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.

2 thoughts on “50 years on: Rentier state theory”

  1. Hey Hannah! This is a super interesting blog post, I really enjoyed reading it! I had never heard of the Rentier State Theory before, so I found your summary of it to be very helpful. I understand that the blogpost has a limited word count and you may not have been able to fully explain the mechanisms, but I was left with some confusion on what you meant by “labor market imbalances.” I would recommend that you further explain this concept in your essay when you have a greater word allowance. I was personally left with the questions: (1) how does reliance on oil cause a labor market imbalance, and (2) what exactly do you mean by imbalance?

    Something I found interesting was the concept of “rentier mentality” and how that leads to political disengagement. Like I said, I am not well versed on RST, so I do not really know what the “rentier mentality” is or how it links to political disengagement. However, I have some thoughts on this. The gulf states are authoritative, so it is important to consider that people may not be involved in politics because they do not have to be. They have basically no say in the political field, so they see no point in getting involved. Something else that I thought of was education: I lived in the UAE for 17 years, and I (along with pretty much everyone else) was very disengaged with Emarati politics. I think this is largely due to the fact that the state discourages politics from being discussed/taught in schools (except in the context of Emarati history). One key takeaway I had from Decision Making Processes was that the less people understand a political system, the harder it is for them to manipulate it. I think this is part of the reason they do not teach politics in the UAE; a politically aware and empowered population is harder to control. I don’t know if my thoughts are related to your research in any way, but if your paper generally challenges RST, this may be interesting to consider to add more nuance to your argument!

    1. Hey Taleen, thanks for your comment! I see how some of my RTS explanation could have further elaboration, I will be sure to include it in my essay.
      The “rentier mentality” refers to the idea that a rentier state disincentivises economic achievement because there is no reward for it, and as you mentioned, makes citizens politically passive. This can partially be seen as the government “buying off” its citizens with the rents it gains from natural resources. The main side effect for the Gulf, I would say, is on labour attitudes rather than political participation. This is mostly because a lot of political participation in the Gulf is more informal, especially in Qatar and the UAE where the division of political power is structured in such a way that most families have a say in what happens. But the question I am aiming to answer in my essay is whether it does also lead to less willingness to participate in the economy, which is detrimental for both growth and development.
      I do like your point about political participation, however, and this is something I will delve into further. One of the main issues I am running into with my essay is how to explain the Gulf’s development given the many models and indicators of development out there. When it comes to political development, this is something that is lacking in the authoritarian states of the Gulf. On the economic side, they appear to be doing pretty well.
      One thing which I also discovered in my research that adds a bit of nuance to the idea of political participation and the rentier mentality is the notion that political participation in the Gulf does exist, but not in the form we are most familiar with. There is very little democratic structure, but one of the papers I read talked about the Islamic tradition of “shura” (or consultation in English) which has underpinned decision-making in the Gulf for hundreds of years. I am exploring this model further because I believe that the Gulf raises some great questions (if not challenges) for how we define development. Ultimately, it also brings in the difficult question of cultural values, and to what extent we can and should allow for some cultural relativism.

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