The Price of Wealth, chapters five and six
Chapters five and six of Kiren Aziz Chaudhry's work, The Price of
Wealth, look at two case studies of political economy, Saudi Arabia and
Yemen. These are valuable not just for the story Chaudhry presents, but
also because these two case studies intersect with what we have read so
far, offering us an opportunity to explore the more theoretical arguments
made in Peter Evans, Sylvia Maxfield, Lewis Snider, Barbara Stallings and
John Zysman
The chapters explore the different paths taken by Saudi Arabia and
Yemen following the oil boom of the 1970s. Chaudhry reminds us that prior
to the boom, both had been on the "classical road" to development.
Development strategies diverged as soon as oil money began to flow into the
two economies. Whereas the Saudi regime, rich from oil revenues, developed
along the lines of the Zysman/Stallings Franco-Japanese model of state
managed capitalism, Yemen departed from the "central assumption of Arab
political thought in the nationalist era, that the state was the sole arena
for economic competition," orienting itself in the direction of extreme
Anglo-American liberalism. (194)
During the oil boom, the Saudi banking system was changed in
important ways. Capital generated by oil was funneled into large state
development banks which usurped the role commercial banks had previously
played in money lending. State banks became creditors for all major sectors
of the Saudi economy, lending to agriculture, real estate, industry,
construction, and personal credit. State control of the lending mechanisms
and liberal credit regulations combined with what was seen as an unlimited
pool of capital, translated into many poorly made state loans and official
corruption. Whereas state banks attacked commercial banks from the top,
money exchangers attacked them from the bottom, and they were never able to
develop during this period. Money changers primarily operated to transfer
migrant remittances to Yemen, but over time, became unofficial deposit
banks. The Saudi state placed little restriction on these practices, until
the early eighties following a number of small banking crises where money
changer deposits were lost in the silver markets.
Yemeni migrant remittances gave Yemen a similar boom, but to a far
lesser extent. Unlike the Saudi case, however, the banking system was not
appropriated by the state. Yemen's cash-crop, migrant workers, funneled
their remittances into the country via parallel, informal banking
structures. These banks were multinational in scope, operating in Saudi
Arabia and Yemen. Commercial banks were squeezed out of the Yemeni market
as informal banks had the advantage of branches in both states, and more
importantly because so few Yemenis used deposits - during this period, this
group comprised a mere 8 per cent of the population. (241) State banks did
not become major players in the Yemeni banking system. In fact, during the
oil boom years, the Yemeni state was scaled back. The state abandoned its
traditional reserves, largely limiting sources of revenue to import tariffs
(imports soared during this period of exported labor and imported wealth)
and foreign aid. Private organizations sprang up throughout the country,
replacing the state's social services, establishing alternative centers of
power and legitimacy. During the boom, the public and private spheres,
which had been carved-up by the mutually hostile Shia and Sunni elites
respectively, intersected less and less.
Chaudhry's case studies help put some of this course's readings
into perspective as both chapters dealt with some of the themes running
through this course: types of capitalism, the existence of an independent
central bank, the extractive capacity of the state, and the degree to which
public servants have embedded autonomy. What sets these two case studies
apart from many of the state we study is that "[c]apital abundance meant
that neither country grappled with the problems common to capital-scarce
LCDs." (263) This coincides with Maxfield's claim that central bank
independence is contingent on the necessity of foreign investments. Neither
the Saudi nor the Yemeni states required foreign capital (although Yemen
continued to receive it), and as long as the boom meant easy money, had
little incentive to assert state control over these areas.
The independence of the private sector meant that the Yemeni
bureaucracy had a great deal of "embedded autonomy," whereas the absence of
regulation and liberal lending policies translated into a great degree of
capture in the Saudi case. Chaudhry, however, notes that Evans' conception
of embedded autonomy, because of the importance it places on successful
development, cannot easily account for the Yemeni case. (222) Further,
Chaudhry's account seems to correlate to Lewis Snider's requirements for
successful economic restructuring. With the down-sizing of the Yemeni state
and the "run amok" scenario of Saudi development banks, the state found
itself considerably weaker when the oil boom ended than when it began. By
avoiding consolidation problems in the 1970s, the difficulties faced by
both regimes in their attempts to consolidate and restructure in the
mid-1980s were compounded.
In concluding, Chaudhry states that "[f]inancial institutions are
the nexus of a host of relationships between business and government."
Different models of banking translate into different political economies
and strategies of development. While he finds merit in the Zysman/Stallings
model of Franco-Japanese capitalism, he uses the Saudi case to argue that
important modifications must be made to this development paradigm. He
claims that state-directed capitalist development is not enough, that "[t]o
use financial resources in the service of adjustment and productive
investments, the government must have an agenda for industry and the
institutional/informational capacity to carry it out." (256)