1. The difficult promise of economic reform in the Gulf
- Author:
- Karen E. Young
- Publication Date:
- 09-2018
- Content Type:
- Special Report
- Institution:
- American Enterprise Institute for Public Policy Research
- Abstract:
- The six states of the Gulf Cooperation Council (GCC)—Saudi Arabia, Qatar, Kuwait, Bahrain, the United Arab Emirates (UAE), and Oman—are in a period of profound change, both economic and social. The economic changes are a long overdue reaction to natural resource revenue dependency in their fiscal policies, while the social changes are a reaction to compounded migration and demographic shifts. The resilience of Gulf political economies will be defined by the ability to change both fiscal governance and policies of inclusion. Inclusion, in the context of Gulf political economies, means social protection for vulnerable groups, but it also means access to compete in a rule-based economy. The promise of economic reform, therefore, is a promise to reconfigure relations between citizen and state, and to renegotiate the provision of benefits to citizens in the form of subsidies of fuel, electricity, and water, as well as generous health and education services. And there will be taxes and new fees on everything from toll roads to sugary drinks to tobacco, and employment fees for foreigners. In exchange, citizens are promised—in some way—a retreat of the state from its predatory control over economies, though not its control over the political space and activism. Nonetheless, for many political economies of the GCC, the opening of opportunities in private ownership and investment in the sale of state assets—such as power and water plants, ports, and airports, as well as schools and hospitals—poses a challenge to the state’s track record in the provision of services. These privatizations also pose a risk to a constituency unaccustomed to fees-based service and corporate liability. Will citizens accept services from private entities at cost? Will citizens jump at the opportunity to own new companies that meet the needs of their compatriots for profit? And, perhaps most importantly, who will be left behind? The concept of resilience is often used in the literature on economic development to describe how governments can protect both citizens and their economies from external shocks, whether in the form of natural disasters, black swan events, or dramatic policy shifts. The regulatory environment and the capacity of the state to react and respond to different needs of its population, especially vulnerable groups, are key. For Gulf states, the current reform agenda is not so much a shock as a delayed reaction to a problem identified long ago. Diversification from oil-based revenue is necessary, and population growth has created an oversupply of candidates for public-sector employment that is not very productive. Generating growth has to shift, in its source and its deployment among a larger and more diverse population. The Gulf states have created their own middle-income development trap. This paper offers a wide-ranging analysis of some aspects of the reform agenda underway across the GCC. It explores specific case analyses of challenges facing individual countries (Saudi Arabia and Oman), and the organization of the GCC as a whole. It also addresses subsidy reform, the introduction of taxes and fees, and some experimental policies related to regulating labor markets and encouraging citizens to move out of public-sector employment.
- Topic:
- Foreign Policy
- Political Geography:
- Middle East, Kuwait, Saudi Arabia, Bahrain, Qatar, United Arab Emirates, and Gulf Cooperation Council