This diary is part of the background and analysis series presented by the Eyes on Egypt and the Region Group.
This diary Oil Economies As Rentier States I provides a conceptual framework from which the present diary is launched.
Discussions about globalization often give the impression that it is a phenomenon that only occurred in the latter part of the 20th C. Actually it is a process that has ebbed and flowed through out human history. Various empires of the ancient world imposed their power over a collection of smaller societies. The beginning of the European adventure in global trade and colonialism in the 16th C was very much a process of globalization. The huge migration of labor to the western hemisphere from Europe and to a lesser extent from Asia was the largest wave of globalization up to that time. It was brought close to a halt by the disruptions of two world wars and the great depressions. It began to resume with renewed energy as the world recovered from WWII. The current process has often been shaped by the political and economic neoliberal ideology embodied in the so called Washington consensus.
The process of globalization has always involved an expansion of world trade combined with the movement of people seeking greater economic prospects for the fruits of their labor. The technological changes in transportation and telecommunications have made it possible to take this process to new levels of complexity. At times people move to where there are jobs. At other times jobs are moved to places where there are people willing to do them for less money. The internet makes it possible for the people wiling to work for less to remain where they are and perform services half way around the globe.
Today's world is characterized by ever more complex flows of labor and economic and political conflicts arising from that flow. Workers in the US and Western Europe are distraught over the shift of manufacturing jobs to the lower wage economies of Asia. Migrants from the pre-industrial societies of the global south seek jobs in the industrial economies of the global north. In the US the conflicts arise over migrants from Latin America and in Europe over migrants from Africa and Asia. Issues about labor migration are impacting most places in the world.
The states of the Arabian Peninsula present an unusually extreme case of this process. They are controlled by monarchies that have no real political accountability to the citizens of the nation. Collectively they hold the world's largest concentration of oil reserves. The rapid rise in world oil prices during the 1970s provided them with immense revenues. This combination of circumstances qualifies them as rentier states. One result of their growing wealth has been a dramatic expansion in the presence of expatriate migrant workers in these countries employed on temporary labor contracts. Here is the breakdown of the countries by percentage of non-national workers in the total workforce as presented by the CIA World Factbook.
Saudi Arabia 80%
Kuwait 60%
Oman 60%
Qatar 75%
UAE 85%
Yemen which has very limited oil reserves does not have a large presence of migrant workers.
These non-national workers come from many parts of the world. Some of them are highly skilled technical people from the US and Europe such as petroleum engineers. However, a substantial majority of them are unskilled and semi-skilled workers who perform various forms of manual labor. The major source for such workers are the South Asian countries of India, Pakistan and Indonesia.
This configuration of labor arrangements has existed for a generation. Many people have spent their entire working lives as temporarily employed expat workers in countries where they have no rights and protections. Stories about the abuses that some of them have been subjected to have been reported by human rights organizations for some time. This is one example of such reporting.
For Asian and African migrant domestic workers, the Gulf is a golden cage
Fleeing extreme poverty and harsh living conditions, millions of migrant domestic workers from across Asia and Africa flock to the oil-rich Persian Gulf. Leaving underdeveloped countries such as Sri Lanka, the Philippines, Nepal and Ethiopia, the workers seek higher salaries which they send home as remittances. However, higher wages often come at a high cost in human rights abuses and labor violations.
Recurring complaints include personal and sexual abuse, wage complaints, the inability to change employers, the inability to leave the country because passports are held in custody. In the Gulf States legal slavery wasn't abolished until the 1960s. Migrant labor has often provided a functional substitute.
The rentier economies of the Gulf states are shackled by the golden fetters of the global oil economy. The basic weakness of such poorly diversified economies is that they are at the mercy of prices primarily determined elsewhere. OPEC's efforts to exert control over international markets have had limited success. Such fluctuations have had impacts on the market for migrant labor over time. One of the attractions of employing people on this basis is that they become readily disposable commodities. The recent severe global recession created a major fluctuation that forced many workers to be returned to their countries of origin.
Reverse exodus of migrant workers in Persian Gulf challenges India
The great Persian Gulf migration has slowed to a trickle. About 4 million Indian workers have moved to the region since 2003, but the pace dropped off during the 2008 global economic crisis. Now, the completion of the Burj Khalifa, the tallest building in history, and Dubai's recent debt crisis have triggered an exodus.
The effect of the economic doldrums in the oil-rich kingdoms of the Middle East can be felt as far away as Bangladesh, the Philippines and India, where millions of migrants have left their homes in search of fortunes.
Anybody who has filled up their tank is well aware that global oil prices are again on the rise. However there are signs that, as in other areas of the global economy, this recession has destabilized long standing arrangements in ways that are going to be impossible to put back in the box. The revolutionary uprisings that are sweeping the region have a recurring theme of young people complaining of their inability to find jobs that provide opportunities for their educational skills. As this tide begins to wash over the Arabian Peninsula similar complaints and demands are being heard. There the problem is closely linked with the system of migrant labor. I am going to focus on the situation in Saudi Arabia because not only is it the largest, richest and most powerful of the states, it is the one for which the best sources of information are available.
The kind of economic data that is fairly readily available for many countries is not provided by Saudi Arabia. Sources such as the World Bank have numerous blank spots about matters like personal income and its distribution or ownership of assets and industry. Basically the state is the monarchy and the monarchy is the state. A large portion of the economy is formally state owned. Of those things that are considered to be private enterprise, much of it is under the control of members of the extended royal family and it is a very extensive family.
Education for Saudi citizens is one of the free services provided by the state. However, traditionally many citizens haven't made extensive use of it. The national literacy rate is 80% which is low for such a wealthy country. As part of a halfhearted effort to create a more diverse economy there has been a push to improve the educational level of the population. Like other Arab countries SA has a high birth rate with almost half of the national population being below 18 years of age.
Saudi youth struggle to find work raises urgency for reform
With unemployment among Saudis hovering around 10 percent according to the most recent Labor Ministry estimations - and youth unemployment as much as four times greater than that in some age brackets - education and labor market reform are the foremost challenges facing the country.
Concern over whether the education system is arming students with relevant technical skills for the work force is paramount since only one out of every 10 employees working for a Saudi private sector company is a Saudi citizen.
In recent years, ministries and publicly linked firms absorbed many new job market entrants, offering better salaries and greater job security than private sector work. Yet the bias among Saudi citizens toward government jobs has had the effect of weakening public sector productivity, stifling labor competition, and propelling current expenditure upward. Comprising recurrent costs on items only used once such as salaries, current expenditure has almost doubled since 2000 and is a key cause for rampant public overspending. The government sector's ability to create jobs will erode as it seeks to curtail unnecessary spending growth; otherwise it will have few alternatives than to keep on hiring.
At the moment, private sector companies have greater incentives to employ foreign labor, particularly from the South and Southeast Asia. Foreigners tend to demand lower wages than Saudis and, in many technical posts, they are more highly qualified than some of their Saudi counterparts.
Another crucial deterrent for private sector companies has been labor laws which make it prohibitively difficult to fire Saudis and easy to fire expatriates. The labor law should instill less protection and engender greater competition among Saudis if the private sector can take its place as the first and last employer for nationals.
The private sector's dependence on foreign cheap labor is a dilemma. Ministry of Labor data show that across the spectra of jobs, average wages of Saudis generally far outpace those of expatriates.
We think of the oil rich Gulf states as being very different places from the older industrial economies of the US and Europe. In many ways they are. In the West we are experiencing very low birth rates and an aging populations. Incomes have stagnated and wealth distribution has become more concentrated. However, some of the labor and employment issues that are fueling the discontent in Saudi Arabia has some analogs with the West. Global labor competition and educational systems that do not connect young people to viable opportunities for the future can be seen in both places.
Saudi Arabia is of course sitting on a large pile of liquid assets. One facet of its approach and that of several of its wealthy neighbors is an attempt to offer short term benefits to buy off the discontent. The other facet is of course a well equipped and highly repressive state security apparatus. So far there doesn't seem to be much in the way of direct conflict between the protesting Saudis and the migrant workers that has become prevalent between natives and migrants in western nations. Of course the aim of the Saudi state is to suppress all conflict. However, it would seem that the potential for such developments exist. Migrants are of course always convenient candidates to fill the role of scapegoat in times of political conflict.
Personally I am inclined to see all of these conflicts as growing fault lines in the global neoliberal network.