blog – Page 3 – eRutledge | Arabian Gulf Economics

Working in the shadows

It is a truism to say that American dependence on oil has long influenced US foreign policy especially from the post–WWII era of geopolitical competition, through post Cold War era deregulation, to today with fist-bumping and bemoaning the Saudis to pump more and more oil until the cost of living for the working classes of the west eases (economically speaking it is counterintuitive for the seller, likely to result in unintended consequences if the oil-rich Gulf were to kowtow, and be disastrous for the Paris Accords). But there’s an argument to be made that “energy security” for the buyers will likely lead to “political instability” for the sellers.

Oil Blessings & The U.S. Dollar

📕 “Maps, aesthetically scientific” →

📕 “Oil’s corruptive capacity” →

📕 “Imperial interfering” →

📕 “Sectarian matters” →

📕 “Shadow wars” →

As Mundy (2020) writes in “The Oil for Security Myth and Middle East Insecurity” (for MERIP, the Middle East Research and Information Project) since the 1970s, the Middle East has been the location of a third of all recorded wars between states, nearly 40 per cent of all internationalised civil wars and seven out of ten wars of occupation. With the launching of America’s global war on terrorism, a third of all new armed conflicts have emerged in the Middle East since 2000; that number has grown to half since 2010. The Middle East’s share of all terrorism related events worldwide, as defined by the Global Terrorism Database, has likewise increased from 10 percent in the 1970s to over half since 2010.

As Mead (2019) wrote in a review of “Lords of the Desert: The Battle Between the United States and Great Britain for Supremacy in the Modern Middle East” (Barr, 2018), the British Labour government that took power in the summer of 1945 soon concluded that keeping as much of the Middle East’s oil as possible under British rule—and thus within the sterling zone—offered the best, perhaps the only, hope of maintaining the United Kingdom’s place in the first rank of world powers. This conviction became the lodestar of post war British policy. At first, the prospects looked good. Pro-British monarchs ruled in Egypt, Iraq, Jordan, Libya, and the Gulf kingdoms. There were, however, two problems with the plan: Arab nationalists wanted no part of British rule, and the United States was willing and able to displace the United Kingdom as the dominant regional power.

“Shadow Wars,” reviewed

Steve Donoghue

2016. The Christian Science Monitor

Anyone who’s seen the videos — and everyone has seen the videos — will have the same set of questions. The videos show schoolgirls being herded out of their classrooms by armed men who shout their organization name loudly and clearly for the video cameras. They show markets and nightclubs with flashing police sirens outside, forlorn groups of bystanders standing around hoping for news of loved ones inside. They show priceless ancient ruins being dynamited. They show journalists kneeling in the desert, squinting in the sunlight moments before they’re beheaded.

They show a naked, strident barbarism that seems like it belongs in a different age. The names are as familiar as the videos: al-Qaeda, the Taliban, Boko Haram, ISIS. And the questions that arise inevitably are always the same: Who are these people? Where did they come from? What do they want?

Christopher Davidson is a reader in Middle Eastern Politics at Durham University, author of the landmark study “After the Sheikhs,” and his big new book, “Shadow Wars: The Secret Struggle for the Middle East” comes closer than any recent popular study to offering definitive answers to those and other questions.

The patterns were set during the great imperial heyday of Continental gamesmanship, when British satraps all throughout the Middle East often propped up the most fiercely conservative Islamic fundamentalists because they made more effective regional buffers against the forces of Russian encroachment.

And the further along Davidson’s book progresses, the more those patterns come to look unbreakable. The Western powers intervene, meddle, support, subsidize, and double cross, constantly using the rhetoric of good stewardship while caring only about securing oil and land bases to parry the ambitions of the other regional chess masters, primarily the Russians. In all cases, long-term strategies are forgotten in the cloak-and-dagger mania of short-term tactics, and the result is a word that crops up all throughout Davidson’s book: blowback – unintended consequences that are intensely predictable in hindsight.

So an American Secretary of State can on a Monday deliver a stirring address about the sanctity of human rights in “the developing world” and on a Tuesday declare that the local dictator is a close personal friend of the family and must remain in power to ensure the stability of the region. So the United States can funnel covert funding and training to jihadist guerrilla forces in Afghanistan in the 1980s in order to use them as catspaws against the Soviets, without sparing much concern for the fact that the jihadis in question hated America as fervently as they hated the Russians – without, in other words, even trying to envision blowback that might involve one of those jihadi guerrilla fighters, Osama bin Laden, going on to strike at his American benefactors. Even when the warning signs are tragically explicit, they often go unheeded, as Davidson chronicles in theaters of operation stretching from West Africa to Central Asia.

The pattern holds firm everywhere from Syria to Qatar to Yemen to Libya to Somalia to Nigeria: Great Britain or France or the United States will pick some “partner” in a volatile region like Iraq, bet all the markers on that partner being a willing agent of democratic reform even though that partner is very visibly a power-bloated monster, and then, years down the line, express pious horror when that partner turns out to be a power-bloated monster.

In the mass of historical and geopolitical information Davidson assembles in these pages, some notes sound again and again. One of these of course is the so-called “Arab Spring” of 2011, in which enormous and almost entirely peaceful popular protests swept through the Arab world. Since the movement posed a direct threat to the status quo, it predictably received tepid response from those holding power in the region – most certainly including the United States.

Another of these recurring notes is something of longer-standing centrality to American foreign policy: Saudi Arabia, staunch ally, trade partner, and arms market to the United States, turns up repeatedly playing a game of its own, harboring, sponsoring, and financing Islamic terrorists in their operations against the United States. Running through virtually every tale of Middle Eastern violence and treachery Davidson relates is at least some strand of Saudi complicity; American policymakers might be familiar with this most dangerous of double standards, but it’s a good bet the general American public – which in poll after poll seems unaware of the fact that 15 of the 19 al-Qaeda terrorists who attacked America on September 11 were Saudi nationals – would be alarmed by it. For its unsparing probity, Davidson’s book ought to be required reading with both groups.

And what about the answers to those fundamental questions – Who are these people? Where did they come from? What do they want? “Shadow Wars” makes the answers painfully, damningly clear. What the book doesn’t do is offer any way out of the old patterns it describes, since arbitrary withdrawal causes just as much blowback as arbitrary involvement. But if some future solution is discovered, it’ll be thanks to the path-clearing of books like this one.

Shadow Wars: Reviews

Hilal Khashan

2017. American University of Beirut

Davidson of Durham University seeks to answer the question: Why has the Arab quest for democracy been bogged down in a murky quagmire while “parts of Europe, Latin America, and even Africa once managed to cut the shackles of authoritarianism.” The answers he provides, however, implicating the United States and Britain in all Arab political problems, do not satisfy.

Individually, many of the examples Davidson provides make sense, for example, that the U.S. military establishment became concerned about reductions in spending after the drawdown of U.S. troops from Western Europe. It is difficult, however, to accept that the need “to protect U.S. defence spending” was the primary reason for President George H.W. Bush’s decision to go to war against Iraq in 1991. This reductionist analysis suggests sensationalism.

The author dwells at length on the mischievous role of the West in the region’s “deep state” counterrevolutions, which aborted the “Arab Spring.” There is no denying that the foreign policy of Washington and its Western allies is muddled at best, but to assign to them such overpowering influence relieves Arab dictators from their own responsibility and failure. Similarly, he asserts that Washington had a role in the creation of the Islamic State (ISIS) and criticizes the Obama administration’s lack of resolve to destroy it. But he insults the reader’s intelligence when he claims that the many accounts of ISIS barbarity “were poorly sourced, and some were definitely made up.”

The book would have benefited from more editing and factual review (Egyptian president Anwar Sadat expelled all Soviet advisors in 1972, not 1971) and, considering its voluminous size, should have an index. But most seriously, the book is too thin on analysis. Davidson grounds his book in a neoclassical counterrevolution theory whose building blocks are not particularly appropriate for studying the evolution of Arab societies during the past two centuries. The theoretical inadequacies of Shadow Wars weaken its arguments and impede convincing conclusions.

John Waterbury

2017. New York University, Abu Dhabi

According to Davidson, for more than a century, the intelligence and military establishments of the United Kingdom and the United States have been leading a hidden struggle against implicitly progressive forces in the Middle East, driven by a desire for geopolitical advantage and the control of oil. Notwithstanding the declaration of a “war on terror;’ Davidson believes that the preferred instruments of the Americans and the British have been Islamist movements: the Muslim Brotherhood, the Taliban, and, most recently, the Islamic State (also known as ISIS). The Americans and the British have often found themselves fighting their own proxies, but they knew that would happen, Davidson claims. They therefore fight halfheartedly, he contends, so that such groups continue to survive. Nearly all of Davidson’s sources are in the public domain: he uncovers no original evidence for his argument and instead assembles familiar pieces into an unfamiliar shape. The results are unconvincing. For example, if Western powers fostered ISIS in order to drive a Sunni wedge between Iran and Syria, why did they bother to topple Saddam Hussein, who already played that role? More troubling, Davidson’s analysis denies agency to Islamists, Middle Easterners, and pretty much everyone else: in his view, we are all merely pawns in the shadow wars.

Douglas Little

2017. Clark University, Massachusetts

The meteoric rise in 2014 of the Islamic State in Iraq and al-Sham (ISIS) has spawned a dizzying array of articles and books seeking to place this latest Middle East horror show into historical perspective. Among the most ambitious, provocative, and tendentious is Shadow Wars by Christopher Davidson, a lecturer in Middle East politics at the University of Durham. Davidson at-tributes the emergence of ISIS and other extremist groups to “the long-running policies of successive imperial and ‘advanced capitalist’ administrations” in Britain and America and “their ongoing manipulations of an elaborate network of powerful national and transnational actors across both the Arab and Islamic worlds” (pp. viii–ix). Shadow Wars synthesizes the writings of William Blum, Robert Dreyfuss, Mark Curtis, and like-minded critics of British and American policies to create what might be called a unified field theory of Western imperialism in the Middle East, suggesting along the way that many recent grisly terrorist actions in Iraq and Syria may actually have been “false flag” operations designed to legitimate military intervention by the United Kingdom and the United States. After I finished reading this information-packed, but often eye-glazing 700-page monograph, I said to myself: If Naomi Klein and Robert Ludlum had decided to coauthor an account of recent events in the Middle East, they would have produced something like Shadow Wars.

Although Davidson has made good use of the WikiLeaks “Cablegate” database of leaked US diplomatic documents along with some on-the-ground interviews, he relies mainly on secondary sources rather than archival materials to tell his story. Frequently, he veers off into the acronym-laden political underbrush, where Islamic splinter groups de-bate how many infidels can dance on the head of a pin. Once one clears away Davidson’s forest of thick description, his master narrative looks something like this. After 1945, British and American officials, frequently working in concert, cultivated ties with Islamic groups, first to counteract Arab and Iranian nationalists who threatened Western control of Middle East oil during the 1950s and 1960s and later to defeat Soviet forces in Afghanistan during the 1980s. So far this is a familiar story already well-told by scholars like Joel Gordon, Mark Gasiorowski, and Steve Coll, but Davidson presses beyond the end of the Cold War to argue that the North Atlantic Treaty Organization’s intervention in the Balkans during the 1990s was not intend-ed merely to defend a motley crew of Bosnian and Kosovar Muslims but also to serve as a dress rehearsal for military intervention in Afghanistan, Iraq, and Libya early in the 21st century. After the attacks on September 11, 2001, US president George W. Bush and UK prime minister Tony Blair, with help from pro-Western Muslim autocrats in Saudi Arabia and the Persian Gulf shaykhdoms, launched a global crusade against terrorism designed to undermine Islamic reformers, reinforce the neoliberal Washington Consensus, and rev up the military-industrial complex on both sides of the Atlantic via massive amounts of defence spending and arms sales.

While Davidson’s interpretation of the War on Terror reads like a chapter from Vladimir Lenin’s Imperialism, the Highest Stage of Capitalism, his explanation of the causes and consequences of the Arab Spring is bewildering. Spontaneous grassroots revolts against pro-Western kleptocracies in Tunisia, Egypt, and Yemen and anti-Western autocracies in Libya and Syria were discredited and eventually crushed by an unholy alliance of military officers in Cairo and oil shaykhs in Riyadh and Doha with the blessing of the administrations of Barack Obama and British prime minister David Cameron, who paid little more than lip service to democracy and human rights. Indeed, in the case or Libya, Davidson implies that Washington and London conspired to bring down Mu‘ammar al-Qadhafi through “a fake Arab Spring” in order reopen the richest oil fields in North Africa to multinational corporations based in the US and UK.

Davidson’s analysis of the emergence of ISIS is downright bizarre. In a chapter entitled “The Islamic State: A Strategic Asset,” he asks, “qui bono?” (who benefits?). The answer, of course, is American and British corporate interests and their allies in Saudi Arabia, all of whom agree that “the rise of the Islamic State has been spectacularly good for business” (p. 406). Furthermore, according to Davidson:

“Although the new caliphate’s savagery may seem unconscionably nihilistic, it nonetheless serves an equally important purpose for those on the outside, as even after the Arab Spring the surviving Western-backed autocracies have been able to confirm their status as the Middle East’s “moderates,” just as they were during the War on Terror and, before that, against the threat of international communism.”
— 405–406

Later in this chapter, Davidson claims that the Obama Administration intentionally ignored warnings about ISIS until mid-2014 in the hopes to drive a Sunni wedge into the “Shi‘i crescent” that stretches from Damascus to Tehran. One of his chief sources for this is Michael Flynn — Barack Obama’s onetime director of the Defence Intelligence Agency and, more recently, Donald Trump’s short-lived National Security Advisor — who told Al Jazeera in 2015 that “there was a decision in the US government knowingly to support such extremist groups” (quoted on p. 421). As for Obama’s drone strikes and covert operations against ISIS, Davidson regards them merely as proof that the United States was “trying to find the right balance between being seen to take action but yet still allowing the Islamic State to prosper” (p. 422).

This is not the only time in Shadow Wars where Davidson suggests that there is a dark conspiracy at work in the Muslim world. He claims that Western intelligence agencies exaggerated reports that Serbian paramilitary units killed 8,000 Bosnian Muslims in the “Srebrenica massacre” (the quotation marks are Davidson’s) in order “to provide a casus belli” for NATO intervention in 1995 (p. 135). Davidson notes without editorial comment that “Libyan bloggers” identified the man lynched in a ditch outside Sirte in October 2011 as prob-ably “one of Gaddafi’s many very realistic body doubles” (p. 297). Davidson implies that the sarin gas attacks on Syrian rebels at Ghuta two years later were carried out not by the regime of Bashar al-Asad but by the rebels themselves (p. 330). Most controversial of all, Davidson suggests that there is evidence of “camera trickery” and other video “inconsistencies” (pp. 425, 500) in two of the most gruesome acts committed by ISIS, the beheading of James Foley and the burning alive of Royal Jordanian Air Force pilot Mu’adh al-Kasasiba, adding for good measure that some “experts” believe that pictures of the graphic murder of a Japanese hostage were enhanced by a set of “Photoshopped images” (p. 503).

What then are we to make of Christopher Davidson’s unified field theory seeking to explain a century of war, revolution, and terrorism in the Middle East? He presents solid evidence that the Western powers did employ Islam as an antidote to radical Arab nationalism during the Cold War. He reminds us that although US and UK policy-makers have always insisted that their interventions in the Muslim world were never about oil, crises like the Suez War in 1956 and Operation Desert Storm in 1991 were almost entirely about oil. And he reveals the hypocrisy of American and British leaders, who have talked the talk of democracy from the age of Prime Minister Mohammed Mosaddeq in Iran (1951–53) through the era of Mohamed Morsi in Egypt (2012–13) while refusing to walk the walk. Today, ‘Abd al-Fattah al-Sisi in Cairo is indeed the second coming of Mohammad Reza Shah in Tehran 65 years ago.

Yet Davidson’s explanation of more recent developments, frequently couched in adverbs like “worryingly” and “intriguingly” and “sinisterly,” seems off the mark. Despite Davidson’s insistence that ISIS is little more than a band of “useful idiots” and social media addicts serving the interests of malevolent Persian Gulf royals and multinational corporations, Abu Bakr al-Baghdadi and his extremist followers are in reality accidental opportunists who have taken advantage of America’s greatest geopolitical blunder in one hundred years to unleash a reign of terror. Far from being a valuable “strategic asset” for the Western powers and their clients in the Middle East, ISIS is a grave strategic threat whose reliance on 21^st century social media and 7^th century barbarism promises to keep Donald Trump, Prime Minister Theresa May, and their successors awake at night for many years to come.

The plot thickens

Déjà vu – Tehran then half a century later (manufacturing the story e t c)

Iraq (et al.)

Two books, together, tell a compelling tale,

In the first, Rutledge (2005) traces the origins of America’s addiction throughout the twentieth century and explains how America’s relations with the Middle East were developed through its quest for energy security. America’s motorisation and its consequent demand for oil at predictable market prices was and continues to be an important influence on US policy towards Iraq – especially given the uncertainties relating to what has so far been the securest source of Middle East oil – Saudi Arabia. Ian Rutledge argues that the war in Iraq was neither a war for ‘freedom’ or ‘democracy’ nor was it a plot to ‘steal Iraq’s oil’, but rather an attempt to establish a pliant and dependable oil protectorate in the Middle East which would underwrite the soaring demand from America’s hyper-motorised consumers. In this work, Rutledge undertakes an in-depth analysis of the motorisation of US society and explicitly links this to America’s foreign policy adventures, past and present.

In the second (Rutledge, 2014) In 1920 an Arab revolt came perilously close to inflicting a shattering defeat upon the British Empire’s forces occupying Iraq after the Great War. A huge peasant army besieged British garrisons and bombarded them with captured artillery. British columns and armoured trains were ambushed and destroyed, and gunboats were captured or sunk. Britain’s quest for oil was one of the principal reasons for its continuing occupation of Iraq. However, with around 131,000 Arabs in arms at the height of the conflict, the British were very nearly driven out. Only a massive infusion of Indian troops prevented a humiliating rout.

“Enemy on the Euphrates” is the definitive account of the most serious armed uprising against British rule in the twentieth century. Bringing central players such as Winston Churchill, T. E. Lawrence and Gertrude Bell vividly to life, Ian Rutledge’s masterful account is a powerful reminder of how Britain’s imperial objectives sowed the seeds of Iraq’s tragic history.

“Iran–Iraq War” (1980–1988)

As Liu (2018) has said, there is no simple explanation for America’s conflicting actions, and the superpower played an integral though contradictory part throughout the Iran–Iraq War. Its actions ultimately benefitted neither Iran nor Iraq, but rather “the U.S. itself and its material interests in the Middle East.” Ultimately, American involvement, Liu continues, “exacerbated the already bloody conflict … and further contributed to lasting political insecurity in the region.”

“Gulf War” (1990–1991)

“Desert Storm”
1. The military buildup from August 1990 to January 1991; 2. The aerial bombing campaign against Iraq from the 17^th January, 1991 onwards.

“Iraq War” (2003–2015)

Pilgrims at the Imam Ali shrine in Najaf. Emily Garthwaite for The New York Times

some 1,000,000 Brits vehemently protested against Bush and Blair’s unwarranted invasion intentions

References

Barr, J. (2012). A Line in the Sand: The Anglo-French Struggle for the Middle East, 1914–1948. W. W. Norton.

Barr, J. (2018). Lords of the Desert: Britain’s Struggle with America to Dominate the Middle East. Simon & Schuster.

Coll, S. (2004). Ghost Wars: The Secret History of the CIA, Afghanistan, and bin Laden, from the Soviet Invasion to September 10, 2001. Penguin Publishing Group

Coll, S. (2024). The Achilles Trap: Saddam Hussein, the CIA, and the Origins of America’s Invasion of Iraq. Penguin Publishing Group.

Curtis, M. (2003). Web of Deceit: Britain’s Real Role in the World. Vintage.

Curtis, M. (2004). Britain’s Real Foreign Policy and the Failure of British Academia. International Relations, 18(3), 275–287. https://doi.org/10.1177/0047117804045193

Davidson, C. (2016). Shadow Wars: The Secret Struggle for the Middle East. Oneworld Publications.

Donoghue, S. (2016, November 17). ‘Shadow Wars’ exposes underlying patterns behind Middle Eastern strife, Book review. The Christian Science Monitor. https://www.csmonitor.com/Books/Book-Reviews/2016/1117/Shadow-Wars-exposes-underlying-patterns-behind-Middle-Eastern-strife

Gasiorowski, M. J., & Byrne, M. (Eds.). (2004). Mohammad Mosaddeq and the 1953 Coup in Iran. Syracuse University Press.

Gordon, J. (1992). Nasser’s Blessed Movement: Egypt’s Free Officers and the July Revolution. Oxford University Press.

Khashan, H. (2017). Shadow Wars: The Secret Struggle for the Middle East. Middle East Quarterly, 24(2). https://www.meforum.org/middle-east-quarterly/book-reviews/shadow-wars-the-secret-struggle-for-the-middle

Little, D. (2017). Shadow Wars: The Secret Struggle for the Middle East. The Middle East Journal, 71(2), 328–330. https://www.jstor.org/stable/90016332

Liu, B. (2018, December 3). U.S. Involvement in the 1980s Iran-Iraq War: America’s Haphazard Extension of Gulf Insecurity. The Yale Review of International Studies. https://yris.yira.org/column/u-s-involvement-in-the-1980s-iran-iraq-war-americas-haphazard-extension-of-gulf-insecurity/

Mead, W. R. (2019). Lords of the Desert: The Battle Between the United States and Great Britain for Supremacy in the Modern Middle East. Foreign Affairs, 98(1) 201–201. https://www.jstor.org/stable/10.2307/26798040

Rutledge, I. (2005). Addicted to Oil: America’s Relentless Drive for Energy Security. I.B. Tauris.

Rutledge, I. (2014). Enemy on the Euphrates: The British Occupation of Iraq and the Great Arab Revolt, 1914-1921. Saqi Books.

Waterbury, J. (2017). Shadow Wars: The Secret Struggle for the Middle East. Foreign Affairs, 96(1), 185–185. https://www.foreignaffairs.com/reviews/capsule-review/2017-02-13/shadow-wars-secret-struggle-middle-east

Oasis for the tax-averse

Blog Publications Reports

First published in:

The Economist. (2018, September 27). Sweet deserts. The Economist, 428(9111), 58.
https://www.economist.com/international/2018/09/27/how-the-united-arab-emirates-became-an-oasis-for-tax-evaders

An oasis for the tax-averse beckons in the Middle East

THE war on cross-border tax evasion, declared by America over a decade ago and since joined by other governments, has made life a lot more uncomfortable for anyone looking to squirrel away undeclared income. More than 100 countries have signed up to the Common Reporting Standard (CRS), which requires them to swap information on account-holders that may be relevant for tax purposes. But the enterprising and tax-shy can still exploit loopholes in the system. A popular one is to procure residence in the United Arab Emirates (UAE), set up a company there and use the tax residence that comes with it to block the flow of information to tax authorities elsewhere.

According to experts with knowledge of the scheme, it works as follows. A foreigner sets up a company in one of the UAE’s free-trade zones and rents office space. In return he gets a residence visa with a minimum-stay requirement of just one day every six months. Both the individual and the company, through which he may hold bank accounts, may then claim tax residence in the UAE, a country that levies no income tax.

Under the CRD, banks must share information with the country where an account-holder is tax-resident. If the account holder is an entity, then the bank must look through it to the “controlling person” and report on that individual. In the UAE, since both the individual and the company have local tax residence, neither need fear having any information passed on to other countries, regardless of whether their money is held in a bank account, a trust or an investment fund. And, of course, there is no local tax to pay.

No other haven works quite like this. Others, even Caribbean islands which have held out against the CRS, say foreign-owned enterprises and the people who control them cannot be tax-resident there. Under CRS rules, the firms are deemed to be resident where they are managed from. In the UAE, however, foreign-owned entities are permitted to be tax-resident, even though the owner would normally be tax-resident elsewhere.

The UAE’s documentation system also makes it easier for people to avoid tax inspectors. When dealing with banks, clients need to produce a Tax Identification Number (tin). This number is particularly important for any company that holds an account because it serves as an identifier for tax-information exchange between governments. Since the UAE levies no income tax, it does not issue tins. Instead, the experts say, it hands out registration numbers for value-added tax, which it does levy. Clients then try to pass these off as genuine tins to bolster the claim that they are tax-resident in the UAE. The ruse appears to be working. Whether because they cannot tell the difference or are turning a blind eye, many banks in other countries, when presented with the VAT-linked substitute tins, accept that the client’s tax affairs are a matter for the UAE and therefore do not pass information on to other countries.

Compared with most offshore tax-minimising schemes, this one is cheap. In the UAE, companies can be formed, office space rented and residence acquired for “the price of a decent suit and pair of shoes”, says an adviser. Unlike in most other countries that sell residence rights, a donation or property investment in the hundreds of thousands or millions of dollars is not a prerequisite for a visa.

The country’s first free-trade zone was established in the mid-1980s. It now has more than 40, with tens, perhaps hundreds, of thousands of companies between them. Ras al-Khaimah, one of the country’s seven emirates, has over 14,000. The number of UAE firms being used as vehicles to dodge tax is impossible to determine. “Judging by the talk among tax and wealth advisers, it’s many thousands,” says a tax expert.

The Organisation for Economic Co-operation and Development (OECD), which oversees the CRS, is worried about the tax-dodging possibilities of residence-for-sale schemes. Pascal Saint-Amans, head of the OECD’s tax group, says the UAE is a concern and argues that the country has not been “proactive” in curbing abuse. The UAE finance ministry replies that it is “committed to implementing international economic standards to the highest levels of [tax] transparency” and is “actively working with the international community” on data exchange. Asked to comment, the Ras al-Khaimah free-trade zone did not reply.

The OECD will unveil some new policies this year, says Mr Saint-Amans. These could include making banks ask tougher questions of anyone claiming to be tax-resident in a haven. Banks could be required, for example, to run through a list of questions to establish where a client’s personal and economic links are strongest: where he spends most of his time, where his children go to school, where his doctor is and so forth. In cases where banks see evidence of discrepancy, they could be required to send account information to all countries with a possible claim on the client’s tax domicile. Until then, the Gulf state will remain a tax-dodgers’ oasis.

📕 “Running from taxation” →

What’s post petrodollar?

Blog Publications Reports

First published in:

Rutledge, E. J. (2018, September 15). A reserve system that also admits Euros and renminbi seems most likely. Gulf News. https://gulfnews.com/business/what-comes-after-the-petrodollar-1.604366

America’s overdependence on foreign credit is no exception to the old adage that too much of a good thing is ultimately bad. It is safe to assume that over the next decade or so, the dollar will depreciate considerably and will no longer be the sole currency used for oil invoicing. Whilst IMF-governed SDRs (special drawing rights) would be the more egalitarian and macro-economically sensible alternative, the more likely is a tripartite reserve and oil invoicing system — dollars for the Americas, euros for Europe and surrounding states and renminbi for much of Asia.

At present, however, a realistic alternative to the dollar has yet to emerge, either as a reserve currency or as a universally acceptable unit in which to settle cross-border trade. At least two-thirds of all central bank reserves are held in dollars, four-fifths of all international trade transactions are settled in dollars and some 45 per cent of global debt is denominated in it. The government-issued euro bond market is less deep and far less liquid than its US counterpart and only recently have the Chinese started to encourage foreign investors to acquire renminbi. Nevertheless a majority of observers contend that the dollar will devalue considerably in the coming decades, either by default or design.

A range of reasons is proffered including the huge US fiscal and current account deficits (net US external debt grew by more than $1.3 trillion in 2008) and the fact that China — in order to enhance domestic consumption and purchasing power — is now gradually beginning to strengthen the renminbi. More fundamentally, and as the recent economic crisis has again highlighted, there is an inherent instability in having a dominant sovereign currency doubling up a global reserve currency. All of this leads to a series of unknowns: what if anything will replace the incumbent petrodollar? And, will the transition be gradual and multilaterally managed? Or will it be sharp and unfold in a mercantilistic haphazard manner?

In the 1960s Yale economist Robert Triffin argued that an international reserve system based on the sovereign currency of the dominant economy would always be unstable.

The Triffin dilemma
Firstly, because the only way for all other economies to accumulate net assets in the dominant currency is for the dominant economy to perpetually run a current account deficit. Secondly, while the dominant economy would be able to detach interest rate decisions from exchange rate implications, all other open economies would be constrained somewhat by the resulting appreciation or depreciation of their currency vis-à-vis the dominant currency.

Such exchange rate uncertainty has, in my view, become far more acute in the decades following the collapse of Bretton Woods. For as international trade increases and becomes an ever greater component of open economy GDP compositions, exchange rate fluctuations and uncertainties have an ever greater impact. Shock transmission — both positive and negative — can now be globally felt pretty much instantaneously thanks to the liberalisation of cross-border capital flows, widespread deregulation of domestic financial markets and advances in telecommunications. The ‘search for yield’ in cross-border currencies tends to result in too much credit creation and in turn, leads to asset/stock price bubbles — in other words a cycle of boom and bust.

With the noted exception of the US, all open market economies essentially have two choices when it comes to exchange rate regimes — neither is optimal, both have associated economic costs.

Two choices
One choice is the ‘free float’, yet this invariably causes uncertainty for both exporters and importers in the given economy and results in its output either being undervalued or overpriced. The other choice is a fixed, managed or crawling peg to the anchor currency. Yet, in order to maintain the peg the given central bank must effectively outsource key monetary policy decisions (in most cases to the Federal Reserve). When the business cycles of the US and the given pegging economy are out of sync, the latter is unable to use interest rates to dampen or foster economic activity; consider the Gulf’s recent era of double-digit inflation.

According to a former French foreign minister, the US has an ‘exorbitant privilege’ in that it is permanently receiving transfers from the rest of the world in the concrete form of seigniorage revenues and also by being able to employ a truly independent monetary policy.

The fact that oil has been priced in and sold in dollars since the foundation of Opec is also highly significant. For if oil, critical to all economies, can only be purchased in dollars, all nations have a strong incentive to accumulate dollars. Indeed it has been argued that the US government effectively prints money (on paper which has virtually no intrinsic value) to purchase the oil, not to mention all the other dollar-denominated commodities, its economy requires.

This state of affairs has been compared to a credit card that attracts customers by offering low interest and deferred payments, and two prominent American economists, Fred Bergstena and Barry Eichengreenb have both recently written in the respected Foreign Affairs journal warning of the problems of this set-up. While neither sees the dollar losing its hegemonic status in the short term, both stress the negative impact of such high levels of debt. A penchant for ‘cheap’ Asian imports has had a detrimental impact on domestic US manufacturing and it is the case that most of the foreign credit funds consumption rather than productive investment. Nevertheless many American officials are happy with the status quo as it enables the average citizen to live beyond his or her means, and government budget deficits to be financed by oil-exporting Middle Eastern countries.

Future scenarios
Even if those who argue that it is in America’s self interest to reduce dependency on foreign credit are dismissed, recent events suggest a gradual dollar de-leveraging process will take place regardless. Indeed, in the absence of another real estate price boom or another ‘0-per-cent finance consumer-fuelled boom’, an export-led recovery is by far the most viable longer term US growth strategy, and a weaker dollar would facilitate this.

Concern over the magnitude of the US’s debt and the evident instability of the current global monetary system, has led many to look for alternatives. Some projections indicate that by 2030, the US will be transferring as much as 7 per cent of its entire annual output to the rest of the world in the form of debt repayments (debt erosion by way of dollar devaluation is a possible response yet this would hurt all of those outside of the US with dollar-denominated assets).

China’s central bank governor, Zhou Xiaochuan, made the headlines earlier this year when he suggested a supra-national currency based on the IMF’s SDRs could eliminate the ‘inherent risks of credit-based sovereign currency’. This cannot simply be discounted as posturing for China has over $800-billion-worth of liquid dollar reserves: Any move by the People’s Republic would have ramifications for all other dollar holders.

The most utopian — yet least likely — future scenario would be the implementation of some form of supranational currency, seigniorage would be equitably distributed and self interest would give way to the collective interest. This would result in a fairer deal for developing economies, as according to José Ocapoc, in order to maintain pegs or insure against capital flight such states have little choice but to transfer resources to the rich industrialised world — a phenomenon that the UN has called ‘reverse aid’.

The concept of a supranational fiat currency is not new, at the very least it dates back to Keynes. He argued that the international community should set up a unit of exchange to act as a reserve currency and even suggested that it be named the Bancor. The IMF’s SDR facility is not too dissimilar and a recent UN commission headed by the economic Nobel laureate Joseph Stiglitz has advocated a greatly expanded role for SDRs. Earlier this year the G20 did agree to create an additional $250 billion in SDRs; taking their share of global reserves from under 1 per cent to about 5 per cent.

Problems with multilateralism
There are of course various problems with multilateralism — mercantilist self interest being a predominant one — one only need consider the recent debacle at the UN’s Climate Change summit at Copenhagen to get an idea of the likely difficulties agreement on a new global form of exchange is likely to be. More practically though, SDRs are not as yet legal tender, nor are they backed by debt markets and for a reserve currency to work a deep and liquid market is deemed essential.

Another possible future scenario would see increased competition between the various emerging currency blocs, tit-for-tat protectionism and the potential for considerable currency and exchange rate instability.

Much of this could arise over the thorny issue of oil invoicing. The petrodollar standard, it has been argued, is the ‘Achilles heel’ of the dollar’s continued hegemonic status. China needs more oil and, going forward will want to purchase some of this with its strengthening renminbi, this entails ending the exclusivity of the petrodollar standard.

If a transition to a tripartite invoicing system were not to take place consensually and gradually, oil could suddenly become very expensive in dollar terms and this would disproportionately impact on American consumers and its economy alike. This alongside the need to transfer income overseas to pay off debt could erode Americans’ standards of living. In different ways both Bergsten and Eichengreen have argued that if the US does not soon begin to address the issue of overdependence on foreign debt, its ability to pursue autonomous economic and foreign policy objectives will become increasingly difficult.

The most likely future scenario is piecemeal and gradual dollar devaluation — this is both in the interests of the US and all of its counterparts. Those with dollar assets do not want to see these lose value too precipitously and neither the Europeans nor the Japanese want their currencies to appreciate any more than they have done so recently. In the longer term the current reserve ratio of 60/30 — dollar/euro will probably recalibrate to 40/40/15 — dollar/euro/renminbi.

In the past decade China has pretty much made all it can out of being the world’s factory and now needs to ‘move up the value chain’. In order to increase household incomes and boost domestic private consumption a stronger renminbi will be needed. This will boost domestic consumption and purchasing power, a stronger currency would make foreign assets cheaper to acquire. It would also turn the renminbi into a potential reserve currency and, at the same time, enable it to take on a more prominent role on the global stage.

Russia’s central bank confirmed in a recent report that it had increased the share of euros in its reserves from around 42 per cent to more than 47 per cent in 2008 and that it intended to further reduce its dollar holdings in the coming period. Its proximity to the Eurozone is no doubt a key rationale, as it seeks to hedge against increasingly expensive euro-denominated imports it is logical to consider holding more euros in reserve, and invoicing the Europeans in euros for their oil needs.

Yet as Stiglitz contends, a move to a dollar-euro duopoly would still result in global imbalances and disadvantage poorer nations who would continue to need to hold large amounts of developed world’s currencies in reserve either in order to maintain exchange rate pegs or in an endeavour to hedge against economic downturns. Similarly, a tripartite reserve system — comprising of dollars, euros and renminbi — while more distributed, would still fall short of a well regulated and suitably tradable supranational fiat currency.

Despite this shortcoming, from the perspective of the GCC, if a tripartite reserve system were to emerge each of the currency blocs would have the strength and thus ability to purchase commodities such as oil in their currency. This would be no bad thing for the Gulf’s oil exporters as it would enable them to build up a more diversified savings portfolio and possibly even pursue a more independent monetary policy.

Bio:
Emilie Rutledge is Assistant Professor of Economics at the United Arab Emirates National University

Private sector Emiratisation

Blog Publications Reports

First published in:

Rutledge, E. J. (2018, May 10). Giving private sector jobs the required significance. Gulf News. https://gulfnews.com/business/analysis/giving-private-sector-jobs-the-required-significance-1.2218799

Giving private sector jobs the required significance; only such a dramatic image makeover can attract more UAE nationals to it

The Federal Authority for Government Human Resources gave research on Emiratisation a boost by launching an annual award for scholarly work on the UAE labour market and human resources. This is a timely incentive because oil prices seem destined to remain some way off on their 2010—14 highs, and comfy government jobs are said to be a thing of the past.

Among the wining studies was one conducted by the UAE University; it was the first large-scale study to investigate the views of UAE nationals working in the private sector and polled 653 individuals. The survey included questions related to job satisfaction and also on context-specific sociocultural sentiments such as the prestige attached to a public sector job.

Indeed the UAE’s labour market’s distortions and segmentations cannot be fully understood, let alone addressed, without such issues being factored into the equation.

The research found that it was “salary and benefits” that most significantly and positively predicted the intention of Emiratis to continue working in the private sector, while “sociocultural influences” — societal attitudes on a given occupation’s prestige and status level — had the most significant negative effect and was likely to deter Emiratis from staying in the private sector.

In other words, money does still talk. However, employee satisfaction isn’t all about money, “training opportunities” and the “nature of job” also writ large. The latter finding is of importance because it implies, at the very least, that today’s graduates do see private sector occupations as more interesting and fulfilling, if compared to the more bureaucratic-style ‘classic’ public sector jobs.

However, as evidenced by the research, it continues to be the case that “classic” public sector positions continue to attract the most status and prestige. This sentiment is even more pronounced among male employees, with male respondents significantly more likely to be adversely affected by sociocultural influences (the pride or prestige attached to public sector positions) and be less happy with the nature (or “environment”) of work in the private sector.

The research has applied policy relevance. The more closely aligned like-for-like public/private sector positions become in terms of salaries, working hours and days of annual leave, the more attractive will be private sector career paths. Such alignment — most likely by way of more extensive subsidies or top-ups for nationals working in the private sector — would help redress the current notion that it is the citizens who’ve secured government jobs that have the higher status. The findings also show that internship programmes — that are now compulsory at some federal universities — are paying dividends and recommends that more interns should be placed in the private sector as about one-third of those surveyed were working for private sector companies where they had completed their internships.

Another revealing find was the fact that almost three-quarters of the sample of UAE nationals employed in the private sector currently had other members of their immediate family working in the same sector. Therefore government policy that champions those Emiratis who take up non-conventional private sector career paths will help change prevailing societal attitudes in relation to what is, and is not, considered a suitable career path for Emiratis.

The study on private sector Emiratisation by Dr Emilie Rutledge and Dr Khaled Al Kaabi recently received the Federal Authority For Government Human Resources Award for the Best Academic Research in HR. Their study is timely in that it considers this topic in an era where comfy government jobs are said to be a thing of the past. In addition to this, their survey-based research—polling 653 individuals—is the first large-scale one to investigate the sentiments of UAE nationals actually working in the private sector. While basing their research on the notions of the Theory of Planned Behaviour and job satisfaction scales, they also factor in what are termed as context-specific sociocultural sentiments. They make the case that the UAE’s labour market distortions and segmentations cannot be fully understood, let alone addressed, without such issues being factored into the equation. As Dr Rutledge says, “employee satisfaction isn’t all about money, the benefits of even the nature of the work and relations with fellow workers, societal attitudes on a given occupation’s prestige and status levels also writ large.” As evidenced by their findings and analysis, it continues to be the case that ‘classic’ public sector positions continue to attract the most status and prestige. This sentiment is even more pronounced amongst the male survey participants.

Another issue that the study highlights is the difficulty face in defining exactly what constitutes the private sector. In a region who’s labour markets are characterised by being highly distorted and segmented along public/private and national/non-national employee lines, the division between public and private entities is often hard to determine. As Dr Al Kaabi explains, it was necessary for their study to include government-backed entities as quasi-private ones as this is what society considers them to be. While some labour market economists would classify these within the government sphere, in the UAE at least, many in this category are commercially-run and, “really do now manage their human resources as if they were genuine private sector operators.”

The study found that it was ‘salary and benefits’ that most significantly and positively predicted continuance intentions (β = .399, p < .001) while ‘sociocultural influences’ most significantly and negatively predicted continuance intentions (β = -.423, p < .001). In other words, money does still talk. These observations also suggest that the more closely aligned like-for-like public/private sector positions become in terms of salaries, working hours and days of annual leave, the more attractive will be the private sector career paths. The authors of this study both contend that such alignment—most likely by ay of public sector pay freezes than pay cuts—would help redress the current notion that it is the citizens who’ve secured government jobs that have the higher status. Other job satisfaction related constructs that had a significant impact on the degree to which individuals planned to continue working in the private sector were: ‘training opportunities’ were a positive factor (β = .163, p < .001) and interestingly, the ‘nature of job’ (β = .072, p .009). The latter finding is of importance because it implies, at the very least, that today’s graduates do see private sector occupations as more interesting and fulfilling (if compared to the more bureaucratic-style ‘classic’ public sector jobs).

In terms of differences between the genders, male respondents were significantly more likely to be adversely affected by sociocultural influences pride (or “prestige) and were significantly less happy with the nature (or “environment”) of work in the private sector. With regard to age, the younger the respondent, the less likely they will be to intend to continue working in the private sector. The study’s authors argue that younger members of society are significantly more influenced by sociocultural barriers and least satisfied with the professional development opportunities on offer. They suggest that this may be due to the fact that they have relatively junior positions at the given private sector organisation. With regard to education, the higher one’s qualification is the more likely it will be that they intend to remain in the private sector. This ties in with the age-related differences, it follows that within the private sector the positions that require post-graduate qualifications will not only pay more but will also have attached to them more status.

Of perhaps most note and applied policy relevance are the following observations. Firstly, no less than one-third of those surveyed were working for private sector entities that they had actually competed their internships with. This suggests that the internship programs that are now compulsory at some federal universities in the UAE are paying dividends. The second observation is that almost three-quarters of the sample (that is UAE nationals employed in the private sector) currently have other members of their immediate family working in the same sector. As Dr Rutledge says, “any government policy that champions those individuals who take up non-conventional career paths will help change prevailing societal attitudes and norms in relation to what are and are not suitable career paths.”

Changes in the Kingdom

Blog Publications Reports

First published in:

The Economist (2017, November 9). The world should push the crown prince to reform Saudi Arabia, not wreck it. The Economist. https://www.economist.com/leaders/2017/11/09/the-world-should-push-the-crown-prince-to-reform-saudi-arabia-not-wreck-it

In a kingdom where change comes only slowly, if at all, the drama of recent days in Saudi Arabia is astounding. Scores of princes, ministers and officials have been arrested or sacked, mostly accused of corruption. Many of those arrested are being held in the splendour of the Ritz-Carlton hotel in Riyadh. About $800bn-worth of assets may have been frozen. At the same time a missile fired from Yemen was intercepted near Riyadh, prompting Saudi Arabia to accuse Iran of an “act of war”.

Upheaval at home and threats of war abroad make a worrying mix in a country that has, hitherto, held firm amid the violent breakdown of the Middle East. The world can ill afford instability in the biggest oil exporter, the largest Arab economy and the home of Islam’s two holiest sites.

At the centre of the whirlwind stands the impetuous crown prince, Muhammad bin Salman, son of the aged King Salman. The prince has staged a palace coup—or perhaps a counter-coup against opponents seeking to block his sweeping changes (see article). Either way, at the age of just 32, he has become the most powerful man in Saudi Arabia since King Abdel-Aziz bin Saud, who founded the state. All this may be the precursor to profound reforms that the country needs. The danger is that it will just lead to another failed one-man Arab dictatorship.

Casting himself as a champion of the young, Prince Muhammad (known as MBS) understands that his country must reinvent itself to deal with the end of the oil boom, a burgeoning and indolent population, and a puritanical Wahhabi religious ideology that has been a Petri dish for jihadism. He has set out ambitious plans to harness private firms to reform the state and wean the country off oil. He has also eased some social strictures, promising to end the ban on women drivers and restraining the religious police. He speaks of returning to a “moderate Islam open to the world and all religions”.

All this is welcome. But the way the prince is going about enacting change is worrying. One reason is that his ambition too often turns to rashness. He led an Arab coalition into an unwinnable war in Yemen against the Houthis, a Shia militia, creating a humanitarian disaster. He has also sought to isolate Qatar, a gas-rich neighbour, succeeding only in wrecking the Gulf Co-operation Council and pushing Qatar towards Iran. With fewer constraints, he could become still more reckless. He is rattling the sabre at Iran over the war in Yemen, and may be challenging it in Lebanon. During a visit to Riyadh, the Saudi-backed Lebanese prime minister, Saad Hariri, announced that he would step down, and denounced interference by Iran and its client militia, Hizbullah (see article). What precisely the Saudis intend to do in Lebanon is unclear. But many worry about a return to violence in a country scarred by civil war and conflicts between Hizbullah and Israel.

Another concern is the economy. Prince Muhammad’s plan for transformation relies in part on luring foreign investors. But they will be reluctant to commit much money when someone like Alwaleed bin Talal, a prince and global investor, can be arrested on the crown prince’s say-so (see article). Last month Prince Muhammad made a pitch to foreign investors for a new high-tech city filled with robots, NEOM. The glitzy event took place in the same hotel complex that is now a prison.

A third cause for disquiet is the stability of the monarchy. Saudi rule has hitherto rested on three pillars: consensus and a balance of power across the sprawling royal family; the blessing of Wahhabi clerics; and a cradle-to-grave system of benefits for citizens. Prince Muhammad is weakening all three by concentrating power in his own hands, pushing for social freedoms, and imposing austerity and privatisation.

Much of this had to change. He could seek new legitimacy by moving towards greater debate and consultation. Instead, space for dissent is disappearing and executions are rising. The anti-corruption campaign is being carried out with little or no due process to determine who is guilty of what. Many ordinary Saudis are cheering for now. But the arrests look like Xi Jinping’s purges in China, not the rule of law. As he meets resistance and his base narrows, the crown prince may rely increasingly on the security apparatus to silence critics. That would only repeat the mistakes of republican Arab strongmen: socially quite liberal, but repressive and ultimately a failure.

Many have predicted the fall of the House of Saud, only to be proved wrong. The most likely alternative to its rule, flawed as it is, is not democracy but chaos. The country would fragment and, in the scramble for its riches, Iran would extend its power, jihadists would gain a new lease of life and foreign powers would feel compelled to intervene.

The world must fervently hope that Prince Muhammad’s good reforms succeed, while urging restraint on his bad impulses. President Donald Trump is wrong to cheer the purge on. The West should instead counsel the prince to act with caution, avoid escalation with Iran and free political life at home. Prince Muhammad may be heeding the dictum of Niccolò Machiavelli that it is better for a prince to be feared than loved. But this advice comes with a rider: he should not be hated.

Oil’s corruptive capacity

Blog Publications Reports

Maps & Facts

Writing for The Intercept_ in early 2016, Jon Schwarz said that, “due to a peculiar correlation of religious history and anaerobic decomposition of plankton, almost all the Persian Gulf’s fossil fuels are located underneath Shiites.” The fields of Qatar and the UAE aside, this geological and confessional observation rings true, see the first of the following two maps:

Map: Oil fields

See key and legend, expand map.

Map: U.S. military bases

See key and legend, expand map.

As the first of the two above maps, crafted by Dr Michael Izady, clearly reveals (especially when expanded), much of Saudi Arabia’s oil wealth is located in a small sliver of its territory whose occupants are predominantly Shia. The second of the two maps is particularly revealing (expand to appreciate Izady’s cartographic skills); where else in the world does the United States of America have quite so much military presence? The U.S. has been indelibly wed to the House of Saud (et al.), for better or for worse, since the 1940s to date. After the 11 September 2001 attacks came an increased fear of nonconventional weapons and asymmetric warfare which rose to a crescendo with the 2002 Iraq disarmament crisis and the alleged existence of Weapons of Mass Destruction in Iraq that became the primary justification for the 2003 invasion of Iraq. It should be well noted that neither American nor British armed forces ever actually found any such weapons in Iraq during their years of occupation following the overthrow of Saddam Husain.

Schwarz points out that prominent Shia cleric Sheikh Nimr al-Nimr lived in Awamiyya, the heart of Saudi Arabia’s oil fields (just north-west of Sunni-ruled, Shia-majority Bahrain). Should this be of consequence? No, in a perfect world this confessional happenstance should be of no consequence, but:

W.M.D. or oil…

Learsy, R. J. (2011). Oil and Finance: The Epic Corruption. iUniverse.

As Schwarz (2016) recalls, Winston Churchill once described Iran’s oil as “a prize from fairyland far beyond our brightest hopes.” In that same essay for The Intercept_ Schwarz adds that the UK was “busy stealing” the said natural resource. One can add to that loot, Iraqi and Arabian Gulf oil too:

Oil Blessings & The U.S. Dollar

📕 “Maps, aesthetically scientific” →

📕 “Oil’s corruptive capacity” →

📕 “Imperial interfering” →

📕 “Sectarian matters” →

📕 “Shadow wars” →

It is said that one of the Saudi royal family’s principal concerns is that one day Saudi Shiites will secede, with their oil, and ally with Iran who are just across the Gulf (Schwarz, 2016). This fear has only grown since the 2003 U.S. invasion of Iraq overturned Saddam Hussein’s minority Sunni regime, and empowered the pro-Iranian Shiite majority. Nimr himself said in 2009 that Saudi Shiites would call for secession if the Saudi government didn’t improve its treatment of them. The same tension explains why Saudi Arabia helped Bahrain, an oil-rich, majority-Shiite country ruled by a Sunni monarchy, crush its version of the Arab Spring in 2011.

Sunnis and Shiites praying together on Sunday in Beirut, Lebanon, in protest of the execution of Sheikh Nimr al-Nimr. Hassan Ammar/AP.

Robber barons

Robber baron is a term first applied as social criticism by 19^th century muckrakers and others to certain wealthy, powerful, and unethical 19th-century American businessmen. The term appeared in that use as early as the August 1870 issue of The Atlantic magazine.

The term combines the sense of criminal (“robber”) and illegitimate aristocracy (“baron”) in a republic and, it is said, derives from Raubritter (German: robber knights).

By the late 19^th century, the term was typically applied to businessmen who used exploitative practices to amass their wealth. Those practices included unfettered consumption and destruction of natural resources, influencing high levels of government, wage slavery, squashing competition by acquiring their competitors to create monopolies and/or trusts that control the market, and schemes to sell stock at inflated prices to unsuspecting investors.

“Like the railroad barons of the first Gilded Age, most of today’s superrich made their money not by inventing flying cars or robots but by controlling commercial networks and information.”
— Michael Lind, The Tablet

References

Axworthy, M. (2017, August 25). Islam’s great schism. New Statesman, 146(5381). https://www.newstatesman.com/world/middle-east/2017/08/sunni-vs-shia-roots-islam-s-civil-war

Harney, J. (2016, January 4). How Do Sunni and Shia Islam Differ?, Correction notice. The New York times. https://www.nytimes.com/2016/01/04/world/middleeast/q-and-a-how-do-sunni-and-shia-islam-differ.html

Hubbard, B. (2016, January 4). Saudis Cutting Ties to Iranians as Tension Rises, Article. New York Times. https://www.nytimes.com/2016/01/04/world/middleeast/iran-saudi-arabia-execution-sheikh-nimr.html

Learsy, R. J. (2011). Oil and Finance: The Epic Corruption. iUniverse.

Schwarz, J. (2016, January 6). One Map That Explains the Dangerous Saudi-Iranian Conflict. The Intercept_. https://theintercept.com/2016/01/06/one-map-that-explains-the-dangerous-saudi-iranian-conflict/

Educated Emirati fathers want more for their daughters

Blog Publications Reports

First published in:

Pennington, R. (2017, April 23). . The National. https://www.thenational.ae/uae/educated-emirati-fathers-want-more-for-their-daughters-uae-study-shows-1.82837

The more educated a father is, the more likely he is to encourage his daughter to take up a high-powered career, a study suggests

Researchers from United Arab Emirates University are studying the influence of parents in their children’s careers. And an Emirati child with parents in the private sector is much more likely to hold similar aspirations, it says. Before Mariam Al Zaabi had finished university, her father urged her to become a self-sufficient, professional woman. “He wanted me to be as strong as the men,” said Ms Al Zaabi. “So he said, ‘you need to work and you need to go and earn your degree’.” Her experience is in line with the two main findings of the study into the influence of parents in their children’s careers, by researchers at UAE University.

Academics polled 335 female Emirati students to see what influenced their career intentions. Dr Emilie Rutledge, associate professor at the university’s College of Business and Economics, hoped the two findings could help with Emiratisation policy. “Encouraging more males to undertake tertiary education and continuing with the policy of subsidising the employment costs of nationals will pay longer-term dividends in terms of female labour force participation,” Dr Rutledge said. An unexpected finding was the lack of influence mothers had over children’s career choice. “Mothers, irrespective of their educational attainment level, had no significant influence in the career decision making process of their daughters,” said Dr Rutledge.

The survey also asked students whether they wanted to work in the public or private sectors, to which 78.5 per cent responded public. “Furthermore, 29.6 per cent strongly agreed with the statement that they would ‘wait’ for a government job, as opposed to taking a private sector job in the interim,” the study found. The respondents also said that if the prospective job were “interesting,” the employer offered maternity leave and employed women role models, it would increase women’s likelihood of entering the workforce, the study found. “The job being interesting was ranked as the most important and this was subsequently found to significantly increase the likelihood of labour market entry,” the researchers wrote. While salary was also identified as a factor, “it did not turn out to have a significant relationship” with choice of career.

Comfy government jobs

Blog Publications Reports

First published in:

Al Nowais, S. (2017, March 7). Sheikh Abdullah tells UAE youth to think beyond ‘comfortable’ jobs. The National. https://www.thenationalnews.com/uae/government/sheikh-abdullah-tells-uae-youth-to-think-beyond-comfortable-jobs-1.41511

Sheikh Abdullah bin Zayed has told Emirati youth to think beyond expectations of “comfortable” government jobs and prepare to compete with the rest of the world.

“If you want to participate in shaping the future then you need to stop thinking of a government job,” the Minister of Foreign Affairs and International Cooperation said.

“No other country in the region supports youth-led projects like the UAE. It is one the easiest countries to set up a run a business, so start your own business and corporations.”

He spoke on Tuesday at the Mohammed bin Zayed Majlis for Future Generations in Abu Dhabi, which brought together more than 3,000 Emirati university students.

While many see globalisation as one of the biggest challenges, Sheikh Abdullah said he sees it as an opportunity.

“It’s an opportunity to compete. You are no longer competing amongst yourselves but with the greatest minds around the world,” he said.

He encouraged youth to develop their skills and gain more to keep pace with the latest technological and global advances.

Seventy-five per cent of jobs available today will be obsolete by the time children born this year join the workforce, he said.

“I invite you to seize the opportunity and the opportunities available around you,” he said. “Invest your precious time in your education so you can be ready for your working life.”

Youth must be more “serious and dedicated”, he said, with more ambitions and hope, and a desire to develop and give more to their country.

There are no more “comfortable” jobs in the UAE, he said, because the Government is looking towards the future, envisioning projects in renewable energy and a colony on Mars.

Fields such as renewable and nuclear energy are ones that he never imagined studying in university, he said.

“Now the opportunities of development in these fields are more than ever. We can now take part and participate in international development,” said Sheikh Abdullah.

“Brothers and sisters, those made the biggest and greatest changes in the world and in our lives are not those who learned more, but those who were dedicated.”

The Minister of State for Youth and the Ministers of Higher Education, Climate Change and Environment, also spoke at the start of the two-day summit.

Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, visited the exhibition after its launch. He will deliver an address on Wednesday.

Sheikh Mohammed said Emirati youth are capable of presenting “innovative initiatives and creative solutions to tackle challenges”.

“We encourage and provide them what it takes to excel in education and scientific research while adopting their ideas and innovations in different fields,” he said.

Shamma Al Mazrouei, Minister of State for Youth, said Sheikh Abdullah’s speech was inspiring, particularly when he said there were no comfortable jobs in the government of the UAE. The summit was aimed at inspiring youth and supporting them in building the future.

Dr Ahmad Belhoul, Minister of State for Higher Education, said the majlis is way to inspire students and provides them an opportunity to choose their careers. One of the messages from the summit is the importance of investment in one’s self.

“A university degree alone is not enough to face the changes of the job market,” he said.

Living in a technological age means the skills a student acquires today might not be required by the job market once he or shee graduates, he said, so it is important to invest in one’s self and constantly keep abreast of changes.

Dr Thani Al Zeyoudi, Minister of Climate Change and Environment, hosted a session during which he highlighted the pivotal role that UAE youth play in combating climate change and advancing the protection of natural resources.

He said climate change will affect all inhabitants of the Earth and will lead communities to change their lifestyles.

“Climate change affects the fundamentals of our daily lives, such as the air we breathe, the water we drink, the food we eat, the work we do and the house we live in,” he said.

“Innovation and creativity are the fundamental pillars of sustainable and nontraditional solutions adopted by the UAE in its journey towards sustainability and decreasing the effects of climate change and adapting to it.”

Economic reform required

Blog Publications Reports

First published in:

The Economist (2016). Time to sheikh it up. The Economist, 420(9006), 11–12. https://www.economist.com/leaders/2016/09/08/time-to-sheikh-it-up

If Gulf citizens are to keep enjoying rich-world standards of living, they will increasingly have to find productive work in the private sector; this means overhauling labour markets that keep too many of the region’s citizens idle

THE people of Saudi Arabia have for decades enjoyed the munificence of their royal family: no taxes; free education and health care; subsidised water, electricity and fuel; undemanding jobs in the civil service; scholarships to study abroad; and much more. This easy life has been sustained by gushers of petrodollars and an army of foreign workers. The only thing asked of subjects is public observance of Islamic strictures and acquiescence in the absolute power of the sprawling Al Saud dynasty.

Similar arrangements hold in the other countries of the Gulf Co-operation Council (GCC), a six-member club of oil monarchies. But these compacts are breaking down. The price of oil has fallen sharply since 2014, and the number of young Gulf citizens entering the job market is growing fast. The maliks and emirs can no longer afford huge giveaways, or to pay ever more subjects to snooze in air-conditioned government offices. The monarchs know it. They say they are seeking to diversify their economies away from oil rents; they are also whittling away generous subsidies and plan a new value-added tax across the GCC.

But reforms have to go further. If Gulf citizens are to keep enjoying rich-world standards of living, they will increasingly have to find productive work in the private sector. That means overhauling labour markets that keep too many of the region’s citizens idle.

The pampering of Gulf citizens has made them expensive for firms to hire (see “Labour laws in the Gulf: From oil to toil”). By contrast, the third-class legal status of many migrant workers makes them extra-cheap (see “Migration in the Gulf: Open doors but different laws”) and puts them at the mercy of their employers. Given the choice between a hardworking foreigner and a costly local, private firms have long preferred the foreigner.

In response Gulf governments have imposed ever more stringent quotas on foreign companies to employ locals, especially in desirable white-dishdasha jobs. In Bahrain 50% of workers in banks must be Bahrainis; but only 5% of those in construction need be. (It’s awfully hot on building sites.) Quotas reduce the incentive for Gulf citizens to do a job well: why bother, when your employer has little choice but to keep you on? Firms often regard hiring locals as a sort of tax. Some pay them to stay at home.

The best policy would be to phase out quotas entirely, while also slimming the bureaucracy and making it clear that civil-service jobs are no longer a birthright. In Saudi Arabia two-thirds of citizens are employed by the state. Public-sector wages account for 12% of GDP in the Gulf and Algeria, compared with an average of 5% across emerging economies.

The way migrant labourers are treated needs to change, too. Gulf states deserve credit for letting in far more immigrants than almost all Western countries, relative to their populations. (In many cases, foreigners outnumber locals.) Migrants gain from earning far higher wages than they could back in India or Pakistan. But the coercive parts of the kafala system of sponsoring foreign workers should be dismantled. Migrant workers should not need their employers’ permission to leave the country. After a while, they should be allowed to switch jobs. Contracts should be clear and enforced by local courts. Long-term foreign workers should be able to earn permanent residence; ultimately those who wish to should have the opportunity to become citizens.

These reforms–less pampering for locals and more rights for migrants–would reshape the labour market. More locals would have to do real work. Migrants would be better treated, though inevitably fewer would be hired. Some new ideas are being tested. Bahrain is allowing firms to ignore quotas by paying a fee for each foreign worker they employ. As part of its ambitious economic agenda, Saudi Arabia is talking of issuing green cards to some migrants.

A new social contract
At a time of bloody turmoil across the Arab world, many royals fear undoing the social compact that has kept them in power. But cheap oil makes change unavoidable; doing nothing merely postpones the reckoning. Economic transformation should nudge Gulf states towards political reform. Perhaps, as their citizens are asked to do more to earn their living, they will demand that rulers do more to earn their consent.

Wanted: Private-sector Emiratisation

Blog Publications Reports

First published in:

Swan, M. (2015, November). Incentives needed to increase Emiratisation in private sector. The National. https://www.thenational.ae/uae/incentives-needed-to-increase-emiratisation-in-private-sector-1.27972

Emiratisation must address the inequity between the working conditions of the private and public sectors, according to new research

James Christopher Ryan from the College of Business and Economics at the UAE University pointed to the discrepancy in number of holiday days, working hours and salaries. He said standardisation between the two was the way to make the private sector more attractive to Emiratis. “Looking at ensuring that experience and qualification requirements for comparable work are the same across sectors and aligning salaries for comparable work between sectors” should also be considered, Dr Ryan said. He also said that more needed to be done to change the mindset of Emiratis to help them find work in the private sector.

“Historical evidence suggests Emiratisation has not been a success thus far,” he said.

“Also, my continuing interaction with UAE national students still offers clear evidence of their preference to work for public sector organisations. Once we have established a culture where the citizenry come to expect employment in government positions it can be very difficult to move successfully away from that expectation.” The push for Emiratisation in the private sector has been slow when compared to its government counterparts, he said.

“To date Emiratisation in the government sector, that is replacing expatriate expertise with local expertise, has had success,” he said. “However within the private sector there is not enough sustained improvement in UAE national employment to determine if we have any real success yet.” Dr Ryan’s research was published in the Journal of Business Research.

“Successful Emiratisation will require a better balance between the conditions and rewards offered in the public and private sectors for UAE nationals. Any steps we can take to reduce the imbalance are steps in the right direction.”

Dr Emilie Rutledge, associate professor of economics at UAE University, undertook research of her own on Emiratisation that supports Dr Ryan’s observations. “In the long run, fully integrating Emiratis into the labour market is crucial for economic prosperity and social inclusion,” she said. “Unemployment rates have been high among the Emirati population in recent years, with estimates in double digit figures, much of which is structural unemployment and can be attributed to strong public sector preferences. “It is essential to address the paradox in pay and working hours if more Emiratis are to be willing to enter private sector employment.”

In Abu Dhabi she said only about 4 per cent of private sector employees were Emirati. Incentives were needed, such as aligning benefits and working hours, if this was to be reversed. She said sociocultural barriers also remained an obstacle to Emiratis entering the private sector. “Several vocations in the private sector are not considered socially or culturally appropriate for nationals, and there is still a certain amount of prestige attached to attaining a public sector post.”