Economic Liberalization and the Lineages of the Rentier State

Abstract

in economic planning-was thoroughly discredited. Etatisme, in all its guises, came under attack, and state shrinking, privatization, and liberalization became the watch-words of a new ascendancy in development policy. In the popular realm, economic liberalization and privatization were increasingly viewed as indicia of a grand historical teleology in which markets and democracy were triumphant.2 In scholarly discourse, where, beginning with the first critiques of modernization theory, the emphasis had been on explaining discontinuity and diversity, the new orthodoxy reasserted the uniform laws of neoclassical economic theory.3 In practice, of course, market reforms have produced widely divergent results which belie neoclassical assumptions about uniform human behavior and economic processes. This essay focuses on the important but neglected issue of explaining the relative success of market reforms in two 'most similar cases,' Iraq and Saudi Arabia. Iraq and Saudi Arabia initiated economic liberalization programs in the 1980s, when declining oil prices depleted reserves and generated severe fiscal crises. Iraq's massive reform program was implemented quickly and without opposition. In contrast, in laissez-faire Saudi Arabia, a much milder liberalization program was stalled almost instantly through opposition by business elites. Identical placement in the international economy accounts for the contemporaneous initiation of reforms in the two oil exporters. The dramatically divergent reform outcomes illustrate the part of domestic political coalitions and institutional structures in determining them.