Monday, November 7, 2016
Saudi Arabia’s Great Leap Forward: What Would Mao Think?
MAY 3, 2016
The Saudi version of the Great Leap Forward is outlined in Vision 2030, a summary of the reform made public last week of which more details will be given in the National Transformation Plan that is to be published in late May or early June. Deputy Crown Prince Mohammed, who is defence minister and controls foreign and economic policy, wants the Kingdom to develop its own industries and services, sell off part of the state oil company Aramco to create the world’s largest sovereign wealth fund, and end or reduce subsidies for fuel, water, electricity and other essentials. In practice, he wants to end the long-standing social contract under which Saudi nationals get easy jobs in the government sector and a high standard of living in return for political passivity and loyalty to the House of Saud.
It is not going to work. It is not the first time the ruler of an oil state in the Middle East believed that it would be a good idea to build up a diversified non-oil economy paid for by oil revenues. Saddam Hussein, already effective ruler of Iraq in the late 1970s, made a brief effort before the Iran-Iraq war to build factories and irrigation schemes, the wreckage of which can still be seen on the outskirts of Baghdad. But the most striking – and ominous – precedent for Prince Mohammed’s reforms is not Mao or Saddam, but the Shah of Iran in the five years before the revolution in 1979. Using Iran’s oil revenues, he proposed in 1974 for Iran’s economy to grow by a quarter every year under an expanded version of the Fifth Five Year Development Plan. The outcome of the Shah’s manic desire for growth and modernisation was destabilisation and popular rage that contributed significantly to his overthrow.
At the heart of the Shah’s downfall was ill-informed hubris and wishful thinking which led him to saw through the branch on which he was sitting. Monarchs and autocrats notoriously live lives detached from the real world by nature of their status, but this is doubly true of the leaders of oil states who mistake their ability to throw unlimited funds at a problem for real ability to cope with the world around them. This was true not only of Saddam and the Shah but of the Iraqi Prime Minister Nouri al-Maliki whose vastly expensive army and security apparatus collapsed instantly when Isis attacked Mosul in 2014.
The Vision 2030 document might be dismissed as one more costly and far-fetched whim of an oil state autocrat fostered by self-interested advisors and consultants. Few take seriously Prince Mohammed’s belief that “in 2020 we can live without oil.” The share of the private sector in the economy is to rise from 40 per cent to 65 per cent by 2030 and Saudi Arabia, the third largest defence spender in the world, is to raise the proportion of arms made in the Kingdom from 2 per cent to 50 per cent over the same period. Experience shows that breakneck economic development, propelled by orders from the top, encourages pervasive corruption, while privatisation in unaccountable autocracies mostly benefits, going by what happened in Syria and Libya, a politically well-connected coterie close to the ruling family.
It is easy enough to be derisive or dismissive about Prince Mohammed’s revolutionary changes within the Kingdom. But the danger is that his naive arrogance is not confined to his handling of the economy. He is also pursuing a double-or-quits foreign policy of confrontation with Saudi Arabia’s neighbours. Since his father King Salman succeeded to the throne last year, Saudi Arabia has escalated its involvement on the rebel side in Syria and has launched a war in Yemen. On 17 April, it was a phone call from Prince Mohammed that terminated the talks between leading oil producers meeting in Doha who came close to agreeing a freeze on oil production. By vetoing any deal without the participation of Iran, which is seeking to rebuild its share of the oil market post sanctions, Prince Mohammed showed the extent and arbitrary nature of his power.
The German intelligence agency BND warned late last year that the concentration of so much power in the prince’s hands “harbours a latent risk that in seeking to establish himself in the line of succession in his father’s lifetime, he may overreach”. In the one-and-a-half page document, which was surprisingly made public, the BND expressed fears that Saudi Arabia had started “an impulsive policy of intervention.” Everything that has happened since confirms the BND view. Saudi Arabia, which of all countries in the Middle East has an interest in containing chaos, is instead helping to spread it.
Saudi Arabia certainly faces real problems that are not of Prince Salman’s making. The population of the Kingdom in 1950 was three million and today is 31 million, though eight million of these are foreign nationals. With the price of oil unlikely to reach its previous heights, oil revenues will be insufficient to look after a fast growing population of young Saudis and bribe them with non-jobs and subsidized living. The problems may be real but old regimes are notoriously at their most vulnerable when they recognise their failings and seek to remedy them by ill-advised and disruptive measures.
Some have a more cynical explanation for Saudi Arabia’s proposed Great Leap Forward, with its heady talk of Saudi citizens getting down to work, starting their own businesses and working in their own factories. They argue that the scheme is a tactic to divert the attention of Saudis away from the progressive privatization of Aramco, the one institution in the country that does make money and on which all else depends.
Initially just 5 per cent of Aramco, though the percentage may grow, will be floated with the proceeds being placed in a sovereign wealth fund that will eventually exceed $2 trillion. This will invest in the Kingdom and will presumably be under the control of Prince Mohammed. But sceptics say that turning the value of Saudi Arabia’s main asset into a liquid form is also be highly convenient for the Saudi royal family. They may calculate that the political and economic tide has permanently turned against them. If the Saudi royals ever have to flee like the Shah, then it is much in their interests to have their wealth in a form that they can be held abroad or swiftly moved to safety