Every economic activity is based on two components: effort and reward. Rent is the income derived from possessions. Rentier is the one who gets the reward from renting his possession instead of actively participating in economic activity.
A rentier state derives its income exclusively/predominantly from external rent; even though every economy is partly based on generation rent through gifts of nature. In a rentier economy, 2-3% of the population– aka rentier class – engages in generation of rent; while majority is involved in its distribution and utilization. Government is generally the main recipient of rent and distributes it among the populace through large bureaucracies and domestic allies – the local elites who loyalties are bought through royal bestowments. States becomes the source of public goods like education, health, employment, infrastructure etc. and private favors like government contracts, lands etc. Often the borders between private and public sector gets blurred as ruling intelligentsia and bureaucracy engages in businesses. Government takes the role of the prime move of the economy and the ultimate employer. However, rent is not only exclusive to the state, but second order rentiers also emerge.
Accordingly, citizenship becomes a source of economic benefit and yet another entity to rent. Foreign investors and workers are required to operate through a trustee or kafil. Some also engage in real estate for the state is always willing to buy land as favor to citizens and often the exaggerated prices lead to stock market speculations. The exclusive economic privileges and no incentive to work create a productivity gap that is filled by expatriates who despite of being the most productive inhabitants enjoy minimum civil rights and are often excluded from the body politic. Such situation creates rentier mentality; people have no incentives to work and don’t engage in productive activities – that are mainly carried out by the guest workers. This mentality also seeps into the region and even the non-oil rich states exhibit the same illness.
Whole Middle East is somehow dependent on rent as the article suggests:
- More than half of the government’s revenues in Saudi Arabia, Bahrain, the United Arab Emirates, Oman, Kuwait, Qatar, and Libya have, at times, come from the sale of oil.
- The governments of Jordan, Syria, and Egypt variously earn large locational rents from payments for pipeline crossings, transit fees, and passage through the Suez Canal.
- Workers’ remittances have been an important source of foreign exchange in Egypt, Yemen, Syria, Lebanon, Tunisia, Algeria, and Morocco, although these rents go (at least initially) to private actors, not the state.
- The foreign aid that flows to Israel, Egypt, and Jordan may also be considered a type of economic rent. Inter-Arab aid is also aimed at avoiding troubles and forging alliances.
Some suggest enormous oil-wealth is hindering democracy in the oil rich Middle East. However, level of political participation generally increases with national wealth. Why is so in the Middle East? Articles suggest it is due to:
- Rentier effect: resource-rich governments use low tax rates and patronage to relieve pressures for greater accountability. The spending effect, taxation effect, prevention of opposition group formation through institutional design and patronage of powerful families damps the pressure for democratization.
- Repression effect: resource wealth retards democratization by enabling governments to boost their funding for internal security. Governments maintain strong security forces to protect the domestic status quo for conflict with the population groups concentrated in resources rich area is always a possibility, and also to counter the external threats. Role of mukhabarat in repression of populace is prominent.
- Modernization effect: growth based on the export of oil fails to bring about the social and cultural changes like increased social-political awareness due to high level of education and occupational specialization tend to produce democratic government.