The current turmoil in the Gulf has opened a window of opportunity for governments to undertake potentially difficult reforms
"He is a big booster, big promoter of democracy all throughout the Middle East. Reform, reform, reform," said President Barack Obama of the Emir of Qatar in unguarded comments on 14 April in front of an open microphone. "Now he himself is not reforming significantly. There's no big move toward democracy in Qatar. But you know part of the reason is that the per capita income of Qatar is $145,000 a year. That will dampen a lot of conflict."
The president's unscripted remarks shine a light on the difficult balancing act facing officials in the Gulf Cooperation Council (GCC) states: how to balance greater demands for participatory inclusion with measured and consensual reforms to political and economic structures.
This challenge is not uniform throughout the GCC. A fortuitous combination of small local populations and huge resource endowments means Qatar and the United Arab Emirates have been more insulated from recent unrest than Bahrain, Oman and parts of Saudi Arabia. Kuwait possesses oil in abundance but suffers from recurring political crises that undermine economic diversification and development plans.
These differences aside, all six GCC states face common challenges in moving toward post-oil structures of governance. Resource depletion will hit Oman and Bahrain first, but all GCC states have recognised the need for undertaking significant structural reform.
This is inherent in the strategic visions and national plans that have proliferated over the past decade. At their core lie issues of labour nationalisation and the creation of an enabling environment conducive to private sector-led growth. This is necessary for private sectors eventually to replace the state as the engine of economic activity. It requires major reforms of subsidies and other market distortions if governments are to translate comparative advantage into competitive advantage.
Such systemic transformation will not be easy or painless. Hitherto governments have acted as distributors of economic rents derived from oil and gas revenues. This has proved a potent safety net against deep social and economic deprivation. But as states move from redistributive to extractive, so their relationship with their societies will change.
Expanding tax bases may intensify popular demands for a say in how revenues are spent, while the adage that it is always easier to give something than take it away will be tested by any dismantling of subsidy regimes. The 2005 fuel riots that killed more than 50 people in Yemen may be an extreme example, but it brings home the anger that rising prices can generate, particularly in times of economic hardship.
Troublingly, the recent economic packages announced in many GCC states may undermine efforts to make economies more competitive and market-driven. Whether promises of direct handouts (as in Kuwait or Bahrain), jobs in already-saturated public sector ministries (Bahrain, Oman) or a massive social spending package (Saudi Arabia's $130 billion handout combining both) the trend is clear: governments are attempting to forestall short-term instability even if the measures exacerbate the problems of lack of competitiveness or economic incentive that must be overhauled in the medium and longerterm.
They highlight the problematic trade-off between more immediate concerns for political stability and awareness of the need for sensitive economic reforms. Moving too hastily risks fanning the flames of the socio-economic unrest that has gripped parts of the Arab world in the past three months. Yet any failure to reformulate economic processes or mechanisms of political participation merely pushes the problems further down the road without offering sustainable solutions to deeper challenges.
Sooner or later all GCC states will move toward post-oil political economies, and history suggests that states in transition are more vulnerable than most to destabilising bouts of unrest. This awkward position reflects the intersection of rapidly-rising populations with the inexorable decline in natural resources. Over time, this 'resources-demands' balance will only diverge in the absence of a large-scale productive economic base.
GCC states will not always be possessed of equally favourable conditions in which to undertake potentially difficult reforms. It might sound paradoxical, but the current turmoil in the Gulf represents a moment of opportunity to begin to reformulate processes of political and economic organisation. Policy responses have thus far fallen short, but the dilemma facing officials is half-measures now may make the next explosion greater still.
The Gulf 2011
