In current political-science and international-relations theory, a rentier state is a state which derives all or a substantial portion of its national revenues from the rent of indigenous resources to external clients.
The term rentier state has been used since the 20th century, in a number of ways: it is most frequently applied to states rich in highly valued natural resources such as petroleum but can also include states rich in financial instruments such as a reserve currency. It can also be applied to nations which trade on their strategic resources, such as an important military base: Egypt and Jordan have traditionally extracted strategic rent from the United States given their regional geopolitical importance. Semi-rentier states tend to rely on migrants’ remittances or international economic aid, such as Kyrgyzstan and Tajikistan. States hosting forcibly-displaced population group(s) may also constitute refugee rentier states, if they rely financially on external income linked to their treatment of these group(s), as in the cases of Jordan, Lebanon, and Turkey in the context of the Syrian refugee crisis.
This use of the term originated with Hossein Mahdavy article on the subject in 1970. Mahdavy also first introduced the concept of external rent in this article.[better source needed]
Mahdavy’s usage of the term contrasts starkly with how Marxists originally used the term. Lenin wrote in 1916: “For that reason the term ‘rentier state’ (Rentnerstaat), or usurer state, is coming into common use in the economic literature that deals with imperialism. The world has become divided into a handful of usurer states and a vast majority of debtor states. (…)” The Great Soviet Encyclopedia defines a rentier state as “an imperialist usurer state that enriches itself by exporting capital to other states, primarily those that are economically underdeveloped and dependent.”
Dependent upon it as a source of income, rentier states may generate rents externally by manipulating the global political and economic environment. Such manipulation may include monopolies, trading restrictions, and the solicitation of subsidies or aid in exchange for political influence or conversely the solicitation of loans in exchange for the reserve currency, e.g., the United States.
Hazem Al Beblawi suggested four characteristics of a rentier state:
- Rent situations predominate.
- The economy relies on a substantial external rent – and therefore does not require a strong domestic productive sector.
- Only a small proportion of the working population is actually involved in the generation of the rent.
- Perhaps most importantly, the state’s government is the principal recipient of the external rent.
The emergence of the new oil states and their increasing importance in world trade in the 1970s brought a renewed interest in thinking on rentier economies in the aforementioned disciplines of political science and international relations. Examples of rentier states include oil-producing countries in the MENA region including Saudi Arabia, United Arab Emirates, Iraq, Iran, Kuwait, Qatar, Libya and Algeria as well as a few states in Latin America, all of whom are members of OPEC. African states such as Nigeria, Gabon, Angola, Ghana, Uganda and South Sudan are also important oil producers with rentier economies, earning income from trading natural resources.
Rentier state theory has been one of several advanced to explain the predominance of authoritarian regimes in the Middle East and the apparent lack of success of democracy in the region. While many states export resources or license their development by foreign parties, rentier states are characterized by the relative absence of revenue from domestic taxation, as their naturally occurring wealth precludes the need to extract income from their citizenry. According to Douglas Yates, the economic behavior of a rentier state
embodies a break in the work-reward causation … [r]ewards of income and wealth for the rentier do not come as the result of work but rather are the result of chance or situation.
Hazem Beblawi has argued that this could create a “rentier mentality,” while political scientist Fareed Zakaria has posited that such states fail to develop politically because, in the absence of taxes, citizens have less incentive to place pressure on the government to become responsive to their needs. Instead, the government essentially ‘bribes’ the citizenry with extensive social welfare programs, becoming an allocation or distributive state. The budget, in effect, is little more than an expenditure programme.
It has also been theorized that governments that rely to a significant extent on revenues from non-market sources are not compelled to apply free market principles to create an environment conducive to economic growth. Oil is in such demand that it does not require adherence to free market principles and economic freedom based on rule of law, security, a fair and transparent judiciary and property rights. As a consequence, political freedom does not develop and efforts aimed at democratization are undermined.
Moreover, because control of the rent-producing resources is concentrated in the hands of the authorities, it may be used to alternately coerce or coopt their populace, while the distinction between public service and private interest becomes increasingly blurred. There is, in the words of Noah Feldman in his book After Jihad,
no fiscal connection between the government and the people. The government has only to keep its people in line so that they do not overthrow it and start collecting the oil rents themselves. (Feldman 139)
Consequently, in these resource-rich rentier states there is a challenge to developing civil society and democratization. Hence, theorists such as Beblawi conclude that the nature of rentier states provides a particular explanation for the presence of authoritarian regimes in such resource rich states.
Beblawi identifies several other characteristics particularly associated with rentier oil states. For example, where the government is the largest and ultimate employer, the bureaucracy is frequently bloated and inefficient – and indeed comes to resemble a rentier class in society. Moreover, local laws often make it impossible for foreign companies to operate independently. This leads to a situation where citizenship becomes a financial asset. To do business, foreign enterprises engage a local sponsor (kafil) who allows the company to trade in his name in return for a proportion of the proceeds – another type of rent. In addition, the oil rent leads to secondary rents, usually stock market or real estate speculation.
Rentier state theory foregrounds important puzzles in contemporary politics. For example, as Abulof asks, “If rents increase regime stability, especially authoritarian durability, why, then, are rentier regimes, particularly in authoritarian petro-states, more prone to civil wars?” Looking at the Middle East, “why have certain rentier states (such as Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia, and the United Arab Emirates) remained so remarkably stable, while others (such as Algeria, Bahrain, Iran, Libya and Sudan) have become—either before or during the Arab Spring—scenes of violent unrest?” Abulof points to political legitimacy as a determining factor, and argues that authoritarian rentier regimes are in fact more fragile than they seem to be.
The crucial nature of oil has led to a situation where non-oil states have started to behave like rentier states. This can be seen for the region as a whole – so some states have been able to exploit location rent due to their strategic location, for example, as sites for military bases. More significantly, inter-state relations in the region have been affected as oil states try to ensure stability and tranquillity for their rent by buying allegiance from neighbouring states – in effect, sharing the oil rent. Beblawi highlights the case of Egypt whose receipt of financial aid from oil-rich neighbours declined significantly after Camp David, and money going instead to Iraq, Syria and the PLO who were considered more assertive.
- ^Richards, Alan (1991). “The political economy of dilatory reform: Egypt in the 1980s”. World Development. 19 (12): 1721–1730. doi:10.1016/0305-750X(91)90015-A.
- ^Robins, Philip (2004). A History of Jordan. Cambridge University Press. pp. 29–30. ISBN 0521591171. OCLC 826289226.
- ^Cummings, Sally N.; Hinnebusch, Raymond (2011-07-31). Sovereignty After Empire: Comparing the Middle East and Central Asia. Edinburgh University Press. pp. 282–304. doi:10.3366/edinburgh/9780748643042.003.0013. ISBN 9780748643042.
- ^Tsourapas, Gerasimos (2019). “The Syrian Refugee Crisis and Foreign Policy Decision-Making in Jordan, Lebanon, and Turkey”. Journal of Global Security Studies. 4 (4): 464–481. doi:10.1093/jogss/ogz016.
- ^Mahdavy, Hossein (1970). “The Pattern and Problems of Economic Development in Rentier States: The Case of Iran”, in Studies in the Economic History of the Middle East, ed. M.A. Cook (Oxford University Press, Oxford).
- ^Ulrichsen 2018.
- ^Lenin (1917). Imperialism, the Highest Stage of Capitalism. “chapter VIII”. Retrieved on 14 June 2015.
- ^Lenin, Vladimir Iliich (1969) . Imperializm, kak vyshaia stadiia kapitalizmaИмпериализм, как высшая стадия капитализма [Imperialism, as the highest stage of capitalism]. Полное собрание сочинени (in Russian). Moscow: Издательство политической литературы. Retrieved 2019-01-27. Понятие: «государство-рантье» (Rentnerstaat), или государство-ростовщик, становится поэтому общеупотребительным в экономической литературе об империализме. Мир разделился на горстку государств-ростовщиков и гигантское большинство государств-должников.
- ^“Rentier State”. The Great Soviet Encyclopedia (3rd ed.). The Gale Group. 1979.
- ^ Jump up to:ab Beblawi 1990, pp. 87-88
- ^ Jump up to:ab c Beblawi 1990
- ^“POMEPS Studies 33: The Politics of Rentier States in the Gulf – Project on Middle East Political Science” (PDF). pomeps.org. Retrieved 2019-02-02.
- ^Anderson, Lisa (1987). “The State in the Middle East and North Africa”. Comparative Politics. 20 (1): 1–18. doi:10.2307/421917. JSTOR 421917.
- ^Smith, Benjamin (2004). “Oil Wealth and Regime Survival in the Developing World, 1960-1999”. American Journal of Political Science. 48 (2): 232–246. doi:10.1111/j.0092-5853.2004.00067.x. JSTOR 1519880.
- ^ Jump up to:ab Abulof, Uriel (2017). “‘Can’t buy me legitimacy’: The elusive stability of Mideast rentier regimes”. Journal of International Relations and Development. 20: 55–79. doi:10.1057/jird.2014.32.
- ^http://www.semp.us/biots/biot_227.html Archived October 29, 2005, at the Wayback Machine
- ^Beblawi 1990, p. 90
- ^Beblawi 1990, p. 91
- ^Feldman, N. (2003). After Jihad: America and the Struggle for Islamic Democracy, New York, Farrar, Straus and Giroux
- ^Beblawi 1990, p. 92
- ^Beblawi 1990, p. 96
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.