The Rise of the Middle East Supply Centre

Many factors influenced the patterns and trajectories of wartime economic regulation, but the circumstances that led Allied authorities to intervene can be traced directly to a particular event: a shortage of shipping. With the onset of war and the extension of fighting into North Africa, Britain’s transport requirements confronted the need to enlarge and then supply its forces in the Middle East. This difficult task became even more complicated after 1940 with the fall of France, Italy’s entry into the war, and the resulting loss to British forces of Europe’s Mediterranean coastline. As Wilmington notes, “Overnight the link between the Desert Army and the arsenals of Britain and the United States had been lengthened from 5,000 miles to 12,000 miles and more.”^[46] German submarine attacks, competition for scarce shipping space between civilian and military cargoes, and disorganization at overburdened ports all compounded the difficulty of ensuring the provision of essential military supplies to Allied forces in the Middle East.

Stricter management of shipping and massive reductions of nonmilitary trade seemed the only solutions to the shipping crisis of 1940. Yet civilian shipping requirements could not easily be subordinated to military needs. Middle East states imported considerable quantities of essential foodstuffs and manufactured goods. These items represented an estimated 6 million tons of imports during peacetime, a level of trade requiring almost 100 percent of peacetime shipping capacity in the region.^[47] Dramatic reductions in civilian imports without corresponding efforts to increase local production and improve local systems of distribution would have threatened food supplies and endangered the health, if not the survival, of local populations. In Syria and Lebanon, memories of the widespread starvation resulting from the Allied blockades of World War I had provoked considerable hoarding, along with “one of the most spirited import sprees the region had known” as soon as war seemed imminent.^[48] The shipping crisis also threatened export-dependent sectors of Middle Eastern economies, as access to peacetime export markets was disrupted.^[49] Moreover, nationalist and colonial politics interacted with strategic and economic concerns. British leaders were determined to avoid political instability that might follow economic adversity and thereby create openings for Axis advances in the region and bolster the more radical of the nationalist forces they confronted.

These considerations reinforced a growing British recognition—developed through a protracted process of intrabureaucratic wrangling among numerous ministries and other government agencies in England—that a wartime shipping regime could succeed only if accompanied by a regionwide plan to reduce its potentially disruptive effects. Some agency would have to coordinate agricultural production and distribution, substitute local manufactured goods for imported products, and supervise civilian trade to ensure that only essential imports were permitted to occupy scarce shipping space. Long-term strategic factors worked alongside the shipping crisis to produce a distinctive strategy for wartime economic mobilization in the Middle East, a strategy designed to insulate the populations of the region from the economic consequences of the war by expanding and coordinating local production as well as local capacities for economic management. Though intended to resolve the immediate issue of the shipping crisis in ways that would not undermine the position of Allied powers in the region, this strategy had far-ranging consequences for the Middle Eastern states whose economies were to be reorganized to accommodate the loss of imports.

British authorities did not underestimate the magnitude of the task they faced. Wilmington emphasizes that neither Middle Eastern governments nor the colonial powers had prepared for the challenges of coordinating the economies of the region:

Nowhere was there a master plan of war economics, nowhere a central agency endowed with power and plenipotentiaries to set the pace for a regional alignment of consumption and production. There was no general scheme of rationing . . . [, no] remotely adequate scheme of commodity allocation to industry anywhere. Few price controls and no schemes for the allocation of labor were in effect. No drastic measures for the stretching of supplies . . . had been enacted. Few steps had been taken to convert land to food production. No important campaigns against inflation had been launched. Only feeble warnings and deterrents had been addressed to the hoarder and the profiteer, and no drastically effective regimes of import control had appeared.^[50]

As impressive as Wilmington’s record of Allied unpreparedness might be, it is nonetheless incomplete. It overlooks the fact that there was little coordination among colonial powers as to how to respond to the administrative gaps he identifies. It also neglects to point out that competition among France, Britain, and the United States over the terms of wartime economic management—an extension of their larger economic competition in the region— sured that inter-Allied bargaining and conflict would define how the Allies responded to the demands of managing the economies of a region larger than the United States.^[51]

As a major step toward creating the infrastructure needed to manage a wartime shipping regime, British authorities established the Middle East Supply Centre in April 1941. The Centre was created as a civilian office based in Cairo, operating under the auspices of the British Ministry of Shipping. Initially, the mandate of MESC was rather narrowly framed, focusing on collection of data needed to assign priorities to various civilian imports and thus determine the allocation of cargo space for civilian goods. MESC was created as an advisory body without executive power to enforce its recommendations.^[52] Yet even this apparently modest assignment implied an extraordinary range of tasks, and the executive power of MESC soon grew to match. As defined by W. W. Elliott, an administrator attached to the Spears Mission, the functions of MESC were:

To develop local production of essential food and materials in the Middle East through the co-operation of individual Middle Eastern governments. . . .

To ensure that the demand for imports of civilian goods and equipment to the Middle Eastern countries was restricted to essentials; and to ensure that these essential needs were, in fact met. . . .

To assist Middle Eastern governments in the administration of services and in the control of distribution so that the imports which did arrive were used to the best purpose. . . .

To provide a Centre for the exchange of information on problems of agriculture and industrial production, transport, distribution, and economics generally; and to make available technical experts to advise on these problems.^[53]

It would be hard to exaggerate the degree of intervention needed to achieve these goals. Simply to determine whether a particular food item was essential, for example, meant knowing how much of it was produced within the region and where; what local consumption levels were (implying a need for accurate demographic data in a region where rates of census avoidance were high); what kinds of replacements or substitutes could be found; how much it would cost to deliver them; what the effects would be of diverting crop production from one part of the region to another; and, not least, making sure that sufficient funds and credit were available to ensure that local alternatives could be purchased at one point for resale at another. For manufactured goods, allocation of shipping space required calculations of a similar complexity. As MESC expanded beyond its advisory role to become more active in the implementation of import-reduction schemes, its tasks became even more intricate; its reach extended into virtually every aspect of Middle Eastern economic life.

To carry out the range of tasks expected of the Supply Centre would have proven daunting under virtually any circumstances, and MESC experienced any number of growing pains. Its operations were hampered at the outset not only by the enormity of its role but by interagency rivalries; a lack of cooperation from military services concerned with preserving their autonomy in the allocation of shipping space; and the absence of coordination with U.S. authorities, the other major supplier of shipping to the region and not yet a participant in MESC. From its inception, Free French officials, including Charles de Gaulle himself, strenuously lobbied the British for inclusion in MESC, arguing that France’s role in Syria and Lebanon demanded that it be given an equal voice in MESC. Already chafing at what they took to be de Gaulle’s presumptions about the scope of his authority, this was a prerogative the British were determined not to extend.^[54]

Despite this inauspicious beginning, by its second year of work and until it was dissolved in 1945 MESC exercised an extraordinary role in the management of regional economies. In summer 1942 MESC became a joint Anglo-American operation, and the United States was increasingly willing to rely on MESC recommendations to guide the civilian component of its lend-lease program in the region. The Supply Centre had established its reputation within Allied governments and agencies as an accurate provider of information needed to make decisions concerning the priority of shipments of goods throughout the Middle East. Within the span of a few years, MESC operations reduced the flow of imports shipped into the region from 6 million tons to about 1 1/2 million tons. Its staff had put in place regionwide import-control programs that largely determined what kinds and what amounts of foreign-made goods were available on local markets. It had become a leading direct importer of essential commodities such as pharmaceuticals, tires, grain, meat, and cooking oils. It regulated regional distribution networks, directed census-taking efforts, encouraged the development of local production in ways that influenced postwar industrialization patterns, and managed programs to eradicate locusts and other threats to agricultural production and public health.

As might be expected of an operation on this scale, MESC activities were highly controversial, generating strong reactions, both positive and negative, from a variety of directions. American and British exporters criticized the intervention of MESC in their trading relationships with Middle East customers. Local businesspeople lodged similar complaints. Both groups pursued vigorous lobbying efforts to undermine MESC’s authority and deregulate shipping. Governments and businesspeople in the region disparaged MESC’s authority to review and prioritize their import requests. They also resented MESC’s intervention into local markets as field officers worked to coordinate regional supplies with local demands. These were not by any means trivial concerns.

Perhaps more significant, MESC’s regulatory role cut deeply into prewar economic and political arrangements, redirecting the trajectory of local economies and thus reshaping relations among various political and economic groups at the domestic level. This process proceeded differently in Egypt and Syria, though it moved the political economies of these states in similar directions. Crucially, MESC activities were guided by a notion of the state as the agent of social equity, a clear and critical departure from the elitist market liberalism, if not laissez faire attitude, that shaped processes of state building before the war. Social justice as a responsibility of the state was a central principle underlying the work of the Supply Centre. Through its efforts this perspective became integrated into local perceptions concerning the appropriate purposes of the state in ways that profoundly altered the trajectories of postwar state formation. The Supply Centre took over agricultural production and distribution to ensure not only that food would be available in adequate measure but that it would be available at the same price and quality to every Syrian or Lebanese. It introduced rationing schemes to ensure that access to critical goods would be guided by some notion of equity in distribution.^[55] It undertook censuses of local populations in part to ensure fairness in the allocation of scarce resources. It bought grain directly from peasants at above fair market rates, producing substantial improvements in their standard of living.^[56] And officials of the Centre explicitly contrasted their efficient and rational approach to governance with what they characterized as the corruption and inefficiency of local politicians—sentiments that were typically phrased in the best traditions of colonial paternalism, if not outright racism.^[57] Through these explicit commitments to the state as the agent of social equity, the Centre highlighted and deepened tensions in the core of the state project in the Middle East, making explicit the contradictions between the antipopulist market liberalism that formed the elites’ vision of the state and an emerging vision of the state as the agent of redistribution and social equity that was articulated by reformist intellectuals and politicians as well as by labor unions. The Centre thus helped to frame deep social conflicts that would be resolved only with the demise of nationalist elites and their replacement by populist systems of rule in the decades after the war.

In the following sections of this chapter we review the dynamics through which the political economy of wartime regulation took shape in Egypt and Syria in three distinct arenas: agricultural production and supply, foreign trade, and taxation. We end with a brief assessment of labor regulation, a domain that was shaped to a far lesser extent by wartime intervention, even while new war-driven patterns of labor mobilization fed the larger move toward more statist developmental strategies, especially in Egypt.

Regulating Agricultural Production and Supply

From the outset of the war, Allied officials feared the consequences of wartime shipping disruptions on Middle East food supplies among local populations and struggled to balance the equally urgent need to provide for both civilian and military consumption. Allied assessments of regional food production identified inefficiencies in the distribution of food across the region: surpluses in one country were not available to redress shortages in a neighboring state, typically due to a simple lack of adequate transport. These studies found a reliance on imports in countries that showed the potential to be self-sufficient, and underscored the widespread use of practices deemed threatening to the stability of large urban areas: the hoarding of crops by villagers and of basic commodities by urban dwellers, price gouging by urban merchants, and smuggling of crops to areas outside the control of Allied forces (especially from Syria to Turkey). When combined with the volatility of harvests due to natural fluctuations in rainfall, and restrictions on the export of scarce goods from the United Kingdom to the Middle East, the conditions encountered by MESC officials when they set up shop in the region in mid-1941 were nothing short of dire.

In Syria and Lebanon, in particular, mass famine was a real possibility, and this threat led MESC officials operating within the Spears Mission to adopt a particularly heavy-handed approach to the management of agricultural production and supply. During its first season of operation, hoarding and speculating had led to severe grain shortages. The initial response of MESC staff was to flood the markets with low-priced wheat. More than one hundred thousand tons of wheat originally destined for Europe was diverted to the Levant “to induce speculators and hoarders to unload their stocks.”^[58] But as Spears admitted, “The absorptive capacity of the hoarders was underestimated.” Imported wheat was bought up as soon as it hit local markets, and prices immediately returned to their speculative levels.^[59]

In the face of this failure, MESC staff in the Levant abandoned market-based methods of price management and moved to impose a thorough control regime that governed the entire grain economy of Syria and Lebanon, bringing with it a raft of regulatory and interventionist practices that rapidly became consolidated within local state structures. To oversee this effort, the Spears Mission created an agency known as the Wheat and Cereals Office (also called the Office des céréales panifiables, or OCP), which included representatives from Syria, Lebanon, France, and England.^[60] The inclusion of local representatives had implications that reached well beyond a challenge to French authority. This step made Syrian and Lebanese bureaucrats responsible for the regulation of their own agricultural economies, socialized them into the administrative culture of the Spears Mission, and provided training in the management of large-scale regulatory enterprises—expertise that technocrats such as ‘Izzat Tarabulsi, one of several Syrians appointed to MESC agencies, later placed at the disposal of the postwar Syrian state.

Under OCP auspices, a centralized system of grain collection, transport, processing, and distribution was created, prefiguring the apparatus of food control that developed in independent Syria. Its tasks included everything from acquiring the foreign exchange needed to purchase grains, to equipping the OCP with trucks, sacks, and weighing equipment. The OCP became the monopsony purchaser of Syrian wheat, with prices fixed by MESC economists. To ensure compliance with directives that restricted the sale of wheat to the OCP, it created a dense network of village and district level committees to determine local grain requirements and develop estimates of grain production. Even the transport of wheat required a license in an effort to curtail smuggling.

As might be expected, the politics of managing Syria’s food supply were hugely contentious. Damascus was a site of particular unrest.^[61] Riots and protests were commonplace as MESC officials struggled to determine how much wheat Damascus really needed. Rumors abounded that MESC was skimming Syrian grain for British troops. Mobs collected outside bakeries whose owners sold bread made from adulterated flour. Absentee landowners and grain dealers, whose profits were threatened by OCP’s practice of direct cash purchases of wheat from peasants, encouraged noncompliance with OCP collection efforts.

To cope with these circumstances the OCP gradually expanded its reach, essentially nationalizing a number of bakeries and nine flour mills. Spears induced Syria’s prime minister Husni al-Barazi to become a local advocate of grain collection. Barazi traveled throughout Syria with an OCP delegation, urging landowners and peasants to sell their wheat. Implicit in his pleas was the threat of coercive collection by French forces if they did not comply. Soon, “knowledge of the risk involved in flouting the authority of the O.C.P. . . . percolated to the remotest corners of Syria,” and it was able to buy wheat at the rate of three thousand tons per day.^[62]

Alongside this enormous administrative apparatus, MESC constructed an entirely new bureaucracy for the collection of demographic and agricultural data. From the outset, MESC officials recognized that the work of the OCP would founder without adequate census information, of which only the most rudimentary was then available. They believed, accurately, that existing population counts dramatically overstated urban populations, to the detriment of the countryside. Local committees were unwilling or unable to direct new population counts. Early efforts to manage grain distribution in Lebanon through a system of ration cards had proven ineffective (Spears claimed that the prime minister of Lebanon held seventy-three ration cards). In response, OCP staff created a statistical agency (Bureau de statistiques et de liaison), with the mandate to undertake nationwide census counts and detailed crop estimates in Syria and Lebanon.

These were to be the first “modern” censuses in the history of the Levant, and they proved no less contentious than any other aspect of this enterprise. In spring 1942, separate censuses were conducted throughout Syria and Lebanon, with urban areas placed under curfew to ensure an accurate count. As Spears recalled, “The O.C.P. census of the Syrian towns produced some astonishing results. Damascus and Aleppo, taken together, revealed an overestimate of 96,000 souls, and Deir ez Zor proved to have a population of only 28,000 instead of 65,000. When it was learnt in Homs that a census was soon to be made by British and French officers under curfew conditions, panic-stricken householders immediately registered 5,000 new deaths at the municipal office; even excluding this sudden decrease, the new figures were 18 per cent. lower than those of the previous census.”^[63] Counting was accompanied by the formal registration of households to permit the implementation of a food-rationing scheme—information that was later used in Syria to revise lists of eligible voters.

With new population figures in hand, wheat provisions to Damascus were cut. Rioting broke out to pressure the Syrian government to increase the city’s allocation. An OCP decision to reduce the “ration of the wealthier classes [in Damascus] . . . to the level prevailing elsewhere” also prompted riots in March 1942. As with other aspects of the food supply program, popular mobilization against intervention led MESC not to cut back, but to broaden its role. With the Syrian government unwilling to assume responsibility for an unpopular rationing system, the role of the Bureau de statistiques et de liaison “evolved first from liaison into supervision and [then became] one of direct control” of the entire wheat distribution scheme.^[64]

By the time Spears wrote his memorandum to the Foreign Office in June 1943, he was able to claim that the OCP’s efforts had been a resounding success. He took credit for averting famine and for giving Syria and Lebanon “a taste of honest and efficient administration which were conditions totally unknown there.” He expressed his hope that local governments would eventually develop an “attachment to the scheme.”^[65] In Syria, the government certainly did.

“Wars pass,” wrote Guy Hunter, a historian of MESC, “but economic problems do not.”^[66] Syrian politicians were no less concerned than officials of the Spears Mission about the imperative necessity to ensure food security, especially for highly mobilized urban populations. Following the war, the OCP was absorbed into the Syrian bureaucracy, as were several other agencies created by MESC to manage food production and supply. For a short period, a small number of British technical experts stayed on, but over time the functions of OCP agencies were absorbed into a range of ministries, from the Ministry of Economy to the Ministries of Agriculture and Supply, and managed entirely by Syrians. Throughout the 1940s and 1950s, and quite apart from their flawed and halfhearted attempts at agrarian reform, the Syrian governments of this period steadily broadened the role of the state in the agricultural economy, retaining many of the regulatory regimes first introduced by the OCP. These included price controls, marketing controls, and oversight of food distribution.^[67] The statistical and data collection capacities created by the Bureau de statistiques et de liaison supported the production of Syria’s Al-majmu‘a al-ih‘saiya (annual statistical abstract), published first by the Ministry of Economy and later by the Ministry of Planning. In general, and without exaggerating the extent to which later practices grew directly out of Syria’s wartime experience, it is clear that Syria’s postwar capacity to manage the agrarian sector has critical links to the role of MESC in the construction of a pervasive program of agrarian regulation during the war.

In Egypt, entrenched patterns of agricultural production posed two distinct and related problems for economic administrators: how to meet the increased need for food production and how to minimize the adverse effects of a drastic decline in fertilizer imports. The Egyptian economy was built around estate production of cotton for export on the world market. Unlike during World War I, however, when producers and merchants reaped the windfalls from rising wartime demand for their goods, world cotton market prices began a precipitous decline early in 1940 that indeed rocked the foundations of the political economy.^[68] Following protracted negotiations through the late spring and summer, which were bound up with the British Embassy’s intervention to remove one government presumed insufficiently loyal and secure the cooperation of a successor, British authorities agreed in August 1940 to purchase the entire domestic cotton crop.^[69] Producers planted their fields in anticipation of even greater windfalls, but in 1941 British authorities drove a harder bargain, linking its support to a system of invasive regulation of cotton production and marketing.^[70]

In this case, the wartime administration invented many of the arrangements that have since come to stand for etatism in Egyptian agriculture, including a strict currency exchange control regime, the closing of the first cotton futures market in the world, and the conversion of the state to monopsonist.^[71] According to Richards, these unprecedented policy changes contributed to undermining the one-hundred-year-old ‘izba system of estate production. From the time of the war, large landowners turned increasingly to renting out their estates for cash.^[72] The cornerstone of this new and transforming regulatory regime was a series of laws controlling cotton production by forcing growers to alter their regular pattern of crop rotation and fixing upper limits on the percentage of lands that could be planted with the traditional cash crop. Wartime officials combined these restrictions with cash incentives to farmers who shifted additional acreage to food production.

These regulations succeeded in shrinking the cultivated acreage to 50 percent of the prewar level, and, for the duration of the war, cotton trickled to rather than flooded the market.^[73] Officials continued this regime after the war, relaxing controls very briefly in 1950 before reinstating them one year later. The result was a shift in agricultural output over time, including increases in rice, sugarcane, fruits and vegetables, and the introduction of wholly new crops such as flax, jute, and sugar beet cultivation under the guidance of MESC.^[74] But, as is widely noted about the intervention, the massive shift out of cotton and into staple grains—wheat, barley, millet, and maize—was able only to offset the steep fall in yields caused by the virtual cutoff of fertilizer shipments.^[75] And the increased rate of exploitation to make up for food imports exhausted soil resources.^[76] In Egypt as in Syria, therefore, agricultural inputs and outputs were subjected to an increasing degree of control, until governments had taken over purchase and distribution of most key commodities, including fertilizers, wheat and other grains, sugar, tea, coffee, and cooking oil.^[77] And as in Syria, the spillover effects of these regulatory innovations into postwar Egyptian food policies are clearly visible.

The Regulation of Foreign Trade: Centralization, Coordination, and State-Led Isi

The scale of MESC’s role in the regulation of trade was similar to the extent of its role in the management of agriculture. Controlling the flow of goods into and out of the Middle East was the raison d’être of the Middle East Supply Centre, making the regulation of domestic trade its principal task. Moreover, its control over access to shipping was complete, giving MESC officials extraordinary leverage in their negotiations over trade with Syrian and Egyptian representatives, whose economies were heavily import-dependent. As in the case of agriculture, the implications of regulating trade encompassed an enormous range of economic activities, leading MESC officials to become deeply engaged in the restructuring of a wide array of domestic economic arrangements and in the development of significant new forms of state capacity.

Three specific factors helped determine how economic arrangements were restructured and what specific forms of state capacity were produced through the intervention of the Supply Centre. First, MESC was above all an agency of economic coordination, evaluating and prioritizing the import requirements of some fifteen states and territories, reconciling these needs against available shipping space, communicating with government agencies in Washington and London and with private vendors to supply essential goods—but only essential goods. To make these determinations in any reasonable fashion required the construction of a centralized, regionwide trade management apparatus, including local agencies that mediated between MESC and domestic business interests. The specific mechanism MESC adopted to regulate trade flows was a system of import licensing. To allocate licenses, governments provided MESC with data detailing import requirements for a six-month period (later annually), for everything from “heavy machinery to razor blades.”^[78] This represented a level of data collection that vastly exceeded the prewar capacity of local governments and demanded considerable expansion in their collection of basic economic information. And because MESC worked with local representatives and governments to attach priorities to specific requests, the import licensing scheme made private enterprise highly dependent on government mediation, shifting the balance of public-private power in matters of economic decision making. In Syria, these issues were especially acute because by 1941, “the volume of imports [had sunk] to a lower proportion of the pre-war level than it [had] in any other Middle East country.”^[79]

Second, MESC’s role in regulating foreign trade became a channel for imposing direct state control over domestic economies on the part of local governments, but here too this happened in ways that favored the development of quite distinctive state capacities. Once again, the participation of local bureaucrats in trade regulation—though poorly trained and in short supply—helped transfer administrative norms from MESC to local bureaucracies. And once again, MESC policies were heavily influenced by a view of the state as the mechanism for ensuring that economic outcomes would be socially just (and therefore politically justifiable in the West). As Hunter writes:

Undoubtedly the most effective controls were in the rationing and price control of essentials, and here the partly effective control of M.E.S.C. over the distribution of imported goods and the governmental control of grain through the Wheat Collection Schemes were of outstanding importance. M.E.S.C. was able to make it a condition of supply that scarce essentials should be fairly distributed at controlled prices. In taking this attitude it was fair to insist that the British and American publics were not prepared to go short of supplies and to risk their sailors and ships in order to put enormous profits into the hands of Middle East black-marketeers. In the distribution of tires, cotton textiles, and some medical supplies, M.E.S.C. rigidly insisted that the receiving Government should establish a satisfactory scheme for distribution according to need and essential use before supplies were released.^[80]

In Syria and Lebanon, the regulation of essential goods gave rise to no less than eight separate advisory boards. These included a Joint Supply Council, on which Syrians and Lebanese were the only representatives and which was responsible for approving import and export forwarded by the other boards.^[81] The authority of these boards was considerable, and their work quickly expanded beyond mediating between MESC and local business to encompass the control of domestic production in critical areas. The extent to which this new role cast the state as supervisor rather than ally of the private sector, and the resistance of private capitalists to this shift, was amply demonstrated by the intense opposition of mill owners and textile merchants in Aleppo and Damascus to a proposal by the Textile Advisory Board to impose government control over the entire textile sector.^[82] Nor was this economic oversight role, once taken on, quick to disappear at the end of the war—even though Spears and his American counterparts were anxious to see the resumption of free trade in the region and determined to secure the competitive position of their countries’ commercial interests. Despite state controls, local prices for many imported goods were considerably higher than global prices, and governments reaped windfall profits from their monopoly over trade in various commodities. Given politicians’ reluctance to tax, they were not inclined to give up this source of revenue. Nor were local manufacturers inclined to see protectionism disappear. Syrian industrialists lobbied for the continuation of protectionist legislation after the war, hoping to expand their operations before more competitive Western producers could reenter local markets.^[83]

In the Egyptian case, the system of import licenses, quotas, and excluded goods that was installed beginning in the fall of 1941 was based on a division of labor. For a combination of political and administrative reasons, once the schedule had been formulated the Egyptian government was responsible for distributing of licenses. The result was a political entrepreneur’s dream come true. We know this conceptually from the recent accounts of rent-seeking and governance in Egypt and elsewhere in postcolonial Africa, as well as anecdotally from the lurid tales of the Wafd party in office between 1942 and 1944 and Durrell’s unforgettable portrait of those in Cairo and Alexandria “in a money daydream . . . who have skimmed the grease off the war effort in contracts and profiteering.”^[84] Nonetheless, as elsewhere in the region, all decisions on licenses were forwarded for review by MESC, which held effective veto power through its influence on shipping and supply commissions in London and Washington.^[85]

Though few details are available as yet, this particular regulatory regime emerged as the result of “long drawn-out and difficult negotiations” with the Allied authorities.^[86] For instance, MESC exploited Egypt’s dependence on fertilizers at different points to obtain wheat, barley, rice, and millet for export. A British organization—the United Kingdom Commercial Corporation—received all fertilizers shipped to Egypt and released them to the Egyptian government only with the authorization of the regulators. And the government organization that determined fertilizer allocation for different crops included British authorities as members.^[87] While such authorities saw no need to gracelessly trample the myth of Egyptian sovereignty—Lampson never called for armor to surround the finance ministry—Allied control over the supply of strategic goods gave them significant leverage over arenas deemed of vital importance.

Third, and perhaps most important, trade restrictions gave MESC a stake in the development of local production capacity for items that could no longer be imported. In other words, MESC became an agent in the construction of import substitution industrialization in the Middle East, and its intervention gave a particular cast to the form of ISI. For MESC officials, the move toward ISI raised much deeper issues than those posed by rationing or price controls, interventions that were perceived as flexible and potentially short-term. Tinkering with the organization of industry was a different matter. MESC economists had an intuitive sense that the path on which they set local industrialization would determine future prospects for economic development. To mention again Hunter’s account, he emphasizes the importance MESC officials attached to the long-term effects of their actions:

The struggle for imported supplies was a war problem, and one likely to cease after the war when normal trade could be resumed. But its corollary, the effort to increase local production, at once entered the field of possibly permanent economic improvement; and it was in this field that the work of M.E.S.C. had its chief interest in the future.

Although there was an urgent need for some products which could have been made in the Middle East, a good deal of care had to be taken not to create uneconomic industries which would wither away altogether when lower priced and better quality goods from the industrial West were again freely available. The war and consequent shortages acted almost as a high tariff wall behind which it would have been possible to create a number of enterprises; but the temptation was resisted.^[88]

Despite the reticence Hunter attributes to MESC, it helped launch a number of industrial enterprises in both Syria and Egypt, especially in the fields of mining, chemicals production, and construction supplies. In addition, Syrian manufacturers seized on the sudden absence of foreign competition to ramp up their own production and capture the profits held out to them by closed wartime markets. Their efforts led to a tremendous industrial boom. Indeed, increases in local output made it possible to meet military requirements for many items without imposing hardship on civilians.^[89] Private investment in industry soared. According to Wilmington, “For years afterwards the business community of the region mused about the war years as something akin to a golden age of bustle and confidence.”^[90]

The golden age was not to last. Crucially, and somewhat ironically given industrialists’ enthusiasm for protection, MESC officials helped construct a version of ISI that transformed industrialization into a state project. If private capital drove the wartime expansion of import-substituting sectors—with public investment largely limited to heavy industry and food processing—wartime controls represented the first critical moves toward state appropriation of industrialization in both Egypt and Syria. With MESC support, states established a range of heavy industries and thus helped construct industrial public sectors. Control regimes institutionalized the role of government as the direct manager of industry and created significant financial incentives for them to expand their role in the years after the war. MESC also provided local governments with a discourse that linked economic management to norms of fairness and social justice and gave intervention a powerful element of legitimacy. It is not surprising therefore that the end of the war did not bring about the removal of tariff barriers as Hunter expected. In fact, the sheltering of local economies gave rise to protectionist coalitions of state managers and industrialists who worked together to embed state-managed ISI within the political economies of postwar Egypt and Syria. The lower-priced and better-quality goods (presumably British goods) that Hunter expected to flow into the region after the war did not materialize. Instead, the pattern of industrialization that MESC officials feared was precisely the one they helped to construct: state-dominated forms of import substitution embedded first within nationalist-liberal, and later within populist, strategies of economic development.

Tax Policy and the Limits of Mesc Authority

Among the many changes associated with wartime shifts in the economy of the Middle East was rampant inflation. Spending by Allied armies and expenditures by MESC itself combined with restrictions on trade to produce vast increases in money supply and corresponding increases in local prices. Despite extensive use of price controls and more limited reliance on rationing of scarce goods, the money supply in Syria (in pounds sterling) grew by more than 1,000 percent between August 1939 and June 1945, while local commodity prices jumped by 860 percent in the same period.^[91] For allied authorities, the concern that inflation might generate social instability led them to explore a range of strategies for absorbing excess purchasing power, including tax reform. In this area as in others, MESC officials expressed confidence that reforms would bring lasting benefits to the region, but managing fiscal policies was a lower priority and their efforts lacked the urgency and intensity of their intervention in trade and agriculture. As a result, Middle East authorities exerted less pressures to overcome entrenched local interests in the area of taxation, providing considerably more latitude for local politicians to shape policy outcomes. MESC economists encouraged local politicians to impose considerably higher direct taxes on their populations, but in the face of local resistance they abandoned this tack and shifted to other ways of absorbing purchasing power, such as the sale of gold, a policy that was developed by a MESC economist, R. F. Kahn, who was a colleague of Keynes at Cambridge, and reviewed by Keynes himself in his capacity as a director of the Bank of England.^[92]

For Syrian politicians, the idea of shifting from indirect to direct forms of taxation posed a considerable political dilemma. State revenues were derived almost entirely from indirect taxes, principally customs duties. Syria had no income tax at all until 1942 and then assessed taxes of only 3–4 percent on fixed-wage earners. Agricultural income was largely exempt from taxation. The move to direct taxation would thus alienate virtually every electoral constituency, as well as cut into the prerogatives of the land owners and capitalists who sat in Syria’s cabinet and national assembly. This is not to say that Syrian politicians made no effort to respond to the urgings of MESC economists. In 1944, avoiding policies that targeted the commercial elite, the government attempted to impose direct withholding on the wages of textile workers. Yet even singling out workers proved ineffective. News of the change prompted a strike among mill workers in Aleppo, and the government relented.^[93] By the end of the war, and in the absence of strong Allied pressure, little remained of MESC’s efforts to shift the organization of tax policy in Syria.

In Egypt, the situation was similar. Taxes in Egypt increased more during the war than in neighboring Arab states, but in an oft-cited 1945 address the president of the National Bank of Egypt admitted that “Egypt still remains one of the least taxed countries in the world.”^[94] And the increase in indirect taxes such as customs duties more likely exacerbated rather than checked rising prices. Egyptian officials apparently preferred price-fixing and rationing schemes. As a result, former prime minister Isma‘il Sidqi’s projection, on the eve of the war, of the state’s need for new sources of development revenues went unheeded.^[95] Colonial arrangements (the debt administration and the system of commercial treaties known as the Capitulations) tightly constrained the state’s fiscal powers. Egypt had no income tax until these controls were dismantled in 1937–38. The government imposed four new taxes in January 1939—on movable property, on commercial and industrial profits, on professional earnings, and on salaries and wages. During the war these schedules were adjusted mildly upward and were supplemented by an excess profits tax passed in 1941. Significantly, this emergency levy was never applied to agricultural land rents, though these had soared together with property values.^[96] Nonetheless, the government made up for the loss in revenue from the import decline, and by 1944 direct taxes netted £E 14 million or approximately 30 percent of all taxes and customs duties.^[97]

As in Syria, these wartime arrangements did not outlast the fighting. Firms proved more resourceful than the overtaxed employees of the finance ministry, where reforms designed to close up loopholes in the tax regime and raise rates were enacted after protracted negotiations, in 1949.^[98] In the intervening years, the state reverted to its pattern of relying on import duties, which increased both absolutely and relative to other taxes in the postwar period. Thus, by 1948, direct taxes totaled £E 11.8 million, down from 1944, while customs and excise duties climbed to £E 51 million or 71 percent of all revenues. The share was identical to that of 1939.

Labor and the Indirect Consequences of Mesc Intervention

Despite the close association between Keynesian economics and problems of employment, MESC regulators were virtually silent on the issue of labor policy in the Middle East. In part, this reflected an appreciation of the difference between agrarian and industrialized economies, and in part the perception of Allied regulators that wartime demand would itself provide sufficient employment to avoid serious labor shortages in the region. What stands out about the war period, however, especially for Egypt, were the indirect effects of MESC’s intervention in other areas on how the state managed the regulation of labor. Even without direct forms of intervention, the war caused significant shifts in the relationship between the state and local labor markets.

Labor power represented Egypt’s primary contribution to the war effort. In contrast to the small numbers of citizens absorbed by the Egyptian army, the number of workers employed by the Allied armies in the Cairo, Alexandria, and Canal Zone bases peaked at 210,000 in 1943, and these massive new flows into military construction and service sectors represented the overwhelming share of the growth in the ranks of the wartime urban labor force.^[99] Syrians were similarly recruited for defense works, though the 30,000 mostly unskilled workers employed in the peak year of 1943 did not represent the same order of magnitude as in Egypt, where shortages of skilled and semiskilled labor of all classes were acute.^[100]

For the duration of the war, officials did little more than let the market, that is, wages, govern the allocation of labor resources. At most, and under pressure from newly legalized labor unions and their core constituencies, the state directed firms to pay (nominal) cost-of-living allowances and began to subsidize some basic commodities as hedges against the inflationary spiral of prices and rents.^[101] The real problem for politicians would come once the war ended. With the steep decline in demand for labor, the recent flood of migrants to Cairo and other urban centers would be transformed into a reservoir of unemployed and impoverished city dwellers.^[102] In 1943 the Egyptian government unveiled the country’s first five-year plan, outlining future public outlays for infrastructure and social and industrial construction. A new hydropower station and fertilizer-manufacturing complex anchored the plan, which needed and received the endorsement of the allied economic authorities, not least because both the Roosevelt and Churchill governments recognized the centrality of these industrial schemes to postwar Middle East policy.^[103] The Egyptian government, no less clearly, viewed these and related policies as designs for coping with the postwar unemployment problem.^[104]

The obvious example is the steep rise in tariff levels imposed on top of the protection already provided to the cottonseed oil producers, the distilleries, the giant spinning mills, the canning industry, the sugar monopoly, and other privileged economic actors by the wartime diversion of shipping space and the import control regime put in place by MESC. Despite these war-driven forms of protectionism, the tariff on manufactures rose 50 percent in 1941 and ratcheted up twice more in 1942 and 1943. True, firms and their agents may well have been motivated to shore up their (un)competitive positions in the postwar market, but for politicians these rents were the price for maintaining uncompetitively high employment levels. In archival data from the late 1940s, firms are explicit about the existence of this bargain.^[105] And, by the time of the 1952 revolution, at least some large investors were looking for alternatives.^[106]