The House of Saud tries to modernize (at last)
Brian M Downing
Saudi Arabia has announced bold economic moves. Weeks ago Riyadh floated the idea of selling shares in its oil industry to shore up cash reserves, and more recently it announced an ambitious program of building an industrial base. This, the Saudis hope, will diversify the economy and provide jobs for the large and restive youth cohort.
Defense industries will constitute the center of the new industry. It is hoped that they will reduce dependence on western arms industries and find ready longterm purchasers from other Sunni states. Fellow Gulf states are obvious potential buyers, but so are other states already in the Saudi sphere, including Egypt and Pakistan – both of which have large armies.
Why are the Saudis embarking on this project? What good is likely to come? And what problems might come?
Why late?
Saudi Arabia has been flush with cash since the oil-price hikes of the 1970s. Instead of building a modern economy, it spent lavishly on holy sites, military hardware, and a slew of programs that simply spread out money without adding much to the economy. The Kingdom became a powerful “rentier state” – a country whose state and economy were geared toward little beside export earnings and domestic spending.
The rentier state meshed well with tribal authority patterns going back many centuries. A ruler controls the economy (trade caravans, agriculture, army garrisons) and strategically disburses wealth to bolster his rule and underscore his authority to subjects. The House of Saud took this further by installing a large family patronage system atop economy and state the size of which an old feudal chieftain could never have imagined. Building an economy outside the oil monopoly didn’t seem necessary; oil prices were rising and reserves were plentiful.
Why now?
Oil prices, as every motorist knows, have dropped sharply in the last two years and are expected to stay low for years to come. This means the Saudis have less money to disburse to its now large youth cohort that has known only largesse.
Saudi Arabia finds itself in a protracted contest with Iran – a country whose economy is much more diversified. Under the shah and the mullahs, Iran has built arms industries, engineering firms, consumer goods manufacturers, and pharmaceutical businesses. With sanctions lifted, the Iranian economy is poised to do well.
States in the region are scrambling to establish and sustain popular support. Legitimacy through democracy, as in western states, is not judged desirable, as it may well lead to undesirable and uncontrollable political movements that would paralyze the state and perhaps fragment the Kingdom.
A second path is military populism – using success in war to build legitimacy. Iran embarked upon this in recent months. Its media present breathless accounts of great successes against Saudi proxies and ISIL militants. And of course, shaking fists at Washington has long played well. Saudi Arabia initially boasted of the Yemen war in which its air force participated significantly. Saudi ground troops engaged in frontier skirmishes and provided security well behind the lines, but diligently and suspiciously avoided combat. The war has degenerated into a costly stalemate.
Saudi Arabia is headed on a third path of providing growth and opportunity for its youth cohort, without granting significant political concessions. In this respect, the Saudis will be attempting to repeat the Chinese model which has brought rising income levels and low political demands, at least thus far. China and Saudi Arabia will likely work hand in hand here.
Problems
A large industrialization program brings about questions of management. In all likelihood, the new industries will be directed by members and associates of the Saud family. The only alternative is a management class brought in from western countries and China. Even here, however, the Saud family would act as a board of directors of sorts.
The upshot would not be an independent “bourgeoisie” that would become a rival estate in the Kingdom. It would be an expansion of the existing oligarchy into a new sector of the economy. The model would be along the lines of China, Pakistan, Egypt, and (paradoxically) Iran, where state, military, and industrial elites overlap. The industrialization program, then, will try to reinforce oligarchy – this at a time of growing discontent with elite rule.
Whither the technology? Israel has long sought to leverage shared hostility to Iran into abiding partnerships with Arab states. First floated by Labour governments in the 90s, the idea was to use Israeli technology and know-how to establish Israel as an indispensable economic ally rather than an implacable foe. It’s unlikely that an open Israeli presence would be greeted inside the Kingdom, though, and Chinese and western technology are more likely. This will present problems as they underscore the Kingdom’s dependency on foreign countries.
Modern industry requires a skilled, disciplined workforce. In that one of the aims of the program is to provide opportunity for, and support from, the Saudi people, the workforce will comprise indigenous workers. The oil sector was long troubled by workers with indifferent habits. Recruiting and retaining a satisfactory workforce will be a challenge – as will preventing them from developing strong unions.
Copyright 2016 Brian M Downing
Brian M Downing is a national security analyst who has written for outlets across the political spectrum. He studied at Georgetown University and the University of Chicago, and did post-graduate work at Harvard’s Center for International Affairs.