A Constitutional Monarchy that is a Free Market – The Paradox of Bahrain

Posted by: on Dec 26, 2015 | No Comments

The kingdom of Bahrain is no more than an archipelago consisting of thirty islands in the Persian Gulf. However, when it comes to liberalism of economy, it surprisingly leads most countries of the world. The 2015 Index of Economic Freedom gave it a score of 73.4, making it the 18th freest in the world and the topmost in the Middle Eastern and North African (MENA) region. It is also the fourth in Asia, after Hong Kong, Singapore, Mauritius and Taiwan, all of which are unsurprisingly small nation states, mostly islands. Therefore, considering its context, Bahrain’s commitment to having a liberal economy is truly commendable.

History of Bahrain

Bahrain is popularly known as the first post-oil economy in the Middle East. Having been one of the earliest countries to discover oil, it began to invest in banking and tourism from the late twentieth century. At that stage, Bahrain was politically a nascent state, having achieved independence from the British only in 1971. In 2002, it went on to declared itself to be a constitutional monarchy. The state has also experienced effects of the Arab Spring since early 2011, as sustained protests were led by the majority Shia population. Other than being rated one of the freest countries in the world, it is also considered to have a high Human Development Index, a marker of a successful free economy. Other than this, Bahrain is rated very highly by expatriates, as it is a country that offers high living standards, along with tax free income.

Open Markets

There are two aspects to Bahrain’s open market – one is the range of free trade agreements it has accumulated and the other, the limitations on government intervention. Bahrain has bilateral trade agreements with over forty countries such as China, France, India and the UK. It has free trade agreements with Singapore, the EFTA states (Iceland, Liechtenstein, Norway and Switzerland) and 17 Arab states. Most notably, Bahrain was the first country in the Middle East to forge a free trade agreement with the United States of America in 2004, which came to be fully implemented in 2006. The value of trade between the two countries grew from $1.1 billion in 2006, to $2 billion in 2012.

Limitations on the Government

Bahrain stands out in terms of fiscal freedom, as individual income is completely free of taxation. Most businesses are exempt from taxation as well and foreigners are allowed to be cent percent owners of businesses within the nation. The only taxes are imposed on the energy sector, with crude oil companies having to pay 46% of their total income as taxes. Other taxes include stamp tax and taxes on property purchase and it is worth noting that the overall tax revenue amounts to 4 percent of the Nation Gross Domestic Product. Bahrain’s commercial law is also fairly straightforward and company friendly. Labour reforms in the recent years have led to increased labour market flexibility and the country boasts of the highest trained human resource in the region.

Leyland B. Yeager states in his essay titled Monarchy: Friend of Liberty, published in Liberty 18 in 2004, “Constitutional monarchy cannot solve all problems of government; nothing can. But it can help. Besides lesser arguments, two main ones recommend it. First, its very existence is a reminder that democracy is not the sort of thing of which more is necessarily better; it can help promote balanced thinking. Second, by contributing continuity, diluting democracy while supporting a healthy element of it, and furthering the separation of government powers, monarchy can help protect personal liberty.”

Bahrain is a case in point for how constitutional monarchy has indeed protected and preserved personal liberty, in some ways even more efficiently than democracy has.

Leave a Reply