Although Saudi Arabia confronts serious external threats, its major threat is its own lack of inclusive institutions that give its citizens some determination in the government’s policies. This is particularly true concerning Saudi Arabia’s petroleum; its major source of income that first goes to the government and then purchases loyalty to the regime rather than economically empowering Saudi people, the true owners of the resource.
Saudi citizens should own and control that resource so that revenues from oil flow to them first and then to the Saudi government through taxation of citizens.
The Saudi government is mulling the sale of shares in the Saudi national oil company, ARAMCO, to raise funds. However, the real question concerns whether it has the legitimate authority to sell the shares of the national oil company. After all the Saudi oil wealth belongs to its citizens and they have had no say in how it has been used or how it will be used. After decades of spending the money without the appropriate feedback and accountability as would exist in a democracy, such as oil-rich Norway, the Saudi government seems intent upon selling parts of the jewel crown.
Natural resources in most countries are generally thought to be the people’s wealth. Unfortunately, in the case of the oil producing countries, the wealth has most frequently been used without regard to the wishes of the people. This is because there has been no mechanism by which the people can reveal their preferences. This has been true for most of the oil economies except Norway. Saudi Arabia is no exception.
Selling even parts of ARAMCO to either foreign shareholders and foreign oil companies or (a few) Saudi citizens presents a series of problems. First, the oil company is not for the Saudi government to sell without consent from the real shareholders: Saudi citizens.
Second, by selling portions of the oil wealth without the consent of the governed is essentially stealing from the Saudi common natural resource pool. Why should non-Saudis be transferred property rights to own what is not legitimately theirs to own since the exchange cannot be considered voluntary when the true owners–Saudi citizens–were not consulted? After such an exchange, Saudi citizens would ultimately cease to have any influence over how the proceeds are to be used. It is akin to person A selling person B’s house without person B having any say regarding the exchange. Such an involuntary exchange provokes the potential fears of a return of the seven sisters’ era when the oil majors dominated the petroleum market.
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Third, even selling shares to Saudi citizens brings to mind the privatization fiasco of Russia. How can Saudi citizens ensure that all of them are able to purchase shares when income is so poorly distributed as it is in Saudi Arabia? The proposed sale would most assuredly result in a few Saudis, or rich Gulf “oligarchs,” cornering the market. Such an outcome would pervert the original intent of an improved outcome.
Our approach is for the Saudi government to seriously consider an equal distribution of ownership shares in the natural resource wealth to Saudi citizens on a per capita basis with a certain percentage reserved for future generations.
What we are recommending is a full scale privatization of the Saudi oil wealth. Income would then flow directly to the citizens in the form of dividends. Saudis would be free to spend the dividends as they saw fit. Furthermore, for the Saudi government to carry out the normal function of governments, it would have to tax this income. But to do so, it would have to convince Saudi citizens, as in most democracies, the money would be spent efficiently for deserving public purposes.
Additionally, such privatization would reduce sectarian and inter-ethnic conflict. First, if all citizens receive equal dividend income, regardless of faith or ethnicity, then there can be no claim of government partiality in favor of one faith or ethnicity. Second, when the transfer of ownership is complete, it would not be in anyone’s interest to destroy the common source of income that everyone receives. The various groups would have a strong incentive to preserve the oil wealth, and citizens would increasingly view themselves more as members of the nation and less as members of a tribe or religious group.
Saudi Arabia’s major problems are not external but internal. Instead of seeking military adventures in Yemen recently and Bahrain a few years ago, it should invest time and effort in building truly inclusive institutions that are accountable to the people. The Saudi government’s continued use of oil revenue to pacify potential social and political discontent will fail. The Saudi government needs to be accountable to better serve the Saudi people. The Arab spring is proof of that.
Singapore, an island nation with essentially no natural resource wealth, started in the early 1960s at the same per capita income as Saudi Arabia. It, nevertheless, has vastly outperformed Saudi Arabia (see chart):
The lesson here is that a government controlling the oil wealth has not done enough to bring social contentment and prosperity to Saudi Arabia. A step towards this would be to enable the Saudi people to own equal private shares per capita in their national wealth and derive income from it. Taxation of this private income would then turn the Saudi government more towards serving its people and away from only serving itself.