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Saudi Arabia, rush to development
Ragaei El Development University Press, Baltimore, MA, 1982) pp. 472.
(Johns Hopkin,;
The evident scope of this volume by Dr. Ragaei El Mallakh is, fundamentally, to inform and to describe. The economy of Saudi Arabia - in terms of its modem economic history, its governmental institutions, znd its economic data -- is laid bare. In short, it is a solid and major reference work on Saudi Arabia. While the amount of information in this volume is extensive, a careful reading lads one to raise questions concerning in-depth analytics, added insights and perspectives about the Kingdom. El Mallakh, given his contacts in the Kingdom and his writings elsewhere, certainly has a firm grasp in this regard. Accordingly, one must utilize this volume with its largely informational scope and complement it with other writings, including those of El Mallakh, in order to gain an understanding of the dynamic Saudi economy and its people. Contents
The issue of development, lying in the realm of r;olitxal economy, can be namely, (I) economic theory, (2) the viewed in three perspectives institutional framework, and (3) the politics of economic decision-making. It seems appropriate lo discuss the content of this book in these three dimensions. Even abstracting from significant aspects of international politics and defense, such perspectives are difficult in the case of Saudi Arabia. El Mallakh has laid a solid informational foundation for viewing this threedimensional space. The information provided in this volume is impressive. El Mallakh displays arrays of data concerning Saudi Arabia, including oil reserves, employment by economic activity, hectares of irrigated land and the planned expansion of cement plant capacity. The inevitable conclusion to be dr3wn from this cornucopia of data is that Saudi Arabia clearly has been experiencing a dramatic economic boom over the past decade. As El Mallakh observed in his Foreword, he did find a lag in the publication of statisticztl data. While regrettable, such obstacles are understandable. In some cases, however, where oficial data are delayed, alternative sources, if reliable, perhaps should have been considered. For example, the latest annual oil production figure is from 1979; more recent reliable data probably could have been :eferenced and used. After observing the solid informaticn foundation for exh of (at least) three perspectives on Saudi development, let us return to the First perspective economic theory. Wisely perhaps, EI Mallakh has not set forth a precise comprehensive economic theory in approaching the issue of Saudi
388
Book reviews
development. Certainly, he does raise some theoretical issues that have a hating on development in Saudi Arabia. In the Appendix, for example, he presents and develops the concepts of economic development and absorptive capacity. While largely a traditional discussion, it is useful. He is prudent to avoid the pitfalls of a quick and easy definition of development. Moreover, he focuses on the unusual character of the Saudi balance of payments during the past decade and the temporary nature of its sizeable financial resources held abroad. Many observers, for example, would be well served by the section on absorptive capacity. A second desirable view of development is the institutional framework. El Mallakh provides us with a detailed (often third person) description of the institutional framework that plays such a dominant role in Saudi development. As he carefully points out in his perceptive overview chapter, L . . . although it is the policy of the government to interfere as little as possible in the working of the market system in particular, and in the economy as a whole in general, its actions, as may be expected from the government of any country .at the threshold of development, encompass more than would normally be expected in a free enterprise system in an economically advanced nation’. In practice, at least during the still ongoing period, I believe this ideal goal has been difficult to achieve. In 1978, government expenditures totalled 62 percent of Gross Domestic Product - thereby playing an unavoidably large role in the economy. The private institutional structure has been limited, particularly in a relative sense. In fiscal year 1974/1975, private non-oil output represented only 13.1 percent of GDP (current prices). The development of public institution building, particularly that of financial institutions, is rich with interest to economists and others. The shift ‘from primitive money through full-bodied metallic via token metallic to paper money’, while not easy, was relatively rapid. The institutional aspects of Saudi development largely are interwoven in an extensive coverage of the three five-year plans for economic development. In turn, within these plans, there is a sectoral examination. There is a description of the progress in capital formation and in training and education. There are significant refertinces to tech,?ology transfer. An unsual but unsurprising emphasis concerns the supply of water, basically from both large underground reserves and desalination plants. A third area for a useful perspective regarding development concerns the politics of decision-making. El Mallakh provides significant insight into the process regarding oil pricing and output decisions, particularly in the OPEC context. Aside from this energy area, El Mallakh’s contributions in this regard are limited, probably because of the planned scope of his effort. in any event, it is suggested that these political areas, while important to be understood, are usually difficult to examine in most nations. In Saudi Arabia, such perspective, as I am sure El Mallakh understand.j, seems unusually difficult to present accurately.
The issue of planning in a market economy may seem unusual to some observers. In light of the earlier discussion of the large levels of government spending, however, it should not be surprising. Certainly, the role of the Ministry of Planning has been important. Nonetheless, El Mallakh appears to have overstated its importance (note p. 11j. The annual implementation of overnment plannin and changes in these plans, de facto, seem to be worked out with a limited role for this Ministry. While the Ministry of Planning plays a role in the overall development course, the operating budgets are fundamentally determined by the relevant agency and the Ministry of Finance and National Economy. Some S&Cfed quts t ions
The discussion by El Mallakh
has raised several questions. Moreover, while space has not permitted El Mallakh to address many issues of Saudi development, there are severa. issues 1 hoped to see discussed in this volume. Tn no particular order, these questions are as follows. Aside from recent declines in OPEC oil production, I wonder if El Mallakh shared the view noted on p. 48 that the demand for oil is ‘. .penerally considered to be inelastic’. And, if so, I wonder what time frame he had in mind. There is a question regarding El Mallakh’s observation of the serious goal of diversification. Regarding his considered analytics on the requirements for domestic investment in the Appendix, I wonder what factors he exnected to be internalized in the analysis. It may be, for example, that the long-term Gxtemalities of investing in Saudi human capital (including entrepreneurial talents) would be estimated at sufficiently high levels that an unexpectedly large number of domestic investments would be pursued. One reason this question on diversification seems particularly apropos is that, as El MallakJ has observed, energy supplies are inexpensive. I had hoped that El Mallakh would discuss the extent to which he thought the opportunity cost of energy is used in the calculations on domestic investment in diversification. Regardless of the answer, it is suspected that it will take another decade to find if the ongoing investment decisions - whether domestic (in oil or rlonoil outlets) or abroad - are optimal from the Saudi Faint of view. Conchding
remark.5
To conclude, I have three comments. First, Et Mallakh could have drsptayco a more critical judgement in reporting on the sources he utilized. Secondly, I believe that the closing chapter on busin:ss trends and potential are about as relevant today as they were in 1982, dcspits recent shifts in oil markets and ongoing declines ii funds authorized for economic development. In a few years, the balance of payments patterns fix Saudi Arabia, in my
Book reviews
390
judgement, will likely hover well within the extremes of 1978 and 1980. Thirdly, I agree with Professor El Mallakh’s observation in the opening chapter that ‘Saudi Arabia has shown a considerable amount of maturity and moderation in the utilization of this rapidly acquired power and prestigr emanating directly from its oil wealth.’ References El Mallakh, Ragaei and Dorothea H. El Mallakh, ads., 1982, Saudi Arabia: Energy. developmental planning and industrialization (Heath, Lexington Books, Lexington, MA and Toronto). El Mallakh, Ragaei, Mihssen Kadhim and Barry Poulson, 1977, Captial investment in the Middle East: The use of surplus funds for regional development (Praeger, New York).
International
David Pritchett Monetary Fund* Washington, DC
*The views presented in this review are solely those of the reviewer and should not be attributed to the International Monetary Fund.
David Feeny, The Political Economy of Productivity, Thai Agricultural Development, 1880-1975 {University of British Columbia Press, Vancouver, BC, 1982). The Political Economy of Productivity. acknowledged to be an extensively
revised version of the author’s doctoral thesis, interprets Thai agricultural development history in the context of a supply and demand model of technical and institutional change. (The term ‘political economy’ in the title may be misleading to the extent that it suggests a Marxist-style analysis.) The author notes that this is not a study explaining why a country achieved success in its general economic development. Instead, it attempts to explain why success was not achieved. The first seven chapters deal with the 1880 to 1940 period and constitute the major part of the study. A brief Chapter 8 deals with the post-World War II period. Feeny presents data in support of the following general statements regarding trends in economic regimes in Thailand: (a) rapid growth in rice exports throughout the entire 1880-1940 period, (b) rising terms of trade for rice with respect to imported cotton goods from 1865 to 1900 and from 1925 to 1939 (they declined from 1900 to 1925), (c) falling real wages in agriculture from 1864-1912; rising real wages from 1912-1938, (cl) rising land values relative to rice prices and wages throughout the 1880 to 1900 period and probably thereafter as well.
(Johns Hopkin,;
The evident scope of this volume by Dr. Ragaei El Mallakh is, fundamentally, to inform and to describe. The economy of Saudi Arabia - in terms of its modem economic history, its governmental institutions, znd its economic data -- is laid bare. In short, it is a solid and major reference work on Saudi Arabia. While the amount of information in this volume is extensive, a careful reading lads one to raise questions concerning in-depth analytics, added insights and perspectives about the Kingdom. El Mallakh, given his contacts in the Kingdom and his writings elsewhere, certainly has a firm grasp in this regard. Accordingly, one must utilize this volume with its largely informational scope and complement it with other writings, including those of El Mallakh, in order to gain an understanding of the dynamic Saudi economy and its people. Contents
The issue of development, lying in the realm of r;olitxal economy, can be namely, (I) economic theory, (2) the viewed in three perspectives institutional framework, and (3) the politics of economic decision-making. It seems appropriate lo discuss the content of this book in these three dimensions. Even abstracting from significant aspects of international politics and defense, such perspectives are difficult in the case of Saudi Arabia. El Mallakh has laid a solid informational foundation for viewing this threedimensional space. The information provided in this volume is impressive. El Mallakh displays arrays of data concerning Saudi Arabia, including oil reserves, employment by economic activity, hectares of irrigated land and the planned expansion of cement plant capacity. The inevitable conclusion to be dr3wn from this cornucopia of data is that Saudi Arabia clearly has been experiencing a dramatic economic boom over the past decade. As El Mallakh observed in his Foreword, he did find a lag in the publication of statisticztl data. While regrettable, such obstacles are understandable. In some cases, however, where oficial data are delayed, alternative sources, if reliable, perhaps should have been considered. For example, the latest annual oil production figure is from 1979; more recent reliable data probably could have been :eferenced and used. After observing the solid informaticn foundation for exh of (at least) three perspectives on Saudi development, let us return to the First perspective economic theory. Wisely perhaps, EI Mallakh has not set forth a precise comprehensive economic theory in approaching the issue of Saudi
388
Book reviews
development. Certainly, he does raise some theoretical issues that have a hating on development in Saudi Arabia. In the Appendix, for example, he presents and develops the concepts of economic development and absorptive capacity. While largely a traditional discussion, it is useful. He is prudent to avoid the pitfalls of a quick and easy definition of development. Moreover, he focuses on the unusual character of the Saudi balance of payments during the past decade and the temporary nature of its sizeable financial resources held abroad. Many observers, for example, would be well served by the section on absorptive capacity. A second desirable view of development is the institutional framework. El Mallakh provides us with a detailed (often third person) description of the institutional framework that plays such a dominant role in Saudi development. As he carefully points out in his perceptive overview chapter, L . . . although it is the policy of the government to interfere as little as possible in the working of the market system in particular, and in the economy as a whole in general, its actions, as may be expected from the government of any country .at the threshold of development, encompass more than would normally be expected in a free enterprise system in an economically advanced nation’. In practice, at least during the still ongoing period, I believe this ideal goal has been difficult to achieve. In 1978, government expenditures totalled 62 percent of Gross Domestic Product - thereby playing an unavoidably large role in the economy. The private institutional structure has been limited, particularly in a relative sense. In fiscal year 1974/1975, private non-oil output represented only 13.1 percent of GDP (current prices). The development of public institution building, particularly that of financial institutions, is rich with interest to economists and others. The shift ‘from primitive money through full-bodied metallic via token metallic to paper money’, while not easy, was relatively rapid. The institutional aspects of Saudi development largely are interwoven in an extensive coverage of the three five-year plans for economic development. In turn, within these plans, there is a sectoral examination. There is a description of the progress in capital formation and in training and education. There are significant refertinces to tech,?ology transfer. An unsual but unsurprising emphasis concerns the supply of water, basically from both large underground reserves and desalination plants. A third area for a useful perspective regarding development concerns the politics of decision-making. El Mallakh provides significant insight into the process regarding oil pricing and output decisions, particularly in the OPEC context. Aside from this energy area, El Mallakh’s contributions in this regard are limited, probably because of the planned scope of his effort. in any event, it is suggested that these political areas, while important to be understood, are usually difficult to examine in most nations. In Saudi Arabia, such perspective, as I am sure El Mallakh understand.j, seems unusually difficult to present accurately.
The issue of planning in a market economy may seem unusual to some observers. In light of the earlier discussion of the large levels of government spending, however, it should not be surprising. Certainly, the role of the Ministry of Planning has been important. Nonetheless, El Mallakh appears to have overstated its importance (note p. 11j. The annual implementation of overnment plannin and changes in these plans, de facto, seem to be worked out with a limited role for this Ministry. While the Ministry of Planning plays a role in the overall development course, the operating budgets are fundamentally determined by the relevant agency and the Ministry of Finance and National Economy. Some S&Cfed quts t ions
The discussion by El Mallakh
has raised several questions. Moreover, while space has not permitted El Mallakh to address many issues of Saudi development, there are severa. issues 1 hoped to see discussed in this volume. Tn no particular order, these questions are as follows. Aside from recent declines in OPEC oil production, I wonder if El Mallakh shared the view noted on p. 48 that the demand for oil is ‘. .penerally considered to be inelastic’. And, if so, I wonder what time frame he had in mind. There is a question regarding El Mallakh’s observation of the serious goal of diversification. Regarding his considered analytics on the requirements for domestic investment in the Appendix, I wonder what factors he exnected to be internalized in the analysis. It may be, for example, that the long-term Gxtemalities of investing in Saudi human capital (including entrepreneurial talents) would be estimated at sufficiently high levels that an unexpectedly large number of domestic investments would be pursued. One reason this question on diversification seems particularly apropos is that, as El MallakJ has observed, energy supplies are inexpensive. I had hoped that El Mallakh would discuss the extent to which he thought the opportunity cost of energy is used in the calculations on domestic investment in diversification. Regardless of the answer, it is suspected that it will take another decade to find if the ongoing investment decisions - whether domestic (in oil or rlonoil outlets) or abroad - are optimal from the Saudi Faint of view. Conchding
remark.5
To conclude, I have three comments. First, Et Mallakh could have drsptayco a more critical judgement in reporting on the sources he utilized. Secondly, I believe that the closing chapter on busin:ss trends and potential are about as relevant today as they were in 1982, dcspits recent shifts in oil markets and ongoing declines ii funds authorized for economic development. In a few years, the balance of payments patterns fix Saudi Arabia, in my
Book reviews
390
judgement, will likely hover well within the extremes of 1978 and 1980. Thirdly, I agree with Professor El Mallakh’s observation in the opening chapter that ‘Saudi Arabia has shown a considerable amount of maturity and moderation in the utilization of this rapidly acquired power and prestigr emanating directly from its oil wealth.’ References El Mallakh, Ragaei and Dorothea H. El Mallakh, ads., 1982, Saudi Arabia: Energy. developmental planning and industrialization (Heath, Lexington Books, Lexington, MA and Toronto). El Mallakh, Ragaei, Mihssen Kadhim and Barry Poulson, 1977, Captial investment in the Middle East: The use of surplus funds for regional development (Praeger, New York).
International
David Pritchett Monetary Fund* Washington, DC
*The views presented in this review are solely those of the reviewer and should not be attributed to the International Monetary Fund.
David Feeny, The Political Economy of Productivity, Thai Agricultural Development, 1880-1975 {University of British Columbia Press, Vancouver, BC, 1982). The Political Economy of Productivity. acknowledged to be an extensively
revised version of the author’s doctoral thesis, interprets Thai agricultural development history in the context of a supply and demand model of technical and institutional change. (The term ‘political economy’ in the title may be misleading to the extent that it suggests a Marxist-style analysis.) The author notes that this is not a study explaining why a country achieved success in its general economic development. Instead, it attempts to explain why success was not achieved. The first seven chapters deal with the 1880 to 1940 period and constitute the major part of the study. A brief Chapter 8 deals with the post-World War II period. Feeny presents data in support of the following general statements regarding trends in economic regimes in Thailand: (a) rapid growth in rice exports throughout the entire 1880-1940 period, (b) rising terms of trade for rice with respect to imported cotton goods from 1865 to 1900 and from 1925 to 1939 (they declined from 1900 to 1925), (c) falling real wages in agriculture from 1864-1912; rising real wages from 1912-1938, (cl) rising land values relative to rice prices and wages throughout the 1880 to 1900 period and probably thereafter as well.