Castles in the sand

The Saudi crown prince’s reformist ambitions bring to mind the precedents of post-Shogun Japan, post-Ottoman Turkey and post-Mao China – with a few exceptions, some potentially fateful.

Saudi Crown Prince Mohammed bin Salman and International Monetary Fund Managing Director Christine Lagarde attend the Future Investment Initiative conference in Riyadh, on October 24 (photo credit: HAMAD I MOHAMMED / REUTERS)
Saudi Crown Prince Mohammed bin Salman and International Monetary Fund Managing Director Christine Lagarde attend the Future Investment Initiative conference in Riyadh, on October 24
(photo credit: HAMAD I MOHAMMED / REUTERS)
THE VISION is spectacular.
Straddling a 470-kilometer shoreline opposite Sinai, sprawling 50 km east into what for now is mostly a treeless moonscape – a futuristic metropolis will erupt out of the Arabian dunes and stretch west, into Egypt, through a causeway and bridge that will cross the Red Sea.
This combination of parting the sea and building Pharaonic monuments is but a detail in a broader resolve to reinvent Saudi Arabia’s economy, society and culture as the kingdom stares into a post-crude oil future rife with uncertainty and risk.
Led by its own would-be Moses, 32-yearold Crown Prince Mohammad bin Salman, the city he is out to plant on the desert’s edge – Neom – will be, if it’s up to him, a paragon of automation, clean tech, renewable energy and scientific excellence, where seawater farming will flourish, solar-powered greenhouses will blossom and gene-therapy research labs will abound.
While inspired by the area’s past as a trade route, the prince has an even greater promise for its future as the first city ever to be floated on a stock market. Planning to raise an unspecified part of the $500 billion its establishment will cost, the prince says Neom – an acronym for Neo Mustaqbal, or new future – will be “the first capitalistic city in the world.”
Whether it is of this pretentious sort or of the more prosaic type to which other societies have turned while industrializing – Saudi Arabia clearly needs new thinking, as its economic situation makes plain.
WITH THE budget deficit reaching last year a staggering $79 billion, or 12.3% of gross domestic product, and with foreign currency reserves plunging by more than one-third since summer 2014, the kingdom’s 70 good years are over.
The good years followed World War II, when the kingdom became the world’s most reliable gas station, a role it memorably exploited in 1973 when it spearheaded international production cuts that made an oil barrel’s price soar, in 10 weeks, from $3 to $10.
Awash with easy money, Saudi Arabia built an economy of astronomical subsidies, no income taxes, free healthcare and minimal industry as oil sales generated 80% of internal revenue and 90% of exports, while per-capita defense spending was the highest in the world.
The curtain came down on this era three years ago when oil prices began tanking, at one point sinking 70% below their levels earlier this decade. The current price of $53 per barrel is 36% of oil’s price in 2008.
This is not about passing circumstances. Oil prices dived because of historic changes.
On the supply side, post-communist Russia has multiplied its production and the US began fracking shale oil, which drastically reduced its importation and inspires others, most notably China, to do the same.
On the demand side, what began in the 1970s with energy conservation has been multiplied through the development of wind, water and solar alternatives, all of which further reduce the need for crude.
The Saudis’ initial response to this financial malady was symptomatic treatment.
First, when foreign-currency reserves still totaled $725b., they pumped $116b., or 16%, of that fortune in 2015 alone, when they still hoped oil prices would rebound. Two years on, reserves have dropped a further 22%, to $477b., indicating that the deficits will not go away, and this was no way to finance them.
The painkiller having proved unworkable, the Saudi Treasury turned to serious potions.
First, the Saudis began retreating from their elaborate subsidies programs, hiking gasoline, water and electricity prices by more than 50%. Then they expanded taxation – first by introducing a 5% Value Added Tax; then by imposing special taxes on companies that hire more foreigners than locals; and then by raising the corporate tax rate from 14.5% to 15.7%.
Yet, such measures, painful though they are for many, can by no means cure the deeper ailments of the Saudi economy that demand not potions, however bitter, but brain surgery. This is what bin Salman set out to perform through a pretentious reform plan he unveiled last year, and which the Neom project merely complements.
TITLED “VISION 2030,” bin Salman’s plan promises to ease Saudi Arabia’s passage to the future so much so that, by the end of the next decade, the kingdom “will be able to live without oil.”
Seemingly realizing what their economy’s reinvention demands, he vowed “to promote and reinvigorate social development in order to build a strong and productive society.” That’s quite a concession for a kingdom that has never promoted production as an economic engine and hasn’t encouraged work as a moral value.
“Social development” hopefully will be enhanced by the cultivation of new industries, such as tourism.
That is why bin Salman’s blueprint calls for the creation of new resorts, museums and historical sites that will more than treble pilgrimage to the kingdom, which currently totals an annual 8 million Muslims. Even more ambitiously, the plan envisions the local production of more than half the Saudi army’s hardware.
Most importantly, the prince’s masterplan realizes the kingdom’s need for an educational overhaul, calling for “a modern curriculum focused on rigorous standards in literacy, numeracy skills and character development.”
It all brings to mind Japan’s great modernization drive in the closing decades of the 19th century, as well as Turkey’s following World War I and China’s over the past 40 years.
The common denominator among these reinventions of agrarian societies is that – unlike the industrial revolution in Europe and America – they were launched from above.
Led, respectively, by Emperor Meiji, Kemal Ataturk, and Deng Xiaoping, these revolutions were triggered by the realization that the West had traveled ahead, and by fear of being left behind.
The Japanese were traumatized by an American fleet’s artillery salvos that forced them to open their country to foreign trade in 1854. It was the kind of wake-up call the commodity markets are now whistling in the Saudis’ ears.
IN TERMS of his position and motivation, bin Salman is standing where Meiji stood in the 1870s when he sent scholars abroad to study Western achievements in anything from technology, industry and finance to government, education and law.
The consequent development drive was breathtaking.
In 1872, Japan inaugurated its first railway ‒ a 20-mile line from Tokyo to Yokohama ‒ as it began dotting the country with factories, workshops, spinneries, shipyards, mines and mills. Within two decades, the country had become laced with railways that linked bustling stations where millions of former fishermen and serfs now worked on newly opened assembly lines.
Telegraph lines, first stretched in 1872, quickly reached 1,000 km beyond Tokyo, and then went undersea – to the outer world. In 1877, Japan heard its first telephone conversation while casting from scratch a vast postal service with mailboxes checkering sidewalks and mailmen reaching remote mountains and towns.
The Saudi situation, in some ways, is simpler than Japan’s industrial beginnings because the desert kingdom already has much of the road system and communications infrastructure the Japanese had to build from scratch. In other ways, however, bin Salman’s task is more daunting.
The Japanese proved ready for drastic change – culturally, socially and politically.
Following the emperor’s personal example, they added meat and milk to their historic diet of fish and rice. A decade after instituting compulsory education in 1872 and opening their first teachers’ college there were 76 such schools. Twenty years after launching their first newspaper in 1871 they had 650.
Eager to study Western thought, the Japanese translated Jean Jacques Rousseau’s “The Social Contract,” which then became a bestseller, as did Jules Verne’s “Around the World in Eighty Days” and Daniel Defoe’s “Robinson Crusoe.” The West, in short, was a subject of curiosity and respect.
It is this kind of mental transformation that today’s Saudi reformers are out to inspire.
“We are simply reverting to… a moderate Islam open to the world and all religions,” bin Salman recently told The Guardian, while also vowing to destroy extremism “now and immediately.”
That is the context in which the government, in September, promised to lift next year the ban on women’s driving. That is also why the religious police – which enforced restrictions on things like restaurants playing music or women wearing nail polish – was stripped last year of its right to arrest and question people.
Can bin Salman expect to meet the kind of public cooperation the Japanese emperor met during his modernization drive?
Saudi liberalization is evolving – cafés now play music, young men and women are increasingly seen together in public and the young dance in private, mixed-gender parties – but the Wahhabi clerical establishment remains suspicious and potent.
This social challenge did not exist in Japan when it modernized, which partly explains how its society morphed within hardly two generations from a nation of illiterate peasants into the industrialized power that defeated Russia in the war of 1905.
Moreover, in Japan, a new generation of technocrats sidestepped the nobility that ran the country for centuries. What will happen to bin Salman’s cousins when it comes time, for instance, to staff the municipality of Neom? The sudden arrests on November 4 of dozens of princes and former ministers, including famous billionaire Al-Waleed bin Talal, indicate that bin Salman, resolute though he is, faces opposition.
Worse, when the Japanese underwent their industrial revolution, they were already a hard-working people. Change, in this regard, merely meant replacing a workday in the rice field with a workday at the factory. That is not the situation in Saudi Arabia where menial work is mostly done by some 9 million foreign workers, while at least one-third of local young adults are jobless.
The culture of idleness that this economic deformity entails did not exist in Japan as it reformed, nor did it exist in Turkey when Ataturk set in motion the process that, within a century, turned a 90% illiterate society into a fully literate, mature economy.
Similarly, when Deng launched China’s industrial revolution, the people who would soon make it the world’s major manufacturer had already been hard at work, although undereducated and underpaid. In short, the quest to industrialize the Saudi economy and modernize Saudi society faces hurdles that all equivalent efforts lacked.
The main Saudi problem, besides its conservatives, is paradoxically its money.
Bin Salman plans to finance his country’s transition to the future by selling up to 5% of national oil giant Saudi Aramco’s shares on Wall Street, and thus raise $100b.
Numbers aside – the prince’s calculations might prove overly optimistic – Meiji, Ataturk and Deng had no such resources when they began reforming their own societies. They did, however, have workers who readily went along with their resolve to create wealth, rather than mine it.
Few in the West are prepared to predict what will happen as the Saudis try to put their masses to work.
For better or worse, bin Salman’s success or failure will be measurable by the end of the next decade. If Neom emerges from the dunes, it may well mean he succeeded; if its intended site remains a desolation, it might loom as a monument to the rise and decline of the Saudi kingdom ‒ an economic mirage and a political Atlantis that sank into the sands from which it emerged ‒ in tandem with oil’s journey from the global economy’s engine to history’s rear.