are closer to being robbers than barons.

Early capitalism is always unruly. It is transformed into a highly structured edifice by the ownership of land and realty (the prime collateral), the protection of private property, a functioning financial system comprised of both banks and capital markets and the just and expedient application of the rule of law.

Russia has none of these. According to Business Week, bank deposits amount to 4 percent of the country's mid-size GDP - compared to half of GDP in other industrialized countries. Mortgages are unheard of, deposits are not insured and land ownership is a novel proposition. The judiciary is venal and incompetent. Might is still right in vast swathes of the land.

The state and the oligarchs continue to represent a rent-seeking opportunity. Businessmen spend time seeking concessions, permits, exemptions and licenses rather than conducting business. The "civic institutions" they form - chambers of commerce, clubs - are often mere glorified lobbying outfits of special and vested interests. Informal networks of contacts count more than any statute or regulation. In such a mock "modern state" no wonder Russia ended up with a Potemkin "middle class".

Interview granted to The St. Petersburg Times in March 2006

In line with its nascent capitalism, the middle class in Russia is young. The typical parvenus are in their mid-thirties, married or living with a partner and childless or with 1 offspring. They are more likely to care for a pet and they increasingly own the apartments that they live in. Summer and vacation homes abound as do modern appliances, Scandinavian furniture, and cars.

Middle-classers are self-reliant, hard workers, narcissistic, go-getters, workaholic, and devoted to "making it" and "getting ahead". They are largely a-political and far more concerned with their economic welfare than with civil liberties and human rights. Russia's middle-class is well-educated, well-traveled, community-orientated, and entrepreneurial.

Thus, the country's middle-class far outweighs foreign investment in wealth formation. Small as it is, it accounts for two thirds of all consumer goods purchased and generates two fifths of Russia's gross domestic product.

3) What are the differences between Russia's middle class and it's classical Western analogue?

To start with, Russia's new middle class is a distinct minority. Wealth disparities are growing at a dizzying rate. According to Forbes Magazine, Russia's oligarchs nearly doubled their combined wealth (net worth) to a whopping $172 billion between the end of 2004 and the beginning of 2006. Six percent of the richest 500 in the world are Russians and 12 of the richest 100 (up from 5 in 2005). This flies in the face of predictions made the Ministry of Economy as late as December 2004.

As Akos Rona-Tas, Associate Professor in the Sociology Department at the University of California, San Diego, notes correctly in his paper "Post Communist Transition and the Absent Middle Class in Central East Europe", a middle class that is in the minority is an oxymoron:

"In democracies the middle class is the nation proper. The typical member of a national community is a member of the middle class. When democratic governments need a social group they can address, a universal class that carries the overarching, common interest of the country, they appeal to the middle class. This appeal, while it calls on a common interest, also acknowledges that there are conflicting interests within society. The middle class is not everyone, but it is the majority and it represents what everyone else can become."

Russia has a long way to go to achieve this ubiquity. Its middle class, far from representing the consensus, reifies the growing abyss between haves and haves not. Its members' conspicuous consumption, mostly of imports, does little to support the local economy. Its political might is self-serving. It has no ethos, or distinct morality, no narrative, or ideology. The Russian middle class is at a Hobbesian and primordial stage.

Whether it emerges from its narcissistic cocoon to become a leading and guiding social force, is doubtful. The middle class' youth, urbaneness, cosmopolitanism, polyglotism, mobility, avarice and drive are viewed with suspicion and envy by the great unwashed - the overwhelming majority of Russia's destitute population. Empowered by their wealth, the new bourgeoisie, in turn, regards the "people" with naive admiration, patronizing condescension, or horror.

Granted, this muted, subterranean, interaction is not entirely deleterious. It is the social role of the rich to generate demand by provoking in the poor jealousy and attempts at emulation. The wealthy are the trendsetters, the early adopters, the pioneers, the buzz leaders. They are the engine that engenders social and economic mobility.

A similar dynamic is admittedly evident in Russia - but, again, it is tampered by a curious local phenomenon.

Writing for the Globalist, two Brookings Institution scholars, Carol Graham, a Senior Fellow of Economic Studies and Clifford Gaddy, a Fellow of Foreign Policy and Governance Studies described it thus:

The list of anomalies is not exhausted.

The new middle class comprises the embryonic legitimate business elite - entrepreneurs, professionals and managers - but not the remnants of the financially strapped intelligentsia. It is brawn with little brains. In dissonance with western Europe, according to a survey published in the last two years by Expert magazine, the majority of its members are nationalistic, authoritarian and xenophobic. Their self-interested economic liberalism is coupled with social and political intolerance. But two thirds of them support some kind of welfare state.

Thus, there are major differences between the middle class in the West and its ostensible counterpart in Russia.

The Russian parvenus - many of them women - do not believe their state, their banks, or their compatriots. They fear a precarious future and its inevitable calamities though they are not risk averse and are rather optimistic in the short run. They keep their money under the proverbial mattress, invest it surreptitiously in their ventures, or smuggle it abroad. They are not - yet - stakeholders in their country's stability and prosperity.

Often bamboozled by other businessmen and fleeced by a rapacious bureaucracy, they are paranoid. Tax evasion is still rampant, though abating. They trust in equity and avoid debt. Some of them have criminal roots or a criminal mindset - or are former members of Russia's shady security services.

Three fifths, according to the Expert-Komkon survey, find it "hard to survive" when "observing all laws". "Strong leaders are better than all sorts of laws" is their motto, quoted by Izvestia. Generally, they are closer to being robbers than barons.

Early capitalism is always unruly. It is transformed into a highly structured edifice by the ownership of land and realty (the prime collateral), the protection of private property, a functioning financial system comprised of both banks and capital markets and the just and expedient application of the rule of law.

Russia has none of these. According to Business Week, as late as 2002, bank deposits amounted to a mere 4 percent of the country's mid-size GDP - compared to half of GDP in other industrialized countries. Until recently, mortgages are unheard of, deposits were not insured and land ownership was a novel proposition. The judiciary is venal and incompetent. Might is still right in vast swathes of the land.

The state and the oligarchs continue to represent a rent-seeking opportunity. Businessmen spend time seeking concessions, permits, exemptions and licenses rather than conducting business. The "civic institutions" they form - chambers of commerce, clubs - are often mere glorified lobbying outfits of special and vested interests. Informal networks of contacts count more than any statute or regulation. In such a mock "modern state" no wonder Russia ended up with a Potemkin "middle class".

4) Do you agree that the focus of discussion in Russia has finally shifted from whether Russia has its middle class at all to what segments of society constitute it?

On February 24, 2003, in the Islamic Financial Forum in Dubai, Brad Bourland, chief economist for the Saudi American Bank (SAMBA), breached the embarrassed silence that invariably enshrouds speakers in Middle Eastern get-togethers. He reminded the assembled that despite the decades-long fortuity of opulent oil revenues, the nations of the region - excluding Turkey and Israel - failed to reform their economies, let alone prosper.

Structural weaknesses, imperceptible growth, crippling unemployment and deteriorating government financing confined Arab states to the role of oil-addicted minions. At $540 billion, said Bourland, quoted by Middle East Online, the combined gross domestic product of all the Arab countries is smaller than Mexico's (or Spain's, adds The Economist).

According to the Arab League, the gross national product of all its members amounted to $712 billion or 2 percent of the world's GNP in 2001 - merely double sub-Saharan Africa's.

Even the recent tripling of the price of oil - their main export commodity - did not generate sustained growth equal to the burgeoning population and labor force. Algeria's official unemployment rate is 26.4 percent, Oman's 17.2 percent, Tunisia's 15.6 percent, Jordan's 14.4 percent, Saudi Arabia's 13 percent and Kuwait sports an unhealthy 7.1 percent. Even with 8 percent out of work, Egypt needs to grow by 6 percent annually just to stay put, estimates the World Bank.

But the real figures are way higher. At least one fifth of the Saudi and Egyptian labor forces go unemployed. Only one tenth of Saudi women have ever worked. The region's population has almost doubled in the last quarter century, to 300 million people. Close to two fifths of the denizens of the Arab world are minors.

According to the Iranian news agency, IRNA, the European Commission on the Mediterranean Region estimates that the purchasing power parity income per head in the area is a mere 39 percent of the EU's 2001 average, comparable to many post-communist countries in transition. In nominal terms the figure is 28 percent. These statistics include Israel whose income per capita equals 84 percent of the EU's and the Palestinian Authority where GDP fell by 10 percent in 2000 and by another 15 percent the year after.

Faced with ominously surging social unrest, the Arab regimes - all of them lacking in democratic legitimacy - resort to ever more desperate measures. "Saudisation", for instance, amounts to the expulsion of 3 million foreign laborers to make room for indigenous idlers reluctant to take on these vacated - mostly menial - jobs. About one million, typically Western, expat experts remain untouched.

The national accounts of Arab polities are in tatters. Until the recent surge in oil prices, Saudi Arabia managed to produce a budget surplus only once since 1982. Per capita income in the kingdom plunged from $26,000 in 1981 to $7000 in 2003. Higher oil prices may well continue throughout 2006, further masking the calamitous state of the region's economies. But this would amount to merely postponing the inevitable.

Arab countries are not integrated into the world economy. It is possibly the only part of the globe, bar Africa, to have entirely missed the trains of globalization and technological progress. Charlene Barshefsky was United States Trade Representative from 1997 to 2001. In February 2003, in a column published by the New York Times, she noted that:

Indeed, Jewish Israel and secular Turkey aside, 8 of the 11 largest economies of the Middle East have yet to join the World Trade Organization. Only two decades ago, one of every seven dollars in global export revenues and one twentieth of the world's foreign direct investment flowed to Arab pockets.

Today, the Middle East's share of international trade and FDI is less than 1.5 percent - half of it with the European Union. Medium size economies such as Sweden's attract more capital than the entire Middle Eastern Moslem world put together.

Some Arab countries periodically go through spastic reforms only to submerge once more in backwardness and venality. Oil-producers attempted some structural economic adjustments in the 1990s. Jordan and Syria privatized a few marginal state-owned enterprises. Iran and Iraq cut subsidies. Almost everyone - especially Lebanon, Egypt, Iran and Jordan -  increased their unhealthy reliance on multilateral loans and foreign aid.

Young King Abdullah II of Jordan, for instance, dabbles in deregulation, liberalization, tax reform, cutting red tape and tariff reductions. Aided by a free trade agreement with America passed by Congress in 2001, Jordan's exports to the United States last year soared from $16 million in 1998 to $400 million in 2002.

A similar nostrum is being administered to Morocco, partly to spite the European Union and its glacial "Barcelona Process" Euro-Mediterranean Partnership. But, as everyone realizes, the region's problems run deeper than any tweaking of the customs code.

The "Arab Human Development Report 2002", published in June 2002 by the United Nations Development Program (UNDP), was composed entirely by Arab scholars. It charts the predictably dismal landscape: one in five inhabitants survives on less than $2 a day; annual growth in income per capita over the last 20 years, at 0.5 percent, exceeded only sub-Saharan Africa's; one in six is unemployed.

The region's three "deficits", laments the report, are freedom, knowledge and manpower. Arab polities and societies are autocratic and intolerant. Illiteracy is still rampant and education poor. Women - half the workforce - are ill-treated and excluded. Pervasive Islamization replaced earlier militant ideologies in stifling creativity and growth.

In an article titled "Middle East Economies: A Survey of Current Problems and Issues", published in the September 1999 issue of the Middle East Review of International Affairs, Ali Abootalebi, assistant professor of political science at the University of Wisconsin, Eau Claire, concluded:

"The Middle East is second only to Africa as the least developed region in the world. It has already lost much of its strategic importance since the Soviet Union's demise ... Most Middle Eastern states ... probably do, possess the necessary technocratic and professional personnel to run state affairs in an efficient and modern manner .... (but not) the willingness or ability of the elites in charge to disengage the old coalitional interests that dominate governments in these countries."

The war with Iraq changed all that. This was the fervent hope of intellectuals throughout the region, even those viscerally opposed to America's high-handed hegemony. But this may well be only another false dawn in many. The inevitable massive postwar damage to the area's fragile economies will spawn added oppression rather than enhance democracy.

According to The Economist, the military buildup has already injected $2 billion into Kuwait's economy, equal to 6 percent of its GDP. Prices of everything - from real estate to cars - are rising fast. The stock exchange index has soared by one third. American largesse extends to Turkey - the recipient of $5 billion in grants, $1 billion in oil and $10 billion in loan guarantees. Egypt and Jordan will reap $1 billion apiece and, possibly, subsidized Saudi oil as well. Israel will abscond with $8 billion in collateral and billions in cash.

But the party may be short-lived, especially since the war did not prove to be as decisive and nippy as the Americans foresaw.

Stratfor, the strategic forecasting consultancy, correctly observes that the United States is likely to encourage American oil companies to boost Iraq's postbellum production. With Venezuela back on line and global tensions eased, deteriorating crude prices may adversely affect oil-dependent countries from Iran to Algeria.

The resulting social and political unrest - coupled with violent, though typically impotent, protests against the war, America and the political leadership - is unlikely to convince panicky tottering regimes to offer greater political openness and participatory democracy. The mock presidential elections in Egypt in 2005 are a case in point.

War also traumatized tourism, another major regional foreign exchange earner. Egypt alone collects $4 billion a year from eager pyramid-gazers - about one ninth of its GDP. Add to that the effects of armed conflict on traffic in the Suez Canal, on investments and on expat remittances - and the country could well become the war's greatest victim.

In a recent economic conference of the Arab League, then Egyptian Minister of State for Foreign Affairs, Faiza Abu el-Naga, pegged the immediate losses to her country at $6-8 billion. More than 200,000 jobs were lost in tourism alone. Egypt's Information and Decision Support Centre (IDSC) distributed a study predicting $900 million in damages to the Jordanian economy and billions more to be incurred by oil-rich Saudi Arabia.

The Arab Bank Federation foresees banking losses of up to $60 billion due to contraction in economic activity both during the war and in its aftermath. This may be too pessimistic. But even the optimists talk about $30 billion in foregone revenues. The reconstruction of Iraq could revitalize the sector - but American and European banks will probably monopolize the lucrative opportunity.

The war, and more so its protracted aftermath, are likely to have a stultifying effect on the investment climate.

Saudi Arabia and Egypt each attract around $1 billion a year in foreign direct investment - double Iran's rising rate. But global FDI was halved between 2000-2002. In 2003, flows reverted merely to 1998 levels. This implosion is likely to affect even increasingly attractive or resurgent destinations such as Israel, Turkey, Iraq and Iran.

Foreign investors will be deterred not only by the fighting but also by a mounting wave of virulent - and increasingly violent - xenophobia. Consumer boycotts are a traditional weapon in the Arab political arsenal. Coca-Cola's sales in these parched lands have plummeted by 10 percent in 2002 alone. Pepsi's overseas sales flattened due to Arabs shunning its elixirs. American-franchised fast food outlets saw their business halved. McDonald's had to close some of its restaurants in Jordan.

Foreign business premises have been vandalized even in the Gulf countries. According to The Economist "in the past year (2002) overall business at western fast-food and drinks firms has dropped by 40% in Arab countries. Trade in American branded goods has shrunk by a quarter."

These are bad news. Multinationals are sizable employers. Coca-Cola alone is responsible for 220,000 jobs in the Middle East. Procter & Gamble invested $100 million in Egypt. Foreign enterprises pay well and transfer technology and management skills to their local joint venture partners.

Nor is foreign involvement confined to retail. The $35 billion Middle Eastern petrochemicals sector is reliant on the kindness of strangers: Indian, Canadian, South Korean and, lately, Chinese. Singapore and Malaysia are eyeing the tourism industry, especially in the Gulf. Their withdrawal from the indigenous economies might prove disastrous.

Nor will these battered nations be saved by geopolitical benefactors.

The economies of the Middle East are off the radar screen of the Bush administration, accuses Edward Gresser of the Progressive Policy Institute in a recently published report titled "Blank Spot on the Map: How Trade Policy is Working Against the War on Terror".

Egypt and most other Moslem countries are heavily dependent on their textile and agricultural exports to the West. But, by 2015, they will face tough competition from nations with contractual trade advantages granted them by the United States, goes the author.

Still, the fault is shared by entrenched economic interest groups in the Middle East . Petrified by the daunting prospect of reforms and the ensuing competitive environment, they block free trade, liberalization and deregulation.

Consider the Persian Gulf, a corner of the world which subsists on trading with partners overseas.

Not surprisingly, most of the members of the Arab Gulf Cooperation Council have joined the World Trade Organization a while back. But their citizens are unlikely to enjoy the benefits at least until 2010 due to obstruction by the club's all-powerful and tentacular business families, international bankers and economists told the Times of Oman.

The rigidity and malignant self-centeredness of the political and economic elite and the confluence of oppression and profiteering are the crux of the region's problems. No external shock - not even war in Iraq - comes close to having the same pernicious and prolonged effects.

The census in Russia, the first since 1989, is expected to find more than 2 million immigrants in residence. The Macedonian Ministry of the Interior, based on initial census figures, estimates that there are well over 20,000 foreigners in this country of 2 million people.

It is a little known fact that the polities of east Europe - let alone central Europe - are the targets of mass immigration from even poorer regions of the earth like India, Bangladesh, Pakistan, Africa and central and east Asia. Wealth is relative, though. Even destitute Macedonia is home to at least 200,000 migrants from the impoverished nether lands of Albania, Kosovo, Serbia and Bosnia.

The denizens of deprived members of the former Soviet bloc - such as Moldova, Ukraine, Belarus, Albania, Yugoslavia (Serbia, Montenegro and Kosovo), Bosnia-Herzegovina, Macedonia, Romania, Bulgaria, or the "stans" of central Asia - flock to the greener pastures of the Czech Republic, Poland, Hungary, Russia, Croatia, Greece, Austria and Germany. Add to these at least 500,000 permanent refugees - mainly from Croatia and Bosnia.

Most of these economic immigrants are unskilled and uneducated. They are employed in menial jobs in agriculture and services. They remit the bulk of their income home, thus contributing little to the local economy. They are ineligible for education, medical treatment, or social benefits and services.

The majority of them being illegal aliens, they rarely pay taxes. They do not enjoy the protection of the law and fall prey to rapacious organized crime gangs and avaricious indigenous policemen, judges and bureaucrats. Child labor, prostitution, drug abuse and other forms of petty delinquency are rampant among them.

Immigrants cause great resentment and consternation among the - always xenophobic - populace in east and central Europe. They compete directly with unskilled and unemployed locals - a sizable portion of the citizenry. Unemployment in the European Union is less than 10 percent compared to almost 20 percent in Poland, 30 percent in Macedonia and twice that in Kosovo.

But east Europe is target to another kind of immigration - from the rich West. Hundreds of thousands of expatriates and their dependants pepper these territories. Most of them are employed by non government organizations (NGOs), multilaterals, or international financial institutions.

They come for stints of a few years. Many stay longer, beyond the call of tenure. They spend their bloated salaries locally. This, usually, is their only input to their newfound domicile - a poisoned chalice driving up prices beyond the means of most inhabitants. These foreigners rarely pay taxes and are beyond the reach of native law. NATO peacekeepers, for instance, can be tried only in their countries of origin where flippant lenience is secured.

There are three categories of Western parvenus in the Wild East: the hustlers, the bureaucrats and the corporates.

The implosion of communism in central and east Europe has immediately sucked in an assortment of foreigners with checkered pasts and shady businesses. They colluded with emerging organized crime in their adopted countries, serving as a vital link to the financial infrastructure of the West. In cahoots with corrupt managers and venal cronies and insiders, they stripped the assets of state-owned enterprises and benefited from speculative bubbles.

Foreigners employed by multilateral organizations - such as the IMF, the World Bank, the Organization for Security and Cooperation in Europe, NATO, the European Union and a veritable avalanche of acronymed NGOs and academic outfits - are notorious throughout the region for their shameless conspicuous consumption and capricious meddling. Some of them have been implicated in corrupt dealings.

Usually with mediocre skills and a poor record back home, they join multilaterals for lack of options rather for any altruistic fervor. They hold in contempt the hapless sovereign hosts in which they serve as the omnipotent procurators of the West. Many of them hail from epitomes of good governance and civil society like Pakistan, Egypt, or India.

These emissaries of rectitude serve as a fig-leaf for the suborned politicians of this region behind which office-bearers hide their thefts and their incompetence. Often, the "international community" (euphemism for the United States and the European Union) turn a blind eye to the egregious looting of the state by pliant and cooperating bigwigs.

But there is a third - and welcome - type of foreigner.

These are advisors and managers who cater to the needs of multinationals and local companies. The market dictates their fees and their continued - or discontinued - employment. Scores of Western consultancies set shop in central, east and southeast Europe - accountancies, law firms, the odd professional.

Western know how on anything from wood processing to canning, from intellectual property to real estate and from publishing to brewing is transferred by these outfits to eager companies and a new cadre of management. The newcomers often assist local firms to obtain finance, construct projects and market products. In due time, foreign managers give way to locally trained ones. This is the real process of transition.

Military Bases, Foreign

The US military spent the first quarter of 2005 evaluating the economic and social impacts of the closure of 425 domestic bases. It seems to have dedicated no second thoughts to the relocation of its foreign outposts. Yet, the effects on local economies and populace can be as devastating and destabilizing - if not more so.

Conflicts in neighboring countries can be a serendipitous affair. Ask Pakistan. Even Macedonia, battered as it was by the war in adjacent Kosovo in 1999, benefited from NATO largesse, later supplanted by KFOR spending. It is estimated that the allied forces expended well over $40 million a month on purchases in the Balkans during the bombing of Serbia. This is a meager percentage of the total cost of the war (c. $34 billion) - but it constituted a major boost to the regional economy. Macedonia's GDP at the time was less than $3 billion.

The phenomenon may be recurring now in the Central Asian former Soviet republics. In its May 4, 2002 issue, "The Economist" estimated that Kyrgyzstan enjoyed an infusion of at least $16 million in American expenditures on fuel, gravel, food, and beds. In return, it allowed the West to use its crumbling infrastructure, both civilian and military - roads, airports, bases and railways. It is now home to a multinational force of 1900 exorbitantly well-paid soldiers, pilots, engineers, and support staff.

Kyrgyzstan is an impoverished country with less than $1.5 billion in GDP. Its authoritarian president, Askar Akaeyv and his ring of cronies own and operate a swathe of businesses. International profligacy is bound to prop up his regime by boosting the local economy and his own pecuniary fortunes.

According to the RIA Novosti Russian news agency, Kyrgyzstan offered to swap its debts to the West for military bases long before the events of September 11. Stratfor, a strategic forecasting firm, says that then Azerbaijani president, Heydar Aliyev, did the same.

President Nursultan Nazarbaev of Kazakhstan hinted - last time this February 2002 - that he, too, may welcome some kind of American military presence on his soil. With more than $12 billion in foreign investment stock in 2001 - one half of which by American oil firms - he may feel vulnerable to Russian attentions.

In March 2002, the White House promised Islam Karimov, the Uzbek president, and America's staunchest newfound ally in the region, $160 million in bilateral aid - mainly for the use of bases in Uzbekistan. More than 1500 US air force personnel are stationed in the Khanabad air base.

The administration's fiscal year 2003, 2004, and 2005 budgets request envisioned an average $19 billion for fighting the war on terrorism abroad. That proved to be inadequate. A supplemental appropriation bill was submitted as early as March 2003. Another $3.5 billion were required for "economic assistance, military equipment and training for front line states". Yet another $121 million were allocated to "anti-terrorism assistance to other states", $4 million for "technical assistance to foreign government's finance ministries to help cut off terrorist funding", and so on.

Foreign military presence in destitute countries has always had a profound effect on both their economies and their politics. It also often substitutes for domestic investments in the military. Even in prosperous Europe, American presence, in the framework of NATO, allowed the Europeans to cut back on defense spending.

In some parts of the world the foreign military and its attendant procurement and consumption are - or used to be - the main economic activity.

The contraction of American forces in Okinawa, Japan, following a series of scandals provoked by crimes committed by American GI's - forced the Japanese government to pour billions of dollars in public works into the local economy to compensate for the loss.

When the Philippines closed down the American Clark air base and Subic naval base in 1992, it lost billions in revenues from long-term lease payments and onshore consumption by military personnel. Moreover, the Philippines regarded the American presence as a security guarantee against the increasingly predatory practices of China. With their protectors gone, the Filipinos had to increase spending on the navy alone by a sorely scarce $6.5 billion in 1997.

Still, some countries are ideologically opposed to foreign military presence on their soil. In protest against what it regards as imperialist occupation, Cuba has cashed only one of the checks it has received from the United States covering the - admittedly symbolic - annual lease payments for the Guantanamo Bay naval base, where more than 150 alleged al-Qaida fighters are currently being interned.

Similarly, Saudis - as opposed to their royal family - decry the presence of American bases on their "sacred land". Somalis affiliated with the warlord Mohamed Aidid made their views about American naval bases in their country bloodily clear in the battle of Mogadishu in 1993. The US is currently negotiating with the self-declared independent state of Somaliland for rights to use its ports.

According to a Defense Department report quoted by the left-wing "The Monthly Review" on March 2002 and an Army College Study quoted by the "Los Angeles Times" on January 6, 2002 - prior to September 11, more than 60,000 US military personnel were deployed at any given time in more than 100 countries. These figures exclude permanent stationary forces, replete with their dependants, stationed in Germany, Italy, Bosnia-Herzegovina, Kosovo, South Korea, Japan, Saudi Arabia and dozens of other places.

The Defense Department's Base Structure Report, 2001, lists bases and installations in 44 countries and territories - but this excludes many bases with heavy US presence (e.g., within multinational forces).

Average tours of duty abroad lasted on 1996 - 135 days a year in the army, 170 days a year in the navy, and 176 days a year in the air force. Army soldiers were deployed overseas on average once every 14 weeks. The numbers have sharply increased during the wars in Afghanistan and Iraq and in their wake.

By March 2002, the USA has stationed well over 60,000 soldiers in new bases - from Bulgaria to Qatar and from Turkey to Tajikistan. According to the Pentagon, the US now has "status of forces" agreements - which regulate American military presence overseas - with 93 countries.

Such "forward presence" requires massive outlays. The bulk of it is spent at home, with exuberant domestic defense contractors. But even the leftovers disbursed in foreign lands are enough to lift recipient economic from their dismal torpor. This is especially true where the US military is used - implicitly or explicitly - to safeguard unilateral or bilateral economic interests, such as oil pipelines or oil fields - as is the case in the countries bordering the Caspian Sea, or in Colombia.

The New York Times obliquely noted on December 15, 2001, that:

"The State Department is exploring the potential for post-Taliban energy projects in the region, which has more than 6 percent of the world's proven oil reserves and almost 40 percent of its gas reserves."

But the economically beneficial influence of foreign military presence is not limited to emerging or transition economies. According to "The Regional Impact of Defense Expenditure" by Derek Braddon (published in "Handbook of Defense Economics"), during the 1980's, NATO troops and their families stationed in West Germany - a total of 400,000 people - generated $10 billion in expenditures. More than 230,000 people were - directly and indirectly - employed by the bases. A similar number of Soviet troops in East Germany accounted for 1 percent of its industrial output.

THE CASE OF ISRAEL

Clinton's commitment to Israel's security needs included a huge caveat. Security guarantees to Israel, according to the Clinton Parameters, "need not and should not come at the expense of Palestinian sovereignty, or interfere with Palestinian territorial integrity." For example, if Israel needed to retain an early-warning station on a West Bank hilltop, this principle could be used to preclude an Israeli claim. Essentially, it placed Palestinian national sensitivities above Israeli security needs. In contrast, in the Gaza Strip and the West Bank, Bush allows for Israel to continue to control airspace, territorial waters, and land passages, "pending agreements or other arrangements." This includes continuing Israeli control of the Philadelphia corridor between Gaza and Egyptian Sinai."

July 23, 1952 — Agreement relating to mutual defense assistance.

October 23, 1975 — Agreement regarding payment for tooling costs of accelerated production of M-60A1 tanks.

April 6, 1979 — Agreement concerning construction of air base facilities.

April 6, 1979 — Agreement concerning funding of air base facilities.

December 10, 1982 — General security of information agreement.

November 29, 1983 — Agreement creating the Joint Political Military Group and Joint Security Assistance Program.

December 14, 1987 — Memorandum of Agreement concerning the principles governing mutual cooperation in research and development, scientist and engineer exchange, and procurement and logistic support of defense equipment, with annexes and attachment.

April 21, 1988 — Memorandum of Agreement regarding joint political, security and economic cooperation.

May 24, 1988 — Mutual logistic support agreement.

April 1989 — Memorandum of Agreement between the Strategic Defense Initiative Organization and Israel’s Defense Ministry to develop a $35 million computer facility as part of the Arrow missile program.

September 8, 1989 — Memorandum of Understanding regarding transfers of materials, supplies and equipment for cooperative research and development programs.

January 22, 1991 — Agreement on the status of United States personnel.

June 1991 — Agreement pertaining to the Arrow Continuation Experiments (ACES), the second stage of the joint U.S.-Israel Arrow missile program.

October 18, 1991 — Memorandum of Understanding for a loan of a multi-sensor integrate system for the purpose of test and evaluation.

November 28, 1991 — Agreement on cooperation to combat illicit narcotics trafficking and abuse.

April 30, 1996 — Counterterrorism cooperation accord to enhance capabilities to deter, prevent, respond to and investigate international terrorist acts or threats of international terrorist acts against Israel or the United States.

July 18, 1996 — Memorandum of Agreement concerning the tactical high energy laser (THEL) advanced concept technology demonstration (ACTD).

April 30, 1996 — Counterterrorism cooperation accord

September 3, 1996 — Agreement for technology research and development projects.

January 28, 1998 — Treaty on mutual assistance in criminal matters.

February 10, 1998 — Acquisition and cross-servicing agreement with annexes.