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Rentier states

Dec 22,2014 - Last updated at Dec 22,2014

The term “rentier state” had been used to describe countries that have natural resources, such as oil, and distribute the wealth derived from oil revenues to people according to their perceived loyalty.

However, a state does not need to be rich in natural resources to be tagged as a rentier state. If it is of the type that waivers or barters some of its political or geographic rights in exchange for proceeds from other countries, then it can be called a rentier state.

Rentier states, therefore, need not be oil producers, as underscored in the Jordan Internet-based show, Malna.

States that depend on aid such as grants or soft loans, or transfers, are called rentier states, which makes Jordan a full-fledged rentier state.

While Jordan lacks oil wealth, its main proceeds come from states that provide aid in grants and concessional loans as a result of Jordan’s political position and geographical location.

A rentier government spawns a culture of rent seeking, and rent seekers are created.

Rentierism does not only apply to states only, but to societies and individuals as well.

A government that assumes the role of the distributor of wealth creates a rentier society and rentier individuals.

The state that receives rent almost always creates a parallel rentier system within its own economy.

The reward, which usually goes to the “loyal” subjects, helps create a structure that lies outside the market system. Rewards are not given based on merit or performance, but upon and for perceived loyalty. And thus, rent seeking permeates all society.

The first victims to a rent-seeking government and society are the morality of the system and of institutions, productivity and development.

It should be noted that even wealthy oil states are extremely poor if stripped of their oil income.

One of the properties of the rentier system is lack of transparency, which usually leads to corruption and the continuous exposure to external and internal threats.

Governments that adopt rentier ideals have no use for civil society, good governance or a strong and thriving market system because they constantly distribute rent: They employ more than they need, always pay for incompetence and never have their money’s worth, and are always asking their patron donors for help.

Rentier states that do not have oil to pay for the follies of their governance amass debt; they break the golden rule in macroeconomics: if you need to borrow, borrow only for financing projects and investment, not for operational expenditures; they exclude some of their subjects in order to reward the loyal subjects; they take away from spending on health and education and when they spend, it is low quality.

The government rides this tiger of rentierism which is constantly hungering more, but the government cannot dismount for fear that the tiger will be not only hungry, but also angry.

In such systems, incompetence is apparent everywhere. It is transmitted from one diseased generation to the next, and the nation becomes more and more backward.

How can governments forgo rentierism? 

It cannot tell hundreds of thousands of workers to go home, that would be a recipe for disaster. Instead, it should work on the private sector.

A country like Jordan can create a thriving private sector by using the GCC funds so that it begins to offer better employment opportunities than the public sector.

The enthusiasm of the corrupt elites for a greater share of the pie has to be curbed through an iron clad will and the private sector has to be allowed to flourish.

This would be a win-win solution and a way of exiting rentierism.

 

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