Saudi Arabia and the Paradox of Plenty

What is the Paradox of Plenty? It is also called the Resource Curse. Simply put it is like this: A country which is very rich in natural resources becomes dependent on these resources, and less likely to invest in other things which might be economically important, such as manufacturing. Countries like Saudi Arabia are textbook examples of what economists call the ”Paradox of Plenty”, or ”Resource Curse”. Such countries are rich and poor at the same time. They show no or very little growth, they are underdeveloped, politically and economically.

A 1995 study of ninety-seven developing countries by the economists Jeffrey Sachs and Andrew Warner found that the more important natural resources were to a country’s economy, the lower its growth rate was. Of all the resource-rich countries they studied, only two were able to grow as fast as two per cent a year, while a host of the resource-poor nations grew much faster. “Just look around the world, and tick off the countries that are resource-rich,” Warner says. “They are not rich countries, and they obviously haven’t grown rapidly, because otherwise they would be.” The biggest economic flops of the last decade—Russia, Argentina, Nigeria—abound in natural resources.

In Saudi Arabia it’s almost as if the money comes straight out of the ground, Saudi Arabia generates enourmos amouts of money for doing very little. As a result everything inside the country becomes expensive, labor included. Which means you cannot set up a factory, staff it with Saudi workers, and compete with the surrounding area. On the contrary,  although having a large percentage of unemployed men, and a close to complete unemployment rate for it’s women, Saudi Arabia’s workforce consists of about 80 to 90% foreign, temporary workers. (Foreigners are not allowed citizenship, even after decades of working in Saudi Arabia).
All these workers send their money home, so there is a constant drain of money out of Saudi Arabia.

When a country strikes it rich as an energy supplier, the collective attention of both the government and the civil society can become devoted solely to maximizing profits from the energy industry. This single-minded focus comes at the expense of other economic and development priorities, and can begin to dominate a country’s political and social life.

Saudi Arabia today has the added problem of a socially engineered society, which now incorporates gender segregation and gender apartheid. It is the oil wealth which actually enabled the Saudi government to implement the complete segregation of the sexes. When people need to work and earn an living by working, men and women have to ”mingle”. Now this gender segregation is in place, it is very difficult to create jobs for Saudi citizens. For foreign workers the segretation is not enforced in work environments, and this again strengthens the stigma for Saudi citizens, and especially women, to actually get a job.
This is one of the reasons Saudi imports millions of foreigners to do the manual jobs.  (Although for the really specialized jobs Saudi also imports a lot of foreign workers)
In the Saudi system it’s ok for a foreign woman to work in a Saudi household with unrelated men. But it is impossible for a Saudi woman to work for another Saudi family for a Saudi woman cannot be in contact with non-related men. A Saudi man cannot chauffeur an unrelated Saudi woman, but a foreign man can. And as Saudi women are not allowed to drive their own cars there are many foreign male drivers.
It is even problematic for a Saudi citizen to sell goods to another Saudi citizen of another gender. But, again,  it is ok for a foreign man to sell goods to Saudi women.
Another problem for the growth of a Saudi economy is that 50% of the population (women) cannot open or run businesses on their own. They need permission and complete assistance of a close male relative.
All these economical problems have been made possible only by the injection of oil wealth, virtually free money, into the Saudi society, and thereby halt it’s natural development and take it in a completely new, different, and unique direction.

Another negative effect we see in countries with vast natural wealth is corruption. Corruption flourishes alongside the income generated by the resource industry. Money that could be invested for the public good drains away into the hands of a small elite loyal to the ruling clique, whether the military (the BICC’s Global Militarization Index shows that many of the highly militarized countries are oil-rich states in the Middle East) or tribal leaders, who in turn safeguard the power of incumbent rulers.

 

A dependence on natural resources fosters the illusion that you get rich by taking what’s already there, rather than by creating something new. But the automobile, the electric turbine, and the computer chip were not there for the taking; they had to be created. There are countries that have recognized this and, in doing so, evaded the resource curse. Warner points to the example of Chile, which, despite vast copper fields, boomed in the nineteen-nineties. The growth rates of Malaysia and Indonesia over the past thirty years have far outpaced those of Middle Eastern states. And the little African nation of Mauritius became a powerhouse even though it started out with an economy that relied almost entirely on sugar exports.

These countries succeeded because they used their resource wealth to diversify their economies. They set up special export zones to encourage manufacturing. They countered the impact of high prices by devaluing their currencies. They opened their markets to free trade. And they invested heavily in education.

The oil-producing nations of the Middle East and North Africa, by contrast, have done none of these things. Their economies are still, for the most part, closed to the world. They have little or no manufacturing and, perhaps as a result, little or no technological innovation. They spend far more time fighting over how to divvy up the spoils than over how to create new wealth, which means that every economic decision becomes a political one. And they have invested very little in education. Saudi Arabia’s wealth is firmly in the hands of the royal family, from where it gets distributed to loyal citizens, and the military, police, clerics and religious police who keep the population under control. This was made clear during the Arab spring, instead of implementing much desired change and more democracy, king Abdullah opted for handing out larger sums of money to select groups to stave off any chance of the populace being inspired and rising up, and to buy himself loyalty of those who can suppress the rest of the population.

The oil producers are addicts. They prefer the comfortable squalor of staying hooked, to the work it would take to kick the habit. Ultimately, the resource curse is less something they are afflicted with than something they have inflicted on themselves.

Natural resources dwindle. If Saudi Arabia, and other Middle Eastern oil-dependent countries do not start to act soon, they are moving towards a miserable future.

Further reading:

Avoiding the resource Curse

The Resource Curse

The Real price of Oil

Globalization: the resource curse

1 hour lecture, Stanford University, this is really good!:

 

AA

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