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III. Applications and Empirical Evidence
IV. Foreign Aid as Rent?
V. Policy Implications
VI. Future Directions
Natural resources of countries are expected to contribute to their economic and political development. Natural resources can be regarded as assets for economic development. Then the economic development can constitute a base for political development. In the case of industrialized Western democracies such as the countries of the European Union and the United States, economic and political development have been taking place hand in hand. Accordingly, the expectation for the industrializing countries has been developed along these lines: The ones with greater natural resources are expected to develop faster.
Yet, especially in the Middle East, where almost all Arab countries have substantial oil wealth, resistance to democratization has remained strong. Thus, the expectation of natural resource abundance to become an asset for economic and political development has not been fulfilled at all. This anomaly can have both cultural and economic explanations. Although a cultural explanation for this democracy gap refers to historical legacies of Arabs, since they have never been democratic, and in part the role of Islam in Arab society, an economic explanation emphasizes oil wealth as the main barrier to democracy. Although one needs to keep in mind that most nations had nondemocratic times in their histories, the rentier state theory aims to explain that lack of political development in resourcerich states in modern times. This explanation is based on the assumption that not only the resource availability but also states’ methods to extract their resources (i.e., tax revenue versus oil contracts and foreign aid) have an impact on the political development of states. According to the rentier state theory, “Authoritarianism prevails where profits from natural resource exports displace taxes in government revenues” (Luciani, 1990a, p. 77). Since the ruler is no longer in need of taxes to maintain its authority, then he (male in all Arab autocracies) has no economic incentive to democratize his country. Thus, rentierism has a profoundly negative effect on the prospects of democratization.
Although the underlying assumption of rentier state theory looks simple, its theoretical reformulations and applications need to be further explained in order to understand how rentierism works in some cases and fails to work the same way in some others. To this end, this research paper starts by explaining the basic logic of the rentier state theory, then discusses the theory in light of the empirical findings, and finally outlines the policy implications and further research venues with respect to the rentier state theory.
Before elaborating on the empirical applications and political implications of rentierism, it is essential to understand its theoretical foundation. The core claim of the rentier state theory is that rentierism is bad for democracy. The explanation for this foundational claim is mainly economic, or more specifically from political economy perspective. To be more specific, it is not the resource abundance that hinders political development but rather the rentier behavior of the rulers toward their citizens, which the governments can afford only in the presence of external rents derived from oil, minerals, or foreign aid. Thus, rentier state theory is at the crossroads of where rentierism as an economic structure of the country’s economy hinders its political development and democratization.
According to the rentier state theory, the economic explanation for the democracy gap emphasizes oil wealth as the main obstacle to democracy. For Hazem Beblawi, himself of Middle Eastern origin, where most oil-rich states display rentier characteristics, and one of the pioneer thinkers of the rentier state theory (with Giacomo Luciani), resource-rich states like the oil countries in the Middle East are often termed rentier states, because the following is true:
They derive most of their revenues from external rents. Rents are paid by foreign actors, accrue directly to the state, and only a small fraction of the population is engaged in the gen eration of this rent, while the rest nevertheless might benefit from the distribution and use of it. (Beblawi, 1990, p. 23)
Now, once the logic of the rentier state theory is clarified, one needs to know the answer to these questions: What does the rentier state mean? What are the attributes of a rentier state? What is necessary to be considered a rentier state by the rentier state theory? Although they may seem to be typical “What is the yardstick” type questions, it is important to address them in the very beginning of the theoretical explanation, so as to understand to what types of states the rentier state theory refers. What are the common characteristics of the rentier states on which the rentier state theory is based? To what extent can the rentier state theory capture and explain those characteristics?
According to Luciani (1990a), “A rentier state is a country whose government typically receives at least 40% of its revenues in the form of rent” (p. 72). Luciani’s clarification has been a source of wide consensus among the political scientists studying the rentier state theory and its political repercussions. In addition, Hazem Beblawi’s definition clearly explains the core idea of what makes a state a rentier. In a rentier state, for Beblawi (1990), the following is true:
- The rents come from abroad,
- The rents accrue to the government directly, and
- Only a few are engaged in the generation of this rent (wealth), the majority being only involved in the distribution or utilization of it. (p. 87)
It is important to note that it is especially the third point that makes the use of the term rent appropriate. Hence, this concept (i.e., rentierism) in some ways resembles the usage of the term (i.e., rent) in classical political economy: Rents are not generated by productive human activity but instead by the scarcity value of natural endowments. In this case, clearly the global scarcity of oil presented an unprecedented income potential for those oil-rich countries, so they have been able to survive on these oil riches with almost no productive activity. Rentier state theory goes a step ahead of this economic explanation and claims that oil hinders not only economic development but also political development. According to Beblawi (1990), this hindrance of oil riches extends even beyond the oil-rich Arab states in the Middle East. Therefore, for Beblawi, “The oil phenomenon has cut across the whole of the Arab world, oil rich and oil poor. Arab oil states have played a major role in propagating a new pattern of behavior, i.e., rentier behavior” (p. 91).
To better explain the rentier state theory, it is important to delineate the causal mechanisms of what Beblawi (1990) calls rentier behavior. What are the sources of the rentier behavior? How has the rentier behavior been implemented and sustained throughout the Arab Middle East? What are the sociopolitical interactions between the rentierism and Arab society? How has the rentier behavior affected the societal dynamics and democratization in the Arab Middle East?
To answer all of the aforementioned questions, one needs to understand the causal mechanism of the rentier behavior from the perspective of the rentier state theory scholars. For example, according to Ross (2001), the causal mechanisms underlying the theory are of three sorts:
- How does the state collect revenue?
- How does the state spend revenues?
- How does the rentier wealth distort social structure, and prevent changes that promote democracy? (p. 325)
Beginning with the very first one, which can hence be regarded as the root of the causal mechanism: How does the state collect its revenue? The very traditional answer to this question in political economy is taxation. From the rentier state theory view, though, oil riches of the state release the governments of the oil-rich Arab states from depending on the taxes from their populations to gain their revenues. Therefore, the scholars of the rentier state theory claim that the absence of taxation “releases the state from the accountability ordinarily exacted by domestic appropriation of surplus . . . the state may be virtually completely autonomous from its society, winning popular acquiescence through distribution rather than support through taxation and representation” (Anderson, 1987, p. 10). A number of rentier state theory scholars point out that this argument draws heavily on the lessons of European history, in which it is widely thought that taxation had a major role in the development of democratic institutions (Ross, 2001). In addition, according to Luciani (1990a), “The lack of taxation undercuts the organization of citizens based on economic interests, and makes religious and cultural organization paramount” (p. 89).
After explaining how the very source (i.e., oil rents) of the government revenue hinders the development of democratic society and institutions, it is also important to consider how the distribution of this wealth is likely to affect the prospects for political development and democratization. Thus, the second causal mechanism aims to explain this question: How does the state spend its revenues? Put simply, from rentier state theory perspective, rentierism increases the capacity of the state to both buy off, and to repress, the opposition. As a result, according to Wiktoworicz (1999), the combined effect of these two mechanisms is often thought to produce a “rentier social contract” in which “the state provides goods and services to society . . . while society provides state officials with a degree of autonomy in decision-making” (p. 608).
Although the first two sets of causal mechanisms are principally related with how the government collects and distributes the oil rents and their political implications, the third mechanism concentrates more on the societal influences of the rentier behavior. A third set of causal explanations in the literature holds that rentier wealth distorts social structure by preventing changes that promote democracy as compared with countries that follow a more standard development trajectory. Thus, while the first two causal explanations are state centered, the third focuses on how rents affect society in general and thus is more about natural resource dependence than rentierism specifically.
To better understand the last causal mechanism, one needs to be aware of the difference between the natural resource dependence and rentierism. Although there is a close correlation between rentierism and natural resource dependence, they are not the same thing. To delineate the difference between the two, one needs to consider how they are measured so as to know specifically to what exactly each refers. The standard measure of natural resource dependence is natural resource exports as a percentage of GDP: This assessment is classically used in the debates of the economic consequences of exporting natural resources. By contrast, rentierism focuses on rents in government revenues and is the preferred measure in the rentier state theory. For example, in most rentier states, rents from oil and other resources (e.g., natural minerals or foreign aid) constitute more than the half of their governments’ budgets. In practice, dependence on oil exports is observed almost always along with rentierism. Furthermore, the effects of other resources with rentier potential are examined at the end of this section.
After understanding the core logic and the causal mechanisms of the rentier state theory, one needs to know about the foundational studies and their key contributions to the development of the rentier state theory. The publication of the edited book The Arab State by Giacomo Luciani (1990b) marked the beginning of renewed and intensified discussions about the first strand in the literature of the rentier state theory concentrating on the political economy approach to the study of the Arab state. The most important and influential contributions to this book were the articles by Giacomo Luciani (1990a), titled “Allocation Versus Production States,” and Hazem Beblawi (1990), titled “The Rentier State in the Arab World,” in which the authors argued that those states that derived a substantial part of their revenues from the outside world and whose functioning of the political system depends to a large degree on accruing external revenues that can be classified as rents demonstrated a remarkable different political dynamic than other (i.e., productive) states. Rents were defined as “the income derived from the gift of nature” (Luciani, 1990a, p. 38) and are thus usually understood to be income accrued from the export of natural resources, especially oil and gas. In addition, Beblawi and Luciani argued that the rentier effects are not confined to the oil-exporting states alone. This is first due to the fact that to a limited but still significant extent the rents of the oil state have been recycled to the non-oil Arab states through migrant workers’ remittances, through transit fees, and through aid. Second, the authors stressed that external rents may also be conceived of as bilateral or multilateral foreign-aid payments, such as foreign development assistance or military assistance, which are termed strategic rents (Luciani). Furthermore, other theoretical considerations in this regard include the contribution by Luciani (1995) to the edited volume titled Political Liberalization and Democratization in the Arab World, Volume 1: Theoretical Considerations.
The aforementioned two theoretical contributions by Luciani (1990a) and Beblawi (1990) have become benchmarks in the literature of the rentier state theory, and their political economy approach has been used to explain the lack of political development in the Arab Middle East. Their political economy approach has also been applied as the basis for single-country studies, cross-country studies, and thematic studies, which are discussed in detail in the next section on the applications and the empirical evidence from the rentier state theory.
III. Applications and Empirical Evidence
The core claim of the rentier state theory is that rentierism hinders the development of democratic society and political institutions. This theoretical argument has been advanced in a number of case studies and theoretic pieces by Lisa Anderson (1987) and Giacomo Luciani (1990a). As the previous details of which discussed, the theoretical contributions by Luciani and Beblawi (1990) soon became benchmarks in the literature, and their political economy approach was used as the basis for single-country studies, cross-country studies, and thematic studies. Thematically, the 1990s saw the emergence of a vast literature that analyzed the issue of economic liberalization and privatization in the countries of the Arab Middle East from a political economy perspective. These studies include cross-country analysis, such as the edited volumes by Henri Barkey (1992) as well as several single-country studies. Furthermore, others have tried to make a synthesis of these single-country studies by coming up with some general observations in the field of the rentier state theory. In their cross-country study on the Middle East, they come to the conclusion that the degree and kind of rentierism will determine the level of economic liberalization of the state.
Applications of the aforementioned theoretical considerations to single-country cases include Rex Brynen’s (1992) work on Jordan and several contributions in the edited volume Democracy Without Democrats by Ghassam Salamé, most notably the chapters by Abdelbaki Hermassi (1994) on the Maghreb and Volker Perthes (1994) on Syria. In addition, a host of other country case studies were published in 1998 in the second volume of Political Liberalization and Democratization in the Arab World, Volume 2: Empirical Considerations (Brynen, Korany, & Noble, 1998). All of these empirical studies confirmed the theoretical claim made by Luciani that the rentier nature of the state is a strong factor in discouraging democratization in states that have access to a significant oil rent. This rentier nature of the state can still be a factor in the some Middle Eastern countries with limited resources such as Egypt, Syria, and Jordan. Strategic rents (i.e., foreign aid, especially to Syria and Egypt by the USSR during the cold war) and the remittances from their workers earned from richer Arab countries such as Saudi Arabia and United Arab Emirates have fostered the development of the rentier state in the absence of rich oil reserves in these countries. More recently, a time-series cross-national study using data from 113 states between 1971 and 1997 confirmed these initial empirical studies and showed that oil exports are strongly associated with authoritarian rule (Ross, 2001). In the same vein, the political economy approach with its focus on the rentier effect has resulted in academic studies that center on the political dynamics at large in certain individual countries of the Middle East. Furthermore, several authors (Gause, 1994; Moss, Pettersson, &Walle, 2006) have taken a more thematically oriented focus and have stressed the effects of rentierism on a state’s foreign policies, on a state’s human rights policy, or on aspects of political succession in authoritarian states.
In addition to the aforementioned thematic country studies, Ross (2001), in one of the major published largenumber, cross-regional tests of the rentier state theory, finds that “the oil-impedes-democracy is both valid and statistically robust . . . oil does hurt democracy” (p. 356). Barro also finds that oil exporters are less likely to be democratic. As a result, the rentier state theory steps to a more general level, advancing beyond being the theory used for the individual country-case explanations for the lack of democratization in the Arab Middle East. Consequently, these applications of the rentier state theory and the empirical evidence gathered as a result of these studies are likely to be helpful in unveiling the political implications of rentierism in the Middle East and beyond.
IV. Foreign Aid as Rent?
In search of the explanatory potential of the rentier state theory beyond the Middle Eastern oil-rich states, one needs to explore its applicability to the states with limited resources. In other words, it is necessary to inquire whether other resources such as foreign aid might function as a source of rents for the state as well. This would not only help explain to what degree the concept of the rentier state is limited to oil-rich states but also help to test whether the rentier state theory is more generally applicable beyond the oil-rich states of the Middle East that already have various common characteristics ranging from religion to political culture.
Addressing the aforementioned questions is important when assessing the validity of the rentier state theory beyond the oil-rich states of the Middle East. From the rentierism perspective,
The core proposition is that there was a set of strong synergies between (a) the degree of dependence of rulers on tax revenue, (b) the emergence of representative government, and (c) the strength and resilience of the state in the context of interstate competition, especially war. (Moore, 2004, p. 297)
Especially with respect to the first two propositions (a and b), for the rentier logic to hold, any resource other than the tax revenue extracted by states as a result of production should have the similar rentier effects. A growing literature argues the following:
A range of deficiencies and pathologies in the political con stitution of many states in the “South” can be traced to a high level of dependence on natural resource rents (especially oil and minerals) and strategic rents (especially foreign aid), rather than taxes. (Moore 2004, p. 297)
In financial terms,
The dominant type of strategic rent in the contemporary world is the many forms of development aid. Development aid has in recent decades been increasingly concentrated on the poorest countries, and has always, for geostrategic reasons, been given more generously to small countries. (Moore, 2004, p. 302)
For example, since foreign aid has become the major source income for many sub-Saharan countries, its negative effects on state institutions have been observed in recent studies. From the rentier point of view, the impact of foreign aid dependence on the relationship between state and citizen is especially worth considering. In their joint report Moss et al. (2006) observed that “states which can raise a substantial proportion of their revenues from the international community are less accountable to their citizens and under less pressure to maintain popular legitimacy” (p. 1). Thus, foreign aid has become a source of rent for many small countries in sub-Saharan Africa. Their rulers in turn have become reluctant to provide the incentives to cultivate effective public institutions, since the rulers themselves were lacking that economic pressure (i.e., the need for tax revenue). As a result, “substantial increases in aid inflows over a sustained period could have a harmful effect on institutional development in sub- Saharan Africa” (p. 3).
The core premise of the rentier state theory is based on the assumption that “it matters whether a state relies on taxes from extractive industries, agricultural production, foreign aid, remittances, or international borrowing because these different sources of revenues have powerful (and quite different) impact on the state’s institutional development” (Karl, 1997, p. 34). From the rentier state theory perspective, at the core of this different impact is whether states rely on their own extractive capacity (i.e., tax revenue) or some sort of external financing such as revenue shares from foreign oil companies or foreign aid. Although foreign aid and oil revenue can have different effects on the rentier nature of a state, in the end because the state lacks the capacity to generate its own production (i.e., tax revenue from private businesses), it is unlikely to have that democratic pressure akin to the one most European states have experienced in the aftermath of the Industrial Revolution. In this regard, foreign aid does have a theoretically (i.e., from a rentier theory perspective) similar effect as a spoiler for the governments, enabling them to afford ruling their societies without the need for taxes and thus providing leverage to those rentier governments to turn a blind eye to public demands for representation and democratic rights.
V. Policy Implications
The rentier state theory is the most prominent theoretic paradigm in the study of the comparative politics of the Middle Eastern Arab states, and it has increasingly been applied to the study of natural resource exporters in other regions of the world. Therefore, the rentier state theory and its applications have important policy implications in the study of the domestic and foreign policies of the Arab states in the Middle East.
Many scholars of the Middle East and the third world in general have argued that the availability of external rents has led to the development of what Hartmut Elsenhans has termed a state class or for what William Reno has coined the term shadow state. In essence, both terms describe the same phenomena—namely, a self-serving ruling elite that has control over the vast natural resources of the country that provide the elite a financial basis for the government revenue, instead of the tax revenue collected by consolidated democracies from their citizens. As a result, by controlling the major source of revenue (i.e., oil and gas), this small elite gained and maintained its political power. For that reason, the core argument of the rentier state theory starts from within the state so one can observe how this oil wealth is generated and distributed domestically in order to maintain the rule of the small elite by buying off or suppressing any democratic alternatives to their rule.
In the contemporary Arab states in the Middle East, one finds nation states, which on the one hand are composed of heavy bureaucratic state institutions but on the other hand hold only a weak legitimacy with respect to their societies. The infrastructural power of these Arab states as well as their capacity to actively control political outcomes independent of societal constraints is limited. Hence, the small elite has created a set of state institutions and heavy bureaucracy to institutionalize its political power based on the continuing oil revenues, instead of taxing the domestically generated products. As a result, these rentier Arab states in the Middle East can be considered weak states. A weak state can be defined as a country characterized by weak state capacity, weak state legitimacy, or both, and thus fragile state institutions; hence, the term fragile state is also used to describe the same concept. Given the apparent fragility of the Arab territorial state on the one hand and the fact that these states are here to stay, Bahgat Korany, another scholar from the region, has clearly pointed out the contradictions of the Arab territorial state). As a consequence, most of the academic research on the policy implications of the rentier state theory in the Middle Eastern Arab states veers around the puzzle about the resilience and the persistence of the contemporary Arab states. Thus, the rentier state theory aims to explain the durability of the rentier Arab states, despite the fact that there is a lack of political development and democratization in the Arab Middle East.
Among the most significant policy implications of the rentier state theory is its explanation of the changes (or lack of change) in the regime types of the Middle Eastern Arab states, which are mostly absolutist monarchies with some reference to Islamic customs such as Sharia. The core of the argument in this respect is the fact that economic well-being is regarded as the most important requisite for democracy (Lipset, 1959). In a number of quantitative studies, per capita GDP (or GNP) has emerged as the most stable predictor of democracy (Lipset, Seong, & Torres, 1993). As a result, all of these studies demonstrated that prosperous nations are more likely to be governed democratically than poor ones. This association between economic well-being (measured as per capita GDP or GNP) has therefore been established as “one of the most powerful and robust relationships in the study of comparative national development” (Diamond, 1992, p. 125). In terms of their per capita income, the majority of the Arab states in the Middle East are rather wealthy, so that, according to the simple version of the previously outlined modernization theory, these Arab states should already have turned toward more democratic forms of government. However, although there have recently been small steps of political opening in small countries like Bahrain, Qatar, and Oman, the absolute monarchy remains the dominant form of government among the Arab states in the region.
Rentier state theory’s principal explanation of the previously outlined democracy gap despite high levels of per capita GDP is that the characteristics of a rentier state make democracy less probable. Thus, the rentier state theory has important policy implications at the very domestic level for these Arab states in the Middle East. First, because of the revenue derived from the sale of oil, the governments do not need to collect high taxes; in fact, they often don’t collect taxes at all. As a consequence of that, the governments in those countries are confronted with fewer demands for accountability and representation by the public or can afford to ignore them (Gause, 1994; Ross, 2001). Since the population has had very limited to nonexistent contribution to the generation of the government revenue, the governments of the Arab rentier states have become virtually unbound in terms of public spending, distributing the oil wealth in a way that maintains their rule. In the history of the productive states, the rulers’ attempts to raise taxes have often led to demands for political participation and accountability, hence the motto “No taxation without representation” seems to reflect the political reality in the European world. In contrast, in the resource-rich states of the Middle East, this motto seems to be inverted to read, “No representation, without taxation.” In addition to the absence of widespread public demands of political accountability in the Arab Middle East, oil rents have also been instrumental to the rentier governments as a principal source for the state spending on patronage, subventions, and subsidies. For example, free education and health care are provided to the population. In general, people indulged like this without having to pay anything (and usually by receiving certain payments from the state on top) are satisfied with their lives and feel no need for political participation.Within this type of rentier system, there is virtually no incentive to form associations or interest groups, and some of the governments even take deliberate action to depoliticize the population, which has never been politically active in a European sense. Even if political groups aversive to the government still happen to form, owing to the oil rents, the government is still able to prevent them from becoming too strong. In addition, oil rent enables the Arab governments to spend more on internal security and sustain a large coercive apparatus (Ross, 2001).
The rentier state theory argues that rentier states stand in contrast to states that have to rely on domestic resource extraction. Thus, the policy implications of the rentier state theory are in contrast to the theories seeking to explain the development among the European states. The rentier states display a particular path to state formation that by and large defies the European path of state formation: Natural resource dependence (mainly oil dependence) has created weak states that are autonomous from societal demands and that do not rely on domestic taxation. As a result, in contrast to the European states, the state formation in the rentier states has not been accompanied by political accountability and transparency. In rentier states, the expenditure side of public revenues is most clearly linked to a state-building agenda of creating societal peace through political acquiescence, which aims to maintain the authority of the small ruling elite in the long term.
When analyzing the policy implications of rentierism, one needs to take into account resource-rich countries beyond the Middle East. Does one see the similar rentier effects in Nigeria, Venezuela,Algeria, Gabon, or Indonesia? Can one say that rentierism is limited only to oil-rich countries? Can other natural resource–rich countries demonstrate similar rentier characteristics? All in all, can rentier state theory explain significant policy implications of resource-rich countries beyond the Middle East?
In search of an answer to these questions, Ross (2001) used pooled time-series cross-national data from 113 states between 1971 and 1997. His findings demonstrated that “oil exports are strongly associated with authoritarian rule; that this effect is not limited to the Middle East; and that other types of mineral exports have a similar antidemocratic effect, while other types of commodity exports do not” (p. 14). Thus, the resource abundance not only generates tax revenues and royalties for governments but also, more critically, creates a dependence of governments’ budgets on natural resource rents in the Middle East and beyond. For instance, “Indonesia’s profits sharing contracts reserves up to 90% of oil profits for the government, Venezuela’s Energy Information Administration takes 85–94% of oil profits and 60% of Mobil’s earnings in Nigeria accrue to the Federal government” (Wantchekon, 2000, p. 72). None of these countries are in the Middle East, they are not even close to each other, but they do demonstrate similar rentier effects. How countries as unrelated as Saudi Arabia, Venezuela, Gabon, Iran, Nigeria, Algeria, and Indonesia ended up in profound economic and political crisis calls for an explanation. These countries, according to Karl (1999),
are heterogeneous in virtually every respect except oil: they are physically diverse (Algeria is more than 100 times larger than tiny Kuwait) and demographically different (Indonesia’s population is 132 times that of Qatar); they vary in their oil reserves (Saudi Arabia has 265 times as much as Gabon). (p. 37)
Despite various differences ranging from geography and history to demography and political culture, these states have been at the juncture of underdevelopment and political crisis. In this respect, the rentier effect helps to explain how so many diverse and rich countries fail to realize political development. Bates (2000) neatly explains this rentier effect:
It is useful to contrast the conduct of governments in resource rich nations with that of governments in nations less favorably endowed. In both, governments search for revenues; but they do so in different ways. Those in resource rich economies tend to secure revenues by extracting them; those in resource poor nations, by promoting the creation of wealth. Differences in natural endowments thus appear to the shape the behavior of governments. (p. 4)
The fact that the rentier effect plays a critical role in explaining the government behavior in a diverse range of countries worldwide provides another significant reason for the applicability of the rentier state theory for policy analysis in different political and geographical contexts.
VI. Future Directions
From the rentier state theory perspective, as long as resources are abundant, autocratic regimes that derive their revenue from oil rents are in a comfortable position, and they can postpone the democratization indefinitely. This theoretical perspective is derived from the very core argument of the rentier state theory that oil rents are not only sources of valuable government revenues but also, more significantly, essential sources of political power. For this reason, oil rents can be used not only as substitutes for the lack of economic productivity in the Arab Middle East but also to compensate for a lack of political development and institutions such as political representation and accountability.
Since these Arab states in the Middle East rely on the oil rents for their economic and political sustainability, the rentier state theory also relies on the oil rents and on ongoing rentier behavior to preserve the validity of its explanations. Thus, once the oil is depleted, it’s rentier behavior, and thus, rentier behavior explanations are likely to be abandoned. Thus, the challenge for those oil-rich Arab states is yet to start once their oil is gone. As Yousef (2004) observes, the economic performance of the Middle Eastern rentier states was at its peak from the 1950s to the 1970s, while oil prices were consistently high, whereas from the 1980s onwards, declining oil prices and a more competitive international environment led to a decline in growth rates and public revenues. This observation is no surprise at all for the scholars of the rentier state theory; as a matter of fact, it can be regarded as an expected early warning call, since it is common knowledge that natural resources are not infinite. As result, even the small oil emirates that are still able to maintain a comparably high standard of living are suffering from problems of an economy based on natural resource abundance: underperformance in long-run GDP growth, rising unemployment, and the lack of foreign investment. States whose resources are limited are especially likely to soon face the need to compensate for lower rents. There are basically two possibilities to act: Governments may choose to adapt to lower income by cutting expenditure, raising taxes, or practicing deficit spending and thus try to maintain the status quo as long as possible. The alternative is to restructure and diversify the economy (Luciani, 1994, 1995).
Economic diversification is executed by building up new industries, trading companies, or a banking sector. But economic modernization will bring about social changes, too. Education levels, occupational specialization, and interaction with foreign economies will rise. Since the regime is no longer able to buy consensus by distributing goods, services, and incomes in exchange for little or nothing, it will need some kind of legitimization, and the citizens, in turn, will demand accountability and will want to influence political decisions that affect their lives and the business sector they work in. To increase its legitimacy, the regime might ponder complementing economic liberalization with political reforms in a democratic direction. All of these economy-led (i.e., depleting natural resources) sociopolitical challenges constitute new venues for future research for the scholars of the rentier state theory. In addition, in almost all studies in the literature of the rentier state theory, the emphasis is squarely on the negative effects of rents on democracy; the idea of balancing the positive and negative effects of rentierism on democratization has yet to be fully explored.
The rentier state theory uses the political economy explanation for the democracy gap in the Arab Middle East, which emphasizes oil wealth as the main barrier to democracy. In sum, from the rentier state theory perspective, oil rents make possible a fairly high standard of living for the people, without any productive economic activity. In turn, oil rents enable the governments to keep their publics politically demobilized, either by fiscal generosity or by repression, and do not bring about the social changes that usually lead to political mobilization in favor of democracy.As quantitative studies demonstrate, oil wealth has indeed a strong negative impact on the level of democracy (Ross, 2001).
The large and considerable amount of state revenues accruing to rentier states in the form of external oil rents gives the governments additional resources and thus serve to reduce the state’s need to extract money from its society. As a result, weak states that are virtually independent from their respective societies emerged and are sustained as long as the oil rents remain. Considering the fact that oil reserves are limited, the prospects for the rentier states once the oil is gone remain to be among the areas for future research.
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