The past half-decade has proven to be very good for oil exporting states, as the price of oil soared from under USD $30 a barrel in most of 2003 to well over $100 in 2008. With world demand for energy strong and energy prices rising, government coffers in the Arab Gulf countries have 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.

 

Source: calculated from Kuwaiti Ministry of Finance “Final Accounts 2007/8”

 

The bad news is that these numbers viewed in isolation suggest that Kuwait remains a classic rentier state, living on natural resources alone and unwilling or unable to diversify, reform, democratize, or otherwise change for the better. If anything, the emirate should be wallowing deeper in autocracy as state dependence on oil rises. Yet the politics of the country belie this.

 

Iranian economist Hossein Mahdavy introduced the rentier state concept in 1970 and others, notably Giacomo Luciani, elaborated and applied it to the emerging Arab Gulf States. Applying the notion of a rentier state implied that democratization in the region was iffy at best. This analysis is based on the observation that the vast amounts raised by oil-rich governments have little to do with taxation, being instead unearned revenue from the extraction of a natural resource. So long as states have sufficient amounts of such income, rentier state theory suggests that they may have little reason to democratize, reform, or otherwise evolve.

 

Does the present Kuwaiti example contradict this theory? While Kuwait is a rentier state where petroleum accounts for over 90 percent of government income, its politics are atypical of rentierism. Lively parliamentary elections give rise to a collection of disparate political actors; May 2008 elections produced a 70 percent turnout, colossal compared to turnout in some Western democracies. With different interests and ideologies increasingly independent of the ruling family, the country undergoes open debate about institutions. Parliament requests ministerial testimonies about possible corruption. The country’s ruler interferes more as a caretaker than a tyrant, to allow for a modicum of open democratic politics according to constitutional rules.

 

It is true that Kuwait still has a long way to go on the path towards democracy. Unfettered political activities are proscribed by a strong executive; civil society organizations depend on the clemency of state agencies to operate; and the ruling family is still the final arbiter of elite politics.  Nevertheless, traditional democratic development may be possible in the Kuwaiti rentier state because of competing economic and social elites who benefit from the country’s drive towards modernization, but have different points of view concerning it. Pressure on the Kuwait system may gradually produce better representation and participation, for example in terms of gender, where the last parliamentary poll failed to elect any women, even though they made up 55 percent of the electorate. While unruly and sometimes embarrassing, Kuwait’s experience offers an example of what could be a future model for politics in a rentier state.

 

One factor that impedes democracy in the Middle East is the lack of government dependence on citizen support, the state instead relying on oil revenues directly, as in the Gulf Cooperation Council countries, or indirectly in the case of such economies as Jordan. The political implication of this concept is that because such states do not ultimately rely for survival on domestic taxation, they are under no obligation to allow for political freedom and so can limit independent political activity that may affect social stability. However, the vast amounts of money in Kuwait and the other Arab Gulf exporters help underpin stability and so make resorting to repression less necessary. In such situations, democratic practices can and do develop.

 

So should the theory of the rentier state be revisited? The idea of rentierism clearly has applications even to non-oil economies; for example, Jordan has been viewed as a quasi-rentier state because of its indirect dependence on oil revenues as has Egypt because of its dependence on tourism. 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 and updated.

 

Comment on Arab Reform Bulletin

February 9, 2010 - 3:09 PM
• Navtej says... [September 18, 2008 - 3:46 PM] It would be interesting to know how oil wealth has impacted employment patterns in Kuwait, especially among young Kuwaiti nationals. Is the oil boom contributing to critical skills formation and promising career paths for Kuwait’s youth? Traditional theory would hold that a state’s oil rents can contribute to raising household incomes. This can have the effect of reducing the incentive among young graduates to seek employment. With public sector jobs still perceived as the ‘best’ jobs through much of the region, young people are often willing to live at home with their parents and wait it out until they get that stable, well-reputed job with the government. At the Middle East Youth Initiative (www.shababinclusion.org), our research shows that this is often a long wait, as these jobs are becoming more elusive throughout the region. In addition, through the education track that leads to these jobs and through the jobs themselves, young people often don’t obtain the ‘soft skills’ necessary to compete in the global economy: i.e. critical thinking, strong writing skills, leadership and teamwork.
• Riad al-Khouri says... [October 3, 2008 - 4:08 PM] My impression is that oil wealth has not greatly impacted employment patterns in the Arab Gulf economies, especially among young nationals; and the oil boom does not seem to be contributing to critical skill formation and promising career paths for youth in these countries. This would accord with traditional Rentier theory, which holds that a state's oil rents can contribute to raising household incomes and so reduce the incentive among young graduates to seek employment. Yet, the problem is also partly rooted outside the oil-rich Gulf economies. With public sector jobs also still greatly sought after in much of the rest of the region, young people are often willing to remain with their parents and wait it out until they get stable, well-regarded public sector employment, or a visa to emigrate to the West. "Educated young people are in effect playing the lottery" according to Marcus Noland and Howard Pack, and the unwillingness of young Arabs to fill less attractive jobs in their own countries even at the risk of idleness, drives unemployment up and encourages the importing of labor. Egypt is a case in point of issues such as youth problems, labor market imbalances, and emigration. In addition, as the most populated Arab country, its scale means that demographic and employment problems there can spill over into the rest of the region and beyond. In 2006, the latest year for which the relevant figures are available, the country's population was 72.6 m growing at an annual rate of 1.9%. The Egyptian labor force in that year was 21.9 m, giving a labor force/population ratio of 30.2%; and the unemployed numbered 2 m, an unemployment rate of 9.3%. Employment creation is thus one of the most important challenges facing Egypt today, but even in periods of prosperity, the job content of growth has not been strong enough to absorb fully new entrants to the labor market. Yet, young people are still seeking higher education that is often incompatible with the less sophisticated jobs on offer, preferring to be idle for some time while waiting to "win the lottery" and migrate to the West or an oil-rich Arab state. In turn, the nationals of the latter are thus discouraged from seeking more productive employment in the private sector, the upper segments of which remain dominated by migrants from the Levant and North Africa. Meanwhile, with a Rentier mentality prevailing in the Gulf economies, government jobs remain the goal of many young nationals there