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Keith Naughton


Saudi Arabia Next Venezuela?

by Keith Naughton
 

The descent of Venezuela into a failed state continues unabated and largely ignored by the mainstream media. Of course, faithful readers of The Daily Caller are not surprised. The only question going forward is how great the calamity will grow.

Venezuela may be the first socialist petro-state to fail, but it will not be the last. Saudi Arabia is now showing the signs of a state headed for serious trouble.

The Middle Eastern country is the world’s worst welfare state. Nowhere on Earth is every citizen so pervasively subsidized as Saudi citizens are. Do-nothing government jobs, subsidies for fuel, water, electricity, grandiose white elephant projects and an extended royal family that brings life to the term “welfare queen.”

Sitting atop the world’s greatest mineral bonanza â€" even after 80 years of production, the Saudis possess over 266 billion barrels of proven oil reserves and over 300 trillion cubic feet of natural gas. At current market prices that amounts to approximately $14.6 trillion dollars in the ground. And those totals are for recoverable reserves at current technology â€" the actual physical resources in the ground are even higher.

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Yet incredibly, Saudi Arabia is on an unsustainable economic path, squandering this resources on a massive, unproductive welfare state, foreign aid to like-minded reactionary regimes, an unending quagmire in Yemen and now a diplomatic and economic row with Qatar.

Elements within the Saudi regime have recognized the problem and have put forward a plan to transform the country. Young Crown Prince (heir-apparent to the King) Salman is moving to reduce subsidies, invest the state’s financial largesse in new technologies, increase labor-force participation and partially privatize the state oil company, Saudi Aramco.

Nice try, prince, but too late. Saudi Arabia may sit atop the most valuable mineral resources on Earth, but even this great fortune is not enough to satisfy the unquenchable human thirst for subsidy.

Saudi Arabia’s financial reserves have plummeted by over $200 billion in 2 years and its budget deficit has ballooned to a projected 12.7% of GDP â€" the equivalent of a $2.3 trillion budget deficit for the United States.

But the fiscal problems pale in comparison to the structural problems in the economy, weak institutions and a festering sectarian divide. There is no history of entrepreneurship or innovation. And, even if there were, the working age population possesses few useful skills for the modern technological era. The productive labor force is dominated by foreign guest-workers.

As for its institutions, the private sector is practically one company, Saudi Aramco â€" and that company is just about the only efficient organization in the country. The army of government workers (70% of employment) put in fewer that one hour per day of actual work. When the Crown Prince attempted even a modest rollback of perks and bonuses, the response was a furious pushback and then a quick climb-down. That’s not a good sign.

The sum and substance of these problems points to a very dark future for the Saudis. The idea that Saudi Arabia can turn itself into an even modestly productive and open society has no foundation in reality. The number of examples where authoritarian welfare states dependent on natural resources turned into safe, peaceful, prosperous countries is exactly zero. De Tocqueville observed nearly two centuries ago that any government’s transition from authoritarianism to democracy would be very perilous. The most likely fate of Saudi Arabia is a turn toward an even more authoritarian and repressive model.

This descent into the darkness (or greater darkness), is not imminent. Profligate nation-states have a remarkable ability to postpone the reckoning for their economic sins. But, none can postpone the reckoning forever. And that reckoning is coming for the Saudis.

Tags: Keith Naughton, Oil, Saudi Arabia, Venezuela
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