The century-old concept of ‘economic quasi-rent’ is a return to factors of production in inelastic supply — or in layman’s terms income going to producers of relatively scarce commodities getting a lot of income for little extra effort. The outstanding examples of this in modern times are celebrities and oil-producers. The latter in particular have been having a great run over the past few years (the former have always done well). As the price of oil remains high, despite recent corrections, the Arab Gulf states are making even more unearned income. In other words, for a very small effort, they get a large return.
Aside from limited examples of diversified commerce, and some other services including tourism in a few places like Dubai, the Gulf countries can be described as “rentier states.” In the 1980s, writing on the notion of a “rentier state,” Giacomo Luciani implied that democratization in the Middle East was not viable. So long as states have sufficient income they may have little reason to reform, and into the 1990s and the beginning of the 21st century, his theory seemed to describe the facts.
The need to raise revenue is a basic reason why the state has an interest in the prosperity and economic well-being of its people. Without such an interest, it is possible that “rentier states” could display little tendency to evolve democratic institutions.
One factor that impedes democracy in the Middle East and North Africa, especially in oil-producing countries, is the lack of government dependence on citizen support, the state instead relying on oil revenues, of which there are plenty. However, Kuwait’s example over the last few years shows that this relationship of no-taxation/no-representation may not be immutable. Politics and the public space in Kuwait are becoming broader. The potential for a democratizing Kuwait is greater now that the price of oil has gone up, contrary to the theory’s prediction. Rentierism may thus not be the enemy of democracy.
Democracy in Kuwait is still a long way from what prevails in Western Europe or North America, but the emirate is far from being just a petro-state with nothing happening except oil gushing out of the ground and money being pumped into state and private coffers. The country is undergoing open debate about state institutions. Parliament requests ministerial testimony about possible corruption, prompting government interference in the legislature. Islamists have influence, and promise laws against the secular character of the state.
What is happening in Kuwait is partly a direct result of the modernization of politics that could become a formula for a limited form of rentier state democracy. While Kuwait is a typical rentier state where petroleum accounts for over 90% of exports and government income, its politics differ from those of typical rentier states, and parliamentary elections produce a collection of disparate political actors with different interests increasingly independent of the ruling family. In turn, the emir prefers to interfere more as a caretaker than a tyrant, and to allow for a modicum of open democratic politics according to constitutional rules.
Although these Kuwaiti experiences of representation leave much to be desired, despite all these limitations democratic development may be possible in the rentier state because of competing economic and social elites who benefit from the state’s drives for modernization. Future pressure may gradually produce better representation and participation.
As the price of oil soared from under $30 a barrel in most of 2003 to well over $100 during the last few months, the past half-decade has proven to be very good for oil-exporting states. With world demand for energy strong and its price rising, government coffers in the Arab Gulf countries have during that time benefited in a spectacular way. Kuwait is a case in point, as official revenues during the past fiscal year almost trebled from their 2003/4 level, mostly thanks to oil.
The bad news is that these numbers viewed in isolation suggest that Kuwait remains a classic rentier state, unwilling or unable to democratize or otherwise change for the better. If anything, the emirate should be wallowing deeper in rentierism as state dependence on oil rises. Yet the politics of the country may belie this.
The idea of rentierism is clearly valuable, and it is also being applied to non-energy economies and sectors. For example, talking about Jordan as a quasi-rentier state, or analyzing the case of tourism in Egypt in terms of rentierism, as various writers have done recently, is instructive. However, as the last five years have shown, as far as the GCC states are concerned, the old equation of oil wealth with anti-democratic rentierism may need to be refined.
Riad al Khouri, co-founder and principal of KryosAdvisors, is Senior Fellow of the William Davidson Institute at the University of Michigan, Ann Arbor
