Saturday, August 25, 2012

Hanieh - Capitalism and Class in the Gulf Arab States

I continue to explore literature that will help me understand the dynamics of work in Qatar and the Arabian Gulf. This is out of my own curiosity plus a desire to find reading that will help other colleagues who come here to adjust, serve, and thrive. Adam Hanieh’s Capitalism and Class in the Gulf Arab States (2011) is my new nomination for essential reading. The book provides thick and detailed description of the historical background that preceded the establishment of the Gulf Sheikdoms and the political and economic conditions that shaped their founding and now their growing influence around the world. Reading Hanieh’s analysis and the implications they have for those who work in GCC countries, as well as others around the world, will result in a much more informed way of relating to the region. The book has many, many details that are far beyond comment in this post. I will offer a couple of enticements…

Let me begin by referencing a very important point of how the Gulf region emerged as it has. The Arabian Gulf has been deeply shaped by Western influences. The Brits shaped Gulf dynamics by pursuing policies to “divide-and-rule through a series of treaties signed with all the Gulf sheikhdoms from 1820-1945” (p. 6) which forbid the Sheiks “from entering negotiations with any foreign power other than the British, and preventing them from building up their naval power.” “Through the treaties, Britain blocked any move toward internal unity between the seven sheikhdoms, which were unable to negotiate with each other without British mediation,… setting themselves (i.e. Britain) up as an external referent and power broker.” (p.7) After British economic and military decline in the 1960s and 1970s, the United States began a gradual process of influencing the Gulf by offering alternative military protection and by nurturing business partnerships through exploration for, and eventual extraction of, oil and gas (p. 53). The British are still very present in the Gulf but the U.S.A. has gained in force as it emerged as the largest economy and consumer of petroleum products. The irony is that, as prosperity in the Gulf increased and as Americans sought ever greater luxury in an overly optimistic and indebted economy, Saudi Arabia in particular became one of the U.S.A.’s most significant investors and a securer of growing debt burden. The economic symbiosis between the U.S.A. and Gulf states must be recognized in order to understand that in the long run the Gulf states are really very dependable supporters of economic, and sometimes foreign, policy of the U.S.A. (pp. 44-45). There are differences to be sure but the long-term economic benefit of all depends on maintaining a relationship.

Another very important point that Hanieh makes is that the Gulf states are “rentier” economies and political entities. By in large, the Gulf fortunes are tied to its natural resources instead of to any meaningful production. The vast amount of wealth accumulated by the governments is not derived from taxes or any other revenue sources other than fees paid to exploit its natural resources. And, because the governments are controlled by monarchs, the petrodollars that come to the government are distributed to the citizens in ways to make sure that loyalty to the government is protected, even though the distribution of wealth is uneven and favors elites who are employed in government or construction/merchant industries. Then is it any surprise that one of the best ways to continue the economic benefit to the region, in addition to wealth coming from oil/gas revenues, is by continuing to expand major construction projects and to foster a consumerist environment where “shopping” is truly the local pastime and major form of entertainment?

In addition to offering robust individual wealth to support consumerism among Gulf residents, the exploding economy of the region has given rise to both individual and governmental investment in many other credit-worthy places around the world. McKinsey Global estimates, “the value of foreign assets held by the GCC (Gulf Cooperation Council) could increase by 77 percent to around the $3.8 trillion range if oil prices remain at the $70 level of early 2010… If oil rises to around $100 by 2013 and there is a stronger global recovery, GCC foreign assets could reach $5.7 trillion, an increase of over 160 percent from 2008 levels and exceeding China’s foreign assets by around $1 trillion” (p. 182). In other words, while China may have the largest population, financing of the world economy will come equally or more from the Arabian Gulf. The relations between Gulf states and East Asia are also important in trade and human dynamics. Asia is becoming ever more important as consumers (i.e. Japan and other’s growing dependence on liquid natural gas coming from Qatar) and they are also capturing an increasing share of construction projects (i.e. South Korean firms won a quarter of all projects in the Middle East in 2008, p. 183). While big contracts flow from the GCC to the East, cheap labor flows from poorer Southeast Asian countries to the GCC in profound and sometimes erratic ways. Prior to the 2008 global economic crisis, 85 percent of the Bangladeshi, Pakistani, and Sri Lankan and 60 percent of Filipino overseas workers were placed in the GCC. When the GCC economies contracted, one of the easiest ways to trim was to “transfer the worst impacts of the crisis onto migrant labor and – by extension – the surrounding region” (p. 178) by sending hundreds of thousands of these workers back to their native countries. The result was increasing unemployment in Southeast Asia and the evaporation of the monthly remittances for families in these countries. As trade, consumer, and natural resource exchange evolves in Asia, Hanieh predicts that the GCC will perhaps become the “nodal point linking East and West” as they “work to provide the necessary flows of energy to all sectors of the global economy” (p. 185).

Both the good and bad news is that the relationship between GCC states and the U.S.A. in both economic and military terms seems unlikely to shift in any fundamental ways in the immediate future. It is clear, however, that China (as well as Russia) may exploit conflicts in Iran, Iraq, Pakistan, Afghanistan, and Palestine (p. 186) in order to undermine U.S. hegemony. This is all too graphically demonstrated in the current crisis in Syria that has emerged subsequent to the publication of Hanieh’s book. The point is that the role the U.S.A. chooses to play in every one of these countries could tip the scale to the East. My own perspective is that the economic, educational, and cultural ties that the U.S.A. is fostering are equally as important as previous military ties and that, indeed, the military involvement must become ever more subtle and nuanced.

My purpose in this post is very practical and straight-forward. The dynamics described by Hanieh don’t necessarily make me happy or more comfortable. Understanding that the political and economic conditions that we face today are the result of generations of politicians and business people who set this stage is crucial if we are to escape the na├»ve finger-pointing, accusations, and retrenchment that some of the pundits advocate. The U.S.A, U.K, and GCC are part of globalized systems that cannot be put back into the box. Although not everything is to our liking as “Westerners,” it would pay to look at the current circumstances more fully and that a multitude of strategies be placed on the table to work through to a positive end. Marginalization and criticism must be replaced with compassion that sees the broader, and sometimes peripheral, perspectives of others. And something more than power, whether economic or military, has to be contemplated in the solutions we consider.


Chep L said...

Hi Denny,
Thanks for sharing this resource through your well developed Blog. It will certainly be on my reading list. You are an excellent writer -- and I also enjoyed your brief summary of Tom Brokaw's book - The Times of Our Lives. I listened to the audio version and loved Tom's mention of preparing students for the global economy. Its not until one is working in a global setting that they realize the critical value of a US education (the ability to think critically, solve problems, and share through research).

Denny Roberts said...

Dear Chep - Thank you for your blog comment. I especially appreciate your complement regarding my writing. I've maintained my blog since 2005 and this has offered a great opportunity to sharpen my thinking and improve my writing. Because I live in the Arabian Gulf, many of my current posts are about insights I've gained throug this experience. I hope these offer a window of understanding that may be lacking in some of the public media portrayal of the region.

Blogger said...

eToro is the best forex broker for beginning and advanced traders.