The violence waged by security forces against protestors in Bahrain is out of step with the reform path along which the country’s King Shaikh Hamad bin Isa Al Khalifa, and the Crown Prince Shaikh Salman bin Hamad bin Isa Al-Khalifa had been guiding the country, according to Cappelli. He suggests a power struggle could be taking place between Bahrain’s royals and members of its extended family. “Even though it’s a monarchy, there are lots of different power bases, and each has quite different views,” he says. “What happened with the police is an overreaction that wasn’t necessarily authorized from the top.”
The country — roughly one third the size of Rhode Island — struggled with an unstable political situation related to both sectarian and democratic tensions until 1999, when King al Khalifa came to power. One of his first reforms removed the notorious State Security Law, which allowed for unlimited detention of dissidents without trial. He allowed for the creation of a small, though tightly controlled, parliament. He also instituted economic reforms, including the creation of the Economic Development Board.
For its efforts, Bahrain basked in acclaim: According to the Heritage Foundation and the Wall Street Journal, it ranked as 13th among the world’s most free economies, largely because it had no personal or corporate tax and no withholding or VAT. Most uniquely for the Middle East, Bahrain allowed for 100% foreign ownership of companies and the formation of labor unions. Its stable financial system made it an early home for Islamic finance and Islamic law firms, which now comprise 25% of the economy.
In the wake of the violence, though, Bahrain’s economy has been hit with a downturn. Its credit ratings from Standard & Poors have been reduced to A- for long-term debt, and A-2 for short-term debt, while the cost of insuring its sovereign debt nearly doubled to US$300,000 to insure US$10 million of five-year government debt, from US$175,000. It also cancelled the Bahrain Grand Prix, an event that generated more than US$500 million for the economy.
The entire piece is worth reading and explores the contextual nature of real entrepreneurial opportunity and growth. Another snippet:
The response in several Gulf countries has been to promise additional subsidies and salary increases for its native citizens. Oman has promised to raise salaries for its nationals working in the private sector. Gulf governments have also begun to proactively assess areas needing help. In the UAE, for example, the President Sheikh Khalifa this week ordered a full evaluation of the Northern Emirates services and infrastructure — a region dogged by power shortages and other quality of life concerns. In addition, Sheikh Mohammed bin Zayed, the Crown Prince of Abu Dhabi, made a trip to the region to hear concerns.
But Gultekin says subsidies and other benefits are a “short-term measure. In the long run, as societies change, they have to share power, they can’t stay on the current structure. Right now, people are happy, and economically at peace, but eventually they’ll probably look around and ask for other things as their prosperity increases. They’ll have to modernize themselves in their own unique ways.”