At the outset, let's repeat
the obvious. If an oil-rich country, such as Saudi
Arabia, could and does pump out all its oil in one
year (a wild assumption) and sells it at today's
going rate (another wild
assumption), then the
country would be rich as Croesus.
Now,
what about the next year if it spent it all this
year? Would this spell success? Well, things would
not be so hot. The country would be back where it
was before its oil was discovered then depleted -
namely poor as poor could be. Just looking at
today's income level in a depletable
resource-based economy misses the point.
Oil is a part of a country's stock of
capital (the heritage of all generations) and the
size of this stock must not be allowed to
diminish. As important, for the preservation of
social and economic justice, each and every
citizen must receive the same income flow from
this stock of capital now and in the future.
Most, if not all, experts argue that this
can best be done by developing a diversified
non-oil based economy that compensates for oil
depletion (physical and human capital to replace
the oil stock capital).
While this could
compensate for oil depletion, for over 30 years we
have maintained that, even if totally successful
in this quest, it would in all likelihood fail
when it came to preserving social and economic
justice. We will elaborate on how justice can be
best preserved, while compensating for oil
depletion, in a future article.
There is
no need for any data to establish the injustice of
today, just eyes to see that the rulers and
governments have failed the current generation of
citizens in the major oil-exporting countries of
the Middle East by actively supporting
unbelievable inequality of benefits from the
depletion of the capital locked up in oil.
Even worse, if these countries continue as
they have, then future generations may be robbed
even more than the present generation because
there will be no oil at some point in the future
to fund anything. This injustice may be only
addressed if it becomes more widely acknowledged.
Setting aside this overriding failure,
what about the more standard indicators of
performance in these countries? How have these
countries done in terms of income and social
indicators?
A word of caution before we
start. The starting and ending dates for any
comparison are invariably arbitrary. We want to
avoid unusual events that distort the numbers,
such as the United States' invasion of Iraq in
2003 and what may turn out to be temporary high
oil prices, such as the run up in oil prices
during 2002-2008. Here we also want to avoid too
many numbers! Thus we will look at the period
1975-2002 and make a few comments about what has
happened over the past decade.
During
1975-2002, economic growth in the Middle East and
North Africa region was anemic, and this sub-par
performance becomes even more apparent when
compared with the consistently high growth rates
of other developing countries and other regions,
particularly East Asia. The region has also
largely missed the opportunity to be further
integrated into the global economy by failing to
increase non-oil exports and to attract
significant foreign direct investment (FDI)
outside of the oil/gas sector.
The
countries in the region are diverse, with
fundamental differences in economic structure,
most noticeably the abundance (both in absolute
and especially in per capita terms) of oil (gas)
from country to country.
Over 1975-2002,
real annual per capita GDP growth for the Middle
East and North Africa (including both oil
exporters and non-oil exporters) averaged 0.1%,
compared with average annual growth of 5.9% for
East Asia and the Pacific and 2.3% for all the
developing countries of the world.
But the
oil-exporting countries of the region alone showed
negative growth rates. What is more striking is
that their poor performance was matched only by
Sub-Saharan Africa, despite vastly differing
natural resource endowments and other country
characteristics.
Also noteworthy is that,
as to be expected, the highest real GDP per capita
income for all regions of the world occurs in the
2000s or the late 1990s indicating positive and
ongoing growth; whereas the oil-exporting
countries of the Persian Gulf all record their
highest GDP per capita levels in the period
1975-1977. This was a time of high real oil prices
and these economies relied heavily on oil, as some
of them continue to do even today.
The
sharp increase in oil prices in the mid-1970s was
a significant financial windfall for the oil
exporting countries. The jump in consumption,
investment and growth had generally positive
repercussions on living standards. GDP growth
rates were high because of higher oil revenues and
government expenditures. Considerable financial
assets were accumulated abroad as national savings
exceeded domestic investment, especially for the
richer oil exporting countries.
The
region's economic performance in the following 20
years weakened considerably, however, as growth
rates declined and failed to generate the
employment opportunities required by a rapidly
expanding labor force. In fact, the combined
economic output of the oil exporters, in 1995 as
well as in 2000, was less than that of a single
East Asian country, South Korea (US$461.52
billion); whereas in 1975 the combined GDP of the
oil exporters had been more than six times that of
Korea.
The absence of growth exacerbates
all other problems facing the region: high
unemployment rates, expected rapid labor force
growth well into the future, and burdensome social
expenditures.
During the 1980s and 1990s,
the Middle East region's overall weak growth
performance primarily reflects the poor
performance of the more populated oil exporting
countries (Iran, Iraq and Saudi Arabia, which
overwhelm the regional average), whose economies
have continued to remain heavily dependent on oil
and are vulnerable to significant oil price
fluctuations.
Since 2002, because of
rising oil prices, the Persian Gulf oil-exporting
countries have again had a boost as in the
mid-1970s. While the Gulf Cooperation Council
countries - Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia, and the United Arab Emirates - have
benefited, Iran and Iraq have not done so well
because of economic sanctions, the fallout of war
and sub-par economic policies.
The latest
figures show that for all the Persian Gulf
countries combined, per capita economic growth
rates have been slightly positive over the longer
period 1975-2009. While their income growth has
been unbelievably anemic, their performance in
improving social indicators have been markedly
better.
For these oil exporters, Kuwait
had the highest life expectancy at 77 years in
2002, and Iraq had the lowest at 63; the simple
average of life expectancies for these countries
was 71.7 in 2002; and it had increased by an
average of 7.1 years since 1980. In comparison
with non oil-exporting countries in the Mideast,
it would appear that oil revenues by themselves
have not in all cases supported an exceptional
increase in life expectancy.
In 1990, the
United Nations launched the Human Development
Report in an attempt to measure and study world
poverty. The report defines poverty as the denial
of opportunities and choices most basic to human
development. Three basic dimensions - a long and
healthy life, knowledge and a decent standard of
living, in turn, characterize human development.
Progress for the Middle East oil exporters was
comparable to other developing countries around
the world.
Statistics on education fail to
provide a complete and accurate picture of a
country's education system. This is for a variety
of reasons: inconsistencies in survey results
provided by education authorities, differences in
coverage and data collection methodologies and/or
significant time lags between each survey.
Despite the data challenges, one can
observe a general trend of increased public
expenditures per student at the primary, secondary
and tertiary levels. In terms of the primary
pupil-to-teacher ratio, the Middle East oil
exporters averaged just over 17 students to one
teacher, while the ratio for other developing
country groupings was in the range of 24 and 28.
According to the World Bank's definition,
a person is considered literate if he or she can,
with understanding, read and write a short, simple
statement on her everyday life. Based on this
definition, the average literacy rates have been
on the rise in all countries over the past 20
years. In the Middle East, the literacy rate of
the oil exporters is about 84%. Adult - those age
15 and above - literacy rates averaged 80%
compared to 93% for the youth - those age 15 and
below - segment of the population. These rates are
generally below that of most other regions.
Adult literacy rates tend to be
male-biased. For instance, the male and female
adult literacy rates in Saudi Arabia are 84% and
69% respectively, a 15 percentage point
differential in literacy rates in favor of the
male adult population. When literacy rates are
measured for the youth segment of the population,
the male-biased tendencies are smaller, and in
some cases such as Kuwait and Jordan, they become
negative, which suggests higher female literacy
rates relative to male literacy rates.
Looking broadly at the male-female
literacy rates in the Middle East, male education
has been favored relative to female education;
this gender education gap is closing; and oil may
have at least assisted the oil exporters to do
better in this regard than the in-region
countries.
When health expenditures are
calculated on a per capita basis, we see that the
Middle East oil exporters spent an average of
US$488 per person. Excluding the UAE - the country
with the highest per capita health expenditure
among the oil exporters - the average per capita
health expenditure in the Middle East falls to
$398. In comparison, the non oil-exporting
countries of the Mideast have a meager $93.
Oil has also helped the oil exporters to
do more in the area of health than other countries
in the region.
The average number of
physicians and hospital beds per 1,000 people are
approximately 1.3 and 2.1 respectively for the oil
exporters in the Middle East. This compares with
approximately 1.2 and 1.5 for the other countries
in the region.
Infant mortality rates in
the Middle East oil exporting countries are
extremely varied. In Iraq, only about 90% of
infants survive past the age of one while in
Kuwait and the UAE more than 99% of infants
survive beyond that age. Similarly, the adult
mortality rate in Iraq is high when compared with
other countries within the Middle East
oil-exporting countries. Iraq is clearly a special
case given its involvement in numerous conflicts
and wars and being subject to extensive and
lengthy UN sanctions.
There is no doubt
that social conditions have generally improved for
the average person in the oil-exporting countries
of the Middle East, with more significant
advancement in the less populated (and richer in
oil) countries - Kuwait, the UAE and Qatar, and to
a lesser extent in Saudi Arabia. This average
improvement for the more-populated oil exporters -
Iran and Iraq - is not significantly different
from the Mideast countries that do not have big
oil deposits.
Looking at the oil
exporters, there are some obvious implications. It
is clear that devastating conflicts, specifically
those in Iraq and Iran, have probably taken a huge
toll. If a country has a very high level of oil
revenues per capita, as do Kuwait, Qatar (gas) and
the UAE, then there are enough available resources
to do almost everything, including satisfying
reasonable social needs and allowing rulers to
take what they want, even, as we shall see later,
if economic policies are not what they should be.
But even in these countries, this cannot go on
forever.
We should conclude by asking two
critical questions: have the oil exporters
followed Islam in developing their oil policies
and has oil helped or hurt the cause of social
welfare in these countries? Islam places great
emphasis on economic prosperity and providing
average citizens with their basic needs - food,
healthcare, shelter and especially education -
while avoiding significant income inequality. All
the countries have failed to provide average
economic growth over the long haul.
It
would appear that the richer group (Kuwait, Saudi
Arabia, Qatar and the UAE) has succeeded in the
areas of food, healthcare and shelter (although
Saudi Arabia may have neglected its Shia Muslim
minority). Their achievements in education have
been no better than the non-oil countries in the
region and inferior to some developing country
groups outside the region.
As far as
income distribution is concerned, all of these
major oil exporters have failed. There are lavish
palaces and conspicuous consumption on the
grandest of scales (behavior forbidden in the
Koran), while the lower classes have to worry
about their normal human needs.
But in
less rich and more densely populated Iran, the
disparities among the rich in northern Tehran and
the poor in southern Tehran and in rural areas are
even more stark - in the areas of housing, medical
care, personal appearance and foodstuffs in
stores. The case of war-ravaged Iraq is the worst
of all. This is especially reprehensible as oil
reserves are financing these income inequalities.
As we will see in upcoming articles,
institutions, rule of law, absence of conflicts,
democratic political participation, stability and
better policies are all critical in achieving
sustained economic and social progress.
NEXT: Political and
institutional corruption
Hossein
Askari is Professor of Business and
International Affairs at the George Washington
University.
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