Despite the steady flow of oil revenues Ibn Saud (1902-1953) spared very little oil revenue on societal development, apart from the subsidies and grants extended to tribal chiefs. His successor, the eldest son Saud, made no significant budget changes, except to squander oil revenues. King Saud funneled much of the oil revenues to his personal usage, building lavish places and leading an extravagant lifestyle.204 It was not until his half-brother Crown Prince Faisal took control that a policy of internal validation emerged.205 Helped by oil resources, Faisal adopted a course of actions aimed at reinforcing the legitimacy of the royal family at home. In 1962 a modernization program was initiated with a decree of the ten-point program. Points six and nine were concerned with duties of the government toward its citizens, especially the improvement of living standards.206 These two points enumerated various government programs and initiatives, such as free health and education, subsidies to industries, and additional allocations to development projects.207Although the range and the magnitude of such services were still at a nascent stage, they were far more than what the government had offered in previous decades, which was little more than order and security. The intended purpose of the provision of socio-economic services was to increase the base of legitimacy. In effect the state was forging a secondary accord with the society in which political loyalty and acquiescence were exchanged for economic and social rewards.
New institutions were set up to oversee the development of social services, including health, education, transportation, and religious affairs. For instance, nine new ministries were established with specialized directives and budget allocation. These are the Ministry of Education (1953), Ministry of Health (1953), Ministry of Agriculture (1953), Ministry of Transportation (1953), Ministry of Commerce and Industry (1954), Ministry of Petroleum (1961), Ministry of Pilgrimage (1962), and the Ministry of Information (1963). The budget allocation to these ministries (including salaries, general expenditures, other expenditures, and projects) jumped from 658 million SR in the fiscal year 1965-66 to 931 million SR in the fiscal years 1969-70. The creation of a highly centralized bureaucracy, with diversified and specialized ministries, agencies, and departments greatly enhanced the ability of the state to penetrate and control the various activities of the society.
204
By 1958 the Saudi government was in a financial crisis, with a debt amounting to 480 million dollars. Largely the crisis was a result of Saud and his government’s extravagant spending and unsound financial regulations. See Holden and Johns, The House of Saud, 199.
205
During much of the 1950s and early 1960s, King Saud and his half-brother Crown Prince Faisal were locked in a power struggle. Because of his incompetent leadership, Saud was forced to abdicate under strong pressure from senior princes and the `ulama′. Full transfer of power from Saud to Faisal took place in 1964.
206
Interestingly enough there was no mention of obligations toward the state. 207
For a full text of the ten-point reform program, see Gerald de Gaury, Faisal: King of Saudi Arabia, (London: Arthur Barker Limited, 1966), 147-151.
The civilian bureaucracy in itself served as a vehicle for employment. For instance, in the fiscal year 1965-66, the nine ministries collectively added approximately 66,460 jobs. The number is even higher after including jobs from the Ministry of Interior which nearly doubled, from 7245 in 1959 to 12790 in 1965. In contrast to 1950, with only a few hundred civil servants, by 1965 the civilian bureaucracy had 101909 jobs. Expenditures on salaries of all civil servants, as shown in table 13, represented more or less one-third of total revenues and even higher as percentage of oil revenues.
Table 13. State Expenditures on Salaries and Compensations, 1959-1969
Fiscal Year Total (Million SR) Percentage of Total Revenue Percentage of Oil Revenue 1959-60 411 29.25 35.77 1960-61 583 32.64 41.35 1961-62 577 26.64 34.3 1962-63 651 26.55 33.37 1963-64 1017 37.86 44.53 1964-65 1112 35.73 42.65 1965-66 1255 31.68 39.48 1966-67 1370 27.26 34.36 1967-68 1433 29.03 40.26 1968-69 1600 28.9 37.71
Source: Compiled by the author from Ministry of Economy and Planning, Annual Statistical Book, 1965 and 1970.
The government’s role in the economy also drastically grew in more than one way. It enacted new market regulations, increased spending on development projects, and established initiatives for expansion of the public sector. For instance, as shown in table fourteen, as a percentage of oil revenues, allocation to development projects was tripled by 1968-69. In order to increase its grip on the private sector the government employed chambers of commerce for assistance on variety of economic issues, including advising the government, gathering information on imports, and the implementation and enforcement of policies. In return for their services, the government provided them with significant subsidies.208
The private sector was driven toward dependence on the government. Massive spending on development projects served as another channel of oil wealth redistribution in the form of rewarding lucrative contracts to the private sector. State-owned corporations were set up and allocated subsidies, playing different but active roles in the economy. For instance, the General Petroleum and Minerals Organization (Petromin) was mandated
208
According to Chaudhry, chambers of commerce began receiving subsidies in 1961, starting with the Riyadh Chamber of Commerce. In 1969 the Chambers of Jeddah, Riyadh, and Dammam were receiving an annual subsidy of SR 750,000. For more information see Chaudhry, The Price of Wealth: Economies and Institutions in the Middle East, 88.
to the development of commerce and industrialization in the area of petroleum; the Saudi Airline was overhauled and expanded to cover many destinations around the world; the Railroad organization was to oversee the development of a large-scale road-building program.209
Table 14. State Expenditures on Development Projects,210 1960-1969
Fiscal Year Total (Million SR) Percentage of Total Revenue Percentage of Oil Revenue 1960-61 205542 11.51 14.58 1961-62 289242 13.35 17.2 1962-63 377091 15.38 19.33 1963-64 443651 16.52 19.42 1964-65 774191 24.88 29.7 1965-66 933644 23.57 29.37 1966-67 1145120 22.79 28.72 1967-68 1747208 35.39 49.09 1968-69 1964701 35.49 46.3
Source: Compiled by the author from Ministry of Economy and Planning, Annual Statistical Book, 1965 and 1970.
5.2.2 Internal Balancing
The capability of the state improved, because the oil concession between the Saudi state and ARAMCO was beginning to pay off politically and economically. Whereas ARMACO, backed by the United States government, enjoyed full control over Saudi oil, the territorial integrity and the Saudi state, as well as the reign of the Saudi royal family, became part and parcel of the United States oil interest in the region. Acting on its own interest, as much as on the interest of the Saudi royal family, the United States reversed its policy of ambivalence and became directly involved in the security of the kingdom.211 In 1950 the United States responded to the plea of King Ibn Saud for military assistance by abandoning the year-to-year arrangements and endorsing a more substantial agreement.212 Although short of a full-fledged military alliance with the United States, King Ibn Saud was offered and accepted a security package which provided military and
209
Total government subsidies in the period of 1965 to 1969 were: 41 million SR for Railroad Organization; 10 million SR for Petromin; 210 million SR for Saudi Airline.
210
Such development projects included: education, health, communication and transportation, agriculture and water, and unspecified projects.
211
Consider for instance, the statement by Assistant Secretary of State George McGhee that the United States “will take most immediate action at any time that the integrity and independence of Saudi Arabia is threatened.” Quoted in Safran, Saudi Arabia: The Ceaseless Quest for Security, 66.
212
According to Safran the offer consisted of five components. The Saudi part of the deal included: first, treaty of friendship, commerce, and friendship; second, support from American technicians; third, loans from the American Export-Import Bank; fourth, military aid program including arms and training. For its part the United States was granted a long-term lease on the Dhahran airfield; see Safran, Saudi Arabia: The Ceaseless Quest for Security, 66.
financial assistance.213 In 1951 the two countries signed the Mutual Defense Assistance Agreement (MDAA), which laid down the foundation for a close relationship based on arms sales and military training that has grown over the years into a price tag worth many billion dollars.214 As part of the MDAA, King Ibn Saud agreed to extend the lease on the Dhahran airfield for five years, while the United States began to supply military equipment and deployed a military training mission to build up the Saudi armed forces. The American training mission was formally reestablished in 1953 as the American Military Training Mission (USMTIM), which has become the cornerstone of the United States-Saudi Arabia military relationship. The USMTM was charged with all aspects of building up modern Saudi armed forces, as stated in the USMTIM Mission Statement: “USMTM was chartered to assist and advise the Saudi Arabian Armed Forces with respect to the building of military equipment, plans, organization, administrative procedures, training methods, and the conduct of such training.”215 As a result of the USMTIM mandate to modernize the Saudi armed forces, the kingdom acquired modern military equipment including aircrafts, armored cars, tanks, and the pricey 300-million- dollar air defense system.216
Increment in oil revenues led to greater expenditures on defense and security. The accrued oil revenue relieved the state from the cash deficit burden that is typical of Third World countries, but also provided the Saudi state substantial financial resources to shape its security environment. It facilitated spending on the creation and upgrading of external defense capability and internal security apparatuses. Figures in table 15 show that total spending steadily increased in the 1960s, with a considerable jump in the fiscal year 1965-66. The bulk of the security budget allocation, however, went to the Ministry of the Interior. For the fiscal year 1965-1970, in comparison to the 12-20 percentage allocated to the Ministry of Defense, 70-80 percent was allocated to the Ministry of the Interior, and even a little higher if other security apparatuses were included, such as the Intelligence Bureau, the Ministry of Information, and National Guards. The figures also provide a good insight into the security concern of the kingdom and the manner of responses adopted by royal family. The government invested heavily in the internal security apparatuses, mainly because the Saudi state was by far more concerned about internal instability. External security for the most part was outsourced to the United States.
213
The offer was accepted with one caveat – the Dhahran leased was to be extended for five years rather than a longer-term arrangement.
214
According to a study conducted by the Congressional Research Service, from 1950 through 2006 Saudi Arabia purchased from the United States military weapons, military equipment, and related services worth more than 62.7 billion dollars, approximately 19 percent of all foreign military sales. Additionally, during the same period, the Kingdom purchased foreign military construction services (FMCS) worth over 17.1 billion dollars, amounting to 85% of all FMCS sales. See Christopher M. Blanchard, Saudi Arabia: Background and U.S. Relations, CRS Report for Congress. Online version is available from http://www.fas.org.
215
The online version of the Mission Statement is available from http://www.usmtm.sppn.af.mil/ 216
For more information on the type of military equipment Saudi Arabia purchased during the 1950s and 1960s, see Safran, Saudi Arabia: The Ceaseless Quest for Security, 103-112.
Table 15. Defense and Internal Security Allocations (Million SR), 1950-1970 Security Expenses 1950- 1951 1954- 1955 1957- 1958 1958- 1959 1960- 1961 1962- 1963 1965- 1966 1967- 1968 1968- 1969 1969- 1970 Ministry of Information - - - 75 107 100 99 National Guards - - 60 55 55 61 188 202 234 234 Royal Guards 16 11 14 16 18 18 22 - Intelligence Bureau - - - 15 16 16 18 Ministry of Interior 12 82 87 107 121 183 3473 3859 4561 5651 Ministry of Defence 100 472 310 196 180 278 541 1248 1217 1587 Total 112 554 473 369 370 538 4310 5450 6150 7589
Source: Compiled by the author from Ministry of Economy and Planning, Annual Statistical Book, 1965 and 1970