This introduction is part of POMEPS Studies 33: The Politics of Rentier States in the Gulf. Download the full PDF here.
More than two generations have passed since oil transformed the economies and societies of the Gulf monarchies. Gulf citizens enjoy opportunities unimaginable without oil wealth and have the security of a comprehensive welfare state. But how sustainable are the Gulf economies? Citizen populations continue to grow, oil reserves continue to fall, technological advances could lessen world demand for the Gulf’s oil, and price fluctuations make planning difficult. Most Gulf monarchies have made little progress in transitioning away from oil despite these widely-recognized incipient problems. Periods of lower oil prices are met with deficit spending until prices rise again, rather than serious economic restructuring. They have built economies with deep structural imbalances that make it more rather than less difficult to reduce their reliance on oil – and political orders which are deeply constituted by those imbalances and threatened by reform.
The political economies shaped by oil wealth have been primarily studied in the political science literature through the concept of the rentier state, which suggests that the dominance of oil wealth has distinctive, largely unavoidable political, social, and economic effects. Rentier state theory developed to explain the difficulty of diversifying economies, the bloating and inefficiencies of state institutions, the absence of democracy, the power of national security states, and patriarchal political cultures. Among scholars whose work focuses on the Gulf, though, the theory of the rentier state appears more often as a foil than as a bedrock theoretical perspective. Does rentier state theory actually explain political outcomes and structures in the Gulf?
The contributions and limitations of rentier state theory in the Gulf were the focus of a workshop convened by the Project on Middle East Political Science at the Elliott School of International Affairs in September 2018. The discussions among a diverse, interdisciplinary set of scholars revolved around the nature and extent of the coming challenges to Gulf economies, and the inadequacy of existing theories of the rentier state to account for the political implications. The papers presented in this collection range widely across countries, economic sectors, and political manifestations. They sought to bring anthropological and ethnographic perspectives into dialogue with economists and political scientists. Two themes dominated the discussions.
First, the extremely unbalanced labor markets in Gulf countries pose a profound challenge to any effort at economic reform. The vast majority of the private sector labor force across the Gulf is composed of foreign labor, and in four of the six GCC countries foreign residents outnumber citizens in the population as a whole. Any effort at economic diversification will have to confront these extreme imbalances, and doing so will require confronting the political institutions and political culture which have evolved over decades around them, in addition to business interests with a deep stake in the status quo.
Second, the “theory” of the rentier state itself needs significant rethinking to be useful in the contemporary context. The field has moved beyond simple assertions of causal effects and is now better placed to probe specific causal mechanisms and to marshal new kinds of evidence to evaluate the predicted effects of rentierism on state institutions, the structure of national economies, and political culture. Political science approaches to the rentier state need to move beyond abstract concepts of the social contract to examine precisely how citizens engage with the state under the conditions shaped by oil. What expectations do Gulf citizens actually have of their governments – and how do those governments attempt to shape citizens?
Labor markets and economic reform
Discussion of the economic effects of the rentier state typically focuses on the crowding out of other industries, the domination of the public sector over the private sector, and the significance of the resources to finance extensive welfare and security states. But as important as those dimensions is the underlying structure of labor markets, the distinctive problems of employment which those economies have created, and the political expectations about the state which they have generated.
The Gulf monarchies have no hinterlands from which to recruit citizen labor, so the labor attracted to their booming economies comes from other countries. The logic of rentierism, however, makes it difficult to widely grant citizenship to these migrants. Claire Beaugrand quotes Kuwait’s foreign minister protesting that “our citizenship is expensive!” And it is. Each new citizen means that the country’s fixed sum of oil export revenues will be divided amongst that many more people. As a consequence of this logic, the Gulf states have not widely granted citizenship to foreign workers. But that has not in any way lessened their thirst for labor.
The ability of the regimes to offer jobs, paid for by oil revenues, to many or most of their citizens has created an expectation among citizens that they will receive a job in the state (though the expectation is most pronounced in the richest rentiers, Qatar, the UAE and Kuwait). The private sector, for its part, strongly prefers to hire inexpensive labor from abroad. The result is that all six Gulf GCC states feature a sharply divided labor market in which citizens prefer to work for the state and the private sector prefers to hire foreigners. This all costs a lot of money: it is expensive to provide state employment to so many citizens, and it is expensive to pay for the infrastructure to support the millions of foreign workers in the private sector.
The reliance on foreign labor creates challenges for economic diversification, which is critical to the success of the Gulf monarchies in preparing for a post-oil future. These challenges are seen most acutely in Saudi Arabia, where Crown Prince Mohammad Bin Salman has been pushing an ambitious agenda of social and economic change ostensibly aimed at transitioning the country to a post-oil future.
Ishac Diwan sketches out two possible scenarios for Saudi Arabia. One he calls Egyptianization, in which low wage foreign workers continue to dominate the labor market, while “dwindling oil revenues continue to be shared among nationals, cheap labor continues to be freely imported, and Saudi reservation wages only fall slowly over time.” The long-run implications of this are dire: over time, “the kingdom will turn into an increasingly impoverished welfare state….” The alternative, Diwan argues, is to replace foreign labor with citizen labor. How would this help? He says that this would not likely generate globally tradable exports, but it would mean that Saudis themselves provide the labor for the rest of the economy, which ultimately is less expensive than hiring foreigners. He and Michael Herb point out that the current strategy is instead to develop a “mega-Emirati” economy in which foreign labor continues to dominate the economy, including the production of tradeables. Saudi Arabia is too large for this strategy to succeed.
Steffen Hertog looks at the same set of issues from a different point of view: he asks what sort of transformation would be necessary for Saudi Arabia to restructure its economy to resemble that of an OECD economy. The private sector will need to create a vast number of jobs for citizens, a number that implies a rate of job growth that has few precedents elsewhere in the world. Tax collections would need to go up. Crystal Ennis similarly observes that while Saudi modernizers view women as an untapped resource – and indeed they are – the participation of more women in the labor force will require the generation of even more jobs for citizens. Hertog, ultimately, is not optimistic that Saudi Arabia can make the transition. He sees pauperization as a real possibility – this is Diwan’s Egyptianization by a different name.
Andrew Leber, on a slightly more optimistic note, observes that one benefit of Muhammad bin Salman’s willingness to confront established Saudi elites is that he is willing to use state authority to force the private sector to provide jobs for Saudi citizens in a way that had not been found under previous Saudi rulers. This suggests at least the possibility that the Saudi regime is willing to break through some of the logjams that make labor market reform so intractable in the Gulf. Those efforts both depend upon and encourage repression and abuses by state security forces, which could be popular if directed against widely resented elites but if extended too broadly could drive resentment and public opposition faster than the economic reforms can demonstrate success.
While all six GCC states have unbalanced labor markets, the severity of the problem and the urgency of addressing it vary across the Gulf states. The richer states – Kuwait, Qatar, and the UAE – will not go broke if they maintain the status quo for the short term and, if oil prices cooperate, even the medium term. Oman has a much more immediate problem. And the GCC states are not likely to adopt the same strategies in addressing their labor market problems. Even today the UAE and Kuwait are responding quite differently, with much discussion in Kuwait about limiting the number of foreigners, while the UAE continues to build an entrepôt economy that requires abundant foreign labor. These choices will shape the political economies of the Gulf monarchies in the years ahead, with the potential to create strikingly different political, economic and social structures across the GCC.
Rentier state theory and the social contract
One of the original intuitions of the rentier state theory – beyond the slogan “no representation without taxation” – is the idea that there is a social contract in the region between rulers and ruled. The basic terms of the contract are that rulers would provide citizens with oil revenues and citizens would provide allegiance, or political quiescence, to their rulers. It did not entirely escape the authors of the earlier contributions to the rentier state literature that the trade of political quiescence for oil wealth might not last forever. Yet in much of the literature, and in the large-n works that followed, these qualifications are muted.
Recent work by scholars of the region on the rentier state view this social contract is a social construction, one that must be created and renewed over time. There is good historical evidence for the ability of rulers to deploy oil revenue to quell dissent, as Christopher Davidson points out in his analysis of the decline of the Arab nationalist opposition in Dubai in the 1960s. But the contributors offered multiple suggestions for productive ways that we can think of the rentier social contract as a construct that changes over time. Moritz calls for a reappraisal of how oil affects attitudes toward the state: “the link between rents, rent distributions, and societal quiescence is not nearly so settled.” Krane argues that the success of subsidy reform suggests that the rentier “social contracts are less rigid than portrayed in the rentier literature.” Such questions cannot be resolved in the abstract, instead requiring rigorous research – whether qualitative interviews (such as those by Moritz, in this collection) or survey research (such as Gengler in this collection) – on the views of citizens themselves about the state and society.
Perhaps one of the more productive avenues for future research is research that takes an empirical approach to citizen attitudes toward oil wealth. Moritz has extensively interviewed Gulf citizens, asking them about their views on oil revenues and political activism. Karen Young suggests that we can see in the different strategies followed by sovereign wealth funds an indication of how regimes see the responsibility for managing “shared wealth.” And Justin Gengler offers some very specific insight into how citizens view the responsibilities of their rulers: when given a hypothetical choice of various combinations (baskets) of spending choices by the government, they rated most highly those that provided classic welfare benefits to citizens, especially health care and education. Spending on those outside Qatar was a much lower priority.
Some questioned the existence of the social contract altogether. David Waldner and Ben Smith ask just who is making a contract with whom, and how would such a contract be enforced. The notion of a contract is, from the beginning, a metaphor, a description of how citizens view the state. Those views can change over time, and the mere existence of oil revenue does not freeze them into place. As times change, so does the framing of the social contract and the relationship of citizens to the rentier state. As Claire Beaugrand points out, Kuwaitis have come to feel that they are shareholders in the state: they benefit from its provision of goods (tied tightly to their citizenship) and their “expectations turn into injunctions” as they view the spending choices of the regime.
Finally, several participants, including Makio Yamada, explore the problem of how to restructure the expectations of citizens. Calvert Jones views the problem from the point of view of the rulers, who themselves seem to view the rentier social contract as a construction, and based on this try to influence how citizens view the state. She uses the term social engineering to describe this sort of regime initiative, and points out that it “flies in the face of rentier state theory.” And she says that the “rentier social contract” engenders loyalty “of a rickety sort.” She closes by pointing out that Kuwait, which is more democratic, does less social engineering than the others. Finally, Crystal Ennis points to the role of women in engaging with these political economic changes, as the state carefully encourages their entrepreneurship.
As regimes and citizens work out new understandings of the relationship between citizens and the state we should expect to see a good deal of variation among the Gulf monarchies. Rentierism does not produce the same results everywhere, and we see today quite different relationships between the state and citizens – compare, for example, Kuwait, Bahrain, and Qatar. These differences may well widen in the future as choices the regimes make today, and have already made, constrain their options going forward.
One critical point made by Khalid Abu-Ismail is that this is not simply a Gulf matter. The region’s poorer economies are tied to the economies of the Gulf oil-exporters, and they have a major stake in labor market reforms in the Gulf monarchies. While it might be in the interests of citizens of the oil-exporters to reduce their reliance on foreign labor, even at the potential cost of a shrinking of their economies, this would make that much more serious the economic challenges faced by labor exporting countries in the region and beyond.
The Gulf states face hard choices about how to transition away from their current reliance on oil and foreign labor. There are no certainties about how these choices will be framed by the regimes or understood by citizens. The old rentier social “contract”, if it ever really existed, is clearly under strain, and citizens increasingly feel a sense of entitlement to oil revenues. The regimes will attempt to frame the way that citizens understand the upcoming changes, in some cases via very explicit social engineering. Citizens may or may not frame the changes to their countries’ political economies in the same way as the regimes, however, and their perceptions of what they are owed, and what they owe to their countries, will shape the development of Gulf political economies as they attempt these transitions.
Michael Herb, Georgia State University
Marc Lynch, George Washington University and Director of POMEPS