Advantages Of Rentier Economy

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A rentier state can be defined as a state that “derive[s] most or a substantial part of [its] revenues from the outside world and the functioning of [its] political system depend[s] to a large degree on accruing external revenues that can be classified as rents” (Schwarz 604). Rentier states are heavily concentrated in Latin America, the Middle East, and Sub-Saharan Africa. The similarities of the rentier economies in these three regions vastly outweigh the differences as they are all plagued with the two classic problems all rentier economies face: economic dependence and vulnerability due to the boom and bust cycle. There are some nuanced differences between the economies in the regions, such as Dutch Disease occurring at a higher rate in …show more content…
The backbone of a rentier economy is extremely unstable; the entire fate of the state relies on factors that are not and cannot be controlled by the state itself. The continuation of foreign aid is not guaranteed. It could be cut for a multitude of reasons, including political reasons in which the state receiving the aid has no part. The states receiving external aid become extremely reliant on this aid, and if it gets cut the entire state could collapse. Oil is the natural resource most rentier states depend on. Not only is oil a limited resource that will eventually, in the very distant future, run out, but the human race is becoming increasingly less dependent on oil and beginning to move toward renewable energy. This trend will only continue in favor of renewable energy, which is an enormous problem for those rentier states completely dependent on oil …show more content…
During boom periods, rentier states do not properly budget an save. The boom and bust factor in rentier states is “crucial … especially the natural resource bonanza of recent years and the windfall gains accruing to Venezuela, Ecuador, and Bolivia” (Weyland 146). The 1970s booms, for example, “created huge problems [in Sub-Saharan Africa], of which extravagance, waste and expansion of the state were perhaps the most obvious” (Shaxson 314). The extra oil revenue in the 1970s caused states to dramatically increase spending and start new projects, including Gabon building a new railway which today has “doubtful” economic value and rarely runs on time and Nigeria introducing a several-billion-dollar steel project in Ajaokuta that never created a single slab of steel (Shaxson 314). Ineffective bureaucracies over spend in times of economic booms but are not able to efficiently pull back spending in times of economic busts. In the Middle East, these ineffective bureaucracies are largely the result of oil revenues that permitted militarization which did not find a way to transition into an effective bureaucracy (Schwarz 601). There is also an extremely vast patronage network within rentier governments in the Middle East which is the result of an attempt at preserving traditional roles within Arab society (Schwarz 610). This adds another

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