The Political Economy of National
Security in the GCC States
F.Gregory Gause,III
What Security? For Whom?
By a conventional
definition of security, that is to say protection from foreign military, the
states of the gulf Cooperation Council (GCC) are more secure than at any other
time in their independent existence. The defeat of Iraq in the 1990-91 Gulf War
reduced the military capabilities and the political capacity of one potential
threat. Iran’s military travail during its eight-year war with Iraq, its
limited air power and nonexistent amphibious capability, and its own internal
political and economic difficulties, render it an unlikely source of
conventional military threat to the GCC states (the islands issue excepted). It
seems unlikely that Yemen, so recently embroiled in its own civil war, is a
serious military threat to its neighbors. Most importantly, the Gulf War
demonstrated that the United States is willing to commit massive force to
protect the GCC states from foreign invasion, providing those states with a
powerful and credible deterrent against attack. While Saddam Hussein declares
that he “won” the Gulf War because he is still in power, it is hard to imagine
any other leader who would want to experience a similar “victory”.
Limiting a discussion of security to so
narrow a definition, however, would miss much of the political dynamics behind
decisionmaking in both foreign and domestic policy in the Gulf states. It is
regime security, not simply state security, that animates decisionmakers in the
region. The former includes the latter, as ruling regimes for their own
interests do not want to be subject to foreign attack, but goes beyond the
external dimension of security to include domestic political stability. For
example, it is safe to assume that the bombings of American military facilities
in Saudi Arabia in November 1995 and June 1996 were a more serious and
immediate issue on the Saudi security agenda than a hypothetical attack by
either Iraq or Iran on Saudi territory. Policies aimed at regime security might
be good for the population as a whole; they might not be. The focus for
understanding how policymakers confront choices in the Gulf is not some
Platonic notion of “national” security or a limited understanding of purely military
security, but the idea of regime security.
In most third World countries, the most
serious threats to the security of ruling regimes (with some notable
exceptions, like Kuwait) emanate from within their countries borders.1 These domestic threats to regime
security are frequently tied up with foreign policy issues, as opposition
groups look for support abroad and as the regimes’ dealings with the outside
world (be it with the great powers, the International Monetary Fund, or
international commercial and finical markets) materially affect their ability
to manage their domestic societies and economies. Thus while no state in the
international arena can ignore the possibility of a conventional military
attack against it, the most immediate and salient threats perceived by state
rulers to their security are very likely to be domestic, or some combination of
domestic and foreign.
In formulating their security strategies,
the rulers of the GCC states have to face both the possibility of foreign attack
and the need to maintain their domestic positions. Though I contend above that
the likelihood of conventional military attack from their neighbors is now
relatively low, these states live in a neighborhood that has seen two very
destructive conventional wars in the Gulf, civil wars in Yemen, revolutionary
upheaval in Iran and an armed insurgency in Oman. Even among themselves the GCC
states have disputes over borders. They find themselves adjacent to the
Arab-Israeli area, which has experienced five conventional wars, two civil wars
(Jordan and Lebanon), and one sustained low-intensity conflict (the Palestinian
uprising) since World War II. They cannot ignore conventional defense needs.
At the same time, the regimes confront the continuous task
of maintaining the domestic bases of their rule: the provision of welfare
benefits to the population as a whole, the maintenance of the local groups with
whom they are allied politically, and the care and feeding of the coercive
apparatus-the regular military, police and secret services. In the 1970s and
the early 1980s, when money was no object, the GCC states could address all
these demands with little need to set priorities. Now, in a more constrained
revenue environment, they face difficult tradeoffs
The point of this paper is to highlight
how the choices the GCC rulers face in the security realm, broadly understood,
interact with each other. None of the individual issues that they face-military
security, fiscal problems, economic development, demographic growth, political
demands-can be seen in isolation from the other issues. The choices made in one
area will directly affect the regimes’ ability to deal with other areas. More
money for weapons purchases means less money for domestic social and economic
purposes. Privatization of state-owned economic interests might relieve fiscal
burdens and improve economic efficiency in the long term, but at the cost of
price increases and unemployment. The imposition of taxes and the building of
real citizen armies-two responses of state-builders throughout history to
fiscal pressures and foreign threats-would place burdens on the citizenry that
could call forth demands for political change. Reliance on the United States
for external security is costly financially (big-ticket purchases for civilian
and military purposes) and could have, over the long term, negative domestic
consequences.
In their effort to maintain their
regimes’ security, the Gulf rulers face a number of what Marxist analysts used
to call contradictions-conjunctions of circumstances in which the pursuit of
one goal makes the achievement of other goals less likely, continuance of the
status quo increases the pressures for radical change in the future, and
difficult choices have to be made. This paper points to some of these
contradictions. It makes no recommendations on how to deal with them. Those
decisions are for people in the Gulf states themselves to make. Nor does it
contend that the GCC regimes are unable to deal with these contradictions in
ways that will preserve domestic stability and regional security.
They have vast experience in navigating
treacherous waters. They have ample, if reduced, resources financial,
ideological and coercive-with which to confront their problems. It simply
points out the potential consequences of various choices they could make in
dealing with these contradictions.
CONTRADICTION NUMBER 1: GUNS
VERSUS BUTTER
This is the fundamental choice that any state faces in
considering its security
policy. What is unusual about the GCC states is that for
most of the past twenty-five years, because of their vast wealth, they could
have both as many guns and as much butter as they wanted. With each of the GCC
states now facing budget
deficits and fiscal
stringency, those days are over. Money spent on arms now
comes at the expense
of other demands on state revenue, particularly domestic
social and economic
programs.
It should be pointed out that in our
discussion of military strategy, the assumption is that the GCC states are
seeking a purely defensive capability-to protect their borders from outside
attack. That hardly limits the range of potential military contingencies that
might confront them. Civil conflict in Yemen, naval tensions in the Gulf, a
potential collapse of authority and descent into civil war in Iraq could
theoretically tempt GCC states to deploy force beyond their borders. However,
if the past is any indication, the GCC governments have neither the capability
nor the political will to exercise military force outside their borders. The
GCC states are focused on the least likely military threat to their
security-direct attack by a regional state-and have little military capability
to affect less direct but more probable security contingencies.2
The military strategy of the Gulf rulers
(with the exception of Oman) has for the last twenty-five years been to invest
enormous sums of money in expensive and sophisticated military hardware, such
as airplanes and tanks (and the physical infrastructure of bases to support
them), with comparatively less emphasis on developing large and well-trained
citizen armies. This reliance on a capital- intensive defense strategy has been
dictated by a number of concerns. First, the big-ticket items are meant to make
up for the relatively small size of the armies compared with those of potential
enemies like Iran and Iraq. There has been a belief that high-tech weaponry can
make up for inferior numbers, both in terms of deterrence and in terms of
actual combat.
Second, these weapons sales are in part
an indirect way to pre-position equipment for foreign forces to use if the need
arises. Desert Storm could not have been mounted without the extensive military
base infrastructure that the Saudis built. Third, weapons purchases are seen as
a way of solidifying the commitment of the seller to the security of the buyer.
Having sophisticated American, British and French weapons-with the training and
support they require-is a way to strengthen the West’s commitment to defend the
GCC countries and support their regimes. Finally the financial interests of
those in the GCC states who benefit from these large-scale arms deals cannot be
ignored as a factor in explaining this strategy.
The immediate costs of continuing this
strategy, however, have become increasingly apparent. Since the Gulf War, Saudi
Arabia has placed orders for approximately $35 to $40 billion in arms, at a
time when the state foreign-currency reserves have been largely depleted,
budgets are being cut, consumer subsidies are being reduced and the state’s
debt burden is growing. In Kuwait, defense spending is taking up a larger and
larger proportion of the state budget at the same time that the need for
fundamental economic change (privatization, taxation, budget cuts) dominate the
political debate. Even in Oman, geographically distant from the theater of the
last Gulf War, defense has remained a sacrosanct aspect of state spending at a
time when the International Monetary Fund (IMF) has suggested stringent austerity
measures (though the most recent Oman five year plan calls for reduced defense
spending in 1997 and beyond).3
Citizens of the GCC states increasingly
see that every riyal, dirham or dinar spent on arms comes at the expense of
some other state spending project. Given the fact that high-tech weaponry
neither deterred Iraq from invading Kuwait nor gave the GCC states the power to
defeat Iraq, some now question the military usefulness of these kinds of arms
purchases. In Saudi Arabia, Islamic activists called for the creation of a
500,000-man Saudi army to avoid reliance on outside forces for defense.’4 However, this alternative defense
strategy-building larger citizen armies for conventional defense-raises
numerous problems for the regimes.
One problem is simply a matter of
numbers. The combined citizen populations of the six Gulf monarchies is, by the
most generous estimates, no more than 18 million. Iran’s population is 60
million. The inability of the GCC states to agree on a comprehensive, coordinated
defense plan, as was suggested by Sultan Qabus during the 1991 GCC summit,
exacerbates the problem of their small populations. They cannot effectively
even pool their already-limited manpower resources for defense purposes. But
numbers are not the whole story. The combined population of the monarchies is
close to that of Iraq, but no one in 1990 suggested that they could themselves
confront the Iraqi invasion of Kuwait. It is the political context of the
states that renders a policy of self-reliance even less feasible than the
numbers suggest.
The
mobilization of citizen manpower into the armed forces would require
obligatory military service, a very real demand of the state upon its citizens
(one the United States, for example, has now chosen to avoid). A ruthless and
efficient authoritarian state like Iraq or Syria can extract a large proportion
of it’s manpower from society for military purposes. States animated by
revolutionary fervor like Iran was in the 1980s, or by democratic ties of
loyalty between citizen and state like Israel (for its Jewish citizens), can
call upon the population for military service and receive enthusiastic answers.
The Gulf monarchies lack these kinds of mobilization abilities.
That lack is attributable to the fact
that the Gulf monarchies used their oil resources to build a particular kind of
rentier state: their social contract rests upon the provision of benefits to
citizens, not the extraction of resources (taxes and service) from them.
Instituting a national service requirement would upset that implicit deal
between state and society. In the West, historically, the need to mobilize
citizen armies contributed to pressures for popular participation in
government. The ruling families in the Gulf want to avoid exacerbating the
already-growing demands in their societies for greater participation. Moreover,
from the perspective of rulers who remember the prevalence of Arab military
coups in the 1950’s and 1960’s, permitting into the military groups whose
loyalty to the regime is questionable would decrease rather than increase
security.
Military recruitment strategies in all
the Gulf monarchies reflect these social realities. Only in Kuwait is there
obligatory service, and before the Iraqi invasion such service was easily
avoidable. All the other monarchies rely upon volunteer forces. Discussions in
official Saudi circles immediately after the Gulf War about doubling the size
of their armed forces, which would probably entail some kind of draft or
obligatory service, appear to have been shelved.’5
In Oman, where the rentier phenomenon came latest, there is more prestige to
military service-a result of both the Sultan’s very personal involvement in the
command of the forces and the resources he devotes to them. In the other
monarchies, military service is not as socially desirable a profession. With
economic opportunities relatively plentiful for better-educated, young male
citizens of these states, the incentives to join the military have been
limited.
Shi’i in Kuwait, Bahrain and Saudi Arabia
rarely join their militaries and even more rarely advance in the officer corps,
as a result of both government discouragement and social custom within those
common ties.6 In Saudi Arabia there are
persistent reports, unconfirmed and unconfirmable officially, that those who
are not from Najd (Central Arabia) cannot advance in the military hierarchy and
are barred from certain sensitive positions (such as fighter pilot). Needless
to say, one-half of these states human resources, female citizens, are not
available for military service. Taken together, these factors mean that the
Gulf monarchies cannot and will not mobilize their resources for military
purposes with the same efficiency as their neighbors. Demographic, social and
political constraints combine to rule out a policy of self-reliance in security
matters.
Another strategy that might reduce
expenditures somewhat is simply to give up any idea of self-defense, and rely
completely on foreign alliances primarily with the United States-for security.
Such a strategy would still be expensive, as Desert Storm and the October 1994
American “mobilization’ to meet Iraqi moves near the Kuwaiti border proved.
Arms would still have to be bought, for pre-positioning forces. But the
political costs of such a strategy would far outweigh any economic benefits.
There is no guarantee that the United States could or would use its military to
protect the regimes from every contingency, particularly domestic threats, that
they might face in the future. Moreover, a policy that publicly handed over
security matters to Washington would leave the GCC regimes even more vulnerable
than they already are to charges from domestic and regional opponents that they
are nothing but figurehead rulers and puppets of the United States.
In the end, there are few realistic
alternatives to the existing military strategy for the GCC states, short of
drastic changes in their relations with their societies and with one another.
At the same time, maintaining current levels of spending on arms puts enormous
financial pressures on these states, particularly Saudi Arabia and Kuwait, at
the same time that they are enforcing some measure of economic austerity
domestically. Riyadh has recognized this dilemma in its efforts to renegotiate
the payment schedules for some of its arms deals and to complete its recent
purchases of commercial aircraft from Boeing and Macdonald- Douglas in stages
over time.7 The issue for the GCC regimes is whether
they can rein in spending on arms and military security enough to permit them
to maintain adequate levels of domestic spending in other areas. It is to that
basket of issues that we now turn.
CONTRADICTION NUMBER 2:
DEMOGRAPHICS VERSUS THE WELFARE
STATE
All of the GCC states have very large rates of population
growth. Between 1985
and 1991, the lowest
growth rate in the GCC was in the UAE (3.1 percent per year) and the highest in
Qatar (4 percent per year). By comparison, total Asian
population growth during this period was 1.9 percent
per year, and the total world growth was 1.7 percent per year.8 Growth rates declined somewhat in the
mid-1990’s but each of the GCC states is projected to double its current
population within 40 years if current growth rates are substained.9 While some of this growth came from
migration, a large portion of it is accounted for by high birth rates and
longer life expectancies. The age pyramids in the GCC states are heavily skewed
toward the younger end of the population spectrum. Thus the governments of
these states face growing demands on social services and the need to create
employment opportunities for the graduates of the education systems the states
themselves built.
The problems of dealing with a growing,
increasingly young population are not unique to the GCC states. What is
different about their conundrum is that these larger populations are putting
enormous pressure on welfare states constructed in the 1970s and early 1980s,
when populations were smaller and revenue greater. When the GCC states faced a
decline in oil revenues in the 1980s, they maintained government spending
levels by drawing down their reserves and, in some cases, by borrowing on the
international market and relying on transfer payments from neighbors. Those
expedients are no longer available.
The combination of maintaining high
levels of social spending and supporting Iraq’s war effort against Iran in the
1980s, with the vast expenses of Desert Storm, has removed the cushion of
financial reserves for Saudi Arabia and Kuwait. Estimates of Saudi reserves
vary, from less than $10 billion to approximately $30 billion (down from well
over $100 billion at the beginning of the 1980s), but it is clear that the
government cannot finance continued deficits from that reserve. Saudi Arabian
Monetary Agency (SAMA) maintains a foreign currency reserve of about $20
billion to support the Saudi rival; thus a large portion of existing reserves
are “off limits” for meeting budget deficits.10
Al-Shall Consultancy
estimates that Kuwait’s foreign reserves are around $35 billion (down from well
over $100 billion at the beginning of the 1980’s), and that its foreign debt is
approximately $30 billion. It estimates that, if current expenditure patterns
continue, the Kuwaiti Fund for Future Generations will be completely depleted
by the turn of the century.11
Clearly for Saudi Arabia and Kuwait,
living off reserves is no longer possible. Oman has run up against the limit of
the willingness of international capital markets to finance continued deficits.
Bahrain, which relies in some measure on Saudi Arabia to help it cover its
budget deficits, faces the warning ability of Riyadh to do so. Even Qatar and
the UAE, with larger financial reserves and smaller population-to-resource
ratios, are experiencing fiscal pressures. Given growing demand on social
services and limited ability to pay, the GCC states face two options: cut
services or raise revenues. The first path holds the risk of alienating large
portions of their populations who have come to expect extensive welfare state
benefits as their right as citizens. It seems unlikely that oil prices will
increase substantially over the medium term, so raising revenues means, in
effect, “taxing” the population. The same political risk as that involved in
cutting services applies.
The GCC governments do realize that
change is necessary, though not all have taken even the first steps to bring
spending and revenues more into line. Saudi Arabia has gone the furthest in
confronting its fiscal problems. Riyadh adopted a mid-course 19 percent
reduction in its 1994 budget, which still ran a deficit of over $ 10 billion
(US), and a further 6 percent reduction in the 1995 budget. The 1995 deficit
was forecast to be $4 billion, as a result both of spending cuts and of
state-mandated price increases on gasoline, electricity, work permits and
visas.12 Government subsidies for agriculture,
particularly wheat production, were reduced.13
With oil prices in 1995 running higher than budgeted, there was even hope that
the deficit could be eliminated by the end of the year.14
However, it seems that the 1995 Saudi budget deficit was slightly higher
than forecast, despite oil earnings between $3.7 billion and $4.0 billion more
than earlier estamates.15 The
Saudi used this cushion to pay off the reainder of their debt to foreign
lenders and to begin to make good on late payments to local contractors and
farmers.16
The 1996 Saudi budget deficit was approximately $4.5 billion, once again
despite oil prices much higher than anticipated when the budget was adopted at
the end of 1995, nearly 9 percent of total spending. The 1997 budget forecasts
a similar deficit of $4.5 billion over 9 percent of total spending.17 Even with a concerted effort,
controlling spending is proving a difficult task for the Saudis.
The UAE raised fees in 1994 for health
services and electricity, while keeping spending largely the same in its 1995
budget. Still, early estimates of the 1996 budget deficit put it at over 5
percent of the total federal budget.18
Qatar’s projected budget deficit for 1995-96 was nearly $1 billion in a budget
of $3.5 billion, though it budgeted for a lower deficit, approximately $800
million, in 1996-97.19 Amir
Hamad bin Khallfa Al Thani, who deposed
his father in June 1995, has initiated ambitious steps to increase Qatari gas
production and to privatize parts of the economy, though the potential benefits
of such steps can only be realized in the future.20
While increased oil production reduced Oman’s projected 1995 deficit, the
government does not foresee a balanced budget until the year 2000, according to
the most recent five-year plan.21 Bahrain
was able to reverse a trend of rising budget deficits in 1996 only because
Saudi Arabia transferred its portion of the revenues from an off-shore oil
field that the two states share to the Bahrain government.22 Even with that new source of revenue,
Bahrain projected a deficit of nearly $200 million in its 1997-98 budget,
through that figure is much reduced from the deficit in the previous budget.23
In November 1994 the Kuwaiti government
announced plans to reduce spending in the 1994-95 fiscal year, which began in
July, by 25 percent in an effort to
meet the expenses of the U.S. military mobilization mounted in reaction to
Iraqi troop movements near the border in the fall of that year. The 1994-95
Kuwaiti budget adopted in July 1994 had a deficit of $5 billion in a total
budget of $13.8 billion.24 Members
of the Kuwaiti parliament fiercely criticized the government’s 1995-96 budget,
which forecast a deficit of 1.6 billion KD ($5.3 billion), but the parliament
adopted the budget nonetheless. Higher than expected oil revenues allowed the
Kuwaitis to halve the deficit to 653 billion KD ($2.2 billion) when the books
were closed for that fiscal year.25
Kuwaiti’s budget for 1996-97 had a projected deficit of $3.83 billion, 28
percent of the total budget.26
The increase in oil prices during 1996,
of about $5 per barrel for the OPEC “basket” price, lessened the fiscal
pressure on all the GCC governments. However welcome that windfall was, it did
not change the structural pressures these states face in funding the extensive
array of social services they took on in the 1970s. In fact, if this (possibly
temporary) increase in oil revenues deflects the governments from pursuing
efforts to scale back spending, its long term harm will far outweigh its
immediate benefit.27 The few
efforts at belt-tightening already undertaken hardly encompass the universe of
hard economic truths that the GCC states face. The governments will simply be
unable to fund the generous and extensive social welfare policies they adopted
in the 1970s at current rates of population growth. The state sector cannot
absorb the growing number of job-seekers graduating from the local
universities. An increasing number of children have to be educated in the state
school systems. As life expectancy rises, the health costs of caring for the
population will increase.
Two questions present themselves. First,
can these efforts to cut spending and/or increase revenues bring the fiscal
house of the GCC states in order when demand for social services will continue
to increase? There is no hard evidence to answer this question, since much
depends on the choices these states make in the future. However, there is
certainly a sense that the austerity measures taken by some of the GCC states
are the beginning, not the end, of what will be a prolonged readjustment
period. It is unclear whether the governments will have the wisdom and the
political will to use the cushion provided by the 1996 oil price increases to
facilitate such a readjustment, or whether the increased revenue will lull them
into a false sense of security.
Second, what will the political
consequences of the new austerity, if it is that, be in states where the past
twenty years (if not more) of politics has been based on an implicit social
contract between rulers and ruled, in which the former receive loyalty (or
quiescence) and the latter a vast array of social services? It is interesting
to note that, while some GCC states have raised fees for highly subsidized
services, none has taken what would seem to be the natural way to meet the
fiscal crunch-imposing taxes. It is also interesting to note that the belt-tightening
has been accompanied by efforts by the regimes to give at least the appearance
of more institutionalized consultative mechanisms for eliciting the
populations’ views of politics. Oman, Saudi Arabia and Bahrain all appointed
new majalis al-shura (consultative councils) since 1990. Kuwait restored its
elected parliament in 1992. The new amir of Qatar has promised elections for
municipal councils in 1997. Saudi Arabia and Bahrain in 1995 also made sweeping
changes in their cabinets (though not in the “political” ministries that are
the reserves of the ruling families), bringing in new faces to deal with their
economic problems. It is clear that the rulers feel the need to make some
gestures toward their populations as they enforce, or contemplate enforcing,
economic hardship.
CONTRADICTION NUMBER 3:
THE ‘PRIVATE SECTOR” VERSUS STATE
OBLIGATIONS
One of the ways that
GCC governments hope to deal with the new financial realities they face (or at
least one of the ways they talk about dealing with those realities) is through
privatization of state-owned and -controlled companies. The belief is that privatization
will give the states a one-shot revenue boost while relieving them of the
long-term burden of maintaining inefficient companies and/or producing subsidized
goods and services. (There is little talk of privatizing very successful
operations, like the Saudi Arabian Basic Industries Corporation-SABIC.) Kuwait
has moved the farthest in actual privatization plans, auctioning its stake in
the National Industries Company, the largest industrial firm in Kuwait outside
of the oil sector, setting up a private sector company to own and manage
gasoline stations belonging to the Kuwait National Petroleum Company, and
divesting itself of its 12 percent stake in the Gulf Bank. Kuwait eventually
plans to privatize sixty local firms and public utilities, of which seventeen
have already been sold.28
Oman has adopted plans to privatize some
concerns (like the state electric company) and opened up new projects in the
energy sector to domestic and foreign private capital.29 Qatar has also sought foreign investors
in its plans to develop its massive offshore gas reserves, and plans to
institute a domestic stock market and to divest at least some of the
government’s share in local companies through that market.30 Leaders in both Saudi Arabia and Kuwait
have spoken publicly about privatizing their national airlines. As of the end
of 1996, there were more privatization plans than actual privatization’s in the
GCC, but it is increasingly seen as one relatively painless way to deal
politically with the consequences of the new fiscal austerity.
The problem with privatization plans,
however, is that they are not costless politically. If they are to work-if the
privatized companies are to be able to compete in the market and be attractive
assets for buyers-then companies will
no longer be able to provide the social goods that the governments have
distributed through them. The most important of those social goods is jobs. The
state sector has absorbed the vast majority of citizens in the work forces of
the GCC states. Privatized companies would, presumably, look to improve
efficiency and boost profits by reducing their payrolls. Thus privatization
could lead very directly to increased unemployment, a new and dangerous
sociopolitical phenomenon that has reached noticeable proportions in both
Bahrain and Saudi Arabia, and could become an issue in Oman and Kuwait.
Privatization also means upward pressures
on the prices of the goods and services provided by the companies.
Privatization as a fiscal strategy makes sense only if the states can reduce or
eliminate the subsidized inputs they provide the companies. But if the newly
privatized companies have to pay market prices for their inputs, then they will
have to raise prices to make a profit. If regional electric companies are
privatized, as has been discussed in Saudi Arabia, consumers can expect
electric bills much higher than now, even with the recent price increase. If
Saudi, the national airline, is privatized, cheap domestic flights will go the
way of the caravans.
While privatization certainly has some
things to recommend it, the context in which it occurs will be extremely
important for the economies, and thus for the politics, of the GCC states. The
“private” sector in these states, particularly the large trading and
manufacturing concerns, has lived for years within a protected economic
space-protected from foreign and even local competition by the government,
reliant on government contracts and state spending, and benefiting from
state-granted monopolies, licenses and subsidized inputs. It is questionable
whether the creation of a real and competitive private sector is in the
interest of much of the Gulf business elite, which has benefited enormously
from the status quo over the last two decades. Real privatization would require
a wrenching transformation in the Gulf business environment-the creation of a
real private sector . That would entail: (1) a more limited regulatory
environment, decreasing the importance of contacts inside the government in
avoiding legal problems; (2) a clear and enforceable commercial code with a
judiciary able to adjudicate commercial disputes and an executive willing to
enforce judicial decisions; (3) the reduction if not elimination of subsidies;
and (4) a more open and competitive system of bidding on government contracts
and licenses. Without these kinds of changes, “privatization” could turn into a
process in which the state continues to bear much of the financial burden of
supporting these companies while the profits that accrue end up in the pockets
of the privileged business and political elite.31
If there is a real move to privatize, as
was mentioned above, one of the inevitable consequences will be increased
unemployment among Gulf citizens
for whom the state
sector has been the last, and frequently the first, resort in job-seeking.
Combined with the demographic pressures discussed earlier, privatization could
heighten what is already a serious problem in Saudi Arabia and Bahrain and what
promises to be a more serious problem elsewhere.32
It is It is difficult for outsiders to believe that there could be citizen
unemployment in the GCC states, which are host to millions of foreign workers.
The natural solution to the unemployment problem would appear to be replacing
foreign labor with local labor. Some Gulf officials have indicated that their
states are thinking along those lines, also.33
The UAE in 1996 conducted a very public campaign to deport undocumented foreign
workers, for example.34
However, such moves run up against the desire of the GCC states to encourage
greater private sector activity in their economies.
Gulf businessmen are unanimous (or nearly
so) in their belief that their productivity and profitability depend to some
extent on foreign labor. The wage levels of foreign laborers are much lower
than that of locals. The ability of employers to maintain discipline over
foreign laborers, who have no political
connections and
tenuous legal standings in the countries, is much greater than would be the
case with citizens workers. Many Saudi businessmen in particular complain that
graduates of the Saudi school system, particularly the religious track in that
system, do not have the skills necessary to do clerical and middle-management
jobs. In 1996, when Saudi Arabia attempted to place an income tax on foreign
workers in the kingdom, the outcry from the business community was so great
that the king quickly withdrew the proposal.35
So the GCC states face a dilemma in
dealing with the unemployment issue. On one hand, citizens without jobs are an
implicit rebuke to regimes that have taken great pride in providing lucrative
and stable employment to their citizens. They form a potential audience for
opposition political movements. The riots in Bahrain that started in December
1994-January 1995 were not caused by unemployment per se, but it seems clear
that high unemployment is a factor among other motivating discontent in that
country. On the other hand, adopting legislation (e.g. taxes, much larger fees
for visas and work permits) that would equalize the costs to employers of
hiring local as opposed to foreign labor would be opposed by a private sector
upon which the governments are relying to help them through their fiscal
problems. Such steps would also hit at the economic interests of those who earn
handsome sums from their ability to grant visas and work permits. To some
extent there is no choice in the longer term for the government but to replace
foreign labor with local labor, but the steps necessary to get there will be
difficult to take.
Thus the “private sector” is no panacea
for the economic problems facing the Gulf regimes. Giving it a greater role in
national economic life is in many
ways inevitable, but
how it is done will have enormous political consequences. There is no easy way
to shift the economic responsibility that the states took on in the 1970’s-to
provide citizens with comfortable jobs and subsidized services-onto the private
sector.
Another issue that arises when
considering the role of the private sector in economic reform in the Gulf is
the place of the ruling families in that sector. The families literally are a
category of their own-public, in that they ultimately control the state and
draw on its revenue, but also private, in that the state is now distinguishable
from the family, not all family members are officials of the state, and some
family members are pursuing careers outside the state. They inhabit a unique
space in between the public and private sectors. Without a doubt the families
provide political services in these states-continuity, stability, tradition,
staffing of many state offices. But any efforts to address the demands on the
state budget will have, eventually, to address that portion of state revenues
reserved for the families. The political implications of enforcing hardships on
the rest of society while the families maintain, or increase, their share of
state revenues could lead to enormous resentments. Likewise the roles of the
families in the private sector must be defined, particularly if increasing
amounts of these economies are privatized. If family members are given an
automatic advantage in the business world (e.g., preferential treatment by
state authories, an immunity from judicial proceeding), some of the benefits of
privatization could be lost, and members of the business community could become
alienated from the political system.
Defining future relationship of the
family to the state and to the private sector presents a real contradiction to
the rulers. On the one hand, the family is their ultimate constituency and base
of support. Moves that are seen as decreasing its wealth and its privileges
could have very immediate and negative consequences for Gulf rulers. On the
other hand, in the new atmosphere of economic austerity, for the family to be
seen by the rest of society as immune from the hardships and burdens shouldered
by others could create a political backlash that is harmful to the long-term
political stability of the state, and the family’s role in it.
CONTRADICTION NUMBER 4;
ECONOMIC REFORM VERSUS POLITICAL
REFORM
It is common place for Western observers
of the Gulf to argue that the difficult economic choices facing the GCC states
require a much broader base of popular involvement in decision making.
Enforcing hardship is a trickier political task than distributing benefits. It
requires the active solicitation of support from at least the most important
and politically aware stratum of the population if it is going to work, if it
is going to be accepted and implemented without causing instability and violent
political opposition, or so the argument goes. As was mentioned above, the
regimes themselves seem to appreciate this fact. Economic belt-tightening has
been accompanied by the restoration of the elected Kuwaiti parliament and the
appointment of majalis al-shura in Saudi Arabia, Oman and Bahrain.
While there are a number of reasons why
institutionalizing avenues for citizen participation in the politics of the GCC
states would be a good thing, facing difficult economic choices might not be
one of them. There are plenty of cases around the world in which painful
economic transitions, that left the country in the longer term better off, were
carried out by authoritarian and even brutal dictatorships. The Chilean, South
Korean and Taiwanese governments that brought their countries to their current
prosperity were hardly democratic. At some point when prosperity was achieved
all moved to liberalize politically, but during the transition phase of
economic restructuring (e.g., replacing import-substitution industrialization
policies with export-led growth policies and reducing the political and economic
clout of labor unions) these regimes moved to limit, not to increase, popular
participation in politics. China, with the fastest growing economy in the world
and profoundly dislocating market reforms, is maintaining a tight lid on
political freedoms. This is not to say that brutal authoritarianism is either
necessary or sufficient for economic reform. Democracies have taken steps to
restructure their economies (e.g., Poland, India); authoritarian regimes have
driven their countries into bankruptcy (e.g., the Philippines of Marcos, the
FLN in Algeria). But these examples are enough to call into question the idea
that greater popular participation would make the economic task of the Gulf
states any easier.
If American politics is any indication,
the people’s elected representatives are just as likely to oppose “rational”
economic policies that would impose immediate hardships on their constituents
as they are to use their positions to convince their constituents to sacrifice
for the greater good. In GCC countries where austerity measures have been
taken-like the increase in consumer prices in Saudi Arabia-there is no evidence
that consultative councils had a role in formulating the decisions. Bahrain’s
budget deficit was slated to increase in 1995 and 1996 over 1994 levels,
despite the new presence of an appointed majlis.”36
Having an elected parliament has not
helped Kuwait face its difficult financial situation. The Kuwaiti government
floated a proposal in October 1994 for a 10 percent income tax on civil
servants and workers in the state sector, to pay for the American military
mobilization of that month. It quickly became clear that parliamentary
opposition to the proposal was so great. that the government dropped it.37 Despite the recognition by its speaker
Ahmad al-Sa’dun that “Kuwait is on the verge of bankruptcy,” the parliament
instructed the government to restore a number of subsidies it had proposed to
cut and to postpone fee increases it had proposed in the 1995-96 budget. The
parliament then approved, with only one dissenting vote, a 1995-96 budget that
had a deficit of $5.3 billion, slightly larger than the previous year’s
deficit.38 Just before the adoption of that budget
in August 1995, the parliament also succumbed to government pressure and
approved a plan to extend repayment times and lessen interest payments for
Kuwaitis, whose debts had been assumed by the government after liberation,
despite criticism that the measure benefited a small number of wealthy Kuwaitis
who had the ability to pay the loans back.
Efforts to expand real participatory
opportunities thus might make it more difficult to implement difficult economic
decisions that hit people in the wallet. Citizens might oppose policies that
threaten their jobs and increase the prices of goods and services. Organized
groups like the business communities might use their influence to maintain
special privileges, protection from competition, subsidized inputs and
guaranteed prices. Steps that might be in the long-term political interest of
stability in the GCC states could therefore impede the necessary short-term
sacrifices necessary to put their fiscal houses in order. But clearly the most
dangerous course for the regimes to pursue would be to limit political
participation and to avoid the hard economic choices they face. Such a strategy
would leave them politically isolated when the economic problems of today
become the crises of tomorrow.
One interesting factor about the
relationship between economic policy and political participation about which
little note has been taken is the strategies that the Gulf regimes have used to
cover their budget deficits, once their reserves had been depleted. Kuwait has
sold assets abroad and borrowed on the international market. Oman and Qatar
have also relied mostly on international borrowing to meet their deficits.
Saudi Arabia and, to a lesser extent, Bahrain, have relied more on domestic
borrowing, by issuing treasury bills and government bonds, the purchase of
which are reserved to local institutions and citizens.
International lenders care little about
the domestic political arrangements of their debtors. They simply want the
payments made. However, domestic debt holders are not just investors; they are
also citizens. Holding government debt, and the willingness to buy more
government debt, could give citizens and local financial institutions in Saudi
Arabia and Bahrain a new kind of power in dealing with their governments. The
cry of the American Revolution was “no taxation without representation.” None
of the Gulf governments seems willing to take the political risk that direct
taxation entails. But if they do not tax, and cannot drastically cut spending,
debt increases are inevitable. Perhaps domestic debt, not taxes, will be the
economic leverage through which demands for a larger say in political decision
making are placed more forcefully on the agenda in the Gulf states.
CONCLUSIONS
It is much easier to
point out problems than it is to suggest solutions; this paper has done much
more of the former than the latter. Clearly the extent to which each GCC
country faces these common problems differs. Bahrain, the first “Post-oil”
state in the Gulf, experiences the dilemmas of defense, demographics and the
welfare state much more immediately than its oil rich partners. It is the
country in which the unemployment problem is the most serious, and it
experienced more sustained social unrest than its GCC neighbors in the
mid-1990s. Bahrain’s economic difficulties, which are greater in degree but not
that different in kind from the other GCC states, are exacerbated by a
particular sectarian problem-a large Shi’i majority population governed by a
Sunni ruling family-that is unique in the area. It is unlikely that the other
states will experience the same kind of political problems in the same way that
Bahrain has recently, but events in Bahrain provide a cautionary tale to other
GCC leaders.
There are specific social and political
circumstances in each state that add complicating factors to the issues set Out
above: sectarian tensions, though less serious than Bahrain’s, in Kuwait and
Saudi Arabia; the size and unique role of the religious establishment and its
institutions in Saudi Arabia; the continuing effects of the Iraqi invasion on
Kuwait; the Bahrain Qatar, Saudi-Qatar and UAE-Iran border disputes. While the
context is common, the particulars in each state are different, and the choices
they make will be different.
While recognizing the differences among
the GCC states, I have argued that they face a common agenda of problems in the
area of the political economy of security. If serious financial crises are to
be avoided, state spending must be brought into closer alignment with state
revenues. There seems to be no prospect for a substantial and sustained
increase in oil prices, so difficult choices of resource allocation must be
made. There are no drastic changes that they can make in their defense
strategies. They are committed to a relatively expensive strategy of acquiring
high-technology weaponry both to offset manpower deficiencies and to tie the
security interests of the United States and other great powers to their
defense. At best they can trim defense spending at the margins and stretch out
payments for major new weapons systems.
The two areas that no GCC state can avoid
addressing involve the size of the welfare state and the role of the state in
managing the economy. The demographic numbers have a stern inevitability about
them. The question GCC state leaders must face is how to convince their
citizens that belt tightening is in the long-term interests of everyone in the
country, as well as of their children and grandchildren. A first step in that
direction is to make sure, and to be seen to make sure, that hardships fall on
every group, including the ruling families themselves. As of yet none of the
ruling elite’s have been willing to impose fiscal discipline on their families
in a public way. A second step is to involve a greater range of the citizenry
in decision making, though perhaps after the initial difficult economic
decisions are made. Whether appointed consultative councils will fit that bill
is one of the major questions in the political future of the Gulf states.
Clearly where the population has had the experience of elected legislatures
(Kuwait and Bahrain), appointed consultative bodies are not seen as a step
forward in terms of popular participation in politics. In the other states, it
is more difficult to tell both how the consultative councils will develop, and
how the citizenry will view them.
While the political sensitivity of
shrinking the welfare state is well understood by the GCC, it appears that the
political consequences of privatization are, as of yet, not. The enthusiasm
with which governing elites in the Gulf have adopted the rhetoric of
privatization (if not yet the reality) indicates that many see it as a
cost-free way of dealing with fiscal problems. Nothing could be further from
the truth. Real privatization would require two extremely difficult political
choices by the GCC governments: (1) a willingness to tolerate, at least
temporarily, substantial increases in citizen unemployment, or to radically
restructure the economic incentives that now lead employers in these states to
hire foreign labor; and (2) a willingness to construct legal systems based on
clear, impartial and enforceable commercial laws that treat all
citizens-employers, investors and workers-equally. A real and competitive
private sector, not based on insider contacts, sweetheart deals and protected
monopolies, would be a new thing in Gulf economies, and a politically difficult
thing to build.
I reiterate the point I made at the
beginning: The fact that the GCC regimes face difficult choices in the realms
of security and economics does not mean that they cannot meet these challenges
and maintain domestic and regional stability. There are many paths open to the
regimes in dealing with these issues, but they must be faced sooner or later.
The choices they make concerning them in the next few years will determine the
character of politics in the GCC states into the next millennium.
NOTES
1 Much of the recent literature on security in the Third World has emphasized the central analytical role of regime security in understanding the foreign and defense politics of these states. See for example Steven David, “Explaining Third World Alignment,” World Politics 43, no. 2, (January 1991); Mohammed Ayoob, The Third World Security Predicament (Boulder, Colorado: Lynne Rienner, 1995); Edward Azar and Chung-In Moon, “Legitimacy, Integration and Policy Capacity: The ;Software’ Side of Third World National Security,” in Azar and Moon, eds., National Security in the Third World (London: Edward
, 1998); and Brian L. Job, “The Insecurity Dilemma: National, Regime and State Securities in the Third World,” in Job, ed., The Insecurity Dilemma: National Security of Third World States (Boulder, Colorado: Lynne Reinne, 1992).
2 Current security threats in the Gulf are discussed at greater length by the author in his book Oil Monarchies, Domestic and Security Challenges in the Arab Gulf States(New York: Council on Foreign Relations Press, 1994) A number of the themes developed in the paper are treated in more detail in the book.
3 Andrew Rathmell, “Oman: Server cuts in Sultan’s defense,” Jane’s Intelligence Review 3, mo. 7 (July 1, 1996), p. 6.
4 The author obtained copies of the Memorandum of Advice (muzakkaray al-nasiha) in Saudi Arabia. “The Army” was one of the sections of the Memorandum, and included the call for a citizen force of 500,000 men.
5 See The New York Times, October 13, 1991, pp. 1, 18; October 25, 1991, p. A9, for references to the Saudi proposal. Since that time there have been no moves to expand the size of the Saudi military.
6 In 991 leaders of the Saudi Shi’I community sent a petition to King Fahd in which they raised four specific issues which they were “absolutely sure…would be taken care of by your Excellency.” One of the four was a request that the “quarantine” against the entrance of Saudi Shi’I into the armed forces be removed, because many in the community wished to “discharge our duty of defending the soil of this country.” Practically identical English-language translations of this petition appeared in “Makka News” no.7 (April 6, 1991) and in “Arabia Monitor” 1, no. 6 (July 1992). “Makka News” was published by the Organization of the Islamic Revolution in the Arabian Peninsula, an Iranian-supported exile group with an American post office box address in Bowling-Green, Kentucky. “Arabia Monitor” was the monthly newsletter of the International Committee for Human Rights in the Gulf and Arabian Peninsula, published in Washington, D. C.
7 Ashraf Fouad, “Saudi may buy $7.5 billion airlines in phases,” Reuters (on-line), September 17, 1995.
8 United Nations, Demographic Yearbook-1991, (New York: United Nations, 1992), Table 1, p. 103; Table 3, pp. 106-11.
9 Population Reference Bureau, 1995 World Population Data Sheet (Washington DC: Population Reference Bureau, Inc., 1995)
10 It is extremely difficult to find accurate and official figures on the liquid reserves of the Saudi government. Middle East Economic Survey, January 25, 1993, p. B3, puts usable Saudi government reserves at $7.1 billion at the end of October 1992, though other analysts involved in Gulf financial matters put the figure much higher, closer to $20 billion. The New York Times published a two-part series on the Saudi financial situation (August 22, 1993, pp. 1, 12; August 23, 1993, pp.1 A^) in which they quoted an unnamed Saudi official as estimating the country’s liquid reserves at $7 billion. In a response to these articles, then Saudi Finance Minster, Muhammad Aba al-Khayl, wrote that the Kingdom had a $20 billion hard currency assets in excess of $15 billion. Part of Aba al-Khayl’s response was published as a letter to the editor in The New York Times, August 26, 1993, p. A18. The full text of the letter can be found in Middle East Mirror, September 2, 1993, pp. 20-22.
11 See al-Shall reports reprinted in al-Hayat, January 28, 1995, p. 9; and February 25, 1995, p.9.
12 al-Hayat, January 3, 1995, pp. 1, 4; The New York Times, January 3, 1995, p. A3; “Saudi wants to quickly balance budget-minister,” Reuters (on-line), January 9, 1995.
13 Christine Hauser, “Saudi Arabia cuts back desert wheat farms,” Reuters (on-line), July 2, 1995.
14 Steven Swindells, “Saudi oil price strategy may cut budget deficit,” Reuters (on-line), August 31, 1995.
15 Ashraf Fouad, “Saudi 1995 budget deficit slightly above target’, Reuters (on-line), January 15, 1996.
16 Diana Abdallah, “Saudi economy healthier, but more challenges ahead,” Reuters (on-line), June 11, 1995; Diana Abdallah, “Saudi may pay all contractor’s debt by end of year”, Reuters (on-line), May 20, 1996.
17 Diana Abdallah, “Saudi 97 budget projects higher spending, revenue,” Reuters (on-line), December 30, 1996.
18 “UAE approves ’95 budget with 25 pct deficit cut,” Reuters (on-line), January 30, 1995; al-Hayat, October 3, 1996, p.9.
19 Youssef Azmeh, “Qatar confident after loan deal for huge gas field,” Reuters (on-line), June 19, 1995; “Qatar aims to slash budget deficit,” United Press International (on-line), April 4, 1996; Reuters (on-line), November 18, 1996.
20 Hilary Gush, “Qatar bourse seen soon, privatization later,” Reuters (on-line), July 12, 1995.
21 “Oman narrows budget deficit,” Associated Press, (on-line), January 15, 1996; “Oil prices push Oman growth in 1995”, United Press International (on-line), August 20, 1996.
22 Christine Hauer, “Saudi aid will ease Bahrain budget squeeze,” Rueters (on-line), April 15, 1996.
23 Reuters (on-line), September 22, 1996.
24 al-Hayat, November 11, 1994, p.9
25 Inal Ersan, “Oil prices cut Kuwaiti deficit, but reform needed,” Reuters (on-line), December 8, 1996.
26 al-Hayat, May 30, 1996.p.9.
27 Diana Abdallah, “Gulf coffers fill, economic reforms slow,” Reuters (on-line), December 19, 1996.
28 “Kuwait auctions share of industrial concern,” Reuters (on-line), June 22, 1995; “Kuwait outlines petrol station privatization,” Rueters (on-line), September 11, 1995; “Kuwait to sell 90 million gulf Bank shares,” Rueters (on-line), December 19, 1996.
29 al-Hayat, June 23, 1995, pp. 1, 6; Randall Palmer, “Oman may be overdoing expansion, economists say,” Reuters (on-line), January 19, 1995; Steven Swindles, “Oman attracts interest of foreign oil explores,” Reuters (on-line), June 20, 1996.
30 “Qatar to sell off shares in two firms,” United Press International (on-line), September 15, 1996.
31 For an excellent theoretical discussion of the problem faced by states looking to privatization and liberalization as solutions for their economic crisis, see Kiren Aziz Chaudhry, “The Myths of the Market and the Common History of Late Developers,” Politics & Society 21, no. 3 (September 1993), pp. 245-74. It is increasing to note that Chaudhry did extensive fieldwork in the Arabian Peninsula and Iraq for other projects. A similar argument about the obstacles to privatization in the gulf states has been made by Vahan Zanoyan of the Petroleum Finance Company. See his “After the Oil Boom,” Foreign Affairs 74, no. 6 (November/December 1995).
32 The problems presented by unemployment for the GCC states were highlighted in a recent address to a conference in Dubai on economic development in the region by Kuwaiti economist Jasim al-Sadoun. He said that current demographic trends indicate that by the year 2010 there will be 8 million new entrants into the labor market in the GCC states. “Planners and decision makers must then attempt to create enough jobs for the newcomers or face the alternative-severe unemployment with possibilities of social and political extremism. All available signs point to the latter happening.... People think that because of the large number of expatriates it will not be difficult to replace them with national manpower. The reality is otherwise,” he said. Quoted by Reuters (on-line), February 5, 1995, citing an article in Arab Times.
33 Oman has had an official policy of “Organization” of the work force for years, though until recently it
has remained little more than rhetoric. Particularly after the departure of most of the
Palestinian community from Kuwait after liberation, there were serious plans mooted to reduce Kuwaiti
dependence upon foreign labor, but recent figures show that foreigners still make up more than 75 percent
of the Kuwaiti work force. Sharon Stanton Russell and Muhammad Ali alRamadhan, “Kuwait’s
Migration Policy Since the Gulf Crisis,” International Journal of Middle East Studies 26, no. 4 (November
1994), pp. 569-87. Bahrain officials are considering doubling the cost of work permits and renewals of
such permits for foreign workers, in the wake of serious social unrest on the island at the end of 1994 and
the beginning of 1995. “Bahrain might raise work permit fees for foreigners,” Reuters (online), September
23, 1995. Saudi Interior Minister Prince Na’if ibn Abd alAziz, whose country increased the cost of
foreigners’ work permits at the beginning of 1995, told the Saudi Press Agency that “replacing the
expatriate work force by Saudi nationals is a strategic goal of the state” (“Saudi to replace expatriates by
Saudis, Minister says,” Reuters (on-line), July 20, 1995).
34al-Hayat, October 3, 1996, p. 9.
35 See the account of that incident in Kiren Aziz Chaudhry, “The Price of Wealth : Business and State in Labor Remittance and Oil Economies,” International Organization 43, no. 1 (Winter 1998), pp. 101-45
36 Reuters (on-line), November 30, 1994.
37 See al-Hayat, October 18, 1994, p. 4; October 24, 1994, pp. 1, 4; October 29, 1994, p. 10 for reporting on this issue.
38 al-Hayat, June 28, 1995, pp. 1, 6; July 9, 1995, p. 5; August 23, 1995, pp. 1, 6.
.