ABSTRACT Title of Dissertation: THE NEW POLITICS OF PATRONAGE: THE ARMS TRADE AND CLIENTELISM IN THE ARAB WORLD Shana R. Marshall, Doctor of Philosophy, 2012 Dissertation Directed by: Professor Shibley Telhami Department of Government & Politics In states without robust democratic institutions, public resources are often allocated on the basis of patronage. This distribution of patronage, along with the manipulation of official institutions (such as electoral systems and the judiciary) and the deployment of the coercive arms of the state provided the formula for authoritarian longevity in the Arab World. However, much regional scholarship continues to focus on the process through which patronage is distributed with little reference to how the underlying resources accrue to Arab regimes in the first place. Such studies fail to interrogate the organizational and financial interests of the external institutions (such as oil markets and aid organizations) that mediate this transfer of resources, and how those interests shape methods and patterns of resource distribution within Arab States. This paper is an attempt to identify some of these institutions and patterns by focusing on the array of patronage resources made available through the arms purchases executed by regional governments. The specific class of resources examined here is reciprocal investment contracts that U.S. defense firms negotiate with procuring country governments in order to facilitate arms sales, known in industry parlance as ‘defense offsets.’ Procuring states design their own offset policies, including the amount of investment that foreign arms manufacturers are required to make and the domestic enterprises where those funds must be allocated. The procuring state’s discretion over the process allows us to draw some conclusions about how these governments distribute offset investment to strengthen incumbents’ patronage-based support networks. This analysis also reveals how U.S. defense firms are able to influence the negotiation process in order to secure their own financial benefits. By examining how defense firms and their customers in the Middle East collude to structure weapons contracts in order to generate offset agreements that are mutually beneficial, we gain a better understanding of how patronage politics operates in the contemporary regional context. We are likewise alerted to the subtle ways in which influential external actors can insinuate their own interests into the process, and how the interactions between these groups create ever-evolving new opportunities for patronage politics. THE NEW POLITICS OF PATRONAGE: THE ARMS TRADE AND CLIENTELISM IN THE ARAB WORLD by Shana R. Marshall Dissertation submitted to the Faculty of the Graduate School of the University of Maryland, College Park in partial fulfillment of the requirements for the degree of Doctorate of Philosophy 2012 Advisory Committee: Professor Shibley Telhami, Chair Professor Ken Conca Professor Mac Destler Professor Virginia Haufler Professor Steven Heydeman © Copyright by Shana R. Marshall 2012 “Come you masters of war You that build all the guns You that build the death planes You that build the big bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks” -Bob Dylan “Masters of War,” 1963 ! ! ii! Acknowledgements First and foremost I have to thank my husband Ryan Carr for believing I would finish this, since I was genuinely skeptical at times. I never would have been able to devote my time to this kind of ‘bourgeoisie’ insular endeavor if he had not been there to support me in more ways than one. It is a sad commentary on the state of higher education that the average PhD student accrues nearly $50,000 in student loan debt, and has an ever- decreasing chance of a secure position within the ranks of the academy. Nearly 70 percent of faculty members are in non-tenure track positions – and almost 34,000 PhD holders currently subsist on federal foodstamp aid, many while they serve as adjunct professors. I imagine a great number of promising scholars were not so lucky in their partners as I have been, and are struggling to make ends meet. This is dedicated to them as well. Of course I must thank my committee members, whose careful readings of my sometimes palaverous drafts must have demanded a great deal of patience. Their substantive critiques informed not just this project, but also my overall development as a scholar. Indeed I learned more from this project than I would have from a decade of coursework. A few of these committee members also suffered (and indulged) my periodic declarations of abandoning the PhD program to pursue more lucrative and less-demanding employ in the private sector. I hope that I can fortify and steel the nerves of my future students in the same way. I received funding and support from a number of organizations and institutions during my time in graduate school that also bear mentioning here. These include (in no particular order): The Smith Richardson Foundation; The Horowitz Foundation for Social Policy; The American Institute for Maghrebi Studies; The George Washington University Center for International Business Education & Research; the Kuwait Program at the Institut d’Etudes Politiques; The Crown Center at Brandeis University; and the Niehaus Center for Globalization & Governance at Princeton University. Lastly I would like to thank my very supportive parents, whose complete unfamiliarity with the mechanics of higher education was a blissful redoubt. I am only sorry I will not be able to offer this same heedless encouragement to my own brood. Their unquestioning support was like a lifeline. They never asked for status updates or progress reports – just provided me with love and trust. iii TABLE OF CONTENTS List of Tables……………………………………………………………………………viii Chapter 1: The Arms Trade and Political Patronage in the Arab World Introduction: The Arms Trade as a Tool for Exploring Patronage Politics.........................1 The Contemporary Outlines of Defense Offsets…………………………………………..7 Breakdown of Chapters........................................................................................................9 The Groundwork for a Multi-Case Comparison – Egypt and Jordan: Providing Patronage to the Military………………................................................................................10 The Gulf Cases of Kuwait, Saudi Arabia, and the UAE: Channeling Offsets to Domestic Business Elites……………………………………………………………….......11 The Distributive State and Political Patronage..................................................................13 Defense Offsets as Rents?..................................................................................................21 The New Reality of the Distributive State and the Patronage Utility of Defense Offsets....................................................................................................................24 The Legacy of the Distributive State: Antecedent Socioeconomic Conditions.................25 Macroeconomic Shifts and Strategies of Patronage-Diversification.................................29 The Strictures of Neoliberal Economics and Acceptable Mechanisms of Patronage……37 The Increasing Saliency of Corruption as a Governance Issue………………………….38 Defense Offsets and the Permissive Legal and Regulatory Environment of the Arms Market……………………………………………………………………………41 Domestic Oversight in Arms Exporting Countries………………………………………45 Information and Resource Asymmetries in U.S. Agencies……………………………...48 Getting Paid: the Evolution of U.S. Government Offset Policy and How Defense Firms Recoup the Costs of Offsets…………………………………..………………….53 Significance of Study and Contribution to Existing Literature.........................................58 Defense Offsets as an Economic Instrument.....................................................................62 Defense Offsets as a Political Instrument..........................................................................70 The Legalization of Bribery……………………………………………………………...72 The Layout of Remaining Chapters...................................................................................80 Chapter 2: Defense Offsets in Context: The Origins and Evolution of Offsets and the Political Significance of Data Discrepancies The Origins of Offsets.......................................................................................................83 Offsets in Context: The Evolution of Global Trading Patterns.........................................88 Offsets in Context: The Evolution of Bribery ..................................................................95 Offsets in Context: Economic Development Narratives...................................................98 Offsets in Context: Defense Industry Subsidies..............................................................100 Evolution in Offset Design..............................................................................................105 The Increasing Diversity of Offsets.................................................................................107 Defense Offset Multipliers...............................................................................................108 iv Offset Investment Funds..................................................................................................111 The Proliferation of Offset Service Firms and Brokers...................................................112 Offset Swapping...............................................................................................................122