Action Memo On the Gulf


Covering both that week’s required and supplementary readings, students will prepare one policy briefs of about 500 words analyzing the key risk

and implications arising from that week’s issues and developments and formulating short, clear, and easily digestible policy recommendations for


Down below Ill attach the readings to link back to, with an example of a detailed description on what an Action Memo is.

Capitalism and Class in the
Gulf Arab States
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Capitalism and Class in the
Gulf Arab States
Adam Hanieh
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capitalism and class in the gulf arab states
Copyright © Adam Hanieh, 2011.
All rights reserved.
First published in 2011 by
PALGRAVE MACMILLAN® in the United States – a division of
St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States, the
United Kingdom, Europe and other countries.
ISBN: 978–0–230–11077–9
Library of Congress Cataloging-in-Publication Data
Hanieh, Adam, 1972–
Capitalism and class in the Gulf Arab states / Adam Hanieh.
p. cm.
ISBN 978–0–230–11077–9 (hardback)
1. Persian Gulf States—Economic conditions. 2. Capitalism—Persian
Gulf States. 3. Gulf Cooperation Council. I. Title.
HC415.3.H36 2011
A catalogue record of the book is available from the British Library.
Design by MPS Limited, A Macmillan Company
First edition: July 2011
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
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List of Tables
1 Approaching Class Formation in the Gulf Arab States
2 The Political Economy of Postwar Capitalism and the
Making of the Gulf
3 The Development of Capitalism in the Gulf
Cooperation Council
4 Toward a Single Global Economy: 1991 to 2008
5 The Formation of Khaleeji Capital
6 Khaleeji Capital and the Middle East
Future Trajectories
Appendix A Khaleeji Capital Conglomerates
Appendix B Ownership of the Largest GCC Banks
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List of Tables
1.1 Basic characteristics of the GCC states
5.1 Current account surpluses and GDP growth rates in the GCC 107
5.2 Y-o-Y rate of change of gross fixed capital formation,
2002–2007 (%)
5.3 Top 15 GCC construction companies, 2007
5.4 Analysis of the 87 largest building construction projects
across the GCC, end-2009
5.5 Steel production in the GCC
5.6 Largest non-state, non-foreign petrochemical companies
in Saudi Arabia
5.7 Telecommunications companies in the GCC
Leading private equity firms in the GCC, 2007–2008
6.1 Banking sectors in Jordan, Lebanon, and Egypt
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This book has its genesis outside of the Gulf. From 1997 to 2003 I had
the privilege of living and working in the Palestinian West Bank. During
this time, I was struck by the immense influence that the Gulf region had
on the Palestinian political economy. Gulf-based companies owned large
stakes in major Palestinian companies and financial institutions, Gulf governments played an influential role in Palestinian politics, and many friends
and relatives spoke of time they had spent as workers in the oil and other
industries in the Gulf. It was clear that Palestine (like the rest of the Middle
East) was profoundly affected by this connection. Yet, paradoxically, there
had been little written on the political economy of these regional links and
their relationship to the nature of capitalism in the Gulf—the Gulf was the
core of Middle East capitalism but the dominant perspective seemed to
downplay the regional scale and treat the Middle East as a simple agglomeration of distinct nation-states.
What this book aims to do is to contribute some essential first steps in
thinking through these problems of the region’s development. In order to
appreciate how the Gulf is penetrating the broader Middle East, we first
need to grasp the processes at work within the political economy of Gulf
capitalism. This means taking seriously the Gulf states as capitalist—not
simply monarchies that sit atop an oil spigot—and incorporating the process of Gulf regional integration into our analysis. From this starting point,
we can hopefully begin to better understand how Gulf capitalism helps to
form the broader hierarchies of the Middle East.
There are very many people who contributed to bringing this book to
completion and in stimulating my ideas and thoughts on the region.
I would particularly like to thank Gilbert Achcar, Greg Albo, Sam Gindin,
Eberhard Kienle, Jerome Klassen, Thomas Marois, David McNally, Ananya
Mukherjee-Reed, Sabah Al Nasseri, Leo Panitch, Alfredo Saad-Filho, Omar
Al-Shehabi, Ahmad Shokr, Abdel Takriti, Issam Al Yamani, Anna Zalik, and
Rafeef Ziadah who all read drafts or excerpts of this book. I greatly
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appreciate the extensive time these individuals gave to seriously engage and
offer criticisms and comments. I would also like to thank Robyn Curtis at
Palgrave Macmillan, who was a pleasure to work with throughout the entire
writing process.
Many of the ideas in this book originate in my PhD dissertation,
completed in 2009 in the political science department at York University,
Toronto. I thank all the faculty and administrative staff that made my time
at York such a pleasure and an exciting learning experience. There are very
few academic institutions that truly encourage critical thought in a contemporary university setting—the York political science department is one of
these and it was a privilege to work alongside an exceptional group of faculty and graduate students. In particular, I would like to thank Greg Albo,
my dissertation supervisor. Greg remains a wonderful intellectual mentor
and friend who taught me an enormous amount about understanding the
world and working to change it. This book would not have been possible
without him.
While writing this book I spent 18 months in the Gulf carrying out
research and teaching at Zayed University, Dubai. Faculty and staff at ZU
were generous with their time and friendship. I learnt a great deal from this
experience, particularly from the opportunity to engage with many of the
wonderful students at ZU. I appreciate the critical and thoughtful insights
that these students often brought to our discussions on Gulf politics and
the Middle East more generally—and I hope some of this is reflected in the
pages that follow.
There are many other friends in Toronto, Montreal, Ramallah, London,
and Adelaide that made the last few years of research and writing possible
and from whom I continue to draw inspiration. In particular, I would like
to thank deeply Rafeef Ziadah. She has been there from day one, both at
an intellectual level to discuss many of the ideas contained in this book and
as a dear friend and emotional pillar. I hope one day to repay the debt. My
family has also always been there for me—perhaps slightly puzzled by my
interest in the Gulf—but nevertheless a wonderful source of love and support. Finally, this book is dedicated to my father, Ahmad Hanieh, who
passed away as it was being written.
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Approaching Class Formation in the
Gulf Arab States
n oft-used representation of recent changes in the Gulf Arab states
is a pair of photographs comparing a 20-year old snapshot of the
main thoroughfare of Dubai, Sheikh Zayed Road, to the same
stretch of road today. In the space of just two short decades, the pictures
reveal a remarkable transformation. The older shot shows a few solitary
buildings, surrounded by vast expanses of desert and a dusty road. The
more recent picture portrays a stunning panorama of glittering lights and
towering skyscrapers. Science fiction analogies are often used to describe
this sight—the world’s tallest buildings defy architectural logic as they jostle
and twist in the skyline. Up until the puncturing of Dubai’s construction
boom in the wake of the 2008 global financial crisis, a widely quoted
(although probably exaggerated) rumor put the number of cranes at work
in the city at one-quarter of the world’s entire stock.
Dubai’s prodigious development boom is paralleled across the Gulf. All
the states of the Gulf Cooperation Council (GCC), a regional bloc of the six
oil-rich Arab monarchies—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and
the United Arab Emirates (UAE)—have been transformed over the past
decade into a tangle of highways, skyscrapers, and fanciful projects. For much
of the 2000s, the GCC was the world’s largest market of “megaprojects”—
huge construction and industrial schemes that attracted the leading engineering companies across the globe. The world’s tallest building, biggest shopping
mall, and largest aluminum, plastic, ceramics, and petrochemical complexes
are all located or under construction in the GCC. With the arguable exception of coastal China, there is no other region on the planet that has seen
such a remarkable transformation in so short a period of time.
What lies behind this dramatic development of the Gulf? The obvious
answer is, of course, the judicious use of oil revenues—particularly in the
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Capitalism and Class in the Gulf Arab States
wake of the large rise in the price of oil from 2000 to 2008. At the peak
of this price rise, the GCC’s nominal Gross Domestic Product (GDP)
climbed to over $1 trillion, just under 2 percent of the world’s total of
around $61 trillion. In 2008, the GCC was the fourteenth-largest economy
in the world (with a size about the same as Australia) and registered a per
capita GDP three times the world average. Yet while hydrocarbon wealth is
clearly key to the economic transformation of the recent decades, this book
describes a different side to the GCC’s development. It argues that—much like
its desert cousin, the mirage—what visitors actually see in the region’s oilfueled boom is not the full picture. The concrete and steel are physical embodiments of a much deeper shift—a fundamental transformation in the political
economy of the Gulf. The GCC has become a major node of world capitalism,
a position that has precipitated changes in the socioeconomic relations that
typified the region for many decades. This evolution of Gulf capitalism—its
linkages with the world market and the development of the domestic political
economy—is the analytical focus of the chapters that follow.
The key contention of this book is that in order to fully comprehend
these changes it is necessary to understand and map the process of capitalist
class formation in the Gulf. The Gulf capitalist class has emerged rapidly
and in “hothouse” fashion—from state-supported and family-based trading
groups in the 1960s and 1970s to the domination of a few massive
conglomerates in the contemporary period. Most significant—and the key
characteristic of the region’s political economy examined in this book—is
the pronounced internationalization of Gulf capitalism over the past decade.
Large Gulf conglomerates now conceive their profit-making activities across
the entire GCC rather than solely within its individual member-states. They
own stakes in a wide variety of industrial, financial, and retail firms located
throughout the region. The patterns of accumulation crystallizing in the
GCC embody a new set of internationalized social relations and thereby
represent a process of class formation—described henceforth as Khaleeji
Capital. The Arabic word khaleej is literally translated as “Gulf ” but goes
beyond a geographic meaning to convey a common pan-Gulf Arab identity
that sets the people of the region apart from the rest of the Middle East.
Throughout this book, Khaleeji Capital is used to describe those capitalists
whose accumulation is most thoroughly and consistently grounded in the
internationalization of capital across the GCC space. Khaleeji Capital in no
way means a loss of “national” identity, but rather an orientation and perspective toward accumulation at the pan-GCC scale. As this book shows,
Khaleeji Capital is hierarchical-structured around a Saudi-UAE axis, with
other capital connected in a subordinate fashion to this core. It represents
the development of an emerging space that reflects a shift in the social
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Approaching Class Formation
relations underpinning accumulation in the Gulf—a process of class formation located within, and occurring through, the internationalization of
capital. This process of class formation is intimately linked to the rapid
development of the Gulf economies and the physical transformation of the
Gulf cities. It is the real untold story of the Gulf—the reality behind the
image—and holds immense importance to an understanding of the contemporary Middle East and the world market as a whole.
Colonialism and the Origins of the Gulf States
With close to one-fifth of the world’s total conventional oil reserves, Saudi
Arabia dominates the GCC. The country holds around two-thirds of the
GCC’s total population and makes up over 80 percent of its landmass. It
also contributes nearly half of the region’s GDP, although its growth rates
have lagged behind Qatar, Kuwait, and the UAE whose smaller populations
mean that their GDP per capita is much higher. These aggregate figures
should be interpreted with some caution, however, as a low-paid migrant
workforce constitutes the majority of the labor force in all GCC states and
the polarization of wealth between citizen and noncitizen residents is
extremely high.
The political structures of the six GCC states bear strong similarities.
The power of the ruler is effectively hereditary, concentrated in a family
that controls the state apparatus and large tracts of the economy. Although
limited political contestation exists in elected legislatures in two GCC
states—Bahrain (majlis al-nuwab) and Kuwait (majlis al-umma)—voting
rights are restricted to a small proportion of the resident population and
the rulers in both states have the power to dissolve parliament. The other
GCC states have even more limited “consultative councils” with little effective power to challenge the ruler. Political repression—ranging from tight
control over media through to imprisonment and exile of opposition
figures—has been commonplace in all the GCC states.
The significance and recent trajectory of these political and economic
characteristics will be further explored in the pages that follow. But in order
to set the framework for this discussion of capitalism and class formation
in the GCC it is useful to have a broad appreciation of the historical origins
of these six states. Much of the later developments bear the imprint of the
particular configuration of class and state forged in the colonial era. What
follows is a necessarily abbreviated description of the region from around
the 1900s, at a time of direct colonial domination. Many of these themes
that accompanied the region’s emergence from colonialism will be revisited
in later chapters (particularly Chapter 3).
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71 (2007)
GDP (current,
billion US$,
Real GDP
Real GDP
Growth %
Growth %
(1992–2001 (2008)
62.45 (2006)
GDP/ capita
(2008, ‘000
Source: World Bank Statistics, GCC Secretariat General,, Accessed 10 October 2009.
Saudi Arabia
GCC Total
Population Land size
Sq. Km.)
Table 1.1 Basic characteristics of the GCC states
Crude oil
and gas as
% of GDP
92 (2006)
Migrant %
of labor force
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Approaching Class Formation
At the end of the nineteenth century the region that was to become the
GCC was firmly embedded in Britain’s colonial empire (with the exception
of the areas known as Najd and Hijaz—the future Saudi Arabia—and some
recalcitrant Arab and Iranian tribes along the coastal areas). Throughout the
region, Britain encouraged the concentration of power within the hands of
individual rulers who were connected to a wider ruling family, and could
trace their origins back to one of the Arabian Peninsula tribes. With their
rule sanctioned and supported by the British, the ruler drew wealth from
taxes on pearling, trade, as well as some agricultural activities (in particular,
date farming and fishing). Britain’s major concern was the exclusion of other
colonial and regional powers from the Gulf region, and the continued
profitable engagement with pearling and other trade. These interests in the
Gulf were subordinate to a broader colonial framework centered upon
enduring control over India.
As a result of this economic subordination to British-controlled trade,
the ruling shuyoukh (pl. Sheikh) along the Gulf ’s coast were largely dependent on British support for their survival. The British were fully cognizant
of this fact, and pursued a clearly articulated policy of divide-and-rule
within the region—breaking the territory into many small sheikhdoms that
would be reliant on an external power for their survival—and embodied in
a treaty between the ruler and the British. The numerous border disputes
that persist to this day within the Gulf—between Kuwait and Iraq, Iran
and the UAE, Saudi Arabia and emirate of Abu Dhabi, Qatar and Bahrain,
the emirate of Ras Al Khaimeh and Oman, and so forth—are partly a legacy
of this British policy (accentuated in the modern day, of course, by the
potential oil and gas reserves that lie within these borders). It is important
to emphasize that through much of the Gulf the notion of territorial demarcation was a foreign import—borders were artificially imposed from the
outside and the region’s large nomadic population viewed geography
through ever-shifting tribal influence rather than fixed boundaries.
Within this general framework, however, there was significant internal
differentiation between the states that eventually came to form the GCC.
Most notable was the exception of the Najd and Hijaz areas, which had a
much greater degree of independence from Britain than the Gulf coastal
areas. Except for a brief 12-year period from 1915 to 1927, neither Najd
nor Hijaz held a treaty with Britain and their status alternated between a
somewhat loose Ottoman suzerainty and the claims of rival tribes originating
from within the Najd interior.1 The dynasty that eventually emerged
victorious in the struggle to control the Najd and Hijaz, the al-Saud, drew
its wealth from a structure more akin to feudal tribute from nomadic tribes
rather than the tax on merchant activities that was common along the coastal
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areas.2 Towns, however, played a critical role in providing the key nodes of
control for the al-Saud—as points of centralized power, wealth, and dominationover other tribes—and supplemented through the proceeds of warfare
(Sharara 1981, p. 58). This perpetual drive to war was ideologically justified
through the militant doctrine upheld by the Islamic sect, the muwahiddun,
which sanctioned conquest in the name of religious zealotry. The religiousmilitary symbiosis at the core of al-Saud rule gave the embryonic state a
powerful expansionary character. Weaker neighbors—Kuwait, Qatar, Bahrain,
Oman, and Abu Dhabi—were thus further compelled to draw closer to
Britain in the face of this predatory power.
Kuwait, in particular, was precariously sandwiched between the forces of
an expanding al-Saud, the Ottoman Empire, and British colonialism. It had
a relatively prosperous merchant class, based largely on settled families
originally hailing from Najd. By virtue of its location at the apex of the
Gulf, where it formed a crossroads to the overland trade through Iraq, the
merchant class prospered through the activities of pearling, shipbuilding,
and entrepot trade. Standing over this class was the al-Sabah family, which,
by the late eighteenth century, had become preeminent following the
departure of its two rivals, the al-Khalifa and al-Jalahima families, for
al-Zubara in Qatar (and eventually Bahrain). The relative strength of the
merchant class vis-à-vis the al-Sabah, who relied upon the merchants for
much of its import duties, meant that Kuwait’s pre-oil political history was
largely punctuated by successive waves of conflict and reconciliation
between the al-Sabah and the merchants (and, up until the early 1900s,
often conducted through the threat of migration by the merchant class)
(Crystal 1995; Fattah 1997). It was partly in response to claims from the
merchant class, and partly due to pressures from the neighboring al-Saud
and the Ottoman Empire, that the al-Sabah pursued a very close alliance
with the British government, particularly in the lead-up to World War One.
This intimate British-Kuwaiti relationship continued following the discovery
of oil, and (as is discussed in Chapter 3 in more detail) Kuwait’s “recycling”
of its oil revenues through the British sterling zone was an important step
in the development of Kuwaiti financial institutions.
In the coastal areas in the South of the Gulf, British warships had
definitively ended any challenge to their control of the sea with the defeat
of the Qawasim, a tribal group based in the coastal area of Ras Al Khaimeh
in 1819. Britain codified its policy of divide-and-rule through a series of
treaties signed with all the Gulf sheikhdoms from 1820–1945 and seven
“Trucial States” emerged (Abu Dhabi, Dubai, Sharjah, Ras Al Khaimeh,
Umm al-Quwain, Fujairah, and Ajman—named as such because they came
into being through the treaty process). In these states, the British sponsored
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seven individual ruling Sheikhs, forbidding them from entering negotiations
with any foreign power other than the British, and preventing them from
building up their naval power. Indeed, British control was so extensive that
no foreigner could enter any of the Gulf states without explicit British
permission (Zahlan 1998, p. 21).3 Through the treaties, Britain blocked any
move toward internal unity between the seven sheikhdoms, which were
unable to negotiate with each other without British mediation. Britain also
used the inevitable conflicts between the seven sheikhs as a way of setting
themselves up as an external referent and power broker (Kazim 2000,
p. 151).
From the early 1900s, Dubai became particularly important to British
colonialism as a key trading route and port of call for the British India
Steam Navigation Company following Iranian cancellation of British leasing and tax rights in the port of Lingah, located on the western side of the
Gulf (Davidson 2008, pp. 73–74). Strengthened by the decision of Dubai’s
ruler Sheikh Rashid bin al-Maktoum to grant protection and tax-free status
to Iranian merchants leaving Lingah, Dubai became strongly orientated
toward trading activities with a flourishing merchant stratum that benefited
from the city’s tax-free incentives. Following the discovery of oil in Abu
Dhabi in the 1950s, however, Dubai was soon eclipsed by its wealthier
neighbor. The seven Trucial States joined together as the UAE after British
withdrawal in 1971.
In Qatar and Bahrain, the relationship between rulers and the rest of
society was markedly different. In 1766, the aforementioned al-Khalifa and
al-Jalahima families had settled in al-Zubara on the west coast of Qatar after
they had left Kuwait. These families set up a prosperous pearling and
trading center in al-Zubara, linked to tribal connections back in Kuwait.
The other main clan present in Qatar were the al-Thani, who originally
hailed from Najd. Qatar, however, was of minor importance compared to
neighboring Bahrain, which, at the time, was under the control of Iran.4 In
1783, in the context of several years of rivalry with the Matareesh (an Arab
tribe who ruled Bahrain and owed fealty to Iran), the al-Khalifa and
al-Jalahima conquered Bahrain and moved their pearling and trading
operations there. Qatar was relegated to a collection of minor pearling and
fishing towns and was viewed by most as a dependency of Bahrain. One of
the consequences of this was that the al-Thani (who remained after the
departure of the al-Khalifa and al-Jalahima) became a relatively poor ruling
family situated within a much weaker merchant class. Qatar’s small
population also meant that the broader al-Thani tribe constituted a very
large proportion of the entire population—by some estimates half of the
indigenous population of Qatar in 1900. The weakness of the merchant
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class, and the relatively large size of the al-Thani, has meant that political
disputes in Qatar have largely originated from within different factions of
a fractious ruling family (Crystal 1995). A tiny handful of merchant
families, notably the Darwish and al-Mana, remained close to the al-Thani
and evolved to be an important component of the Qatari capitalist class
The al-Khalifa and al-Jalahima alliance broke apart soon after the
conquering of Bahrain in 1783, and the al-Khalifa emerged as the
unchallenged rulers of the island. Bahrain was a key location for trade and
merchant activities in the Gulf.5 It formed the major port in the trade of
Indian goods between Basra (in modern-day Iraq) and Muscat (Oman), and
was one of the most important pearling centers in the Gulf. The defeat of
the Matareesh by the al-Khalifa gave a very important socioeconomic
distinction to Bahrain in comparison to the rest of the Gulf. Unlike Qatar,
Kuwait, or the sheikhdoms that eventually became the UAE, the ruling elite
of Bahrain, the Sunni al-Khalifa, joined an existing Sunni community that
was much smaller than the Shia majority who hailed from Arab tribes that
had been settled on the eastern side of the Gulf. These sectarian differences
were reflected in social divisions—the Sunni constituted the bulk of the
merchant and ruling elite while the poorer Shia were concentrated as rural
date farmers and in fishing. Shia farmers were required to pay a poll and
water tax to the al-Khalifa—similar taxes were not placed on the Sunni
population (Khuri 1991, p. 48). Over time, a stratification began to emerge
within the Shia as some were given the positions of wazir, a minister or
secretary, and thereby obtained the right to redistribute land and collect
rent. This social structure meant that the key division in Bahraini society
emerged between the al-Khalifa, allied Sunni tribes, and a small layer of
Shia on one hand, and the bulk of the mostly poor Shia on the other. While
Bahraini politics should not be interpreted as “Sunni vs. Shia” and Bahraini
opposition groups have historically been careful to build across sectarian
divides, the imprint of this early history on the country’s class formation
remains important to this day.
Of all the states in the Arabian peninsula, Oman was perhaps the most
affected by British colonialism (although it was never officially a British
colony or protectorate). In the eighteenth century, Oman had been the
center of a vibrant trading system in the Indian Ocean, dominating much
of the trade between East Africa, India, and the Arabian peninsula. The key
to Oman’s prosperity had been its control over the East African island of
Zanzibar, which acted as the chief trading intermediary between the
precapitalist African interior and an industrializing European capitalism
(Sheriff 1987). Virtually all the lucrative East African trade in slaves, animal
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Approaching Class Formation
products, and raw materials passed through Zanzibar on its way to Europe
via India. As Britain and France fought to assert their dominance over the
Indian Ocean during the early 1800s, this trade was largely halted but
replaced by the extremely profitable production of cloves, once again under
the control of Omani landowners. In the 1860s, however, Oman lost
control over Zanzibar and its East African possessions following British
mediation of a succession dispute within the Omani ruling family. The
British came to dominate Oman, intervening militarily to support their
main ally based in the country’s capital Muscat, Sultan Taymur Ibn Faisal,
against threats from tribes in the interior of the Arabian peninsula6 (Al
Naqib 1987, pp. 55–70). The country was rapidly impoverished, with the
main concern of the British being the tight control over the strategic
entrance to the Gulf, the Straits of Hormuz. The Omani armed forces were
run by British officers, decisions of the Sultan were largely directed by
British representatives, and in 1891 a treaty was signed that forbid Oman
from relinquishing territory except in British favor (Kaylani 1979, p. 570).
Omani Arabs were prevented from participating in commerce, and travel
outside the country was next to impossible for them. Indians who were
protected by the British largely controlled merchant activities. Moreover,
the British brought Baluchi Sunni Muslims, originating from an area now
part of Pakistan, to serve in the country’s military.7 In contemporary times
Baluchi still make up a significant part of the Omani population (around
12 percent in 2002) and an important family in the contemporary Omani
capitalist class, the Zubair, is said to have Baluchi origins (Peterson
In short, at the cusp of the oil era that began to emerge from the 1920s
onwards, most of the Gulf remained tightly inserted in the British colonial
system (with the important exception of Saudi Arabia). Each of the future
GCC states was controlled by a ruling family, which—to varying degrees—
relied upon a network of powerful merchant families and colonial backing.
Many of these early merchant families, alongside new groups that emerged
with the onset of oil, were the proto-class that came to underlay Gulf capitalism. They form the social substratum that was transformed through a
complex process of development in the subsequent oil era into contemporary Khaleeji Capital.
Theoretical Approaches to Class Formation in the Gulf
Analysis of state and class formation in the period following these colonial
times has been largely dominated by rentier-state theory, a theory that has
been described as “one of the major contributions of Middle East regional
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studies to political science” (Anderson 1987, p. 9). The Iranian economist
Hossein Mahdavy is usually credited with developing the concept of the
rentier-state in relation to Iran prior to the Revolution of 1979.8 He defined
rentier-states as countries “that receive on a regular basis substantial
amounts of external rent [which are] rentals paid by foreign individuals,
concerns or governments to individuals, concerns or governments of a given
country” (Mahdavy 1970, p. 428). In addition to the revenues of oil producing countries, other examples of external payments identified by
Mahdavy included rents for pipelines or transportation routes (such as the
Suez Canal in Egypt). Oil revenues, however, were particularly significant
according to Mahdavy because their size did not depend upon production
in the country itself but from “differential and monopolistic rents that arise
from the higher productivity of the Middle Eastern oilfields and price fixing
practices of the oil companies” (Mahdavy 1979, pp. 428–29). Mahdavy
described the period from 1951 to 1956 as a turning point in the Middle
East because the rising nationalist movements meant that several states were
able to gain a greater share of the oil revenues that had previously accrued
to foreign oil companies. Crucially, this enabled the Iranian government to
embark on large-scale public expenditure programs and other state spending
without having to resort to taxation. Mahdavy described this as a
“fortuitous étatisme” in which the government became an important—and
perhaps dominant—factor in the economy.
Mahdavy’s theorization of the Iranian state carried both political and
economic implications that were frequently echoed in subsequent literature.
He explicitly linked the rentier-state to the high possibility of social stagnation and political inertia. The revenues of the government were derived
from external rents rather than from exploitation of the population, thus
relieving the government from any pressure to implement political reform.
Moreover, because part of the population experienced an increasing prosperity from oil revenues, mass movements for social change were less likely
to emerge. Furthermore, the government possessed large capacity to bribe
or coerce pressure groups and thus forestall any fundamental change. These
distortions in the political structure were paralleled at the economic level.
Mahdavy believed that the economic policies of rentier-states were predisposed to myopic, short-term reliance on rent flows with little incentive to
diversify. He argued that Iran needed to consciously lessen its reliance on
these flows and implement plans for industrial diversification.
Mahdavy’s concept of the rentier-state was further developed in an edited
collection on the theme published by Hazem Beblawi and Giacomo Luciani
in 1987. This work has become a main reference point for debates over the
nature of the state in the Gulf monarchies. In it, Beblawi and Luciani argue
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that the rentier-state needs to be distinguished from the rentier-economy,
with the former a subset of the latter. The rentier-state is a mediating link
between the national and international economies. Through its control over
the flow of rents, it shapes the economic development of the country as a
whole. The analytical focus of Beblawi and Luciani’s work thus revolves
around an examination of the size of the state and its linkages and role visà-vis the economy as a whole. They also introduce a more specific definition
of the rentier-economy ideal-type, based on four characteristics: (1) the rent
must be external to the economy, that is, it comes from foreign sources;
(2) rent must be a predominant economic activity (defined by Luciani as
40 percent of revenue); (3) the majority of the population are engaged in
the consumption and redistribution of rent rather than its production; and
(4) the principal recipient of the rent is the government (Beblawi and
Luciani 1987, p. 86–88).
Using the framework advanced by Beblawi and Luciani, much of the
subsequent debate has focused on the relationship between the state and
other social groups in Gulf societies. Three key political and economic
characteristics of the rentier-state have been highlighted. First, following
Mahdavy, numerous authors have postulated a link between rentier-states
and autocratic regimes (Skocpol 1982; Beblawi and Luciani 1987; Ross
2001; Jensen and Wantchekon 2004). Michael Ross, for example, has
argued that rentier-governments are able to relieve “pressures for greater
accountability” by relying on low tax rates (thereby short-circuiting claims
for representation), fostering patronage networks, and blocking the formation of groups that might challenge the dominance of the state. He infers
from this that these regimes tend to be more autocratic in nature (Ross
2004, p. 332).9 Second, it is argued that the rentier-state has a pronounced
degree of autonomy in economic decision-making, and is thereby able to
determine which social strata to promote and support. Third, there is supposedly a bias in rentier-economies toward the service sector rather than
value-added production. States find it easier (and possess the fiscal resources)
to import goods to satisfy consumer demands and increasingly sophisticated
tastes, rather than produce those goods domestically (Niblock 1980; AbdelFadil 1987).
These three characteristics have typically been used to explain the development of the private sector and merchant classes in the Gulf in the postcolonial era. The allocative decisions of the state mean that certain elites are
able to benefit from the redirection of oil revenues. This does not happen
through direct involvement in the oil sector itself, which remains under the
exclusive purview of the state (and hence the ruling family). Rather, no
longer reliant upon the merchant classes for financial support, the state/
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ruling family’s coalition with the leading merchant families is reworked in
the wake of the large influx of oil rents. A key strategy emerges in which,
as Jill Crystal has argued in the cases of Kuwait and Qatar, “the merchants
were bought off, by the state, as a class.” The state did this in both a direct
and indirect manner, through mechanisms such as land grants and providing money and monopoly concessions to the old trading families (Crystal
1995, p. 8).
The rentier-state framework has certainly provided some useful insights
into postcolonial development of the Gulf states (as well as those in other
similarly rent-financed states in Africa and elsewhere). At a comparative
level, it has helped to distinguish different outcomes dependent upon the
particular configuration of state institutions and their relationships with
other social classes. Much of the historical analysis in the following chapters
draws extensively upon rentier-state narratives of the Gulf state in the early
periods of state formation. This book, however, departs in a number of
distinct ways from the methodological assumptions of rentier-state theory.
The most fundamental of these differences concerns the nature of the state
and its relationship to class. As noted, rentier-state theory relies heavily
upon a notion of “relative autonomy,” in which the state is seen as a distinct
sphere of the political economy with a high degree of latitude to maneuver
and deploy economic strategies free from the constraints of the capitalist
class. A main argument of this book is that this approach is highly misleading, because it views the state as a separate object—severed from the class
relations of Gulf society—with politics interpreted as the struggle over this
object. This is reflected in the common use of phrases such as “capturing
the state” in much Arabic-language commentary on the state or, as a prominent Lebanese sociologist puts it, “the state was given birth as an external
force . . . holding the reins of government, political institutions, the means
of production and the official ideology” (Sharara 1980, p. 280). Within the
rentier framework the analytical focus is typically placed upon the state (usually assumed to be opposed to an all-encompassing “society”) with little
attention given to capitalism as a social system. The class character of the
Gulf economy is seldom tackled with any theoretical sophistication and the
term “capitalism” often absent from these accounts. The category of
“merchants” is typically used as a synonym for “bourgeoisie” or “capitalist
class”—terms that are (as Luciani has noted in regards to Saudi Arabia) rarely
encountered in scholarly work on the region (Luciani 2006, p. 145).
In contrast, this book conceives the state not as a “thing” or collection
of individual social actors, but rather as a particular expression of class
formation—with the latter understood as a set of social relations that is
continually in the process of coming-into-being. This methodological
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approach draws from a range of Marxist understandings of the state, in
which the key point is to understand the state as an alienated form of the
social relations that exist within society. Seen in this manner, the existence
of the state is ultimately an expression of the fact that social reproduction
occurs within a society divided into classes yet, simultaneously, is a
society—that is, these classes are mutually interdependent. The state is the
form taken by this social relation—the contradiction “between universal
and particular interests” (Marx 1844). Marxists describe this materialization
of social relations in the form of the state as fetishism, in which the “relationship between people takes the character of a thing and thus acquires a
‘phantom objectivity,’ an autonomy that seems so strictly rational and allembracing as to conceal every trace of its fundamental nature: the relationship between people” (Lukacs 1968, p. 83).10 The state is therefore not a
thing, but rather a relation, or, as Bertell Ollman has put it, “the set of
institutional forms through which a ruling class relates to the rest of society”
(Ollman 2003, p. 202). These institutional forms allow the ruling class to
actually be the ruling class (in the political sense).
It is important to understand the particular manner in which Ollman
uses the notion of “relation” here. Ollman employs an epistemological
approach that emphasizes Marx’s “philosophy of internal relations.”
According to this perspective, the relations existing between objects are not
considered external to the objects themselves, but are part of what constitutes those objects as they actually exist. Any object under study needs to
be seen as “relations, containing in themselves, as integral elements of what
they are, those parts with which we tend to see them externally tied”
(Ollman 2003, p. 25). In other words, objects are not self-contained; they
are constituted through the relations they hold in their stance with the
whole. Thus the relationships in which things are embedded do not exist
“outside” of these objects but are internal to their very nature. The state,
therefore, is “part of what it means for a ruling class to rule, that is . . . an
essential feature of the class itself ” (Ollman 2003, p. 202). It is not a distinct or separate sphere that is external to the ruling class.
For this reason, care must be taken when speaking of the “autonomy”
of the state. In capitalist society, the state apparatus acts to articulate and
manage the interests of the capitalist class. This is true both economically,
in the sense of securing the conditions that best facilitate capitalist accumulation, and politically, in the sense of ensuring that there is no challenge to
the power of that class.11 Because production and exchange under capitalism is anarchic, in which individuals are set against one another in pursuit
of their private interests, it is difficult for a common capitalist class interest
to be articulated directly. The capitalist state thus acquires (and requires) a
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certain level of autonomy from individuals and factions within the capitalist
class, in order to mediate the “common good” of capital as a whole. This
is more pronounced the more developed the capitalist economy, and is well
illustrated by the vital roles of the modern state: regulating the function of
the market and labor, arbitrating disputes within the capitalist class, securing the necessary infrastructure that no single capitalist could profitably
provide, and managing the inevitable periods of crisis that emerge. But
autonomy should not be understood in the sense of “independence” or
“separation” from the ruling class; rather, it as an actual aspect of ruling class
power itself. It is precisely in the appearance of “relative autonomy,” that the
state is able to represent the interests of the dominant class as a whole.12
Moreover, if the state is conceived as an “internal relation” of the capitalist class—part of what constitutes it as a class—the conceptual division
between class and state should not be seen as a rigid boundary. Class lines
shift as capitalism develops, and it is critical to remember that class formation is a process in which social relations emerge over time.13 Understanding
the state as an institutional relation of class thus implies that many of the
individual personnel related to the institutions of the state can simultaneously be considered part of the capitalist class. This is a pronounced feature
of the way that capitalism has developed in the GCC and, in many cases,
the “capitalist class” should be understood as inclusive of state personnel
and individuals from the ruling family. From this perspective, notions of
relative autonomy as they are typically employed by rentier-state theories
are misplaced. This book will note many cases in which members of the
ruling family who hold high-ranking state positions should simultaneously
be considered part of the “private” capitalist class and, in a related fashion,
where prominent nonroyal private capitalists simultaneously serve in the
state apparatus. This is not a novel observation, as Abbas Al-Nasrawi noted
two decades ago in an interesting Arabic-language debate on the nature of
the state and private sector in the Arab world: “The question raised is
whether it makes sense to speak of the existence of different sectors in [the
Gulf ] . . . and whether the interlocking of the State and the private sector
will make the separation between these sectors meaningless or, at the very
least, give it a meaning different from that usually accepted in economic
literature” (Al-Nasrawi 1990, p. 530). Indeed, the World Bank has offered
the interpenetration of the state and private capital as one explanation for
the “business-friendly environment” in the Gulf, remarking that the private
sector in the Gulf “included mostly entrepreneurs either from the ruling
families or close associates” and that the GCC’s “political leadership (often
their extended family members) are . . . large enough to develop the private
sector country-wide” (World Bank 2009, p. 181).
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Of course, seeing the state as an institutional embodiment of class power
does not mean that the state is just an automatic or passive reflection of
capitalist social relations. As the above analysis suggests, state formation is
very much intertwined with class formation and plays an active role in the
latter process. Marx noted the historical role that the bourgeois state played
in providing the necessary fixed capital for the growth of capitalism; creating
private ownership of land and a mobile labor force forced to sell their ability
to work (e.g., the enclosure acts in England); restraining forms of capital
accumulation that were threatening the very existence of the social structure
(e.g., the eight-hour day, child labor laws); and, of course, enabling much
of the initial primitive accumulation of capital through the state-orchestrated
brutality of colonialism and slavery. Engels was also to write of the Russian
state “breeding a Russian capitalist class” through the “emancipation” of the
peasants (thereby creating a proletariat) and forcing the development of a
bourgeoisie “as in a hot-house, by means of railway concessions, protective
duties, and other privileges” (Engels 1890). Engels’ phrase is apt and, as will
be seen throughout this book, Gulf capitalism has developed in similar “hothouse” fashion with the critical assistance of the state.14
But integrating the Gulf state’s active role in the development of capitalism is not a causal explanation of how and why class and capitalism formed
in the Gulf. The Gulf state is an institutional reflection of a set of social
relations that has developed within Gulf society. It is not the reason for those
social relations—except in the narrow sense that it fosters the conditions
that help them develop—and it cannot explain the specificity of capitalism
in the Gulf (both spatially and temporally). The theoretical weakness of the
institutionalist assumptions underlying rentier-state theory is found precisely in this point. To eschew the Marxian observation that “the conditions
of existence of specific institutions are the wider social structures that they
mediate, rather than institutions being determinant relations unto themselves” means to advance an explanation that is largely self-referential (Albo
2005, p. 74). The logic of much rentier analysis—where the development
of capitalism is seen as the outcome of actions and decisions by state
elites—needs to be turned on its head.15 Specifically, the challenge becomes
one of understanding why capitalist social relations developed and took the
particular form that they did in the Gulf. Obviously oil revenues and the
concomitant development of the state is a central feature of this narrative,
but the deeper factors shaping class formation must be given analytical primacy. Capitalism did not arise ex nihilo and cannot be simply explained by
the policy choices of the state.
What then explains the nature of class formation in the Gulf? This is
the third major methodological difference between the theoretical approach
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of this book and standard rentier-state frameworks. The perspective adopted
here is that Gulf class formation has evolved alongside and within the
development of a global capitalist system, and is best seen as a specific
reflection of the capitalist world market as a whole. This process took place
in societies that were largely precapitalist, but which were rapidly integrated
into the world market over a period of just a few decades. The focus is thus
placed upon the evolving relationship between the social relations of the
Gulf and those of the world market as a whole.
Seen in this manner, the GCC is not a sealed bubble that can be understood through a narrow focus on what goes on solely inside its borders (such
as the deployment of oil revenues).16 Rather, this regional space is constituted through the relations that exist between it and global capitalism as a
whole (most importantly since the end of World War Two). This should
not be understood as an external impact or “effect” on the Gulf (the standpoint taken—even if implicitly—by many rentier-state approaches). Instead,
following Ollman’s theorization of “internal relations,” the global economy
is part of the actual essence of the Gulf itself—the development of the
global “appears” through the development of the Gulf. The Gulf materialized as a concrete spatial region alongside, within, and through the making
of the global economy, and the process of class formation in the Gulf needs
to be seen as a unique, spatially specific expression of the concatenation of
tendencies underpinning the development of global capitalism. It is necessary to identify those tendencies (or at least their broad outlines) and trace
the ways in which they appear in the making of class in the Gulf.
This conception of the Gulf as a region that materialized alongside the
development of the capitalist world market implies a rethinking of the nature
of the oil commodity. Oil is clearly the major factor differentiating the region
from any other in the world and will undoubtedly form the central part of
any account of the development of Gulf capitalism. But one of the main
arguments of this book is that oil is not a “thing” but a commodity embedded in a set of (globally determined) social relations. Marx warned of “commodity fetishism”—an attempt to explain patterns of social development
through the presence (or absence) of a commodity rather than understanding
the significance given to that commodity by the social relations within which
it is situated. It is these social relations that need to be identified and traced
if the nature of oil is to be understood. This implies that a primacy needs
to be placed on the wider motion and tendencies of the capitalist world
market that confer a particular meaning to oil as a commodity centrally
located within the reproduction of the system as a whole.17
Once again, it is important to emphasize that this methodological
approach is not meant to deny the role of institutional factors or the
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decisions of state actors in shaping the particular form of the Gulf political
economy—indeed, these will continually be highlighted throughout the
analysis that follows. This book, however, does not claim to present a complete accounting of the institutional history or evolution of economic policy
in the Gulf economies. Rather, the focus is placed on elaborating an analysis
of Gulf capitalism—specifically the process of capitalist class formation—
alongside and within the development of capitalism at the global level.
Class and Capitalism
Identifying the tendencies that structure the development of the world
market and give the Gulf region a particular meaning requires a theory of
accumulation. This book adopts a framework drawn from Marxian theory,
in which the endless drive to accumulate is seen as the sine qua non of the
capitalist system. Marx noted that human beings are distinguished from
other animals through their repeated, purposeful application of labor on
nature as a means of producing the necessary elements of survival. This
labor is necessarily social, and the extension of this social labor presupposes
and deepens the development of tools and language, as well as more complex social forms of organization. In this manner, the necessity of socially
organized human labor underlies the development of human beings.
At a certain point in human development, the production of the means
of survival through this metabolic interaction with nature posits the possibility of production that is greater than that necessary for day-to-day survival and reproduction. The existence of this increasingly permanent and
predictable social surplus product is the basis for the development of classes
(Marx 1859; Engels 1877; Engels 1884). As this social surplus increases
through the development of more efficient tools and methods of social
production, the struggle for control over it eventually leads to the development of classes and a state able to protect and secure preferential access to
this surplus for the ruling group.
Marx’s perspective is grounded in the fundamental observation that, in
all human societies, labor is necessarily social and must be distributed
between different productive activities (in other words, a division of labor)
as well as appropriated in specific ways. The social relations that emerge
between human beings in this process are the central element of Marx’s
theory of class. This is an important point to emphasize as it differs from
the Weberian-inspired definitions offered by much contemporary academic
work. According to Marx’s perspective, class is not defined by a person’s
occupation, income level, or status. Rather, class is an antagonistic social
relation. It arises through the relationship established between groups of
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people in the course of society’s reproduction of itself and through the
struggle over the social surplus product.
Classes do not come into existence ready-made. They crystallize alongside the formation of the set of social relations that come to typify a certain
society, and hence the emphasis is placed on class formation as a process
rather than as a static category. The methodological key to understanding
this process is an emphasis on how the production and circulation of commodities occurs, thereby enabling a mapping of the social relations (and
hence class structure) that emerges around these activities. Marx developed
a particular heuristic tool for describing the motion of capital through different stages of accumulation, which he called the “circuit of capital”:
M……C(Mp + Lp) … P …C’….M’
In this basic circuit, an individual capitalist starting with a sum of money
(M), exchanges it for commodities, C, which includes labor power (Lp, or
the work done by the worker) and means of production (Mp, raw materials,
machinery, factories et cetera). Labor power and the means of production
are combined in the process of production, P, to produce a commodity with
an increased value C’ that can then be exchanged for an increased sum of
money, M’. According to Marx, this increased value is created by the worker
(Lp) and appropriated in money form by the capitalist. The circuit thus
captures the basic capitalist social relation—workers employed by capital in
the production process, P, to produce a commodity C’ with a value greater
than C.
This is a schematic representation of a single capital with the arbitrary
beginning point M (presuming, therefore, the existence of money and capitalist social relations prior to the beginning of the circuit). It is an abstraction, therefore, from any historically determined or concrete capitalism. The
value of this heuristic tool, however, lies in the fact that it highlights the
different moments through which the system as a whole reproduces itself
and the points at which accumulation can occur. Specifically, there are three
basic moments or subcircuits to this general circuit of capital, each of which
corresponds to different capitalist activities. Some capitalists specialize in
the production (P) of commodities through their ownership of manufacturing
and other businesses. This is the productive circuit, which, broadly put,
involves the creation of new commodities through the transformation of
other commodities. Second, some capitalists specialize in the sale of
commodities (C’) through their ownership of retail outlets and other types
of shops. This is the commodity circuit, which involves the realization of the
value produced in P through the sale of commodities. Finally, a section of
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the capitalist class deals in money (M’) through their ownership of banks
and other financial entities. This is the finance circuit, and it has become
an increasingly important feature of contemporary capitalism (see below).
Of course, all capitalists are involved in all three activities to some degree,
but this basic division of the general circuit of capital into three subcircuits—
the productive circuit, the commodity circuit, and the finance circuit—is
useful in that it describes the way in which capitalism reproduces itself
and the way in which classes form around this process. These three circuits
form the basic framework used in later chapters to understand the character
of the Gulf capitalist class.
The Internationalization of Capital
Based upon this understanding of accumulation, Marx was led to make a
prescient remark on the nature of capitalism: “Thus, while capital must on
one side strive to tear down every spatial barrier to intercourse, i.e. to
exchange, and conquer the whole earth for its market, it strives on the other
side to annihilate this space with time, i.e. to reduce to a minimum the
time spent in motion from one place to another. The more developed the
capital, therefore, the more extensive the market over which it circulates,
which forms the spatial orbit of its circulation, the more does it strive
simultaneously for an even greater extension of the market and for greater
annihilation of space by time” (Marx 1973, p. 539). This conception of
capital’s tendency to overcome “every spatial barrier to intercourse” powerfully captures the pressures toward the internationalization of capital, that
is, the ways in which capital seeks unrestricted, increasingly rapid, and free
flows across the globe in order to “conquer the whole earth.” In this view,
space is not a property that can be understood separate from the time it
takes to traverse it. The distance between spaces can be “annihilated”
through revolutions in time. Internationalization drives the search for new
markets, cheap labor, and sources of raw materials. It underpins the continual technological revolutions in the communication and transport industries.
The conquering of space is something that springs immanent from the
nature of accumulation itself—not a policy choice or a decision of states.
The motor-force of this drive to internationalize is the competition
between different capitalists. Because the aim of production under capitalism is not human happiness or the satisfaction of needs but the pursuit of
profit, capitalists are forced to compete with each other or face being
swallowed by a more successful rival. Those capitalists able to engage in
large-scale investments generally out-perform smaller capitalists—they have
better ability to produce cheaper commodities, swamp markets, and engage
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in price wars. One of the effects of this competition is an ever-growing
increase in the scale of production. The increasing amount of capital, however, is amassed in fewer and fewer hands—a feature of capitalism described
by Marx as the concentration and centralization of capital.
But the growing scale of production, as Christian Palloix pointed out in
a seminal analysis of internationalization in the 1970s, means much more
than the increasing traversal of capital across state borders. Such a definition
would be “purely descriptive and not theoretical” (Palloix 1977, p. 20).
Rather, internationalization means that “the process of converting the functional “money” form into the commodity form and into the productive
form (and vice versa) can no longer be fully realized inside of a single capitalist social formation” (Palloix 1977, p. 20). The circuit of capital, in other
words, can no longer be reduced to its movement within a national space.
Due to the increasingly large scale of production, national markets become
too small for the largest capitalist to profitably operate within. As a result,
the production and sale of commodities is “conceptualized, produced, and
realized at the level of the world market” rather than within the borders of
a single state. This formulation of internationalization as a way of capital
“conceptualizing” or “conceiving” its self-nature (i.e., the motion of its circuit) is one that is constantly reiterated throughout this book.
Internationalization implies that capital tends to push ever outwards,
penetrating all spheres of life and knitting together all human beings and
geographical spaces in a complex web of production and reproduction that
extends across the planet. Behind the dazzling array of commodities that
appear to represent competing products in the marketplace, ownership is
distributed among a handful of massive corporations headquartered in the
leading capitalist countries (typically based in North America, Europe, or
Japan). The concentration and centralization of capital at an international
scale means that some sectors develop at the expense of others, and the
concentration of wealth and power takes on a geographical form—polarized
both within and between states. Accumulation occurs within a single global
system marked by profound unevenness and sharp hierarchies.
But the development of a single, deeply interconnected world market
should in no way be taken to mean that individual nation states have lost
their importance. Capitalism is certainly marked by the expansion of
accumulation, the erasure of differences between national markets, and the
creation of vast, interconnected chains of production and realization across
the globe. Yet, simultaneously, the accumulation of capital demands
“a certain ‘coherence’ and ‘materialization’ in time and space”—it must
occur somewhere (Albo 2003, p. 91). This means that internationalizing
capital is faced with the challenge of securing accumulation conditions
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(disciplining labor, protecting private property rights, ensuring adequate
financial conditions and laws, et cetera) everywhere. In other words, precisely
because of the development of the world market, the state becomes more,
not less, important for ensuring that accumulation takes place and that the
conditions that underpin internationalization are satisfied across the globe
(Panitch and Gindin 2003).18 The tightly integrated nature of all spaces in
the global economy means that the maintenance of the conditions of
accumulation at each level of the hierarchy takes on an increasing
significance—no “rogue” states can be permitted. This reinforces processes
of state formation, with each national space compelled to align itself with
the conditions set at the international level.
The relationships between states are thus contradictory. Capital pushes
toward internationalization and is concentrated in a handful of large
corporations, resulting in increasingly feverish competition between states
over potential markets, raw materials, and sources of labor. Yet simultaneously,
the leading capitalist states have a common interest in maintaining the
stability and necessary conditions for internationalization across the globe.
These states (and their various international institutions) are compelled to
cooperate, direct, and maintain these conditions for the good of capitalism
as a whole. International relations between the leading states are characterized,
therefore, by dual tendencies of cooperation and rivalry. During the postwar
period—as will be further explored in Chapter 2—the US state played a
very specific role in mediating this configuration of power.
Finance and Internationalization
The deepening process of internationalization moves in tandem with
another feature of accumulation, the growing importance of financial
flows—credit, debt, and, later, more complex instruments such as
derivatives—within the circuit of capital. Finance is, of course, as old as
capitalism itself. It enables capitalism to take on a social character beyond
the individual interests of the private capitalist, by, as Marx described it,
bringing together the money resources that “lie scattered in larger or smaller
amounts over the surface of society” (Marx 1992, p. 778). Different institutional forms such as banks, joint-stock companies, and other financial
markets, gather together the capital held in a variety of hands and different
classes, allowing it to be collectivized and redirected into the accumulation
process through the credit system.
At the most fundamental level, the development of credit and other
forms of financialization are consequences of capital’s attempt to deal with
barriers that inevitably emerge across the circuit of capital during the
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process of accumulation. In a typical example, a capitalist may borrow
money to engage in production before the commodities produced in the
previous round of production have been sold. In this manner, credit enables
the system to temporarily overcome the barriers arising from the fact that
production must necessarily take place over a particular time period
(Rosdolsky 1977, p. 392). Another potential barrier is the difficulty faced
by capitalists in mobilizing funds to engage in production. The growing
scale of production means that a mounting share of total costs is represented
by fixed capital (such as machinery, factories, etc., as well as the increased
expenditure on the associated labor required to constantly revolutionize
technology, e.g., R&D). The growth in fixed capital costs means that it
becomes difficult for one capitalist firm, or even group of capitalists, to
produce upfront the necessary financial outlay for modern industrial plants
and technologies. These barriers to the circulation of fixed capital can be
partially ameliorated via the credit system. Capitalists are able to resort to
credit in order to raise the necessary funds for investing in fixed capital. In
this case, credit “switches” an oversupply of circulating capital toward the
fixed capital circuit and thus bridges branches of different circuits (Harvey
1999, p. 265).
Another important illustration of the potential barriers to the accumulation of capital can be seen within the moment of exchange. The growing
scale of capitalist production means there is an increasing tendency toward
the overproduction of commodities unable to find buyers in the market
place. The problems presented by this tendency are accentuated due to the
initial large outlays on fixed capital demanded by the production process
(combined with the reduced turn-over time of that fixed capital and its
potential devalorization, e.g., the obsolescence of machinery and technology) (Mandel 1983, p. 229). For this reason, the whole system becomes
increasingly unstable and there is growing difficulty in ensuring the sale of
an ever-increasing quantity of products in the market place. Credit plays a
key role in overcoming these barriers to the realization of value by creating
extra demand, either through an increase in individual consumer debt or
through the state guarantee of profits by means such as military, infrastructure, and other government contracts.
The role of finance as a means of overcoming barriers to the motion of
capital has been deeply reinforced by internationalization. In this case,
finance subsumes barriers to space-time that emerge as capitalism “conquers
the whole earth.” As the geographical scale of accumulation grows, for
example, the costs of doing business rise exponentially. This has generated
the rapid increases in cross-border investments in the postwar period, as
well as the global expansion of stock markets and private firms dealing in
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Approaching Class Formation
financial instruments—mechanisms through which companies can obtain
credit at a global scale. Furthermore, the development of highly complex
global production chains demands ways to link circuits of capital across a
very large number of geographical spaces and time periods. This means
dealing with potentially disastrous fluctuations in currencies, interest rates,
and other variables, and is the origin of financial instruments such as derivatives, which enable capitalists to manage the risk associated with the fluctuations in value that occur across time and space (Panitch and Gindin 2004,
p. 64). In short, financial flows ultimately act to create interdependencies
between different moments of the circuit of capital across geographical
spaces and periods of time. They act like “glue”—enabling internationalization to take place by interlocking the production and realization of commodities across different circuits, and tying together the past and future
creation of wealth. As these circuits of capital intertwine across different
spaces, the reproduction of capital within a specific geographical space
becomes more closely tied to the reproduction of other capitals at the
international scale.
Internationalization and Khaleeji Capital
The tendencies of internationalization and financialization are key concepts
framing the argument in this book. In Chapter 2, the successive postwar
deepening of both these tendencies at the global scale is outlined and used
to situate the development of Gulf capitalism within the world market.
These tendencies, however, are also critical to understanding the internal
development of Gulf capitalism. Within the GCC, internationalization has
led to an interlacing of each of the three subcircuits of capital (productive,
commodity, and financial) across national borders. This does not simply
mean an increase in pan-Gulf cross-border flows of money or commodity
trade. Rather, behind these flows lies an elaboration of social relations that
link Gulf capitalist classes across the GCC. The social relations underpinning Gulf capitalism are increasingly interlocked across the Gulf states, and
capital comes to conceive its accumulation from the perspective of the GCC
as a whole. There are various ways in which this may take place. In the case
of relatively similar-sized capitals, the interlocking of the Gulf circuits of
capital may manifest itself as the fusion of ownership within a genuinely
multinational framework. Alternatively, in the case of significant differences
in size and power, it may take the form of direct takeover of the subordinate
capital by larger groups. At the most fundamental level, internationalization
represents a new set of social relations forming around the interlocking of
geographically dispersed circuits of capital.
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Capitalism and Class in the Gulf Arab States
In short, each of the Gulf circuits of capital is increasingly articulated at
a pan-GCC level, reflected in the patterns of cross-border investment flows,
intra-GCC trade, joint ventures, the establishment of branches and representative offices, and so forth. As the circuits are elaborated and interlocked
regionally, the leading Gulf capitalists come to conceptualize and view their
accumulation through the “regional” lens. As this proceeds, each GCC
member-state becomes more and more aligned to the imperatives of
regional accumulation. Concurrently, regional structures develop—examples
include the common market and proposed monetary union (see Chapter 5)—
that act to buttress the burgeoning pan-GCC nature of Gulf capitalism. In
this sense, internationalization in the GCC has occurred through a process
of regionalization. Regional integration has facilitated the internationalization of GCC capital through the regional space, and this new set of internationalized social relations embodies the process of class formation
captured in the concept of Khaleeji Capital.
The Spatial Structuring of Class
In addition to the concepts of internationalization and financialization that
underlie the analysis of capitalism advanced in this book, there is one further
aspect to accumulation that needs to be highlighted—the spatial structuring
of class. This concept captures the notion that accumulation does not occur
in an abstract or undefined ether but is spatially concrete. As Henri Lefebvre,
an early theorist of the relationship between space and accumulation, put it:
“[W]hat exactly is the mode of existence of social relationships? [ . . . ] The
study of space offers an answer according to which the social relations of
production have a social existence to the extent that they have a spatial
existence; they project themselves into a space, becoming inscribed there,
and in the process producing that space itself ” (Lefebvre 1991, p. 129).
Lefebvre emphasized that space is a social product that both reflects the
nature of capitalism’s social relations and can also be used as a means of
control and hegemony. A range of interesting theoretical contributions
during the late 1970s and 1980s built upon these ideas to stress the
importance of analyzing how production is spatially organized. The British
geographer Doreen Massey, for example, explored the spatial placement of
controlling, managerial and administrative functions and how they exist in
a mutually defining relationship with other controlled areas (Massey 1984,
p.112). She described this mutually defining tension across a geographic
space as a “spatial structure,” and stressed that any regional analysis must
theorize the functional division of labor at a regional level as well as its place
within a wider system of relations of production (Massey 1988, p. 252).
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Approaching Class Formation
Her empirical work attempted to examine the ways in which the British
economy could be mapped through changes in production and the way that
the structuring of space became an active strategy of accumulation by
British capital. She argued that uneven spatial development arose as a
consequence of the spatial structuring of relations of production based upon
dominance and exploitation. According to Massey, “Different classes in
society are defined in relation to each other and, in economic terms, to the
overall division of labor. It is the overall structure of those sets of relationships which defines the structure of the economic aspect of society. One
important element which any concept of uneven development must relate
to, therefore, is the spatial structuring of those relationships—the relations
of production—which are unequal relationships and which imply positions
of dominance and subordination” (Massey 1984, p. 87).
Another geographer, David Harvey, has further explored this
understanding of space and its relationship to accumulation. Harvey
followed Lefebvre and Massey in arguing that the spatiality of capitalism is
a reflection or product of tendencies and countertendencies within the
circuit of capital. Capitalism depends upon the production of territorial
complexes such as factories, transport routes, urban environments,
communications networks, and regulatory institutions in order to expand
and circulate capital. These socially produced spatial forms are necessary in
order “to overcome space” (Harvey 1985, p. 145). A key contribution of
Harvey, however, lay in his argument that capitalism could switch between
different forms of these spatial structures as a means of averting, displacing,
and overcoming crisis tendencies (Harvey 1999). He called this crisisaverting utilization of space a “spatial fix.” The spatial structuring of
capitalism acts to underpin (or “fix”) accumulation for a period of time but,
at a certain point, it becomes a fetter on further accumulation possibilities.
Capitalism then faces a “switching crisis” as the old spatial structures
collapse, and new forms of spatiality arise to underpin the flows of capital.
A switching crisis can be seen, for example, in the collapse of the steel
industry and other manufacturing activity in North-Eastern United States
during the 1980–1990s as capital relocated to other areas in the United
States and internationally (leading to the emergence of the so-called Rust
Belt). Rather than conceiving space-time as a fixed constant, Harvey’s
approach affirms that the way human beings conceive of, utilize, and structure
space is a product of struggles shaped by capitalist social relations. The
production of space then acts reflexively on these social relations by placing
limitations and shaping the process of capitalist accumulation itself.
This understanding of space and spatial fix is a key element of this book’s
analysis of GCC capitalism. Class, as a set of social relations, is located in
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Capitalism and Class in the Gulf Arab States
concrete spatial configurations—it is spatialized through the relationships
that are established between distinct geographical zones in the course of its
formation. Subsequent chapters will discuss how the process of class formation in the Gulf has been spatially structured—institutionally reflected in
the reliance on temporary migrant labor flows and an extremely restrictive
notion of citizenship. This spatial configuration of accumulation has acted
as an important spatial fix for Gulf capitalism, helping to maintain the
enduring stability of the system as well as enabling a superexploitation of
workers drawn from the peripheries surrounding the GCC. Most recently,
the spatial structuring of class in the Gulf has facilitated the displacement
of crisis—further strengthening the position of Khaleeji Capital and its
tendency toward internationalization.
Understanding Class Formation in the Gulf—the
Structure of the Book
Having outlined these initial methodological and theoretical perspectives, it
is now possible to summarize the basic structure of the following chapters.
This book is divided into three sections. The first section (Chapters 2 and
3) maps the initial process of class formation in the Gulf. Framed around
the concepts of internationalization and financialization, Chapter 2 explores
the political economy of postwar global capitalism from the end of World
War Two until the early 1990s, with a view to understanding how the tendencies underlying the development of the global economy were reflected
in the nature of class formation in the GCC. It concretely traces the successive deepening of capital’s internationalization through this period,
focusing in particular on the continuous expansion of accumulation, the
intermeshing of production and consumption across the globe, and the
growing significance of finance. These developments within the global
economy are of pronounced significance to the nature of oil and its place
in capitalist accumulation—they are the social relations in which oil is
embedded as a commodity. Viewed in this manner, the story of Gulf class
formation shifts from a focus on oil as such, toward an understanding of
how the social relations of the GCC formed as part of the deepening internationalization of the global political economy. It is this relationship
between the global and the regional that must be excavated in order to fully
understand the political economy of the GCC, and thereby map the process
of class formation that forms the theoretical object of this book.
Utilizing this understanding of the global economy, Chapter 3 discusses
the initial period of class formation in the Gulf states. It focuses on two
specific characteristics of this class formation—the spatial structuring of
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Approaching Class Formation
class and the initial accumulation of capital through the state-directed use
of oil revenues. The former acted as a spatial fix for Gulf capitalism,
enabling the development of a privileged social layer of Gulf citizenry upon
which a capitalist class developed. The actual development of this class
throughout this period is examined through an analysis of the productive,
commodity, and financial circuits in the Gulf. Within each of these circuits,
a set of social relations formed that underpinned the rise of large, domestic
capital that was closely tied to the state and earlier merchant classes. The way
in which these circuits developed were, in turn, materializations of the broader
tendencies of the global political economy to be described in Chapter 2.
The second section of this book (Chapters 4 and 5) turns to the formation of Khaleeji Capital in the subsequent period. Chapter 4 examines the
development of the global economy in the decades following the collapse
of the USSR and the integration of China into the capitalist world market.
It focuses in particular on the post-2000 phase of internationalization and
the critical role played by the financialization of capitalism in this process.
The implications of this for the GCC region—specifically the shift in energy
exports, the vital function of GCC financial surpluses, and the accelerating
industrialization of the GCC—are examined from the perspective of the
global economy and the rivalry between the major capitalist powers.
Paralleling the methodological approach of Chapter 3, Chapter 5 examines the evolution of the GCC circuits of capital given this development of
the most recent phase of internationalization. Each of the GCC circuits of
capital is explored with a view to understanding how accumulation takes
place, who controls it, and where it is located. The focus is on understanding the pan-GCC nature of accumulation rather than attempting to present
a comprehensive account of the political economy of each individual GCC
state. Chapter 5 confirms the development of Khaleeji Capital within the
GCC—an emerging capitalist class closely imbricated with the pronounced
internationalization trends of each of the Gulf circuits. Of particular importance to this process is the finance circuit, which shows the most developed
pan-GCC accumulation structures.
It should be noted that because this book is concerned with the development of class across each of the moments of the circuit of capital, and its
process of internationalization in the pan-GCC space, the empirical analysis
oscillates between two distinct levels. First, much of the data is focused on
broad macro-level and sectoral trends shown through GDP, Foreign Direct
Investment (FDI), import/export statistics, and the like. This data, however,
only partially captures the nature of internationalization in the GCC and
the development of specific sectors. In order to fully comprehend the
changing social relations in the region, the other component of this book’s
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Capitalism and Class in the Gulf Arab States
empirical study is the micro-level analysis of firms and companies. In particular, much of the analysis focuses on the interpenetration of capitalist
social relations as reflected through joint ownership structures and interlocking directorships at the company level. This micro-level analysis
(involving an examination of over 500 GCC companies, financial institutions, and projects) captures the “fine” process of internationalization that
is not revealed through typical macro aggregates. The book’s appendices list
some of the results of this study.
The final section (Chapters 6 and 7) examines the implications and
future trajectories of Khaleeji Capital and Gulf capitalism. Chapter 6 develops the study of the internationalization tendencies at the core of Khaleeji
Capital to examine its impact on the broader Middle East political economy. Throughout the Middle East, national economies have been strongly
penetrated by both state and private capital from the GCC. This chapter
looks closely at two specific examples of this penetration—the banking sectors in Jordan, Lebanon, and Egypt and the political economy of the
Palestinian West Bank. In both cases, Gulf capitalism is rewriting the nature
of accumulation through its ownership of key financial and industrial firms.
The chapter concludes by raising some of the implications of this penetration for an understanding of the regional political economy.
Chapter 7 assesses the impact of the 2008 global financial crisis on the
structures of accumulation in the Gulf. The crisis has had a sharp effect on
the region, and its subsequent unfolding confirms the importance of Khaleeji
Capital to a full understanding of the GCC political economy. The dominant response of the Gulf states has acted to strengthen the leading GCC
conglomerates and the internationalization tendencies explored throughout
this book. It has also further emphasized the significance of the spatial structuring of class to the patterns of accumulation in the Gulf. These trends
portend a sharpening of the contradictions between the Gulf region and the
surrounding peripheries. They will be a vital component of the future development of the world market and its attendant rivalries at the global level.
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The Political Economy of Postwar
Capitalism and the Making
of the Gulf
The “Golden Age”
he global economy emerged transformed in the decades following
the destruction of World War Two. A key underlying cause of the
war—encouraging both the rise of fascism and the clash of
European powers—had been the period of stagnation and crisis that preceded the conflagration. The years before the war had been marked by low
profits caused by the overaccumulation of capital—few profitable outlets for
capital investment leading to intensified struggle between different world
powers for control over markets and resources. War had a remarkably palliative effect. The leveling of factories, housing, and infrastructure across
much of Europe and Asia served, in the words of David Harvey, as “the
ultimate mechanism of capital devaluation,” inaugurating one of the greatest economic upswings in the history of capitalism (Harvey 2001, p. 310).
This economic boom—or “Golden Age” as many economic historians now
describe it—had begun by 1950 and was to last until the late 1960s. One
study of the US economy shows the profit rate rising from around 10 percent in the early 1930s to 45 percent in the postwar period, and remaining
high (from 30–40 percent) until the late 1960s, from whence it began a
secular decline (Duménil, Glick, and Levy 1992).1 Growth rates in Western
Europe and North America averaged 4 percent annually in the 1950s and
5 percent in the 1960s, way above the anemic 2 percent they were to fall
to by the 1980s (Marglin 1991, p. 1).
The Golden Age was partly enabled by the massive destruction of capital
throughout the war, which precipitated a postwar investment boom across
Europe and Asia after hostilities ceased. From 1948 to 1952, the US
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Marshall Plan directed US$13 billion toward reconstruction in Europe
alone and industrial output expanded by 40 percent from prewar levels (US
Department of State 2007). Cities, factories, transport lines, and infrastructure were rebuilt, and the production of basic consumer goods dramatically
increased across all the leading capitalist markets. This stimulation of investments led to a rise in employment and production levels, buttressing the
rate of profit. Although the “creative destruction” of capitalism had come
at a colossal human toll, it nevertheless underpinned the transformation of
the global economy.
Of course, the rising profit rates of capitalism’s Golden Age were not
preordained by some iron law of economics. The postwar situation may
have evolved in a completely different direction—initially the mood was
decidedly anticapitalist, particularly in those countries with organized antifascist resistance movements. In France, Yugoslavia, Italy, and Greece, radical ideas were in the ascendancy, trade unions were strong, and socialist and
communist parties were held in high esteem due to their role in the resistance against fascism. Mass strike-waves occurred in Japan, Germany, and
other European countries in the first two years after the war, with demands
for the nationalization of factories and the adoption of government-led
production plans in place of the anarchic decisions of privately owned
companies (Armstrong, Glyn, and Harrison 1991, pp. 11–21). Widespread
industrial action also occurred in the UK, United States, Canada, and
Australia where governments were under enormous pressure to grant concessions to those who had fought in the war.
By the 1950s and early 1960s, however, these potential challenges had
been largely neutralized through a combination of repression and incorporation into the new order. The leading role in this process was taken by the
United States as the emerging dominant power. The United States had
escaped any serious physical damage from the war and was thereby able to
benefit from the reconstruction of Europe and Japan. Potential rivals had
suffered enormous destruction and their grip on their colonial possessions
was fast evaporating in a wave of anticolonial struggles across Asia, the
Middle East, and Africa. By 1952, the United States held about 60 percent
of industrial production of the advanced capitalist states, and over 73 percent
of world equity market capitalization (Ikeda 1996, p. 45).2 In 1960, United
States trade was one-fifth of the world’s overall figure and was roughly
equivalent to the combined trade from UK, France, and West Germany—
the three leading European economies (Winham 2008, p. 114). Furthermore,
the 1944 Bretton Woods Conference had cemented the US dollar as the
main currency of the international monetary system. All currencies outside
the United States were assigned a value in relation to the US dollar, which,
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Political Economy of Postwar Capitalism
in turn, was linked to gold at the rate of $35 per ounce. The dollar became
the global currency of trade and commerce, with countries required to
amass quantities of US dollars to cover their own international transactions.
For all these reasons, the United States was able to take “undisputed leadership of the world system of institutions that was created in the 1940s and
expanded in the 1950s” (Altvater 1993, p. 114).
As this postwar international system developed during the 1960s, it
came to be characterized by three key aspects. First, despite the initial predominance of the United States, by the mid-1960s the global order was
beginning to be marked by increasing intercapitalist competition and
rivalry. As both Japan and West Germany completed their reconstruction
after the war, they managed to industrialize at a level comparable to that of
the United States (and, in some manufacturing industries, began to supply
an increasing share of world production) (Brenner 2000, p. 16). Competition
in the context of the profound postwar realignment meant that large capitalist firms in these countries struggled for ownership and control over
markets and resources on the world scale. At the level of foreign policy,
these economic interests compelled the leading capitalist countries to jostle
for political influence across all areas of the world.
This rivalry unfolded, however, in the presence of the USSR, China, and
other state-socialist countries—the second key feature of the postwar state
system. Although these countries were noncapitalist (their economies were
not driven by the pursuit of private profit) their foreign policies nevertheless
sought to demarcate spheres of influence across the globe. The threat of
countries pulling out of the capitalist world market meant that the extension of Soviet or Chinese influence inevitably generated rivalry with the
advanced capitalist countries as a whole. The presence of this bloc, therefore, reinforced a deep unity of interest among the major capitalist powers.
Indeed, the actual causes of the spectacular development of Japan and West
Germany in the postwar period—much like the development of South
Korea, Taiwan, and the so-called Asian Miracles in subsequent decades—
had much to do with US concern to provide a counterweight to the statesocialist bloc.
Finally, the third key feature of the postwar international state system
was the surge of anticolonial and nationalist movements in the wake of the
war. These movements had a long history of struggle against colonialism,
but the weakening of the major colonial powers in the war—particularly
Britain and France—gave them new impetus. These nationalist struggles
reflected a variety of inchoate emerging social forces in the colonized world,
and unfolded within a world system defined by the previous two features—
intercapitalist rivalry coupled with a simultaneous unity of interests against
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Capitalism and Class in the Gulf Arab States
the state-socialist bloc. In many cases, the anticolonial movements allied
with the USSR or China as a means to maneuver against the major capitalist powers. This relationship, however, was often fraught with tension as the
goals of the national liberation movements became subordinated to the
foreign policy objectives of their sponsors.
These three interrelated features of the postwar state system reinforced
the need for what the German economist Elmar Altvater has called the
“hegemonic guarantor”—a power that could guarantee the stability and
reproduction of the postwar economic order. As accumulation became
increasingly global in nature, capitalism as a whole required harmonization
of laws, regulations, and institutions that governed financial markets and
other aspects of its reproduction. This required strong and coordinated state
policies from within the capitalist orbit, able to confront the rivalry of the
noncapitalist bloc as well as any potential challenges from anticolonial and
left-wing movements. At the same time, the leading capitalist states
remained in sharp competition over access to resources, markets, and influence. The fundamental mediating force in this duality of unity and rivalry
was the United States. The United States both promoted the interests of
US-based capital on the world stage while attempting to manage capitalism
in its totality (Panitch and Gindin 2003; Bromley 1991, 2008; Stokes
2007). US dominance grew but at the same time played a system-supporting role, nurturing and sustaining the conditions that enabled the upturn
in the rate of profit and the deepening global reach of capital. These two
poles of US power were thus interrelated. The position of hegemonic guarantor depended on the consent of other rival capitalist powers, which
flowed from its ability to maintain and deepen conditions of capital accumulation—and thereby its own strength—at the global scale. Rivalries certainly persisted but, as Leo Panitch and Sam Gindin point out, “only the
American state bore the burden—and had the accompanying capacity and
autonomy—to take on the task of managing the system as a whole”
(Panitch and Gindin 2005, pp. 54–55).
Expansion and Internationalization of Production
The Golden Age was not only marked by a new international state system
and a change in the structure of global political power. It was also characterized by a fundamental transformation in the nature of capitalist production.
There were two key aspects to this. First, there was an unprecedented
increase in both the quantity and variety of goods produced across the
world market. This was largely enabled by the application of scientific and
technological innovations (often based upon military research developed
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Political Economy of Postwar Capitalism
during the war period), which stimulated the development and generalization of new industrial sectors. Second, and very much related, was an
extension in the geographical scale of production, with the rapid expansion
in world trade and the international orientation of much productive activity
becoming notable featur…
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