User:Victorhartman/Rentier state

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 paid by foreign individuals, concerns or governments.

The academic use of the term 'Rentier states' and Rentier States Theories (RST) became well known after the works of Hazem El Beblawi and Giacomo Luciani on the development of oil rich countries in the Persian Gulf and Arabian Peninsula. They show that rentier states receive income without an increase in the productivity of the domestic economy or political development of the state, that is the ability to tax citizens. The unequal distribution of external income in rentier states has thus a negative effect on political liberalism and economic development. With virtually no taxes citizens are less demanding and politically engaged and the income from rents negates the need for economic development.

Rentier state theories have now become a dominant frame of reference for studies of resource-dependent countries in the Gulf and  wider Middle East and North African region, but are also used to analyse other forms of rentierism.

Usage
The usage of rentier states is based on the concept of ‘rents’. Rents, as defined by Adam Smith, are different from wages which must be labored for. They are based on the ownership of land or resources. David Ricardo defined ‘rents’ as a reward of the ownership of a resource. When applied to natural resources rents can be seen as “the income derived from the gift of nature”.

In a rentier state the economy relies on external rents. Economies based on internal rents cannot be defined as rentier states, as they would require a productive domestic sector. In such an economy rents would only be a part of the total income. Rentier states thus rely on external rents and do not have a productive domestic sector. This creates a rentier economy which influences multiple aspects of a state’s society.

Origin
The first use of the term 'rentier states' was by economists in the early twentieth century who used the term to describe European states that extended loans to non-European governments. Lenin viewed rentier states (rentnerstaat), or usurer states, as a form of imperialism. He stated that a limited amount of rentier states, or creditor states, would accumulate capital through the export of capital to underdeveloped and politically dependent debtor states. According to Lenin rentier states were a “state of parasitic, decaying capitalism, and this circumstance cannot fail to influence all the socio-political conditions of the countries concerned”.

The modern meaning of 'rentier states' was first defined by Hossein Mahdavy in his economic analysis of Iran. He defined rentier states as countries that receive on a regular basis substantial amounts of external rents. External rents are in turn defined as “rentals paid by foreign individuals, concerns or governments to individual concerns or governments of a given country”. According to Mahdavy the payments for the passage of ships through the Suez canal and the payments to countries in the Middle-East to allow the passage of oil pipelines are forms of external rents. Also the revenues of the export of oil can be seen as external rents. Mahdavy denies the idea that oil royalties are a compensation for the extraction of resources. He shows that in the Middle-east governments and companies are able to make larger profits through monopolistic positions and price fixing. He also shows that there is no significant relation between oil export and production processes of domestic economies in the Middle East.

The use of the term ‘rentier states’ became well known through the works of Beblawi and  Luciani. They expanded on the more economic analysis of Mahdavy by looking at the potential social and political effects of rentierism and focused on how rents were distributed and generated. According to Beblawi an essential characteristic of rentier states is the fact that only a few are engaged in the generation of rent (wealth) and a majority involved in the distribution or utilization of it. Often it is the government that is the main recipient of the external rent. It is precisely these characteristics that bring forth a specific rentier mentality. Different from conventional economics is that this mentality breaks from the work-reward system. In a rentier state income or wealth is gained not from productivity or risk bearing, but rather from chance or situation.

Examples
During the Arab Spring major oil exporting countries were more resilient to uprisings. Brownlee et al. show that rulers with oil wealth had the resources to preempt or repress dissent. Where oil rents (or hereditary rule) prevailed, regimes violently suppressed peaceful protests and only lost power through foreign intervention (Libya).

Outcomes
In a pooled time-series cross-national analysis Michael Ross shows that oil exports are strongly related with authoritarian rule. This mostly applies to the Middle East, but Ross shows that an antidemocratic effect is valid worldwide with other types of mineral exports. Other types of commodity exports do not show this effect.

Criticism
Giacomo Luciani, one of the original theorists on rentier states, criticizes the dominance of rentier state theories. These theories are often solely used to analyse resource-rich countries in the Greater Middle East to explain a multitude of outcomes. Such dominance was not the intention of Luciani :

"Indeed, it has never been my understanding that the rentier state paradigm should be either the sole or the overwhelming tool of interpretation of the political economy of oil-producing countries. I believe that reliance on a stream of rent accruing directly to the state from the rest of the world is an important consideration, but surely not the only one."

Michael Herb criticizes the relationship between rentierism and regime type. Using a counterfactual measure which excludes the effect of oil on the economy, Herb shows that oil-rich countries fit the same patterns as other countries. He did not find a consistent support for the thesis that rentierism has a negative effect on democracy scores. Herb does however emphasize that rentierism is a distinctive condition that influences development.