ROLE OF THE GOVERNMENT
Mainly because of Libya's strategic role in World War II, the
Libyan government had come to depend on foreign patrons for its
financial needs. During the Italian occupation and in the immediate
postwar period, first Italian and then United States and British
grants kept the Libyan administration solvent. After 1956 the
need for direct foreign subsidies declined as the international
oil companies began to invest heavily in Libya--causing substantial
capital inflows. During the 1960s, the investments of the previous
decade began to pay off, and the country experienced the fruits
of rising oil wealth. This trend not only reduced the government's
need for foreign assistance, but also generated a huge increase
in taxable domestic income. However, Libyan physical and human
resource development continued to lag, necessitating sustained
reliance on foreign technical assistance. This pattern of dependence
on foreigners to perform crucial skilled functions, which subsequent
governments have been unable to eliminate, has made Libyans acutely
aware of their subordinate status in the world economy in relation
to the industrialized West.
Consequently, the Qadhafi government has assigned high priority
to the achievement of what it perceives as "true economic independence."
This theme has been one of Qadhafi's staple arguments and underlies
much of the post-1969 revolutionary government's economic policies.
Qadhafi's other principal economic objective has been to promote
equity, which he equates with socialism. Because of Qadhafi's
unique conception of the character of the state, his distrust
of the private sector, and his abhorrence of the profit motive,
he has maintained that it is only through massive state intervention
that economic independence and equity can be attained. Thus, the
state has taken control of virtually all economic domains since
Qadhafi came to power.
Soon after the revolution, a major Libyanization drive was initiated,
which involved the expulsion of the remaining Jewish and Italian
communities and the nationalization of the country's banks, insurance,
and petroleum-marketing companies. Other measures were enacted
to restrict the activities of foreigners in commerce and industry.
Throughout the 1970s, the government expanded its role to take
control of Libya's economic resources. The public Libyan Petroleum
Company (LIPETCO) was supplanted in 1970 by the National Oil Company
(NOC), which became responsible for implementing policies decided
upon in the Ministry of Petroleum before the latter was dissolved
in March 1986. Similarly, the government exercised effective control
over water rights and created a large number of state-owned enterprises
to oversee Libya's basic infrastructural facilities, such as highways,
communications, ports, airports, and electric power stations.
Public corporations were also created to run the state airline
and to import certain restricted goods. The public import company,
the National Organization for Supply Commodities (NOSC), was given
a monopoly over the import and sale of many basic consumer items.
In 1975 the government became the sole importer and retailer of
motor vehicles. The domestic marketing of certain commodities
and the provision of certain services were restricted to the public
sector. By 1977 these included construction materials, livestock,
fertilizers, fish fodder, insecticides, insurance, banking, advertising,
Since the late 1970s, the Libyan government has accelerated its
assault on the private sector in a determined attempt to stamp
out what it identified as bourgeois exploitation. This renewed
effort followed the codification of Qadhafi's economic theories
in the second volume of his The Green Book, published
in 1978 (see The Green Book, ch. 4). Many of the regime's
most radical economic policies began soon after that date. The
first concrete manifestation of Qadhafi's new economic militancy
occurred in 1978, when he outlawed rental payments for property,
changing all residential tenants into instant owners. The private
sector housing and real estate industry was thus eliminated, and
the new owners were required to pay monthly "mortgage" payments--usually
amounting to about one-third of their former rent--directly to
the government; however, families making less than the equivalent
of US$500 a month were exempted from this obligation .
Qadhafi initiated another major innovation in 1978 when, during
a speech, he urged workers in both the public and private sectors
to take control of the enterprises in which they worked by following
his dictum: "partners, not wage laborers." This new idea went
much further than an earlier law in 1973, which had merely instituted
mandatory profit-sharing. Now workers were urged to involve themselves
in the day-to-day management of the enterprises in which they
worked. Within 3 months of this speech, workers in 180 enterprises
had formed "workers' committees" which, in principle at least,
ran these concerns.
The most ambitious of the 1978 measures, however, was the attempt
to do away with all private commerce, retail as well as wholesale.
In that year, the responsibilities of the NOSC were considerably
enlarged because the state took over responsibility for the importation
of all goods and control over all foreign exchange transactions.
In theory, all private commercial transactions became illegal
as the state began to open centralized supermarkets run by local
people's committees with the aim of undermining the numerous neighborhood
shops that previously had catered to the daily needs of most Libyans.
Eventually, there were 230 such state-run supermarkets in various
parts of the country. Although no one expected such a small number
of stores to replace fully the thousands of private sector merchants,
state planners hoped that the stores would constitute enough of
a market presence in each location to exert a downward pressure
on private sector prices for competing goods.
The hostility of Qadhafi toward the private sector was based
on his view of merchants as nonproductive parasites; he ignored
their role as distributors. In fact, many state proclamations
explicitly stated that government policy was designed to do away
with the whole merchant class. One newspaper editorial emphasized
that "One of the goals of these consumer centers is to cut down
on the huge number of merchants who are a burden on productivity."
The only type of private sector enterprises that the government
did not actively seek to eliminate were small service-providing
firms, which were not viewed as inherently exploitative. By 1980
it was clear that Qadhafi's assault on the private sector was
not proceeding as fast as he had hoped. Even in a time of relative
wealth--oil revenues were nearing their peak and the state had
enough revenue to fix the prices of certain goods--the public
sector was unable to satisfy demand for many consumer items. The
unsatisified demand left room for private sector activity at various
levels of legality. Continuing his attack on the private sector
from another angle, in 1980 Qadhafi demonetized all currency notes
above one dinar (for value of the Libyan dinar (LD),
see Glossary). His action was designed to encourage those holding
large quantities of dinars to deposit them in the nationalized
banks-- thus increasing state control over private sector assets.
Many individuals with large cash holdings were reluctant to deposit
their savings, however, since withdrawals in excess of LD1,000
were prohibited. They also feared that large deposits could be
used against them as evidence of their having engaged in illegal
commercial transactions. The main result of the 1980 demonetization,
therefore, was a rise in conspicuous consumption, as individuals
sought to transfer their savings into material goods, and an increased
demand for black market foreign exchange, as persons sought ways
to export their dinars.
Most of the post-1977 economic policy innovations of the Qadhafi
government were designed to inhibit the private accumulation of
wealth and promote an equitable distribution of the national income.
The principal vehicles for fostering economic independence in
this period have been two five-year plans (1976-80 and 1981-85),
which were aimed at directing investment to areas that would contribute
to economic autonomy (see table 5, Appendix). In the 1976-80 plan,
agriculture and industry received the largest share of investment,
whereas the 1981-85 plan allocated more funds to industry and
public works, with agriculture coming in third.
Most of the planned agricultural investment has been directed
to the development of oasis agriculture and irrigation. Ambitious
schemes were launched during the 1970s to use the underground
fossil water resources of the Tazirbu, Sarir, and Al Kufrah oases
to grow wheat and animal fodder crops . Similarly, work has begun
on the Great Man- Made River (GMMR) scheme to tap desert aquifers
to bring water to the coastal agricultural areas where shrinking
aquifers and rising salinity threaten to lay waste to historically
productive agricultural lands.
Industrial investment has been concentrated on several large-
scale projects at industrial centers along the coast. Existing
industrial facilities are located at Marsa al Burayqah, Misratah,
and Ras al Unuf. Further expansion of these facilities as well
as the creation of new ones was a principal objective of the 1981-85
plan. Most industrial projects were designed to create downstream
petrochemical employment, satisfy internal demand for processed
petroleum products, and take advantage of cheap energy to build
export-oriented manufacturing capacity.
The contrast in approaches between the relatively conservative
development plans, with their emphasis on investment and resource
mobilization, and Qadhafi's more radical "socialist" policies,
which seem to sacrifice efficiency for equity, produced inherent
tensions in economic policy-making. In certain respects, the pursuit
of equity has hindered Libya's quest for economic independence
by discouraging private sector growth.
The political climate of Libya in the mid-1980s placed numerous
obstacles in the way of private sector development. The 1978 law
requiring all enterprises to be run by workers' committees made
effective management almost impossible. Furthermore, since workers'
committees rarely accepted economic efficiency or profitability
as valid objectives, many enterprises no longer had a clearly
defined role in the economy. The result of such policies has been
to stifle most dynamism in the private sector. Consequently, when
the government needed to ensure the accomplishment of key economic
tasks, which it was incapable of doing for itself, it had no choice
but to turn to foreigners.
Those Libyans possessing managerial experience or engaged in
performing key economic activities prior to 1978 became increasingly
alienated by the subsequent directions of government policy; many
even left the country. Thus, with a severely handicapped domestic
private sector and few competent Libyan managers, the completion
and operation of practically all key industrial projects depended
on foreign expertise. Furthermore, because the post-1978 economic
environment had provided little incentive for the training of
Libyan managers, there was little likelihood of easily reversing
the shortage of indigenous managers.
Some foreign observers have suggested that the sharp drop in
oil revenues, which began in the early 1980s, may lead to a re-
evaluation of many of Qadhafi's more radical socialist policies.
Such reassessment could reduce some of the private sector's problems
and actually contribute toward economic independence. There were
some indications that this was indeed happening in the mid-1980s,
as many projects of doubtful economic value were postponed.
Because of declining revenues, the government has been unable
to finance much of its ambitious drive to replace the private
sector. The expansion of the state-run supermarket system ended
as funds grew tighter. By 1985 the stores were unable to supply
most basic consumer items, thus failing to drive down private
sector prices. Similarly, the government was compelled to expel
many foreign workers who had been the mainstay of the economy.
Between 1983 and 1987, the number of foreign workers in Libya
fell drastically, going from more than 560,000 to about 200,000.
This decline was achieved primarily by cutting the number of unskilled
foreign laborers employed by the public sector to perform basic
service tasks--jobs that many Libyans could fill. Whether the
increased demand for labor in the wake of these expulsions will
result in a greater Libyanization of the work force, or merely
in a rise in the number of unfilled jobs will depend largely on
how much the government relaxes its restrictions on private sector
employment. In the mid-1980s, few public sector funds were available
for hiring Libyans at the higher salaries they would require.
Data as of 1987