50 years on: Rentier state theory

Hannah K writes*

Like many developing states, Gulf countries like Qatar, Saudi Arabia, and the United Arab Emirates (UAE) have largely resource-dependent economies. However, in contrast to other states, these countries have apparently managed to escape the negative effects of the resource curse (Hollo, 2013).

This blog post aims to provide some basic background information about Rentier State Theory (RST), which is crucial for understanding the Gulf state’s development trajectories. In short, the rentier state is a state that relies on “rents” or income from foreign individuals, governments or corporations in order to sustain its economy (Beblawi, 1987). Resource-rich nations often fall into this category as foreign companies are heavily involved in resource-extraction and export. In the second half of the twentieth century, three key academics reimagined the workings of the rentier state in the context of the Arab world: Hazem Beblawi, Giacomo, and Hossein Mahdavy. All of them predicted that, in the long run, the oil states would succumb to the pitfalls of the rentier state both politically and economically, since rentier states discourage productivity when they “buy” loyalty from citizens (Schliep, 2017).

To critically assess the role of RST in the development of the Gulf States, it is necessary to understand the theory’s main arguments. According to the literature, rentier states cannot diversify their economies. They remain reliant on oil and gas revenues to maintain political stability, and labour market imbalances further pose a big challenge to shift the economy away from natural resources (POMEPS, 2019). Labour market imbalances are exacerbated as societies become prone to a “rentier mentality,” which discourages citizens from taking an active role in political and economic life (Beblawi, 1987). Rentier states that are unable to develop or grow collapse into economic stagnation and political stability because they cannot appease their population (Schliep, 2017).

Now, almost fifty years later, how do the predictions hold up? Arguably, there are some missing elements of RST. The Gulf countries have seen sustained economic growth, but also unprecedented investment in key economic sectors for sustainable development. Somehow, they appear to have escaped the resource curse. Dubai is a prime example, as it has shifted the focus of the economy from rapidly depleting oil and gas exports to becoming a hub for international business, indicating an ability to diversify the economy (Hollo, 2013). These results seem to undermine the idea that political stability is rooted in buying loyalty.

Bottom line: Rentier State Theory simply falls short in explaining the current development trajectories of the Gulf States. There is clearly a more complex system in place that encourages long-term investment into the economy.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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