Table Of ContentThe Price of Wealth
A volume in the series
Comell Studies in Political Economy
EDITED BY PETER]. KATZENSTEIN ECONOMIES AND
A full list of titles in the series appears at the end of the book.
INSTITUTIONS IN
THE MIDDLE EAST
Aziz
KIREN CHAUDHRY
CORNELL UNIVERSITY PRESS
Ithaca and London
t~d:ll. CJ6rary, UC Santa Cruz 1997 '
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Copyright© 1997 by Cornell University For Aden and Rem
All rights reserved. Except for brief quotations in a review, this book, or parts
thereof, must not be reproduced in any form without permission in writing
from the publisher. For information, address Cornell University Press,
Sage House, 512 East State Street, Ithaca, New York 14850.
First published 1997 by Cornell University Press
Library of Congress Cataloging-in-Publication Data
Chaudhry, Kiren Aziz.
The price of wealth : economies and institutions in the Middle
East I Kiren Aziz Chaudhry.
p. em. - (Cornell studies in political economy)
Includes index.
ISBN o-8014-3164-6 (cloth : alk. paper)
1. Saudi Arabia-Economic policy. 2. Yemen-Economic policy.
3· Middle East-Economic conditions. 4· Saudi Arabia-Politics and
government. 5· Yemen-Politics and government. I. Title.
II. Series.
HC415.33·C49 1997
338·953-dc21 97-1536
Printed in the United States of America
This book is printed on Lyons Falls Turin Book, paper that is totally
chlorine-free and acid-free
Cloth printing 10 9 8 7 6 5 4 3 2 1
Contents
Acknowledgments ix
Glossary of Saudi Archival Documents xiii
1. Oil and Labor Exporters in the International Economy 1
I Institutional Origins in Isolation
2. The National Market Unified 43
3· Taxation and Economic Fragmentation 101
II TheBoom
4· The Business of the Bureaucracy
5· Migrants and Magnates
6. Informal and Formal Banking
III The Bust
7. Beyond the Paradox of Autonomy
8. Worlds within the Third World
Index 321
vii
,
Acknowledgments
Mter winning a Pulitzer for Pilgrim at Tinker Creek, Annie Dillard wrote a
short book called The Writing Life in which she cautioned would-be writers
against showing their readers what she called the "price tag" on their
work. Dillard meant that writing should be lean. But, fresh from my work
in the Middle East, I took it to mean also that the reader should be
spared the suffering and anxieties of the writer. That was some years ago.
This book has been so long in the making that it has become therapy. I
have no price tag to display, only warm thanks for those who helped me.
The early support of Samuel Huntington, David Landes, and Stephan
Haggard, who gave me the intellectual freedom to shape my own research
agenda, was critical in initiating the field work on which the book is, in
large measure, based. Over time colleagues read all or parts of the manu
script. Suggestions, criticisms, and encouragement offered by Chris An
sell, Sheila Carapico, Ruth Berrins Collier, David Laitin, Elizabeth Perry,
Robert Powell, Robert Price, Suzanne Rudolph, Charles Schmitz, and
John Zysman have been enormously helpful. David Collier supported this
project in countless ways and well beyond the call of duty. The manuscript
also benefited from the detailed comments of an anonymous reviewer for
Cornell University Press.
Two colleagues, Peter Katzenstein and David Woodruff, put themselves
"in" the manuscript, so to speak, and, more than alerting me to what was
wrong with it, helped me make it a better version of what it already was.
For their care and empathy I am grateful. In the company of my former
student David Woodruff, I developed many of the arguments and sifted
through much of the evidence. His intellectual companionship was indis-
ix
AcKNOWLEDGMENTS Acknowledgments
pensable in freeing me to pursue arguments that initially appeared hereti Studies at Berkeley. Deans Henry Rosovsky and Al Fishlow, both institu
cal. Others at Berkeley shaped my thinking and gave me courage by sub tions in themselves, were particularly supportive of my efforts. Finally I
jecting my ideas to the kind of scrutiny that only graduate students can thank Roger Haydon for good advice and good cheer; for living up to the
offer. I owe thanks to the students who, as part of my political economy legend. With all this help I wish I could attrtbute the remaining inade
seminar since 1991, have sustained me in an intellectual landscape that quacies of my work to someone else as well; but they, and the views and
appeared, at times, strangely parched. In particular, I acknowledge Regina interpretations expressed in this book, are mine alone.
Abrami, Anne Marie Baylouny, Arthur Burris, Melani Cammett, Julie It is probably not unusual that the most important influences on my
Lynch, Khalid Medani, and Lauren Morris. Ken Dubin and Evan Leiber work have been people not directly involved in its actual production.
man gave me excellent research assistance and many substantive sugges Three people, each in very different ways, have been enormously impor
tions that improved the work. Arthur McKee prepared the manuscript for tant, largely by example, in shaping my ideas about what it is we do and
publication and in the process thoroughly confirmed my high opinion of why. With hope that if not this, then my next book will reflect some of
historians. what I learned from them, I thank Michael Burawoy, Stephen Holmes,
Through the various incarnations of this project my friends Muham and Michael Ragin.
mad Alwan, Robin Einhorn, Naomi Rustomjee, Peter Sahlins, Shannon KA. C.
Stimpson, and Michael Watts have offered general advice about how to
survive as well as candid, sometimes scathing, evaluations of the style or
substance of the arguments I was contemplating. John and Lois Young
and Anwar and Kathleen Chaudhry helped in numerous ways, practical
and otherwise, both in the Middle East and in the United States.
In my ambition to understand two countries I had known only through
books, I have had excellent guides. My debt to Samir Anabatawi, Saleh
Toaimi, Husayn al-Saqqaf, 'Ali Salami, 'Abdalqawi Humaiqani, Mansur
'Abdallah Yasin, and Hussein al-Hubaishi cannot be summarized in any
neat way. The reasons for their generosity during my stay in Arabia are
still mysterious to me, but their efforts on my behalf came closer to a pure
quest for knowledge than much of what goes on in the American acad
emy. Without their help, their courage, and their patience the best parts
of this book could not have been written. I could not have done research
in Saudi Arabia without the support of 'Abdulaziz al-Dukheil. His friend
ship, generosity, insight, and sheer unfounded belief in my ability to put it
together brought vividly to life the most venerable traditions of Arabia.
Because of him, several organizations gave me access to the unusual infor
mation, archives, and data on which my analysis of Saudi Arabia is based.
With some initial mixture of suspicion and curiosity and, later, genuine
interest, the staffs of the Jeddah, Riyadh, San'a, and Taiz Chambers of
Commerce and Industry and the director and librarians of the Institute
for Public Administration in Riyadh put up with me for months, giving
generously of their time, their institutional memory, their data, and their
advice. The American Institute for Yemeni Studies under the director
ships of both Jeffrey Meisner and David Warburton facilitated my research
in countless ways in 1986-87 and in 1992. My field work and writing were
generously funded by the Fulbright-Hays Commission, the Social Science
Research Council, the Kukin Fellowship at the Harvard Academy for In
ternational and Area Studies, and the Institute for International and Area
X xi
Glossary of Saudi Archival Documents
These documents are in the Saudi National Archive, in the Institute for
Public Administration, Riyadh.
Amr Malaki Royal Ordinance
AmrSami Royal Decree
Diwan al Malaki King's Office
Khitab Letter (followed by name of issuing
body)
Majlis al-Shura Consultative Council
Majlis al-Wukala' Council of Deputies
Majlis al-Wuzara' Council of Ministers
Marsum Malaki Royal Decree based on the recom
mendation of the Council of Minis
ters. (Usually the king's approval of
legislation passed by Decree of the
Council of Ministers)
Qarar Decree (followed by name of issuing
body)
Qarar Malaki Royal Decree
Qarar Ri' asah al-Majlis al Decree of the president of the Coun
Wuzara' cil of Ministers (Since the end of King
Saud's reign, the council president
has also been king)
xnz
The Price of Wealth
'
CHAPTER ONE
Oil and Labor Exporters in
the International Economy
In 1973 the international price of oil quadrupled, precipitating the
largest and most rapid transfer of wealth in the twentieth century. In the
magnitude of the changes they wrought in the global economy, the oil
shocks of the 1970s and early 198os were comparable to the crises of the
1920s and 1930s. They created severe pressures for adjustment in the
advanced industrial countries, triggering changes in economic policy and
fundamentally altering macroeconomic relationships that had stabilized
over the preceding three decades. In the developing world, sovereign and
private borrowers gained access to recycled petrodollars, generating a
host of economic dependencies that culminated in the debt crisis of the
mid-198os. The oil shocks transformed international financial markets,
initiating a trend that assumed institutional form in the liberalization of
m~or financial centers in the 198os.
At the epicenter of these systemic changes-the Middle East-the del
uge of oil revenues flooded a region whose countries had skewed but
complementary national factor endowments. What decades of Pan-Arab
sentiment had failed to achieve, the oil boom accomplished effortlessly:
through the prosperous years of the 1970s and early 198os, the econ
omies of capital-scarce labor exporters and labor-scarce oil exporters be-
~ came tightly linked through massive flows of labor and capital across na
tional borders.
Shared resources made shared history. From Morocco to Iraq, the
countries in the regional economy experienced three identical episodes
of change: the oil boom (1973-1983), the recession leading up to the
Gulf War ( 1984-1990), and the aftermath of the Gulf War. Between 197 3
I
:;2~ ~II~
-r, c
THE PRICE OF WEALTH Oil and Labor Exporters in the International Economy
and 1983 the regional economy was characterized by unprecedented
300,000
levels of interdependence between capital and labor exporters. In some
instances-Tunisia and Libya, for example, or Yemen and Saudi Arabia
this interdependence was bilateral,! Other labor-abundant countries, such
as Jordan, Palestine, Syria, and Egypt, exported workers to many destina 250,000
tions. Oil revenues and labor remittances were supplemented by bilateral
aid from the oil-rich Gulf states, Europe, the United States, and the Soviet +
Merchandise Exports
Union. Aid constituted a substantial portion of government revenues for ........ Merchandise Imports
capital-scarce Middle Eastern countries; even for major labor exporters, 200,000
aid at times outstripped remittance earnings.2 Oil revenues, aid, trade,
remittances, and borrowing grew in tandem in the 1970s, reinforcing in
terdependence (as Figures 1.1-2 illustrate).
150,000
Quick to emerge, the regional economy was also short-lived. When oil
prices plummeted in the 198os, a severe regionwide recession ensued.
From a 1980 high of $243 billion, oil revenues for major exporters fell to
$67 billion in 1988.3 The economic downturn had an almost immediate
100,000
impact on labor exporters, as government contracts in oil exporters were
terminated and state spending dropped. Workers' remittances declined,
generating severe balance-of-payments crises.4 Similarly, Arab bilateral and
multilateral aid declined from a high of $10.9 billion in 1981 to $2.5
50,000
billion in 1987. By 1989 there was a net ouiflow of $2.2 billion from labor
exporters in repayment of Arab nonconcessional loans. Other debt pay
ments simultaneously came due for many of the region's heavy borrowers.5
The decline of region-specific capital flows and the rise of debt repay 0+-.--.-.-.-.-.--r-.-.-.-.--.-.-.-.-,r-.-.-.-.
ments in the mid-198os coincided, roughly, with the termination of much 1970 1975 1980 1985 1990
of the bilateral aid that the Arab states had been receiving from the Soviet
Year
Union and the United States (see Figure 1.3).
The Gulf War formally severed links that had been weakening through Figure I.I Middle East I North Mrica: Merchandise exports and imports. (SouRCES: World
Tables, 1991; 1989, 1990 figures for Libya and all figures for Iraq and Qatar calculated from
the late 1980s and signaled the unqualified end of the regional economy.
International Financial Statistics, various years. Totals rounded to nearest million.)
The Iraqi invasion of Kuwait, as well as the positions taken by different
Arab governments during the conflict, reflected varying domestic eco
1 Before 1978 Libya relied on Tunisian labor; later, Egypt replaced Tunisia as Libya's main nomic crises. The rift between rich and poor took institutional form
source of labor. Similarly, three-fourths of Yemen's labor force was employed in Saudi Arabia
briefly in 1989, when the Arab Cooperative Council was created by Iraq,
during the oil boom, when labor remittances constituted over 150 percent of Yemen's offi
cial GNP. Egypt, Yemen, and Jordan as a counter to the oil-rich members of the
2 In 1978 and again in 1990, for example, Egypt's aid receipts exceeded labor remit Gulf Cooperative Council. By the end of the war these conflicts had be
tances.
come largely superfluous: in 1990, when the Gulf states placed themselves
' The figures include value of fuel exports from Algeria, Ecuador, Gabon, Indonesia,
Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela; see World directly under the security umbrella of the United States, they dissolved
Tables, I99I (Baltimore: Johns Hopkins University Press/World Bank, 1991 ). the political and military foundations of the regional economy.
• It is generally accepted that government and World Bank figures on labor remittances
The boom decade did not change a single political regime in the Arab
are inaccurate, as they reflect only earnings sent through formal banking institutions. The
rise in remittances at the end of the 198os (Figure 1. 2) reflects one-time repatriations of world: indeed, in the vast majority of cases, the same political leaders who
savings at the termination of contracts and different reporting conventions in labor-export ushered in the boom were still in charge in 1996. Yet the capital flows of
ing countries. For a review, see Gil Feiler, "Migration and Recession," Population andDeuelop
the 1970s reshaped the domestic institutions and economies of each con
mentReview 17 (March 1991): 133-55.
'Pierre van den Boogaerde, "Financial Assistance from Arab Countries and Institutions," stituent country: whole classes rose, fell, or migrated; finance, property
Middle East Executive Reports, April 1992. rights, law, and economy were changed beyond recognition.
2
3
