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The Saudi solution to social unrest: buy peace

A handout picture from the Saudi Press Agency shows Saudi King Abdullah bin Abdul Aziz, right, arriving at his palace on Wednesday following his return to the Saudi capital Riyadh after spending three months outside the oil-rich Gulf country for medical treatments. PHOTO/HO/SPA (Photo credit should read -/AFP/Getty Images)

-/AFP/Getty Images

For economists, it's all about incentives. Forget any deep seated human desire for things like freedom and dignity. The social unrest across the Arab world comes down to comfort: those who have nothing riot; those who can afford a decent meal will stay home rather than put themselves in front of batons and bullets.

This view of the world is about to be tested in real time.

Saudi Arabia on Wednesday announced plans to spend the equivalent of $10.7-billion (U.S.) on housing. King Abdullah also said he would spend an additional one billion riyals on education and social welfare, create 1,200 jobs in "supervision programs," and make permanent a 15 per cent cost-of-living allowance for government workers.

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"The time tested way to dampen popular unrest is to provide food and entertainment to the masses," Marc Chandler, head of global head of currency strategy at New York-based Brown Brothers Harriman, wrote in note Wednesday called "Bread and Circuses: Reform Saudi Style." "In effect, the 86-year-old king is increasing the basket of goods citizens get in hope that it will help soften demands for political change."

Saudi Arabia is not the only country in the Middle East opening its purse strings. Kuwait gave its citizens a one-off payment of the equivalent of $3,560 (US) and free food rations for 13 months, Mr. Chandler notes.

But not all countries in the region have the means to attempt to purchase social peace. Egypt's general government revenue was 25 per cent of gross domestic product in 2010 compared with 45 per cent in Saudi Arabia and 60 per cent in Kuwait, according to the International Monetary Fund. Egypt's GDP per capita last year was about $2,800 (US) compared with about $16,600 in Saudi Arabia and about $32,500 in Kuwait.

Despite their largesse, the richer countries of the Arab world face the same demographic challenges as the poorer states where political tensions have been more severe. The unemployment rate among Saudi youths aged 20-24 is estimated to be 40 per cent, according to Mr. Chandler.

The situation is more complicated than this, but the days and weeks ahead will provide economists, political scientists and sociologists with some evidence on whether social stability has a price.

Some investors seem to think it does. Mr. Chandler noted that stock markets in Abu Dhabi and Saudi Arabia ended losing streaks after King Abdullah's announcement.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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