Steering the Beast
Saudi Arabia is at a crossroads. With a well-known reliance on the export of petroleum in the age of increasing awareness of climate change - along with increasing domestic and international pressure to reform its social policies - Saudi leaders have prepared Vision 2030, an ambitious plan to wean it off its oil dependency and diversify its economy into other sectors such as finance and introduce social reforms. The need for such a plan has become more apparent as the onset of COVID-19 led to a brief but unprecedented crash in the oil price, exposing the Kingdom’s vulnerabilities due to its reliance on this commodity. This restructuring will present new risks, as the Saudi state navigates the overhaul of its economy and society to remain competitive in the Post-oil era.
Crown Prince Mohammed bin Salman in a press conference promoting Vision 2030 in Riyadh, April 25, 2016 - Al Arabiya (SPA)
With Great Power
Beneath this superficial posturing, there is a deeper issue of how an authoritarian state manages its massive economic shifts. Saudi Arabia’s state control over Saudi Aramco and the revenues that come from the world’s most profitable company has made it extremely powerful in its society but also carries with it a heavy responsibility. The royal family’s uncontested grip on power and lack of a robust entrepreneurial private sector has left the state with a burden to provide a high standard of life to its people in exchange for the latter’s tolerance for the lack of real representation in politics, forming a ‘modern’ authoritarian social contract.
The de facto ruler of Saudi Arabia, Crown Prince Mohammed bin Salman (MBS) has defied initial Western optimism for modernisation and liberalisation of the conservative country. His infamous ‘purge’ of influential family members and businessmen in 2017 made headlines, and his alleged involvement in the murder of critical journalist Jamal Khashoggi has made it clear that he is not willing to relinquish influence over the country’s affairs, and tolerates little dissent.
Economic Governance
The poster child for this campaign is the limited 5% IPO of Saudi Aramco, the state-owned oil company which aimed for a $2 trillion valuation in the Saudi stock exchange, in an effort to raise $100 billion for the Saudi state. This would galvanise Saudi coffers for investment into other sectors while allowing the state to retain control of its largest cash cow. However, concerns over transparency and political control of the company were major factors that led to the failure of the IPO to reach the expected valuation.
This is a dilemma affecting many authoritarian governments that are either aiming to modernise their economy, or are attempting to tame the unwieldy beast of the market economy. Despite the initial success of state-owned companies acting as a vanguard for rapid development, the conventional economic dogma asserts that sustained and healthy economic growth lies in the private sector, reinforced by the failure of communist ‘command’ economies. As emerging economies mature, or global demand shifts to other products, a dynamic and entrepreneurial middle class is the safest proven method to remain competitive. However, the maintenance of good business practices is not necessarily the priority for authoritarian governments, as opposed to solely private entities, which cast doubt on their future profitability. On a macroeconomic level, the sheer power of the state casts doubt on the rule of law, which generates enormous uncertainty for potential investors and private businesses. The state could suddenly introduce regulations, or even crackdown due to political reasons. Critics describe how the recent Chinese crackdown on private tutoring and antitrust probes is another good example of how authoritarian states’ lack of due process and respect for business rights are making investors and entrepreneurs think twice.
Huntington's Unlikely Wave
The writer Samuel Huntington, who came up with the Clash of Civilisations theory, speculated that waves of democratisation would coalesce as living standards improved. It is plausible that when state influence over the economy diminishes, the rise in the share of private enterprise will allow citizens to demand additional rights and representation. Saudi Arabia, along with the Gulf countries have long enjoyed the boons of good management from the sale of black gold, allowing for lavish spending on social programs and development on its citizenry. According to this, the openly authoritarian states of Saudi Arabia and its Gulf neighbours will inevitably change.
The Burj Al Arab, with the backdrop of the Dubai Skyline in the United Arab Emirates, a global logistics, tourism, and finance centre
Gulf countries such as the UAE however, have largely led their economies into the post-oil era while retaining their authoritarian and conservative social order. The Emirati non-oil sector contributes to 71% of GDP, and while Saudi Arabia does not lag behind at 58%, the UAE has shown little interest in maintaining a firm hand over its political economy. While Saudi Arabia's global business and semblance of stability is tarnished by numerous controversies, the Emirates show that this ‘modern’ authoritarian social contract can still work, attracting enormous amounts of foreign investment in its diversification efforts in famous logistics and tourism industries.
The inevitable correlation between economic development and social reform is unfounded. So far, empirical evidence has instead supported the continued tolerance of the public towards the retention of power by authoritarian states, as long as it broadly upholds the rule of law and good business practices. Despite speculation of increasing domestic and international pressure, most citizens and foreign investors are willing to tolerate this continued arrangement, as long as the state is predictable and stable. Saudi Arabia does not need to anticipate overhauling its political governance for economic privatisation and modernisation. It only needs to persuade its citizens and the world that it is open for business, and will remain so.