The Global Zeitenwende
How to Avoid a New Cold War in a Multipolar Era
For two days, people poured into the streets of Cairo, burning buses and trams, government buildings, and expensive cars. In Tahrir Square, troops fired tear gas at the demonstrators. Cairenes cheered from balconies and rooftops while their comrades in the streets below chanted antigovernment slogans: "You dress in the latest fashions," they roared at their president, "while we sleep 12 to a room!"
It was 1977, and revolution was in the air. When an already unpopular government tried to rescind food subsidies -- meaning massive price increases for staples like bread, rice, and cooking gas -- riots erupted. By the time they were over, hundreds of buildings were burned, 160 people were dead, and Egyptian President Anwar Sadat had learned an essential lesson for the modern Arab dictator: let them eat bread. Lots of cheap bread.
Change is sweeping through the Middle East today, but one thing remains the same: the region once known as the Fertile Crescent is now the world's most dependent on imported grain. Of the top 20 wheat importers for 2010, almost half are Middle Eastern countries. The list reads like a playbook of toppled and teetering regimes: Egypt (1), Algeria (4), Iraq (7), Morocco (8), Yemen (13), Saudi Arabia (15), Libya (16), Tunisia (17).
For decades, many of these regimes relied on food subsidies to ensure stability -- a social contract so pervasive that the Tunisian scholar Larbi Sadiki described it as dimuqratiyyat al-khubz, or "democracy of bread." But over the past several years, grain prices reached record levels, and these appeasement policies lost their luster. In Tunisia, pro-democracy demonstrations began in late December 2010 with protesters brandishing baguettes. In just a few months, a wave of uprisings rippled across the region, toppling Tunisian President Zine el-Abidine Ben Ali and Egypt's longtime ruler, Hosni Mubarak.
The revolutions, of course, are about more than just bread. Middle Easterners want basic human rights, dignity, and a chance at a decent future -- good jobs at livable wages. But when a government puts those things out of reach for the majority of its citizens, using handouts or subsidies as a substitute for democratic or economic reforms, bread becomes a powerful symbol of all they cannot have. Today, the protests have spread all the way to Yemen, where demonstrators are baking loaves of bread that spell out the command "leave" in Arabic. The message could not be clearer: the very commodity that Arab regimes once used to ensure obedience has now become a symbol and source of defiance.
The bread wars go back to the Cold War era, when the two superpowers wooed smaller nations with guns, grain, and other goods. It was during this time that many Arab regimes instituted social safety nets based on the Soviet model of centralized bread distribution. In 1950s Egypt, the populist President Gamal Abdel Nasser began the practice of subsidizing daily bread in exchange for social peace. "They adopted this because this was one way of buying loyalty from the society," says Ibrahim Saif, an economist and the secretary-general of the Economic and Social Council of Jordan. "It's the patronage system that prevailed for some time: I am the state, I take care of you, and you don't question my political behavior."
By the late 1970s, the International Monetary Fund (IMF) was urging Arab countries to rid themselves of the "subsidy burden." Cairo's 1977 "bread intifada" was only one of many across the region: throughout the 1980s, protests erupted in Morocco, Tunisia, Algeria, and Jordan whenever rulers tried to lift food subsidies. When Sadat was assassinated in 1981, his successor, Mubarak, remembered the lesson of the bread riots: he made sure that Egyptians had plenty of cheap, government-subsidized bread, and other Middle Eastern regimes did the same.
For the next three decades, U.S. taxpayers helped buy that bread. According to the Congressional Research Service, the United States provided Egypt with $4.6 billion in loans and grants under the U.S. Agency for International Development's Food for Peace program, most of it flowing between 1979 and 1997. Mubarak was not the only autocrat who developed a taste for cheap American wheat; Iraq's Saddam Hussein received billions of dollars' worth of surplus American wheat through grants and loan guarantees, and Jordan, Yemen, and other Middle Eastern countries got lesser amounts. For decades, the United States considered that a small price to pay for keeping friendly dictators in power.
But the cheap wheat came at a high cost: unemployment. The dependence on foreign largesse, coupled with the low price of global grains, encouraged many Middle Eastern regimes to hollow out their agricultural sectors. Throughout the 1980s and 1990s, trade liberalization programs pushed Egypt and Morocco, among others, into a dangerous dependence on cheap carbohydrates from abroad. Encouraged by the IMF and the World Bank to lift tariffs and import bans, and discouraged (or even restricted) from investing in their own agricultural sectors, they went from being net agricultural exporters to net importers -- especially of subsidized American wheat. In 1960, Egypt was producing enough wheat to be almost self-sufficient; by 2010, it was importing roughly half the country's total intake (nine billion tons), making it by far the biggest wheat importer in the world.
By 2010, the Egyptian government was subsidizing bread to the tune of about $3 billion a year, mostly by selling flour to local bakeries -- a complicated, inefficient system that lent itself to massive corruption. The higher global prices rose, the more incentive bakers had to resell subsidized flour and bread into the black market, where they could go for five or more times the subsidized rate.
As expensive as they are, bread subsidies do not succeed in lifting people out of poverty; in fact, by discouraging domestic agricultural investment, they have often hurt the very people they are intended to help. According to the United Nations' 2009 Arab Human Development Report, the Middle East is the only region outside of sub-Saharan Africa where the number of malnourished people has risen since the early 1990s. In recent years, the standard of living for most Egyptians declined, even as elites thrived and external economic measurements appeared healthy: according to a Gallup study published last month, both Egypt and Tunisia saw a significant decline in living standards for all income groups except the top 20 percent -- even as GDP increased. By early 2008, about 40 percent of Egyptians were living on less than two dollars a day.
When the price of grain began to skyrocket, the "democracies of bread" began to show cracks. In 2008, a wave of small bread riots began in Jordan, Morocco, Algeria, Lebanon, Syria, and Yemen. Governments responded by raising wages, increasing subsidies, or handing out cash -- solutions that proved unsustainable in the long run. In Egypt, bread prices rose by 37 percent between February 2007 and February 2008. More people became dependent on subsidized bread than before. This meant longer bread lines, and by March 2008 about a dozen people had died in Egypt's bread lines -- some in fights, others from the sheer exhaustion of standing for hours to get bread.
The public was outraged over these "bread martyrs." Mubarak ordered the army to take over the baking and distribution of subsidized bread to the public, effectively militarizing bread production. But this bizarrely symbolic decree came too late: on April 6, 2008, tens of thousands of students, unemployed Egyptians, and textile workers in the textile-mill town of Al-Mahalla al-Kubra staged a protest against unemployment, high food prices, and widespread police torture. Young protesters broadcast cell phone videos of the uprising on Facebook and YouTube, which helped spread the protests to other parts of Egypt. Eventually, the youth activists coalesced into the April 6 Movement, named after the Al-Mahalla al-Kubra uprising, which in turn grew into the revolt that would eventually topple Mubarak.
Over the next two years, a combination of factors -- drought, wildfires, ethanol subsidies, and more -- converged into a global food crisis. By early 2011, the United Nations' Food and Agriculture Organization announced that food prices had reached an all-time high, surpassing even 2008 levels.
When young Egyptians took to the streets in January -- many of them from the April 6 movement -- they crafted slogans that translated justice and democracy into the language of food: "They are eating pigeon and chicken," they chanted, "and we are eating beans all the time." Others protested, "Oh my, ten pounds can only buy us cucumbers now, what a shame, what a shame." Arab regimes scrambled to keep the peace as they always had: with handouts. Algeria, Tunisia, and Morocco lifted import tariffs and customs duties on wheat and other food imports. Egypt, Jordan, and Yemen upped their food subsidies. Jordan unveiled a $125 million subsidy package for sugar, rice, and fuel. Saudi Arabia announced a package of cash grants. And even Syrian President Bashar al-Assad rolled back subsidy cuts.
On February 15, World Bank President Robert Zoellick released data showing that 44 million people had been pushed into extreme poverty since June 2010, and he warned that global food prices had reached "dangerous levels." Zoellick asked countries not to impose policies that would further exacerbate price volatility, such as export bans or price fixing. But he might also have mentioned massive subsidy programs, which are helping to drive up grain prices worldwide.
Economically, import subsidies have precisely the same effect as export restrictions: because "democracies of bread" depend on food subsidies to stay in power, they create a demand that is relatively inelastic -- demand will not go down when prices rise. That additional demand makes the marginal quantity of wheat still available even more expensive; and that, in turn, helps keep global prices high at a time when people in danger of starving need grains to survive. "We are not supposed to say this," one senior international economist told me in mid-January, before the revolution in Egypt had even begun, "but we have countries where hunger is really endemic, where you have massive undernutrition and shortage of food. And the problem is that those countries like Egypt who have these subsidies -- not necessarily because they have a food security problem but because they want to ensure that everything's stable in the country and they have no food riots -- are one of the biggest factors contributing to it."
Mubarak and Ben Ali are history, but it is worth taking a hard look at some of the other wheat importers on that list -- particularly Yemen, a corrupt, U.S.-backed dictatorship where one in three citizens suffers from acute hunger. Even if strong democratic institutions emerge from the current upheaval, the region's dependence on wheat from abroad will continue to create crises for years to come. The solutions are simple: the United States and the international banking community should encourage its Middle Eastern allies to develop their own agricultural sectors, where economic growth is far more effective at lifting people out of poverty than in other sectors. The United States should also stop sending agricultural surplus abroad as foreign aid, which depresses prices in the countries that receive it and drives farmers further into poverty (the Obama administration has taken steps toward ending this practice).
Perhaps the United States, and the Middle Eastern regimes it supports, can learn something from Mubarak's demise. It seems obvious that countries such as Egypt, Iraq, and Yemen cannot stop their bread subsidies overnight. But it seems equally obvious that propping up dictatorships with cheap bread is a shortsighted policy: in the near term, it helps keep global prices high, and in the long run it does not even guarantee stability.