Sovereign risk: Gulf sovereign wealth funds as engines of growth and political resource

ABSTRACT

The economic reform agenda moving across the Gulf Cooperation Council states precipitated by the end of a decade-long run of high oil prices, high population growth rates, and costly demands on the provision of generous state services and subsidies has had some unexpected consequences. The reformulation of state-society relations, especially with regard to ideas of how to create economic growth and how to model a future social contract, challenges the accepted literature and construct of rentierism. This essay focuses on one distinctive site of these shifting relations between rentier states and their citizens: the sovereign wealth fund (SWF). SWFs are based upon the shared rents from oil production, but as they have evolved they are also becoming transformative in new national development strategies. Some SWFs now veer from traditional practices of safeguarding wealth to more experimental and high-risk strategies that claim to be able to diversify national economies from oil dependency, while also promising high returns. The current moment of late rentierism heightens questions of ownership and of the state’s role as guardian or steward of society’s wealth. Using SWFs to examine state-society relations and rentierism across the Gulf, this article focuses on the Saudi case.     

Autonomy and Egalitarianism

In this article I consider the alleged incompatibility between individual autonomy and the achievement and subsequent maintenance of an egalitarian society. I argue that not only is there no incompatibility, but that it is only where an egalitarian society is in place that a like autonomy can be exercised by each citizen. To make out my case I discuss the three main grounds that have been advanced to show there is such an incompatibility. Opponents of egalitarianism contend that egalitarian goals can only be achieved with losses in autonomy; in particular, losses through infringements on the civil liberties of individual citizens, losses in the scope individuals have to exercise and exploit their own talents and losses in control over the income and wealth to which individuals are entitled as a result of the exercise of their talents. The first of these contentions is dealt with quite briefly but the second and third go to the heart of the matter and accordingly are given fuller discussion. None of the three can be convincingly made out because it is precisely where there are significant inequalities in income and wealth that significant differences exist in the scope individuals have to fulfil their life-plans and thus to exercise their individual autonomy.     

The Korean experience in FDI and Sino-Korean relations

The possibility of regional cooperation in the Yellow Sea Rim (YSR) area has been discussed since the early 1980s. In recent years, Korean outbound foreign direct investment (FDI) has increased rapidly and it will be growing much further. In the new phase of the global economy and the post-cold war political environment, Korean firms consider the socialist countries, especially China, to be attractive new partners for trade and investment projects. Foreign investment contributed to economic growth in developing countries. In the early stage of industrialization in the 1970s, the share of foreign firms amounted to about one-tenth of the total manufacturing employment in Korea. Similarly, outbound Korean FDI could also play an important role in the industrialization of the LDCs in Southeast Asia and China. A case study of a Korean multinational corporation reveals that the direct employment effect of Korea’s FDI is extensive in terms of money invested. In spite of the complementarity in economic structure and the phase of development between Korea and China, the prospect of Korea’s outbound FDI is not all clear. However, one can safely assume that the unit scale of FDI projects will increase. Unlike in the past, the large Korean corporations are now preparing more than a few fair-sized projects in China. The positive impact of those FDI will be significant. The YSR cooperation, if successful, could create efficient economic cooperation based on complementarity between Korea and China. The Korean outbound FDI would pave a road to such regional cooperation. This article is the revised version of a paper prepared for the International Conference on Regional Development in the Yellow Sea Rimlands, held February 18–21, 1991. The conference was cosponsored by the Korea Research Institute for Human Settlements, the State Science and Technology Commission of China, and the East-West Center of Honolulu, Hawaii.