In the first part of our discussion about the changes incipient on the Arabian Peninsula, we focused on the more straightforward economic issues of transitioning out of a petroleum export economy. There were many options available, from manufacturing to financial services to tourism[1], but all could be accomplished, with enough time and money, aside from the Saudi tourism pipe dream. All solely economic analysis largely will focus on the feasibility of these plans in the context of time and money. Right now, time and money seem short, due to global catastrophe, and analysis reflects that. As we realized at the end of the last article, the issue isn’t primarily an economic one.

To take a look at the politics that make these transitions difficult, we need to unpack the topic of how states are formed and propagated, just a bit. Just a little bit of political theory. Not more than an article’s worth. Promise.

Prussian philosopher, political theorist, economist, sociologist, unfortunate hairstyle owner, and obvious contender for best 19th century German philosopher beard, Max Weber, put together theories of political economy, though unlike his contemporaries, he was much less interested in the grand narrative approach to philosophy. He had some ideas about how political power and state structures often changed, but his claims were context specific, and his analysis was infrequently forward looking. While this made him less popular than more grandiose modern philosophers[2], he did create structures that we can analyze, despite their weaknesses and limitations in the modern world.

Weber had an idea of different types of authority that a state could hold:

Charismatic— Authority derives from the powerful personality of the leader.

Traditional— Authority is derived from heredity or a patronage system. If those norms stay in place, the authority is stable.

Legal— State authority stems from its laws, creating boundaries around who and what can exercise which powers under which contexts.

These systems do not by any means represent some sort of progression of states. However, some styles of state authority and structure make some policies nearly impossible to enact. Before we jump into how this connects to the diversification and liberalization of Arabian economies, let’s consider an historical example.

You’re a member of the Bardi, a Florentine banking family in the 1300s. Your family has amassed great wealth in lenders money and investing across Tuscany, and you’d like to branch into lending to monarchs. Kings and queens need scads of money to fight their wars, and recently England has begun to dominate the wool market. King Edward takes out a loan for 100,000 florins. Without paying the first loan back, he takes out at least five more, now owing your bank as much money as the yearly production of England. Between all his other debts, Edward owed several times the wealth of England. Edward was in real trouble.

Except, no, he wasn’t.

No one can make the king repay his loans. No body would even tell the king that he couldn’t take out more loans. The core reason behind this is the simple fact that Edward’s lineage is where the state’s power is derived from. Edward can and will simply default on many of these loans, and banks across the region will collapse, at least in part due to these defaults.

Suffice it to say, some conceptions of state authority are incompatible with some economic, political, and social structures. To go further, we need to examine the core conceits of state authority throughout the Arabian Peninsula, starting with Saudi Arabia.

The Saudi state was originally founded due to an alliance between the Saud family and the adjacent religious sect which followed Muhammad ibn Abd al-Wahhab in the mid-1700s. It isn’t worth going into the tenets of Wahhabism, but for the most part, it has continued to be the dominant religious ideology of the state.[3] The other pillar of Saudi governance is, of course, the Saudi royal family.

Unsurprisingly, kingdoms like Saudi Arabia would likely fall into Weber’s traditional authority structure[4]. They have a king that holds power primarily because of a relationship between his family and the most powerful religious sect in the area, and this power has been propagated through the hereditary succession of authority over centuries. Things are not so simple, however. Saudi Arabia, and to varying extents much of the Arabian Peninsula, have a long tradition of patronage.

Patronage as a term comes from the Roman system in which wealthy folks, the patrons, would provide money, food, or other services to clients in return for their political or some other form of loyalty. In the Roman context, this might mean voting for some specific candidate for tribune. As a general term, the idea is that someone cedes their political interests in exchange for material support from a wealthy donor. In the Arabian Peninsula, as with many regions dominated at least in part by a merchant class, patronage has flourished for millennia. However, the sophistication and pervasiveness of the system across the region has developed into a state-as-patron relationship.

The authority of the Saudi state and others across the peninsula is based in the state acting as the patron for all of its citizens. The state-patron takes care of the material needs of its citizen-clients in exchange for forgoing political, and often economic, agency. This system is in place, with some permutations, in all but one of the non-failed states.

In Saudi Arabia, several policies come together to produce the patronage the government provides its citizens. Subsidies for housing, electricity, food, and other goods and services paired with direct payments from the governments provide the basics to most Saudis, especially those not involved in the labor market, as much as one exists. The other major thrust of Saudi patronage is the provision of jobs, especially as the Saudization of major industries grew over the course of the past 50 years. More than half of all jobs held by Saudis in the kingdom are in the public sector, and this trend holds true for the other economies in the region. This economic incentive package is not largesse, done out of the kindness of the hearts of the Saudi royal family. The policies pursued by the government are there to stabilize the social contract at the core of their state. And herein lies the problem for the states of the Arabian Peninsula.

State patronage can only function when capital flows into the state, and Saudi Arabia is aware of this. Policies set out in the past few years, including a controversial Value-Added Tax (VAT) that was tripled to 15% on most goods in 2020. These, as well as cutbacks to subsidies and Saudi Vision 2030, were justified by the drop in oil prices. However, the larger moves towards shifting the balance of government deposits slowly but surely onto the backs of the citizens, as well as pushing the continued expansion of Saudi national private employment in the kingdom, are important steps in economic diversification and liberalization.

These moves also represent a break in the basic social contract: material security for political loyalty. The Saudi, Omani, or Emirati governments are interested, for the sake of the personal power and security,   in upholding the political end of that social contract. Unfortunately, the world movement away from oil, as well as the development of new oil extraction technologies, threaten the viability of oil production as a path forward. Thus far, most of these states’ plans have paltry political reforms, and there is of course nothing that would threaten the preeminence of the ruing families in any plan. This is not only a risky proposition from a security perspective, but it is one that is doomed to fail. As fewer citizens depend on the government for their livelihood and material security, the fewer need feel loyalty to the royal family, especially when market forces lead to downturns. Furthermore, what small social reforms are made will likely bother hardliners in the clergy, destabilizing the state directly. To effectively diversify, privatize, and liberalize the economy, a political overhaul, likely in the form of liberalization, is required.

Pictured: Back to Bahrain

This brings us back to Bahrain. Despite limitations inherent to the Constitution of 2002, the country has an empowered elected assembly. While the king has the power to appoint one chamber of representatives, the balance of power is slowly shifting toward the legislature. As of 2020, votes of no-confidence can be brought against various government ministers appointed by the king. It is not a perfect system, but it is one that fundamentally shifts the focus of the social contract from one of patronage to one similar to developing constitutional monarchies across the world. For the most part takes the form of a government slowly but surely moving out of absolute monarchy. As discussed previously, Bahrain’s economic transition to over the past 20 years has been the most successful in the region. Part of what makes this success possible is the strength of two liberalization programs working in tandem.

To be clear, simply moving the political and economic realities in the same direction is not enough to make the economic diversification of the peninsula a reality. However, doing so may be a minimum requirement for the success of any of these projects.

[1] Saudi Vision 2030 has a hilarious tourism component, but it is important to understand that, for some the cities of the Hejaz(Red Sea Coast; Mecca and Medina), pilgrimage was a major driver of their economies, especially as major trade routes bypassed those non-coastal cities.

[2] Marx. I’m obviously talking about Marx. That is a man who loved a nice grand narrative. But I could also be talking about Freud. He loved a good coke-fueled generalized theory as much as the next 19th century philosopher.

[3] MBS, as part of his reforms, has bucked some aspects of Wahhabism. Thus far, there has been little suggestion that there will be any sort of breakage between these two state organs.

[4] This should be taken very broadly, as Weber’s ideas are antiquated, and they do not reflect a social reality to any degree of precision. They are, however, useful frames of analysis.