Guest Post from Ambassador Freeman Background on Saudi Arabia's Reform Agenda

The news of economic reform in Saudi Arabia today caused me to recall some comments I made back in September 2002.  I quote them below.  The (full text and) source is at http://mepc.org/articles-commentary/speeches/saudi-arabias-foreign-and-domestic-dilemmas
The Saudi fiscal system, which relies almost entirely on royalties from oil production rather than taxes for its revenue, can no longer meet the rising demands of a rapidly growing population and a prospering private sector. The Saudi paradox is that the more the Kingdom’s private sector thrives, the more the government must spend to provide it with the services it needs, so — in the absence of any link, in the form of taxes, between private incomes and government revenue — the nearer bankruptcy the government finds itself. Absent a tax system, moreover, Saudi Arabia lacks the financial leeway to buy its way out of its policy dilemmas, as it has sometimes been able to do in the past. Nor does the Kingdom have the cash surplus it would need to cultivate immediate alternatives to the United States as a supplier of defense goods and services.
The basic bargain of governance in Saudi Arabia has cast the government as a dispenser of largesse and charity for the needy. If the government cannot discharge these responsibilities without introducing income and other taxes, the compact of governance — the relationship between rulers and ruled — will have to be renegotiated. If Saudis were required to pay taxes, they have quietly made clear, they would expect a larger role in determining government policy. (No taxation without representation is a principle with universal appeal.)
Not having been taxed, Saudi Arabians have not considered representation worth struggling for. But, as fiscal circumstance compels the Kingdom to contemplate putting in a tax-based revenue system, Saudi Arabia’s rulers must also consider how best to empower more representative forms of government at the provincial and national levels. They will also have to justify the tax system they proclaim by significantly reducing, if not eliminating, government waste, fraud, mismanagement and public procurement rake-offs. Saudis, like others, will pay taxes to fund the efficient conduct of government business but not to reimburse ministries for royal or bureaucratic rip-offs of their budgets.
My clear sense is that the Crown Prince and those around him are not at all intimidated by the prospect of fiscal and political reform. Indeed, they very much want to carry out such reforms. But reform under the best of circumstances is stressful. Under circumstances in which Saudi Arabia must at the same time rethink and realign its international relationships because Saudi-American relations continue to deteriorate, it could prove fatal.