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Capitalism and Class in the Gulf Arab States

[Cover of Arab Studies Journal Vol. XX No. 1 (Spring 2012)] [Cover of Arab Studies Journal Vol. XX No. 1 (Spring 2012)]

Adam Hanieh, Capitalism and Class in the Gulf Arab States. New York: Palgrave Macmillan, 2011.

[This review was originally published in the most recent issue of Arab Studies Journal. For more information on the issue, or to subscribe to ASJ, click here.]

What if capitalists in a particular country could draw on a reserve army of semi-skilled labor that includes hundreds of millions of noncitizens whom they could import, hire, fire and expel at will, without worrying about laws, regulations, and collective action? What if they could perfect labor market segmentation to a degree whereby only one social class—capital—reproduces itself, but another—labor—never does? What if, asks Adam Hanieh in his new book, Capitalism and Class in the Gulf Arab States, the economies of the Gulf Arab states should not be conceptualized as underdeveloped, semi-feudal economies that happen to sit on stupendous sources of wealth that they either squander or distribute to local constituencies in return for political loyalty? Hanieh’s groundbreaking book argues that we should not view the Gulf Arab states as anomalies in the worldwide economy. Instead, he claims, the story of twentieth-century capitalism could not be told without recounting their central role: 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” (16).

Hanieh’s book makes several other contributions. Within Middle Eastern studies, it provides a challenge to the rentier-state framework—the main paradigm for understanding state-society relations and economic development in the Gulf states—by questioning the emphasis on state autonomy and substituting it with a Marxist class analysis. The book is also a contribution toward understanding Gulf capitalist accumulation on a local and regional scale and the connections between Gulf capitalism and the trajectory of the world capitalist system. Lastly, its examination of over five hundred Gulf Cooperation Council (GCC) companies, financial institutions, and projects provides a wealth of empirical data on the development of the Gulf-based corporations and their regional reach.

The first theme of Hanieh’s book, advanced in chapters one, two, and four, is the “centrality of the Gulf to the structure of the global economy” (54). Hanieh shows how the Gulf countries were integrated into the world capitalist system through incorporation into the British colonial empire. Their importance was initially due to their strategic location, and their centrality to world affairs did not come into full force until the transformation of global capitalism into an oil-based economy. Oil’s centrality in the postwar period—with the rise of the automobile and petrochemical industries, the expansion of industrialization primarily in the United States and in US-dominated Europe, and the recycling of petrodollars, which precipitated the Third World debt crisis—may be familiar themes. In later chapters, however, Hanieh departs from standard accounts to argue that in the neoliberal turn, and in particular with the financialization of the global economy, the Gulf continued to play a pivotal role. First, it continued to recycle petrodollars into industrial (and increasingly military) purchases from the West. Second, after a secret agreement with the United States in 1974, Saudi Arabia committed to maintaining the value of the US dollar through large purchases of US treasuries as well as by using its influence in OPEC to prevent diversification of its currency basket. Third, massive amounts of petrodollars, primarily from Gulf-based sovereign wealth funds, went into US and European financial, debt, and equity markets, which allowed the rise of the financial bubbles and easy credit that contributed to the most recent worldwide recession.

A second and quite remarkable contribution of the book is its documentation, in chapters five and six, of the rise and interconnectedness of “Khaliji” capital. According to Hanieh, Khaliji capital can be understood as a group of firms, partially or wholly owned by Gulf citizens through either family ownerships or partnerships, operating in three circuits of capital: production (petrochemicals, steel, industrial goods, and manufactured consumer durables); commodity (import and sale of retail, machinery, and consumer capital goods and durables; malls; media); and finance (banking and investment firms; real estate). Having surveyed over three hundred companies, Hanieh here provides quite possibly the largest single collection of Gulf firms’ wide array of products, their geographic reach, and partnerships, making this work an essential reference for students of the Middle East and economics alike. Crucially, Hanieh’s argument is that the “trade relationship between individual GCC states and the international sphere cannot be understood solely through the lens of national space. Rather each Gulf state needs to be located within a regional system, which interacts with the global economy as a whole and is then articulated internally through a network of intra-GCC trade” (127–8). The regional expansion of these networks has been facilitated by intra-GCC treaties, most notably the Economic Agreement between the States of the Cooperation Council (EASCC) of 2001, but also other events, such as the postinvasion reconstruction of Iraq, which was in fact dominated by Khaliji—not US—capital. Hanieh’s book also discusses the increasing reach of Khaliji capital into Lebanon, Egypt, Jordan, and the West Bank.

The crucial analytical contribution of the book lies in its Marxist analysis, advanced in chapters one and three, of capitalist class formation in the Gulf. Hanieh identifies two characteristics of this process: reliance by the Gulf countries on temporary migrant labor flows alongside a narrow definition of citizenship, and second, the redirection of oil revenues to merchant families. These two characteristics work in conjunction to (re)create and expand capital accumulation along the production, commodity, and finance sectors, as well as to segment and proscribe the (re)creation of a labor class capable of providing a systemic challenge to capital. This process evolved over time as Saudi Arabian and Arab labor became militant and thus troublesome, and was replaced systematically by South Asian workers. The jobs reserved for citizens were either managerial or high-level administration, and many were in fact plain sinecures. This mechanism allowed the ruling families to consolidate power through strengthening alliances with the emerging and privileged merchant families. It also means that workers do not have any permanent “right to space” or existence in those countries; instead, they constitute an “acute form of alienated labor,” whereby social ties are continuously dissolved and shifting (65). This alienation prohibited the emergence of a collective memory of struggle, particularly since workers are drawn from various spaces geographically, ethnically, and religiously.

Despite the impressive accomplishments of this book, there are some analytical and empirical limitations. A minor one has to do with the seeming conflation of the global distribution of oil rents accruing from ownership of oil with the internal (or regional) process of Gulf capitalist class formation. Hanieh states that the “Gulf capitalist classes” he is focusing on “have formed around revenues arising from this [down-stream] circuit—not through direct ownership of oil production but rather through related activities such as construction and services” (54). Presumably, however, it is a small number of decision makers within the state itself that control the depositing of petrodollars in European banks and the investment in US and European financial markets by sovereign wealth funds; perhaps, then, such investments follow a different logic, such as securing US patronage of the ruling families. The two processes do not appear to be one and the same. In other words, Hanieh does not fully develop the connection between the different geographic scales of his analysis.

This limitation, in turn, is related to a second one. Hanieh frames the book as a challenge to the state-autonomous, rentier-state paradigm, insisting that the state should be seen as the outcome, rather than the determiner, of social relations. But Hanieh’s story of how the capitalist classes developed remains top-down, macro, and state-centric. In many ways his narrative is of a rational linear process of the Gulf states’ either serving empire or building local coalitions and political loyalty through distribution of surplus rents. A bit of dialectical analysis is missing, however. How did the rise of capitalist firms in the Gulf constrain or shape the behavior of the Gulf state? Is the state a “reflection of these developing capitalist social relations,” or is it the other way around (57)? Is the Gulf state an automatic reflection of its capitalist constituencies? For example, did inter- or intra-capitalist class struggle play any role in Saudi Arabia’s drawn-out application for accession to the World Trade Organization? How did the exigencies of capital accumulation in Iraq impact the political relationship with the postinvasion Iraqi leadership? Did the bailout of firms postrecession favor the productive, commodity, or finance circuit—or were they treated all equally, and why?

Third, while many of the firms discussed in the book do indeed rely on temporary migrant labor, not all of them do (for example, media), and some increasingly have come to rely on more skilled Arab labor. Does this shift constitute a change in the class relations or profit margin? In addition, there is little attempt to measure profit rates (or the rate of exploitation) as a result of the unique class relations in the Gulf and to assess how these profit rates are changing temporally, sectorally, or geographically; the impact of labor market segmentation on increasing the rate of exploitation is only mentioned in passing (64).

Hanieh’s book should be viewed in comparison with two other important contributions on the topic of oil, capitalism, and democracy: Robert Vitalis’s America’s Kingdom (Stanford University Press, 2006) and Timothy Mitchell’s Carbon Democracy (Verso Press, 2011). Hanieh’s book is equally impressive in linking microlevel analysis with macroprocesses, though unlike the other two it does not take up intra- and interclass struggle or labor resistance. These critiques, however, do not diminish the outstanding contribution of Capitalism and Class in the Gulf Arab States—a book that is likely to be a reference and entry point for many similar works yet to come.

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