1/ Two questions for Gulf economies are increasingly important:
a) why do they lack innovation?
b) why do they struggle to create jobs for citizens?
A few overarching and persistent reasons...
a) why do they lack innovation?
b) why do they struggle to create jobs for citizens?
A few overarching and persistent reasons...
2/ For decades, Gulf states facilitated what is called REGULATORY CAPTURE, i.e. when a political entity, policymaker or regulator is co-opted to serve the commercial, ideological, or political interests of a minor constituency, in this case, the "Tijjar", or merchant class.
3/ Two primary and protectionist measures were born from this:
a) WAKALA - enabling a local "agency" to be sole-distributor of foreign goods and services
b) KAFALA - a mandatory local sponsorship of all expat labour.
a) WAKALA - enabling a local "agency" to be sole-distributor of foreign goods and services
b) KAFALA - a mandatory local sponsorship of all expat labour.
4/ What emerged was a massively corrupted form of capitalism, one that focused on OLIGOPOLISTIC trading (in lieu of real production/value-add). For nearly a century, this fostered (in various forms) a culture of banal private sector rent-seeking.
5/ The tsunami of capital formation that followed, accrued to a minority segment of the population that used their growing power and influence to reinforce and perpetuate the regulatory capture; after all protecting one's commercial position is logical.
6/ Gulf private sectors chose to follow two state-sanctioned rentier business models:
1) an end-point of sale for consumer goods (wakala)
2) arbitraging & monopolising the price of labour (kafala)
A consequence of this was a chronic lack of innovation and superficial development.
1) an end-point of sale for consumer goods (wakala)
2) arbitraging & monopolising the price of labour (kafala)
A consequence of this was a chronic lack of innovation and superficial development.
7/ Reinforcing the symbiotic arrangement, the state was (and largely continues to be) the source of almost all end demand. Even household consumption was ultimately a function of state salaries, distributed through an ever-expanding and mollifying bureaucracy.
8/ A captive source of demand and a protected local market thus failed to create incentives for the private sector to be dynamic or globally competitive. This meant that for decades, economic activity never became "productive" in an innovative or knowledge-building sense.
9/ This evidence supports the late Hisham Sharabi's theory of Neopatriarchy (h/t @Layla_AlAmmar).
Private sectors, far from developing an intellectual capacity and independence, instead expanded under new protective legislation as mere extensions of the patronage system.
Private sectors, far from developing an intellectual capacity and independence, instead expanded under new protective legislation as mere extensions of the patronage system.
10/ As a result, Gulf private sectors chronically LACK a capacity to critically analyse and solve problems. Instead, solutions are imported and sold, skirting the acquisition of knowledge implicit in the solutions purveyed. This helped perpetuate the status quo for decades.
11/ Today we're confronted with a private sector that is narrow (trading-focused) and shallow (lacking deep participation in the value chain). Yet the sector's role in the political economy is being forced to change, in part, as the expectant provider of employment to citizens.
12/ As local markets are liberalised, protections removed and aggressive quotas to hire nationals are enforced, I envisage challenging times for many traditional Gulf businesses that fail to radically re-invent themselves.
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