‘Reform dissonance’ in the modern rentier state: how are divergent economic agendas affecting state-business relations in Saudi Arabia?

Abstract

Large fiscal deficits brought about by the decline in oil prices in late 2014 and long-standing challenges with youth unemployment have been two of the dominant underlying pressures driving economic policy in Saudi Arabia in recent years. In decades past, issues of unemployment were addressed through public sector hiring, but with increasingly limited resources, these old mechanisms are becoming less viable, giving way to a post-distributive policy environment. By exploring the dual pressures being exerted on the state by high levels of unemployment on the one hand and large fiscal deficits on the other, the resulting, seemingly contradictory policy outcomes are identified, examined, and contextualized in this paper. ‘Reform dissonance’ is the term used to describe the complex picture that emerges, where the private sector is confronted with a confusing policy landscape resulting from liberal and statist economic agendas being pursued simultaneously and in the absence of significant coordination. In particular, this chapter argues that this phenomenon of ‘reform dissonance’—contradictory policy outcomes resulting from the lack of coordination between different reform initiatives—is manifested in persisting public sector entitlements, the crowding-out effect by SOEs, and the persisting mismatch between the pace of human capital development and labour nationalization quotas.