Thinking Aloud: “The Wages of Oil”

Dec. 10, 2014 by Darius

Last week, I saw Georgia State University professor and political scientist Michael Herb talk about his new book The Wages of Oil: Parliaments and Economic Development in Kuwait and the UAE.  His talk was mostly a compare-and-contrast of the economies and governments of Kuwait and the UAE, especially Dubai.  Some of his interesting comments are below.

In Kuwait, Dubai is seen as the standard against which Kuwaitis judge their own country.  That comparison is not entirely fair, though: the two countries are fundamentally different.  A simple trip through the airport will demonstrate that Dubai is designed for foreigners to visit, while Kuwait is designed for Kuwaitis.  That translates into economics: Dubai relies on foreign capital and investment into its economy, while Kuwait is based more traditionally on oil wealth.  Dubai also relies heavily on foreign workers; Kuwait does so to a substantially smaller degree and is working to reduce those numbers further.

According to Herb, approximately 80% of Kuwaitis who work for a wage are either government employees or work for a government-owned company.  With the government playing such a prominent role in the economy, there is little incentive for economic diversification in Kuwait.  Kuwaitis themselves aren’t interested in doing the jobs that would open up through Dubai-style economic diversification and aren’t interested in relaxing the state’s prohibitions on alcohol, which would be necessary to develop a tourist economy, for example.  Furthermore, the Kuwaiti government has no financial incentive to promote greater economic diversification either because tax rates are close to zero.  Instead, the Kuwaiti government, and by extension the Kuwaiti middle class, is financed almost entirely by oil.  Herb described the UAE, on the other hand, as an effective caste system.  Yes, Dubai has a diversified entrepôt economy, but this diversity is completely dependent on expatriate labor.  The Emiratis themselves are perched at the top of the pyramid, supported by countless foreign workers.

Herb said that although Kuwaitis grumble about their lack of economic growth, they are actually quite happy with their economic model rather than Dubai’s.  Most Kuwaitis want Kuwait to remain for Kuwaitis; they have little interest in turning Kuwait into an international tourist hub like Dubai.

Politically, the relationship between Kuwait and the UAE is essentially flipped: Kuwait has substantially more political freedom than the UAE.  Kuwait has a parliament that actually functions and has some say in running the government, while Dubai and the rest of the UAE have no such political freedoms.  According to Herb, one of the major reasons for this difference is that Kuwait faces a major external foe: Iraq.  Key moments in the history of Kuwait’s parliament have come in response to Iraqi threats.  The first was in 1961, immediately after Kuwait’s independence from Britain, when Iraq threatened to invade.  The second was after the actual 1990 Iraqi invasion, when the emir of Kuwait was forced to reinstate the 1961 constitution and parliament after rescinding it before the war.  Without this external threat, it is reasonable to suppose that Kuwait’s political trajectory, according to Herb, probably would have been similar to that of the UAE, Qatar, and Bahrain, countries with which it shares historical comparisons.  Instead, Kuwait has more political space and more political freedom than anywhere else in the Gulf and, while a constitutional emirate, has an active parliament representing the interests of middle-class Kuwaitis, who seek to preserve Kuwait as a country for Kuwaitis.  The UAE, by contrast, is choosing to adopt an economic and political model in which its citizens have no say in the running of the government but live comfortably off the revenues generated by its foreign-dependent economic initiatives.

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