Two centuries ago, Adam Smith claimed that capitalism would be promoted through the presence of competing actors who would optimize economic resource allocation “as if by an invisible hand.” This valuable ability of unbridled markets could not be matched by a central government, warned Ludwig von Mises in the 1920s, and in the 1950s, Friedrich von Hayek claimed that less government intervention results in more efficient allocation of resources. And yet today the state not only promotes risk taking and entrepreneurship through regulation, but is also the owner of a range of corporate assets.
A recent survey by the Organisation for Economic Co-Operation and Development (OECD) of 34 governments found them holding a total of 2,111 state-owned enterprises (SOEs), valued at $2 trillion and employing approximately 6 million people. Of the 10 largest listed companies globally, half include a state as a major shareholder. The state as a “capitalist” in its own right plays a significant role in emerging economies such as China, India and Russia, but also across the Middle East and North Africa (MENA), despite wide differences in the national incomes, sectoral distribution and the nature of strategic assets.
High level of state ownership is characteristic of nearly all Arab countries, oil-exporting and importing, in economies as diverse as Saudi Arabia, Syria, the United Arab Emirates (UAE) and Egypt. While significant state ownership is not unique to the MENA region, the complex structures of ownership, including an absence of centralized or coordinated ownership entities and multiple sovereign investors are more region specific. In the UAE for instance, state ownership is exercised through multiple investment vehicles, including the Investment Corporation of Dubai, the Emirates Investment Authority and Mubadala, as well as through state-owned banks such as Abu Dhabi Commercial Bank (ADCB) and National Bank of Abu Dhabi (NBAD).
A close look at the role and impact of state ownership in the region reveals that the state is not always – as is commonly assumed – an inefficient owner. The popular perception of the state as an “inept capitalist” collides with reality in some countries and sectors. Some governments in the region have harnessed SOEs for infrastructure development, delivery of public services and even research and development, while others continue to face challenges restructuring SOEs, resolving to subsidize their activities. The success of state ownership in the Arab world has been highly uneven.
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