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128 14. THE ECONOMIC DIMENSION OF YEMENI UNITY SHEILA CARAPICO To the outside world, the unification of the two Yemens in 1990 resembled the German experience in miniature. North Yemen (the Yemen Arab Republic, YAR) was considered a laissez faire market economy, whereas the South (the People’s Democratic Republic of Yemen, PDRY) was “the communist one.”When, weeks ahead of Bonn and Berlin, Sanaa and Aden announced their union, Western commentary assumed that in Yemen, as in Germany, capitalist (Northern) firms would buy out the moribund (Southern) state sector and provide the basis for future economic growth. In theory,and in Germany,capitalism and socialism are distinguished by patterns of private and public ownership of the means of production.In North and South Yemen,however, differences in ownership patterns were largely evened out by comparable access (and lack thereof) to investment capital.Disparities in the relative weight of private and public enterprise were far more subtle than the designations “capitalist”and “socialist”indicate. Indeed, available data on private and public participation revealed common patterns of spending. The North’s state sector invested more than did the private sector,while the South’s socialist policy statements belied the increasing role of domestic and foreign private firms. Relatively poor countries situated on the periphery of the Arabian Peninsula’s oil economy , both Yemens relied on labor remittances and international assistance. Both Yemens faced austerity when falling oil prices, compounded by a drop in Cold War-generated aid, reduced access to hard currency—until the discovery of oil in the border region in the mid-1980s attracted a third type of international capital from multinational petroleum companies.These forces cumulatively reduced the differences between the two systems and added an economic dimension to the political incentives for unification.1 In contrast with Germany,their marriage was more a merger than a takeover,for neither was in any position to buy the other out. Two Economies Historic Yemen was a cultural entity rather than a political unit; its formal division stemmed from British imperialism in the South. Unlike the relatively isolated, independent North, where a semi-feudal agrarian society persisted, the South developed capitalist classes, markets ,and enterprises.The major port between the Mediterranean and India, Aden’s modern infrastructure and services attracted a small indigenous capitalist group, a working class of stevedores and industrial labor, and a small urban middle class, including shopkeepers 129 YEMEN | THE ECONOMIC DIMENSION OF YEMENI UNITY and intellectuals. Sanaa, by contrast, was a center of Islamic conservatism ruled by a Zaydi Shi‘a imam. Strict trade and investment restrictions protected a few monopoly importers and large landowners. Would-be bourgeoisie and working class aspirants escaped this restricted environment for the free port at Aden.The North was ripe for a kind of bourgeois revolution, opening the door to capitalist development, just when the South’s radical antiimperialism slammed the door to foreign investors. After the 1962 revolution and 1962-1968 civil war, the North (the YAR) became a “no doors” economy, with few legal barriers to either trade or investment. Revolutionaries in the South after 1968 nationalized or collectivized many foreign enterprises, large estates, and fishing boats. Whereas the South (the PDRY) was subsequently governed by a single Soviet-style Marxist party, in the absence of legal parties politics in the North were dominated by fluid tribal, Islamic, and leftist “fronts”covertly supported by other Arab regimes. The two Yemens shared a physical environment where household-scale cereal and livestock production employed most men and women. Both governments were unsure of their authority in the countryside, and each backed elements of the other’s opposition.The economies remained intertwined. In the early 1970s, the Southern bourgeoisie, some of them originally Northerners attracted to Aden’s port economy, moved back north to Ta‘izz, Hudayda, and Sanaa, where they established businesses and held government posts. After the rise in oil prices in 1973,worker remittances fed consumption (imported goods,residential construction) rather than productive investment, despite both regimes’efforts to mobilize these funds for agriculture and industry. The North was more affluent and enjoyed higher consumption of imports, but it also had far worse current account deficits. Although the labor force was still predominantly agricultural, especially in the North, over half of gross domestic product in both systems was generated by services; the rate of new investment in services, especially government services, indicated that this trend would continue. The level of education and health services —slightly better in...

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