Oil Wealth and the Poverty of Politics: Algeria Compared by Miriam R. Lowi (review)

Several theories point to the fact that resource-rich countries are more prone to political instability and experience lower economic growth rates than economies without substantial natural resources. Several factors, internal or external, are invoked to account for this situation: the so-called Dutch disease, vulnerability to external price shocks (price volatility), and the colonial legacy, to name a few. In the first two chapters of this book, Miriam R. Lowi makes a quick survey of these theories.

Without downplaying the relative importance of the above-mentioned factors in the case of Algeria, Lowi insists throughout the book on the significance of leadership choices and the reactions of leaders to economic shocks. Her main message can be summarized as follows: effective leaders can use the external rents for socioeconomic development, and oil wealth is nothing but a “cash cow” (185). Comparing Algeria to some Arab rentier states, she finds that Indonesia outperformed not only Algeria but also Saudi Arabia, Iran, and Iraq. This proves that resource endowment is not a curse; in fact, Suharto’s regime was able to stabilize its macroeconomic framework despite price shocks, thanks to a variety of measures including money devaluation, deregulation, and the restraint imposed by foreign borrowing. Moreover, Indonesia diversified its economy into nonoil exports and attained self-sufficiency in food production.

Obviously, Algeria took a different road. Why? To understand this, Lowi makes a journey back to the French colonial period. Colonial settlers, she points out, practiced cultural and economic domination, regionalism, and ethnic favoritism: in the 1840s, the French government dispossessed Algerians from their land through the cantonnement policy and gave the best part to French agriculturalists. In addition to impoverishing them, legislation created antagonisms and cleavages within the Algerian population. In order to be granted citizenship rights, Algerians were required to live under French rather than Islamic law and thus renounce their Muslim civil status. Moreover, French was the language of education for the local elite.

Lowi shows that the takeover by the Front de Libération Nationale (FLN), which was dominated by leaders with a politico-military background, perpetuated divisive and repressive policies that Algerians fought during the independence war. The regime used manipulation or co-optation as strategies to maintain its power: for instance, opponents were accused of Francophilia in a Arabo-Muslim country or offered positions within the state apparatus.

Lowi demonstrates the omnipresence of the army in the political and economic arena since Algeria’s independence and the adverse consequences, including the arrested development of political institutions, the accentuation of corruption problems, and the alienation of the ruling elite from the Algerian population. The oil rent has served not only to enrich the elite but also to relax state budget constraints and finance ambitious economic projects, without bringing in economic diversification.

She also explains how an undiversified economy based on oil can be severely affected by the international environment, namely, the volatility of oil price. From a GDP rate of 5.2 percent in 1984, Algeria experienced an economic downturn in 1997 (−1.4 %) and 1988 (−2.7 %), right after the oil price decreased from $30 per barrel to $10 in the summer of 1986. Instead of introducing sound policies (as in Indonesia, for example), Algerian officials chose to increase their foreign borrowing. Such ill-advised policies created the preconditions to the civil war of the 1990s. These actions provoked disillusionment and excluded guerilla or opposition movements such as the Front Islamique du Salut (FIS).

Lowi’s account of the poverty of politics does not neglect the role of Western strategic allies. To her, the nullification by the military-bureaucratic oligarchy of the first round of the multiparty legislative elections won by the FIS in December 1991 was tacitly supported by Western countries. The regime tightened its political and economic relationships with the United States through cooperation against terrorism after 9/11 and through oil and...