Snarky Behavior

Dropping Knowledge: Rentier States

October 15, 2007 · 2 Comments

“Dropping Knowledge”… where I laymenize an important aspect of social science.

A rentier state is a government that derives all or a significant portion of its national revenue from the rent of its indigenous resources to external clients.  It is a term most commonly applied to oil rich countries (such as Saudi Arabia), which grant access and management of its petroleum deposits to the United States (or the UK, Russia, etc.) in return for a “rent.”

Rentier states are inherently undemocratic.  You see, the geo-political distribution of natural resources makes certain areas extremely profitable, by random chance.  If the states themselves lack the privately developed technology and infrastructure to efficiently extract and distribute their resources, they must (or are otherwise coerced to) outsource such activities.

The thing is, democratic societies detest foreign management of domestic resources (see: Venezuela, Bolivia), and will take steps to “socialize” their industries, directly tax the exports instead of charging rent to foreign entities, and redistribute the wealth domestically, for a much bigger return.  But democratic management of a single resource economy naturally entails a heck of a lot of fighting over “who gets what, and why.”  And government industries are never as efficient as private industries in terms of production, so global trade organizations (OPEC) get antsy when a member state isn’t hitting its productive capacity.

The most efficient governmental arrangement for single-resource economies is therefore the rentier model… small, authoritarian leaderships (Saudi royal family) that placate domestic population by subsidizing EVERYTHING (except, generally, higher education, since educated elites tend to challenge authority).  The tax costs “flow” through the rent charged to Americans for pumping out oil and establishing military bases in the region for security purposes, and no taxes are levied domestically.  The royal family invests the majority of its staggering financial resources back into US securities, which solidifies the dollar and keeps oil demand and prices high.

This brings up a couple important issues:

1)  Some “experts” like to state that Islam is incompatible with democracy.  Bush is actually right when he says this is false (just look at Indonesia).  It’s actually more likely that democracy cannot exist without a diversified economy.  The less access there is to economic opportunity, the less people are involved in the management of the economy.

2)  Democracy is about sovereignty, about the population making decisions based on the Wilsonian principles of self-determination.  If you look at Iraq, you have two major obstacles:  the first is the introduction of a political power struggle between rival populations (Sunni and Shia).  Sunnis are keenly aware of their minority position in Iraq and refuse to participate in a political framework that is illegitimately stacked against their interests.   Shias are a minority within the greater Muslim world and subscribe to a cultural narrative based on resistance to oppression and illegitimate authority.  Even if Shia leadership wanted to achieve stability under the watchful eyes (and guns) of the US, they would continue to be undermined by Iran, which has no interest in seeing a successful secular Shia-dominated democracy as a neighbor, because that would intensify domestic pressures for reform.

The second obstacle to self-determination is that clearly, the preferred interest of Iraqis is American withdrawal, if not now (in the short-term), certainly in the medium- and long-terms.  Iraqis are well aware that the Persian Gulf war resulted in the construction of permanent bases in Saudi Arabia.  And Secretary of Defense Gates has stated publicly that the US “has historically had a strong presence in the region, and we will continue to have a strong presence in the region, and it’s important for our friends, and those who might consider themselves our adversaries, to recognize that.”

The US would prefer for the political outcomes of Iraqi democratic elections to be friendly governments that actively engage in rentier relationships to assuage the masses and ensure their positions of power.   But the Iraqi population will never recognize a pro-US business government as legitimate.  We live in an Age of Information where covert regime changes or puppet governments are really, really hard to achieve.  In the meantime, as instability and civil war rage on in Iraq, the US is quietly consolidating four major bases around the strategic oil regions in the country.

3)  That last point is the most telling.  For all of the gum flapping that goes on about “the principals of liberal democracy” and “freedom,” we tend to get distracted from the realist perspective — that control of Iraq means control over the second largest oil reserve in the world.  Always keep in mind that oil is a finite resource whose price rises with scarcity.  It’s one thing for Saudi Arabia to sell oil at (relatively) competitive prices now… it’s another thing entirely for the US to be rationing the last drops of oil in 20 years, at monopoly prices (don’t forget about Alaska!).  That means the potential for wealth and global power… power over everyone who is addicted to oil… is assured to whomever controls Iraq and the Persian Gulf.

I hate to be the bearer of bad news to some, but that means the business and military pressures are too great on the executive branch of the US government to expect a withdrawal anytime soon, unless Dennis Kucinich and Ron Paul magically win their primaries.  The US army/state department did not spend billions of dollars on bases and the world’s largest embassy to come home any time soon.

4)  With all of this in perspective, it’s important to recognize why Al Gore won the Nobel Peace Prize.  The real “Inconvenient Truth” isn’t necessarily that global warming is a real threat per se… I mean, that was already pretty obvious.  It’s that oil consumption is behind global warming, and that oil demand makes actions like the war in Iraq profitable.  By raising awareness about an ancillary (but still primary concern) of global climate change, Gore is indirectly calling for the necessity to research and develop alternative sources of sustainable energy that would compete with coal, oil and natural gas, making those resources’ price demands more flexible, and reducing the profit incentive of military control and domination of them.  Hence the “Peace” rationale in the Nobel Peace Prize.

The thing is, alternative energy sources are nowhere nearly as profitable as oil, even given the tremendous extraneous costs of financing strategic military bases around the world to protect the investments.  And the transition costs to adopting alternative energy sources would be tremendous in every sector, so oil companies can continue to pass the costs incurred from political instability and deeper, harder to get to reserves (i.e. the melting North Pole) onto the consumers.  I’ve read somewhere that the McKinsey Global Institute did an analysis of gasoline consumption in America, and found that demand wouldn’t significantly falter until the price went past $5.00 per gallon.  (I’m couldn’t find the exact report via a Google search, but hey, it’s midterms… give me a break).

The key of course is then electing leaders who are seriously committed to implementing policies of consumer regulation that prevent us from letting our aggregate demand get the better of us.  Individual conscience in the US is (generally) against empire, against war, against destruction of the environment, against global injustice.  But we speak with our wallets, we make demands through our purchases and consumption, and global suppliers react accordingly, even if the outcomes violate our individual consciences.

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