State and Private Sector in the GCC after the Arab Uprisings

Abstract

While the Gulf private sector has made huge strides since the first oil boom, most of its activities still amount to more sophisticated rent recycling rather than autonomous diversification. Its interests are in stark opposition to those of the citizenry at large, as it provides no taxes, little employment and few investment opportunities for GCC nationals. Instead, business and other social forces face a zero-sum conflict over — in some cases increasingly scarce — state resources. This structural isolation of business helps to explain Gulf capitalists' weak role in today's public political arena despite a strong pre-oil history of collective action. In recent decades, business elites have either kept their heads below the parapet or have provided auxiliary public support to beleaguered local regimes. They have for the most part abstained from or failed in electoral politics; in austere times, regimes have privileged the distributional interests of the state salariat and consumers at large over those of business. Gulf business has a chance for a greater developmental role and political autonomy only if it increases its interdependence with society at large through providing a tax base, employment and investment opportunities for GCC citizens. Of the three, employment is the most important and could decide the political fate of private capital in the Gulf in the long run.

Keywords:

• Gulf business
• state-business relations
• rentier state
• fiscal sociology
• knowledge economy
• state-society relations

Notes

¹ Anon., “Top 100 Arab Companies”, Cash & Trade, 17 July 2011.

² Hertog, “The GCC and Arab Economic Integration: A New Paradigm”, Middle East Policy 14.1 (2007), pp. 52–68.

³ Authors recently proposing an emergent Gulf bourgeoisie or a newly empowered “Gulf capital” include Adam Hanieh and Giacomo Luciani, although the latter's arguments are focused mostly on Saudi Arabia [Hanieh, Capitalism and Class in the Gulf Arab States (2011), pp. 1–28; Luciani, “From Private Sector to National Bourgeoisie: Saudi Arabian Business”, in Saudi Arabia in the Balance: Political Economy, Society, Foreign Affairs, eds Aarts and Nonneman (2006), pp. 144–81].

⁴ Hertog, Princes, Brokers, and Bureaucrats: Oil and the State in Saudi Arabia (2010), p. 81.

⁵ Hertog, “The Sociology of the Gulf Rentier Systems: Societies of Intermediaries”, Comparative Studies in Society and History 52 (2010), pp. 282–318; Field, The Merchants (1986), pp. 97–120.

⁶ For econometric evidence cf. [Kireyev, “Key Issues Concerning Non-Oil Sector Growth”, in Saudi Arabia's Recent Economic Developments and Selected Issues, ed. International Monetary Fund (1998), pp. 29–33; Treichel, “Stance of Fiscal Policy and Non-Oil Economic Growth”, in Oman Beyond the Oil Horizon: Policies Toward Sustainable Growth, eds Mansur and Treichel (1999), pp. 26–7]. Recent econometric tests using time series regressions and error correction models confirm the findings on data up to 2008. A recent IMF report also provides evidence of strong fiscal multipliers in the GCC [Espinoza and Senhadj, How Strong Are Fiscal Multipliers in the GCC, IMF Working Paper (March 2011)].

⁷ For more details see Hertog, “The Evolution of Rent Recycling During Two Booms in the Gulf: Business Dynamism and Societal Stagnation”, in Shifting Geo-Economic Power of the Gulf, eds Legrenzi and Momani (2011), pp. 55–74.

⁸ See Treichel, “Stance of Fiscal Policy” and Kireyev, “Key Issues”, for econometric evidence on such a structural shift after the 1980s in Oman and Saudi Arabia.

⁹ Hertog, “A Comparative Assessment of Labor Market Nationalization Policies in the GCC”, in National Employment, Migration and Education in the GCC, ed. Hertog (2012), pp. 75–116.

¹⁰ Interviews with businessmen in Kuwait, UAE, and Saudi Arabia, 2004–11.

¹¹ See, for example, Al-Ehaidib, “Private Companies Undermine Saudization”, Saudi Gazette/Okaẓ, 10 Aug. 2012.

¹² For details on the Saudi case see Stevens and Lahn, Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia (2011).

¹³ International Monetary Fund, Qatar: 2010 IMF Article IV Consultation — Staff Report (2011).

¹⁴ Chibber, Locked in Place: State-Building and Late Industrialization in India (2006), pp. 13–48; Evans, Embedded Autonomy (1995), pp. 2–20.

¹⁵ The higher UAE figure might be explained with re-exports of technology goods via Dubai rather than with local production.

¹⁶ Hertog, “Defying the Resource Curse: Explaining Successful State-Owned Enterprises in Rentier States”, World Politics 62 (2010), pp. 261–301.

¹⁷ Sedik and Williams, Global and Regional Spillovers to GCC Equity Markets, IMF Working Paper (June 2011).

¹⁸ Raghu, The Golden Portfolio: Reach of Government Owned Entities in GCC (2010).

¹⁹ GCC Board of Directors Institute, Embarking on a Journey: A Review of Board Effectiveness in the Gulf (2011).

²⁰ The National Investor, Hawkamah, and IOD Mudara, Power Matters: A Survey of GCC Boards (2008), pp. 21–42.

²¹ Maxfield and Ross Schneider (eds), Business and the State in Developing Countries (1997), pp. 1–35.

²² Interviews with senior businessmen in UAE and KSA, 2009–11.

²³ For details on the Bahraini and Omani cases see Valeri, “Oligarchy vs. Oligarchy: Business and the Politics of Reform in Bahrain and Oman”, in Business Politics in the Middle East, eds Hertog, Luciani, and Valeri (2012), pp. 17–42.

²⁴ Anon., “QCCI to Avoid Sponsorship Issue at PM Meet”, The Peninsula, 23 May 2011; Pandit, “Why Private Sector is Govt's Favourite?”, The Peninsula, 28 May 2011.

²⁵ Al-Jassem, “JCCI Poll Results Out”, Saudi Gazette, 16 Oct. 2009.

²⁶ US Con.-Gen. (Quinn), “Allegations of Vote Buying and Sorcery on Eve of Jeddah Chamber of Commerce Election”, 8 Oct. 2009, Wikileaks cable 09Jeddah381; Anon., “Editorial: JCCI Elections”, Arab News, 16 Oct. 2009.

²⁷ See, e.g. Saudi Arabia Monitor, May 1987, p. 24.

²⁸ For discussion along these lines covering the whole MENA region, see World Bank, From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa (2009), pp. 187–91.

²⁹ The survey included the leading one or two English-language newspapers of all GCC countries on a daily basis.

³⁰ Field, The Merchants, pp. 97–120; Crystal, Oil and Politics in the Gulf: Rulers and Merchants in Kuwait and Qatar (1995), pp. 15–761; Azoulay, “The Politics of Shi'i Merchants in Kuwait”, in Business Politics, eds Hertog, Luciani, and Valeri (2012), pp. 67–100.

³¹ Crystal, Oil and Politics, pp. 15–61; Davidson, Dubai: The Vulnerability of Success (2008), pp. 32–8, 43–51; Onley and Khalaf, “Shaikhly Authority in the Pre-Oil Gulf: An Historical-Anthropological Study”, History and Anthropology 17 (2006), pp. 189–208; Chaudhry, The Price of Wealth: Economics and Institutions in the Middle East (1997), pp. 43–138.

³² Crystal, Oil and Politics, pp. 41–3; Khuri, Tribe and State in Bahrain: The Transition of Social and Political Authority in an Arab State (1981), pp. 195–6, 204; Moore, Doing Business in the Middle East: Politics and Economic Crisis in Jordan and Kuwait (2009), pp. 30–56; Davidson, “Arab Nationalism and British Opposition in Dubai, 1920–66”, Middle Eastern Studies 43 (2007), pp. 879–92.

³³ For the concept, see Hourani, “Ottoman Reform and the Politics of Notables”, in Beginnings of Modernization in the Middle East, the Nineteenth Century, eds Polk and Chambers (1968), pp. 41–68.

³⁴ This best study of this process is Crystal, Oil and Politics, pp. 73–92.

³⁵ Azoulay, “Politics of Shi'i Merchants”, pp. 67–100; Hertog, “The Role of MENA Business in Policy-Making and Political Transitions”, in Business Politics, eds Hertog, Luciani and Valeri (2012), pp. 9–11.

³⁶ Herb, “A Nation of Bureaucrats: Political Participation and Economic Diversification in Kuwait and the United Arab Emirates”, International Journal of Middle East Studies 41 (2009), pp. 375–95.

³⁷ Beblawi and Luciani (eds), The Rentier State (1987), pp. 63–82.

³⁸ Herb, “Nation of Bureaucrats”, pp. 375–95.

³⁹ This is perhaps a subsidiary reason why broad salary spending has always been privileged over project spending in times of economic crisis.

⁴⁰ See, for example, Saleh Al-Zahrani, “Private Sector Can Provide 250,000 Jobs in Six Months”, Saudi Gazette, 21 Mar. 2011.

⁴¹ Foucraut, La Réforme Du Marché Du Travail à Bahreïn, MA thesis (2010), pp. 1–10; Al-Hasan, “Labor Market Politics in Bahrain”, in Labour Market, Unemployment, and Migration in the GCC, ed. Hertog (2012), pp. 117–57.

⁴² Herb, “Nation of Bureaucrats”, pp. 386–7.

⁴³ Azoulay, “Intra-Family Competition, Political Tribalism and Its Limits: A Micro-Sociology of State-Society Relations in Kuwait from the Angle of Its Main Voting Blocs”, paper presented at the Third Gulf Research Meeting (GRM), Cambridge (2012).

⁴⁴ Anon., “MPs’ Threat to Veto Gulf Air Bailout”, Gulf Daily News, 25 Apr. 2012; Habib Toumi, “Parliament Pushes for Marriage Assistance Grants”, Gulf News, 8 May 2012; Anon., “Bonus for Civil Servants Urged”, Gulf Daily News, 2 Nov. 2011; Anon., “BD 2,000 Incentive to Pay Bills … ”, Gulf Daily News, 11 Jan. 2012.

⁴⁵ Salama, “Federal National Council Wants Petrol Prices Reduced”, Gulf News, 23 May 2012; Kakande, “Minimum Housing Grant ‘Should be Lifted to Dh1 m’”, Gulf News, 4 Mar. 2012; Salama, “FNC Member Urges Higher Housing Loan Limit for Emiratis”, Gulf News, 14 Mar. 2012.

⁴⁶ Discussion with Majlis Al-Shura members, May 2011.

⁴⁷ On the UAE example, see Herb, “Nation of Bureaucrats”, pp. 375–95.

⁴⁸ Oxford Analytica, “Gulf States’ Long-Term Fiscal Sustainability in Doubt”, 21 Sept. 2011; for a detailed account on Saudi Arabia, see Hertog, Princes, Brokers, pp. 118–25.

⁴⁹ Al-Hasan, “Bahrain Bids Its Economic Reform Farewell”, Open Democracy, July 2012; Louer, “Houses Divided: The Splintering of Bahrain's Political Camps”, Sada, Apr. 2012; Valeri, “Oligarchy vs. Oligarchy”, p. 40.

⁵⁰ Bew, “Protests Law Sparks Row”, Gulf Daily News, 31 July 2006.

⁵¹ Toumi, “Keep Top National Issues Away from Polls”, Gulf News, 25 Nov. 2006.

⁵² Ereli to Dept of State, cable dated 4 Sept. 2008, in Anon., “US Embassy Cables: Guide to Bahrain's Politics”, Guardian, 15 Feb. 2011.

⁵³ Al-Mughni, “Demands for the Representation of the Merchants in Order to Protect Economic Activity” [in Arabic], Al-Wasat, 27 Aug. 2009.

⁵⁴ Mahmood Rafiqe, “Bahrain Chamber Raps Protesters”, Arab News, 18 Feb. 2011; Anon., “Businessmen and Traders Will Start Signing the Loyalty Pledge and Swords of Allegiance”, Gulf Daily News, 29 Apr. 2011.

⁵⁵ Toumi, “Bahraini MPs Call for Imposing Martial Law”, Gulf News, 14 Mar. 2011.

⁵⁶ Anon., “Emergency ‘May Revive Business Confidence’”, Gulf Daily News, 16 Mar. 2011.

⁵⁷ Anon., “Two Sacked by Chamber”, Gulf Daily News, 28 Apr. 2011. At the same time, Shiite business leaders have generally refrained from supporting the Shiite opposition; Laurence Louer, personal communication, July 2012.

⁵⁸ Anon., “Economy Focus for New Bahrain Society”, TradeArabia, 12 Sep. 2011.

⁵⁹ Toumi, “Community in Bahrain Welcomes Labour Fee Freeze on Foreigners”, Gulf News, 6 Dec. 2011.

⁶⁰ Laurence Louer, personal communication, July 2012.

⁶¹ Anon., “End Growing Political Interference to Turn Kuwait into Economic Hub”, Arab Times (Kuwait), 11 Mar. 2007; Rania El Gamal, “Politics ‘Choking’ Reform in Kuwait”, Kuwait Times, 13 Mar. 2007.

⁶² Anon., “Kuwaiti Businessmen Have Little Influence Over Decision Makers — Al-Shatti”, Kuwait News Agency, 18 Feb. 2007.

⁶³ Azoulay, “The Politics of Shi'i Merchants”, pp. 87–97.

⁶⁴ Steven Wright, personal communication, July 2012.

⁶⁵ Khaled Almezaini, personal communication, July 2012.

⁶⁶ Almezaini, “Private Sector Actors in the UAE and Their Role in the Process of Economic and Political Reform”, in Business Politics in the Middle East, eds Hertog, Luciani, and Valeri (2012), pp. 43–66. Impressionistically, UAE business leaders have retained more of their status as social elites than in other GCC countries — possibly explained with strong pre-oil merchant traditions, later development and a small local population. This does not give them any political autonomy, however.

⁶⁷ Marc Valeri, personal communication, July 2012.

⁶⁸ Valeri, “Oligarchy vs. Oligarchy”, p. 39.