Want to Reduce Gulf Arab Reliance on Oil? Try Universal Income - Bloomberg

Want to Reduce Gulf Arab Reliance on Oil? Try Universal Income - Bloomberg

Countries in the Gulf Cooperation Council have built their economies, societies and political systems around oil. These are at a growing risk of disruption as crude’s importance in the global economy diminishes and prices fall. A universal income for citizens could help governments smooth the transition to a post-oil world.

Oil is central to the social contract in the Gulf. Petrodollars provide the lion’s share of government revenues, allowing rulers to keep taxes low. The Gulf monarchies provide citizens with cushy, and usually unproductive, public-sector jobs as a way to distribute oil rents — and to compensate for limited political representation.

This has a damaging knock-on effect on private companies by making local talent expensive, just when they are coming under pressure from governments to trim expats from their payrolls. High wages and low productivity cause most goods and services produced in the Gulf to be more costly than elsewhere, thwarting efforts to diversify production away from the extraction of hydrocarbons.

Still, this arrangement, with oil at the heart of the political economy, has served the region well. Standards of living have risen: The GCC is comfortably in the top third of the global income-per-capita distribution. Oil has also financed the upgrade of physical infrastructure.