Saudi deputy crown prince Muhammad bin Salman’s proposal to privatize the oil behemoth Aramco is the biggest news in global business this year. Saudi citizens — not to mention Aramco executives — are stunned. After the January announcement, confusion reigned, with officials at times denying and at other times confirming that exploration and production assets — including the country’s prized oil wells — would indeed be part of the privatization.
In a follow-up interview with Bloomberg on April 1 (once again bypassing Saudi media outlets), the crown prince tried to put a shine on the plan, saying the sale would fund a “$2 trillion megafund” as part of an “Economic Vision 2030” to diversify the economy and make investments the principal source of government revenue instead of oil. The privatization, it was revealed, would happen as soon as 2017, with an initial offering of 5 percent of the company’s stocks.
The thirty-one-year-old deputy crown prince is the Saudi king’s favorite son and has ambitious plans for the country. But the 2015 collapse in oil prices has left him short on cash. His solution: sell the family silverware.
Ministry of McKinsey
Salman’s plan is not unusual. For decades the world’s most powerful institutions have championed privatization. Indeed, the Aramco plan seems to have come courtesy of the “Ministry of McKinsey,” as Saudi bureaucrats sarcastically labelled the world’s most prestigious consulting company.
McKinsey is a relative newcomer in the Gulf, but its meteoric rise in the past decade has rocketed it to the top of the local consultancy market, just like everywhere else. McKinsey’s path to domination in the Gulf has been a peculiar one, however.
It has made its mark by creating grand plans — “economic visions” — for each country. These master plans present countries with a blueprint to transform their entire economies, promising to move them from oil dependency to rich, “diversified,” “knowledge-based” economies.
Drawing up long-term national economic plans is standard practice in statecraft. But usually such plans are devised by national technocrats and experts, in conjunction with elected representatives that are supposed to represent the public. In some unlucky countries in the global south, they are often force-fed such plans as part of “packages” by institutions such as the World Bank and the IMF.
McKinsey faces no such constraints in the Gulf. The region’s rulers are not particularly beholden to either elected bodies or the opinions of local technocrats. Instead, they pay billions of dollars to receive the wisdom of global management consultants (which almost never include locals in their ranks). Saudi Arabia alone shelled out more than a billion dollars for consultants in 2015.
The testing ground for McKinsey’s “economic vision” business line was the Kingdom of Bahrain. There the company teamed up with the young and “ambitious” crown prince in the mid-2000s to draw up the “Economic Vision 2030” — a plan to reform Bahrain into a “competitive” society. Oil-rich Abu Dhabi, the capital of the United Arab Emirates, was next in line for its own Economic Vision 2030.
McKinsey’s made inroads elsewhere. Before Muammar Qaddafi’s fall, the firm was working with the Libyan ruler’s son — then being touted as a visionary reformer — to reshape the country’s economy. In Egypt, they put together proposals to improve various sectors and ministries throughout the country. And in Yemen, it came up with ten economic reform priorities under the patronage of Ahmed Ali Abdullah Saleh, the former president’s son.
If the pattern seems familiar, it is. The company teams up with young heirs to the throne, who are eager to make their countries’ economies conform to their vision of the future. A less palatable similarity for someone like Prince Salman is how many of the countries who drank the McKinsey Kool-Aid became epicenters of the Arab Spring. Bahrain, Egypt, Libya, Yemen — each was convulsed by demonstrations, often animated by economic grievances.
Unlike other firms, McKinsey’s reputation hasn’t suffered from its association with these failed grand plans. It continues to secure lucrative contracts in the region. In contrast, Monitor, once a highly regarded consultancy firm, had to file for bankruptcy in the wake of revelations of its relationship with Gaddafi’s government. And a media controversy erupted in the UK over the London School of Economics’s similar ties.
Indeed, the Gulf is still brimming with consultants of all types. A common joke is that nearly all jobs in state-owned companies and bureaucracies have been “seconded” (business jargon for “delegated”) to consultants of one form or another.
Booz & Company — purchased in 2014 by by the accountancy behemoth PricewaterhouseCoopers — had a very close working relationship with Dubai’s ruling elite. In Qatar, the Rand Corporation implemented a US-style charter school system, destroying the country’s public school system and accelerating the growth of private school vouchers. (In 2014, a new emir took over and unceremoniously booted Rand from the country.) And Kuwait paid a multi-million-dollar fee to a consultancy set up by Tony Blair, Britain’s former prime minister, to sketch out its own economic blueprint.
In short, every Gulf country has commissioned a global consultancy firm to conjure up an “Economic Vision” to guide them into a post-oil future.
These economic visions sound remarkably similar: diversify the economy away from oil dependency, and grow the economy by transforming it into a financial, logistical, and tourist hub. In essence, become Dubai in one form or another.
And the route to success is always through the private sector. In the same interview announcing the Aramco privatization, the deputy crown prince outlined plans to privatize public infrastructure, education, and even health care.
The infatuation with privatization is particularly bizarre in the Gulf. Here the private sector is mainly composed of “family-owned” companies in construction, retail, and hospitality that are subsidy-dependent, plagued by low productivity, and heavily reliant on exploited, poorly paid migrant labor who produce non-exportable services.
In contrast, state-associated companies in the Gulf, whether partially or wholly owned by the government, tend to be more dynamic, productive, and technologically savvy. They have (relatively) better labor relations and hire more local workers. And whether involved in oil, logistics, air travel, or sovereign wealth management, they’re among the most internationally recognized companies the region has to offer.
This does not mean the state-affiliated sector hasn’t seen notable failures — its record is in fact patchy — but in comparison the “family-owned” private sector is in need of a much stronger dosage of reform.
The focus on privatization comes as no surprise, however, given the nature of the management consultancy business, whose focus is geared towards financial corporate “value” as the ultimate metric.
McKinsey’s magnum opus: this might be smart strategy from the point of view of corporate shareholders, but it hardly makes sense when reshaping and running a nation’s economy. In the neoliberal age, however, where a financial value has to be placed on every object and living being, this does not seem so surprising.
Yet, while it’s easy to associate the operations of consultants like McKinsey with neoliberalism and financialization, the Gulf States have been addicted to Western consultants for nearly a century. Indeed, the story of a young, eager pretender to the throne teaming up with Western experts to “diversify” a Gulf economy away from oil will trigger a strong sense of déjà vu for followers of the region’s history.
It began with colonial Britain in Bahrain. In 1923, after deposing the local ruler (Sheikh Isa) and replacing him with his son (Sheikh Hamad), the British brought in an “advisor,” the infamous Charles Belgrave, to help steady the country under its new leadership.
For thirty years Belgrave effectively acted as the country’s prime minister, running everything from Bahrain’s finances to its police system. The British justified their heavy-handedness by trumpeting the economic and material gains the new rationalized and bureaucratized absolutist system produced.
And there were large material gains. Bahrain’s recently discovered oil, along with the continued rationalization drive — in which high government posts were given to British officers and members of the ruling family — created considerable wealth. Bahrain quickly became the neighborhood role model from Britain’s point of view — as did Belgrave. Educated at Oxford and SOAS, Belgrave personified the kind of colonial adviser the British installed in the early twentieth century under its system of colonial “indirect rule.”
Kuwait, with oil reserves that made Bahrain’s look like small potatoes, beckoned next. A major general was brought in to oversee the “Development Department,” and a colonel was parachuted in to control finances.
But Kuwait’s emir was more resistant than Bahrain’s, and — aided by the balance of local and regional forces at the time — he managed to deny the British ultimate control. Instead, the emir staffed Kuwait’s local bureaucracy with a mix of ruling family members, local notables, and technocrats from nearby Arab states, particularly Palestine and Syria.
King Abdulaziz, the first ruler of Saudi Arabia (which unlike every other Arab state was never colonized by the West) adopted a similar approach. He assembled an eclectic mix of bureaucrats that included Hafez Wahba, the Egyptian AlNahda reformer, and St John Philby, the British Arabist famed for defecting from British services to work for the king and converting to Islam.
By the 1950s British colonial administrators were no longer in vogue. This postcolonial period of “encountering development” brought a new obsession amongst Western states and their allied institutions about the material improvement of the recently independent “developing countries.” Demand shifted to “development” experts, particularly from the United States.
At the top of the heap were economists. Instead of colonial administrators, institutions like the World Bank and the International Monetary Fund moved in to implement a high-modernist vision of societal reorganization that reflected what the “al-Khabeer Al-Ajnabi” — the foreign expert — deemed best for the people under the scrutiny of his “bird’s eye” gaze.
Thus, after a financial crisis brought Saudi Arabia to its knees in 1957, King Saud welcomed consultants from the IMF and the World Bank to reorganize the monetary and fiscal foundations of the country’s economy. In a similar vein, the Saudi government commissioned a group of Stanford economists a decade later to devise the country’s first five-year economic plan (and simultaneously commissioned a Harvard team to evaluate the Stanford team’s work).
The Ford Foundation, the UN, the International Labor Organization, the IMF, the World Bank, and a vast army of international technocrats regularly filled the planes landing at the Gulf’s newly built airports.
The National Technocrats
But while international advisors were ever-present, the postcolonial years also witnessed the gradual “nationalization” of state economic planning. The Saudi Kingdom’s “Central Planning Organization,” established in 1968, epitomized this process, but a similar trend was evident across all the Gulf countries.
Ultimate decision-making remained the sole prerogative of the ruling families, but young, idealistic, highly educated national technocrats — sometimes even former members of revolutionary parties themselves — increasingly found their way into state institutions.
Indeed, at one point after independence in the 1970s, Bahrain was rumored to have seven ex-Baath party members heading its various ministries. Similarly, Saudi Arabia’s 1961 cabinet contained a number of Arab nationalists and leftists. A mix of developmentalism, nationalism, and deference to the royal family prevailed among this new national technocratic cadre.
The development plans laid out and enacted from the 1960s to the 1980s were radically different from the neoliberal “economic visions” of McKinsey and company today.
Reflecting the zeitgeist of the times, the language of the plans was filled with references to “development,” “the Arab world,” “regional cooperation,” and “industrialization.” How much of this was reflected in reality is debatable, but it was markedly different from the watchwords of today: “competitiveness,” “growth,” “privatization,” financialization.
Probably the most famous and radical of these technocrats was Abdullah Al-Tariki — or “the Red Sheikh,” as Americans disdainful of his left-leaning aspirations dubbed him. Al-Tariki was not only a seminal figure in the Saudi and Arab world, but in the Global South as a whole.
During his 1950s and ’60s stint as Saudi oil minister, he was the main driver with Venezuelan minister Juan Alfonso to form OPEC. He was also one of the most vocal and powerful proponents of nationalizing oil assets in the developing world, popularized by his slogan “The oil of the Arabs for the Arabs.”
Back then, Aramco was owned by the American behemoths SoCal, Texaco, Exxon, and Mobil. Al-Tariki paved the way for national states, rather than multinational oil conglomerates, to control oil production.
American diplomats, multinational oil companies, and reactionaries in the royal family hated Al-Tariki with a passion. Eventually they teamed up to ensure that he and other progressive colleagues would be fired or sidelined.
After Al-Tariki’s ouster in the early 1960s, Saudi rulers began selecting technocrats that would conform to royal dictates. National technocrats, while still entrusted with more power than Western consultants, would now steer the economy with barely a hint of radicalism.
This system was autocratic and unaccountable, committing many of the follies of “high modernism” seen elsewhere in the world, including white elephant projects such as the disastrous wheat export program that nearly drained the country of all of its sweetwater reservoirs.
However, it also produced a modern state bureaucracy in the Gulf and a broad welfare state that extended health care, education, housing, infrastructure, electricity, and running water to the general public. These achievements, often discarded in many of the Left’s discussions of the period, should be recognized and evaluated alongside the grand failures of statist developmental planning.
For its part, colonial Britain, its involvement diminished in the northern parts of the Gulf, shifted its focus to the Southern Gulf, particularly the UAE and Oman.
Within five years, the British had deposed three rulers in the southern Gulf (Sharjah in 1965, Abu Dhabi in 1966, Oman in 1970). Their reasoning was that these ancien regimes were obsolete in an era of economic modernization. Internal rule had to be reorganized to cater to “development.”
Bill Duff epitomized this modernization. For decades he was the right-hand man to the ruler of Dubai, and “helped transform Dubai from desert outpost to global megacity.” Meanwhile, in Oman, a legion of “advisers” practically ran the country after deposing its ruler and replacing him with his son in 1970. The most famous of these advisers was the trinity of Timothy Ashworth, Tim Landon, and David Bayley — all three of whom had a military background and were extensively involved in setting up the modern Omani state bureaucracy.
Citizens, Financiers, and Oilers
A common thread in all these economic visions — whether developmentalist or neoliberal — is the near-total absence of participation by citizens themselves. This is not unusual for the Gulf states.
The region’s people suffer a double form of disdain: their autocratic rulers consider them unworthy of playing any role in decision-making, and many around the world, including “progressives,” tend to write them off as denizens of oppressive rich states. Rarely are they granted any agency.
People in Saudi Arabia are increasingly contesting these warped visions, in no small part due to higher knowledge accumulation. From 2005 to 2014, enrollment in higher-education institutions skyrocketed from 432,000 to roughly 1.5 million.
In 2014, the number of Saudi students studying abroad reached 130,000 (half of whom are in the US). Nearly 32 percent of working Saudis have university degrees, comparable to countries in Europe and the United States, and the Saudi market is the largest and most lucrative book market, by far, in the Arab world.
This increasingly educated population is also increasingly online, vigorously debating national and regional topics in an unprecedented manner on social media, where traditional state censorship has proven ineffective.
The country has the highest number of active Twitter users in the Arab world: 2.4 million, or more than double the number in Egypt, a country whose population is three times larger. (Unsurprisingly, millennials — who constitute more than half of the Saudi population — lead the pack in social media use.)
That’s why the deputy crown prince’s decision to hatch a plan in secret with management consultants and announce it to the world on Bloomberg was such a big deal. In the past, circumventing local society was expected. But today Saudi Arabia is an increasingly tuned in, mobilizing society. The question is what form this mobilization will take.
It’s a difficult one to answer because the crown prince’s plan to sell off Aramco was truly shocking. Ever since the oil wells started flowing in the 1930s, the rulers of Saudi Arabia have been wise enough to give Aramco a wide berth, allowing it to govern and operate according to its own ethos as long as it continued to be the golden goose that laid the eggs that sustained the throne.
Moreover, the reliance on Aramco has only grown over time. Since its nationalization in the 1980s, the company has become the main incubator for a large swath of the kingdom’s technocrats.
It is widely recognized as the most well-run Saudi company, and is the number one destination for top graduates. It has even been used by the government to implement flagship national projects, including the construction of stadiums, a $10 billion, state-of-the-art university, and industrial cities.
Indeed, given the pervasive dysfunction exhibited in other governmental ministries, the current focus on reforming the country’s most efficiently run asset seems particularly puzzling and dangerous.
The latest announcements will be a hard pill to swallow for the technocrats of Aramco. Already some high-profile former employees have publicly aired their misgivings, an unprecedented act in the kingdom.
Management consultants of the McKinsey variety are rarely welcomed by the employees of any company, and in this case the causes for hostility and scepticism are magnified tenfold.
The proposals put forward signify the overtaking of Aramco by a trinity of royal family members, management consultants, and corporate financers. And the logic of the prince’s diversification plan seems to be: sell off oil assets for cash, invest the cash in the roulette of financial markets. There’s a reason many Aramco technocrats are queasy.
Nor should the plans sit well with the rest of the population. The Gulf States, Saudi Arabia included, are littered with abandoned “mega-projects” and cities that the finance-management consultancy nexus were the principal architects of, but which turned out to be colossal failures in the midst of the financial crisis.
Moreover, there is no clear vision as to what exportable industries the kingdom will build up to replace its near-total dependence on oil and petrochemical industries. Such exportable industries are the ultimate barometer of the health of any capitalist economy in today’s globalized world. And as the 2007–8 crash made clear, sophisticated financial funds are no replacement.
The policies as currently outlined, based on the whims of an upstart prince and his legion of western consultants and financiers, would reverse the most impressive economic achievement in the Arab world in the past half a century, enabled by Al-Tariki and company: the nationalization of a multinational company that controls production from the world’s largest oil reserves.
The prince and McKinsey seem to believe that selling this national asset in order to gamble in the global financial markets is a more effective strategy for economic prosperity.
Let’s hope the people of the land are able to mobilize against this folly.