In political science and international relations theory, a rentier state is a state which derives all or a substantial portion of its national revenues from the rent of indigenous resources to external clients. This theory was first postulated by Hossein Mahdavy in 1970. It was also in this article that the concept of external rent was first introduced.
Mahdavy's usage of the term is in stark contrast to how the term was originally used by Marxists. Lenin wrote in 1916: For that reason the term “rentier state” (Rentnerstaat), or usurer state, is coming into common use in the economic literature that deals with imperialism. The world has become divided into a handful of usurer states and a vast majority of debtor states. (...) According to the Great Soviet Encyclopedia, a rentier state enriches itself by exporting capital to other states, primarily those that are economically underdeveloped and dependent.  This is better known in English as Rentier capitalism.
The term rentier state has been used since the 20th century. It is most frequently applied to states rich in highly valued natural resources such as petroleum but can also include states rich in financial instruments such as a reserve currency. It can also be applied to nations which trade on their strategic resources, such as an important military base.
Dependent upon it as a source of income, rentier states may generate rents externally by manipulating the global political and economic environment. Such manipulation may include monopolies, trading restrictions, and the solicitation of subsidies or aid in exchange for political influence or conversely the solicitation of loans in exchange for the reserve currency, e.g., the United States.
- Rent situations predominate.
- The economy relies on a substantial external rent – and therefore does not require a strong domestic productive sector.
- Only a small proportion of the working population is actually involved in the generation of the rent.
- Perhaps most importantly, the state’s government is the principal recipient of the external rent.
The emergence of the new oil states and their increasing importance in world trade in the 1970s brought a renewed interest in thinking on rentier economies in the aforementioned disciplines of political science and international relations. Examples of rentier states include oil-producing countries in the MENA region including Saudi Arabia, United Arab Emirates, Iraq, Iran, Kuwait, Qatar, Libya and Algeria as well as a few states in Latin America, all of whom are members of OPEC. African states such as Nigeria, Gabon, Angola, Ghana, Uganda and South Sudan are also important oil producers with rentier economies, earning income from trading natural resources.
Rentier state theory has been one of several advanced to explain the predominance of authoritarian regimes in the Middle East and the apparent lack of success of democracy in the region. While many states export resources or license their development by foreign parties, rentier states are characterized by the relative absence of revenue from domestic taxation, as their naturally occurring wealth precludes the need to extract income from their citizenry. According to Douglas Yates, the economic behavior of a rentier state
embodies a break in the work-reward causation ... [r]ewards of income and wealth for the rentier do not come as the result of work but rather are the result of chance or situation.
Hazem Beblawi and Giacomo Luciani have argued that this could create a "rentier mentality," while political scientist Fareed Zakaria has posited that such states fail to develop politically because, in the absence of taxes, citizens have less incentive to place pressure on the government to become responsive to their needs. Instead, the government essentially 'bribes' the citizenry with extensive social welfare programs, becoming an allocation or distributive state. The budget, in effect, is little more than an expenditure programme.
It has also been theorized that governments that rely to a significant extent on revenues from non-market sources are not compelled to apply free market principles to create an environment conducive to economic growth. Oil is in such demand that it does not require adherence to free market principles and economic freedom based on rule of law, security, a fair and transparent judiciary and property rights. As a consequence, political freedom does not develop and efforts aimed at democratization are undermined.
Moreover, because control of the rent-producing resources is concentrated in the hands of the authorities, it may be used to alternately coerce or coopt their populace, while the distinction between public service and private interest becomes increasingly blurred. There is, in the words of Noah Feldman in his book After Jihad,
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. (Feldman 139)
Consequently, in these resource-rich rentier states there is a challenge to developing civil society and democratization. Hence, theorists such as Beblawi and Luciani conclude that the nature of rentier states provides a particular explanation for the presence of authoritarian regimes in such resource rich states.
Beblawi and Luciani identify several other characteristics particularly associated with rentier oil states. For example, where the government is the largest and ultimate employer, the bureaucracy is frequently bloated and inefficient – and indeed comes to resemble a rentier class in society. Moreover, local laws often make it impossible for foreign companies to operate independently. This leads to a situation where citizenship becomes a financial asset. To do business, foreign enterprises engage a local sponsor (kafil) who allows the company to trade in his name in return for a proportion of the proceeds – another type of rent. In addition, the oil rent leads to secondary rents, usually stock market or real estate speculation.
Rentier state theory foregrounds important puzzles in contemporary politics. For example, as Abulof asks, “If rents increase regime stability, especially authoritarian durability, why, then, are rentier regimes, particularly in authoritarian petro-states, more prone to civil wars?” Looking at the Middle East, “why have certain rentier states (such as Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia, and the United Arab Emirates) remained so remarkably stable, while others (such as Algeria, Bahrain, Iran, Libya and Sudan) have become—either before or during the Arab Spring—scenes of violent unrest?” Abulof points to political legitimacy is a determining factor, and argues that authoritarian rentier regimes are in fact more fragile than they seem to be.
The crucial nature of oil has led to a situation where non-oil states have started to behave like rentier states. This can be seen for the region as a whole – so some states have been able to exploit location rent due to their strategic location, for example, as sites for military bases. More significantly, inter-state relations in the region have been affected as oil states try to ensure stability and tranquillity for their rent by buying allegiance from neighbouring states – in effect, sharing the oil rent. Beblawi and Luciani highlight the case of Egypt whose receipt of financial aid from oil-rich neighbours declined significantly after Camp David, and money going instead to Iraq, Syria and the PLO who were considered more assertive.
Importantly, scholars have tied rentier theory to the process of disenfranchisement and ultimately radicalization, posing that the breakdown of the citizen-state relationship can ultimately foster non-economically motivated radicalism. This is particularly important, given the geographic positioning of today's rentier states.
- Hossein Mahdavy, "The Pattern and Problems of Economic Development in Rentier States: The Case of Iran", in Studies in the Economic History of the Middle East, ed. M.A. Cook (Oxford University Press, Oxford 1970).
- Lenin. "Imperialism, the Highest Stage of Capitalism (chapter VIII)", Retrieved on 14 June 2015.
- Great Soviet Encyclopedia. , The Free Dictionary, Retrieved on 14 June 2015.
- Beblawi, Hazem Al and Luciani, Giacomo, 1990, The Rentier State in the Arab World, in Luciani, G., The Arab State, London, Routledge, p. 87-88
- Beblawi, Hazem Al and Giacomo Luciani, 1990, The Rentier State in the Arab World, in Luciani, G., The Arab State, London, Routledge
- Anderson, L., 1987, "The State in the Middle East North Africa," Comparative Politics, Volume 20, Issue 1, Pages 1–18
- Smith, B., 2004, Oil Wealth & Regime Survival in the Developing World: 1960–1999, American Journal of Political Science, Volume 48, Issue 2, Pages 232–246
- Abulof, Uriel (2015). "Can’t Buy Me Legitimacy": The Elusive and Illusive Stability of Mideast Rentier Regimes. Journal of International Relations and Development.
- http://www.semp.us/biots/biot_227.html Archived October 29, 2005, at the Wayback Machine.
- Beblawi, Hazem Al and Luciani, Giacomo, 1990, "The Rentier State in the Arab World," in Luciani, G., The Arab State, London, Routledge, p. 90
- Beblawi, Hazem Al and Luciani, Giacomo, 1990, "The Rentier State in the Arab World," in Luciani, G., The Arab State, London, Routledge, p. 91
- Feldman, N., (2003). After Jihad: America and the Struggle for Islamic Democracy, New York, Farrar, Straus and Giroux
- Beblawi, Hazem Al and Luciani, Giacomo, 1990, The Rentier State in the Arab World, in Luciani, G., The Arab State, London, Routledge, p. 92
- Beblawi, Hazem Al and Luciani, Giacomo, 1990, The Rentier State in the Arab World, in Luciani, G., The Arab State, London, Routledge, p. 96
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- Ismail Küpeli: (Keine) Demokratie im Rentierstaat Syrien? Munich 2008, ISBN 978-3-640-11110-7 (ebook about the rentier state Syria)