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What is a Rentier State and Rentierism?
A rentier state refers to a state that acquires all or a considerable amount of its national revenues from rent paid by a foreign or external entity. Meaning, the state’s economy does not depend on taking internal rent (e.g. taxation) from the productive class.
Rentierism is the practice of running the economy substantially or completely on external rent extraction. A rentier state necessarily practices rentierism.
The concept of the rentier state grew to prominence with the ascendance of the oil-rich countries in the Persian Gulf and MENA (the Middle East and North Africa) regions. The term was first coined by Iranian intellectual Hossein Mahdavy in 1970. Soon after, Hazim El Beblawi and economist Giaciomo Luciani produced seminal studies into the social, political, and economic byproducts of rentier states, discovering a significant developmental pattern—namely the stunted growth in the economy and political liberalism.
Rentier State Theories (RSTs) argue that the royalty’s full ownership of their nation’s oil reserves contributes to much of the aforementioned stagnancy. To this day, Sheiks use their ‘black gold’ as the nation’s primary revenue generator, extracting ‘rent’ from external sources and accumulating mountains of wealth. Often framed as a gift or royal generosity, part of the revenue funds social services (infrastructure, health care, defense, etc.) as well as forgoes taxing the citizenry.
The Zero Theft Movement, along with our growing community, is working to eliminate the rigged parts of the U.S. economy in order for the healthy, ethical parts to thrive. For good businesses and the many good, hard-working American citizens. In this article, we will explore rentier states and how they could actually be negatively affecting the U.S. economy.
The Zero Theft community has thoroughly researched potentially rigged areas of the economy and has come up with an accurate estimate of how much is being ripped off from the public. Take part in creating an economy that gives you the value you deserve.
Defining ‘Rent’
The ‘father of economics,’ Adam Smith, distinguished income gained through labor and rent. In Chapter 11 of his seminal work The Wealth of Nations, Smith describes rent as the acquisition of money through ownership of land or resources.
Rentier states have gained a negative connotation because they, by definition, form their economy based substantially or wholy on external rent as opposed to making efforts to develop their own domestic sector. The government, often through the sale of oil, acquires substantial wealth from foreign countries and passes a portion of it to the public through social services and royal favors. Rentier economies involve NO taxation, unilaterally funneling wealth down from the political elite to the public.
Private ownership itself is not what is frowned upon; it is the social function of rentiers. Beblawi, in his much-celebrated study ‘The Rentier State in the Arab World’, writes:
“A rentier is thus more of a social function than an economic category, and is perceived as a member of a special group who, though he does not participate actively in the economic production, receives nevertheless a share in the produce and at times a handsome share. The distinguishing feature of the rentier thus resides in the lack or absence of a productive outlook in his behavior.”
Part of the disapproval of rentiers and rentier states amounts to how they take a ‘handsome share’ of profits without having to do much, if any, labor. In other words, rent seeking. This does not apply to business owners who have constructed successful enterprises. Rentier states refer to those who have found a natural resource and rely on it, even as they develop, as their primary income generator. We’ll touch on the sociopolitical issues that arise from this system later.
Beblawi’s ‘The Rentier State in the Arab World’
Perhaps the most influential or read study on rentier states, the previously cited ‘The Rentier State in the Arab World’ made much ground by proposing a clear four-part definition of rentierism.
The Four Requirements to be Classified as a Rentier State
- Every economy involves rent. A rentier economy is one where “rent situations predominate.” At what point rent constitutes a substantial portion of the economy, to some extent, remains at the judgment of the individual assessing the matter.
- A rentier economy relies on substantial external rent (i.e. money acquired from foreign entities). An economy purely run on internal rent must have a powerful, highly productive domestic sector. By Beblawi’s definition, a rentier state sustains their economy with external rent often without developing their domestic sector.
- In a rentier state (a subset of a rentier economy), a select few participate in the generation of rent. The majority only gets involved with the distribution and utilization of the wealth gained via rent. Hawaii, for example, would NOT be considered a rentier state, as the majority participates in generating income through tourism (monetizing natural resources/endowments).
- As an extension of the third requirement, the government is the major recipient of the external rent. The political elite, the few, also have economic power. Considering many of the oil-rich countries were and remain monarchies, establishing a rentier economy further strengthens those in power.
Due to the non-interference clause in Medicare Part D, the government cannot negotiate drug prices. Does this lead to much more taxpayer money being spent on drugs than necessary? See what the ZT community has found through their investigations…
The Rentier State of Mind
The concept of the ‘rentier mentality’ takes us back to the negative connotation associated with rentier states. This unproductive outlook breaks the common work-reward causation and risk-bearing involved in most economies.
Beblawi states: “For a rentier, the reward becomes a windfall gain, an isolated fact, situational or accidental as against the conventional outlook where reward is integrated in a process as the end result of a long, systematic, and organized circuit.”
Many rentier states rely on ‘windfalls’ from oil exports rather than developing their domestic sectors. This forces the citizenry to rely heavily on the few who generate the rent, concentrating the political power to the few. Furthermore, if the rewards for the public necessarily come from the government, they have much monetary incentive to curry favor with those in power—in essence, creating one big spoils system.
Rentierism in Practice
Rentierism often stunts domestic economic development and deters movements for political liberalism. The government not only serves as the beneficent entity who ‘gifts’ its wealth to the public, but it also hires much of the public. Bureaucratic positions ultimately aid citizens in their business ventures. In some rentier states, no rules or laws exist to bar pork barrel politics, earmarks, or conflicts of interest where public servants from simultaneously running an enterprise.
To quote Beblawi’s essay once more: “In fact, huge development projects, joint ventures, agents, tenders and awards of hundred million—sometimes billion—dollar contracts have provided opportunities for those in public office to use their positions for private gain.”
Rentierism creates a hierarchy of secondary rentiers within the state. For example, governments enact laws that prevent foreign companies from operating independently. Rentier states require citizens to be involved with the operation, thus compelling foreign enterprises to collaborate with a local sponsor (kafil). Businesses pay for the use of the local’s name in exchange for a portion of the profits.
Rentier states also forego taxation, eliminating the demand for political participation. While most of the world concerns itself with what their tax dollars fund, those living in a rentier state receive what their ‘benevolent’ rulers provide. Rentierism commonly leads to a nationwide welfare system, where the authority provides care at their discretion in exchange for near-total control. Without a mechanism like taxation, the public has little say in how the country is run—politically, economically, socially, and so on.
The Rentier Effect on the U.S. Economy
Oil-rich countries, spanning the Middle East to South America, have quickly developed into major players in world trade, forming OPEC to control the market for ‘black gold.’
source: Council on Foreign Relations
OPEC often receives criticism for being immune to antitrust laws, (somewhat) freely able to price fix. Some have referred to the organization as a cartel (a formal oligopoly). Most, if not all, these countries have developed into rentier states, heavily relying on oil exportation to stimulate their economies.
OPEC exhibited its profound influence in 1973, when they initiated an oil embargo against the U.S. Suddenly deciding to end the Bretton Woods Agreement (tying currency to gold), the U.S. established the dollar as a fiat currency. The price of gold shot up; however, the dollar plummeted. The 12 rentier states that comprised OPEC were hit hard, especially given their economy heavily relied on external rent (i.e. petrodollars). From 1973-1974, inflation-adjusted oil prices skyrocketed from $25.97 per barrel (bbl) to $46.35 bbl.
Many rentier states rely on ‘windfalls’ from oil exports rather than developing their domestic sectors. This forces the citizenry to rely heavily on the few who generate the rent, concentrating the political power to the few. Furthermore, if the rewards for the public necessarily come from the government, they have much monetary incentive to curry favor with those in power—in essence, creating one big spoils system.
DID YOU KNOW?
OPEC holds ~72% of the world’s crude oil reserves (as of 2019).
The government had set up wage-price controls, wherein both wages and prices were mandated to be kept high. A major factor in the recession or ‘stagflation’ of 1973-1975, the OPEC oil embargo contributed to the mass layoffs and the persistent inflation. While efforts such as the NOPEC bill have been introduced, little traction has grown to end OPEC’s immunity from U.S. antitrust regulations.
What can we do about Rentier States & Oil Rents?
We at the Zero Theft Movement have focused our efforts on eradicating the rigged layer of the economy. Efforts to break free markets and unethically boost profits, we believe, have no place in our economy. We must expose the corrupt lawmakers and crony capitalists who continue to protect big oil’s cartels and moneyed interests.
The rigged layer of the economy continues to potentially rip off trillions from the public. Crony capitalists hire lobbyists who then corrupt lawmakers. This is regulatory capture, and has established the U.S. as a corporatocracy. By exposing the bad actors and eliminating the rigged layer, we, the public, all stand to profit from a maximally productive and ethical economy, as the Kuznets curve predicted.
Higher wages, genuinely competitive markets vying for our business, and lawmakers that legislate based on what they believe to be in our best interests. That’s all possible, but we need your help!
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Beyond the rentier state…
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Standard Disclaimer
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.