MIDDLE EAST PROGRAM: Discussion Paper (Page 1 of 2)

May 28, 1974 

TO:     Mr. David E. Bell       SUBJECT:    Middle East Visit  

          During the course of your visit to the Middle East, June 2-12, we hope to bring you up to date with our work and to give you a sense of the general conceptual framework into which various activities are meant to fit. In this memorandum, I want to highlight several program developments that have occurred since last year's Annual Report was submitted, to call attention to several areas where we anticipate demand for increased Foundation activity in the future, and to outline the program strategy we are following. 


Baalbek Lebanon 1972

          Our Annual Report was submitted shortly after the October War, but I think the observations made then concerning the new set of conditions pertaining in the Middle East remain relevant. The Saudi Arabian-Egyptian friendship continues to be an important force in Arab politics; world oil prices have remained high; big power involvement in peace negotiations continues to be prominent and important; and Palestinian guerrillas, despite their savage efforts to the contrary, have been unable to halt the search for peace by the governments of the Middle East. Obviously, the successful outcome of the present negotiations is not assured, but by now the genuine interest of all concerned countries in reaching a settlement seems clear. 

          During the past six months, the mood in Egypt has been, if anything, too euphoric. President Sadat has made no secret of his personal trust and liking for Dr. Kissinger and of his personal antipathy for the Russians. The sense of political well-being does not, however, overshadow Egyptian determination to end economic stagnation. The President and his first Deputy Premier, Dr. Hegazy, are strongly anti-bureaucratic and believe that Egypt must escape from the stifling controls of the Nasser period and get the economy into a higher gear. 

          Foreign investment is viewed not just as a source of needed capital infusion, but also as a sharp edge with which to cut the red tape which binds the economy. The creation of free zones is meant, I suspect, to yield models of industrial efficiency as well as income-producing and employment-generating enterprises.  

          Given the importance attached to foreign and Arab investment in jolting Egypt's lethargic economy, the invitation to the Foundation to do what it can to improve procedures for attracting and handling foreign investments is, in itself, something of an honor. Some might call it a dubious honor because it contains the opportunity to become closely associated with a program which probably cannot yield the kind of rosy results apparently expected of it and which may, indeed, collapse from internal opposition.

          Ed Mason advised us that this will be a very risky program area but, in his view and ours, it is an area of such fundamental importance to the success of Egypt's new domestic and foreign policies that we could hardly, in good conscience, refuse to participate. Nor should we wish to refuse, except on grounds of our own poverty; the investment decisions Egypt will make in the next few years are likely to affect much more than who gets the dividends. The choice of technology, the location of industry, and the degree of local participation in management will all have deep implications for the future shape of Egyptian society.  

          In Saudi Arabia, the mood seems less one of euphoria and more one of somber responsibility. Saudis have always been a rather sober lot but now, propelled unexpectedly to the head of the family while still in adolescence, they achieve a gravity that belies their years. There is a keen sense that all the world is looking at Saudi Arabia rather too enviously, while Saudi wealth on a per capita basis is not yet extraordinary, depending, of course, on how you count the capitas. The provision of goods and services to their own people is certainly well below the standards of most countries.  

          The proverb "charity begins at home" is thus much in vogue, but along with it is the ill-concealed belief that the Arabs are on the verge of a new Golden Age, which will again be led by men from the sandy peninsula. Although aware that much needs to be done, and soon, on behalf of Saudi living standards, there is a feeling of broader responsibility, not just to their Arab brothers, but to underdeveloped nations of the world and even to the economies of the affluent states. 

          Despite their responsible outlook, Saudi performance in assisting faltering underdeveloped nations and even their Arab sister states may eventually lead to bitter criticism, because however strong the will, the Saudis simply lack the manpower to accomplish all they would wish to do at home and abroad. Their senior officials, at least those we know well, are very able and often work far into the night trying to keep abreast of their responsibilities. It seems unlikely that they can hope to do so. 

          Over the past year, the number and variety of Foundation contacts with Saudi Arabia have increased, due primarily to the efforts of Sam Bunker and Wes Edwards. A manpower projection done for the Ministry of Education by Wes and Jim Socknat was so well received that the Ministry requested on several occasions that Wes be allowed to join them as an advisor. We finally agreed to this request when it became apparent that the volume of our work and its potential importance justified the investment of a staff man in Saudi Arabia. During the past few months, he has been instrumental in arranging for a Foundation evaluation of the educational TV pilot project feasibility study for the Ministry of Education, an evaluation of the curriculum of Riyadh School by a science teaching specialist from SMEC, visits by teams from SMEC and ELI for discussions about training and textbook production, and the production by Jim Socknat of a report on vocational education in the Kingdom. In addition, Wes has been asked by the Ministry of Education to assist actively in the preparations for the coming Five-Year Plan. In this, as in other fields, he will of course be able to call on other Foundation staff members throughout the region. 

          The possibility of cooperating with Saudi Arabia in establishing foundations or special purpose funds for regional projects of an educational, scientific, or cultural nature is currently being explored with the Deputy Minister of Finance. In principle, there is strong receptivity to the notion, but it is a very new idea and one suspects it will take some time before much will come of it. The lack of spare Saudi executive capacity is an important inhibiting factor.  Nevertheless, it is a very high priority for us to continue seeking ways to make use of Saudi capital for broader purposes. 

          As stated in our Annual Report, we believe the oil-rich states of the Gulf have much to gain by filtering their own development through the more sophisticated Arab lands on the Mediterranean littoral. The cultural gap between the traditional peninsular societies and the modern West is too great to be taken with one bound. Conversely, the better-educated peoples of Egypt, Lebanon, Jordan, and Syria need Saudi capital to realize their own potential.  

          Many cases come to mind where western technology, if fused with Lebanese- or Egyptian-trained manpower and Saudi capital, can offer great promise for the Arab world. Formal and non-formal educational television is an exciting possibility, and CTW is standing hopefully in the wings waiting for an opportunity to participate. On the agricultural front, Sudanese land, Egyptian skilled labor, and Saudi capital seem made for each other. The chief lack there seems to be entrepreneurial skills, but there may also be technical and economic expertise required for that three-way marriage to work, and we would wish to be of service if that turned out to be the case. 

          The war and subsequent events have also affected the chances of ALADís being incorporated into an internationally funded agricultural research center under the Consultative Group. In some ways, the impact would seem to be positive in that the interests of the Arab states are somewhat higher in the consciousness of most members of the Consultative Group than was formerly the case, and the Arab states themselves have greater ability to share in the cost of a center. If there is a negative aspect to all of this it may be that Consultative Group members will not feel justified in any participation in such a center if a major part of the financial burden is not borne by the wealthy Arab states. We have high hopes that the Saudis will be receptive to substantial participation in the financing of an international center, but we have not, of course, ventured to test the idea with them in any way. In the meantime, ALAD itself continues to gain recognition in international agricultural circles. The arrangement with IDRC is proceeding smoothly and IDRC-financed staff are contributing greatly to the overall effort. 

          To look, for a moment, to the horizon, three situations seem likely to offer us problems and/or opportunities. The first is AUB, which continues on a downward spiral of financial and student crises. Both seem to be coming to a head this term and it is not clear that the University administration or the Board of Trustees has the power or the perspicacity to arrest the trends. 

          It seems to me that AUB needs a new definition of its role and that some Arab intellectual and political leaders need to be consulted in arriving at that definition. At the present time, when political relations between the United States and Arab countries seem likely to improve dramatically, it is unfortunate for AUB to be in a weakened condition. The University has not only a proud history but also an important potential role as an intermediary between Arab and western culture. 

          The nature of that role needs some thinking. I don't believe that an American university in Beirut should have precisely the same functions as such an institution in Vermont, nor should it have the same functions as a national university in one of the Arab lands. The appropriate definition of AUB's mission seems to me something to be worked out in the broader context of Arab-Western mutual interests. Following that, a broader base of financial support should be obtained from those interested parties. 

          We have not been invited to come reason together with the administration of AUB, but informal discussions with a member of the AUB Board of Trustees and with members of the Harrington committee, which reviewed the financial state of the University for AID, revealed widespread concern over recent events. If the Board of Trustees were to decide that AUB's future needed to be discussed in the broader context of Arab-Western relations, I suspect they would seek to convene a meeting at Bellagio, and quite possibly ask the Foundation to finance the preparation of appropriate discussion papers before the meeting. 

          A second foreseeable development that may require some form of Foundation response is the rather rapid improvement of relations between the United States and Syria and Iraq. There are already indications of a change in attitude toward the Foundation in terms of increased participation in ALAD seminars and workshops by delegates from those two countries. There are strong rumors that a disengagement agreement, coupled with diplomatic recognition, would be followed by the provision of American assistance to Syria on the order of $200 million dollars. PL 480 funds are not available in Syria, so cooperative projects, with the U.S. Government paying the heavy freight, may be less available than in Egypt. Nevertheless, we should perhaps be alert to opportunities for working in cooperation with U.S. Government and U.N. funds in Syria in the future. 

          I would not want to suggest the shape of future Foundation work in either Iraq or Syria at this time, even if one could be certain that the climate would improve. We would want to get first-hand familiarity with institutions in these countries and areas in which they would desire cooperation, before making even tentative plans. I suspect the way to go about this would be for Bob Havener and me to spend a week or two in the country desiring cooperation, and then to send in professional staff members to follow up in the fields of mutual interest that were identified. This is roughly the way we went about re-establishing our program in the Sudan. 

          It does seem to me that both Syria and Iraq are countries of sufficient importance that we should be responsive if a genuine opportunity presents itself in either place. We would need to make clear at the outset that we could not be looked to for substantial sums of money, but they may well be interested in the pattern of technical cooperation we have evolved with other countries in the Middle East. 

          A genuine settlement of the Middle East conflict that included the creation of an autonomous or independent Palestine would present another important opportunity for the Foundation. The Palestinians would have among their top priorities, I should think, the creation of a national university of their own. Such an institution probably would not be in want of funds, but would require careful planning if it were to avoid becoming another mediocre and overcrowded teaching institution such as those that typify higher education in Syria and Egypt. 

          None of these situations will necessarily require major grant inputs; indeed, if they did we would probably be unable to respond affirmatively. They would, however, require a good deal of professional staff time, initially at least, from program management staff. Our style of operation in the Middle East has become increasingly labor-intensive, and it seems to us right that this should be so. We recognize that this runs counter to the direction taken in many field offices, where staff numbers are being cut and a higher proportion of the funds is being used for making grants. It also is contrary by implication to guidelines from New York urging us to reduce program management costs. We hope that by the end of your visit you will advise us on the propriety of our continuing this swim against the stream. 

          Our reasons for taking this position have been spelled out in more detail in various grant documents, particularly the social science DAP request, which is currently in draft. They may be summarized as follows: 

  1. It is our perception that the main problems of the region have less to do with the shortage of funds, or even of trained manpower, than they have to do with the failure of institutions and systems to yield the output that might be normally expected from the quantity and quality of the inputs. There is no simple answer as to why this is so; to find answers requires employment of a staff deeply conversant in the workings of their disciplines. 
  1. The need to understand more deeply the nature of the development process leads us to prefer experimental or innovative activities. Highly competent staff are required to design and conduct an experimental program.
  1. The Foundation's comparative advantage lies with the analytical capacities of its staff and the flexibility with which it can use funds. It has been recognized for some time that the Foundation's budget is not particularly significant in terms of resource transfer even to rather poor countries; it has also been generally accepted that the direct transfer of technology is often not wholly appropriate. I would also maintain that a direct transfer of knowledge or "competence" is often not wholly appropriate. Both technology and knowledge may require some cultural leveling or adaptation to work well in non-western countries. This has implications for staff numbers because it means that fine-tuning is needed for the effective use of funds.
  1. Any large grant to an institution represents to some extent a re-ordering of a society's priorities by a foreign donor. The distortion produced is accentuated when the donor insists, as we frequently do, upon a commitment to sustain the institution or activity within the institution once Foundation funds for the purpose are exhausted. It seems to me this type of distortion is defensible only in terms of time perspective. The social discount rate operative in many governments is exceedingly high, and the Foundation can be valuable because it concerns itself with problems of a somewhat longer time horizon. One wonders, however, just how often the distortion involved in major institutional development grants is actually contemplated by the Foundation. It would seem to me worth thinking about, not just in terms of the nature of the activity, but of the style that often accompanies Foundation largesse. I suspect we often support activities at a level of excellence or elegance not really justifiable in the society in question. Here again the argument is: the smaller the grant, the less the distortion.
  1. In the Middle East, funds are potentially available for regional development from the large oil producers, from Arab institutions such as those of the Arab League or the development banks, PL 480 funds, and from the U.N. agencies. If our comparative advantage is in the quality of our staff and the flexibility with which they are allowed to operate, we should attempt to associate ourselves, wherever possible, with larger capital from other sources. To do this effectively we require some funds to justify our seat at the table. This means, incidentally, that our program management costs are likely to be a fairly substantial share of our total budget. The operative consideration should be the percentage our management costs represents of the total funds we invest, control and influence the use of. On that criterion, I suspect we would stack up well against the other divisions of the Foundation.

          To illustrate the way in which our funds are being expended for staff and small actions out of DAPs, it may be useful to look at the actual expenditure rate under our current DAPs, plus anticipated changes in the rate of expenditure under the social science, environment and investment planning DAPs. In the table below, I have annualized the average monthly expenditures for the past three months where data are available in order to get the actual, rather than budgeted, figures. Actual figures are most instructive because of the arbitrary timing of DAP replenishment. 

DAP                                                              Annual Expenditure  

Program Management                                             900

Logistic Support for Project Staff                              200

TANDS and Discretionary                                         125

ALAD                                                                   815

Development Planning and Management                     250

Education                                                             200

Social Science                                                        75

Population                                                             120      

Current actual rates                                        2,685,000 

Anticipated changes                                               Annual Expenditure  

Investment Program - Egypt                                     190

Social Science (increase)                                         100

Environment                                                        __ 50

          Total                                                  3,025,000 

          From these figures, it can be seen that on an annual basis we can expect to make grants totaling only around a half-million dollars at our present budgetary level. We do anticipate that our annual expenditure on ALAD will decline sharply when a new international center is created, and this could increase our grant-making capacity if the funds are not diverted elsewhere.  

          The range of fields in which we work is quite wide, but they fit into a general conceptual framework that reflects our view of the nature of the development process and our analysis of the particularities affecting the process in the Arab Middle East. Development is not our only program objective, but it is the principal one. We are also working to increase food production, limit fertility, protect the environment and improve international relations. These worldwide objectives of the Foundation affect the amount of resources allocated to various program elements, and also influence our style of operations in those areas. But the conceptual framework outlined below refers only to the development objective.  

          Development can be defined in broad terms as the process of adjustment by a society to a higher level of technology. It is turning out to be a more difficult and complex process than was earlier supposed. The functional demands on institutions and the behavioral demands on individuals in a modern society are really very different from those of a traditional society, and the process of adjustment required is profound. 

          In South Asia, where the inexorable growth of numbers of people living in grinding poverty is the dominant factor of life, it would be difficult and quite possibly wrong to focus on programs designed to do other than reduce fertility and increase primary productivity. In the Middle East, however, where poverty is present but not a dominant concern, we have tended to focus more on the cultural constraints on this process of institutional and individual adaptation to modern life. (The ALAD program is an exception to this general theme, one dictated by the urgency of the worldwide need to increase food production.) 

          We assume that lasting cultural change can be accomplished only by the indigenous peoples themselves. The role of foreign assistance, including that of the Foundation, could be therefore to acquaint people of the culture with modern technology and then let them get on with making whatever cultural changes are necessary to make use of it. This, in fact, has been the predominant theme of foreign assistance in the post-colonial era -- that is, since Westerners stopped trying to remake foreign cultures in their own images. 

          In the Middle East, however, this approach to technical assistance hasn't been very successful, perhaps because of the richness and pervasiveness of the traditional Arab Islamic culture. Western-style institutions function rather poorly, and western-trained people are less productive than their training would lead one to expect. In fact, it seems they are more productive when they leave their native lands and take employment in western countries. 

          Considering the relative abundance of highly trained people in the Middle East, we have concluded that our program should focus on improving the effectiveness of these trained people, rather than on increasing their numbers or quality as judged by international standards. Thus, we are more concerned with the adaptation of technology (skills, knowledge and procedures) to the factor proportions and culture of the Middle East than with the wholesale transfer of western technology intact. 

          Our programs can be grouped under three headings: the first having to do with improving the preparation of children for modern life, the second with adapting Arab institutions to the functional demands of modern society, and the third with adapting imported technology to meet Arab needs.  (Continued)

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