DOES WEALTH HAVE A PRICE? [Archives:1997/44/Business & Economy]

November 3 1997

A recent 330 page book of economics and institutions in the Middle East entitled ” The Price of Wealth in the Middle East ” was written by Kiren Aziz Chaudhry and published by Cornell University Press, USA in 1997. The author describes how state and market institutions have changed in Yemen and Saudi Arabia exemplifying other labour and oil exporting countries. He does this with an eye on the international economy, exposing the alternating social and organizational origins of institutions. The analytical task of explaining institutions and how they’ve changed through isolation periods is not enough to know when studying the evolution of the market system and institutions in the Middle East. The author relates how domestic markets were affected by international pressures such as those that causing the boom in 1973 and the recession in the 1980’s. The way international forces affected domestic institutions depended on the way these markets were integrated globally. The institutions which arose out of the oil development changed just as quickly as they are created, he suggests because of market changes and new demands. Mention is made of the different cash flows which affected institutional changes; different private and public sectors control their capital inflows through allocation and some capital inflows involve a third party such as lending institutions that are regulated by international markets. some countries are more dependent on international cash flows than others but newly industrialized counties rely less. Social classes in distributive economies even influences the creation of economic sectors. The oil sector has created new social groups that has given oil exporting nations new autonomy.
The rise of external resources created a shift in the economic power of nations like Yemen which adopted capitalist economic principles. The result since 1973 is a country where oil rent and labor remittances have made up 80% of its GNP. The book explains the domestic and international factors which affected institutional change through the economic periods of pre-boom to recession. Examples are given from the development of the Saudi and Yemeni economic reforms through a relative period of isolation from the 1920s to the 1950s. The formation of the central bureaucracy and national market is examined before the boom. The impact of labor remittances and oil revenue on domestic policies during the boom are also discussed. Case studies illustrate how these remittances and oil revenue transformed the structure of the financial system during the 1970s. The book describes how in the 1980s the financial sector became immune from business-government relations as reflected in taxation and regulation. The autonomy of finance from these regulations moved on through the 1990s. Institutional developments and policy responses are discussed during the recession of the 80s leading the way to the social movements of the 1990s influencing institutional outcomes. From these developments the reader can infer that changes in the international economy and specific forms of international integration have generated radically different state, market and financial institutions in response to resource flows.
Martin Dansky BSc.