This public sector soon suffered serious deficits affecting the purchasing power of most of the population. In other words, it worked against the interests of the public at large, which was contradictory to its main mission.1 Apart from the fact that it provided a material basis for the bureaucracy, whose living standards increased enormously, the public economic sector created revenue that benefited groups linked to political personalities and who also amassed huge private fortunes. But the sheer magnitude of the wasted financial resources, as well as the economic, political and social consequences made it apparent, also to the leaders, that the so-called public sector had to be reformed. However, while efforts were made to improve the performance of the economy, the same political order that had prevented the economy from becoming effective was maintained.
From the 1970s up until now, Algeria has always had a very high level of investment (around 30 per cent of the GNP) but which, somehow, seems unable to generate the expected growth. This is mainly to be explained by the country having a dual political system composed of both real power (held by the military) and formal power (embodied by the government and the president).2 The existence of a power above the institutions makes it possible for the latter to be utilised by hidden networks in order to create private fortunes. This situation reinforces predatory practices and widespread corruption while discouraging production. The Algerian economy is characterised by a double ‘rent-mechanism’: first, the whole economy depends on the export of raw materials which provides a non-domestic income whose volume is not related to the capability of the national market to create such a volume of wealth; second, private fortunes accumulated stemming from this non-domestic income are linked to production. In other words, the economic wealth Algeria possesses is not produced by local labour. Private fortunes are accumulated, not through the exploitation of work, but rather by speculation and support from the State apparatus.
The authoritarian character of the regime is organised around the rentier nature of the economy which, in turn, reinforces it: fictitious pluralism, election fraud, prohibition of trade union freedoms, lack of the rule of law. Access to the rental income is not, however, available to everyone; it is only for the powerful clans. This means that economic agents are not equal before the law in the sharing out of the national revenue. The clans that are linked to the real power (the military) use the fiscal administration, customs and the law to eliminate any troublesome rivals. In a perceptive article that recognised the intimate relationship between the economy and the nature of the regime in Algeria, William C. Byrd remarked that:
the ostensible objective is that of modern and neutral institutions, but the fundamental function of these institutions is to protect the transactions of a caste of economic agents whose power is based on control of the army and the security services … Numerous magistrates act on behalf of the clans when they wish to eliminate or imprison managers that are inconveniencing the business of these interest groups. 3
The need for reform
For historical reasons the State owns a vast economic sector that enables it to redistribute income through ‘political salaries’. This means that, as the salaries are distributed by loss-making enterprises, they are not part of the surplus product but are advanced by the State with no recovery on outlay, for political reasons. As it is not subject to the laws of the market, the public sector that employs hundreds of thousands of people is adversely affected both by a deficit that is so huge that it reduces the purchasing power of consumers and by the way it promotes a parallel market that feeds colossal fortunes that are built, not on wealth creation but mainly on transfers of wealth. The so-called public sector does not follow any market logic but the political logic of a ‘Nanny State’ that aims at silencing all claims for an alternative political regime. However, the model, which is based on unpredictable oil income, has poor future prospects as from the 1980s the leaders themselves have realised that the Algerian economy would collapse without its oil revenues.
The first reforms were put forward after the death of President Houari Boumedienne in December 1978. His policy had been to develop the country by giving priority to heavy industry. It was under the presidency of Chadli Bendjedid (1979-1992) that there were two attempts to rectify the policies of the 1970s. The first time (1980-1988) a tendency to favour light industry tried to improve Boumedienne's legacy, taking into account the backwardness in agriculture, the shortage of water, the housing crisis and the absence of public infrastructure. This correction to the model was carried out by the government of Prime Minister Abdelhamid Brahimi but its main result was just to reduce the size of public enterprises; in fact, this was the period of the great restructuring of State enterprises into smaller units. Brahimi thought that the bad management of the economic units was caused by their size. But the creation of hundreds of smaller enterprises did not cure the disease from which the public enterprises were suffering, which was that they were not profitable and hence generated a deficit.
The fall in the world prices of hydrocarbons in 1986 created a serious financial crisis4 and the State no longer possessed the financial means to hide the deficit of the public enterprises and to import food. In October 1988 this resulted in shortages that led to riots in the main towns. Some 500 people were killed and over 1,000 injured. Brahimi was dismissed and replaced by Mouloud Hamrouche (1989-1991) who introduced more radical reforms with a view to pushing the country into a market economy. This would mean the end of the State monopoly which harboured the networks of predators on the public wealth. The reforms were meant to terminate the rentier system that had benefited the ‘barons’ of the regime, who pressured Hamrouche to resign.
Hamrouche had tried to change the legal environment of the public enterprises to give them autonomy and to free them from stifling administrative supervision. To this end he created ‘holdings’ through administrative councils that had authority over the enterprises and that evaluated their commercial efficiency. A complex legal structure was set up to submit the State enterprises to the laws of competition and to give them an incentive to be productive.5 This experiment did not have enough time to succeed or to fail, but it challenged the profiteering mechanisms of the economy administered by the nomenklatura. In June 1991 Hamrouche's government fell because it had damaged powerful interests.6 Imperfect as they were, his reforms of State monopolies, foreign trade, currency and credit and competitivity on the public enterprises would have prevented the hidden clans from using the State to enrich themselves. Since then the economic policy of successive governments, favouring distribution over production, has been characterised by a liberal discourse, a still strong presence of the State in the economy, and a privatisation that has benefited the groups linked to the ruling class.
A policy based on devaluation & the building of infrastructure
After Hamrouche left, government after government went back on the reforms, although they did not renounce the discourse on the transition towards the market. From 1993 to 1996 a murderous wave of terrorism swept the country and this was also a time when the State had been on the verge of stopping all payments. Loans had to be negotiated with the international financial institutions, particularly the International Monetary Fund which posed as a condition that a structural adjustment programme be implemented. The State finances were saved by credits from the IMF and the European Union, whose representatives were told by the Algerian negotiators: ‘It's either us, with all our defects, or an Islamic republic just one hour's flight from Europe and to whom the inhabitants of your banlieues will owe allegiance.’ Alarmed to the point of panic, the Westerners paid up without making any conditions on how their credits were to be used. Craft was necessary, feet had to drag and laws voted that would never be applied. Policy fluctuated between a discourse on reform and laxity in letting the deficits mount up, according to the conditions of the moment.
However, in order to obtain the necessary credits, the government did partially apply the IMF directives, dissolving hundreds of local public enterprises. This threw 200,000 people out of work although this loss of jobs was partially offset by the setting up of paid militia (community guards, GLD (Groupes de Légitime Defense), patriots and other auxiliaries of the security services). A plan for privatising the public sector was decided and voted on numerous occasions by the National Assembly but only the enterprises making easy profits, like hotels, were sold off. The government did not want to commit itself too far in these reforms, in spite of the official liberal discourse. It preferred to change the parameters of distribution, depending on political-administrative decision-making.
To overcome the economic difficulties and obtain credits from the international institutions, the government carried out several devaluations. This increased the State finances in local currency and compressed social demand. The report of the World Bank observed that between November 1990 and April 1991, the dinar was devalued 100 per cent, which explains the strong inflation rate (29 per cent) in 1991. The government continued with this policy: from 1992 to 2000, the value of dollar increased from 22.78 to 75.34 dinars. Thus the latter underwent a reduction of 370 per cent, which increased the availability of local currency from 377 billion dinars to 1,044 billion. Altogether, from 1990 to 2000 the Algerian currency was devalued by 500 per cent!
This monetary policy had an impact on the purchasing power of wages. According to the Annuaire statistique pour l'Afrique (United Nations, 2001), the price index for consumption in Algeria (food, clothing, electricity, etc.) rose by 464.8 in 2000, using a base of 100 in 1990. The increase is still greater if 1989 is used as a comparison: according to the Annuaire Statistique de l'Algérie (1999-2001), the index price in 2001 was 557.59 using 1989 as the base figure. During this period, the price of electricity and gas (run by a State company) increased almost ten times (929.06) and that of drinking water 8.5 times (846). The index of prescribed medicine reached 1,131.70. These figures show the impoverishment of the population, measured by the fall in consumption levels per inhabitant, which dropped by 30.4 per cent compared with 1980. The poverty threshold in 1988 affected 16.6 per cent of the population in rural areas and 12.2 per cent in urban areas. In 1995, the figures were 30.3 per cent and 14.7 per cent respectively, according to World Bank figures.
What was new was the impoverishment of families with only one income, which has caused them to fall below the poverty threshold. To avoid this, members of the same family decide to live under the same roof to enable the domestic unit to benefit from several incomes. The average wage is not sufficient, as it had been in the past, to ensure a decent minimum for a family of four (a couple, plus two children). The average wage of an industrial worker is 12,000 dinars (equivalent to 120 euros) and that of a secondary school teacher, 15,000 dinars. Very tough strikes demanding salary increases often break out in the school sector organised by unions not recognised by the authorities. Many teachers have been dismissed from the national education system for illegal union activities and condemned by the courts. The movement among the teachers is dangerous for the regime because it demands a return to the purchasing power of … 1980! This would mean that a secondary school teacher would need to earn some 50,000 dinars to compensate only partially the devaluation effects since 1988. Increases in salary have been promised but they will not cancel the loss of purchasing power of the 1980s. Does the State employer have the means to pay an income that enables the physical reproduction of the labour force? A wage in a productive economy is expected to satisfy the food requirements necessary for an average family, taking into account the price of meat, vegetables and fruit, clothing, transport, etc. The regime is afraid of a wage demand by all the workers which, for the State budget, would cancel out the past devaluations. This is the reason why it prohibits the freedom of trade unions.
The devaluation of the currency has also created difficulties for a number of small and medium enterprises in the private sector, which have been forced to close and lay off workers because of the excessive cost of imported inputs and the competition of foreign products permitted on the national market. According to the Annuaire Statistique de l'Algérie, the unemployment rate was 26.41 per cent in 1997, 28.82 per cent in 2000 and 27.30 per cent in 2001. In 2005 it came down to 22.5 per cent, but it is still the highest in the Mediterranean region. Youth unemployment is still very high, reaching 40 per cent of the population aged 20 to 26 years in certain regions.
The liberalisation of foreign trade, by lowering customs duties, has opened up the national market to products imported from Southeast Asia (clothing, shoes and so on) and has made national production more vulnerable. This policy has shrunk the bases of productive work and reinforced the trading and rentier character of the economy in which wealth comes from speculation. This can be seen in the breakdown of employment in which agriculture and industry account for barely 25 per cent of the total. The increased revenues of the State, following the constant rise in the price of hydro-carbons since 1999, has not augmented the purchasing power of the poorer sectors of society. The government has no intention of revaluing the level of the dinar to protect national production and the wage-earners. And yet, the currency of neighbouring Morocco, which has far fewer financial resources, is exchanged at 11.3 to the dollar while the Algerian dinar is exchanged at 77.22 to the dollar. It is estimated that the financial surplus in 2005 was $61.01 billion, which relieves the government of pressures from the international monetary institutions.7 This financial bonanza has made it possible to implement a programme to relaunch the economy, injecting a sum of $50 billion over five years. The sectors benefiting from this programme are public infrastructure (East-West autoroute, railways, urban transport), the distribution of drinking water, agriculture and social housing. As this programme got under way it has been calculated that the growth rate rose to 6.8 per cent in 2003, but it should be remembered that it is based on the exports of hydro-carbons (more than 35 per cent of the GNP) and the activities of sectors like construction, public works and services, which transform wealth but do not create it.8
Division of Labour by Sector | |
---|---|
Agriculture | 15% |
Industry | 10.2% |
Construction/public works | 10.3% |
Trade | 14.7% |
Services | 25.2% |
Administration | 23.1% |
The government of Ouyahya has no plan to relaunch production to prepare public and private national enterprises to resist competition from the foreign products that have taken over the internal market. It is true that infrastructure is indispensable to all economies and the lack of them is a drawback, but they do not create wealth. Income from oil that is used in the programme to relaunch the economy is creamed off by foreign outflows. In fact, it is mainly foreign companies, better equipped and more efficient than the national enterprises, that have been awarded the contracts to carry out these projects.9 The government has not drawn up a strategy to reinforce the productive capacity of national enterprises, public or private, to enable them to implement the projects submitted to international competition. The oil income that finances the $50 billion relaunch programme mainly benefits the foreign companies that are carrying out the various infrastructure works. Moreover, wages generated by this investment will mostly be spent in the consumption of imported goods, which certainly does not promote local accumulation. It is as if the wage-earners' demands were addressed abroad obstructing the development of a national market. A large part of the State's investments and salaries thus goes outside the country, rather than helping to develop fixed capital.
All the figures, both governmental and those from the World Bank, show the heavy dependence of the Algerian economy on the exports of hydro-carbons, which account for 98 per cent of incoming revenue. In 2005, exports other than hydrocarbons were less than a billion dollars, according to the El Watan Economie of 15 January 2006.10 With the price of oil at $60 per barrel and more, the reforms will be postponed, as they are no longer required by the regime whose need is to resolve its political difficulties and not to improve the performance of the economy. The financial surplus made possible by the high cost of oil per barrel will buy social peace for a few years. That is what the government of Ahmed Ouyahya is doing: hiding the deprivation of the population, sprinkling some largesse here and there and wasting huge financial resources in consumption that does not reproduce them.
Obstacles to making a transition towards the market
The Algerian experience in making reforms shows that the transition towards the market has to be a political decision that provides a legal framework for economic activities in all the competing commercial relationships. Without the public authority regulating these relationships, ensuring inter alia independence of the judiciary and trade union freedom, the market will be dominated by forces which, based on political positions, will oppose competition. Without competition there is no market. Competition destroys profiteering mechanisms and liberates an economic dynamic that cannot be opposed by privileges that have been acquired by force. This is why the market is the expression of the autonomy of the trading sphere and also of the capacity of civil society (parties, unions, media, associations, etc.) to impose formal and institutional relationships of authority that cannot easily be deviated to serve private ends. The laws of the market correspond to those of the State, as Jurgen Habermas has observed, agreeing with the analysis of Karl Polanyi about the relationship between the market and the State.11
The market is the transformation of effective demand into supply (in the sense that J.M. Keynes gives to these concepts), in competitive conditions guaranteed by aneutral Weberian bureaucracy (such as customs, taxes, justice). Quantitively the most important element of effective demand in the national market is the wage. The economic policy of the government, as we have shown, tends to reduce the purchasing power of wages (potential consumers of what is produced by the national market) and this gives rise to speculators who transfer capital abroad and who are consumers of imported products (luxury clothes, sophisticated household appliances, automobiles, etc.).
Wage policy is not the only obstacle to creating a genuine market which is not favoured by the elite who are attracted to posts in the State. There has not been any pressure on the State from the social elite to make a radical reform of the administered economy because this elite, which is both dominating and paternalistic, does not want to give up its guardianship over society which it subordinates to its own interests. Trained in State schools, the elite do not invest in the autonomous spaces that could create enterprises. It prefers to cling to the State apparatus that provides it with its livelihood, recognition and privileges. It has to be recognised that the State does not usually train elites for the benefit of society; it trains them for itself, so as to control and dominate society. The Jacobin culture inherited from the colonial past has reinforced this tendency, while Algeria, as opposed to France, does not have autonomous intermediary social bodies to act as counterweights to the central power and tilt power relationships towards civil society.
This is one of the reasons for the weakness of the private economic sector, which is not deeply rooted in production, preferring to grasp trading opportunities and receive clientelistic protection that enables it to appropriate the revenue distributed by the State. The economic reforms create the hostility of all social strata: the governing elite would lose a tool for the redistribution of wealth and thus the means of obtaining allegiance; the social elite is opposed to them because it chooses to depend on the State to legitimise its superiority; the national private sector prefers the high rate of profit on monetary assets in speculative activities and finally the ordinary people, composed of employees, workers and unemployed are afraid of being subjected to the law of the jungle and to price competititon without the protection of the State which, up until now, has promised employment, health coverage, education, etc.
While there is unanimity against the market, it is not for cultural reasons but mostly because of class interests. Hostility against the market is not irrational, as some experts believe; on the contrary, it is rational, if one accepts as rationality the defence of the interests of the social groups concerned. It is rational only in the short term, because in the long term, it is in the interest of everyone to make the transition towards the laws of the market. But who would dream of sacrificing his immediate interest for the future collective interest? On this very question, the elite has not fulfilled its mission of enlightenment, of being the avant garde, which shows its lack of historical perspective. One can hardly expect an unemployed person, bogged down in problems of daily survival to have a vision of the future, but unfortunately members of the elite, overly concerned with their petty ambitions of individal comforts, are an obstacle to the formulation of a project for the future. It is this vacuum that has been filled by the Islamic utopia which, lacking any command over the collective destiny, gives rise to flights of fantasy. All this shows up the penury of a political culture that drastically lacks a scientific knowledge of (among others) the mechanisms of production and the distribution of goods and services. There is no modern political culture in public opinion which enables the different governments to manage economic difficulties through purely monetary mechanisms to the detriment of purchasing power – the weakness of which is a handicap for the national market.12
Can commercial activities in Algeria be explained by economic science?
This question should be posed because the social sciences have historical content. The problematique of the political economy, as outlined by Adam Smith, David Ricardo and Karl Marx (through his criticism) has, as its content, the creation and distribution of wealth through prices, whose relationships form a system that is structurally coherent. How can this content then be explained if a local price system is utterly inconsistent? Political economy is governed by the law of value (that the neo-classical economists call, for ideological reasons, the marginal productivity of the factors of production) which postulates that labour alone is the source of wealth creation. What happens, therefore, to rentier economies whose wealth is not in proportion to local productive labour? Do Ricardian and Walrasian theories have any relevance for these rentier economies or is it necessary to develop other conceptual tools to understand the variations of value in a mercantile logic? The rentier economy is not subject to the dynamics of decreasing yields in industrial production and it is therefore alien to Walrasian price theory – which, incidentally, inspired the World Bank experts in their elaboration of the notion of structural adjustment. The idea is that prices should express the forces of the market – and not of the administration – in order to adjust automatically in a system that is self-regulated and interdependent.13
It would be interesting to know why prices in Algeria do not obey Walrasian price theory and why they are not related to wages, the price of the labour force being a measure for all other goods. In Algeria, an average worker's monthly wage would just about pay for 12 kilos of mutton (10,000 dinars). This is obviously inconsistent as, for the classical political economy, wages represent the cost of reproducing the labour force.14 It is precisely for this reason that the price system in Algeria is ‘unreal’; it is not related to wages that, in a market economy, are the measure of value which makes the price system consistent in terms of reproduction and accumulation. It is the price of the labour force that conditions the proportional relationships between goods and services – relationships that are expressed in monetary terms. A rigorous analysis of the Algerian economy should explain why the distribution of goods and services goes against Walrasian logic and show how to build a theory of goods and services in Algeria.
The most useful concept for such an effort is that of rental income which the classical economists considered should be eliminated in order to free the surplus created by the exploitation of labour. When the political economy was first developed, it had the political and ideological aim of showing the predatory nature of rents in order to discredit the social classes for which they were the main form of income.15 We should be looking to Ricardo, and not to Walras, to develop the tools needed to approach the Algerian economy. It was in fact Ricardo who identified the mechanisms of rents, showing the need to get rid of them in order to reinforce the purchasing power of the real wage and thus to expand Keynes's effective demand. But first of all, there has to be a genuine political rupture in order to put an end of the control of the State by hidden forces that base their power on the security services. It must be borne in mind that Ricardo's work had, as a background, the struggles of the bourgeoisie. He gave them the key to understanding the mechanisms of the reproduction of material wealth by imposing the autonomy of the economic field and by terminating the pillage of the parasitical feudal strata whose legitimacy was based on their relationship to political power.
This situation is very similar to the privileges of the social groups that are now linked to the real power in Algeria. Even the reports of the World Bank and the International Monetary Fund, which are not particularly revolutionary, are somewhat perplexed by Algeria which, they insist, possesses all that is necessary for sustainable growth. They now identify the institutions as being responsible, drawing attention to the administrative blockages, feeble authority of justice, and corruption.16 These obstacles are due to the political nature of a regime that is incompatible with regulation through the laws of the market.
Conclusion
Algeria has been in the process of reforming its economy since the 1980s, always hesitating to opt decisively for the laws of the market, in spite of an official discourse that confirmed the break with the socialist option and the welfare State. This inability to enter into the market, is not caused by technical or financial difficulties; the causes are political, because the laws of the market assume that there is an autonomous economic power, with independent trade unions and an autonomous legal system as counterweights. But the regime fears this as it has always used the economy, as it has used violence, as a political resource in order to maintain itself in power.
If the economy were to be reorganised to submit most economic activities to regulation through the market the political price would not allow the regime to survive. The latter is not in fact renouncing the manipulation of the economy which is a political source of legitimacy and which helps to obtain the allegiance of broad sectors of the population. If the rentier nature of the administered economy is to be terminated – the declared objective of the reforms – the regime would have to be radically changed. In other words, there would have to be a real political rupture to modernise the State in order to give its institutions the authority that they should have. That would require identifying and neutralising the hidden forces within the institutions, abolishing the duality of State power (real and formal), making the legal system autonomous so as to put an end to corruption, protecting the press, submitting all the economic agents to current legislation, liberating civil society (the one State authorised trade union – UGTA, political parties, associations, newspapers and so forth) from supervision by the security services. All this constitutes a programme that would require the most powerful actors in Algerian politics to renounce their personal interests and privileges or envisage the emergence of a social movement capable of modernising power relationships in Algeria.