GRM 2010 GRM 2011

Abstract Details

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Business sector and labour policies in Kuwait
Paper Proposal Text :
Kuwait’s Labour Law No. 18/1960 stipulates that every citizen has the right to a job in the public sector. Since the implementation of the first welfare state measures in Kuwait in the 1960s, government employment has been one of the important means of wealth distribution, as it is coming with significant financial incentives, and is in general less demanding compared to the private sector. As such, it has long ceased to be seen as a privilege, but is rather considered an inherent right and a part of the social contract. At the same time, like any other distribution mechanism in a rentier state system, it also serves to foster the economic dependency of the population on the state, thus enabling the latter to keep the national labour in check and providing it with an effective leverage tool in case of political discontent. Thus, the provision of national employment in Kuwait is not only an economic requirement, but also a sensitive political matter.
This policy has led to the bulging of the government sector and the subsequent fast increase of budget spending on wages. According to official statistics, as of 2013, 81% of all employed Kuwaitis worked in the public sector, while public sector salaries and subsidies increased by 540% within 2001-2011 period. It is estimated that 51% of the population is currently under 21 years old, which means that the number of new labour market entrants will be ever growing in the coming years, while the oversaturated public sector already has little capacity to accommodate them.
Nevertheless, the unemployment rate in Kuwait has been kept low, which clearly means that the government is still putting effort to create jobs. This in its turn leads to the development of redundant and un-/counterproductive workforce, or the phenomenon of ‘disguised unemployment’ (batala muqanna‘a). Therefore, the problem is not only in providing the population with whichever jobs the government can create. As the average education level is rising, young people are becoming disillusioned and frustrated by being allocated jobs that do not actually need to utilise their education and skills. The population is getting harder to appease, and the discontent over the scarcity of rewarding jobs and the unequal distribution of opportunities is growing, while it is getting both financially and structurally difficult for the government to fulfill its employment obligations.
Shifting the part of the burden of employment to private sector is generally seen as a solution recipe for the problem. The patterns of reaching this goal have been more or less uniform in all GCC states and have been based around labour nationalisation, supporting entrepreneurship and widening the scope of private sector operation. Although various policies have been implemented in Kuwait to promote all three aspects, so far the success of those policies has been quite limited.
Very often the blame for the failure of labour reforms is put on the national population itself, which is deemed neither qualified enough, nor willing to work in the private sector. The present paper, however, looks at the other angle of the problem, that is – the role of Kuwait’s existing private sector and its prominent business players in the progress of labour reform policies. It is clear that there is little economic incentive for the private sector actors in Kuwait to substitute cheaper foreign workers with nationals. Thus, we argue that the unwillingness of the established business community to support national labour force, and more importantly, its ability to dodge the meaningful fulfillment of the labour policies’ requirements, is one of the major stumbling blocks for the progress of those policies.
We illustrate our argument with two policy case studies – the national labour quotas requirement and the support of small and medium enterprises. We will show that in the first case, the private sector companies utilise various means to avoid the genuine implementation of quotas. Even if they do meet the quota or even exceed it, this does not necessarily mean that they are dedicated to developing the national workforce or integrating it in business operation. This has led to the spread of ‘phantom employment’, i.e. employment of nationals without requiring them to do any work, with the sole aim to meet the quota and collect the salary subsidy from the state.
In case of the SMEs development, the government has made several attempts to encourage and support national small business, the most recent and significant of which was the launching of a 2 billion KD SMEs fund in March 2013. However, the existing and established private sector contributes relatively little to the government’s effort, not least because the business actors do not want any significant competitors to emerge. Kuwait’s inefficient predatory bureaucracy has most often been called the major factor obstructing the development of small business in the country. However, as long as the interests of the business elite players are protected and their social and financial status enables them to overcome the red tape roadblocks, they have little incentive to change the situation. Even though dealing with inefficient public sector might be costly and time-consuming for them too, it pays off by turning away new players and potential competitors, preserving the established business monopolies. Thus, the improvement of business environment, reduction of red tape and bureaucratic corruption, and promotion of the emergence of new businesses contradict the rent-seeking interests of the existing private sector. Its very elitist and monopolist nature would obstruct any policies aimed at nourishing new business players and companies.
The paper is mainly based on empirical material, which was gathered during several extensive fieldwork trips to Kuwait throughout the past year. The data was collected through multiple interviews with the representatives of Kuwaiti private sector, young entrepreneurs, members of the Parliament, officials in government bodies aimed at implementing labour policies, and members of the SME fund board of directors.