If Saudi Arabia is acting a bit unhinged of late, it’s easy to see why: the Kingdom has all the troubles of Ayyub, as Job is known in the Qur’an. Its economy is in recession due to a 50 percent drop in oil prices. It’s on bad terms with nearly all its neighbors after bombing Yemen, sending troops into Bahrain to crush democratic protests, financing Sunni terrorism in Syria and Iraq, blockading Qatar, and arresting the prime minister of Lebanon. While seeking to lure foreign investors, Crown Prince Muhammad bin Salman has rounded up hundreds of princes and local businessmen in a reported attempt to shake them down for $100 billion or more, hardly a confidence-boosting measure.
“Half my Rolodex is in the Ritz right now,” one Western investor said of the Riyadh luxury hotel that in November was converted into a makeshift prison. “And they want me to invest there now? No way.” Added Richard Parsons, former Time Warner CEO and ex-Citigroup chairman: “It is unclear why or what the rationale is. If you’re an investor or a businessperson, you’re going to take a step back from the starting line and say, ‘I’m just going to keep my money in my pocket.’” Instead of attracting capital, Prince Muhammad is encouraging it to flee.
So what’s it all about? The media seem confused. But for those with a sense of history, there’s a growing sense of having seen it before. And indeed we have—in Spain in the 1500s when that country’s power was at its height. What Spain had in common with today’s Saudi Arabia is mineral wealth—lots of it, not oil but precious metals from its new colonies in Mexico and Peru. Gold and silver made Spain rich for a time. But then they made it poor by plunging it into war and debt, turning it from a globe-straddling power to the sick man of Europe in the span of just three or four generations.
The “resource curse,” as economists call it, has touched down in other places as well—in Holland where a major natural gas find in the late 1950s led to a significant downturn in manufacturing; in Equatorial Guinea, a Massachusetts-sized country in West Africa that is now one of the most corrupt and inequitable societies on earth thanks to a massive oil strike in the mid-1990s; and so on.
But Spain and Saudi Arabia, one at the beginning of the modern era and the other at the end, remain the paradigmatic examples. Essentially, the resource curse describes the perverse effects of a gold or silver strike or other such windfall. While sudden riches may solve problems in the short term, they ultimately create many more by detaching labor from wealth creation and fueling the illusion that the nation stumbled into money not because of luck but because of God’s will or some special attribute. As wealth rains down seemingly from heaven, thrift vanishes, the work ethic shrinks, and policy grows more erratic and extreme.
“The mines of Potosí brought to the country untold wealth,” summed up one historian, referring to the famous “mountain of silver” in what is now Bolivia:
If money was short today, it would be abundant again tomorrow when the treasure fleet reached Seville. Why plan, why save, why work? Around the corner would be the miracle—or perhaps the disaster. Prices might rise, savings be lost, the crops fail. There seemed little point in demeaning oneself with manual labour, when, as so often happened, the idle prospered and the toilers were left without reward.
Historians have traced the process in Spain in minute detail. Not unlike Tudor England, the newly joined kingdoms of Aragon and Castile were caught up in a tug of war between parliamentary institutions and the crown. But where England’s House of Commons was able to use its control of taxation to impose its will, the Spanish Cortes fell short. In 1519, it tried to rein in a headstrong young King Charles V by refusing him funds to travel to Germany to claim the title of Holy Roman Emperor as heir to the Habsburg dynasty. But Charles was able to use treasure that his conquistadors had seized from the Aztecs to get around the restriction and foot the bill himself.
It was a victory for Spanish absolutism, the first of many. As the silver influx grew, the young king threw himself into one military adventure after another. He went to war with France for control of northern Italy in 1521 and 1526. He attacked Tunis in 1535, plunged back into war in Italy in 1536, and then did battle with German Protestants in 1546-47.
Financial difficulties in the 1550s threatened to cut such activities short. But when a Mexican settler named Bartolomé de Medina developed a cheap way of using mercury to extract silver from ore, output rose and imperial ambitions again took flight. By the 1580s, when silver imports were at their peak, Charles’s son Philip II had 40,000 troops attempting to crush a major Protestant rebellion in the Netherlands and was outfitting a 130-ship armada with which to invade Protestant England. When the fleet limped home after a thorough thrashing at the hands of Sir Francis Drake, he plunged into yet another war, this time with France’s Henry IV. But then, following financial crises in 1557 and 1575, bankruptcy struck again in 1596, 1607, 1627, and 1647.
The effects were ruinous. The arrival of unprecedented amounts of gold and silver triggered an inflationary wave that quadrupled grain prices and brought much of Spain to the brink of starvation. Plague struck a weakened population in 1599-1600, carrying off as many as one person in three. The colonies were hit even harder. Mexico’s population may have fallen by as much as 80 percent following outbreaks of plague in 1545-46 and 1576-79, while Latin America as a whole entered into a century of depression as the economy contracted and immigration tailed off.
Instead of rolling up their sleeves and going back to work, Spaniards sank deeper into despondency. Vagabondage and begging increased as people flocked to the Church in search of either positions or alms. An anonymous picaresque novel known as Lazarillo de Tormes observed in the 1550s that “any no-good wretch would die of hunger before he would take up a trade,” while a prominent reformer named González de Cellorigo complained in 1600 that Castile contained “thirty parasites for every one man who did an honest day’s work.” It was a morality tale that especially appealed to the Calvinist Adam Smith. “Spain and Portugal were manufacturing countries before they had any considerable colonies,” he wrote in The Wealth of Nations, published in the auspicious year of 1776. But since acquiring the richest colonies in the world, he said, “they have both ceased to be so.” 
Spain had gone broke on gold and silver while Britain had gotten rich off colonies containing little more than timber, cod, and furs. One country forgot how to work while the other—at least the portion that managed to remain aloof from the slave trade—learned how to work not only harder but more effectively.
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Flash forward to today’s Middle East, and it is clear that little has changed other than the numbers. Where Spain’s gold and silver earnings averaged around $100 million a year from 1503 to 1660, Saudi Arabia takes in three times as much in less than a day. Where silver never accounted for more than 29 percent of Spanish state revenue, Saudi oil accounts for better than triple—91 percent to be exact. But rather than modifying the “wealth paradox,” the only effect is to render it even more virulent.
The parallels are striking. 
If Philip II was a classic absolutist, Saudi Arabia is one of the most autocratic states in history, a country with no formal constitution, no parliamentary institutions, and next to nothing in the way of legal or political rights. Where the Spanish Inquisition followed at least a semblance of legal procedure under the Habsburgs, the anti-corruption committee that has made hundreds of arrests under Prince Muhammad is explicitly exempt from all “laws, regulations, instructions, orders and decisions.” Where Philip II pushed Spanish military expenditures to the breaking point, the Saudis have escalated military spending to a level that is now the highest in the world relative to GDP. With airfields brimming with F-15s, Tornadoes, and Eurofighter Typhoons, they are continually on the prowl for new countries to attack—provided, that is, that their targets are too weak to strike back.
As with Charles V, the mechanism driving autocracy is the independent income stream. Thanks to oil, the Al Saud have no need to beg for revenue while the people have no need to grant it in the form of taxes. Glorious as that may seem, there’s a problem: without taxes, the people lack both a stake in government and a means of controlling it. Instead, the state becomes the private property of the crown, which is why Saudi Arabia is the only country on earth named after a private family—rather as if the United States were known as Trump America or the United Kingdom as Windsor Britain. As Karen Elliott House, former publisher of The Wall Street Journal, observed: “The country fundamentally is a family corporation….Al Saud family members hold all the key jobs, not just at the top but right down through middle management, even to regional managers. (The governors of all thirteen Saudi provinces are princes.)” House adds that ordinary employees are “poorly paid and even more poorly trained because management doesn’t want initiative that might threaten its control.”
If King Salman wants to take a $100 million vacation in Morocco, it’s nobody’s business but his own. Ditto if Prince Muhammad wants to purchase a €500 million yacht that happens to catch his eye in the south of France or a $300 million chateau a few miles outside of Paris. The fact that state funds are involved is immaterial. If it’s Saudi money, then the House of Saud has first rights to it.
The country is thus reduced to a personal fief. The resource curse fuels autocracy in other ways also—by undermining the economy, hampering social development, and promoting religious extremism. After expelling the Muslims, conquering the Aztecs and Incas, and then reaping a reward in the form of an avalanche of precious metal, who could doubt that Spain should continue conquering in the name of Christ? As Spanish armies rampaged across much of Europe in the name of the Counter-Reformation, the result was a form of Catholic Wahhabism so dark and unforgiving that even the pope was taken aback.
By the same token, what Saudi dares question whether God wants the Kingdom to use its oil wealth to spread its own brand of religious militancy? While executing accused sorcerers, banning cinemas, and arresting Ethiopian immigrants for the “crime” of participating in underground Christian services, the Al Saud have spent $75 billion or more since 1979 to build hundreds of mosques, madrasas, and Islamic colleges in Europe, Asia, and Africa in an effort to spread the same hard line abroad. While calling for a more “moderate Islam,” Prince Muhammad has at the same time stepped up anti-Shiite sectarian rhetoric, which suggests that rather than combatting Wahhabist extremism he is merely steering it in a slightly different direction.
In Spain, society was in a state of breakdown as hordes of wanderers and vagrants took to the streets—“students breaking bounds and forsaking their tutors to join the swelling ranks of picardía, adventurers of every hue, beggars and cutpurses,” to quote the historian Fernand Braudel. Saudi highways are also filled—not with beggars so much as bored young men who steal cars with which to race, spin, and perform high-speed acrobatics. This is a sport known as “Saudi drift,” and it is so famous that pop star M.I.A. made it the subject of one her music videos. If the work ethic languished under Charles V and Philip II, it has essentially vanished under the Al Saud. With religious studies taking up half the school day, employers complain that young Saudis lack basic language and numerical skills, while Saudis in turn say they would rather wait years for a government post to open up than take a private-sector job that pays less and demands more. “How can you create jobs for Saudis,” ask economists at one Saudi-based bank, “if they do not want to join the private sector and the private sector does not want them?”
Then there is the broader economic breakdown, which fuels autocracy by spreading discouragement and malaise. By causing silver prices to fall and other commodities to rise, the influx of precious metal in Spain helped price local goods out of the market. Spanish production thus sagged under a flood of cheap imports. Similarly, despite dramatic price swings in the 1970s and early ’80s and again during the 2008 financial crisis, oil prices have also weakened as more and more energy comes on line due to computerized “smart drills” and shale gas. The result: demand tapers off, or at least rises less than expected, thanks to conservation and vigorous growth in the alternative-energy sector.
The result is too much oil chasing too few consumers. Yet there is little the Saudis can do in response. Not only are the Kingdom’s oil deposits among the largest in the world, they are also close to the surface, concentrated in easily accessible fields, and therefore among the cheapest to tap. With production costs under $9 a barrel, profit margins are massive even when prices are low. Hence, there is little incentive to do anything other than sit back and watch the money flow. With 60 percent of Saudis under the age of 20, and 60 percent unemployed between the ages of 20 and 24, government has little choice but to provide public-sector jobs for a population that is increasingly threadbare yet doesn’t want to work. Conceivably, diversification is one way out of the bind. But, while the Saudis have been talking about widening the economy since the 1970s, the Kingdom is by some measures less diversified now than 40 or 50 years ago.
Of course there is also the shakedown or musadara, as it was known in the Middle Ages, when hard-up emirs, or military commanders, would routinely arrest leading townsfolk and torture them into turning over their hidden wealth. The practice was harder on artisans and manufacturers, whose money was tied up in warehouses and equipment, than on merchants adept at squirreling away treasure in the form of jewels and gold. But Prince Muhammad, seeking an easy solution to the kingdom’s money woes, has resurrected it even though the upshot can only be renewed capital flight.
Consequently, the more the prince cracks down, the more the non-oil sector will continue to shrink. The upshot is a gold-plated welfare syndrome in which a super-abundance of oil makes it all but impossible for a society to do anything other than live off the overflow. All sides find it easier to stick with the existing system as long as it remains remotely functional—all sides, that is, except ISIS and al Qaeda, which are waiting until Prince Muhammad lets down his guard and it is time to strike.
It took Spain centuries to break free of the resource curse, which is why a quick fix in Saudi Arabia is exceedingly remote. Oil has the kingdom in its grip and won’t let go. The words of Rashid bin Saeed Al Maktoum, the late emir of Dubai, are worth heeding: “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.” Once the riches run out, in other words, little will remain. As in the 16th century, there’s no way this story can end other than in war, poverty, and debt.  

Daniel Lazare is the author of The Frozen Republic: How the Constitution Is Paralyzing Democracy (Harcourt Brace, 1996) and other books about American politics. He has written for a wide variety of publications from The Nation to Le Monde Diplomatique, and his articles about the Middle East, terrorism, Eastern Europe, and other topics appear regularly on such websites as Jacobin and Consortium News.

http://www.theamericanconservative.com/articles/will-the-saudi-kingdom-collapse-under-the-resource-curse/