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The development of political economy in Saudi Arabia

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Title:
The development of political economy in Saudi Arabia
Creator:
Tarabzouni, Albaraa
Place of Publication:
Denver, CO
Publisher:
University of Colorado Denver
Publication Date:
Language:
English
Physical Description:
73 leaves : ; 28 cm

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Subjects / Keywords:
Economic history ( fast )
Politics and government ( fast )
Economic conditions -- Saudi Arabia ( lcsh )
Politics and government -- Saudi Arabia ( lcsh )
Saudi Arabia ( fast )
Genre:
bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Bibliography:
Includes bibliographical references (leaves 71-73).
General Note:
Submitted in partial fulfillment of the requirements for the degree, Master of Arts, Political Science
General Note:
Department of Political Science
Statement of Responsibility:
by Tarabzouni Albaraa.

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Source Institution:
|University of Colorado Denver
Holding Location:
|Auraria Library
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
32659922 ( OCLC )
ocm32659922
Classification:
LD1190.L64 1994m .T37 ( lcc )

Full Text
THE DEVELOPMENT OF POLITICAL ECONOMY
IN SAUDI ARABIA
by
Tarabzouni Albaraa
A thesis submitted to the
Faculty of the Graduate School of the
University of Colorado at Denver
in partial fulfillment
of the requirements for the degree of
Master of Arts
Political Science
1994
AL


This thesis for the Master of Arts
degree by
Tarabzouni Albaraa
has been approved for the
Department of
Political Science
by
Date


Albaraa, Tarabzouni (M.A., Political Science)
The Development of the Political Economy of Saudi Arabia
Thesis directed by Joel C. Edelstein
ABSTRACT
A review of the political and economic changes that
have taken place in Saudi Arabia since its foundation as a
kingdom illustrate a process of development of the
political economy from one totally dependent upon source of
income to one with greater control over its own direction.
As oil revenues became available to the government/ the
political economy evolved from an economy-directed system
to a politically-directed system. Oil revenues permitted
the government to gain more control over the direction of
economic development and thus over the political economy
itself. Today the economy is directed by the policies
established by the political system rather than by the
needs of the oil industry upon which it was founded. This
allows the government more freedom to develop a more stable
economic base with less reliance on a single source of
revenue.
This abstract accurately represents the content of the
candidate's thesis. 1 recommend its publication.


CONTENTS
CHAPTER
1. INTRODUCTION ................................. 1
Background ................................... 1
Thesis Statement ............................. 1
Overview of the Study......................... 2
2. REVIEW OF LITERATURE AND THEORETICAL MODEL . 4
The Nature of Power.......................... 4
Government and Economics: Power Relationship 5
Politics and the Economy ..................... 7
International Relations.......................11
International Investment/International Trade .14
3. POLITICS AND THE ECONOMY IN SAUDI ARABIA:
HISTORICAL PERSPECTIVE........................17
A Political History....................... 18
King Abdul Aziz ibn Saud ...................26
King Saud. .................................34
King Faisal............................... .38
King Khalid.................................. 44
King Fahd.........,...........................50
4. CONCLUSION....................................57
Analysis..................................... 57
Summary.......................................64
Findings.................................... 67
Significance of Findings......................68
BIBLIOGRAPHY............................................71


CHAPTER 1
INTRODUCTION
Background
The history of Saudi Arabia is basically the history
of the power relationship between political institutions
and the economy. Since its establishment in 1932 by King
Abdul Aziz, Saudi Arabia has emerged over the years from a
loosely organized collection of nomadic tribes to a modern
industrial nation. Both the economy and the political
structure have changed dramatically during this relatively
short period of time. This makes Saudi Arabia an excellent
subject for study to examine the relationship between
economic and political power in a society.
Thesis Statement
The purpose of this paper is to identify the changes
that have taken place in the political and economic
structures of Saudi Arabia since its inception. Parallels
between changes in the economic conditions and changes in
the political structure will be examined for relationships
illustrating shifts in the power base. The study is based
on the following hypotheses:
1


Hypothesis 1: There is a relationship between the
political power of the government and the
degree of control over economic conditions
within Saudi Arabia.
Hypothesis 2: As economic power of the government
increased the government established a
broader, more powerful political base.
Hypothesis 3: As wealth of the national economy increased
the economic resources of the government
also increased, resulting in changes in the
political structure of the government.
Hypothesis 4: As political power of the government over
the economy increased, the direction of
influence shifted. Instead of the economic
need directing the policies of government,
the government began to direct the economy.
Overview of the Study
The body of this paper contains the following
chapters:
The Review of Literature includes a description of
political power in relation to economic power within the
modern economic framework. This study provides a brief
background in economic theory on which to base a comparison
of political and economic power in Saudi Arabia. The
background discussion will include an analysis of the
2


nature of power in political relationships. Power plays an
important role in the economy, in international relations,
and in international trade and investment.
Politics and the Economy in Saudi Arabia contains six
sections. The first section contains a brief overview of
the history of Saudi Arabia. Each of the remaining
sections covers the political reign of one of the five
rulers of Saudi Arabia. Within each historical period
three factors will be considered. The first is a brief
history of the government under that ruler and the changes
that took place in its structure. The second is a brief
history of the economic development of the nation during
that period. The third contains a comparison of the
changes in political structure with the changes in the
economy in terms of the timing of the changes. This
section also contains ah analysis of how the relative power
base between politics and the economy shifted during each
time period and how this has affected the development of
the political structure of Saudi Arabia.
The Conclusion will contain a summary of the findings
and a brief evaluation of the implications in terms of the
relationship between political and economic development in
developing countries.
3


CHAPTER 2
REVIEW OF LITERATURE
AND THEORETICAL MODEL
The Nature of Power
In political science power plays a very important
role. It also takes on a special meaning in terms of the
relationships among the major players in the political
arena. In the discipline of political science, power is
"the capacity to affect the conduct of individuals through
the real or threatened use of rewards and punishments" (Dye
4). Governments exercise power over their people through
the use of real or threatened rewards and punishments.
Power is fundamental to the study of political processes.
It is the very foundation of the social sciences of which
political science is an important part. Bertrand Russell,
1938, explained the important role of power in society in
his book, Power: A New Social Analysis.
The fundamental concept in the social sciences is
power, in the same sense in which energy is the
fundamental concept in physics. (Dye 6)
Power can also be defined as the means "to obtain some
future Good" (in Bluhm 257). Thomas Hobbes considered
power to be the means to a desired end. According to this
definition of power, political power exists only when the
4


political unit has the power to achieve its stated aims and
objectives.
Power by its very nature is intangible and can be
found in many different forms. Within governments power is
the ability to accomplish the goals and objectives of the
political unit. In government the political institution
has an allegedly legitimate prerogative to use force to
accomplish its goals. The degree to which a government is
able to achieve its goals depends on the amount of real
power it is able to exercise over its subjects.
Power is the force through which governments are able
to accomplish goals and objectives. Power permits
governments to set agendas for growth and development and
to implement the programs that will support those agendas.
Without both political and economic power, government would
have little effect on the economy and thus on the future
direction of the country.
Government and Economics: The Power Relationship
Wealth and economic power play an important role in
the political structure of any nation. Wealth often
determines to a large degree the extent of power exercised
by a government. In many situations it is the lack of
wealth or economic power that causes the greatest
difficulty for a government. A country that enjoys a
stable economy is less likely to experience serious threats
5


to its political structure. By the same token/ a strong
political structure can usually project stability into the
economy.
Economics is7 put simply, "the study of the
production, distribution, and consumption of goods and
services" (Dye 8). In an ideal society there would be
enough of all goods and services to satisfy the needs of
all the people. This ideal society, unfortunately, does
not exist. It is merely an ideal toward which governments
ostensibly continue to strive. One goal of government then
is to allocate the scarce resources available to it in such
a way as to maximize its own power over the society.
Economic power is the power to decide what will
be produced, how much it will cost, how many
people will be employed, what their wages will
be, what the price of goods and services will be,
what profits will be made, how these profits will
be distributed, and how fast the economy will
grow. Control over these decisions is a major
source of power in society. (Dye 9)
Within a society the ability to allocate scarce
resources is a tremendous source of power. The economic
welfare of a nation depends on the ability of government to
exercise power in the allocation of scarce resources to
"maximize economic welfare" (Sievert 6). If the government
is able to exercise economic power and control the
allocation of resources, then it will generally be able to
exercise political power as well.
6


The study of political science and the study of
economics are very closely related. Prior to the twentieth
century, in fact, they were considered a single discipline:
political economy. Although they are now considered
separate disciplines, they are still very closely related
(Peterson 2-3). The role that government plays in the
economy reflects the power relationship between the
government and the economic system.
Governments direct the economy and react to it. They
establish a balance between the nature of power to direct
the economy and ability to react to forces within the
economy itself. Despite the best efforts of a government
to control the economy, factors beyond their control can
also influence the direction that the economy takes.
Failure to establish an effective balance between directing
and reacting can result in an unstable economy in spite of
government efforts to provide direction.
Politics and the Economy:
In the modern world of specialization the theories of
economics and theories of politics are typically considered
independently. More and more political scientists,
however, have been forced by the realities of the modern
global conditions to reconsider this separation of
disciplines. These two sciences can no longer be
7


considered separately from each other They are too
closely related.
A division between political science and economics
slowly began to emerge as a result of differences between
the disciplines. Specialists in each field found it harder
and harder to reconcile the differences that existed
between them. Each discipline became so focused upon the
specifics of their science that they became completely
absorbed in the form and not the process (Beard 26).
Economists were more interested in the mathematical
relationships of market operations than they were in the
causes of the shifts that were taking place. Manipulation
of figures became the major emphasis of economic studies.
Political scientists were more interested in the operations
of the government than in the forces that created the
government and the changes that took place within it. In
other words, both economists and political scientists
became so involved in taking their disciplines apart to see
what was inside that they lost sight of the bigger picture.
They lost sight of the world within which their disciplines
existed.
The disciplines of economics and politics are so
closely intertwined in the modern global picture that it is
no longer possible realistically to examine one without
taking into consideration the influences of the other. The
relationship between politics and economics requires that
8


both economic factors and political factors be taken into
consideration when seeking to understand the processes that
take place within a government and the ultimate form of
that government. The old adage that 'form follows
function' definitely applies to the study of the changes
taking place in the political processes followed within a
government body.
The political development of Saudi Arabia evolved as
an imperialist state. Johan Galtung offers a definition of
imperialism that concentrates on the shaping of the parties
by the relationship rather than on the actual military
power one country is able to exercise over another country.
According to Galtung, imperialism is:
a sophisticated type of dominance relation which
cuts across nations, basing itself on a
bridgehead which the center in the Center nation
establishes in the center of the Periphery
nation, for the joint benefit of both. (261)
It is the relationship between the actors that is the
important factor in determining whether imperialism exists
or not. Imperialism exists when there is a "conflict of
interest" between the parties. In terms of imperialism a
conflict of interest is a conflict between the living
condition of the parties involved. A conflict of interest
exists if there is an increasing gap between the living
9


conditions of the Center and the living conditions of the
periphery of the Periphery (Galtung 262).
Imperialism is basically a relationship between the
center of the Center and the center of the Periphery where
harmony of interest exists at the expense of the periphery
of the Periphery. There is a degree of disharmony in the
periphery of both the Center and the Periphery based on the
controls exercised by the centers. There is a disharmony
of interest between the two parties to the imperialist
relationship when the disharmony within the periphery of
the Periphery is greater than the disharmony within the
periphery of the Center (Galtung 264).
According to Galtung, imperialism takes many forms and
goes through different stages of development. The basic
idea behind the theory of imperialism, however, is that
there is a power outside of the Periphery nation that
benefits more from the relationship than the periphery of
the Periphery nation. There is a very real gap between the
living conditions of the Center and the living conditions
of the periphery of the Periphery nation. When this gap is
increasing, imperialism exists. The Center is able to
maintain its control over the Periphery through a dominance
pattern in which political and economic dependence of the
periphery nation is sustained.
Imperialism is generally considered in terms of
political domination of one country by another. Galtung,
10


however, divides imperialism into five types that include
more than mere political control. The five types of
imperialism defined by Galtung are economic, political,
military, communication, and cultural (274).
In economic imperialism the Center nation provides
processing and the means of production. The Periphery
nation provides raw materials and markets. In political
imperialism the Center nation provides decisions and
models. The Periphery nation provides obedience and
imitators. In military imperialism the Center nation
provides protection and the means of destruction. The
Periphery nation provides discipline and traditional
hardware. In communication imperialism the Center nation
provides news and the means of communication. The
Periphery nation provides events, passengers, and goods.
In cultural imperialism the Center nation provides teaching
and the means of creation. They are autonomous. The
Periphery nation provides learning and validation. They
are dependent (Galtung 274).
International Relations:
International relations have generally been the object
of foreign policy. This means that they have been
basically separate from domestic and economic policies.
All of this is changing as the economic interdependence of
nations grows more encompassing and more demanding.
11


On the whole, foreign policy, in the narrower
sense of national security and military-strategic
considerations, has in all countries been
elitistthe interest and province of a
relatively small group of persons. Strategic
considerations do become political issues, but
generally in a rather abstract fashion, as broad
issues and postures. Even the foreign policy
budgetlargely militaryhas until recently been
relatively immune from domestic political
considerations. (Cooper 27)
With rapid changes in the international economy, this
situation is changing. Foreign policy decisions are no
longer separate from all domestic policy decisions.
Decisions made in foreign policy can and do affect domestic
policies. This means that foreign policy decisions will
become more complicated and more involved with domestic
decisions as the interdependence of economies becomes even
greater in the global marketplace.
With the advent of increased economic
interdependence, however, foreign developments
will intrude on a whole range of policies that
are traditionally domestic, and these bread-and-
butter domestic political issues will in turn
influence and greatly complicate the management
of foreign policy. (Cooper 27)
All nations, whether they are industrially developed,
developing or undeveloped, now face new challenges in
international relations because of the close connections
between politics and the economy. The whole basis of
international relations has shifted so dramatically that
12


traditional international relations have to be abandoned in
favor of more functional and responsive approaches to
foreign policy. Developed nations can no longer impose
their policies on the developing nations without taking
into consideration how those policies will affect the
developing nation's economy.
International relations have been greatly affected by
the growing economic power of the developing nations. Some
developing nations have been able to stabilize their
internal economies to the extent that they are no longer as
dependent on foreign aid as they have been in the past.
Others, while still unable to survive without aid, are
sensing their potential power as resources are developed
and economic stability becomes a more realistic dream.
These countries are no longer willing to have their
political or their economic decisions dictated to them.
Many developing nations begin to recognize their own
potential and their own ability to control their destiny.
When that happens, they begin to assert their role in
international relations.
OPEC exemplifies a strategy whereby less
developed states cooperate and bargain along
industry lines to enhance their economic and
political position in international relations.
There are also numerous multilateral efforts
structured along regional and universal lines by
less developed countries that extend well beyond
confrontation with a particular industry. These
efforts have seldom provided the drama of OPEC
confrontations with advanced industrial states
13


and the oil multinationals, but they constitute
an important dimension of less developed
countries' attempts to extract more benefits from
their economic relationships with rich states and
multinational firms. (Walters and Blake 217)
International Investment and International Trade:
International investment and international trade form
the foundation for the power base of a developing country.
The more dependent a country is on economic aid for the
development of resources, the less power that country will
have over its own domestic economy and especially over its
foreign investment and trade opportunities. A country that
is economically dependent lacks the internal power to
assert its own policies over those of the external source
of economic support. They cannot afford to alienate their
economic supporters and assert their own independent
economic policies. The country becomes politically and
economically dependent to the extent that it relies upon
economic support from other countries.
Nations have a nominal power base merely by the fact
that they are nations. But, this does not give them the
power to make decisions concerning their own economic or
political development. Governments often come under
condemnation for being mere "puppets of some foreign
power. Revolutions sometimes take place in countries where
puppet governments are more interested in the interests of
foreign powers than in domestic needs.
14


[T]he most important base upon which
international decision-makers can rely in the
process of prescribing and applying authoritative
community policies is the grant of authority from
nation-states and private business associations,
in addition, however, such decision-makers also
have need of other values, such as resources,
military forces, skill, enlightenment, loyalties,
wealth, and conceptions of rectitude that can be
utilized for the enforcement of decisions. In
the absence of sufficient available bases, such
decisions will be both ineffective and
unenforceable. (Almulhim 62)
In other words, political power is not enough to gain
control of the economy. A political organization with
power only from its political base will have little
foundation for their power. The government will be
ineffectual and unable to respond to the needs of the
nation without sufficient economic power to support the
governments political power. The government will be at
the mercy of the real power which resides in economic
control. If a developing nation, for example, is totally
dependent on foreign companies for the development of its
resources (as was the case in Saudi Arabia when oil was
first discovered), then it will have little to say about
the development of those resources.
International investment and international trade are
both controlled by the economic power in an international
relationship. Economic power exists when one party is able
to exercise influence over the direction of the economy.
If a nation-state can become the economic power, it can
15


have some control of the international investment and
international trade policies that determine its economic
health.
16


CHAPTER 3
POLITICS AND THE ECONOMY IN SAUDI ARABIA:
HISTORICAL PERSPECTIVE
This chapter is divided into six sections. The first
section covers a brief history of Saudi Arabia covering the
establishment of the nation and its political system. The
following five sections cover the reigns of the five rulers
of Saudi Arabia. Emphasis is placed on the political and
economic changes that took place within the reign of each
ruler and the significance of those changes in terms of the
relationship between political and economic power. Because
of the differences in the rulers and the conditions under
which they ruled Saudi Arabia, the extent of involvement in
political and economic development varies during the five
reigns. Some were more influential in the economic matters
while others were more influential in the political
matters, ibn Saud and Fahd, the first and current kings,
were both able to focus more on political development.
Saud, Faisel and Khalid were forced by circumstances to
focus on the economic development of the country while
giving secondary attention to the political development of
the state.
17


A Political History
The political history of Saudi Arabia can be divided
into five periods corresponding to the rule of the five
kings. The first period covers the rule of Ibn Saud. Ibn
Saud ruled from the establishment of the kingdom in 1932
until his death in 1953. The second period covers the rule
of Saud from 1953 until he was deposed by the family in
1964. The third period covers the rule of Faisal which
lasted from 1964 until his assassination in 1975. The
fourth period covers the rule of Khalid who ruled from 1975
until his death in 1982. The final period covers the rule
of Fahd who assumed the throne in 1982 and continues in
power to the present time. Each of these rulers
contributed something to the structure of the government
and the political philosophy of the kingdom.
The modern state of Saudi Arabia began to develop some
200 years ago in the Hajd region of central Arabia. From
the start of the Islamic era to the establishment of the
Kingdom of Saudi Arabia Arabian history is made up of the
stories of a number of individual regions. Despite the
contacts between these regions and the unifying force of
Islamic civilization, the political and religious
development of Arabia was far from uniform.
Until the European expansion into the Indian Ocean
after the fifteenth century, the Hi j az was the only area in
Arabia of significance to the outside world. This was the
18


area containing the two main sanctuaries of IslamMakkah
and Medina. Controlling this region provided prestige and
financial benefits because of the annual pilgrimage.
Powerful Muslim rulers frequently sought to establish their
rule over the Hijaz. In the 10th century CE a descendant
of the Prophet declared himself Sharif of Makkah/ and the
Sharifate survived until ibn Saud conquered the Hijaz in
1925. During this time the control of the Sharif ate
shifted from local leaders to foreign powers. Most often,
control of the Sharifate was exercised by the ruler of
Egypt. For a short time Egypt ruled the Sharifate on
behalf of the Ottoman sultan.
Information about the pre-Saudi history of Najd and
inner Arabia is fragmentary. For the outside world Najd
was important because of the pilgrim route which crossed it
from the Gulf to the Hijaz, but the area remained largely
independent. The population was mainly nomadic, but here
and there conditions did allow the growth of sizeable
settlements. One such area was that of Wadi Hanifah near
Biyadh. Here a number of independent emirates or
principalities established themselves. Here the Saudi
state had its origins.
The oil companies gained an economic advantage over
all oil exporting countries through political maneuvering
of their own following World War 1. Prior to World War I
there had been strong competition between the oil companies
19


for undiscovered oil reserves around the world. This
competition was creating problems for all of the oil
importing countries and for the large oil companies in
particular. They were losing profits because of
competition. In 1928 the three largest oil companies in
the world signed an armistice agreement governing new
production.
The "as is" agreement, as it was called, put an
end to competition by ruling out new production
facilities until the old ones were being used at
capacity, and by fixing market shares of the Big
Three at the 1928 level. Price competition was
to be eliminated by having each market supplied
from the nearest source at a world price based on
the high-cost Texas Gulf area, plus about one
dollar per barrel profit; this assured the big
international oil companies superprofits from
their lower-cost non-U.S. oil. (Tanzer, 1974, 26)
By the late 1940s, the Big Three had grown to the Big
Seven. It now included Standard Oil of California (Socal)
which had gained market share by obtaining oil concessions
in Bahrain and Saudi Arabia. Socal joined with Texaco to
establish the Arabian American Oil Company (Aramco) which
still exploits virtually all of Saudi Arabia's oil (Tanzer,
1974, 27). The main change that has taken place is the
degree of control over Aramco by Saudi Arabia and its
American partners.
The initial relationship between the oil companies and
Saudi Arabia was colonial. When the oil companies gained
20


concessions in Saudi Arabia, they brought in their own
people to build the necessary infrastructure and to do the
actual work on the exploration for oil. Even when oil was
discovered, the oil companies maintained their own
"colonies" of workers who controlled the industry. The
foreign settlers built their own little cities around the
oil fields and maintained their own separate economic
system that was dramatically different from the economic
system of Saudi nationals.
This period emerged during the reign of King Ibn Saud
when he was desperately seeking means to support his young
country. He had a natural resource that was desired by the
oil companies and that he did not have the expertise nor
the resources to develop himself. With no Saudi nationals
possessing the skills or knowledge needed to exploit the
oil resources of the country, there was little choice for
either King Ibn Saud or the oil companies. They had to
bring in skilled workers to do the work until Saudi
nationals could be trained.
The relationship then developed into a neo-colonial
one which is the second stage in imperialism (Galtung 277).
During this stage, the oil companies benefitted more than
Saudi Arabia from the economic relationship. More
specifically, there was an increasing gap between the
benefits enjoyed by the oil companies and the living
conditions of the periphery of Saudi Arabia. The economic
21


relationship existed between the ruling family and the oil
companies. The initial benefits enjoyed by Saudi Arabia
were felt more in the center than in the periphery.
This situation became most apparent during the reign
of King Saud. The living conditions of the periphery
changed very little while the living conditions of the
center and the periphery of the Center both improved
dramatically. Both the oil companies and the royal family
benefitted substantially from the imperialist economic
relationship. The periphery within Saudi Arabia gained
only a little from the relationship.
When this situation became apparent to the leaders,
steps were taken to bring about some changes. The imperial
relationship was no longer acceptable. Saudi Arabia,
however, was not in a power position to escape from the
imperialistic relationship with the oil conqpanies alone.
It was necessary to join forces with other oil producing
countries to battle the superior economic power of the oil
companies and the oil importing states.
The establishment of the Organization of Petroleum
Exporting Countries (OPEC) provided the political and
economic power needed to break the imperial relationship
that created the ever-increasing living condition gap. As
Saudi Arabia gained more control over its own oil industry,
it was able to make changes that would reduce the rate at
which the gap was increasing. After careful investment in
22


the infrastructure of the country/ Saudi Arabia has
actually been able to reverse the direction of the gap and
begin to move toward more autonomous control of its
resources.
The imperialist relationship has not been completely
removed because Saudi Arabia must still rely on the Center
for much of its development needs. Even OPEC was not able
to throw off all the advantage enjoyed by the oil
companies. If the oil exporting countries only had to deal
with the economic imperialism of the oil companies/ they
would soon be able to throw off the yoke of imperialism.
The fact is, however, that countries like Saudi Arabia also
have to contend with the political and military imperialism
of the Western world.
In reality, however, while a group such as OPEC
may have its moment in the sun, historically oil-
exporting countries rise and decline relatively
quickly. By contrast, what remains constant is
the collective power of the international oil
companies and their home governments in the West.
Indeed. . .it is the very fact that the oil-
exporting countries have to operate within the
overall context of enormous Western economic,
political, and military power that makes it
extremely difficult for the oil exporters to
restructure the international oil industry.
(Tanzer and Zorn 76)
As educational and cultural developments within the
country continue to improve, however, Saudi Arabia is able
23


to reduce the gap even more and may eventually be able to
escape completely from this imperialist relationship.
Another reason for the living condition gap that
existed between the oil companies and Saudi Arabia/ as
defined by Galtung (268), was the production level gap.
Imperialism exists when the Center nation benefits more in
the balance than the Periphery nation. In the case of the
oil companies and Saudi Arabia/ the production level gap
started out very wide. Saudi Arabia had only one commodity
with which to bargain: oil. In exchange for oil/ Saudi
Arabia gained access to manufactured goods. With no means
of manufacturing their own goods/ Saudi Arabia benefitted
very little from the relationship. There was no internal
development leading to less dependence on importing. In
fact/ there was a loss of bargaining power with the
depletion of the oil reserves.
The imperialist relationship began to deteriorate as
Saudi Arabia began to take control of its own internal
development. With the introduction of the Five year Plans
Saudi Arabia began to take action to develop internal means
of production to reduce the dependence on imports and,
thus# on the Center. With increased production levels in
more than just the exporting of crude oil, Saudi Arabia
gained the economic power needed to throw off the yoke of
imperialism.
24


Communication imperialism moved hand-in-hand with
economic imperialism. Slow communications within a country
with a very poor infrastructure left Saudi Arabia without
control over sources of information. As the government
took charge of more and more of the development planning,
communications became a priority. Improving the methods of
transportation and communication allowed Saudi Arabia to
reduce the influence of the oil companies.
Saudi Arabia was able to resist the encroachment of
cultural imperialism through its devotion to the Islamic
religion. All Saudi laws are based on the Sharia with its
religious teachings. The firm resolve of the people of
Saudi Arabia, together with government support and
encouragement through laws and traditions, to maintain
their religious standards enabled the nation to maintain
its unique culture. While some Western customs are being
adopted, the basic culture remains intact.
This cultural strength has enabled Saudi Arabia to
retain control over two very important aspects of its
society: political and military development. Political and
military imperialism were never given the opportunity to
develop because of the strong leadership of King Ibn Saud.
While King Ibn Saud was unable to control the economic
resources during the development period in oil exploration
and extraction, he was able to retain control over the
political system and the military.
25


Ibn Saud was a strong believer in the Wahhabi sect of
Islam. He was a spiritual as well as a political leader to
his people. King Ibn Saud was dedicated to strengthening
the religious beliefs of his people at the same time he was
uniting them into one kingdom. Everything that he did in
terms of oil concessions was designed to strengthen the
country and its dedication to Islam. He allowed no
economic need to override this even more important goal.
King Abdul Aziz ibn Saud
The political history of Saudi Arabia as a state began
in 1932 when King Abdul Aziz ibn Saud declared most of the
Arabian Peninsula the Kingdom of Saudi Arabia. The land
had been united by a series of military actions which
started in 1902 with the taking of the Nejd. It moved
quickly from a region dominated by tribal rivalries to a
single kingdom united by the strength of its new ruler.
Ibn Saud was a member of the Wahhabi sect of Islam.
This is a conservative and orthodox religious sect that
places great emphasis on the teachings of Islam and their
importance in the government of the nation. The power
exercised by Ibn Saud came from his own secular political
power and from the religious authority of the ulama.
On the secular level Abd al Aziz l Ibn Saud] began
the formation of his first formal governmental
system in the Hijaz. Major cities were
administered by local and experienced
26


administrators, but the most senior officials
were £from] Najdi. (Myrop 30)
Ibn Baud's success as a political leader lay in his
insight into the nature of his own political situation and
his understanding of his people and their needs. He placed
his trusted relatives in positions of power and worked to
eliminate tribal rivalries through dynastic marriages.
While Ibn Saud established a consultative council, he
retained absolute power for himself. The council with its
ministers merely acted as an advisory board for the king.
This council, however, was to play an important role in the
future of Saudi Arabia as a pattern for future development
under King Fahd (Dahlan, Abdullah 67).
It was only after the decision was taken to
create a Council of Ministers in 1953 that the
Consultative Council began to decline. But
before this took place, the Council left its
permanent imprint on the country... Some of the
laws and regulations now in force may be traced
back to the Council. The Council still exists
today. It meets three times a week and has three
committees: legislative, financial and
administrative. But/ in practice, it is
subservient to the Council of Ministries.
(Dahlan, Abdullah 68)
Ibn Saud also brought in advisors from other Arab
nations but tended to rely more heavily on his sons in
order to avoid any outside controls over his government
(Schofield 84). This political structure combined with Ibn
27


Saud's personal charm, sense of justice, and deep concern
for his people served to cement the absolute monarchy.
[Ibn saud] functioned as a [supreme) leader and
held a majlis every week where any citizen could
approach him for help. When it became clear that
great distances prohibited certain citizens from
coming directly to him for assistance, he
responded with a curious mixture of tribal and
modern ingenuity. Instead of delegating
authority, which might seem a logical solution,
he expanded the postal service and telegraph
systems so that citizens could continue to reach
him directly. (Nyrop 31)
Because of its reliance on the personal authority of
the king, Ibn Saud's government was loosely organized and
rather limited in its scope. Provinces were administered
semiautonomously by emirs who were appointed by and ruled
in the name of Ibn Saud. Local officials were subordinate
to the emir rather than the king. Revenues were supervised
personally by Ibn Saud in any way that he saw fit. The
Arab custom was for the ruler to give gifts to those who
attended the majlis. This practice became increasingly
unworkable as revenues from the oil concessions became
available in the 1940s (Nyrop 205).
ibn Saud consolidated the rule of the kingdom shortly
before his death with the establishment of a central
Council of Ministries. This was a logical step in the
establishment of a strong consolidated kingdom. A Royal
Decree signed on 9th October 1953 (1 Safar 1373 AH)
28


established the first Saudi Council of Ministers. It dealt
with the organization ox the Council/ the jurisdiction of
the Council/ the Council's procedures/ jurisdiction of the
President of the Council/ and the divisions of the Council
of Ministers, council cabinet (staff facilities) (A1-Farsi
43).
The most significant point of the Council of Ministers
was that it had no real authority. As Charles W.
Harrington (1953) pointed out in his book The Saudi Arabian
Council of Ministers, the Council is like the President's
Cabinet in the United States:
[It] does not have independent authority any more
than the presidential cabinet has. The Council
derives its powers from The King. He has
delegated to the Council authority to examine,
decide and recommend on almost any phase of Saudi
government administration. (Al-Farsi 45)
During this period of significant political
development, Saudi Arabia was also experiencing substantial
changes in its economy. When Ibn Saud declared the Kingdom
of Saudi Arabia in 1932 there was really little cause for
celebration of the feat. He had won control of a
religiously significant region, but it was also a very poor
region.
When ibn Saud won his kingdom, it was pitifully
poor. It produced only the bare necessities of
life; its so-called roads were tracks; it had no
29


ports; its sole source of foreign exchange was
pilgrimage dues. . When the outbreak of the
world economic crisis of the early 1930s
seriously reduced the numbers making the
pilgrimage/ the repercussions magnified beyond
management his kingdom's endemic poverty.
(Schofield 82)
In 1932/ however, fortune smiled upon the struggling
Kingdom. Oil waB discovered in Bahrain/ an island off the
Saudi mainland. The possibility of oil reserves also
existing under the soil of Saudi Arabia drew the attention
of an American oil company which offered to pay gold for
the right to prospect for oil. This gold enabled the King
to carry his country through this financial crisis.
The discovery of oil in Saudi Arabia in 1938 provided
the boost that the economy really needed. Although the oil
revenues at that time were still limited/ there were
several advantages that the oil industry brought
immediately to the underdeveloped and isolated country.
The country that had once been isolated by its arid terrain
was brought suddenly into the twentieth century.
The oil industry could not exist in the undeveloped
conditions that existed at that time in Saudi Arabia.
Roads, modern ports, housing, electric power plants, and
water systems all had to be improved to accommodate the
growing oil industry. New jobs were created in the oil
industry itself and in the communities where oil jobs were
being created. Saudi businesses received technical.
30


financial and logistic support from the oil companies so
that they could provide the many services required for
their operations. The geographic and economic isolation of
the Kingdom -was effectively brought to an end (Nyrop 137).
It is difficult to determine exactly how the economy
fared during the 1940s and 1950s because accurate recording
policies had not yet been established. Oil revenues came
from the concessions and depended on the production levels
set by the oil companies. The original concession
agreement called for an annual rental fee of 5,000 British
pounds or its equivalent until oil was discovered, a 50,000
pound loan to the Saudi government, and a royalty payment
of four shillings gold per net ton of crude produced after
the discovery of oil. There was also a specific quantity
of products from the Aramco refinery that were to be
supplied to the government. This was modified after the
discover of oil in 1938 and gave the government higher
returns for oil production. The agreement became a 50-50
profit sharing arrangement in 1950 (Nyrop 147).
Oil revenues helped to improve the financial condition
of the government but it did little to change the overall
economic conditions in Saudi Arabia. Fiscal management was
not among the many skills possessed by King Ibn Saud. He
relied instead upon the traditions of the tribal system.
Gifts were traditionally handed out at majlis at the
discrimination of the King. Ibn Saud was generous but did
31


not dictate how the funds would be used. The economy grew
but it had very little direction.
Internal development proceeded slowly. Social
services were initiated/ experimental
agricultural projects were set up, the nation
began to acquire the paraphernalia of a modern
state/ and new industries in addition to the
ever-burgeoning oil companies were begun. But
[ibn Saud] was "the state/" and as his health
declined/ his tribal methods of ruling proved
inadequate to control a nation of vast wealth.
(Hyrop 32)
During the reign of King Ibn Saud from 1932 to 1953
the economy of Saudi Arabia grew without any real
direction. There was no real established fiscal policy
that would help develop the nation. What fiscal
development did take place was directed at serving the
needs of the oil companies. Hoads, ports, power and
communications systems were developed for the convenience
of the oil companies and often at their own instigation.
There was no organized plan of development that considered
the needs of the Saudi people.
This was a period of development for Saudi Arabia but
it was financed and directed by Aramco. Aramco developed
training programs to encourage more Saudi involvement in
the oil industry and its support industries. Aramco's
concern for a stable economic base within the country where
its major oil reserves were located prompted most of the
growth during this period. As a result, the growth was
32


scattered and unequal. Modern homes with all the modern
comforts were built for Aramco employees alongside the
bedouin camps where people lived in the same poverty that
had plagued them for generations.
When Ibn Saud established his kingdom, he was mainly
concerned with the political unity of an economically
depressed region. One of his main objectives was to unite
the tribes in order to improve their economic influence
over the region. His first major economic policy was to
establish control of the route to Mekkah. Revenues from
the annual pilgrimage formed the basis of government
finances during the early years of the kingdom.
Ibn Saud recognized the importance of the discovery of
oil in Saudi Arabia and what it could mean to the country.
His frustration was that he had no direct control over
those revenues for the development of his own country. An
example of this frustrating situation showed itself during
World War II. The war effectively cut off the pilgrim
route and thus his main source of revenue. At the same
time the oil companies were not increasing production
sufficiently to allow him to maintain his enlarged army.
King Ibn Saud asked for an advance on royalties to help him
through this difficult time but was turned down by the oil
companies who saw no justification for an additional
investment at that time (Engler 199).
33


With only limited experience in fiscal management/ Ibn
Saud was unable to accomplish the things he wanted for his
country. He recognized the need for modernization if his
country was to become a stable political unit with economic
resources to support the fiscal needs of its citizens
ISchofield 80). As he gained experience in fiscal policy-
making, he began to see even more potential for growth
within his country. It was to be left to his sons,
however, to achieve his dreams for his people.
Kino Saud
Crown Prince Saud became king upon his fathers death
in 1053. Ouring this time there was little progress in the
political development of Saudi Arabia. In fact, Saud's
greatest contribution may have been his own inability to
administer the affairs of the government. Crown Prince
Saud had acted as administrator of the Hejd during his
father's reign. This gave him very little preparation for
the role he was expected to play as King Saud.
King Saud was no more prepared for the challenges of
a wealthy emerging nation that his father had been. In
addition, however, he lacked his father's personal power
and charisma. He did not have either the ability or the
desire to rule as a strong personal leader as his father
had done. In fact, he had been very poorly prepared for
the role he was to play.
34


Nearly all his experience was of the traditional
desert life among the tribesa life distorted,
however, by the rapid increase in wealth of the
previous years. Of the world which made that
wealth possible Saud knew very little more than
his father. . {Holden and Johns 179-180)
Unfortunately, there was no room in Saud's world for
the administration of the Kingdom. The result was a
government dominated by greed and over-indulgence. King
Saud turned more and more of the decision-making
responsibility over to his ministers. His main concern was
that his own personal life-style not be disrupted. In
order to accomplish this goal, Saud added more members to
the Council of Ministers. This did little to solve the
problem, however, and government administration remained
haphazard until his disposition by the royal family in 1964
(Nyrop 206).
Saud's most important contribution to the political
structure of Saudi Arabia was revisions in the constitution
which were made in 1958. The new rules concerning the
governance of the Council of Ministers allowed the King the
prerogative of delegating his authority to the president of
the council.
In the 1970s it became customary for the First
Deputy of the Presidents Council to preside over
the Council in its weekly meetings by authority
of the King. The King himself presided only over
extraordinary sessions, such as those for the
approval of the country's annual budget and the
35


inauguration of the Kingdom's development plans.
(A1-Tarsi 47)
Saud is considered an embarrassment to the royal
family by many people and his role in history is often
ignored by Saudi historians.
'The photo-icons that hang in every government
office, hospital and school feature King Abdul
Aziz and his sons King Taisal and King Khalidr
with a number of King Khalid's younger brothers
usually thrown in for good measure. But of the
man who was Crown Prince of Sa'udi Arabia for
twenty years and King for eleven, there is little
sign. . [E}ven though King Khalid did cause
his Minister of Information to declare in October
1979 that 'the late King Sa'ud should not be
Omitted from stories of the Kingdom's history
some people skip King Sa'ud when reciting the
chronology of Saudi rulers, because they think
to please His Majesty King Khalid. It is exactly
the contrary.' (Lacey 300)
This attitude, however, is not justified. Saud did
the best he could with the knowledge and resources
available to him. With experience only as a local leader,
he was poorly prepared for life as a national leader. Like
his father, King Saud had very little knowledge or
understanding of fiscal' policy. Unlike his father,
however, Saud was not disciplined by a life of struggling
for the survival of his nation. He had lived his life in
isolation from the problems of the nation and saw only the
world around him. He enjoyed the life of luxury that new
found wealth permitted.
36


The undisciplined spending patterns of the government
created some discrepancies in economic conditions which
caused some dissatisfaction among the Saudi population.
Liberal allowances permitted Saud and his family to travel
abroad and live in luxury while many citizens still lacked
access to the modem conveniences being introduced to the
country.
In 1959/ under a fatwa issued by King Saud, Faisal
initiated an austerity program to bring the national budget
under control. By reducing expenditures, including
subsidies to the royal family, Faisal was able to balance
the budget, stabilize the currency, and resolve
embarrassing national debts. Members of the royal family,
however, resented the action and Faisal resigned in 1961.
Fiscal policies returned to normal and, despite talk of
reform, nothing more was done during Saud's reign.
The financial situation was one of the major reasons
for the decision by the royal family to depose Saud and
proclaim Faisal king of Saudi Arabia. In 1964 the royal
family and the ulama issued a fatwa reducing Baud's powers
and his personal budget. Saud, who was on an expensive
tour of Europe at the time, was outraged and tried to gain
support for a return to power. Be was unsuccessful and was
finally deposed on November 2 (Nyrop 38). Fiscal stability
was one of the priorities of the new government.
37


The reign of Saud could be considered the transition
phase for economic development in Saudi Arabia. The
nation, like its king, was overwhelmed with the sudden
wealth. They were unprepared to deal with the Western
world on Western terms. That would have to be left to
Faisel with his Western education and extensive contacts
with Westerners (Yergin 524).
In addition, there was no experience in dealing with
the wealth generated by the oil. The primary concern was
to keep the oil companies happy by catering to their needs.
There was little concern for the development of the economy
on behalf of the Arabs themselves. Faisal brought that era
to an end.
Kina Faisal
The modernization of Saudi Arabia's political
structure had to wait for the ascension of King Faisal to
the throne in 1964. Faisel was the first king of Saudi
Arabia to "comprehend the enormity of the task of
modernization and to accept total responsibility for
achieving it" {Nyrop 38).
Under King Faisal the Council of Ministers consisted
of fourteen ministries. They were the ministries of
Defense, Foreign Affairs, Labor and Social Affairs,
Interior, Education, Communications, Agriculture, Finance
and National Economy, Petroleum and Mineral Resources,
38


Health/ Commerce, Pilgrimage and Endowments, Justice, and
Information (Al-Farsi 49-50). While Faisal retained his
authority over the ministries, they became more independent
as they became more specialized.
At the same time, however, Faisal consolidated and
strengthened the monarchy. He made several important
changes in government that established the king once again
as the absolute monarch.
Having acted as prime minister during the last
years of the reign of ailing Saud, Faisal
subsequently institutionalized the supreme role
of the king in all government affairs by
decreeing that only the king would act as prime
minister in the future. Thereafter, all
ministerial policies were sanctioned directly by
the king. Governmental administration was
further centralized under Faisal when local
officials became responsible to the king, thus
effectively ending the autonomy of the provincial
emirs. (Nyrop 206)
The most important contribution that Faisal made was
the recognition of the need for more self-direction in
development within Saudi Arabia.
Faisal felt that, although undesirable, foreign
influence was unavoidable as long as the
population remained undereducated and unable to
assume the country*s many demanding positions.
Faisal reorganized the Central Planning
Organization to develop priorities for economic
development. The result was that oil revenues
were spent on investments designed to stimulate
growth. (Nyrop 39)
39


In making the decision to use oil revenues to build
the economy, King Faisal was breaking one of the chains
with which the oil companies held the oil-exporting
countries. This chain was the isolation of the oil
industry within the nation's economy. According to Michael
Tanzer, isolation of the oil industry within the economy is
one of the factor's that allows the oil companies to retain
their control (1969, 60). Until the oil-exporting country
can build an infrastructure that can support the oil
industry without the oil companies, they cannot break free
of the imperial relationship with the oil companies.
It was during tbe reign of King Faisal that the First
Five Year Development Plan was introduced. This plan grew
out of the recognized need to diversify the economy and
reduce its direct dependence on the export of crude oil.
Saudi economist Saleh Abdulaziz Omair points out that,
prior to 1960, there was very little formal
planning in Saudi Arabia. However, in the early
1960s the nation began to employ deliberate
policies and plans to achieve social and economic
development. Initially, planning efforts were
not clearly defined, and they were poorly
organized. Continued efforts, however, resulted
in the nations (first] five-year economic
development plan, covering the 1970-1975 period.
(Soufi and Mayer 13)
The five-year plans have been a series of economic
programs carefully planned and executed by the government
in an effort to control the direction of growth and
40


minimize the negative impacts of oil wealth on a nation
steeped in religious tradition. Each of the five year
plans has been guided by the following basic guidelines:
1. Maintaining the religious values of Islam by
applying and receiving spiritual guidance from
Shari'a.
2. Defending the religion of the country and
maintaining internal security with social
stability.
3. Continuing the balanced economic growth through
the development of the country's resources.
Increasing the income from oil over the long
range. Conserving non-renewable resources.
Improving the social well-being of the citizen.
Providing the economic strength necessary for
achieving the basic fundamental goals of the
development process.
4. Reducing dependence on the production of crude
oil as a primary source of the nations income.
5. Developing human resources through education,
training and increasing the standards for health.
6. Completing the basic infrastructure that is
necessary in reaching the basic and ultimate
goals. (Rashid and Shaheen 180)
The five-year plans also encompass a more
comprehensive and basic goal of development. This goal is
explained best in the words of Hisham Nazer, the Minister
of Planning. He said:
We must define what we view to be the goals of
development. In brief we can say that this goal
is the happiness of man. Such happiness is two-
sided, the spiritual and the material. .these
two aspects of man's happiness complement each
other. They are mutually reinforcing and are
stressed accordingly in the development
philosophy of the Kingdom. (Rashid and Shaheen
180)
41


Each of the five year plans was carefully designed to
benefit the economy of Saudi Arabia by maximizing the good
to be gained from the level of revenues made available
through oil resources. They are based on the recognition
by Saudi leaders that oil revenues will not always be
sufficient to maintain the economy and other economic
resources must also be developed to ensure the future well-
being of the Kingdom.
First Five Year Plan: The first five year plan covers
the period from 1970 to 1975 (1390 to 1395). This is the
foundation plan that was designed to lay the foundation for
the economic development of Saudi Arabia. It had two basic
principles. They were 'developing the needed human
resources through education and training and building a
comprehensive economic infrastructure" (Rashid and Shaheen
181) .
Resource development programs formed the foundation of
the first five year plan. Human resource development,
infrastructure, economic resources, and social resources
received fifty-eight percent of the 41.3 billion Saudi
Riyals available in the budget. The remainder of the
budget went for defense, loans, aids, subsidies and
administration expenses (Rashid and Shaheen 181). In
addition to providing the foundation needed for future
development, the first five year plan also served as an
information resource for the planning experts and
42


economists. With the fiscal information obtained from this
plan the Kingdom was able to develop its later five year
plans on more reliable foundations.
An example of the kinds of projects given priority
during the first five year plan was the development of
water resources. Water is an especially valuable commodity
in a desert environment. While the government encourages
private initiative in groundwater development/ it takes an
active role in developing surface water resources. In 1971
a project to expand and improve irrigation and drainage
facilities in the oasis of Al-Ahsa was completed. It
involved 1520 kilometers of canals, 1320 kilometers of
drainage network, three pumping stations to irrigate areas
uncommandable through gravity, and three night storage
reservoirs. The system is capable of evacuating 135
million cubic meters of leachate annually and 600 thousand
tons of salts which would otherwise remain in the soil and
reduce its productivity. Upon its completion the project
will irrigate 20,000 hectares instead of the 8,000 hectares
irrigated prior to the improvements {Ministry of Planning
67).
Under King Faisal the government of Saudi Arabia began
to take control of its own economic resources. During his
reign he initiated the five year plans for economic
development. Under these plans the country was to focus on
developing its resources to their fullest potential for the
43


benefit of the citizens. The Kingdom would no longer cater
to the needs of the oil companies at the expense of their
own needs. As oil revenues increased dramatically, the
role of the government in the economy also increased. With
a full realization of the power that economic security
provided, Faisal began the process of bringing Saudi Arabia
into a position to control its own destiny.
King Khalid
Faisal's reign was cut short in 1975 when he was
assassinated by a nephew during majlis. Khalid immediately
ascended to the throne and named Fahd his Crown Prince.
There was some doubt about the ability of Khalid to
maintain the modernization programs started by Faisal, but
he proved equal to the tasks that faced him. In part it
was his simplicity of life and personal devotion to Islam
that helped him overcome many problems in the government.
Unlike Faisal, Khalid was not an authoritarian ruler.
He believed in delegating authority and in achieving
consensus in decision-making (Nyrop 44). In October 1975
Khalid established five new ministries. They were Public
Works and Housing, Municipal and Rural Affairs, Higher
Education, Industry and Electricity, Post, Telegraphs and
Telephones, and Planning (Al-Farsi 50).
44


The concept of the Five Year Plans was carried on by
Fhalid who carried out the Second Five Year Plan and
initiated the Third Five Year Plan.
Second Five Year Plan: During the first five year
plan the revenues from oil increased dramatically. 1973
saw the beginning of a steady increase in revenues from oil
that would continue until 1982 when the economy began to
adjust and decline as steadily as it had increased in the
previous period. In 1973 the revenues available to the
Saudi Arabian government were SR22.8 billion. By 1975 when
the second five year plan was initiated those revenues had
grown to SB95.81 billion and the growth showed no signs of
slowing down (Soufi and Mayer 103).
The second five year plan was hastily put together
as the implications of increased oil revenues began to
become clear. It was during this period that the basic
guidelines listed above Were developed and used as the
guiding principles for the second five year plan. With a
larger budget to draw from the plans for the second five
year plan were very ambitious. With a budget of SR500
billion the plan focused on developing a fundamental base
for massive development ('Rashid and Shaheen 181) .
This highly ambitious development plan was aided by
the return of students who had been studying abroad. In a
country with very low literacy rates and few educational
facilities for advanced studies, there were few human
45


resources equal to the task of building the economy. Most
of the population was still illiterate and few had the
skills needed in a modern industrial economy. This was
offset/ however/ by the talents developed by the few who
were able to gain foreign educations. They brought back
with them the skills and the talents needed in a blossoming
economy.
Saudi Arabia abounded in entrepreneurial flair.
The Ph.D. and other graduates emerging from
places of higher education in the United States,
West Europe, Cairo and Beirut, and the national
institutions, made the Kingdom proportionately
rich in talent. (Holden and Johns 394)
Due to the rapid growth of the economy and the demands
placed on the infrastructure by this growth, the second
five year plan focused primarily on the infrastructure
itself. Without development of the infrastructure the
whole economic future of the Kingdom would be in danger
regardless of the revenues from oil.
Saudi planners were tinder no illusions that
success in the implementation of the Second
Development Plan would in no small measure depend
on the ability of the Kingdom's infrastructure to
cope with the demands made upon it. Nearly a
quarter of total appropriations were directed to
it. Of critical importance were the ports of
Jeddah and Dammam through which 90 per cent of
the goods entering the country passed. With
construction reckoned to absorb more than half of
anticipated expenditure, the pressure that would
be put on limited facilities by imports of
building materials and related equipment were
obvious. Congestion at the country's ports was
46


building up even before the plan had been
published. (Holden and Johns 399)
The success of the second five year plan can be seen
in the progress made in the ports authority. The Ports
Authority was established in 1976 and given the
responsibility of modernizing the 'Kingdom*s seaports. The
Ports Authority was able to increase the number of berths
at the main ports from 27 in 197S to 131 by 1982. In
addition, they added modern equipment and expanded the
infrastructural facilities to increase capacity even more.
Handling capacity during the second five year plan
increased from 6.1 to 46.7 million tons per year (Ministry
of Planning 68).
Third Five Year Plan: The third five year plan built
upon the foundation established by the first two plans. In
addition to the general goals established during the second
five year plan, the third five year plan focused
specifically on providing a structural change in the
economy, increasing participation and social welfare in
development, and increasing economic and administrative
efficiency (Sindi and Alghoufaily 19).
The third development plan was based on a budget of
SHI,132.7 billion. The portion set aside for development
constituted sixty-two percent of the total budget (Rashid
and Shaheen 181). These funds, however, were allocated
much differently in the third five year plan than in
47


previous years. The focus was no longer on development of
the infrastructure. The strides made in development of the
infrastructure during the first and second five year plans
provided the foundation needed for the expansion of the
industrial and market sectors during the third five year
plan. Infrastructure development during the third five
year plan was limited to completing projects already begun
and continuing to provide the necessary physical
infrastructure, especially in those areas showing good
potential for production (Sindi and Alghofaily 20).
The economic development strategy of the third five
year plan was basically the same as the first two five year
plans with a shift in emphasis from infrastructure to
diversification of industries. The strategies for the
third five year plan were:
the diversification of the economic base; the
development of the Kingdom's manpower resources;
and the balanced pattern of economic growth that
ensures the development of all regions, extends
the benefits of national wealth to all sections
of the community through social development and
welfare programs, and supports individual effort
and achievement. (Sindi and Alghofaily 21)
During this five year plan the government began to see
progress in its goal to diversify the economy and reduce
the dependency on oil revenues. In 1970 the revenues from
oil constituted 89.2 percent of the total revenues in Saudi
Arabia. By 1984 that percentage had shrunk to 66.9 (Rashid
48


and Shaheen 183). At this point much of the
diversification still centered on oil-related industries
like petro-chemicals, natural gas, and refining. Revenues
from non-oil industries like steel/ cement, and agriculture
also increased dramatically (Ministry of Planning).
With the uncertainty of the world oil market the
diversification of the Saudi economy is both wise and
essential. One of the greatest growth areas of the economy
during this period was the petrochemical industry. Saudi
Arabia's petrochemical industry began to take its share of
the world market during the period from 1980 to 1985. As
with other industries, the petrochemical industry has been
developed by private enterprises. The political elites
began to see free market and free enterprise as the
foundations for the future growth of Saudi Arabia.
King Khalid enjoyed the full benefit of the growth of
oil revenues. Under his direction the second five year
plan focused on building the infrastructure to meet the
changing demands of the economy. The focus shifted from
keeping pace with the needs of the oil companies to keeping
pace with the growing needs of the economy. Khalid
recognized the need to develop the Kingdom and its
resources for the benefit of its citizens. Uncontrolled
growth would not be in the best interest of the Kingdom or
its people. Therefore, the develop plans focused on
49


controlled growth and building the foundation that would be
needed for expansion of the economy.
During his seven year reign, cut short by his untimely
death, King Khalid concentrated mainly on economic
development and foreign policy. He continued the political
patterns followed by his brother without significant
changes to the political structure. He is remembered as a
wise and benevolent leader who helped build the economy.
King Fahd
Khalid*s reign lasted only seven years before his
death in 1982. Crown Prince Fahd assumed the throne in
1982 and began the final phase of political development in
Saudi Arabia. From the absolute monarchy of Ibn Saud, the
government had evolved, by this point, into a less absolute
form. Ministers and councils now had authority to make
decisions. The king's authority remained absolute, but it
was exercised with less absolutism. During the reign of
Fahd, the final steps are being taken toward the
establishment of a true constitutional monarchy.
Fahd continued his brother's policy of allowing the
Council of Ministers to run their own affairs as long as
they were run well. He valued the expertise of his
advisers and insisted that they be well-qualified for their
positions. By 1987 the Council of Ministers had been
expanded to 23 ministries which included three ministers of
50


state and a minister without portfolio. in 1988 a Royal
Decree made the President of the Saudi Ports Authority/ the
President of the Central Auditing Bureau and the President
of the Investigation and Control Board members of the
Council.
Centralization had been a cornerstone of the Saudi
government with emphasis on the authority of the Council of
Ministers. During the reign of King Fahd, however, this
has changed dramatically. A concerted effort to
decentralize the government functions has brought about
some important changes in the administration of public
policy.
The Council of Ministers has delegated much of
its personnel to the General Bureau of the Civil
Service... District and local agencies, in
general, have assumed more responsibility and
have been more effective and responsive in
meeting people's needs as a result of the greater
authority being delegated to them. (Dhalan,
Abdullah 77)
Two conflicting developments in Saudi Arabia are
making it difficult for the government to really meet the
challenges of governing a modern industrial nation. One is
the need for more decentralization to relieve the central
government of the burdens of detail in administration.
Delegation to the district and local agencies has helped to
solve this problem. At the same time, however, the
government is facing a challenge from the effects of
51


economic development. This is a problem common to modern
societies as pointed out by Frederick Mosher in his article
"The Public Service in the Temporary Society."
Growth, technology and population mobility are
forcing geographic interdependence; and
interdependence forces centralization in public
policy. (Dahlan, Abdullah 77)
Saudi Arabia is no longer a country of loosely
connected rural communities. Industrialization has shifted
the population centers to new industrial areas where high-
paying jobs are plentiful and modern conveniences are the
norm rather than the exception. The rural society is
rapidly becoming an urban society. Centralization of
population corresponds with centralization of the means of
production. Specialization replaced the diversification of
skills in local communities.
At the same time, however, the benefits of
modernization and industrialization are making it possible
for even the remotest areas to enjoy the conveniences of
modem life. Development of these areas is progressing as
rapidly as development in the well-planned industrial
centers. Resources are needed in all parts of the country
to facilitate this modernization process. Government
coordination of the effort is needed in order to assure the
equal development opportunity for all sections of the
country.
52


Meanwhile, each area of the country has its own unique
characteristics and its own unique needs. The Eastern
provinces with their rich oil fields and fishing grounds
enjoy a prosperous economy. At the same time, however, the
nomadic tribes of the Southern Quarter are experiencing
dramatic changes in their lifestyle as their lands are
being bought by the government and they are being relocated
to urban settings where they must learn new skills in order
to survive. Local control over resources is necessary to
make the best use of new technologies for that particular
area. Local interests need to be balanced with national
interests in order to achieve maximum growth for the
country as a whole without hindering the development of the
local economies. Saudi Arabia is no longer a loosely
connected system of local tribes owing loyalty to a distant
king. Today Saudi Arabia is a closely knit political and
economic unit with a strong need for both centralized
control and decentralized administration.
This creates a challenge for the government in
achieving both decentralization of government functions and
centralization of policy making to unify the economy. One
of the steps being taken to achieve this delicate balance
is the revival of the function of the Consultative Council.
When the power of the Consultative Council was reduced
tinder King Ibn Saud it was because of the lack of qualified
members of the council to administer the burden of
53


government support. There was wide-spread illiteracy and
very few educated members of the society. Economic
development has allowed for the development of the
education system which has effectively reversed this
situation. Dot only are the people better prepared for the
challenges of their role in government but they are also
eager to face those challenges.
The Saudi government has made the commitment to
revive the Consultative Council, and the 1990s
are going to witness steady political
development, since establishing the Council would
allow the division of power to prevail again.
Such a step and reform is not conclusive yet
momentous. Surely it would sustain the political
system. (Dahlan, Abdullah 78)
Eourth Five Tear Plan: The fourth five year plan
moved Saudi Arabia into a new era in development. The
focus of this plan was to shift the area of concentration
from the infrastructure and government development to the
productive and private sectors. The basis of this shift
was the belief that, "The present rate of growth is the
normal rate, and would be reached whether the oil income
had risen or fallen" (Rashid and Shaheen 183).
In light of this new focus, the fourth four year plan
had eight strategic goals. They werer
1. Improving the economic standard for services and
benefits that are offered directly by the
government to the citizen such as education and
54


security services, or indirectly such as
electricity/ transport and basic foodstuffs.
2. Opening wide horizons and encouraging the private
sector to be involved in many of the economic
functions of the government/ so that the
government will not carry on an economic activity
that can be accomplished by the private sector.
3. Giving opportunities to the private sector to
manage, maintain and delete some sectors that are
presently run by the government. . .
4. Improvements and selectivity in the subsidies and
aids offered by the government/ be it directly or
indirectly.
5. Continuation of human resources development.
6. Special attention to develop the Saudi society
and to make available the proper social and
health care necessary to the Saudi citizen.
7. Preparation of the defense and security plan. Do
whatever is necessary to guarantee the protection
of the nation.
8. Following a financial policy that realizes a
balance between revenues and expenditures.
(Rashid and Shaheen 183-187)
Perhaps the greatest accomplishment of the fourth five
year plan is the beginning of Saudization. This is the
process of putting Saudi nationals to work in jobs formerly
held by expatriates who were brought in to fill the
technology void pending the training and education of
Saudis qualified to fill these positions.
Fifth Five Year Plan: The fifth five year plan was
announced on January 1, 1990. Again the emphasis is on
private sector expansion and manpower development. The
budget for this five year plan is SR753 billion. Of this,
two-thirds is already allocated to civilian use. The major
thrusts of the plan are:
55


1. Expanding government revenues for the purpose of
increasing nonoil revenues.
2. Insuring economic stability and maintaining it
through stable government expenditures.
3. Increasing the dependency of the national economy
on business-sector activities by stimulating
domestic capital to participate in domestic
investments.
4. Creating job opportunities for the Saudi labor
force.
5. Substituting foreign products with domestic
products and effectively penetrating export
markets by increasing the competitive
capabilities of domestic products as a means of
increasing the volume of exports and improving
the balance of payments.
6. Expanding and diversifying the economic base by
continuing efforts to increase the volume of
productive sectors in the national economy and
taking new initiatives to help the business
sector increase the effectiveness of the
activities. (Soufi and Mayer 108-109)
King Fahd inherited a sound economic planning program
that provided him with the means to develop the economy
even further. At the same time, however, the changes in
the economy brought new demands to the government. A
stronger government structure was required to accommodate
the needs of the economy. The number of ministries
increased to accommodate the greater number of needs within
the economy. The King could no longer make all of the
decisions because of the vast scope of the decision making
process in the new economy. The role of the advisors
increased in importance as more and more responsibilities
had to be delegated. King Fahd retains the authority of an
absolute ruler while delegating that authority to his
subordinates who act in his name.
56


CHAPTER 4
CONCLUSION
This chapter provides an analysis of the hypotheses
and a hrief summary of the data provided in the body of
this paper. A brief review of the findings brought out in
the paper is also included. The chapter closes with a
discussion of the significance of these findings.
Analysis
The study of Saudi Arabia and its economic and
political development supports the hypotheses presented in
this paper. Each one is discussed independently below.
Hypothesis 1: There is a relationship between the
political power of the government and
the degree of control over economic
conditions within Saudi Arabia.
Nhen Saudi Arabia was unified it was a poor country
with few natural resources at its disposal. With the
discovery of oil new economic potential became available to
the country. The government/ however, did not have direct
access to the funds needed to develop this valuable
resource. Therefore, it was highly reliant on the oil
companies for the resources needed to turn the oil reserves
into oil revenues. Because the oil companies had all the
economic resources for the development of the oil reserves,
57


the government of Ibn Saud was at a disadvantage in
negotiating for the oil concessions. The advantage,
therefore, went to the oil companies who kept most of the
revenues for themselves. King Ibn Saud was content at that
time to have resources with which to begin the development
of his infant country.
As the government of Saudi Arabia grew in influence
over the economy, it began to exercise more control over
how the oil resources were allocated and how they would be
used. Economic development no longer focused entirely on
the oil industry. With the revenues made available through
the OPEC agreements with the oil companies, Saudi Arabia
was able to gain more control over its own economic
development. This development now centered on the
development of diversified industries to provide the nation
with a broader economic base and reduce its reliance on
oil.
OPEC is a good example of the shift in this power
structure from the developing industry to the nation-
states. Oil development was directed by the oil companies
for their own interests. Infrastructure development in the
oil-producing countries was directed more at providing for
the needs of the oil companies than for the needs of the
country itself. Roads were built to provide access to Oil
fields. Schools were built for the children of oil company
representatives and employees of the oil companies.
58


Resources were controlled by the oil companies so they were
directed by the oil companies. When OPEC was organized it
gave the oil producing countries the power they needed to
regain control of their own resources. The oil exporting
countries were then able to determine how their resources
would be developed. Development could now proceed in a way
that would benefit the country as well as the oil
companies.
Hypothesis 2; As economic power increased the
government established a broader/ more
powerful base.
Institutional development moved hand-in-hand with the
development of economic resources. What was once a simple
monarchy has become a complex and diversified political
unit. As the scope of the governments responsibilities
increased/ the demands placed on the government also
increased. It became necessary to expand the government to
include more departments to handle the diverse needs of the
population. One man could no longer handle all of the work
and make all of the decisions. Diversification brought
with it a division of labor within the government.
Decentralization required a more complex political
structure. The more complex government structure required
new guidelines and principles of government to facilitate
cooperation among departments.
59


The political growth of Saudi Arabia has been quite
remarkable and rapid. It is still taking place today. As
the demands placed on the government continue to increase,
the government has responded by adding new departments and
organizations to help fill the gaps. This has given those
participating in the government more experience in
political matters and more insight into the role that
government needs to play in Saudi Arabia.
There is also a renewed interest in the consultative
council which would bring more political participation by
the citizens of Saudi Arabia. The consultative council was
originally introduced to give tribal leaders the
opportunity to provide inputs to the new government of Ibn
Saud. The lack of educated leaders with the experience and
expertise to participate fully in the council resulted in
its being relegated to a minor role in government. The
reemergence of the consultative council as an important
part of the government is an indication of growing
political awareness and maturity in Saudi Arabia (Dahlan,
Abdullah 78).
Hypothesis 3: As wealth increased the economic
resources of the government increased,
resulting in changes in the political
structure of the government.
As the economic resources of Saudi Arabia began to
increase there was more that the government could do to aid
60


the country in its growth. More services were provided to
help the economy grow and spread the benefits of the oil
revenues to the people. This required a more complex
political structure. These changes are reflected in an
increase in the number of ministries and the number of
advisors needed by the king. A strong central government
could no longer satisfy the needs of the country. More
diversification in government was needed to meet the needs
of all the people. This led to decentralization of both
functions and authority.
This change is still taking place. With growing
economic interests there is a greater need for centralized
control of the economy. While diversity of demands is
still high/ there is also a need fpr central planning. The
government is working to develop a balance between
decentralization and centralization that will allow for
sufficient growth and still give direction to that growth.
Hypothesis 4: As political power over the economy
increased the direction of influence
shifted. Instead of the economy
directing the government, the
government began to direct the
economy.
Under the oil concessions the growth of the economy
was directed toward the development of oil resources.
Infrastructure development centered on the needs of the oil
61


industry. Growth was skewed toward those areas affected by
the oil industry. All other areas were neglected or
allowed to grow only slowly. The decisions of the
government were directed by the economy.
Without alternative sources of revenues for industrial
development/ the government had little real choice in the
direction that economic develop took during the early
stages of growth. In order to obtain revenues for
development in other areas, the oil industry needed to be
developed fully. Government efforts were focused on this
development in order to establish the financial base from
which more balanced development could take place.
As the government gained more control over the
economy, this trend shifted in the other direction.
Revenues were directed toward development of an
infrastructure that supported the needs of the people.
Public services, housing, medical care, and education
became major government projects. The infrastructure could
now be expanded to serve the needs of rural communities and
facilitate the movement of people within the country.
Emphasis could now be placed on areas that would not be
contributing directly to the revenues of government in the
present. For example, rural schools could be improved and
local telephone service provided to areas where natural
resources were limited and large revenues not generated.
62


Industries suitable to areas not rich in oil were
introduced to boost these local economies.
Diversification of the economy became a primary goal
in order to reduce the dependence on the oil resources.
Because of the nonrenewable nature of the oil reserves the
government recognized the need to build a more diverse
economy. This was not happening when the economy was
directing the direction of growth. Now that the government
controls the economy, growth is moving in a more balanced
manner toward an efficient and productive national economy.
In examining the relationship between the oil
companies and the emerging nation of Saudi Arabia, it can
be seen that an economic imperialist relationship developed
and was allowed to continue for many years. All
improvements in the economy were directed toward improving
the conditions under which the oil companies extracted and
processed the oil. What was good for the oil industry took
priority over what was good for the nation. This situation
is gradually changing, but it has taken concentrated effort
on the part of Saudi Arabia to bring this change about.
The political, military, communication, and cultural types
of imperialism were totally dependent upon the economic
imperialism that existed. Without the economic
imperialism, the other types of imperialism would not have
existed. The degree of political, military, communication,
63


and cultural imperialism decreased with the gradual
decrease in the economic imperialism.
Summary
Saudi Arabia is a relatively young country with its
origins in the twentieth century. Ibn Saud united the
tribes of the Arabian Peninsula under his leadership and
secured the major portion of the peninsula in a single
kingdom. When the Kingdom of Saudi Arabia was first
established it was a loosely connected group of mostly
nomadic tribes forced together through conquest. It was a
poor country that had to rely on revenues from the annual
Pilgrimage to Mekkah. With such limited resources,
development was almost nonexistent during the early years
of the Kingdom.
With the discovery of oil, however, everything began
to change. Oil concessions provided the revenues that were
needed to begin development of the country. Initial
development of the infrastructure was at the instigation of
the oil companies. They built roads to provide access to
oil reserves, shipping docks to facilitate their
operations, and modern communities for their employees.
The gap between life around the oil company facilities and
life in the Saudi communities soon began to grow wider and
wider. Ibn Saud realized that something needed to be done
64


to bring the benefits of oil revenues to a larger portion
of his people.
Changes in the economic conditions of the oil
concessions were necessary to provide Saudi Arabia with
more revenues for internal development of resources other
than oil. "When these changes were brought about/ the
government had more revenues with which to bring modern
industrial developments to Saudi Arabia. Bow the
government and not the oil companies were in a position to
direct the growth of the economy.
Early development, however, still centered around the
oil industry. "With no other source of revenues the
government had to develop reserve funds from oil revenues
in order to direct the development of other sectors of the
economy. As these funds became available, the government
was able to begin directing the growth of the economy
through industrial development and diversification of
industries. This was accomplished through the
establishment of a series of Five Year Plans which are
still being used to guide the development of the economy.
The first five year plan focused mainly on the
development of oil industries and the infrastructure of the
country. Once this basic foundation was laid, however, the
focus began to shift away from oil as the basis of the
economy. Oil reserves are a limited and non-renewable
resource. Careful control of this resource and the
65


development of alternative industries became of the focus
of later five year plans. By the time the fourth Five Year
Plan was developed the role of oil had decreased as a
result of hew industrial centers that provided a more
diversified economic base.
Today the emphasis of government in Saudi Arabia is on
the continued development of diversified industries within
the country. Less and less emphasis is being placed on oil
as the primary source of revenues. With financial
pressures reduced by the oil revenues generated during the
last decades, government resources can be directed toward
other industries and infrastructure needs outside of the
oil industry. This diversification has created a much more
stable economy with greater potential for future growth and
development.
Along with the economic growth has come political
growth. The government structure has expanded to include
a diversity of ministries with responsibility for the
development of services. Centralized decision making has
been replaced to a large degree with decentralized
administrative decision making within both ministries and
regional offices. At the same time there is a demand for
more centralized control over the functions of government
to make development efforts more uniform.
66


Findings
Four points have been made by this study. First,
there is a relationship between the political power of the
government and the degree of control over economic
conditions within Saudi Arabia. The government was able to
progress from a periphery position in the imperialist
relationship with the oil companies to a center position as
an independent nation. As the government's financial
security increased, its ability and willingness to asBert
control over both political and economic issues increased.
Second, as economic power increased the government
established a broader, more powerful base. The strong
political base established by Ibn Saud enabled the country
to overcome economic imperialism while resisting political
imperialism and developing its own unique form of
government. As the government gained more control over the
economic conditions in Saudi Arabia, its political
structure grew and expanded. The political philosophy
behind the government changed from a person-directed
monarchy to a constitutional monarchy where decisions are
more decentralized.
Third, as wealth increased the economic resources of
the government increased, resulting in changes in the
political structure of the government. Not only did the
number of ministries increase, but the decision-making
policies of the government also shifted from centralized to
67


decentralized as the economic power afforded by oil wealth
improved the possibilities open to government.
Fourth, as political power over the economy increased
the direction of influence shifted. Instead of the economy
directing the government, the government began to direct
the economy. Early changes in government structure grew
out of the need for diversification to handle the growing
demands of the economy. Ministries were added to handle
the growth. Today, changes in the ministries are directed
by Five Year Plans designed to direct the growth of the
economy and reduce dependence on oil revenues. The
Consultative Council is being revived as a result of
increased ability of tribal leaders and educated citizens
to participate effectively in the political process.
Significance of Findings
These findings indicate that the degree of control a
country has over its economic conditions has a direct
relationship to the political structure of the government.
Saudi Arabia provides an excellent example of this
relationship.
The government of Saudi Arabia developed rapidly from
its beginnings under Ibn Saud with his small circle of
trusted advisors. All decisions were made by the king
whether they involved economic or political matters. The
king, as supreme ruler, was the only voice of government.
68


At that time the economic resources of Saudi Arabia were
very limited and growth was a major concern.
With the discovery of oil in Saudi Arabia new
possibilities were opened to the government. Ibn Saud now
had the resources to put his dream of development into
effect. But the direction of that development was
determined by the source of revenues: the oil industry.
All infrastructure development focused on the needs of the
oil companies. Ibn Saud did all that was required to get
the oil companies to invest in developing the oil reserves
of Saudi Arabia. He could not do it alone.
When Saudi Arabia was able to gain more control over
their oil reserves the government began to develop the
industrial base in a more diversified manner. Emphasis was
placed on controlled growth of the economy in order to
maximize the benefit to be gained from the oil revenues and
to ensure the distribution of benefits to all citizens of
Saudi Arabia. Government was expanded to include new
ministries to handle the new responsibilities that
government was tahing upon itself. Growth of the
government was still being directed by the economy.
Today conditions are changing again in Saudi Arabia.
There is a diversified economic base upon which growth can
be continued. The reliance on oil has been reduced. The
improved infrastructure has provided educated and trained
nationals to fill positions in both industry and
69


government. With these economic changes are coming
political changes. The once symbolic consultative council
is being revived with a new role in government. The new
constitution provides for more decentralized delegation of
authority within the government. With more and more
leaders and citizens educated in both technical and
political areas, the government can now safely allocate
some government functions to the authority of a
constitution.
While Saudi Arabia remains a monarchy, the
constitution allows greater participation in the government
and more direct access to government functions for the
people. Economic stability has provided the basis for a
more stable form of government that can and does take into
consideration the needs of the people in its decisions.
This trend shows every indication that political stability
and economic stability are moving hand-in-hand in Saudi
Arabia.
70


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