blomqvist brunei, traditional society versus eco development

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The endogenous state of Brunei Darussalam: The traditional society versuseconomic developmentHans C. Blomqvista

a Swedish School of Economics and Business Administration, Helsinki, Finland

To cite this Article Blomqvist, Hans C.(1998) 'The endogenous state of Brunei Darussalam: The traditional society versuseconomic development', The Pacific Review, 11: 4, 541 — 559To link to this Article: DOI: 10.1080/09512749808719271URL: http://dx.doi.org/10.1080/09512749808719271

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The Pacific Review, Vol. 11 No. 4 1998: 541-559

The endogenous state of BruneiDarussalam: the traditional societyversus economic development

Hans C. Blomqvist

Abstract Diversification of the economy has been propagated for years asthe paramount task of Brunei policy-makers. Although this is obviously asensible objective, it has proved to be a difficult goal to achieve in practice.The main thesis discussed in this paper is that economic diversification inBrunei Darussalam is not primarily an issue of economics. It is fairlyeasy to draw conclusions about what can and cannot be done from a purelyeconomic point of view. Instead, the issue appears to involve the problemof political economy. Diversification may unleash forces that would make itdifficult to preserve the status quo as far as it is outlined in the official Stateideology of the 'Malay Muslim Monarchy'. Hence the government has tobalance between the risk of alienating the indigenous Malays - whosesupport is crucial for upholding the traditional monarchy - from traditionalvalues, which could be the consequence of successful economic diversifica-tion; and the risk of creating resentment among foreigners and permanentresidents, whom the economy cannot do without.

Keywords Brunei Darussalam; political economy; economic development.

Introduction

The Sultanate of Brunei Darussalam is one of the oldest existing nations,its history going back at least 600 years, probably longer (see, e.g., Turnbull1996). For most of this period the country has been distinctly Islamic1

although the exact time of arrival of Islam is unknown. The Brunei oftoday, however, is the rump of an empire that controlled most coastaltracts of Borneo, the Sulu archipelago and the southern parts of what istoday the Philippines.2 Brunei barely escaped total extinction in the latenineteenth century by becoming a protectorate under the British. It wasa British Residency between 1906 and 1959, but was never formally acolony. (For the early history of Brunei, see, e.g., Ranjit Singh 1984:

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542 Hans C. Blomqvist

Ch. 1.) For the next twenty-five years the country enjoyed internalautonomy, resuming full independence in 1984. Brunei today comprises aland area of just under 6,000 sq. km and has a rapidly growing popula-tion of about 300,000, a considerable part of whom are non-citizens. Thelabour force numbers only 112,000 (according to official census figuresfrom 1991) of which at least one-third3 are foreign, non-permanent resi-dents (Borneo Bulletin 1997; Doshi and Blomqvist 1996). Despite thedominance of the Malay culture Brunei is a multicultural society, wheretwo-thirds of the population are Brunei Malay, about 20 per cent areethnic Chinese and another 6 per cent consists of various tribal groups(Doshi and Blomqvist 1996).

Oil became the mainstay of the economy in the 1930s and the oil-extracting industry is still very dominating economically, despite attemptsat diversifying the industrial structure. Due to oil and gas exports theincome level in Brunei is high, on average, especially that of Brunei citi-zens and as compared to other countries in the region. Politically, thecountry is an absolute monarchy (a traditional Islamic sultanate) with verylittle popular influence on the decision-making processes of the publicsector. Despite the authoritarian nature of the regime, it gives the impres-sion of being benevolent and developmental, however, even if it mayappear somewhat restrictive as far as acceptable social behaviour isconcerned.

Much recent discussion on the mechanisms of economic developmenthas evolved around the role of the state in the development process.Historically, the general attitude towards the state as an agent of changehas varied considerably. During the first few decades after the SecondWorld War there was near-consensus about the importance of state inter-vention. The consequence was heavy emphasis on government regulation,including extensive regulations of the foreign transactions of the economyaiming at import-substituting industrialization. Eventually, however, boththeoretical analysis and empirical experience made clear the shortcom-ings of that strategy. Instead, the concept of the 'minimalist' governmentand market-led development became the model preferred by manyscholars and international agencies.

Recently the tide seems to have turned once more. The reasons for thisare twofold. One is the theoretical development along the lines of the'new political economy' and 'institutional economies', which emphasizethe importance of proper social institutions for the smooth working of amarket economy. The other one is recent empirical evidence, particularlyfrom East Asia and the transitional economies. On the one hand, few ofthe dynamic East Asian countries can be considered good examples ofthe laissez-faire type of state. On the contrary, many of them have inter-vened heavily in the working of the economy. Some of them even seemto have assumed the role of an entrepreneur themselves (Yu 1997). Onthe other hand, the development of many of the new market economies


The endogenous state of Brunei Darussalam 543

of East Europe and Central Asia - where the state has been weak andnon-interventionist - has been less than encouraging. Hence, thereappeared to be a role for a 'strong' state after all.

The basic view taken in this paper is that the puzzling results as to theusefulness of state interventionism may be due to an analytical flaw. Thetraditional discussion on the role of the state gives the impression thatthe state is developmental a priori but does not necessarily know exactlywhat to do in order to achieve development. Alternatively, the stateappears to be too weak to carry out the purportedly good intentions ofthe leaders (cf., e.g., World Bank 1997: 2-3). Much of the relevant discus-sion starts out from this traditional view that regards the state as an exo-genous but benevolent agent and a monolith that intervenes in theeconomy in order to improve the working of the economy in the face ofmarket failures and to achieve commendable social goals.

While this view may not be entirely misleading, it is somewhat naive.According to the 'new political economy' rulers, politicians and civilservants cannot, in their public role, be assumed to behave differentlyfrom individuals in general. Thus they can be expected to include theirself-interest as a variable pertaining to the decisions they make. This funda-mental insight changes completely the approach that has to be taken whenthe role of the state is evaluated, notwithstanding that it is hardly justi-fied to deny that altruism and benevolence may play an important rolein the decision-makers' approach to their work. The state apparatus is,according to this approach, a nexus of different and often diverging inter-ests, and the basic benevolent stance cannot be taken for granted either.Hence, the real problem may not be what to do to promote developmentbut how to create the type of economic (and possibly other) incentivesfor the political elite that are conducive to development. This may beextremely difficult since the incentives may be determined by institutionsthat have evolved over long periods of time. In this paper the develop-ment problem of Brunei is discussed both from a traditional point of viewand considering the implications of the political economy of the country.The basic conclusion of the paper is that most problems appear to be inthe latter realm.

The development problem of Brunei Darussalam

The economic situation of Brunei is difficult to analyse in terms of theaverage developing country. As a matter of fact, it is questionable whetherthe country can be regarded as a developing country proper at all. Thefact is that it scores very highly on most indicators of development, asevident from Table I.4

Instead, the problem is the viability of the economy and indeed thewhole national unit in the long run.5 The oil reserves will last for an esti-mated period of some thirty more years, the gas reserves for somewhat



Table 1 Development indicators for Brunei

Indicator

GNP per capita, US$Literacy, %Infant mortality rate

(per 1,000 live births)Life expectancy at birth

Brunei

20,40088

875

Darussalama

Upper middle-incomecountries,11 average

4,26086

3569

Sources: Asiaweek (1997); World Bank (1997).

Notes:a Figures are the latest available; hence, the year may vary slightly for different statistics.b According to the World Bank's definition.

longer (see, e.g., Far Eastern Economic Review 1997: 93), but since theprice development of hydrocarbons recently has been stagnating it isuncertain for how long the oil sector can remain a reliable engine of theeconomy. In fact, Brunei has already been one of the slowest growingeconomies of the region throughout the 1980s and 1990s and the fluctu-ating oil prices introduce an element of volatility in the economic devel-opment. The trade surplus has been on the decline since 1980 due tofalling export income and increasing imports that is a consequence of aninsignificant domestic supply of manufactures (AH 1997). Manufacturing,but also agriculture, are rather undeveloped - taken together they produceonly about 5 per cent of the GDP - while the service sector is indirectlypropelled by the hydrocarbon industry to a great extent (cf. Cleary andWong 1994: 141; EIU 1997).

The government of Brunei has stressed the need for diversification ofthe economy for at least the last thirty years,6 but with moderate successso far. It is true that employment in the private sector7 has doubledbetween 1983 and 1993 (Government of Brunei 1996). In 1992, 76 percent of the labour force in the private sector were foreigners, however(Borneo Bulletin 1997). The share of the oil sector has also comedown over the years, from 88 per cent in 1974 to 50 per cent in 1996(Ali 1997; EIU 1997), but the decline is partly a consequence of fallingoil prices and a lower rate of exploitation of the hydrocarbon reserves.Oil and gas still make up 97 per cent of the country's export earnings(EIU 1997).

The non-oil sector, in turn, is dominated by the public sector, whichcomprises over 20 per cent of the GDP (cf. Ali 1997). Moreover, the in-direct effect of the public sector, particularly on the construction industrybut also other private activities, is decisive. Hence, cutting down thepublic sector would affect parts of the private sector severely through anegative multiplier effect. In a nutshell, then, the oil sector drives the



government which, in turn, drives the rest of the private sector. Theinherent degree of dynamism of the latter appears to be low.

As to diversification, the emphasis was earlier on agricultural and indus-trial development. Later the service industries, such as financial services,transport and tourism, have attracted much attention as well. The apparentdilemma for the state is that the hydrocarbon wealth in itself is an obstacleto the diversification of the economy deemed necessary by the govern-ment.8 The export income keeps the exchange rate high and puts a pressureon production costs and prices in the non-tradables sector (a phenomenonknown as the 'Dutch disease'). This, in turn, militates against success-ful industrialization (Blomqvist 1993). Despite considerable efforts, theagricultural sector has remained small as well. The government's aim atself-sufficiency in food production has not materialized, although somelimited progress has been achieved. Fisheries remain rather undevelopedas well despite considerable potential and recent attempts at fish andprawn breeding (Borneo Bulletin, 3 April, 13 May and 10 November 1997).Thus, despite government incentives and massive monetary outlays, theresults of the diversification campaign have not been very impressive.

As for available alternatives, import-substituting industrialization is outof the question since Brunei has insignificant trade barriers and takes anactive part in the formation of an ASEAN Free Trade Area (AFTA).Hence, only internationally competitive production can be established inthe country but the restrictions on both the demand and supply sidesappear to curb the efforts. The small population and labour force implya low level of domestic demand and relatively high wage rates, makinglabour-intensive manufacturing unattractive.9

While the demand constraint can be overcome easier than before dueto an increasingly open trade regime in the region and while the labourconstraint can be alleviated through immigration10 the latter problemremains as a large influx of foreign labour would easily change the popu-lation structure and call Brunei's national identity into question. Moreover,the country is heavily dependent on foreign labour already - some 40 percent of the labour force comprises foreign non-permanent residents - andthis dependence concerns professionals as well as skilled and unskilledlabour. In particular, entrepreneurial skills are in short supply.

A cornerstone of the official manpower policy is 'Bruneization', encour-aging substitution of Brunei citizens for foreigners wherever possible. Inthe same vein, the government seeks to encourage a more prominent roleof bumiputra businessmen (see, e.g., Saunders 1997), but the private busi-ness community is still dominated by local Chinese who are seldomallowed to become Brunei citizens. Due to rising unemployment amongBruneians,11 the government is now more restrictive as to employmentpermits for foreigners than it used to be.

Foreign direct investment has been limited12 in Brunei, too, despiteincentives schemes. Apart from the difficulties mentioned already,



availability of land on long-term lease has been very limited (Clearyand Wong 1994: 118) which makes long-run commitment difficult.Foreign investors have also perceived the business environment in Bruneias difficult because of the alleged lack of transparency of governmentmeasures and regulations and rather high operational cost (cf. EIU 1997;Thambipillai and Hamzah 1995). Moreover, there are occasionalcomplaints of the public administration not being 'business-friendly', indi-cating that the bureaucratic delays are sometimes a problem. The govern-ment has had some moderate success in attracting one particular type ofproduction facilities, garment factories, to the country, though.13 Garmentsare now the second most important export item, but, with an export valueof B$65.5 million in 1996, falls far behind the hydrocarbons and adds littleto the domestic value-added.

More skill-intensive production, in turn, is met by supply restrictions asthe pool of skilled workers and professionals is quite limited. This is animpeding factor not only for hi-tech industries but for capital-intensiveproduction as well, since the limited workforce in such industries must befairly highly qualified. The government has invested heavily in educationby establishing a university (in 1985), a technical institute and severalvocational schools. Many Bruneians study abroad as well.14 Hence, thegeneral level of education is not low in Brunei. Rather the preferred choiceof study of those enrolled may be less than ideal from an economic pointof view.15 Moreover, the quality of the education system has been subjectto complaints too (Ali 1997; Minnis 1997; Thambipillai and Hamzah 1995).

The problem of human capital is aggravated further by the fact thatBrunei has posed itself as the Service Hub of Trade and Tourism (SHuTT),in the region by the year 2003, central to the recently established Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) (EIU 1997; Ministry of Communications 1997). Since Brunei iscentrally located in the BIMP-EAGA region and has a good infrastruc-ture in transport and communications to begin with, the country seemswell placed to take such a position. (The problem here is rather theviability of BIMP-EAGA itself as there is no strong economic centre topropel the region.) An older idea, still propagated, is to develop Bruneiinto a regional financial centre. A major effort towards developing thehuman resources of the country is imperative to achieve even part ofthese goals.

The hydrocarbon wealth is a drag factor for economic development alsothrough distorting the incentives for the indigenous labour force. The well-paid and often less than stressful government jobs tend to keep Bruneicitizens away from the private sector, particularly as wages in the manu-facturing industry are much lower than the national average (Cleary andWong 1994: 116).16 The high income of the government has allowed thegovernment apparatus to grow undisturbed by financial constraints. Withemployment of over 40,000 (some 40 per cent of the labour force) and a



shaie of employment of local labour of approximately 70 per cent17

(Ali 1997; Borneo Bulletin 1997), it is clear that the government sectoris overstaffed and inefficient (despite the fact that the lack of scaleeconomies and quite ambitious social objectives of the government canbe expected to result in a relatively large public sector). In fact, one some-times gets the impression that a smaller administration could get moredone, through cutting down unnecessary bureaucracy that indirectly mayhamper attempts at developing the private non-oil sector. The attractiveprospect of appointment in the civil service may also affect the incentivesfor Brunei Malays to invest in education (cf. Minnis 1997). As noted byTisdell (1997), however, government employment is a major vehicle fordistributing income from the extraction of hydrocarbon reserves. Even ifit may be quite a cost-effective way towards that end, it is an importantobstacle to diversification.

As a result of a long period of current account surpluses Brunei has noexternal debt and very large foreign reserves (at least US$30 billion - theestimates vary widely) invested all around the world. A rough calculationshows that these assets alone would be sufficient to feed all Brunei citizenscomfortably without having to work at all (cf. Tisdell 1997). In fact, govern-ment employment may sometimes imply little more than nominal oblig-ations. The question is thus not so much about the livelihood of theBruneians but rather what idleness would do to morale and social values(cf. Cleary and Wong 1994: 137).

As it is, Brunei has been characterized as a 'rentier state' (Gunn 1993).Already there are complaints in the local media about social problemssuch as drug abuse, domestic violence and vandalism (see also Cleary andFrancis 1994). Furthermore, the division between citizens and those resi-dents - permanent and temporary - that would still be necessary to runthe service industries would be still more conspicuous than it is today. Allin all the situation resulting from taking the rentier position to its extremewould almost certainly create a dangerous social and political situation.While Islam is regarded as the foremost means for instilling social order,it is uncertain whether religion alone can fulfil this purpose.

The discussion above suggests that Brunei should not neglect diversifi-cation (as indeed it has not done), but as an extremely capital-abundantcountry the emphasis should be placed on capital-intensive productionwith limited need for skilled labour. (This strategy has been pursued inthe oil sector already, as the country has an oil refinery and a plant forliquefying natural gas.) It would probably be necessary to facilitate landtenure arrangements, however, to create an attractive environment forindustrial investment, even if the industrial estates, set up by the govern-ment, may be useful in this respect. Service industries that need solidinfrastructure and limited numbers of skilled labour and managementresources, such as ports and airports, are likely to be feasible as well. Thegovernment has lately successfully privatized some public services, such



as port and telecommunication services as well as some services at theairport (Naimah 1996).

Another obvious possibility is developing tourism, particularly, eco-tourism, since Brunei can offer a relatively unspoilt environment due toa strict conservation policy.18 Brunei's strategic location makes it thenatural gateway to the East ASEAN region, but the authorities wouldalso like more tourists to stay in the country (Saunders 1997). Even highereducation, implying an expansion of the University of Brunei Darussalamfrom the present 1,300 students and admitting paying foreign students,would be a possible option for diversification, since key staff can berecruited from overseas and Bruneians sent to foreign universities inthe short run in order to build up a critical mass of academic staff. Infact, due to scale economies, the number of students could probably beincreased immediately from the present 1,300. Among them is already alimited number of ASEAN students on scholarships from the Bruneigovernment (Saunders 1997). All this fits in well with the notion of SHuTTand appears to be a field where Brunei has comparative advantages in aregional context. An objection may be, however, that large numbers offoreign students may convey undesired values and customs to the locals.The same objection may be raised against educating Bruneian lecturersoverseas, too.

The proposal, mooted in the Fifth National Development Plan(1986-90), to develop Brunei into an international finance centre is alsoheavily dependent on availability of skilled personnel. Even if the countryis actually able to provide capital and some expertise in financial marketsthis idea has proved difficult to realize due, first, to the competition fromother regional centres. One of them is the Malaysian island of Labuan,situated right off the coast of Brunei. Second, qualified manpower is sofar extremely scarce and the financial markets of the country are almostnon-existent as most interbank transactions take place in Singapore. Third,the supervision and control system of the financial sector apparently needto be strengthened, although some steps towards this have been taken.Developing a centre of the tax haven type would, in turn, require majorchanges of economic legislation (Ali 1997).

As the preceding discussion shows, it is possible, in principle, to envisageways for Brunei to overcome its economic lopsidedness. What we main-tain in this article is that the real dilemma is not an economic one. Insteadthe political economy of the country with the restrictions imposed byexisting institutions is in the core of the problem. This is the case not leastbecause the relevant institutions are difficult to change and becausechanges may jeopardize the whole character and legitimacy of the state.To see this we have to analyse the character of the state of Brunei.



Types of state

To be able to consider that nature of the Brunei state we employ as astarting point a modified version of a classification proposed by DeepakLai and Hla Myint (1996: 260-73). Lai and Myint distinguish betweenautonomous and factional states. The former category is a state whichhas objectives of its own, independently of those of the citizens. Theautonomous state is also independent19 from pressure groups and otherrent-seeking activities, but also from public opinion at large. The factionalstate, in turn, is an instrument for special interest groups, which may bedenned according to ethnic, political or economic lines, or a combinationof those. Sometimes the factional state is a vehicle for balancing differentspecial interest groups against each other.

The state can also be classified according to its 'benevolence', that iswhether it strives at developing the country or not. The overriding goalof a benevolent state is to maximize the welfare of the citizens, while itsopposite, the predatory state, aims at maximizing the welfare of those incharge of the state apparatus.

This simple typology obviously gives four main categories of state, asillustrated in Figure 1. Actually existing types of state has been introducedinto these categories in the figure, without the ambition of providing acomplete picture. Since many systems have traits resembling severalof the categories, the boundaries between the four categories have occa-sionally been crossed.

The 'guardian' state is benevolent, aiming at maximizing the welfare ofits citizens. As stressed by Lai and Myint (1996: 261), referring to Arrow

Benevolent

Predatory

Autonomous

cC 'Guardian state'

(Brunei

^

Q Absolutist

/^Bureaucratic-^•^authoritarian

• — • — —

Factional

Parliamentary democracy)

( Oligarchic j

Figure 1 Types of state.



(1963), the social welfare function cannot be deduced with democraticprocedures, however. Thus the guardian state is not likely to be demo-cratic. There may be a need to balance between different factions andtherefore the realm of the guardian state is assumed in the figure to reachacross the border to the factional state.

The autonomous predatory state can be of two types, according to Laiand Myint. On the one hand, there is the absolutist state, where the stateis basically equal to one ruler and the ultimate objective of the state isto maximize the welfare of this ruler. Through history, this type of rulerhas appeared in the shape of kings, emperors, dictators or colonial powers.On the other hand, there is the bureaucratic-authoritarian type of state,where the power is wielded by a single party, an ethnic group or adher-ents to a certain religion. According to Lai and Myint (1996: 262) mostcommunist regimes belonged to this category but so do multicultural coun-tries that are dominated by one ethnic group. The 'business idea' of sucha state is favouring the ruling group, usually through expanding the publicsector. In this case the realm of the state reaches across to the side offactional state - although the volatility of a 'pure' factional state is notthere - since the power holders have to face a challenge from non-favouredgroups.

The factional state is biased in the sense that it serves the interests ofthe group, or coalition of groups, that has succeeded in capturing it for ashorter or longer period (Lai and Myint 1996:269). The difference betweendifferent types of factional states depends, to a great extent, on how thestate is actually captured. One way is, of course, parliamentary democracy.It seems reasonable to assume that a democracy is relatively benevolent,not by nature but because attempts to behave otherwise would be checkedthrough general elections. A democratic system is also, as a rule, moretransparent than other systems due to a freer flow of information. A demo-cratic state may still favour certain special interests, however, providedthat it can get away with it without being thrown out of power. In thiscontext the technique of obfuscation may be useful (see, e.g., Danielsonand Lundahl 1994). This implies that the government tries to conceal itsultimate goals. (The government, for instance, 'protects jobs' instead ofcreating rents for owners of uncompetitive firms.)

The other possibility is that the state is captured by a clique or oligarchywhich is usually small relative to the population as a whole, but able tohold on to power at least for some time due to superior wealth or accessto coercive instruments. Military juntas are an example of this type ofstate and so are countries dominated by a landed oligarchy. Even if it isconceivable that this type of regime may take a benevolent, paternalisticview, it is much more likely that it would be predatory. There is little tokeep the self-interest of the power holders in check in this case. Moreover,this type of state is frequently unstable (like the military regimes of LatinAmerican countries and, for example, Thailand of the past), and different



groups take turns at power without much change in policies actuallypursued. This set-up contributes strongly to a short time perspective ofthe government, which may exacerbate the predatory traits of the govern-ment.20 In Figure 1 the realm of this type of state reaches across the borderfrom the predatory to the benevolent category.

Next, an attempt will be made to identify the position of Brunei interms of Figure 1.

The state institutions of Brunei

The organization of the state apparatus and its institutions ('rules of thegame') in Brunei balance uneasily between a model imposed by the formerprotector, Britain, and spelt out in the Constitution of 1959, and the ancientfeudal model of government inherited from past centuries. The formerimplies a traditional 'Western' division of power between the legislative,executive and judicial arms of the government. The latter refers to a modelwhere the Sultan is formally an absolute- ruler but exercises part of hispower through nobles and where the actual division of power could vary,depending primarily on the economic strength of those parties. The presentregime is characterized by the absolute power of the Sultan despite the'Western' structure of the government - probably more so than beforethe British parenthesis (cf., e.g., Ranjit Singh 1984: 25). When assessingthe development prospects of Brunei, this characteristic should be takeninto account. Many of Brunei's neighbours also have more or less author-itarian traits, which sometimes have been invoked as a reason for theirsuccessful development, but as emphasized by AH (1997), the Brunei typeof authoritarianism is quite different from that of neighbouring 'newlyindustrialized economies' (NIEs).

The executive branch of government consists of a cabinet (see, e.g.,Cleary and Wong 1994: 31-2) in addition to which there is a ReligiousCouncil, a Privy Council (advises on constitutional matters) and a Councilof Succession. In reality, however, the Sultan reigns supreme. Except beingthe head of state (Yang Di-Pertuan) and the religion, the Sultan also holdsthe positions of prime minister, minister of finance and minister of defence.The rest of the cabinet is filled by the Sultan's younger brother as foreignminister and representatives of the core nobility, all hand-picked by theruler. The members of the councils mentioned above are appointed directlyby the Sultan as well. The ministers and senior officials are thus advisersto and clients of the ultimate decision-maker, the Sultan, instead of beingindependent power wielders. A consequence of this is frequently a lackof coordination between different authorities and, generally, a slow andcautious decision-making process (cf. Ali 1997; Cleary and Wong 1994:90f., 129).

The legislature, according to the constitution, consists of a partly electedLegislative Council. Elections were held in 1962 but after an abortive coup



the council was dissolved and a state of emergency was declared and hassubsequently been renewed regularly, being still in force (see Ranjit Singh1984: 172-7). New elections were held in 1965 but the legislature wassubsequently changed into an appointed body and was suspended alto-gether on independence in 1984 (EIU 1994; Ranjit Singh 1984: 209-10).Legislation is now enacted through royal decree. Major policy initiativesare usually first announced in royal addresses, Utah (proclamations).

The judicial system, finally, is based on common law of the British type,but Islamic (Syariah) law has increasingly made inroads into the system(Case 1997; Cleary and Francis 1994; Cleary and Wong 1994: 127).Although the legal system is autonomous in a technical sense,21 itsautonomy may be relative due to the fact that the Supreme Court, theChief Justice and the judges are sworn in by the Sultan for a three-yearperiod at a time (CIA 1997). Detentions without trial have taken placeunder the provisions of the Internal Security Act.

Hence, democratic institutions are virtually non-existent, if the term isinterpreted in the 'Western' way, the main exception being the lowest levelof local administration, where the village head-men are elected. Politicalparties have been allowed, although very selectively, but the lack of realpolitical influence has frustrated all attempts at activating a political discus-sion. Presently, the only party permitted is dormant but some signs ofpolitical dissent surface from time to time (cf. Cleary and Francis 1994).Although the present system is temporary by nature (due to emergencyrule), it is uncertain whether any plans to reintroduce such institutionsexist. As to possible changes to this state of affairs, a committee wasassigned in 1994 to oversee the constitution (Thambipillai and Hamzah1995), but so far no information on any major changes of the system isavailable.

The lack of elected government bodies notwithstanding, the officialpolicy is to stress the importance of accessibility of the Sultan himself aswell as ministers and government officials and their duty to serve thepeople and attend to their problems, a kind of traditional Malay-Muslimform of democracy. Consultative councils have also been set up at themukim (subdistrict) and kampong (village) levels which facilitate inter-action between the government and the 'grassroots' {Borneo Bulletin,6 October 1997; Brunei Darussalam News Digest 1996; Mani 1993). TheSultan himself travels extensively, meets with people and allows them toair their grievances.

The overall impression of the Brunei government - despite its author-itarian character - is one of benevolence. Because of the high incomefrom oil and gas exploitation the government has been able to builda comprehensive welfare system unique to the region, although fullbenefits are limited to citizens. Education and healthcare are free and,additionally, the government has contributed generously to housingand transport by providing loans at favourable terms. Recently, public



transport has been developed as well;22 the infrastructure is largely of highquality.23 As mentioned before, even public employment can be seen asa way of effecting income transfers to the people.

While the abundant wealth of the country tends to conceal possiblepredatory traits, it is inevitable that an absolute monarchy of the type weobserve in Brunei implies great difficulties in separating the assets andincome of the state from those of the ruler, despite the fact that the author-ities insist that there is a strict line between the two. It would certainlybe unfair to use the characteristic 'predatory' in the strict sense of theword in this context. Corruption, for instance, rampant in most predatorystates, does not seem to be a major problem in Brunei. The immensewealth of the Sultan24 and the royal family is a well-known fact, however;indeed this is the only thing most people overseas know about Brunei! Itis also obvious that the overriding objective of the state of Brunei ispreserving the position and power of the Sultan. Arguably, all other objec-tives are subjugated to this one, with consequences for what developmentstrategies are feasible.

Although the state of Brunei is strong and clearly autonomous, thereis a factional trait in that it relies heavily on the Brunei Malay group asits base of legitimacy and, simultaneously, functions as an agent for theinterest of this ethnic group. Other parts of the population are kept outof the national core either by being denied citizenship (mainly the Chinese)or being disadvantaged in other ways (indigenous non-Muslim groups).In addition, there are the large numbers of foreign workers and profes-sionals who work on short-term contracts. Of course, in this case the'faction' is large - in fact it comprises the majority of the population -and quite stable.

With this background Brunei's position in Figure 1 can be assessed.First, Brunei is obviously predominantly an autonomous and benevolentstate. However, there are some features that may cause the state to reachslightly across the boundaries to the predatory and factional types of state,respectively. Hence, the state of Brunei was located at the crossing of thetwo border lines in Figure 1.

Malay Islam monarchy and the political economy of Brunei

Like many other authoritarian governments, Brunei relies on a 'stateideology,' in this case named MIB (Melayu Islam Beraja or Malay IslamicMonarchy). According to the Brunei Yearbook, 'The MIB concept can beformalized as a concept which upholds Islamic values based on the Quranand Hadith as the basis of all activities concerning the racial necessity,language, Malay culture and the monarchy institution as the governingsystem and administration of Brunei Darussalam' (Borneo Bulletin 1996).MIB has been the official ideology of Brunei since independence only,but its roots extend centuries back in time.25 In its present form the concept



functions as an instrument for upholding the traditional style of govern-ment as well as the traditional culture and lifestyle of Brunei.

Put somewhat differently, the overriding objective of the political eliteof Brunei is clearly to uphold the traditional monarchy, and as a meansfor this, preserving the ancient cultural and religious values is paramount.Hence, the position of the Sultan is central in the ideology since he hasa double role as head of state and religious leader. The latter role hasbeen taken seriously, apparently increasingly so, by the present Sultan. In1994, for instance, the State Mufti (senior religious official) was put underthe direct control of the Sultan instead of the Ministry of Religious Affairs(Naimah 1996). To make sure that the ideology is disseminated properly,it is taught in the schools as a compulsory subject. Religion is sometimesalso invoked in rather mundane contexts, such as recently when improvingpublic transport was presented as a 'religious duty' by the PermanentSecretary at the Ministry of Communications (Borneo Bulletin, 21 April1997).

Put cynically, the advantage of ideology is allegedly (cf., e.g., Lundahl1997) that it is a cheap way (compared to employing force) of persuadingthe citizens to behave in a way they would not do otherwise. It may alsobe maintained that the ample resources of the government for grantingsocial benefits have provided the necessary sugar coating for a pill thatotherwise may not have been swallowed that easily (cf. Dao 1996). Again,things are somewhat more complicated in Brunei. On the one hand, theideology is certainly a vehicle for propping up the present regime.Although purported to be a uniting force among the Malay Muslims, italso provides an instrument for suppressing demands for greater popularparticipation in the decision-making of the state.26 Hence, it may contributeto creating tensions within the Malay community although it provides thiscommunity a privileged position compared to other groups in Bruneisociety. On the other hand, the fact that Brunei is a distinctly Malay,Islamic sultanate can be seen as the very base of legitimacy for the regimeand the specific features that justify the existence of Brunei as a separatecountry (Blomqvist 1993). (It may be added that the present Sultan is thetwenty-ninth of his dynasty.) The MIB ideology can also be regarded asa device for controlling (unwelcome) external influences, both from'Western' culture and from deviationist Islamic teachings, and reigning inthe social pressure stemming from economic development (Siddique 1992;see also Borneo Bulletin 1996 and Naimah 1996). For the ruling elite itis obviously crucial that economic development does not lead to erosionof traditional values, since this would jeopardize the viability of the wholepolitical system and, perhaps, Brunei's survival in the long run as an inde-pendent country.

It is now easy to draw the conclusion that the MIB ideology, thoughexpected to function as a factor promoting coherence within the Malay-Muslim community, is also the key to the political economy of the country



as well as to the dilemmas that have been experienced in diversifying theeconomy. On the one hand, successful diversification would be a factorcontributing strongly to the legitimacy of the present rule. On the otherhand, the position of the ruler is the centrepiece of the ideology, and islikely to take precedence before all other goals, and to uphold this posi-tion it is necessary to rely on the Malay-Muslim community as support.To secure this support, however, ideology is not enough but it is neces-sary for the ruler to favour this group economically and otherwise beforeall other residents. Support may be more costly for an autocratic regimethan a democratic one, however. In the case of Brunei, money in itself isnot a problem, due to the high income of the state emanating fromexploitation of hydrocarbon reserves, but securing support in this way maybe at the cost of militating against the objective of diversification, as theeconomic incentives for the indigenous population to go into businesswould remain low and the prospects for recruiting foreign professionalsand skilled workers may be negatively affected as well due to unequaltreatment.27 The growth of an indigenous pool of entrepreneurs also seemsto be impeded by the dominance of certain groups (including the royalfamily).28 Bruneians are reluctant to look for employment in the privatesector, especially at the low end of the labour market, even though theyare encouraged to do so.29

Diversification of the economy would require that more resources,including a wide spectrum of manpower, are available to the private sector.The perceived risk with education of the domestic labour force isincreasing exposition to foreign ideas, and although foreign workers canusually be made available, it is far from certain whether the governmentwould allow their numbers to increase very much more due to securityreasons. From the government's point of view, the problem with even amoderate absolute increase in the inflow of foreigners would arguably bethat the citizens could be outnumbered, which, given that the citizens haveconsiderable privileges, could jeopardize the stability of society. Tensionscould easily be aggravated if non-Muslims, to an increasing extent, areexpected to conduct themselves according to the rules of Islam, a tendencythat seems to have been present for some time in Brunei despite a gener-ally liberal attitude towards other religions and cultures.30

Conclusions

The need for diversification of the economy is regularly presented as themajor challenge to the country for the twenty-first century. In this articleit has been argued that the livelihood of Bruneians is not dependent onsuccessful diversification, although it certainly would facilitate achievinga still higher standard of living. The main thesis propounded in this paperwas, however, that the problem of diversification is not primarily one ofeconomics. It is fairly easy to draw conclusions about what can be done



from a purely economic point of view. Instead, the problem appears tobe one of political economy. Although the state of Brunei is basicallybenevolent, the problem is, on the one hand, that diversification mayunleash forces that may make it difficult to preserve the status quo as faras it is outlined in the official state ideology, Malay Muslim Monarchy.Hence, the government apparently has to tread carefully balancing therisk of alienating the indigenous Malays, who are crucial for upholdingthe monarchy, from traditional cultural and religious values, which couldeasily be the consequence of successful economic diversification, andcreating resentment among the foreigners and permanent residents, whomthe economy cannot do without. Additionally, the lack of popular repre-sentation in the government bodies may create problems both with andwithout diversification but is likely to be easier to handle the more insu-lated the economy is.

Acknowledgements

I am grateful for the comments of an anonymous referee. Remainingerrors and deficiencies are, of course, my responsibility.

Notes1 The Bruneians are Sunni Muslims of the Shaffiite school (Ali 1997).2 It is slightly misleading to define the ancient state of Brunei in terms of 'terri-

tory'. No precise borders existed, but the rulers of Brunei, often through localnobles or vassals, exerted loose control of trading posts, coastal areas andwaterways into the hinterland. For more details on the land tenure system,see Ranjit Singh (1984: 26-7).

3 The figure excludes maids and illegal workers. According to Thambipillai andHamzah (1995) the correct number could be between 70,000 and 90,000;according to other sources (e.g. Saunders 1997) as many as 100,000.

4 The reader should be alerted to the fact that statistical figures for Brunei some-times are unreliable, as different sources often give widely diverging estimates,or as only outdated figures sometimes are available. This problem is unlikelyto affect the main line of argument in this paper, however.

5 In fact, it is rather likely that Brunei would have been a Malaysian statetoday were it not for its hydrocarbon reserves (cf. Cleary and Wong 1994:26f.).

6 Diversification as a planning goal seems to have appeared explicitly for thefirst time in the Second National Development Plan (1962-66) (Cleary andWong 1994: 81).

7 The hydrocarbon sector is included here but this industry employs few peopledirectly, just over 4,000 (Government of Brunei 1996).

8 For instance, the Fifth National Development Plan (1986-90) stated a targetshare for the non-oil of 30 per cent of exports by the end of this century, atarget that now seems to be completely unrealistic (cf. Blomqvist 1993).

9 Paradoxically, the rate of unemployment has been on the increase. This unem-ployment is structural by nature, reflecting misfit on the labour market and a



strong preference for public employment among Brunei citizens (Cleary andWong 1994: 96-7).

10 The labour shortage has been alleviated to some extent by a rising participa-tion rate of women in the labour force (cf. Cleary and Wong 1994: 117).The importance of women's participation in the economy has recently beenemphasized officially (e.g., Borneo Bulletin, 22 October 1997). In 1991 theparticipation rate of women was 48 per cent, a high figure for an Islamiccountry. Some interest has been shown by the authorities in developing entre-preneurial skills of women (Cleary and Francis 1994).

11 Official youth unemployment numbers about 6,000 (Ali 1997), a staggeringfigure for a country with a total labour force of 112,000.

12 FDI inflows were US$7 and 9 million in 1995 and 1996, respectively (UnitedNations 1997: 306).

13 The main reason for this is the trade barriers and quotas in the internationaltrade in the garment industry, which are heavily based on rules of origin(cf. Case 1997 and Thambipillai and Hamzah 1995).

14 The brain drain resulting from students going overseas has been a drawbackand apparently worries the authorities (Borneo Bulletin, 19 August 1997).

15 The students seem to have a preference for 'soft' options avoiding mathe-matics and science (Ali 1997; Minnis 1997).

16 The government has tried to encourage private employment by freezing salariesin the public sector, but the wage difference remains. Generous fringe benefitsin the government sector make a difference, too (Ali 1997; Cleary and Wong1994: 119). A pension system (provident fund) applicable also to employeesin the private sector (but excluding migrant labour) is being developed inorder to overcome part of this difference (EIU 1994; Mani 1993).

17 No exact figure is available on this.18 The rain forest in Brunei is relatively untouched since there has been no need

for exploitation for economic reasons; 60 per cent of the country is coveredby primary forest (EIU 1994).

19 'Independence' is, of course, a relative concept in that the government, inorder to stay in power, has to perform satisfactorily enough to secure suffi-cient support. This support may come through repression, though.

20 This is because a clique - as well as the public - benefits from economic devel-opment if it can afford to take the long view. If it cannot, the optimal strategymay be of the hit-and-run type, i.e. it pays to grab as much as possible as soonas possible, regardless of the costs imposed on society.

21 In fact, judges used to be appointed from Hong Kong in order to secure acertain independence from the local community. Although this practice hasnow been abolished foreign judges are still commonplace.

22 In order to ease the problems with traffic congestion due to the widespreadownership of motor cars, the taxes on cars have recently been increased verysubstantially, and efforts to substitute bus and taxi transport for private carshave been made.

23 Sometimes the quality of service is less than adequate, however (cf. Ali 1997).24 The Sultan is frequently mentioned as 'the richest man in the world'.25 It is actually emphasized that the MIB concept has been practised in Brunei

ever since its ruler first converted to Islam (this probably happened in theearly fifteenth century) and adopted the name Sultan Muhammad (BorneoBulletin 1996).

26 The validity of such demands is indicated by the fact that political parties havebeen able to recruit members very easily despite the fact that establishmentof such parties has been allowed only occasionally and those that have beenallowed have been very pro-government.



27 For instance, there have recently been complaints in the local newspapersabout individuals who have not been granted citizenship although they mayhave been born in the country (see, e.g., Borneo Bulletin, 8 October 1997).

28 This was pointed out to me by an anonymous referee.29 Even if they did, employers may prefer foreign labour, partly because

foreigners reputedly work harder and partly perhaps because foreigners maybe more docile.

30 Sometimes these tendencies seem contradictory, however, as in the case of theSultan's fiftieth birthday in 1996 that was celebrated with, among other things,a free concert by American popular singer, Michael Jackson! Similarly, thesinger Whitney Houston gave a free concert to celebrate the wedding in thesame year of one of the Sultan's daughters.

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