Thomas Friedman’s provocative New York Times interview with Saudi crown prince Mohammed bin Salman may present a simplistic view of events in the Kingdom, but it does make some very important point about the arrests of more than 200 members of the nation’s elite last month. Most of those detained are now slated for release, but Saudi Arabia’s battle to rein in corruption is far from over.
Both inside and outside Saudi Arabia, it’s an open secret that graft permeates the upper echelons of Saudi society. What had not been common knowledge is the sheer scale. According to Saudi Arabia’s public prosecutor, Sheikh Saud al-Mojeb, at least $100bn “has been misused through systematic corruption and embezzlement over several decades”. The U.S. National Bureau of Economic Research estimated an even higher figure – $300bn, or fully 55% of the country’s GDP.
The sudden desire to crack down on systematic graft has hardly come from nowhere. Some outside observers see political motives at work, but drastic moves are necessary to break with the corrupt status quo of Saudi business culture and prepare a nation built on petrol for a post-oil future.
Wading Through Wasta
That cultural shift cannot come soon enough. The guiding principle of wasta (the Arabc world’s version of “it’s not what you know, it’s who you know’”) has helped Saudi elites accrue power and wealth unchecked. As the blogger Secret Dubai once put it, wasta is “the magical lubricant that smooths the way to jobs, promotions, university places and much else in business and government”. It’s an incredibly convenient leg up for those with access and a painful, frustrating barrier to the many young Saudis asked to pursue careers without it.
Frustration with that system helps explain why the crackdown is so popular with the general public. Saudi businesses have plenty of complaints against powerful royals who confiscate land or inveigle their way into business deals.
While the sons of the elite have prime pickings for jobs, young Saudis face a jobs crisis – fully 42% of Saudi youth could be unemployed by 2030. News stories about members of the royal family flaunting their £1.5m fleet of sports cars in Knightsbridge hardly ease this underlying economic trepidation.
Unfortunately, the need to scratch the right person’s back often puts Western businesses in a tight spot as well. Wasta makes doing business in Saudi Arabia a tricky ethical tightrope. American and British firms often struggle not to fall foul of their own legislation, namely the US Foreign Corrupt Practices Act and the UK Bribery Act.
Choosing to Play with Fire
In more than one case, major companies have tried to walk this tightrope and failed. Barclays, for example, found itself at the centre of a US Department of Justice probe in 2013 when it was alleged that the bank had paid illicit fees to the very same Prince Turki bin Abdullah who took London by storm with his collection of golden supercars. Turki, of course, has now found himself in a very different “gilded cage” while under arrest at Riyadh’s Ritz-Carlton.
Barclays also landed itself in hot water because of an alleged sweetheart deal with the Saudi government. More specifically, Barclays is accused of making a covert deal to abandon its pursuit of billions of dollars in lease payments on military compounds built by the property company (and Barclays client) Jadawel, allegedly in exchange for a banking licence to operate in the country.
The collapse of the Jadawel leasing agreement impacted not only the company but also a consortium of American, British, German, and Japanese banks.
Jadawel’s owner, the Saudi businessman and philanthropist Sheikh Mohamed Bin Issa Al Jaber, has pursued damages against the bank in New York courts. Earlier this year, he described the case to the Financial Times in terms many Saudis would empathise with:
“I want to set a precedent. If somebody works hard, nobody should step in and try and destroy what he has created over many years and through a lot of hard work.”
Such informal ways of doing business mean a broker’s wasta can be vastly overstated or entirely fraudulent. Last year, the Irish firm Panda Waste was scammed out of €350,000 by a Saudi-based lawyer who seems to have overstated his influence over the royal family in order to be paid a significant sum and then disappear.
Why have Western companies participated in this system, in which the kingdom’s self-styled power brokers syphon off between 10% and 25% of the value of government contracts? Two simple reasons: big profits and political stability.
The end of the oil era, however, is in sight. Saudi Arabia’s new leaders understand outside capital will no longer give their market the benefit of the doubt unless a more transparent, rule-based system is put into place. That paradigm shift is vital for making the ambitions of Mohammed bin Salman’s Vision 2030 a reality.
Certainly, the appetite for doing business in Saudi Arabia is still there. In May, Japan’s Softbank and Riyadh jointly announced the creation of the world’s biggest tech fund, raising $93bn. China and the Saudis also concluded a number of deals worth $70bn brokered between the two countries in August. Recent rumours indicate the Chinese had tabled an offer to buy 5% of Saudi’s state-owned oil company, Aramco.
Excising corruption wouldn’t just plug a very real drain on the Saudi economy and make doing business in the country more straightforward; it would also help reform Saudi business culture. What you know, rather than who you know, ultimately needs to take primacy. Saudi’s ruling class can lead by example, abandoning the conspicuous consumption symbolized by Turki bin Abdullah’s gold Lamborghinis and instead using their influence to support structural change.
In this, they could learn a valuable lesson from Jadawel’s Al Jaber. Through his foundation, the Saudi businessman stands as an important advocate of civil society initiatives. To spearhead a true cultural shift, many other Saudi royals and business leaders would do well to follow his lead.
An Update on Trumptopia: What’s Going on in the USA?
Whiskey Tango Foxtrot (WTF)
This 2016 movie, produced by and starring Tina Fey, is based on a book that was written as a memoir by the main character, Kim Barker. It follows a period of three years between 2003 and 2006 – it was initially supposed to be a three-month assignment – when Kim takes an assignment to be a war reporter in Afghanistan.
The premise of the movie is that one’s perspective shifts to adapt to the circumstances, however bizarre, in the manner of the proverbial frog in increasingly hot water. Kim exits before she is boiled, but only just. The most poignant moment in the movie (there are not that many – the emotional tone is mostly flat), is when Kim returns home to visit a marine who lost his legs to an IED in Helmand Province. She had been told by a fellow reporter that the marine’s assignment to Helmand resulted from a segment she reported where he discussed his habit of keeping his weapon unloaded. He had greater fear of an accidental discharge than of an engagement with the enemy.
Barker felt guilty and wanted to give him the opportunity to reproach her. His response was not to blame her at all: “You embrace the suck. You move the f**k forward. What other choice do we have?” He gives her a brief history lesson on the murky issue of causation of the war in Afghanistan and the Middle East.
It is a telling lesson on the complexity of the human condition, people’s tendency to overestimate the magnitude of their own causal contribution to world events and a reminder that there are fewer easy answers than might be desirable.
Fire and Fury
The recent book by Michael Wolff is an excellent read not because it reveals anything the reader has not already heard or suspected, but rather as a sober chronicle of dysfunction and a reminder of what government should be about and what it should not be, but all too often is about.
There was drama in the LBJ administration. There was inappropriate behaviour; foul language; manipulation; ego. LBJ’s time as Vice President was a marked contrast to his stature as Master of the Senate. The transition to President in the wake of JFK’s assassination was remarkable. As the world watched, wondering how this would go, Johnson worked the levers of power to bring in a budget below the level of $100bn demanded by Harry Byrd, Chairman of the Senate Finance Committee as the price for releasing JFK’s tax cut bill that was holding up consideration of the Civil Rights Bill. LBJ continued to work his inside the ropes knowledge of the legislative process to get the Civil Rights Bill passed into law. This was American government at its best.
The picture Wolff presents is American government at its worst. The legislative initiatives that have been undertaken by the current administration are healthcare reform; tax reform; immigration reform. Healthcare struggled and failed; tax reform passed and immigration reform is caught up in the politics of funding the government.
The President’s approval ratings are in the doldrums; he is forced to deny the racism revealed by his vulgar language and he is fighting with his Chief of Staff via twitter. In the meantime, those whose deportation hangs on immigration reform live in fear of arrest and infrastructure reform is on hold.
Unified Field Theory
Steve Bannon, the early architect of the Trump administration policy (since ousted and discredited by the President) and the author of the President’s Inaugural Address, was widely considered to be a proponent of a comprehensive policy to take the country back – a kind of unified field theory. His premise was that the American people had spoken through the election of Donald Trump. His organizing philosophy was a robust ‘America First’ policy on trade; a very restrictive immigration policy (widely interpreted as White Nationalist and anti-Muslim) and generally tearing down the administrative state to restore power into the hands of the executive branch.
This political philosophy was well targeted to flatter the ego of the President. Wolff’s book reveals that the President does not read and rarely listens. His attention wanders quickly and the passage to his understanding is apparently a narrow window defined by short-burst images and soundbites frequently played out on his favourite cable news network, Fox News.
There could not be a sharper contrast to the skill set required to approach the long-term issue of, for example, infrastructure repair. There could not be a sharper contrast to the achievement marked by the Civil Rights Act. There is no unified field theory of human progress. It is about hard work, incremental steps and the occasional watershed victory. Bannon was short-lived.
How Hot is the Water Right Now?
Kim Barker refers in her book and in the movie to the concept of “Kabubble”, the world in which the reporters are analogized to frogs in boiling water. The need to keep the war top of the media’s mind at home requires ever more extreme assignments at increasing levels of risk to the reporters and their teams.
The US is currently living in its own Kabubble: Trumptopia, a land where hours of media coverage are devoted to discussions of whether the President used the word “shithole” or “shithouse” to describe certain countries whose populations are considered unsuitable for immigration by the President on the basis simply of their geography (and perhaps, coincidentally, the colour of their skin).
Senators sacrifice their credibility in the cause of loyalty to a President who never repays it. If the key issue is which word was used, the story has missed its mark. If the public wishes the coverage would end because, not surprisingly, it is tired of the noise, then the essence of Trumptopia is revealed: the use of the bizarre to distract from the appalling.
Heads are spinning, and the frog has only a little time left…
Brexit Phase Two: EU-UK Trade Talks
What unites European political parties across the political spectrum is a demand that while Britain discusses its future with the EU, it adheres to the principle of freedom of movement throughout the phase two transitional period. This is together with all the other rules of EU membership, including compliance with decisions of the European Court of Justice (ECJ).
While Brussels conducts day to day negotiations, it will fall to rotating EU presidents to secure cohesion and solidarity among EU27 member states holding diverse agendas for the conduct of Brexit talks. For the next six months, this leadership task falls to Bulgaria. Romania – the EU’s fastest growing economy (in 2017) – takes on the role in January 2019 at what will be a critical time when Britain (finally) leaves the European Union.
On the 29th March next year, Britain will become a ‘third country’ putting its relationship with the EU on a par with Turkey subject to any refinements on single market entry or a ‘bespoke’ customs union granting limited rights for its financial services sector. Business confidence continues to focus on going concerns that without regulatory alignment with the EU, few benefits will be provided from Brexit. It lobbies for ‘frictionless’ trade, which effectively must keep it in line with single market rules for both goods and services.
Car manufacturers have constantly reminded government ministers of potential damage to supply lines by the imposition of trade barriers. They would assert that decades of foreign investment (FDI) in the UK car industry was made in good faith in the knowledge that Britain, with its flexible and liberalized economy, provided the best entry point for the more lucrative EU market. In fairness, other factors also played a part – not least that UK employment laws were less restrictive than in mainland Europe as a result of the Thatcher government’s reforms in the 1980s.
There is still a question whether Britain leaves next year without a deal. Although this looks unlikely, Michel Barnier’s team at the EU Commission prepares for this scenario – taking repeated threats from the hard Brexit camp at face value. Tracking progress for the shape of an eventual deal is not easy, but clues are already appearing. French President Macron’s visit to London on Thursday 18th January helped to re-invigorate the ‘Entent Cordiale’ which historically focused on European military defence cooperation. A renewed Calais Agreement to maintain a tight border on migration would also help to improve Franco-Anglo relations.
But on a post- Brexit trade agreement Macron stands firm in stating:
“If you want access to the single market – including financial services be – my guest. But you need to contribute to the budget and acknowledge European Jurisdiction. There will be no hypocrisy in this respect otherwise it would not work. It would destroy the single market.”
It is hard to see from this statement that the EU27 will weaken from this stance, or that France can be persuaded of a more pragmatic approach by other EU members.
However, this did not stop PM Theresa May from re-iterating her desire for a deep and special partnership with the EU: “I believe it should cover goods and services.” She went on to say “I think the city of London will continue to be a major global financial centre… That is an advantage not just for the UK, it’s actually good for Europe and good for the global financial system.”
In the coming months, understandably, Britain will seek to pick off different EU states to push forward its vision of future trade relations. It is unlikely this “divide-and-rule” strategy will ultimately succeed, and it may well delay the satisfactory outcome of negotiations within the agreed timeline. It is in the interest of both sides to hammer out a deal for the stability of the EU and UK economies.
Sweden Issues War Pamphlets
The Swedish government is preparing a brochure on how to act in wartime due to fears over Russia.
Editor’s Remarks: The pamphlet is to be sent to 4.7 million homes and will explain how Swedes can participate in a “total defence” during a war and ensure that their basic needs – water, food and shelter – are tended to. The last time a document such as this was given out to Swedish citizens was in 1961 at the height of the Cold War. In recent years, Sweden has upped its military spending, reintroduced conscription and placed a garrison on the island of Gotland as fears over Russian aggression have mounted. For the first time ever, the country’s four right-leaning opposition parties agree that Sweden must now join NATO.
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