Saudi Aramco, which recently beat Apple to emerge as the world’s most profitable company, is the new star in international finance. Aramco’s announcement regarding bond issuance worth $12 billion has already created a demand of over $100 billion. While Aramco’s finances are exciting, its history is even more so. In fact, it holds a lesson for almost everybody in our country—from the powers that be to opinion makers to the man in the street.
Aramco’s success shatters a couple of dangerous dogmas that have caused incalculable damage to India’s economy. First, multinational corporations are demonic. And, second, distribution of wealth is more important than its creation.
Though grounded in reality—from a trading entity, East India Company ended up as the political master of the country—the first dogma has spawned spurious theories, concepts, folklore, and myths. By the Left, the Right, everybody. Their sum and substance, more or less, is simple: MNCs are invariably the instruments of exploitation and often the handmaidens of imperialists and ‘neo-imperialists.’
The evolution and phenomenal success of Aramco demolishes all such theories. The company’s website informs us about its past, “Saudi Aramco traces its beginnings to 1933 when a Concession Agreement was signed between Saudi Arabia and the Standard Oil Company of California (SOCAL). A subsidiary company, the California Arabian Standard Oil Company (CASOC), was created to manage the agreement.” In 1938, commercial oil production commenced.
“Throughout the 1970s, we not only proved ourselves as an economic force for Saudi Arabia, but we also returned to our Saudi Arabian heritage,” the website says. “In 1973, the Saudi government bought a 25 per cent interest in Aramco, increasing that interest to 60 per cent the following year. In 1980, the Saudi government increased its interest in Aramco to 100 per cent. Eight years later, the Saudi Arabian Oil Company (Saudi Aramco) was officially established.”
Today, the Saudi oil company’s profit of $111 billion is more than those of top three global giants put together—Apple’s $59.4 billion, ExxonMobil’s $20.8 billion, and Royal Dutch Shell’s $23.4 billion.
Whatever happened to the fancy theories peddled by intellectuals, to the myth that MNCs exploit poor countries? Aramco came into being because of the technical knowhow of the Americans. As the Pakistani journalist Hassan Nisar once said, “How would the Arabs know that the slush in their surroundings could be valuable?” So, in a nutshell, Aramco’s story is that of Americans seeing value in a natural resource in Arabia and collaborating with the locals to translate it into wealth which they both shared. When the Arabs became confident of handling their resources, they took complete control of the company. So much for neo-imperialism.
Now compare the Arab’s sagacity with our obtuseness in matters of wealth creation—a vice that has devalued and degraded all that was good and bountiful in India. Consider the contrast: In the first half of the 20th century, the Arabian Peninsula was the playground of warring, pillaging tribes. Civilization was in rudiments, with little science, technology, philosophy, arts, culture, literature. But, despite all their shortcomings, Arabs’ attitude towards economic activity was healthy.
On the other hand, India, though under foreign rule for centuries, could boast of a rich civilisational heritage, with impressive accomplishments in arts, culture, literature, philosophy, science, technology, etc. Not to forget, India is also has considerable natural resources. But today Saudi Arabia’s per capita income is over 10 times than that of India’s. So, how did we mess up?
The answer is simple: anti-business attitude. Being a socialist, the first prime minister, Jawaharlal Nehru, saw businessmen not as wealth creators but as robber barons who exploited the poor. Typically, he regarded capitalism as a profit-oriented system; and profit, in the socialist theology, is evil. As he once told the legendary J.R.D. Tata, profit “is a dirty word.”
Evidently, its dirtiness could be reduced to tolerable levels by checking or limiting it. So, the main focus of the pre-liberalisation economic policy framework was on minimizing the evil of profit. This resulted in a labyrinth of controls, rules, and regulations which couldn’t be negotiated without the help of middlemen and lobbyists. Hence cronyism and the attendant immorality.
Since we were busy distributing wealth, we forgot that it had to be created first.
It needs to be mentioned here that it was not a socialism-capitalism issue; it’s not that we have failed to capitalize our natural resources because we followed the socialist methods, while the Saudis took the capitalistic path. Saudi Aramco is a state-run company.
The critical difference is the attitude: they don’t regard business and trade as bad; we do. The denouement: while India has the largest population of poor people, Saudi Arabia, a desert nation with just one natural resource in abundance, is prosperous. They have just one resource; and they have been able to translate it into wealth.
And what do we do? Despite blessed with the world’s third largest coal reserves, India was importing it from Indonesia in huge quantities till a few years ago. A maze of rules and eco-zealots ensured that we could not capitalize on our own mines. Sudden increase in the imported coal made several power projects sick and created huge non-performing assets.
Our petroleum resources too are not inconsiderable. We have 30 billion tonne of unexplored hydrocarbon reserves, the then petroleum minister Mani Shankar Aiyar said in January 2013. “We are no longer a hydrocarbon-poor country.” His successor, Dharmendra Pradhan, expressed a similar view three years later. And yet, our dependence on imported crude is almost 80 per cent.
The idea is not to present Saudi Arabia as better than India; on many counts, we are much better placed. The desert nation doesn’t have democracy, civil liberties, and freedom of thought, speech, faith, and action. But it does much better than us when it comes to wealth creation. Aramco’s stellar performance is a testimony to that.
The author is a freelance journalist.