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Bahrain’s neoliberal industrial policy gets a revamp

Omar Al-Ubaydli

Published: Updated:

For over 20 years, Bahrain’s industrial policy has been guided by the neoliberal principles of the Washington Consensus, with its emphasis on the government getting out of the private sector’s way. As Bahrain thinks about life after Covid-19, the government has decided to revamp its approach to industrial policy, with the public sector now leading the charge.

The period 1960-1990 was a time of significant change in the world, but one consistent pattern was that communism was socially repressive and ineffective as a basis for economic policy. The collapse of the USSR heralded the emergence of a neoliberal political and economic paradigm, which elite economists at the International Monetary Fund and World Bank termed the “Washington Consensus” and then proceeded to implement across the world.

The paradigm’s key elements were liberalization across all spheres of economic life, including international trade, migration, capital flows, and domestic privatization and deregulation. Moreover, when it came to making strategic investments that drive the economy forward, civil servants were seen as incompetent and prone to corruption. Accordingly, innovating, exploring new sectors, and creating jobs belonged to the private sector, with the government relegated to the role of overseer and enabler.

Crucially, the experience of Asian economic superstars such as Japan, South Korea, and Taiwan, which involved a heavy dose of government-led growth policy, was considered exceptional and unrepresentative. Instead, the failed government interventions of Latin American countries and the entire communist bloc were seen as the expected outcome when the private sector’s ambitions were curtailed.

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In Bahrain, this mantra appealed to senior policymakers, resulting in the launch of Economic Vision 2030 and a wide range of neoliberal policies. Crucially, the government’s strategy explicitly prescribed a regulatory role for the government, leaving commercial decisions regarding which sectors to invest in to the private sector.

This approach yielded many positive outcomes, most notably in the telecommunications sector: Bahrain’s privatization and regulatory structure became a regional model and are a primary factor behind having one of the best digital infrastructures globally and having Amazon Web Services establish its regional headquarters in the Kingdom.

King Fahd Causeway, a bridge connecting Bahrain and Saudi Arabia. (King Fahd Causeway Authority)
King Fahd Causeway, a bridge connecting Bahrain and Saudi Arabia. (King Fahd Causeway Authority)

However, in the wake of the economic devastation wrought by the COVID-19 pandemic, Bahrain’s government has decided to modify its approach to seek a higher rate of industrial growth. Despite granting the private sector a lot of space and support during the period 2000-2020, businesses restricted themselves to cautious and incremental investments without any of the path-breaking advancements that Vision 2030 was hoping would emerge organically.

This rethinking was bolstered by changes in the intellectual paradigms underlying the Washington Consensus following the 2008 global financial crisis. During the last decade, economists have been re-analyzing the government-led success stories of South Korea and Taiwan and developing a new model that addresses the weaknesses that the 2008 crisis had exposed.

In December 2021, Bahrain launched a new industrial strategy consonant with these intellectual developments. The strategy specifies several sectors that the government and private sector will partner on, including blue and green hydrogen, fine electronics, pharmaceuticals, food products, and renewable energy. Moreover, building on the new economic paradigm, these sectors were chosen because they have high rates of innovation and involve dense forward and backward industrial linkages, which can help spur economy-wide growth.

Taken together, these efforts can be seen as an attempt to reproduce a 21st-century version of the 20th century Asian miracles. While it is too early to ascertain their likelihood of success, one cause for optimism is the adaptability and progressiveness that the policy shift represents.

Human knowledge advances perpetually, and that includes the science of industrial policy. As some of the more simplistic elements of the Washington Consensus are phased out of the best practices list for economic development and are replaced by newer maxims, the most successful governments are the ones that exhibit awareness and a willingness to adapt.

However, to maximize the returns stemming from its new industrial strategy, Bahrain’s government must publish as much data as possible regarding the plan and its outcomes. Learning from the experience of other countries is wise, but there is no substitute for learning from the experiences of your economy.

Local scholars are well-positioned to perform the requisite analysis, but they need high-quality data. Too often, government entities in Bahrain are cagey with their statistical indicators, partially caused by a culture of distrust toward the research community.

Bahrain’s new industrial strategy will inevitably need to be modified over the coming five years. Providing Bahraini economists with rich data will effectively support research and superior policy outcomes. With a progressive open data policy, the Washington Consensus’ successor might be the Manama Consensus.

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Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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