I'm still impressed by the “Commanding Heights” documentary I had written about last week. It is said that it is a favorite of the second Saudi Deputy Prime Minister Prince Muqrin bin Abdulaziz, who often gifts the documentary to his friends. He did not offer it to me, I watched it on YouTube, but I only wish that Prince Muqrin would buy the film’s rights and offer it to Saudi state TV, and then instigate a dialogue around it with a few Saudi economists.
I suggest two axes of dialogue after viewing the 6-hour documentary: the first will tackle this question: How different is the Saudi economy, which we all know is a mixed one, from the full market economy, which proved to be the best and most successful model? And the second axis will be on this question: If the famous U.S. economist Milton Friedman was brought back to life –although it is better to look for one of his followers as they are many, (and perhaps we will find a Saudi among them) – and ask him to provide a reform formula for the Saudi economy as Friedman has already done in several countries, what would he suggest?
Focus on economy
What’s important now is to put aside all topics that worry us, waste our time and effort, and rage out our conflicts and differences, and be worried about our economy, and nothing but the economy. We should be worried not only in Saudi Arabia, but in Egypt, Tunisia and every Arab country that wants to convert the Arab Spring into a grace, not a curse that would ruin the nations and create wasted opportunities.
We should start economic discussion by defining and characterizing the country’s economic situation. “Commanding Heights” is based on the theory that the battle over economic ideas ended in favor of the market economy after decades of tough experiments some of which were bloody. Economic theories ranged between the direct and the mixed formulas, where the countries promote market freedom, and at the same time, control the main influential sectors such as energy (oil, coal and electricity), transport, ports and heavy industry, reaching the full market economy, where the state is just a supervisor and organizer.
It allows the market to sort out its business according to its regulations: today this is the theory applied by most economists, most often students of Milton Friedman, mainly the great student of the Austrian market’s economic theory Friedrich Hayek.
If we abided by this theory and brought one of its masters and then asked him to implement some reforms in the Saudi economy, he will begin with identifying the Saudi economy’s problem. There is no “hyperinflation” problem, nor scarcity of goods in order to suggest market liberalization, but we have a mixed economy: the state is controlling the commanding heights, where oil industry companies (such as Saudi Basic Industries Corporation (SABIC)) exist, then it expands its control to banks (such as National Commercial Bank and Riyadh Bank) and face huge stakes in telecommunications and electricity companies. As for water, air transport, ports and railways, they are in the possession and fully managed by the state, so what’s the economy’s problem? Apart from the oil industry, SABIC, banks and telecommunication companies, the rest of the companies referred to, are facing an operating loss with poor performance. If the state privatizes it with its regulations and the pricing of the current services, no one will accept to buy its shares, as it is a sure loss of capital, but if the state left it free without any interference, this would increase its price. And since the state is rich due to oil revenues, it is still able to spend money on it but is that a correct formula for a changing future?
Along with the importance of the future and its plans, worrying about the future has become an indulgence in our society, in light of our current concerns. Therefore, the oldest model we are currently enduring is the housing crisis, and dealing with it according to the “Principles of Economics”; we will find here an economy that is almost totalitarian, because the state is the sole developer, financier (for the project and the citizen) and marketer. It does not even give the consumer the right to choose the flooring of his apartment, whether ceramic or parquet, and thus, it fails to provide the required product, even after two years on the command of the Custodian of the Two Holy mosques to build half a million housing units.
I think that Milton Friedman’s student, who believes in market freedom, would have called for the withdrawal of the state from the housing market, and let it only be the regulator that establishes a legislative structure of mortgage and financing systems, a judicial environment controlled by contracts, and powers that protect the financers’ and developers’ rights. But before all this, the regulator should put an end to the monopoly of properties that violates all the rules of the free market, and even Islamic law. He will then leave the real estate market to organize itself by itself. If this happens, Saudi cities will be bursting with construction sites in response to the growing demands that will fill the tremendous deficit in the market. Moreover, the prices will fall and there will be a huge variety of choices, and will definitely be faster than the Saudi housing ministry.
Since “parental guidance,” according to older traditions, will always remain Saudi Arabia’s favorite policy, the state and its institutions should help their employees or new graduates by giving them a down payment on new property, or by providing the necessary guarantees.
Our economy is not entirely directed under the Marxist formula and it is not an absolute free-market economy akin to that of the U.S. It is rather a private and mixed case that is not directed. The state does not interfere in the pricing (with a few non-tax exceptions). The state does not have effective and influential tools, such as a gigantic and free capitalist in the real estate field, but rather it intervenes in the cement and steel market despite the fact that the three should always come together. Some nag about government requirements such as air transport and electricity, and so, there are no pressures on local labor, but it rather causes a pressure on the economy through unemployment, poverty and the erosion of the middle class.
I think that it is time for Saudi economists to be the final decision-makers, and it is time to give them a free space in the media, so we would convert into a normal economy that can survive with or without the oil revenues.
This article was published in Al-Hayat newspaper on Feb. 16, 2013.
Jamal Khashoggi is a Saudi journalist, columnist, author, and general manager of the upcoming Al Arab News Channel. He previously served as a media aide to Prince Turki al Faisal while he was Saudi Arabia's ambassador to the United States. Khashoggi has written for various daily and weekly Arab newspapers, including Asharq al-Awsat, al-Majalla and al-Hayat, and was editor-in-chief of the Saudi-based al-Watan. He was a foreign correspondent in Afghanistan, Algeria, Kuwait, Sudan, and other Middle Eastern countries. He is also a political commentator for Saudi-based and international news channels.