This week’s economist has several iarticles on the Arabian Gulf. It’s quite disappointing to be honest, especially when you compare it to its amazing coverage on other topics like fund management (really recommended, if long reading). The coverage is superficial and not very novel, and some of the statements just seem ridiculous. Two stuck to my mind: One is the central claim that the Gulf countries are managing their wealth better than the seventies. That may be true (in some countries mind you, I don’t know if I’d include Bahrain), but that’s like saying a driver with -15 vision is better than a blind driver. The other one is that simply because the wealth is being invested by the private sector this time around, this means it’s better utilized when compared to the mainly government-driven investments in the 70s, which were marred by ridiculous grandiose projects and corruption.
1. Much of this “private sector” is an illusion, it’s not what is meant by the private sector in the west. Much of it is by the same guys who made up the “government” previously, except now they don’t even have to pretend that they have government duties to deal with. Even though corruption existed before in government, at least some of the money was kept in the name of government. Now it’s all in the “private sector hands”, which remarkably are still the same people! It ain’t in your or my hands (oh wait, I forgot most of us are nidoers, yes it is in our hands). It’s what Baumol and Co. would call oligarchich capitalism, the kind that results in the worst type of capitalism there is: Few families pretty much owning everything and not giving a damn about the rest. This is not a benevolent private sector, but the phrase “private sector” is all the rage nowadays, so they’ll sure use it to their advantage.
2. The fact that it is the private sector does not mean that somehow by nature it will be better than the government, as the article seems to assume. There is nothing absolute that makes the private sector better by right of birth. It is just as likely to engage in ridiculous grandiose projects as the government would have. Take the example of the ridiculous grandiose resorts being built in EVERY SINGLE GULF country right now, include our own illustrious Riffa Views and co? First, do you think all of these projects, in every single country, will work and be prosperous in the long run? Especially considering you’re all copying each other? Have you taken a look at the Gulf recently? It’s boiling hot, unbelievably sticky, and the scenery is not exactly breath taking (except in Oman). It is not exactly a tourist hot spot, and no, you cannot all be Dubais. Dubai is built on being exceptional and the most excessive, “the best”. You can’t all be the “best”, it goes against the concept. These projects are just as insane as the plans to produce and subsidize wheat on a mass scale in Saudi Arabia in the 70s (which basically amounted to exporting Saudi water abroad, not a good idea in a desert country).
There are some gems in the report however, particularly:
“Unfortunately, the region’s diversification plans lack much diversity. For example, no fewer than 11 aluminium smelters are in the works, on top of two already in operation in Dubai and Bahrain. Mr Sfakianakis suspects the Gulf’s governments have heard the same advice from the same cadres of consultants. The GCC is guilty of a “me-too” approach to industrial development, says a report by the National Bank of Kuwait, which raises the risk of over-capacity not just in aluminium, but also in petrochemicals and property.”
If you all hire Charles River and Co, then you’ll all get Charles River advice! It won’t produce very innovative or original thinking, and in fact you’ll probably end up competing with each other and doing the same thing. But hey, we’re all enchanted by the white man’s burden aren’t we? I mean, these are big shot multinational consultancy names, run by Ivy League graduates, surely they know so much more about our countries than us? Let’s just delegate the whole economic policies of a country, the most important thing there is, you know, the things that usually ministries, parliaments and study groups devote most of their energy to in developed countires; let’s rid ourselves of that headache and delegate it to multinational consultancy companies! Better yet, let’s give them a blank cheque and the green light to do whatever they want, no questions asked! They’ll design our education system, our labour market, our health policy, how to manage oil wealth, you name it. I mean why not? We import everything else: labour, goods, cars, foods, you name it. Why not just import economic policy setters as well? That’ll make us look sophisticated, civilized and developed. Everyone will look up to us, just like when we built the biggest fountain the world or the biggest flag in the world.
It’s worth a read anyway, especially if you don’t have much background in the subject and are interested in a summary of the issues.
And happy labour day!