PRÁCTICAS COTIDIANAS Y DEPORTIVAS DE LOS PADRES Y/O

1970s Oil Boom→ Government Distribution of Wealth and Land → Creation of New Elites → Elites Enter the Real Estate Market → White Land → Housing Crisis → Weak Government Intervention

3.2 1970s Oil Boom

The oil-boom in the 1970s as due to an increase in global demand for oil and the 1973 oil embargo13 decreased the supply of oil in the international market and, correspondingly, raised the price of oil. The impact of the rising price of oil on Saudi Arabia was so significant that in 1974 oil income for Saudi Arabia was $22.6 billion dollars (around $200 billion dollars in relative value nowadays) (Looney, 1984). In fact, this income alone in 1974 is more than all previous annual income combined (Looney, 1984). This windfall income for a new state that was united in 1932 translated into new government behavior in the domestic economy, to say the least. It is interesting to know what did the Saudi government do with all this wealth.

The Saudi government started to invest in infrastructure, build and expand existing bureaucracies and create new ones (Chaudhry K. A., 1997). The government transformed from being extractive, in a sense it used to depend on fees and taxes to finance the bureaucracies, to

13 _{Due to the Unites States’ military assistance to Israel during the 1973 Arab-Israeli war, Arab member states of}

distributive as the new wealth enabled it to finance itself (Chaudhry K. A., 1997). This also changed the relation between the government and businesses, guilds and merchants; they became subordinate to the government as it took full control of their activities (Chaudhry K. A., 1997). This control should not be confused with a socialist take over by the government, rather, their activities in the economy highly depends on the government to succeed. As Chaudhry (1997) argues, “Business, once a staggeringly diverse collection of guilds, merchant associations, and independent traders, had been transformed into a much smaller, nationally organized corporate group with strong formal ties to the bureaucracy” (Kindle Location Page 3479).

What is also interesting about the impact of the oil-boom era in Saudi Arabia is how the government managed to take the lead in the economy without social protest from the previous beneficiaries (Chaudhry K. A., 1997). Indeed, the ease by which the transformation of the bureaucracies from extractive to distributive seemed to have pleased individuals that paid taxes (Chaudhry K. A., 1997). This result can be claimed as a success by the Saudi government, as it did not accumulate all of the new wealth to itself and not distribute it. The Saudi government distributed a large part of its oil revenue to the society by new creating new jobs and investing in infrastructure. To the Saudi government’s credit, it could have taken most of the wealth and invest little into the country like some other oil rich countries had done, but it did not do the same comparatively.

With respect to taxes, the Saudi government abolished many of taxes (Chaudhry K. A., 1997). Among those taxes that were abolished were foreign companies’ taxes that were canceled for five years, income taxes on foreign workers were abolished, road taxes and some commodity taxes were also canceled (Chaudhry K. A., 1997). This tax cancelation policy also reached the religious tax zakat (religious tithe) as “the government simply stopped collecting zakat in 1976”

(Chaudhry, 1997, Kindle Location Page 3569). What we can discern from these actions is what the literature on the resource curse informs us of some implications of windfall resource income; governments, by virtue of this new income, can independently finance itself and, thus, taxation is not necessary. An example of the government’s abandonment of taxation was clearly exemplified by the fact that the position of director of revenues was vacant for four years, between 1974 and 1978 (Hertog, 2010).

An important emphasis in the literature on rentierism is placed on the ability of the rentier states to survive by ‘buying off’ the society to insure they will not make political demands (Mahdavy, 1970; Beblawi, 1987). “This is problematic, because people are rarely that apolitical or, let us say, naïve. Although people are provided with all kinds of welfare, it is still not likely that they will turn their blind side to obvious nepotism, corruption, lack of rule of law, absence of transparency and non-existence of democracy. Given that the Saudis are very much exposed to the outside world, it is completely unlikely that ideas of an alternative political order do not find fertile ground (Stenslie, 2012, p. 13-14). Hence, we should not misunderstand the information I am mentioning about the abolishment of taxes as being the rentier effect that enabled the Saudi government to survive. As my theory indicates, authoritarian governments employ different strategies to survive and this dissertation reviles a new strategy of survival, the strategy of land distribution.

The end of the extractive nature of the Saudi bureaucracies might have pleased tax payers and consolidated the centralization of the state. However, that came with a cost to the government’s micro data on residents’ incomes14 (Chaudhry K. A., 1997). When crucial income

14 _{Hertog (2010) does not agree with Chaudhry’s (1997) argument here, as he argues that the bureaucrats at the}

time were simply “uninterested in systematic collection of information on activities outside of their agencies” (Hertog, 2010, p. 76). This is quite obvious because the main employer was the government and, thus, it already had detailed information on a large amount of Saudi employees’ incomes.

data is not available, it will bring negative consequences for the state in allocating unnecessary funds to welfare programs to individuals who are not in need. The negative consequences were felt recently as the Ministry of Social Affairs (now Ministry of Labor and Social Development), which is responsible for giving out welfare paychecks to the poor and disabled, found out that it was paying people who own land and are wealthy (Al Khamsani, 2016).

In the 1970s, before and after King Faisal’s assassination15_{, King Fahad (when he was}

prince) surrounded himself with technocrats with clear dedication for development and investment in Saudi Arabia (Hertog, 2010). The implications of the expansion of the state reached far “to provide state-of-the-art infrastructure free and comprehensive public services, employment guarantees, and the conditions for industrial growth as quickly as possible” (Hertog, 2010, p. 85). This not only reflects the expanding nature of the Saudi government, but also to its credit it indicates a clear dedication of the government to invest and develop the nation.

The new distributive nature of the Saudi government is translated into distributing the new oil wealth. The perks of this distribution were not confined to elites, although they have received the lion’s share, it spread to citizens by massive public sector guaranteed jobs. Public sector jobs had risen “from 96,000 in 1972 to 298,000 in 1983” (Chaudhry, 1997, Kindle Location Page 3620). Public sector jobs were lucrative (Chaudhry K. A., 1997) and are still to some extent nowadays.

The 1970s oil-boom was a major factor that enabled the Saudi government to expand. Once in the past when the government relied heavily on fees and taxes to finance itself, now it is free from that burden. The burden I mean here is the fact that the Saudi government prior to the oil-boom had to negotiate with prominent society figures and heads of tribes (Chaudhry K. A., 1997). The position of the state was weaker than its strong position afterwards. Indeed, Chaudhry

(1997) argues that prior to the oil-boom, the Saudi government had hard time levying taxes as it was not an easy process and it was met by some resistance. This resistance to taxes is quite obvious in authoritative countries, because the state is imposing taxes on people that are not participating in government decisions.

The centralization of the state changed geographically as the ministries and embassies that were located in the city of Jeddah in the Western province relocated to Riyadh the capital in the Central province (Chaudhry K. A., 1997). This relocation happened when King Khalid assumed the throne after his brother King Faisal died. New ministries “were created in the 1970s: Justice; Higher Education; Industry and Electricity; Municipal and Rural Affairs; Planning; Housing and Public Works; and Post, Telephone and Telegraph” (Stenslie, 2012, p. 64).

The first Central Planning Organization that was established in 1970 during King Faisal started a five-year development plan that ended in December 1974 (Hertog, 2010). The second five-year development plan’s expenditure allocation was five times more than the first one with a total of 500 billion Saudi Riyals (Hertog, 2010). This government approach in investing in infrastructure marked the beginning of the private sector’s dependency on government spending.

3.2.1 Land

This was the golden era for real estate development companies. “The Real Estate Development Fund made interest-free loans for the purchase and development, residential and commercial, of urban land” (Chaudhry, 1997, Kindle Location Pages 3675-3676). With a domestic economy that is fed by the input of oil revenues and an economy that is undiversified, the real estate market is by far the most lucrative market in the kingdom. Due to government spending on infrastructure projects by virtue of oil revenue, the prices of land have increased rapidly. It was from this period of the oil-boom time where the ownership of land became a

golden opportunity. Real estate and housing development “were potential sources of large-scale capital accumulation” (Chaudhry, 1997, Kindle Location Page 3735).

As Chaudhry (1997) argues, growth was the only end the Saudi government aimed for during the oil-boom days. There was no clear plan before the exogenous impact of the price hike of oil (Chaudhry K. A., 1997). What we can learn from this period is that the Saudi government changed institutionally from extractive to distributive and, accordingly, state-society relations drastically changed. The new distributive institutional form of the government increased the values of businesses, trade, commodities and most importantly land. Our central focus of this era is the impact of distribution on the value of land. The government’s spending on infrastructure expanded major cities rapidly and, thus, land ownership started to become an important means for profit. Now we turn to the second variable that resulted from the oil-boom era to see how the government distributed land and who were the main beneficiaries.