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Rentier State Rents

What do you understand by the term ‘the rentier state’? How useful is this concept in explaining the politics of the oil-producing states of the Arabian Peninsula? Discuss with reference to TWO or more states.
Rents have been defined as “the income derived from the gift of nature” and are thus usually understood to be income accrued from the export of natural resources, especially oil and gas. Moreover, foreign development and military assistance which are termed as ‘strategic rents’ are considered external rents and may be conceived of as a form of foreign-aid payments. In addition, a natural resource in a state tends to generate what is called a ‘rentier state.’ In other words, a state that receives substantial rents from foreign individuals, concerns or governments. It is believed that the governments which obtain adequate income through oil do not have a need to tax either heavily or at all causing the public to have little demand for representation from the government; this is known as ‘the rentier effect.’
The rentier effect in the Arab world concerns both oil-exporting states and non-oil exporting states. A significant extent of the rents of the oil states has been recycled to all Arab states through migrant workers’ remittances, transit fees and aid. Beblawi highlighted the region-wide effect of rentierism by saying, “Arab oil states have played a major role in propagating a new pattern of behaviour, i.e. Rentier behaviour.” The aim of this essay is to discuss the term ‘rentier state’ and elaborate on how useful the concept is in explaining the politics of oil producing Arab states.
The rentier state theory originally developed in relation to Iran’s mid-20th century economy. The west became involved with Iran’s oil in the following way. Germany invaded its former ally, the Soviet Union in 1941, which quickly re-allied with Great Britain. The British and the Soviets then occupied Iran, fearful that its leader, Reza Shah, would align its oil-rich country with Germany. The Shah’s son, Mohammed Reza, came to the throne and Iran became the major conduit for British and later American aid to the USSR in what came to be known as the “Persian Corridor.”
In 1953, the Shah was forced to flee Iran by Mohammed Mossadegh, the nation’s prime minister and “godfather of populist petroleum politics.”After negotiations for higher oil royalties failed in 1951, the Iranian parliament, led by Mossadegh, voted to nationalize Iran’s oil industry and replace the British-owned and -operated Anglo-Iranian Oil Company with the National Iranian Oil Company.
Hussein Mahdavy, the first economist who popularized rentier state theory, believed that the period between 1951-1956 represented a significant milestone in the economic history of the Middle East. As a result of petroleum development, substantial amount of foreign currency flooded into the state treasuries, Mahdavy argues that this has turned some oil-producing countries into rentier states. For example, Kuwait, Qatar, and Saudi Arabia are extreme examples of the trend. In addition, the case of Iran, given its size and potential, was very important to Mahdavy.
The author of The Rentier State in the Arab World, Hazem Beblawi, has suggested four characteristics that would determine whether a state is identified as “rentier.” First, rent situation must prevail to the point that it concludes that there really is no such thing as a pure rentier economy. Second, the rent must approach from outside the country. Third, in a rentier state, only few members are engaged in the generation of rent, while others are concerned with its consumption and distribution. Finally, the government is the sole recipient of the external rent.
Beblawi argues that a ‘rentier mentality’ has developed while political scientist Fareed Zakaria has pointed out that such states fail to develop politically because of the absence in taxes. Mahdavy argues that because in these states there is very little production, there is relatively little to tax. Subsequently, citizens have less incentive to place pressure on the government to become responsive to their needs. Alternatively, the government ‘bribes’ the citizens with widespread social welfare programmes. In addition, because the control of rent-producing resources is concentrated in the hands of the authorities, Beblawi concludes that this provides an explanation for the presence of authoritarian regimes in these resource rich countries.
According to Yates, author of The Rentier State in Africa, in theory there is no reason for a rentier class to promote democratic reform. Such countries are only interested in the status quo and are independent financially from such democratic demands. Yates concludes that this explains their reluctance to engage in fiscal policy, for example, tax policy. In the words of Noah Feldman, there is, “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.” Rentier states that would engage in fiscal policy will not only be unpopular, but would threaten the security of their status within the structure that’s dependant on external rents. It is solely for these reasons Beblawi concludes that direct redistribution of oil rents will not necessarily contribute to democracy, but in fact will “stultify it.”
The fundamental nature of oil has led to non-oil states to behave like rentier states. This applies to the region as a whole. For example, some states like Qatar and Bahrain, take advantage of their strategic location for military bases. Moreover, because oil states try to ensure stability for their rent by buying allegiance from neighbouring countries, therefore sharing the rent, relations in the region has been affected. Beblawi strongly mentions the case of Egypt, where receipt of financial aid from oil rich countries has declined due to Camp David, and instead Syria, Iraq, and the PLO have started to benefit.
The question is, can the situation change? Mahdavy suggests that the solution to the problem of a rentier state is less than government expidenture. In addition, he believes that meaningful change will not come from above, but from below. In other words, a revolution. Yates concludes that, “elites previously preoccupied with consuming the national wealth must now find ways of consuming it, and if the ideas of the whole society, whence and whither this new nations income.”
In conclusion, rentier states are states whose main income depends on rents, revenue that a government receives devoid of doing much work. It is believed that a state that depends on rent is harder to become democratic. Due to the governments large income it can easily buy off the citizens and use its money to stop the formation of social groups. Many of the Middle East states depend heavily on oil exports, which enhance the control of the state bureaucracy. It is believed that the formation of social capital, civic institutions that lie above the family and below the state, tend to promote more democratic governance. Scholars have suggested that the oil wealth has impeded the formation of social capital and hence blocked a transition to democracy.
Politically, governments that fund themselves through oil revenues and have larger budgets are more likely to be authoritarian, this is known as the repression effect; governments that fund themselves through taxes and are relatively small are more likely to become democratic. Mineral wealth if located in a region populated by an ethnic or religious minority may promote or aggravate ethnic tension, as federal, regional, and local actors compete for mineral rights.
1. Thomas Stauffer, Hazem Beblawi, Giacorno Luciani,
Mahmoud Abdel-Fadil, Michael Chatelus, Hamid Ait
Amara, Dirk Vandewalle, Larbi Jaidi, Hesham Garaibeh,
Afsaneh Nafrnabadi, contributors to The Rentier State,
vol. 2, Nation, State and Integration in the Arab World, ed.
Hazem Beblawi and Giacomo Luciani (London: Croom
Helm, 1987)
2. Hossein Mahdavy, “The Pattern and Problems of
Economic Development in Rentier States: The Case of
Iran,” in Studies in the Economic History o f the Middle
East, ed. M.A. Cook (Oxford: Oxford University Press,
1970) p. 428.
3. Beblawi, Hazem 1990. The Rentier State in the Arab World. In: Giacomo Luciani (ed.), The Arab State. London: Routledge, pp. 85-98.
4. Bromley, Simon 1994. Rethinking Middle East Politics. Cambridge: Polity Press
5. Yates, Douglas A. The Rentier State In Africa: Oil Rent Dependancy and Neocolonialism in the Republic of Gabon. Trenton, NJ: Africa World Press 1996.

Economic Liberalism And The Current Ipe Economics Essay

This essay discusses the liberal theory of international political economy in terms of how its advantages and disadvantages can be related to todays IPE with a focus on the free trade aspect, the extent of economic development associated with it and if peace and a less hostile relationship can be achieved through economic dependency. Accordingly, Free trade is characterized in this article by the free trade agreements that took place in the 21st century. The aim of the focus on the interdependence liberalism is to see to what extent the logic and the theory behind interdependence has been adapted in today’s economic world and to what extent it has enhanced international relations among countries. Thus, the discussion will be biased toward the above mentioned focus on interdependence. The first part of this article will explain the major benefits of a liberal economic sphere, followed by a summary of the downsides of such a system. A conclusion will provide the main inferences of the discussion.
Free Markets, Trade and Interdependence. Every day, people from different countries exchange different products, services and materials as they do not have the capabilities, resource access or labour for a diversified production. I believe that the main concern of liberalism is truly to bring about the maximum possible cooperation and coordination amongst societies as well as states on both a domestic level and an international level. Such corporation leads to interdependence with the goal of achieving mutual gains that in theory will insure to deter or minimize conflict, hence, leading to peaceful and stable world relation. The United States, for example, has its main “international trading partners in Australia, Central America and the Dominican Republic, Chilli, Jordan, Bahrain and many more. It has free trade agreements with each of the aforementioned countries with the purpose of increasing international trade and opportunities of competition” (US Trade Policy Agenda 2012). This network that the U.S established has enabled it to earn the hegemonic power that it holds today.
Therefore, a crucial strength in the liberal view is the free trade factor and all of the economic elements that follow from that concept. As Adam Smith implied that “trade is the main form of interaction between people within a state as well as between states” (Sorensen 2009). Whatever form of trade it is, goods, services, capital and resources, it will require a certain amount of cooperation in order for it to take place. In today’s modern world, the need for a variety of goods and services demanded by citizen results in comprehensive import/export activities for “states to maintain themselves and satisfy market demands” of its citizen. (Witztum 2010)
Thus to facilitate trade activities, the free market calls for “a limited involvement of the government in the matters of the market with a supervisory role rather than a dominating body” as Smith’s invisible hand will naturally bring balance to the market. The liberation from governmental pressure is a key attraction and strength in a liberal economy. In my opinion, organizations such as the World Trade Organization (WTO), the Organization of Petroleum Exporting Countries (OPEC) and the North American Free Trade Area (NAFTA), act only as a supervisory, facilitator and a body for resolving disputes only within a liberal ideology. Moreover, it calls for a market where “national barriers are removed, such as taxes in imports and exports, as well as tariffs and quotas between states”. (Roy Smith 2011 P. 100)
Furthermore, the impact of free trade can be observed with the boom of multinational companies and the emergence of free trade agreements (FTA’s). On a multinational level, for example, Apple’s and Samsung’s specialization in the field of electronics is viscously competitive evident by the legal issues between them. Consequently, such competition has led to innovation and that is one of the perks of trade. Both companies dominate the market with their products over the globe through means of import/export. However, the price of such products “differs from the country of origin and that of other countries and that is due to tariffs and quotes costs” (Sahajwani 2012). Therefore, through means such as FTA’s, all barriers of high tariffs and quotas would be eliminated and facilitating “market access”, competitiveness and profitability, thereby creating a free market zone between two countries or a whole region. (UN Conference on Trade and Development 2012)
For instants on January 1, 2010, a free trade agreement took effect between Association of South East Asian Nations (ASEAN) and China on “economic integration in trade of goods, trade of services and on investment. China and six ASEAN countries (Brunei, Indonesia, Malaysia, Philippines, Thailand and Singapore) eliminated tariffs on 7000 product categories which cover 90% of traded goods and their foreign direct investment (FDI) has gradually expanded soon afterwards” (Lakatos