sweety 1.ppt
TRANSCRIPT
Diversified but marginal: the GCC private sector as an economic and
political force
Steffen HertogLondon School of Economics
The GCC private sector at first glance
• Employs 80% of workers in the region• Provides the majority of local capital formation• Has deep overseas capital resources• Is at the center of all GCC governments’
diversification strategies• Has diversified into new sectors– Telecoms, heavy industry, utilities, aviation…
• Is a leading regional investor in MENA• Has matured technologically and managerially
BUT• Business activities remain dependent on the state
in a variety of ways• It remains economically decoupled from the
national population• As a result, it has become marginal in economic
policy-making and national politics more broadlyThe roots of its political marginalization are
based on its structural position in the economyIt can only regain a more central political role if it
establishes organic economic links with the national population
Share of state spending in non-oil GDP
• State remains a large, if not dominant driver of demand
• Boom in 2000s was state-driven
Ratio of government to private consumption in GCC and select international cases
Drivers of growth• Growth patterns in the
private sector at large still broadly follow state spending
• No taxes no feedback loop from business growth to state spending growth
• Relationship is one-sided: state spending drives business growth, not the other way around
Some shifts in the channels of dependence: ratio of capital to current spending in government budgets
• Business nowadays profits more from consumer demand (through salaries of state employees) than directly from government contracts
• More competitive markets, smoother growth patterns• But still underlying structural dependence on the state: very low
private wage ratios (7% in Saudi Arabia e.g.)
Contribution to national employment: the state dominates
GCC employment structures
•Nationals predominantly employed in public sector, with better wages and work conditions
Growth of business mostly benefits foreign labor
• “Jobless growth” for nationals in the 2000s– Huge imports of foreign workers
• Local companies often perceive employment of nationals as a burden and, when obligatory, a tax.
• Much popular disenchantment with business class• Best, most productive jobs for nationals are usually
in SOEs, not private sector• Foreign workers remit most of their income abroad,
further reducing the contribution of business to national demand generation/growth
Business dependence on non-fiscal state support
• Cheap capital, energy and infrastructure
• Incentivizing resource-intensive, low-tech development• Increasing consumption rivalry with residential
consumers as gas become scarce
Low contributions to knowledge economies and innovation
• Factor-intensive growth:– Cheap, low-skilled
labor– Cheap energy inputs
limited incentives to acquire technology
Stagnant or declining productivity
Few jobs that pay living wages for nationals
Share of hi-tech exports in total manufacturing exports (%, 2009)
• Practically no R&D in the private sector• Technology development driven, if at all, by
SOEs (Mubadala, SABIC, Aramco etc.)
Corporate governance and the public’s exclusion from private sector wealth
• Patrimonial, family-based nature of most private wealth tends to lead to– Corporate governance deficits• Saad and Gosaibi• Companies with strongest corporate governance are
usually SOEs– Exclusion of the public from investment
opportunities in the private sector• Most large groups are privately held, most “blue chips”
on local stock markets are former SOEs Another factor decoupling citizens and business
The role of business in economic policy-making
• In line with the private sector’s dependent economic position, lobbying tends to be reactive and piecemeal – Defense of privileges (subsidies, agencies, fighting
taxes, fees and labor nationalization rules etc.) rather than proactive policy initiatives
• Chambers of Commerce dominated by big families– limited policy research capacity– Limited activation of broader business community
The structural position of GCC business:
• isolated from the citizenry at large, for which it provides – Little employment, – No taxes,– Limited investment opportunities, – and with which it competes for increasingly scarce
low-price goods and services provided by the distributive state
How is this decoupling/rivalry in the political realm?
The decline of merchant elites as a political players
• Used to lead nationalist and parliamentary movements in 1920s to 1960s– Especially in pre-oil era, when they provided taxes,
infrastructure, local employment• Now marginalized in parliaments all over the GCC– Present as government clients, if at all
• Also marginalized as social, “notable” elites– Partially the natural result of the emergence of mass
politics and society as in rest of MENA– But also due to the absence of shared economic
interests with citizens at large• No scope for a historical “class compromise” as e.g. in
Europe
Fiscal sociology of a tax state
Fiscal sociology of an authoritarian rentier state – government as arbiter
Dubai as example (cf. Michael Herb)
Fiscal sociology of a participatory rentier state – one-sided pressure
Kuwait as example (cf. Michael Herb)
The future• The majority of nationals all across the GCC continues
to have no significant stake in private sector growth. • In the long run, a zero-sum distributional conflict is set
to grow– demands on state resources will become ever larger due
to growth of both business and the national population. • In a fiscal crisis, popular interests will likely be
privileged over business interests, even in authoritarian rentiers– Business provides little that is essential for regimes’
survival– Precedent of 1980s and 1990s
Can business do anything about it?• Yes, but it could be costly:– Accept taxation at least in principle– Reform corporate governance and give up exclusive
control of assets– Most of all: step up employment of nationals
• focus on technological upgrading, build local human resources• requires policy changes beyond the control of business, e.g. a
reduction in public sector over-employment • Stronger local employment & taxation would reduce
business profits in the short run, • But it could give business a much safer and more
autonomous political position in the long run– It could become a true bourgeoisie capable of negotiating
with state and other social forces– The best weapon against parliamentary populism?