The link between Financial Liberalization and Democracy in the
Mediterranean Debt Crescent
Clement Henry's book The Mediterranean Debt Crescent is an
important contribution in understanding the linkages of the banking sector
and political power in the Muslim nations of the Middle East and Northwest
Africa such as Morocco, Turkey, Tunisia, Algeria, and Egypt. His
critical hypothesis is that financial liberalization "enhances the
structural power of commercial bankers (Henry 1997, p 8)." When financial
reforms are applied and governments gradually cede their control over the
allocation of credit, these financial institutions gain greater autonomy
vis a vis the patrimonial systems. This autonomy, in turn, may motivate
political pluralism, accountability, and even democracy. Henry explains,
that "Financial liberalization" threatens the deeply entrenched
patrimonial regimes of Islamic nations because it breaks their "black box"
of patronage. In response, these regimes may choose three paths: 1) to
cultivate elaborate alternative patronage networks, 2) to sabotage the
financial reforms imposed by international financial institutions or, 3)
to repress political opposition, since their capability to develop
client-patron networks has been reduced as a result of diminished direct
access to financial resources.
In the early 1990s, the countries of North Africa chose the third
option, and attempted to rally support from their respective business
communities without allowing them any significant degree of autonomy.
However, as Henry suggests, while financial reform continues, these
communities may have been acquiring greater autonomy in spite of the
regimes' best efforts. Of the five cases Henry studies, the most
successful in incorporating both are Turkey and Morocco because they were
able to arrive to a certain degree of political pluralism by privatizing
patronage, and in the specific case of Turkey, even to democracy. Henry's
point is that in Turkey and Morocco, the banking community functioned more
as an oligopoly, rather than a fragmented commercial banking system. This
situation allowed the business and banking oligopoly to have greater
political power, or in Max Weber's words "domination by authority". These
conditions were possible in part because the Turkish and Moroccan banking
systems have developed in the German model, as defined by Zysman, which
facilitates the possibility of greater concentration in the financial
sector. The greater relative autonomy that the bankers acquired in those
countries allowed for the possibility of building, "a comfortable screen
of opposition parties" (p 95). Conversely, in Egypt, Tunisia, and Algeria,
the financial reforms did not allow for the same results, and both the
consolidation of these reforms and the possibility of greater political
liberalization had stalemated in the time frame covered in the first three
chapters.
Although Henry's book offers systematic accounts of the processes
of financial reform and their interactions with politics in the cases he
analyses, his main hypothesis, that they promote greater autonomy of the
banking sector, and thus political liberalization and democracy is not
proven in the first three chapters of the book. While there is evidence
that the regimes explored, are moving toward democracy, only one of these
examples; Turkey, has reached a level of development where there has been
a true change of regime at this time. Not even the case of greater
pluralism in Turkey, Henry's most persuasive example can be clearly
linked, following his argument, to a greater autonomy of the banking
community. The resulting losses of Ozal's Motherland Party can be as
easily explained by political rivalries, and family feuds. However, in
the fourth chapter Henry does tie the argument together in the Turkish
case, chronicling the developments of a vibrant, and active Turkish
democracy during the nineties which is supported by the moderate Islamist
elements, including Islamic banking institutions co-opted by Ozal during
the eighties (Henry 1997: 133).
One of the major questions of Henry's argument is his assumption
that the autonomy of the banking sector will lead to greater pluralism and
moreover to democracy. Why will the banking oligopolies choose to press
for political pluralism or democracy? Is this theory purely based on a
concern for stability or a concern for the improvement of the local
environment for business? It is not clear that stability rests in a
nascent democratic regime, or that bankers would believe that such a
regime is truly preferable to an established and friendly authoritarian
one. Once that question is answered, is their pressure sufficient to
promote a regime change? From reading Henry's first three chapters it is
difficult to learn the answers to these questions. Henry never develops a
clear cut argument that explains how major autonomy of the business sector
can be related with democracy. In his book, he explains that the banking
sector would choose a more pluralistic path rather than to continue
supporting an authoritarian one because that enhances its business
capabilities. Particularly, he explains, in the case of Islamic banks,
political pluralism and the tolerance for Islamist oppositions contributes
to Islamic businesses success, and thus to a move toward democracy. The
ideal operation of Islamic banking, is that the banker and the depositors
are in a sense partners in their transaction, sharing profit and loss
equally. By sharing the risk it is assumed that the actors in the system
will want to share a greater role in assuring the safety of their
investments. The logic then stretches to say that these investors and the
bankers will then support pluralistic democracy. This is a very
optimistic assumption, which has not yet developed completely even in the
most devoutly Muslim countries. Even Pakistan, where Islamic Banking is
the only option available is not without significant problems and a
continuing tendency toward authoritarian rule. Is that a sufficient
condition to argue that they will choose a pluralistic path without
further evidence?
Henry's book is one which must be read very carefully. It is
possible that even after a careful reading we may have missed nuances or
examples which make the argument come clear, but the first three chapters
do not provide sufficient evidence to support Henry's critical hypothesis
Through further reading we have learned that Turkey has developed into a
more representative democracy, but we have not been able to draw the same
conclusion that this is the path that each member of the Mediterranean
Debt Crescent will take in the next several years, and cannot share
Henry's optimism. Turkey is unique in its highly western orientation,
NATO membership, strategic importance, and the dominance of a pro-western
military regime, which steps in at the first sign of political
shenanigans. None of the other countries profiled has Turkey's
established democratic tradition. Flawed as that model was, it was
Xnonetheless the stated mechanism by which Ozal came to power. This
critical link is absent in each of the other countries. We have raised
more questions than answers in this review, but that may be a factor of
limited experience and perspective.
Christopher Kane
ckane@gov.utexas.edu
Teachng Assistant
The University of Texas at Austin
(512)491-5090