The Rentier State Theory and Saudi Arabia Political Economy

The Rentier State Theory and Saudi Arabia Political Economy

Introduction

The theory of rentier state as used in political science describes those countries and states that majorly rely on their resources as the main source of national revenue. These nations are in a position of transforming the large part of their national resource into income by renting out to local people or to other nations. The rent itself is understood in terms of revenues and may be used to develop other sectors of the economy (Achcar 2013, p. 121).

From the general understanding and application, the term rent is used to define gains from resources lent or sold to an individual, a group or a particular nation with an aim of using such resources in other production processes (Achcar 2013, p. 123). In 1970, the theory of rentier state gained prominences among nations whose economy entirely depend on natural resources like minerals and oil. The theory of rentier was developed to explain the concept of external rent and its importance towards a particular economy.

The 2013 report on global economic participation and progress revealed Saudi Arabia as one of the countries in Middle East whose economy completely depend of oil exports to other nations across the world (Burnell & Randall 2008, p. 71). Saudi Arabia earns large amounts of revenues from oil exports and uses such revenues exclusively to build strong government and to ensure control over other major economic activities across the region. The main combination of oil and oil products include petroleum reserves, which accounts for a larger percentage of national income (Davidson 2011, p. 28).

In the 2013 list of world oil exporters, Saudi Arabia was ranked as the leading oil producer and exporter among the OPEC countries. From this investigation, there seem to be high correlation between the theory of rentier state and the economic progress of Saudi Arabia (Davidson 2011, p. 30). On the same note, one would argue that the strong political operation of Saudi Arabia, which is today diminishing highly rely on natural resources as mentioned. This paper explores the concept of rentier state and its application in socio-political and economic progress of Saudi Arabia

Body

Economic Overview of Saudi Arabia

Just as mentioned, Saudi Arabia derives its revenues from oil and oil products. Within Saudi Arabian public domain, petroleum sector retains about 92.5 percent of the national budget, roughly 54 percent of the country’s GDP levels and approximately 90 percent of total export earnings (Herb1999, p. 56). Saudi Arabia uses both public and private petroleum companies to increase the level of oil production. Within the petroleum production sites, the Saudis government employs over 5.5 million foreigners who vest their high levels of expertise in different production processes (Herb1999, p. 56). In this case, the government of Saudi Arabia aims at improving its regional and global economic participation by improving the amount of exports to international markets as well as providing employment opportunities to both citizen and foreigners with the required production knowledge (Davidson 2011, p. 33).

In order to expand petroleum production processes and national growth, Saudi Arabia has significantly changed oil mining strategies. The Saudi government decided to legislate on the role other government may play in domestic mining programs. The Saudi government today accepts foreign private investments to take part in the mining sector and in other areas like participation in national power generation and in providing telecom services (Omeje 2008, p. 39). With the improved level of production, investors find it very attractive to accept the terms of trade imposed on them by Saudi government since the entire production process has several gains with very minimum losses counted.

In 2005, Saudi Arabia saw the need to form part of the World Trade Organization. After several unfruitful negotiations, Saudi government saw the rationale of becoming part of the WTO with the main objective of expanding production processes alongside making diversification of trade exports and imports (Omeje 2008, p. 43). As mentioned before, the government obtains large amounts of revenues in form of rents from export of oil and leasing some of the mines to both domestic and foreign mining companies. The revenues collected allow the government to budget for her people. The government has also improved spending on jobs by facilitation training and education programs to the population (Omeje 2008, p. 43). Based on trends of operation, Saudi government works on a platform of improving all sectors that appear sensitive to the public. In this line of service delivery, the government has initiated programs to improve the infrastructural status of the country, improve governmental salaries, and make adjustments in both public and industrial sectors (Omeje 2006, p. 127).

Saudi Arabian Shift in Economic Trends and Source of Revenues

For several years, the economy of Saudi Arabia relied heavily on subsistence agriculture. The national economic growth index leaned on the living style of the population who were viewed as nomads before the discovery of oil in the region (Omeje 2006, p. 127). The discovery of oil in Saudi Arabia in early 1930s marked a historical shift in production processes, living styles, and social interaction of the community. The 1973 world recorded oil crisis initiated significant reduction in national GDP (Omeje 2006, p. 130). The progression chart below is an observed country’s per capita growth from 1970 to 2005. This is a contribution of the country’s rent on some of the natural resources and exports to other international economies like USA.

Year Countries GDP Exchange in US dollar Inflation index

200 out of 100

Per capita income (as a percentage of USA)
1970 22, 565 4.5 SAR    
1975 163, 670 3.52 SAR    
1980 546,602 3,59 SAR 95 43.84
1985 376,318 3.62 SAR 93 49.33
1990 437,334 3.74 SAR 91 33.13
1995 533,504 3.74 SAR 101 28.29
2000 706,657 3.74 SAR 100 26.50
2005 1,152,600 3.74 SAR 100 32.53

Saudi Arabia: Measures ojTransition from a Rentier Statehttp: http://www.dtic.mil/get-tr-doc/pdf?AD=ADA525675

Based on this statistic, one would argue that Saudi’s economy is one of the strongest is Middle East. According to the report released by the World Bank in 2009, the economic stand of Saudi Arabia underlies the country’s acceptance to engage in trade with other developed nations (Sulaymān & Daniel 2011, p. 51). Much of the national budget is today financed by foreign funds obtained through remittance and trade. As observed in the past, the only disadvantage is that much of the national revenues are used to manufacture some of the war weapons.

The Rentier State Theory and Saudi Arabian Current Economic Situation

This section examines the relationship that exists between the rentier state theory and the survival of Saudi Arabia on the context of the resource endowment and the revenues generated. The concept of rentier exposes Saudi Arabia to some unmentioned challenges despite the policies and rules developed to enhance governance (Hourani, Khoury & Wilson 2005, p. 76). In other words, Saudis progress relies on revenues collected from the export of petroleum, which affects individual work participation and thus national economic progress. In majority of cases, scholars and policy makers have maintained that the rentier state policy is not one of the best theories to be used in ensuring economic equilibrium of a country (In Christie, In Masad & Palgrave Connect 2013, p. 98). The basis of this argument will be examined in a short while. The long run economic progress of a nation relies on proper exploitation of all the resources without making an override on one particular area. Overexploitation of the oil reserve as the case applies to Saudi Arabia shows the country’s inability to venture into other areas of growth.

According to the theory of rentier, John Locke believed that man could acquire wealth and property by providing the labor of one person. The best application of the theory underlies the concept of personal property acquisition in which the Saudi government uses citizens and foreigners as the main sources of labor within the mining industries (Massabié 2008, p. 102). All the revenues collected from the oil mines accrue to the government and the government decides on the most appropriate formula to redistribute such income in order to benefit the entire population. In the case of Saudi Arabia, the population seems to rely on the government in the provision and distribution process of income generated from oil and oil products (Massabié 2008, p. 103). The government is the regulatory body in this case and works with an aim of improving employment opportunities, providing healthcare services, ensuring that the population obtains some of the required food subsides as well as looking forward to giving some of the basis living necessities.

The main idea as applied in rentier state theory is the redistribution process and the level of participation people give to improve their living conditions. Even though the rentier theory aims at ensuring equity in Saudi Arabia as far as oil production is concerned, the theory seem to neglect the costs that come with luxury of one part of the population not working (Omeje 2008, p. 47). In one part of the argument, Saudi Arabia has the potential of making progress within its economic and resource bounds if only the government would impose fair reward of the working population. With the concept of rent redistribution, the nation is building a population that lack proper representation in the labor force. Similarly, the government becomes unaccountable since the funds invested in obtaining oil and petroleum products is much lower than what the country gets in terms of income (Omeje 2008, p. 47). The mismatch in performance contributes to the growing gap between those who are financially stable and those who are struggling to meet their daily spending. This is because the government consolidates funds and uses such funds in fulfilling the desires of top government officials while forgetting the contributing force of the public.

Economists derive their arguments from the perspective that the income should be earned and not distributed (In Christie, In Masad & Palgrave Connect 2013, p. 101). According to the unfolding case, most of the Saudis believe in the participation of the government on the distribution process of income and therefore tend to relent on their responsibilities as citizens. Currently, majority of those employed in oil mines are individuals from foreign countries accounting for about 60 percent of the labor force (In Christie, In Masad & Palgrave Connect 2013, p. 101). The indigenous population has developed a rentier mentality and maintains that income or wealth has no connection with work or labor participation. The general argument of majority of the population is that one can become wealthy without possibly getting involved in work. Since the government get involved in every process, the Saudis ignores their production ethics and take advantage of circumstances as they occur to obtain wealth. In the list of most corrupt nations, Saudi Arabia becomes top followed by some countries in the Middle East. The resource allocation process is curtailed and used by individuals for their own benefits (Sulaymān & Daniel 2011, p. 65). The process by which the population acquires wealth seems to kill the economy and the social gap between those who have and those who are marginalized seem to widen.

The Rentier State Theory and Saudi Arabian Current Political Situation

As mentioned from the foregoing literature, the social gap between the haves and the have-nots widens every day making the population to lose trust on the functions of the government. The report revealed by the Soviet Union in 2013 revealed that the poor native Arabians are infuriated by the level of service delivery of the government and the constant conflicts observed in the recent past are facilitated by the urge to derive benefits from rent obtained from oil and petroleum exports (Omeje 2006, p. 131). The fact that the population has lost trust in the form of governance offered replicates into some unlawful acts like terrorism. In other words, social disparity is one factor that highly contributes to loss of moral control. The Saudis believes that the rents obtained from national resource endowment should help in reducing the gap existing between the rich and the poor. If the government is accountable and recognizes democratic realities, then the need to give equal opportunities for the population rises with the general view that even the individuals who struggle to obtain much benefit through resource allocation had made little contribution in realizing such incomes (Omeje 2006, p. 133).

This discussion is best supported by constant revolts and attempted coups experienced in the past in Saudi Arabia as well as increasing emigrations. The Arabian population identifies some of these development processes as lack of credibility and accountability on the part of the government (Sulaymān & Daniel 2011, p. 65). The political condition of Saudi Arabia appears to be controlled by the rich minorities and most of the resources are concentrated to benefit only the political affiliates. Once the government puts fund in the hands of corrupt individuals, the intended projects are never completed or the public only obtains a fraction of the projects (Sulaymān & Daniel 2011, p. 65).

Under the system of rentier, the roles of the Saudi government remain unique and unpredictable. Conventionally, the government is supposed to obtain revenues from various sources including the use of taxes (Achcar 2013, p. 123). With imposed taxes on the public for the every unit of service or good enjoyed, the public demand for government provisions increases since such services are financed by their own income. In the case of Saudi Arabia, the government imposes zero taxes on the population and therefore it becomes hard for the public to increase their demand on publicly provided goods and services. This seems to be a strategy used by the government to reduce the level of demand on the part of the population. The Saudi government is contented with the revenues obtained from the oil industries (Sulaymān & Daniel 2011, p. 69). Such revenues enable the government to finance most of her projects at will without involving the public through taxation. Tax and transfer of tax burden from one economic actor to another is an important measure of economic participation as a method through which the government manages market equilibrium through creating market stability. Lack of taxes imposed on the users of the public utilities is a show of negligence by the Saudi government. Scholars and policy makers have disputed the performances of those nations that use rentier system to provide for the public on the basis that lack of tax imposition enhance redundancies on welfare abundance. This is because, in this perspective, citizens tend to become lazy, uninvolved in managerial process, and lose concern for the government (Sulaymān & Daniel 2011, p. 71). In all prospects, the government cannot fully provide for the needs of the public if the population does not get involved by showing interest to participate in the development processes through paying taxes to the government. Citizens must feel part of the government and it is their democratic right to finance their own development processes.

Conclusion

The generally accepted principles in governance entail giving opportunity for the public to decide the kind of services and goods they consider important in improving the social welfare of citizens. This can only be achieved by allowing people to take part in democratic processes of making decisions concerning public utilities (Achcar 2013, p. 128). The use of rentier system of governance has both strengths and weaknesses on social progress. As described in previous sections, Saudi government must give citizens the opportunity to show their democratic rights. The Saudi Arabian government has the ability to provide for the public but must recognize the roles played by citizens in building the economy. Revenues received from oil and petroleum products can only work best if provisions of some of the social amenities are merged with personal contributions in form of taxes or any other source of revenues. According to Omeje (2006, p. 135), the rentier state theory lacks credibility and support from Saudis people.

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