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Vision 2030: Winners Take All?
Shortly after it was unveiled,The Economist questioned whether Vision 2030 was a “vision or mirage.” The notion that the Kingdom of Saudi Arabia (KSA) would transform its economy from a stereotypical resource-rich state to a post-industrial market economy in a little over a decade has been greeted with more than a degree of skepticism. Some skeptics point to the J-curve as justification for their disbelief. The J-curve suggests that states begin at a stable, but impoverished status quo. Reformers promise prosperity tomorrow in exchange for painful reforms today. Economic suffering is believed to unite the losers (from managers of state-owned enterprises to pensioners) in a coalition of spoilers. Leaders create a coalition of winners to sustain and carry out future reforms. “Winners” often include new shareholders and owners of privatized industries. Coalitions of winners are often thought to be inherently interested in pushing for complete liberalization, moving the state through the dark days of the “valley of transition” into the “ascent” of recovery and, finally, the “plateau” of stable liberalization and prosperity. However, if we are to apply any lessons from the challenges of economic reform from the post-Soviet era, it is the initial winners, not the losers, who pose the greatest challenge to long-term, substantive economic reform in Riyadh.
In a recent session chaired by the Deputy Crown Prince himself, Saudi Arabia’s Council of Economic Development Affairs (CEDA), approved Vision 2030. Vision 2030 entails several components, including increasing non-oil revenues from $43.6bn to nearly $267bn by 2030; privatizing 5% of Saudi Aramco and transforming it into a holding company; increasing the role of mining and solar companies in the Saudi economy; cutting the welfare state; and privatizing the state-owned military sector.
In early June 2016, the Deputy Crown Prince presented the National Transformation Plan (NTP), which provided details for how KSA will meet several of its goals by 2020. The 112-page document included $350m USD to prepare for the sale of the state-owned postal service; increasing the role of the private sector in the provision of healthcare from 25% to 35%; $6.4bn USD for education reforms; and privatization of half of the railways and 70% of the state’s ports, including the selloff of the General Ports Authority. The NTP also included an import-substitution scheme designed to bolster manufacturing in KSA as well as proposals to bolster tourism, and cut the civil service by as much as one fifth while hiring more women.
Students of political economy often invoke the “J-Curve” to explain the political challenges economic reformers face. The J-Curve has five stages of transition, from (1) the plateau to (2) the cliff to (3) the valley of transition, followed by (4) an “ascent” to prosperity, concluding with (5) a new “mountaintop” of stable liberalism.
Those who are likely to lose in the short-term from reforms – such as pensioners, the impoverished, and striking workers – have incentives to lock arms to form impregnable political blocs.
Many Western experts on comparative political economy have designated specific mechanisms to ensure reforms come to fruition. These have varied from authoritarianism itself to high levels of autonomy for executive decision-makers and technocrats as well as substantial levels of support from foreign patrons. So, if the J-Curve is correct, while Saudi Arabia may be in for a bumpy ride, intuition would tell us that it is in an ideal position to carry out the necessary reforms in order to ultimately bring down entrenched unemployment.
The J-curve suggests that short-term losers from Vision 2030 pose the greatest threat to the Kingdom’s economic liberalization. This starts with the managers of state-owned oil military industries, employees in soon-to-be privatized state-owned enterprises (from ARAMCO to KSA’s postal system, railways and ports), elements of the civil service facing unemployment as well as members of the public who will suffer from cuts to their subsidies from the state. By contrast, the “winners,” which include the owners/shareholders of recently privatized enterprises (from ARAMCO and the military industry in KSA to significant portions of the Kingdom’s ports and railways, mining concessions and postal service), and the private healthcare and tourism industries should form a counterbalancing coalition in order to sustain their own gains and push for further reforms.
However, the post-Soviet experience shows that the biggest threat to sustainable reform is not the disadvantaged, but rather the short-term winners. In an oft-cited article, Joel Hellman points to a phenomenon he terms “winners take all.” In several former Soviet and Warsaw Pact states, privileged insiders and their allies who initially benefited from partial-reforms, starting with privatization of state-owned enterprises locked-in their gains and engaged in asset stripping. Contrary to the predictions of the J-Curve, they did not lobby for further economic liberalization.
There are a few measures to mitigate the “winners take all” problem. One mechanism is the development of a significant private sector to guard against state intrusions and rent-seeking. The presence of functioning free markets have helped to curb (but not completely eliminate) government intervention in the market in several post-socialist cases, starting with Poland and the Czech Republic’s “shock capitalism.”
A second mechanism is to include the very groups thought to pose the greatest threat to reform: the short-term losers. Political inclusion is a sure-fire antidote to potential spoilers. Such inclusion has proven critical to preventing elites that benefited from reforms from hijacking the state and engaging in asset stripping in the more successful post-socialist states (again, Poland and the Czech Republic). Even non-democracies are sensitive to public opinion. Elections, such as the municipal elections recently held in KSA, give citizens a stake in the state’s preservation. In accommodating a diversity of positions, wider coalitions of winners are built.
Saudi Deputy Crown Prince Mohammed bin Salman’s Vision 2030 is the most dramatic series of economic reforms the Kingdom has ever seen. In order to succeed, proponents of the NTP need to be as wary of the short-term winners as they are of the potential fallout from the underprivileged and those on the wrong side of liberalizing reforms.
Albert B. Wolf is an Assistant Professor of International Relations at ADA University in Baku and an Adjunct Fellow at the American Security Project. He served as a foreign policy advisor to the Graham and Kasich presidential campaigns.
