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Oct. 20 presentation
Jen-Kang Pang and Jaewook Song
The Price of Wealth by Kiren Aziz Chaudhry (Chap. 3 and 4)
Chaudry shows in her book how we can observe and analyze correctly the structural change that resulted from mobile capital. It is the change of institution for her to measure it. What is different from neo-institutionalists, however, is the origin of an institution. The important thing for her is not what institutions do, but where they come from. The performance of an institution is seriously constrained by the social forces which struggled each other for building the institution. And What is different from incrementalists including modernization theorists is that radical and fundamental change from external pressures like charisristic change of mobile capital is decisive for institutional change.
She proves her point of view in chapter 3 and 4, with depicting and analyzing severe social cleavages and weak capability of central power before boom in Yemen and strong business and government relationship responding to oil boom in Saudi Arabia respectively.
There were similarities between the two nations in starting point. As she noted, there were fiscal and military pressures following Ottoman collapse, no existing of ‘overdeveloped’ colonial bureaucracy, heterogeneous societies whose populations cleaved along regional, sectoral, religious line, and the different regional and ascriptive bases between military-political elites and economic elites.(p.132) However, the different paths and responses to external shock and the following boom and recession depended on the outcomes of the existed social cleavages with the struggles among them for making institutions and the different characters of mobile capitals with related bureaucracy maneuverings in particular juncture.
Following the collapse of Ottoman Empire, the Zaydi Imam, who was urban-based political broker with very small permanent constituencies, captured the central power. Given his weak social base and military power and no agreement among existed social cleavages he had been stymied without imposing a uniform system by force. However, with impending necessities of material base for maintaining his incumbency, he manipulated powerful northern tribal confederation to levy tax from southern agrarian area, and with the revenue he subsided to the confederation. The reverse flow of revenues strengthened the existing cleavages in Yemen. In the eyes of southerners, the central government was the very nature of ‘predatory nation,’ so they choose ‘exit’ to British Aden.
Given his autarky plan three commercial groups took advantage. A small Shi’a merchant class, which profited from state monopolies, in northern area, a class of importers of Hadrami and Indian origin, and southern Sunni commercial and financial elites based in Aden which was responsible for important role of informal banking for remittances.(p. 111) Including mercenary army which was rentier group, the commercial groups built workable, if not stable and fragmented severely, niche economy. Likewise, those fragmented internal market and the control of each sector by the three groups hindered state-building.
Facing changing factors, however, like discrimination and social polarization in Aden, opening of the Yemeni economy, and the decay of the muqaddam system followed by exogenous effect of independence of India precipitated the undo of past market-sharing arrangement and struggle for mutually exclusive possible institution making.(p. 118-21)
After the Imam deposed, the rift between north and south, though their republican pact and the marginal role of the central government brought about civil war. However, even after the war, due to high levels of external support of Saudi to northern tribal confederation and Egypt to southern absentee bourgeoisie could not solve the cemented social and economic fault line.
During and after the civil war, returned absentee bourgeoisie, who had more experience with foreign companies and had developed banking and financial system, controlled emerging national financial institutions. Meanwhile, labors returned from ‘exit’, former powerful balancing force for northern confederation, left again looking for lucrative opportunities that was opened with oil boom.
Even more important thing is that the oil boom did not change the social cleavages or stabilize institution of Yemen. Those needed to be wait another flow of mobile capital, labor remittance in oil boom period, and external shock of following recession.
Chaudhry shows in Saudi Arabia case in boom period how the state bureaucracy managed social cleavages with affluent oil capital. Oil capital gave state autonomy from Hijazi elites’ commercial power and even the autonomy contributed to benefit to relative small Nejdi elites’ rapid growth. The economic change gave a room for new coalition in existing institution, and the bureaucratic action in distribution mechanism transformed the institution itself without social conflict.
In absence of particular goals and conflicts about economic policies but for growth itself, the distribution-driven policies atrophied powerful extractive and regulatory branches like DZIT and Customs department. Conversely, the policies and incremental choices of middle-level bureaucrats and functionaries expand distributive and planning departments like Ministry of Finance and National Economy (MFNE).
However, the atrophy of extractive bureaus made an important negative effect, that was lack of information. The lack hindered distribution policies’ implementation in short term, and more important, the state capacity in itself in long term. As Snider pointed out, total government revenue collected from direct taxes on income is one of the most valuable indicators of state capacity. (Snider; 10) But there were nearly nothing from direct taxes and the related sources of information about economic situation. As time went by, they have lost more capacity to control.
Meanwhile, the business and government relations changed from consultative model in 1960’s to kinship based partnership in 1970’s.(p. 161) In those partnership, the important mechanism was sectoral government program. Nejdi elites were the most beneficiary from the policy. According to Peter Evans, the character of the business community can be reshaped by state policy. (in Maxfield and Schneider; 66) The new policy implemented by the bureaucratic ascription line through kinship ties, or the favored connection with private sector. Because of large scale of the incumbent bureaucrats were filled with Nejdi people in according to previous social formation, the oil capital flew to the tribal sect mostly, though the process was not rapid.
Given the distribution policy, Saudi could calm demand from various social actors in line with existing social cleavages, that was temporaneous. Diminishing state capacity in taxation and information, and the distorted business and government relations could not guarantee social and economic equality and national integration. Moreover, the financial autonomy of the distributive state in the domestic arena was very sensitive and vulnerable to international market per se. Later shock of plummeting oil price once again destabilized the ephemerally rooted national market structure and state-business relationship.
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