Academic journal article The Middle East Journal

The Rentier State and National Oil Companies: An Economic and Political Perspective

Academic journal article The Middle East Journal

The Rentier State and National Oil Companies: An Economic and Political Perspective

Article excerpt

While the concept of the rentier state is common knowledge to Middle East scholars, very little has been written concerning the basic support and revenue tool for such states - the national oil companies. This article examines the micro-economic, financial, and managerial behavior of national oil companies, assesses their economic efficiency, and relates their operations to rentier state politics.

This paper will define and analyze the broad nature of the rentier state. It will do so by examining the economic, political, and, to some degree, moral implications of state-owned oil industries within the context of the rentier state.1 It will then describe the rarely-addressed relative efficiency of national oil companies (NOCs) - the prime revenue generators for rentier states - comparing them to the privately-owned international oil companies (IOCs). Emphasis will be given to the Gulf countries, although most of the analysis provided can be generalized beyond the region. While oil (and natural gas) and associated revenues provide great opportunities for economic development and political evolution, a heavy dependence on oil tends to produce institutional arrangements which are conducive neither to real economic development nor to more transparent, citizen-responsive systems of governance that better adjudicate state/civil society tensions.

THE RENTIER STATE

The expression "rentier state" is derived from economists' original use of the word 'rent' to describe returns to landowners. Inasmuch as land was often "rented" without any improvements on it, "rent" came to mean the return on a scarce, non-reproducible asset. In short, it was a return generated without productive effort, one which rewarded mere possession rather than productive efforts or enhancements. Today the expression "rentier state" refers to a country that garners a substantial portion of its income from external sources, most generally from the sales of resources such as oil and gas.2 The nations of the Gulf have been major beneficiaries of oil and gas rents, although they are hardly the only rentier states. Importantly, the label "rentier state" requires that governments (or their agencies) be the direct recipients of these external rents.

Table 1 illustrates comparative dependence on rents in the countries of the Gulf and four resource rich non-regional states. Rents as a share of government revenue are extremely high, ranging from 56.8% (Qatar) to 89.3% (Saudi Arabia). As a share of gross domestic product (GDP) they range from 28.5% (Bahrain) to 60.7% (Saudi Arabia). Importantly, fluctuations in oil and gas prices can seriously skew the data. Nonetheless, it is unquestionable that these rents remain extremely important, and their relative weight has changed only marginally for most countries.

DOMESTIC POLITICAL IMPLICATIONS

The rentier state and its NOCs gain revenue largely independent of their citizenry; they do not have to extract taxes from their populations. Without the need to demand that their citizens "cough up" tax revenues, government actions are far less constrained by public pressures since the public bears no visible tax burdens. A social contract evolves in which the citizens make relatively few political demands upon the government as long as the state provides many services without levying taxes.

Normally, the extraction of taxes and public sacrifice evoke responses from those taxed. Hence the legitimacy of government actions or demands frequently comes into question under any form of governance - democracy, monarchy, or totalitarianism. During World War II, for example, Adolph Hitler did not push Germany to full war efforts because he feared the population might not respond as he wanted.3 For Americans, "taxation without representation" spurred to action the combatants of the Revolutionary War.

For rentier governments there is little need to develop mechanisms of fiscal accountability for their citizens since the latter have been "bought off" by the absence of taxes and the provision of social services and state-subsidized commodities. …

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