First to state the obvious: the GCC is booming. Oil prices are near record highs, buildings are reaching stratospheric heights, and even the banking sector has weathered the stock market collapse. The amount of cash generated in the region is mind boggling, but if the exuberant veneer is peeled back a little, it becomes apparent that accountable regulators do not exist in this miracle economy.
A blatant yet unspoken truth about the region is that the governments that have been guiding their countries through steady growth and a truly amazing economic revolution, also own their countries. Many of the companies that are making headlines worldwide, the private sector titans, all have something in common: they are all government owned. This is public knowledge. I did not uncover anything secret, but the tight relationship between business and regulators raises many concerns.
The relationship of business to government is complex. It is a political relationship which differs from one country to the other. The US and Europe trend towards a free market with limited government; Cuba and China firmly control their economies; the Gulf states bridge the gap – the state encourages free enterprise, invests in private companies (and regulates them), and establishes proprietary industries. Economist and political theorists continuously evaluate the different approaches, but any observer can judge how accountable a government is.
The GCC model has been lucrative for the past three decades, and leaders should be commended for their success. Investors have many protections in the GCC, and new laws and regulatory bodies are being established and strengthened everyday. Nevertheless, the business dealings that governments are engaged in creates a blatant conflict. In order to avoid conflicts, and to improve accountability, one question must be addressed. How does a regulator regulate itself? There is no simple answer, but it is obvious that self-regulation is inherently weak on accountability. Regional governments are spearheading great organisations that are competitive and efficient, and that has helped the Arab world regain some of its lost glory.
People in the Middle East need to have a stake in the global economy, and they want to see their companies take on giants. On the other hand, governments have to remember their raison d’être.
A standard definition of a state (Max Weber’s) is that “the state is a human community that claims the monopoly of the legitimate use of force within a given territory”. Two points can be derived from this classic definition. The first is that governments are made of people, and people are fallible. It is foolish to believe that everyone is able to juggle multiple allegiances and avoid conflict of interests at every turn. The chairman of the Federal Reserve should not be the CEO of the biggest bank, the minister of economy, and the Swiss ambassador at the same time. A second point from Weber’s definition comes from the acceptable monopolies a government should have. His scope is narrow; today most people accept that natural resources, education, courts, police, and military are all within this purview.
Governments who do it all will find it difficult to manage their duties. The profit incentive is powerful. Leaders in the region will eventually have to make a difficult choice, deciding where to deploy their limited resources, into business or regulation. Another option is for the government to transform completely into a business, and for the traditional structure of the state be reconsidered. If the status quo remains unchanged, look out for this headline in the papers in the future: ‘CEO Regulator torn between multiple allegiances’.
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