“The Pernicious Effect of Foreign Aid”

In the late 1950s, the Republic of Korea and the Kingdom of Saudi Arabia were assured some degree of US military and financial backing, provided they remained bulwarks against communist North Korea and the socialist Arab republics, respectively. But US support for the profligate, autocratic regimes of Syngman Rhee and King Saud had a destabilizing effect. Both nations were plagued by corruption, economic mismanagement, lack of development, and shockingly low living standards. In 1965 economist Joan Robinson characterized South Korea as

a country that relies on aid and is spared the necessity, on pain of death, to organize its agriculture, and so can limp along with a social structure inimical to growth. And even when aid does not breed outright corruption, it breeds a race of administrators to wangle and control funds, rather than technicians to create wealth.

The situation in Saudi Arabia was no better. Despite jaw-droppingly high state oil revenues, the kingdom had virtually no infrastructure. One newspaper reported that “the state of the treasury in Saudi Arabia, owing to Saud’s unbridled generosity and personal extravagance, was empty despite the vast income from oil.”

Widespread anger at stagnating and degenerating economies led to the downfall of both countries’ leaders in the early 1960s. Mass anger took the form of a short-lived revolution in South Korea and oil worker strikes and an explosion of underground left-wing organization in Saudi Arabia. Elite resentment manifested in the form of military and palace coups that replaced the heads of state with the more pro-development dictators Park Chung-hee and King Faisal.

To Grow or Not to Grow . . .

It was abundantly clear to both new regimes that the preservation of their rule depended on accelerating growth and achieving a general rise in living standards. Both Park and Faisal instigated five-year modernizing plans in the late 1960s. These owe their successful reputations more to happy accidents than to canny decisions from on high.

In poverty-stricken South Korea, the Park dictatorship nationalized the banks, slapped the most corrupt capitalists of the Rhee era on the wrist, and launched its first five-year plan. This was centered on the export of raw materials — hardly a foolproof plan for modernization.

Unexpectedly, however, a very different strategy — one geared toward breakneck industrialization and the export of manufactured goods — came to dominate economic policy. This was largely thanks to the priorities of prominent chaebols — large, family-owned conglomerates like Samsung and Hyundai. Horizontally diversified but often massively fraudulent and borderline insolvent, the chaebols had maneuvered themselves to become “too big to fail.” As a result, they could manipulate economic policy in their interests.

Despite the Park regime’s domination of state funds and military might, these giant firms could afford to ignore some of its dictates and prioritize their own immediate need for foreign exchange earnings. The chaebols’ alternative plans proved profitable — and in some cases simply irreversible — so the regime largely accepted developments and adjusted course.

In the hopelessly indebted Saudi Arabia of the late 1960s, King Faisal introduced gradual reductions to royal allowances, which had generally gone toward decadent vanity projects like purchasing luxury cars and palaces. His first five-year plan aimed to diversify the economy by partially reallocating oil revenue to capital projects in education, transport, and utilities. But the plan was rendered redundant by seismic geopolitical events.

Big Bang

In October 1973, Saudi Arabia led OPEC nations in imposing an embargo on oil exports to the West in the wake of the Yom Kippur War. Threats of a US invasion to seize the Saudi oil fields never eventuated, and within six months, the price of oil quadrupled. The result was a crisis for world capitalism, and the kingdom found itself richer than ever before.

The oil crisis stunned South Korea. Growth fell from 16 to less than 8 percent. Not only was South Korea dependent on oil for about 85 percent of its power needs; its entire manufacturing industry demanded a steady supply of raw industrial materials at predictable costs from Japan — where inflation had hit 31 percent. The very foundation of the state-chaebol order — brutal working conditions in exchange for rising living conditions — was under serious threat. Developmental-state solidarity this was not. As one Korean executive opined to the New York Times,

The Arabs are in the same boat with us economically. If they meant to teach a lesson to the Americans or to Israel, that’s their business. But they have killed us. Korea is the first victim of the oil crisis.

But with embargos come opportunities. Not long after OPEC’s declaration of price war, the Samwhan Corporation won a then $24 million Saudi contract to build a highway using Korean expertise and labor. As the Saudi government adjusted its infrastructure plans in line with its new, eye-watering revenues, President Park and the chaebols saw a way to deal with the pesky problems of unemployment and capital shortages.

A Friend in Need Is a Friend Indeed

Within a year, Korean firms had won 6.8 percent of the contracts in the $75 billion Saudi development budget. By 1978, this had risen to 22.9 percent. In a ten-year period, more than one hundred Korean chaebols and 720,000 Korean laborers had worked on contracts in the kingdom. As one Korean academic (and later political advisor) put it at the time, “the Saudi boom contributed substantially to the improvement of the Korean balance of payments position, to increased employment, and to the remarkable growth rate Korea recorded over most of the last decade.”

By 1981, South Korean chaebols had managed to edge out US competitors to become the top contractors in the Saudi market. The case of Hyundai is illustrative of how this occurred. Hyundai had become one of the most powerful chaebols in Korea through post–World War II reconstruction contracts and deals with the US military during the Korean War. In 1976, Hyundai won the tender for the Jubail industrial port project despite bidding almost $500 million less than its closest competitor.

Working conditions on the project, which ran 24/7, were grueling. The lower construction costs were passed on to workers in the form of lower wages — which on average were already one-quarter that of an American worker. Management beat workers and stopped using honorifics for older workers to save time.

When truck drivers on the project discovered their pay was one-third that of Korean workers on neighboring industrial projects, a strike ensued. Three thousand workers ceased work, elected representatives, destroyed equipment, and demanded to negotiate. The Saudi military surrounded the worksite with machine guns and threatened to shoot the strikers. After two days of tense discussions, many of the workers’ demands were met. The ringleaders were deported back to Korea and brutally interrogated by the Korean Central Intelligence Agency.

Even with these drastically reduced wages, the unrealistic projected costs of such a project would have bankrupted Hyundai. So it also claimed extra costs in the hundreds of millions and relied on kickbacks to officials to get these extra costs approved. While dramatic, the Jubail case is not unique; it was a combination of brutal conditions, bad-faith bidding, and brown paper bags that led the chaebols to dominate the Saudi construction boom of the ’70s.

What Is It Good For?

Despite disruptions caused by rising technology and the assassinations of both President Park and King Faisal in the late 1970s, South Korea maintained healthy ties with Saudi Arabia throughout the ’80s. The relationship remained transparently transactional and, aside from suppressing labor and accumulating capital, thoroughly apolitical. This ensured that, despite its many dealings with the kingdom’s enemies — like Iran and Qatar — in its attempts to diversify its energy import sources, the relationship withstood the conflicts of the region.

On the rare occasion when discussions have strayed into the political realm, both nations’ respective border wars have helped to rhetorically cement their bond. The revelation that North Korea had provided weapons to rebels in Yemen proved symbolically useful, as have moments when leaders could commiserate about the trials and tribulations of having rude neighbors.

Regional violence has in fact proved a tantalizing prospect for Korea’s chaebols, which have won some lucrative postwar reconstruction contracts all over the Middle East. When conflict has proven inconvenient — as when the United States pressured South Korea into the oil embargo against Iraq in the ’90s, the Iraq War, and more recent sanctions against Iran — the Saudi relationship has come in handy, willing as the kingdom is to match South Korea’s oil imports lost from its competitors.

“We Don’t Need Permission to Dance”

In November 2022, the two countries signed investment deals for defense, energy, infrastructure, and construction worth more than $30 billion. S-Oil — majority-owned by Saudi Aramco but headquartered in Seoul — will invest $7 billion in a petrochemical project in Ulsan, South Korea. It’s by far the biggest single foreign investment in South Korea. But it won’t do much to offset the long-term trade deficit the country suffers due to its addiction to Saudi oil. Despite decades discussing diversification, South Korea still imports over 30 percent of its oil from the kingdom and remains vulnerable to price and supply shocks.

Nothing better encapsulates the current state of the nations’ ties and anxieties than Vision 2030. The brainchild of de facto Saudi ruler Mohammed bin Salman (MBS), the project ostensibly aims to wean the kingdom off its dependence on oil. It involves the building of the futuristic luxury city Neom — infamous now for both the violence involved in the forced relocation of inconveniently placed tribespeople and the sickening extravagance of its planning stage. Parts of the plan involve privatizing key sectors of the economy — which will both impact the large subsidies traditionally paid to citizens and enable the royal family to more easily shift money out of the country should things fall apart.

South Korea has been involved in Vision 2030 and Neom almost from day one in 2016. But the glossy promotion of the project belies political unease on both sides. Both nations faced internal crises in 2016–17, as rampant corruption gave rise to mass protests across Korea and in Saudi Arabia’s east. The impeachment of the Korean president and the mass arrest of members of the Saudi royal family did little to change both economies’ fundamental cronyism. Young people, facing brutal, lifelong competition in Korea just to survive and shifting opportunities in Saudi Arabia under Vision 2030, represent a huge danger to political stability. The threat of upheaval continues to loom large.

Recent soft-diplomatic gestures like the Blackpink tour mask a growing desperation to maintain stability amid anxiety about these potential social upheavals. Hot on the heels of Mohammed bin Salman’s trip to Seoul to announce the investment deals was Princess Haifa’s culture procurement junket. The Princess’s glowing praise of K-pop — by now wildly popular in Saudi Arabia, if notorious in some quarters for the slave-like treatment of its stars — speaks to the Saudi regime’s urgent need to provide diversions to its increasingly agitated youth. Tensions also remain high in terms of the new superpower rivalry. Elites in both South Korea and Saudi Arabia have at times demonstrated a willingness to hedge by negotiating with or courting the Chinese government without US permission, though they undoubtedly remain closer to their traditional benefactor. With tensions now squarely focused on the Asia-Pacific, it’s not the bombastic sounds of Blackpink that will decide the future of the relationship but the harsh realities of clashing hegemons.