Though presented as an anti-corruption campaign, there’s no real doubt that it is politically motivated (at any rate MbS sure enjoys the sweet life himself).
I agree with Alexander Mercouris (read his excellent article) that the intent is to transform Saudi Arabia from the nepotistic monarchy it is today to a modernizing autocracy centered around MbS.
CNN: Saudi oil dependence.
Saudi Arabia faces very big problems in coming decades. It is highly reliant on oil – it pumps out five times as much per capita as that “gas station of a country,” Russia. But the technological revolution in this industry of the past decade has dashed any hopes such oil exporters might had had off living off the resource rent indefinitely. Meanwhile, the population is growing by more than 2% per annum, and the rentier class of Saudi princes – who now number around 15,000 – is growing even faster (“elite overproduction,” as Peter Turchin would say).
This political transformation, if successful, will help Saudi Arabia avoid collapse as oil revenues per capita dry up in the coming decades. But will it be successful?
1. The anti-corruption “raid” has netted a lot of money in the most direct sense. Eric Margolis in today’s featured column on this webzine mentions $800 billion. That sounds off by an order of magnitude, but very useful nonetheless.
A much more important effect is that this constitutes a signal that there there could be limits on the amount of resources that the royal family will be allowed to hoard. This offers a way out from the Saudi elite overproduction trap.
3. MbS has shown a healthy apetite for economic reform. In the National Transformation Programme announced in 2016, there are plans to partially privatize oil giant Aramco, diversify from oil (easier said than done), and cut subsidies and welfare.
Famous Twitter satirist menaquinone4 jokes that Saudi Arabia has been taken over by a TED Talk. But hey, TED Talks are a fixture of the well-educated SWPLs who attend Davos, and Riyadh has mastered their language:
— RiyadhSummit (@riyadhsummit) May 17, 2017
In a 2006 paper, the cliodynamicist Peter Turchin – who had, incidentally, also predicted the rise of Islamic State – proposed the following two futures for Saudi Arabia: “The model predicts that the sovereign debt of Saudi Arabia will eventually reach unmanageable proportions; the fiscal collapse will be followed by a state collapse in short order. The timing of the collapse is affected by exogenous events (primarily, fluctuations in world oil prices) and by parameter uncertainty (certain parameters of the model can be estimated only very approximately)… A major theoretical alternative is provided by a set of ideas and specific recommendations suggesting how Saudi Arabia can avoid crisis by reforming its economy and liberalizing its political system (the “IMF scenario”).”
The IMF scenario, in this interpretation, consists of opening up the economy to external competition, balancing the budget and cutting social spending, and liberalizing politics. To date, MbS has taken at least tentative steps on the first two parts.
4. This is accompanied by social reform that sits well with younger people – the most publicized example would be allowing women to drive. Labor participation rates should increase. Cinemas have been reopened. And MbS has at least spoken of a much more stringent commitment to fighting extremism.
5. Bold scenario: Invade and annex Qatar, which has four times more oil production per capita than even Saudi Arabia. The Saudi military isn’t anything to write home about, but this should be quite doable, if the US is okay with it (which it probably is under Trump).
This might extend the feasibility of the current model by a decade just by itself (barring any major geopolitical fallout).
1. Existing power centers have been alienated.
First, other factions of the Saudi family, who will not be happy with the purges – and henceforth, will have just one obvious, central person (MbS) to blame for any future failures.
And there likely will be failures, given the scope of his geopolitical ambitions (Syria, Yemen, Qatar, now Lebanon).
Second, the mullahs, whose authority he has undercut. Wahhabism and the House of Saud have always been joined at the hip, and the relationship hasn’t always been a smooth one. Though it is now backpeddling, the Saudis thirty years worth of financing Wahhabi extremists abroad may well come to boomerang back against them.
Both of these are more important than any “cool points”, probably ephemeral ones, that MbS is gaining with young progressive Saudis.
2. Though MbS is cutting the ties between Court and business, there is no guarantee that the new elites who will form around him will be any less rapacious or corrupt than the current ones. Maybe even the contrary. An acquaintance with experience of Saudi Arabia tells me that the royal family are “rooted” in society; they feel a certain sense of noblesse oblige that you don’t get with modern, post-traditionalist bureaucracies. An Arab who had fallen on hard times can come and petition a prince for help, and not infrequently said prince would provide alms or other aid. This perhaps explains why the Saudi nobility, despite their sorry reputation in the highly formal and rules-based West, are not particularly resented for their legal immunities and other privileges in their own homeland. This system may not survive MbS’s modernizing centralization.
3. Military spending is soaring out of control – the Saudi total now rival’s Russia’s (on paper). In reality, it gets much less bang for the buck, since the Saudis obscenely overpay for foreign (mostly American) military equipment, with the recent $300 billion deal agreed upon during Trump’s visit – of which $110 billion is to be paid upfront – being just the latest and grandest example.
But like most Arab militaries, the Saudis do not have the military culture or human capital to properly use their high-end equipment.
This is important because MbS is a hawk. King Salman (his father) was one of the most hardline princes in supporting intervention in Syria, which is now winding down into failure. MbS was instrumental in the invasion of Yemen in 2015, embroiling Saudi Arabia in an unwinnable partisan war, and in the diplomatic spat with and blockade of Qatar, which has only served to move it closer to Iran and Russia. Most recently, they have taken the extraordinary step of effectively kidnapping of Saad Hariri, the PM of Lebanon, perhaps as part of a prelude to bombing Lebanon.
Teddy Roosevelt said you should speak softly but carry a big stick. The Saudis are doing the opposite.
4. It’s important not to overdo the importance of the Saudi reforms. Since 2010, it is one of the few countries to have regressed in the World Bank’s Ease of Doing Business rankings not just relatively, but in the absolute value of the Distance to Frontier (to best practices) indicator. Along with Qatar, it has the least transparent budget in the world. In all fairness, King Salman has only been in power since 2015. Even so, its position in the World Bank’s Ease of Doing Business has fallen from 82nd to 92nd in the two years since.
It also remains to be seen whether MbS has the capacity for more painful reform, such as ending the dollar peg and allowing the Saudi riyal to devalue.
4. Foreign Policy: Saudi Arabia Is Betting Its Future on a Desert Megacity
My prediction: It will look less like this…
… and more like this (presumably minus the cyborg).
However, the $500 billion projected for this white elephant are sure to provide kickbacks more than sufficient to consolidate a new clique of oligarchs around MbS.
It’s just unrealistic to expect anything else in a country of 85 average IQ rent-seekers.
Many of these problems have strong parallels with 1780s France.
Even as its debt payments mounted, the ancien regime lavished money on the military (including a failed military harbor at Cherbourg – the SDI program of that time) and pursued bold and generally successful but fiscally ruinous geopolitical adventures aimed at checking its eternal rival, Britain (Iran).
It also engaged in profligate construction spending – the Finance Minister, Calonne, called it “useful splendor,” on the dubious theory that it would inspire confidence and attract more credit. Didn’t really end up working that way. But at least the Court got to enjoy nicer palaces for a short time, and perhaps their modern equivalents, the globalist Davosites, will likewise get to partake of VR tours of Neom for another decade or two.
Which is not to say that an Arabian Revolution is at all inevitable in the next quarter century. I would say that it is unlikely, but quite conceivable.
Even though the budget is deeply in the red, and the currency is hugely overvalued, the Saudis still have massive foreign currency reserves, little debt, and huge oil reserves. The security forces are well fed, the military has always been kept defanged (even if incompetence is a side effect), and after the purge, the National Guard is now under the control of MbS.
On the other hand, substantial percentages of the two most important social groups, the mullahs and the oligarch princes, have been alienated. And is it well known, revolutionary apetites are provoked as often as they are sated by reform. Maybe aspiring Saudi bobos will be happy that women are now allowed into football stadiums. Or maybe they will be even angrier that they remain segregated from men there. We will have to wait and see.