In an ironic decision, Saudi Arabia’s Muslim rulers, leading anti-Communists of the Cold War, may be adopting the economic management model of the atheist Communist Party of China. But rulers gotta rule...
Prince Mohammad bin Salman Al Saud of Saudi Arabia recently announced Vision 2030, the most ambitious Saudization project ever, likely driven by a $150 billion drop in reserves due to a steep decline in oil prices. Among the project’s stated objectives are some hardy perennials: reduce the role of the public sector and make the private sector the engine of the economy, reduce dependence on oil, increase participation of women in the work force, reduce corruption, and an unprecedented public share offering of 5 percent of Saudi Aramco (the Saudi Arabian Oil Company) to recapitalize the country’s reserves. But the key goal isn’t mentioned: ensure the continuing rule of the country by the Al-Saud family. Vision 2030 can be accurately characterized by: "If we want things to stay as they are, things will have to change," from the story of another prince seeking to maintain his family’s influence.
Observers have noted the absence of political reform in the kingdom’s plan to move from a rentier economy to a production-based economy and then to a knowledge-based economy, but that’s not an oversight.
Vision 2030 seeks to move the Saudi kingdom into the 21st century, the Saudis having mashed several centuries of catch-up development into the last half of the 20th century. So the challenge is: how do the Saudis modernize and liberalize the economy while not spiraling into the chaos the rest of the region suffered when authoritarian regimes were challenged by popular dissent in Syria, Libya, and Egypt?
The model the Saudis are looking to for their future is not American republicanism or European parliamentarism, systems that took hundreds of years to develop, but the Chinese model, where an authoritarian state, ruled by the Communist Party of China, keeps exclusive control of the political dynamic while dramatically liberalizing and opening the economic sphere enough that the population accedes to continued Party rule. Thus a deeply tribal society, with the accompanying rigid social hierarchy, which is not ready or appropriate to transition to Western-style representative government, can hope to square the circle of rapid economic development and continuity of culture.
Though one is Islamic and the other atheistic, the two regimes share some significant features:
1. State control over the Internet and media (Great Firewall of China; Article 39 of the 1992 Basic Law and the 2003 Press and Publications Act)
2. Strict state rules regarding private behavior (the one-child policy; sharia)
3. Organized state repression of religious out-groups (Falun Gong and Christians; all non-Sunnis)
While retaining state ownership and control over key industries and sectors, the Chinese have also empowered hundreds of millionaires, most affiliated in one way or another with the Party, thus providing the power of entitlement and funding for those favored by the Party. Likewise in the Saudi Arabia, the royal family and the leading business families have long and deep relations where the business sector has preserved the benefits of rent from the oil and gas sector and government contracts by supporting Al-Saud rule. But the Al-Saud are increasingly getting involved in business as the growing younger generation of princes realizes they aren’t in contention for the top political posts, blurring the line between business and government. This development has the potential to strain the relationship with the business sector which has always supported the royals. This strain may be compounded by Vision 2030 if the reforms further diminish the revenue of the leading merchant families. Related: Is The Oil Crisis Over? Oil Majors Report Positive Cash Flow
That relationship may break down as the Saudi state tries to cut the number of public employees, currently 70 percent of the Saudi citizen workforce, while expecting the private sector to soak up the now-surplus bureaucrats. Expatriates are now about 80 percent of the country’s workforce, and most of them lack the salary, benefits, and working conditions that Saudis consider their due. The private sector may be reluctant to hire former public employees who are used to the well-paid, less-strenuous public sector and may not have the technical or business acumen the expatriates bring to the economy. The private sector may be “encouraged” by top-up subsidies for the transitioning bureaucrats, but their presence will consume management bandwidth and their higher salaries will hurt the morale of their new colleagues.
Vision 2030 hinges on what McKinsey estimates will require $4 trillion in investment in eight sectors: mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, healthcare, finance, and construction. Aside from wondering where that $4 trillion will come from, this raises the question: what will Saudi Arabia do? The current industrial sector of oil, gas, petrochemicals, and mining employs relatively few people, retail and wholesale trade is controlled by the large trading houses, and everyone is already covered by government healthcare.
Tourism will be limited as, other than Mecca and Medina, which are closed to non-Muslims, there is little of note as most traces of pre-Islamic society have fallen into disrepair. Social restrictions, such as on mixed-sex groups, may limit initial opportunities to academics, historians, and researchers. And the pushback from the religious authorities on the tourism initiative wasn’t long in coming when the Grand Mufti warned, “We know that singing concerts and cinemas are a depravity."
The Kingdom may hope there is salvation in the services sector, but it will have to compete with the U.A.E., which has built out its physical and human infrastructure for over 20 years, is more welcoming to expat workers due to its small population, and practices a tolerant Islam that does not rely on state-employed enforcers that roam the streets providing on-the-spot correction.
Aramco has been the example for decades of Saudization, where the vast majority of engineering, technical and management employees are Saudi. They are young, mobile, have very high social media access, and so are far more engaged in a wider society than their parents.
The Kingdom has taken steps to expand the Aramco example to the rest of the kingdom. Over 250,000 Saudis have studied at U.S. and Western universities over the past decade. The vast majority have studied engineering, other technical subjects, and management. They are very ready to assume new roles across a wide range of skill levels, not in service positions, but in middle-rank and senior positions making policy and directing programs or companies. If this cohort is employed and empowered it may remain the foundation for continued Al-Saud rule. Related: Russia Makes A Move On Asian Oil Markets As OPEC Cuts
And are the Saudis ready to work? The Chinese were ready to take advantage of the economic reforms kicked off by Deng Xiaoping’s 1992 “southern tour” as they knew the shortages and privations endemic to Communism, and they had the example of the successful Chinese diaspora throughout Asia. Most Saudis are employed in undemanding government jobs with the wrong skills, the wrong attitude to risk and reward, and a strong desire for security and stability.
As the Saudi government pushes to the future with Vision 2030, it may get some maneuvering room from that same desire for security and stability which is deeply rooted in the country’s tribal culture. Recent polling in other Persian Gulf states found “more security-minded Gulf citizens are willing to accept lower levels of economic performance by a government in return for stability.” Thus, the Al-Saud may be able to rationalize the economy, which will require painful cuts to social benefits and some economic uncertainty, if they can manage the population’s expectations by exploiting anxiety created by violence in Yemen, Syria, and Iraq, and the menace of the looming Islamic Republic of Iran.
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The reformers in Saudi Arabia will have to deploy extraordinary political skills as they renegotiate the founding deal of the kingdom, where the citizens assent to Al-Saud rule in exchange for economic security, while confronting an insurgency inside the palace by princes who will lose money and power in the new paradigm, and minding the interests of their supporters in the business community. All this while staying true to their culture and traditions.
It’s a tall order, indeed, and on its success hangs the stability of the Gulf and the well-being of America’s interests. We hope they get it right.
By James Durso and Charles Kestenbaum
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