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Is Authoritarianism Causing Economic Underperformance in the MENA Region?

  • henrystone2004
  • Sep 20
  • 12 min read

DISCLAIMER: This article was taken from an essay I wrote for a university module hence the academic style.

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On the one hand, economic underperformance results from authoritarianism with corruption, inefficiency and reduced incentives. Moreover, authoritarianism is mostly persistent despite variations in democratisation levels. However, the key case studies of Saudi Arabia and the United Arab Emirates (UAE) suggest that authoritarianism can yield economic benefits with faster decision-making and economic fast-tracking through developmental authoritarianism alongside resource extraction. This suggests that ultimately, although authoritarianism is persistent and can contribute to economic underperformance, particularly in resource distribution, other factors are more crucial in economic underperformance. Therefore, political stability, which is determined by colonial conflicts and to a lesser extent religion (evidenced by Syria and Yemen), is most responsible for underperformance as it determines productivity, resource exploitation and economic security.


Arguably, the persistence of authoritarianism is disputed by parliamentary systems and more democratic systems in the MENA region, a spectrum Melani Cammet explored[1] following the 2011 Arab uprisings. This is exemplified by the effect of regime change in Tunisia, Libya and Egypt and even Yemen’s power transfer which contrasted with the reassertion of repressive measures such as in Syria and Bahrain. Furthermore, concessions in Jordan such as the prime minister’s dismissal and elections juxtaposed political stagnation in countries such as Iraq, Lebanon and Algeria. Generally, changes lacked impact such as Moroccan King Mohammed VI’s 2011 constitution overshadowed by his ultimate sovereignty. Although Islamist parties later hijacked many protests, this was opportunistic and as Cammett argues the uprisings were instigated by socioeconomic grievances[2]. This arguably suggests authoritarian underperformance, particularly over inequality. The relative lack of protest in more prosperous Gulf Monarchies such as Saudi Arabia and the UAE occurred as socioeconomic grievances were appeased by a stabler wealthier environment and a government equipped with greater control due to resource exploitation.  Although authoritarian leaders were usurped, reform was limited, authoritarianism often persisted and instability ensued reflected by the 2014 Yemen Crisis and the 2021 Tunisian parliament suspension. Whilst there are more democratic MENA countries such as Israel with proportional representation in the Knesset and voting rights, there has been frequent criticism of the Gaza Strip occupation and an underlying exclusion of minorities with the 2018 nation-state law arguing it was for Jewish Citizens[3]. However, with the influence of Islam in which there is a fusion of state and religion[4] alongside a history of colonial instability and greater centralisation[5], authoritarianism is a widespread and almost universal feature in MENA despite variation and developments.  


In one respect, authoritarianism can benefit MENA's economic performance. Notably, using case studies of the Gulf monarchies of Saudi Arabia and the UAE, absolutist authoritarian monarchies have yielded high levels of economic performance in terms of growth and entrepreneurship. Both states are high-performing in these areas with a forecasted GDP growth rate of 4.6% in Saudi Arabia and 5.1% in the UAE for 2025[6]. As Martin Hvidt argues, the transformation of Dubai in reflecting a ‘developmental state’ was achieved through a neo-patrimonial system of bureaucracy loyally implementing changes with faster decision-making than democracies[7] whilst also removing the interests of citizens. These interests can threaten diversification and the benefits of a more flexible foreign workforce. As Herb argued[8], Kuwait’s lack of economic diversification results from higher levels of participation and political power implied by the ability for votes of no confidence, in which broad interests in specialised industries prevent diversification, unlike the UAE. However, Herb understates significant authoritarianism in Kuwait with the illegality of political parties and the Emir’s ability to dissolve parliament. Conversely, Saudi Arabia’s concentrated decision-making has facilitated diversification as exemplified by sports and entertainment investments symbolised by the 2034 FIFA World Cup certification. As David Waldner argued, exemplified by Syria and Turkey, elite conflict volume often predicts the extent of authoritarianism[9] with the MENA region characterised by narrow coalitions. However, seen with lacking activity in Gulf monarchies during the Arab Spring, some nations address collective action dilemmas such as Waldner’s ‘Gerschenkronian’ dilemma. This was overcome by state intervention co-ordinating investment[10], implied by Hvidt’s description of supply-driven demand in Saudi Arabia[11]. Moreover, as Darius Mehri argued, authoritarian states despite limiting incentives and innovation can yield ‘pockets of efficiency’[12] with the emergence of privately managed enterprises such as the Saudi Arabian SABIC petrochemical company. However, the ‘Kaldorian’ dilemma of balancing economic efficiency with growing wages and employment is less successfully addressed, as suggested by the income share comparisons of the UAE and Saudi Arabia with the top 10% receiving a 54% income share[13] . Therefore, although authoritarianism can promote economic diversification, growth and fast decision-making, it disenfranchises citizens and often favours the elite therefore it often fails to address economic inequality. This suggests that other factors are more conducive to economic performance such as resource endowment and crucially political stability, determined by colonial and religious conflicts in the region.


Conversely, authoritarianism can hinder economic performance through corruption and inefficiency resulting from rent-seeking by empowered elites. Notably, with neo-patrimonial systems such as the UAE and Saudi Arabia’s monarchy (with the Crown Prince controlling Public Investment Wealth Fund and enterprises such as Saudi Electricity Company, Aramco and SABIC and the UAE’s Emirates Group in aviation), resources are often state-allocated and the hierarchy is structured around the loyalty and patronage powers of the gulf monarchies. In such circumstances, corruption empirically hinders foreign and domestic direct investment and growth in MENA countries[14]. Moreover, market incentives for innovation and socioeconomic benefits are eclipsed by elite interests. As Ali Awdeh and Hassan Hamadi show, inefficiency and corruption occur[15] when favouring elite preferences for military expenditure and investment at the expense of wider society. Similarly, Justin Gengler et al.’s analysis of Qatar, a neo-patrimonial Gulf monarchy comparable to the UAE and Saudi Arabia, describes people’s preference for public investment into key opportunities, reflecting the authoritarian neglect of economic opportunity.[16] Notably, economic underperformance in inequality is seen across 18 MENA countries with lacking human capital, uneducated labour markets[17] and poverty among domestic civilians, often leading to dependence on foreign labour and investment. However, Awdeh and Hamadi’s analysis (including Saudi Arabia, Yemen, UAE and Syria), showed through vector error correction modelling that corrupt, high-borrowing, low-innovation and high military spending institutions while contributing to economic decline, do not have primary influence on underperformance like conflicts and instability[18]. However, corruption is notoriously hard to record and is still crucial in ensuring authoritarian institutional dominance which can hinder efficiency and incentives. Whilst efficiency can occur with coalition building through lobbying from below, as seen with the Iran automotive industry in Mehri’s analysis[19], ultimately in these authoritarian regimes such as Saudi Arabia and UAE, the state elite monopolise decision making. Similarly, authoritarian Yemen and Syria are also blessed with natural resources and state enterprises such as the Syrian Petroleum Company and Yemen Oil and Gas Corporation but rank among the lowest MENA regions in GDP per capita[20]. This suggests that despite authoritarian governance, corruption, inefficiency and reduced incentives, political instability through destructive unproductive conflicts ultimately drives underperformance.


Alongside corruption and inefficiency, authoritarianism hinders incentives which can therefore create economic underperformance and market regression. Economic theorists from Mancur Olson’s ‘roving’ and ‘stationary bandits’[21] to Daron Acemoglu et al.’s extractive institutions[22] all stress the importance of authoritarian institutions in stunting incentives. However, as Olson points out with ‘stationary bandits’, there are authoritarian institutions that allow economic growth when facilitating political stability and continued production alongside the provision of public goods[23] as seen in Saudi Arabia and the UAE with state enterprises. However, equally, authoritarianism can massively impede incentives. This was exemplified by Ali Abdullah Saleh’s 1978–2012 rule in Yemen with a patrimonial oil-centric elite provoking Houthi conflicts and elitist state-driven extraction preceding the 2014 Yemeni Civil War. Similarly, in Syria, Hafez and Bashar al-Assad since 1970 have centralised a regime of oil extraction and cronyism which provoked the 2011 Syrian Civil War. Conversely, authoritarian Saudi Arabia and the UAE have notably welcomed foreign investment and trade with G20 and OPEC and many MENA nations have undergone privatisation. Despite this, authoritarian state direction still dominates with Saudi Arabia’s state-owned Saudi Aramco making up 70% of government revenue[24]. This reflects low incentives for smaller competitive enterprises with state-driven projects such as NEOM and the Riyadh Metro under Saudi’s ‘Vision 30’ and the UAE’s carbon-zero Masdar City and Dubai Metro. Moreover, although collective action incentive issues were addressed in the gulf with the aforementioned ‘Gerschenkronian’ dilemma with fast-tracking late-developing nations through state-led resource exploitation, the ‘Kaldorian’ dilemma of lagging wages and employment remains. This is evidenced by low domestic employment levels with foreign labour dependence and highly unequal income shares. Whilst, the high HDI levels suggest a degree of opportunity (particularly in the UAE)[25], these are outweighed by income inequality and unreliable metrics due to data absences such as migrant worker's exclusion. Therefore, whilst fostering developments, authoritarianism often hinders economic performance, particularly in wealth distribution, as incentives favour the elites. However, political instability and military conflict primarily threaten economic performance, which the unique geo-political and religious dynamic of a country can determine.


With varying degrees of authoritarianism persisting through the case studies, it is evident that other factors external to authoritarianism contribute primarily to economic underperformance. Most notably, colonial legacies have impacted economic performance in the region through political and economic instability and continuing conflicts. Since the Islamic Caliphate, the Ottoman Empire’s dominance was followed by imperial conquests in the 18th century with the Ottomans still retaining areas until the 1916 Sykes-Picot Treaty. This resulted in diverse colonial systems such as protectorates, mandates and colonies. Moreover, post-colonial tensions exacerbate economic underperformance with Russian and US economic and political interests in the MENA region such as over resources and combatting ideology. For example, the Israel-supporting US engaged in the Arab-Israeli conflict with the USSR who backed Syria and Egypt. This was followed by the 1973 Oil Embargo, 1979 Soviet Afghanistan Invasion, US endorsement of the Iranian Shah and crucially, the 2003 Iraq War. Military mobilisation in the MENA region was driven by both sides such as through establishing bases and forging alliances such as the US’ CENTO of Israel, Iran and Saudi Arabia. Military conflicts have destabilised the MENA region with proxy wars such as the Yemen conflict pitting Iran against Saudi Arabia and the UAE (despite demobilisation since 2019). Moreover, extremist terrorist organisations levy influence such as Al-Qaeda and now ISIS in Syria. This has damaged confidence for international trade and investment alongside diverting spending focus on military, rather than economic, development. The long-standing effects of colonialism are best exemplified by Western European feudal decentralisation contrasting with Ottoman centralised Mamlukism. Resultingly, this centralised system with less devolution to elites led to greater instability indicated by the comparatively shorter rule tenure and failure to develop democratic institutions as seen in Europe[26]. Acemoglu et al. build upon this with the negative correlation of lower GDP per capita with higher mortality rates as extractive institutions were frequently established there[27]. Notably, Syria suffered historically to the Ottoman’s extractive practices and authoritarian regimes such as the Assad family following its independence from the French mandate. Yemen also retained extractive Ottoman institutions whilst South Yemen remained a British protectorate until 1967. This necessitated colonial trade networks above economic development and provoked the creation of a politically unstable regime allowing domestic and international factions from the Houthis to Iran and Saudi to influence civil war. Both exemplify the role of exclusive colonial institutions in creating political instability and therefore military conflict which is most influential in economic underperformance. As Awdeh and Hamadi argue, the exhaustive military spending, investment and credit uncertainty, physical damage and industrial disruption of war massively impede economic performance[28] reflected by Syria and Yemen ranking among the lowest GDP in the MENA region (both below $1000)[29]. This suggests that authoritarianism while persistent, often emerges as a circumstance of colonial origins which also destabilise the region.


However, there is are religious origins in these economically disruptive MENA conflicts. Notably, arguably Islam affects economic development through wealth fragmentation via inheritance laws which limit investment and capital accumulation whilst divided estates limit large business enterprise and arguably the charitable waqfs suppress efficiency and productivity[30]. Moreover, Rubin argues that the fusion of religion and politics in Islam with the strength of religious legitimation exerts greater political and institutional influence[31]. However, with the presence of enterprising and capitalistic private sectors in both UAE and Saudi Arabia, attributing economic underperformance to religion is unconvincing despite its partial influence in decision-making. As Adeel Malik argues[32], the Islamic Law Matters (ILM) Thesis dismisses the enforcement environment, role of political centralisation and state intervention. Such authoritarianism whilst possibly influenced by Islamic culture, exists primarily due to political instability which often derives from colonial struggles. Religious fundamentalism has seen the growth of Al Qaeda and ISIS in Syria and Yemen, Houthis motivated by the Zaydi Shia Islam uprising in Yemen and the involvement of Sunni Saudi Arabia and UAE in sectarian proxy wars to counter Shia Islam. However, as secular causes dominate warfare such as colonialism, this is only a partial consideration.


Finally, geography is also decisive in economic performance across the MENA region. Cammett argued, through his categories of Resource-rich, labour-poor (RRLP), labour-abundant (RRLA) and Resource-poor, labour-abundant (RPLA)[33] countries, that resources are important in economic performance. Despite its small surface area, the Middle East produces 31.5% of global oil production[34] which has facilitated the growth of economies such as Saudi Arabia, Kuwait and the UAE. However, government decisions regarding diversification, corruption levels, state control and repression determine if authoritarianism can properly utilise these resource advantages. This is exemplified by the contrasting paths of the UAE and Saudi Arabia with Yemen and Syria. Whilst abundant in oil, RRLA category Yemen and Syria with the diversion of oil rents through repression fail to satisfy the private sector and economic development as RRLP countries often achieve. Although authoritarian decision-making can determine this, the ability to make such decisions originates in the stability of the political context which is chiefly affected by colonial conflicts and to a lesser extent religion.


To conclude, whilst authoritarianism is persistent (often emerging from colonialism and partially religion), it does not significantly account for economic underperformance in terms of growth and enterprise, it contributes more to economic inequality. The variations in economic performance in the MENA region, demonstrated through case studies of Yemen, the UAE, Syria and Saudi Arabia, are primarily caused by colonial conflicts. These determine the political stability of the region and its ability to pursue developmental authoritarianism and exploit natural resources.

 

Bibliography

Secondary Sources

·        Acemoglu, Daron, Simon Johnson, and James A. Robinson, The Colonial Origins of Comparative Development: An Empirical Investigation (Nashville, 2001).

·        Awdeh, Ali, and Hassan Hamadi, Factors Hindering Economic Development: Evidence from the MENA Countries (Leeds, 2019).

·        Blaydes, Lisa, and Eric Chaney, The Feudal Revolution and Europe’s Rise: Political Divergence of the Christian West and the Muslim World before 1500 CE (Cambridge, 2013).

·        Cammett, Melani, A Political Economy of the Middle East (Harvard, 2013).

·        Gengler, Justin, Bethany Shockley, and Michael Ewers, Refinancing the Rentier State: Welfare, Inequality, and Citizen Preferences toward Fiscal Reform in the Gulf Oil Monarchies (New York, 2021).

·        Hakimi, Abdelaziz, and Helmi Hamdi, How Corruption Affects Growth in the MENA Region? Fresh Evidence from a Panel Cointegration Analysis (Munich, 2015).

·        Herb, Michael, A Nation of Bureaucrats: Political Participation and Economic Diversification in Kuwait and the United Arab Emirates (Cambridge, 2009).

·        Hvidt, Martin, An Outline of Key Development-Process Elements in Dubai: The Dubai Model (Cambridge, 2009).

·        Malik, Adeel, Was the Middle East’s Economic Descent a Legal or Political Failure? Debating the Islamic Law Matters Thesis (Oxford, 2012).

·        Mehri, Darius B., Pockets of Efficiency and the Rise of Iran Auto: Implications for Theories of the Developmental State (New York, 2015).

·        Olson, Mancur, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York, 2000).

·        Rubin, Jared, Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not (Cambridge, 2017).

·        Waldner, David, State Building and Late Development (Cornell, 1999).

 

Online Sources


[1] Melani Cammett, A Political Economy of the Middle East, (Harvard, 2013), 14.

[2] Ibid, 32.

[4] Adeel, Malik, Was the Middle East’s Economic Descent a Legal or Political Failure? Debating the Islamic Law Matters Thesis, (Oxford, 2012), 18.

[5] Lisa Blaydes and Eric Chaney, The Feudal Revolution and Europe’s Rise: Political Divergence of the Christian West and the Muslim World before 1500 CE, (Cambridge, 2013), 16–34.

[7] Martin Hvidt, An Outline of Key Development-Process Elements in Dubai: The Dubai Model, (Cambridge, 2009), 397-401.

[8] Michael Herb, A Nation of Bureaucrats: Political Participation and Economic Diversification in Kuwait and the United Arab Emirates, (Cambridge, 2009) 375-376.

[9]  David Waldner, State Building and Late Development (Cornell, 1999), 3.

[10] Ibid, 7-8.

[11] Hvidt, Dubai, 401.

[12] Darius Mehri, Pockets of Efficiency and the Rise of Iran Auto: Implications for Theories of the Developmental State, (New York, 2015) 408–32.

[14] Abdelaziz Hakimi and Helmi Hamdi, How Corruption affects Growth in MENA region? Fresh Evidence from a Panel Cointegration Analysis, (Munich, 2015), 17.

[15] Ali Awdeh, and Hassan Hamadi, Factors hindering economic development: evidence from the MENA countries, (Leeds, 2019), 295-296.

[16]  Justin Gengler, Bethany Shockley, and Michael Ewers, Refinancing the Rentier State: Welfare, Inequality, and Citizen Preferences toward Fiscal Reform in the Gulf Oil Monarchies, (New York, 2021), 283–317.

[17] Awdeh and Hamadi, MENA development, 282.

[18] Ibid, 296.

[19] Mehri, Iranian Efficiency, 408–32.

[21] Mancur Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships, (New York, 2000), 5.

[22] Daron Acemoglu, Simon Johnson, and James A Robinson, The Colonial Origins of Comparative Development: An Empirical Investigation, (Nashville, 2001), 1369–1401.

[23] Olson, Power and Prosperity, 5.

[26] Blaydes and Chaney, Feudal Revolution, 16–34.

[27] Acemoglu et al, Colonial Origins, 1370.

[28] Awdeh and Hamadi, MENA development, 296.

[30]  Malik, ILM Thesis, 17.

[31] Jared Rubin, Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not (Cambridge, 2017), 12.

[32] Malik, ILM Thesis, 18.

[33] Cammett, Middle East, 25-26.

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