The Relationship Between Economic Development and Democracy in Rentier States
By:
Nara Saadi
A thesis submitted in partial fulfillment of the requirements for the degree of
Bachelor of Arts in Politics and International Relations
Supervisor: Dr. Vahid Nick Pay
University of Kurdistan Hewlêr
School of Social Sciences
Department of Politics and International Relations
Table of contents:
ABSTRACT 3
ACKNOWLEDGMENTS 4
CHAPTERS
Introduction 5
Relevance to Literature Review 5
Main Argument 7
Scope and Limitation 7
Significance of The Problem 8
Research Question and Hypothesis 8
Literature Review 9
Chapter 1 16
The Concept of Democracy 17
The Concept of Development 18
Economic Growth 19
Democracy-Development Interaction 19
Examples of Non-Correlation 20
Chapter 2 22
The Rentier state and Distributor state 23
Norway’s Case 27
Conclusion 29
Notes 31
References 32
Abstract
The relation between democracy and economic development has been subject of debate for nearly a century now. This debate has concerned the global north and the global south, rich and poor countries, and both democracies and non-democracies. On the one hand, political scientists have attempted to know if economic development has any impact or effect on democracy, and on the other hand, they have tried to see if democracy has any role in economic development or the lack of thereof. There are different theories on both ends of this debate. However, this paper focuses only on the impact of economic development on democracy, and the nature of rentier states.
Acknowledgments
First and foremost, I would like to thank my supervisor Dr. Vahid Nick Pay for his continuous guidance and inspiration for the past year. Without him, this study would not have been possible. Also, I would like to thank all my Professors who have managed to make me want to learn more and believe in myself. I wanted to write a sincere thank you for your support, your teachings and your advices throughout the past years. A special thanks to Dr. Mohammad Ali Bapir, the biggest lessons are not from a book but from a teacher like you. Thank you for taking the time to help me during this year and to have accompanied me in mastering my knowledge. Lastly, I would also like to thank my friends who have been there from the beginning of this journey, your contribution has made me the person I am today. Thank you for all these moments of happiness, for your kindness, and availability. Your support and help prove your great generosity.
To my loving father, Sadiq Saadi
Introduction
The aim of this dissertation is to analyze the relationship between democracy and economic development in rentier state mechanism. The notions of democracy and economic development have occupied an important place in various fields particularly affecting the human and social sciences. They are the subject of many writings in both advanced and developing countries. Today, there is a growing debate both theoretically and practically about the relationships that these two notions maintain. For some, so-called democratic governance is a prerequisite for the process of economic development. For others, such development is possible without this form of government fundamentally inspired by the neoliberal system. This research topic is born out of this debate, and it will aim to see the possible links that exist between the two notions in question. Furthermore, this dissertation will examine these theories in rentier states, many of these countries have been resistant to democracy, except for a few countries mainly, Norway. The rentier state theory emphasizes greater state autonomy vis-à-vis the society and predicts that oil-exporting countries will not become democratic as long as they remain a rentier state. By looking at the theoretical foundations of these states, this dissertation investigates the validity of this claim.
Relevance to Literature Review
In political science and international relations theory, a rentier state is a state that derives most of its national income from a rent indigenous resources sold to external customers. Hossein Mahdavy formulated this theory in 1970. (Mahdavy 1970) it is also it this article that, for the first time, was introduced the concept of external rent. The term rentier state has been used since the twentieth century. It is most often applied to states rich in natural resources such as oil, but it also applies to states with financial instruments such as foreign exchange reserves. It can also affect nations that are strategically located, for example by hosting a large military base in a foreign country. Depending on rent as a sources of income, rentier state can generate external rents by manipulating the global political and economic environment, this can take the form of the introductions of monopolies, the use of trade restrictions and the solicitation of subsidies or aid in exchange for political influence or the solicitation of loans in exchange for the reserve currency. (Smith 2004) The emergence of new oil states and their growing importance in international trade during the 1970s has led to a renewed interest in thinking about the economies of rent (Beblawi & Luciani 1990). Examples include oil producers from the Middle East, Saudia Arabia, Iraq, Iran, Kuwait, Qatar, United Arab Emirates, Venezuala and Libya and all members of the Organization of Petroleum Exporting Countries (OPEC). (Anderson 1987) the rentier state theory has been a breakthrough in the attempt to explain the prevalence of authoritarian regimes in the Middle East and Africa and the lack of democracy in the region. While many countries export their resources or depend on the outside for their economic development, the rentier state are characterized by the small share of income from internal taxation, the exploitation of their resources does not force them to tax their citizens. According to Douglas Yates (1996), the economic behavior of a rentier state “embodies a break in the reward relationship… for the rent, income and wealth does not result from work done, but is a matter of chance or of the circumstance”. (Yates 1996) Hazem Beblawi and Giacomo Luciani argued that this could create a “rentier mentality” (Beblawi & Luciani 1990) while the political scientist Fareed Zakaria postulated that such state do not develop politically because, in the absence of citizens are less likely to pressure the government to be more responsive to their needs. Instead, the government corrupts its citizens through extensive welfare programs, becoming a distributing state. In fact, the state budget is more than an expenditure program (Beblawi & Luciani 1990) Government that derive a significant share of their income from non-market sources are not obliged to apply free trade laws to create an environment conducive to economic development. Oil is one of the main subjects that does not require adherence to the principles of free competition and economic freedom, principles based on the rule of law, security, a judicial system and human rights. Fair and transparent property: these principles do not need to be put in place. As a result, political freedom does not develop and efforts towards democratization are compromised. Moreover, since the control of the rent is in the hands of the authorities, it can alternatively use oppression, while the distinction between the collective interest and the private interests becomes more and more vague. There is thus, according to Noah Feldman “an absence of fiscal connection between the government and the people. The government must only keep its population under control, so that it does not overthrow it in order to start collecting the oil rent itself”. (Feldman 2003)
Thus, in these wealthy rentier states, there is still a challenge to develop civil society and democratization. Beblawi and Luciani conclude “the nature of rentier states is an explanation for the presence of authoritarian regimes in countries rich in natural resources”. (Beblawi & Luciani 1990) These authors also identify several characteristics generally associated with oil rentier states. For instance, when the government is this first and the ultimate employer, the bureaucracy is inefficient, with bureaucrats forming a social class of rentier within civil society. In addition, local laws often make it impossible for foreign companies to operate independently, this leads to a situation where citizenship becomes a financial assets. Foreign companies employ local sponsor, which allows the company to trade on its behalf in exchange for a portion of the product, which is another form of annuity. Oil rents led to the existence of secondary rents, usually speculation on the stock exchange or the real estate market (Beblawi & Luciani 1990).
Main Argument
As it will be postulated here below, the main theme of this study will consist of demonstrating the relationship between the structure of rentier states and their potential of democratization. This paper will attempt to scrutinize theories of rentier state and nature of the political layouts by presenting arguments for and against such theories. In this pursuit initially the relation between democracy in general and economic development is analyzed to lay the foundation for the consequent studies.
The Scope and Limitation
This dissertation is dedicated to discussing the relevance of the relationship between economic development and democracy. It is essential to give a precise analysis of this relationship within rentier state for the reason that many authors have dedicated literature to claim that rentier state remain in the process of democratization. Nonetheless, this dissertation is aimed at opposing this statement by analyzing and providing the reader with proof that rentier states can democratize because these states are in fact distributor states and not pure rentier.
Significance of the Problem
Even though rentier state are blessed in natural resources, however, many studies have shown that they lack development and democracy within the nature of their political and economic systems. This nevertheless requires further analysis by evaluating such interrelationships in specific contexts that is the object of the current study.
Research Question and Hypothesis
- Can we dissociate democracy and development?
- Does economic development lead to democracy in rentier state?
The main conceptual hypothesis of this study will consist of the assumption that the rentier state theory predominantly valid if certain social, economic and political condition are indeed in place. The objective of this study, will then be to identify which material condition need to subsist for the theory of rentier state to be valid in the case study presented here.
Literature Review
This section discusses the extensive economic literature on democracy. Economic development is often seen as a factor behind democracy. However, a significant number of studies indicate that economic development promotes democracy. Still, other found that there is no significant relationship between the two variables.
Democracy dates back to classical Greek thinkers and the world itself means the rule of the people. The Greek philosopher Aristotle was one of the first to argue that the masses would be favorable to establish a democratic system. Furthermore, prominent theoreticians like Machiavelli, Rousseau and Montesquieu advocated the importance of limiting state power and preventing a sector from becoming too powerful. (William 2009) This is at the heart of the idea of checks and balances, which is central to the political philosophy. Rousseau reiterated the notion of direct democracy in which all citizens voted to express the general will and to make the laws of the land. In his definition of democracy, “someone who disobeys the general will of the people will be forced to be free.”(George 1978) Later on, Alexis de Tocqueville claims that socio-economic equality and decentralization of state power are the fundamentals of democracy. (Macfarlane, 2013)
To Robert A Dahl, “democracy has such a lengthy history it has actually contributed to confusion and disagreement, for ‘democracy’ has meant different things to different people at different times and places.” (Dahl, 1988) The modern political democracy is
“a system of governance in which rulers are held accountable for their actions in the realm by citizens acting indirectly through the competition and cooperation of their elected representative.” (Shmitter & Karl, 1991)
Also by definition, democracy creates stronger and more developed states.
On the other hand, the term economy will include insights on the nature and causes of the wealth of a nation. The word “economy” is defined in Oxford dictionary as “The state of a country or region in terms of the production and consumption of goods and services and the supply of money”. As it could be noted the word “state” is clearly highlighted and this term has close relation to the political status of a nation…
As related to the current study, Seymour Martin Lipset argues based on the assumption that democracy emerges in countries where certain conditions exist, that there are some social preconditions that make democracy possible. He believes that these conditions allow democracy to emerge and become possible. Lipset’s main hypothesis is that “the more well-to-do a nation, the greater the chances that it will sustain democracy.”(Lipset, 1958) Later, Lipset and Barrington Moore gave rather structural explanations for the causes of transition to democracy, the historical role of social class structure. Lipset reiterates that economic development creates conditions favorable to democracy.
Lipset found a particular strong positive correlation between per capita income and democracy in a large group of countries. By focusing on the relationship between political institutions and economic development, he defined a large part of the agenda of contemporary political economy. The correlation between revenue and democracy is the cornerstone of modernization theory. This emphasizes that a fundamental relationship is working: a higher per capita income pushes a country to be more democratic. Economic growth will drive industrialization, urbanization and the accumulation of both wealth and human capital. These various factors underlying modernization will interact to stimulate the development of democracy. A democratic regime must have enough legitimacy in the eyes of citizens to survive, which is only possible if economic development is sustained and continuous. With the expansion of the middle classes, conflict over the distribution of goods added are losing ground, and the institutions at the root of redistributive policies have a growing role in the economy. Proponents of institutional explanation believe that causality would work in the opposite direction: democratic institutions that closely regulate government action and protect property will stimulate economic growth.
Other scholars also found that the impacts of economic development on political regimes are positive. In other words, economic development and growth add to the stability and longevity of the system, and it is for this reason that democracy is more likely to happen in a rich country. For instance, Adam Przevorski believed that the emergence of democracies is rather unpredictable, but when established, their survival depends on some main factors. The main factor among these factors is the level of economic development. Przevoski’s paper is really helpful to understand the impact of wealth on political regime’s survival. Drawing from some historical observations, he concludes that no democracy ever fell in a country with high per capita income than $6,055. (Przevorski 1991) Samuel Huntington, similarly, believes that one of the major reasons for the reverse waves of democratization has been wealth. Huntington argues that economic development is conducive or leads to democracy, such that countries that are above $6,000 of per capita income are already democratic and poor countries are rarely democratic. Huntington ends his argument by saying that “the conclusion is clear. Poverty is the principal -probably the principal- obstacle to democratic development. The future of democracy depends on the future of economic development. Obstacles to economic development are obstacles to the expansion of democracy.”(Huntington, 1998) Most poor societies will remain undemocratic so long as they remain poor. Przevorski, Alvarez, Cheibub and Limongi argue that a country’s economic condition also plays an important role in sustaining democracy. They contend that poor democracies are fragile, especially those with per-capita incomes of less than $1,000. On the contrary, democracies whose per-capita incomes are above $6,000 are expected to last forever. (Przevorski, Alvarez & Limongi, 1996) These scholars likewise argue that in order for democracies to survive, favorable conditions need to be in place, such as economic growth, decline in income inequality along with international factors and good political institutions.
Others like Larry Diamond affirm that economic crisis is one of the most common threats to democratic stability. Affluence and growth are thus necessary conditions for the survival of democracy. The resources curse literature contains a number of studies that suggest that natural resource abundance is associated with low levels of democracy. Scholars examined data related to nearly 150 countries until 1990 and they realized that if we increase one percent reliance on oil and natural recourses, the regime’s tendency towards authoritarianism and antidemocratic tendencies increases by nearly 10 percent. Jensen and Wantchekon found a similar outcome in Africa, and they argued “resource abundant countries in this region were more likely to be authoritarian and experience breakdowns in democracy after the democratic transition.”(Jensen & Wantchekon, 2004) Michael Ross investigated if there is any difference in regime outcomes different types of resource economy and different regions. After examining data from 113 states between 1971 and 1997, he concluded “a state’s reliance on oil or mineral exports tends to make it less democratic; that this effect is not caused by other types of primary exports; that it is not limited to the Arabian peninsula, to the Middle East, or to sub-Saharan Africa; and that it is not limited to small states.”(Ross 2001)
Perhaps the first or the most well-known theory to address lack of democratization in oil rich countries of the Middle East is the one by Hossein Mahdavy. In 1970s, Mahdavy was writing about the Pahlavi Iran. Iran at the time was having similar problems like other oil-exporting countries. In particular, countries that depended mostly on oil revenues for their income share some characteristics, Mahdavy observed, and these attributes make them less likely to democratize. Mahdavy called these countries “rentier states.” The term refers to countries that get “all or a substantial portion of their national revenues from the rent of indigenous resources to external clients.”(Mahdavy 1970) The underlying concept is that in developed countries, the state is funded by the society through taxation, but in the oil dependent countries the state benefits from oil rents and it, in turn, supports society. Hence there is a distinction made between these types of states: production and allocation or distributive. In the latter state is independent of society but society is more dependent on it. Thus, the simple definition of a rentier state is that one, source of rent is the outside world, two, rent accrues directly to state.
Ghada Fayad, Robert H. Bates, Anke Hoeffler (2012) resumed the debate over Mahdavy’s outcomes. First they use dynamic panel data modeling methods to examine the direction in which causality occurs as well as the short and long-term relationship between democracy and economy, and then model democracy as a function of income, they find a particularly significant negative relationship between income and democracy in rentier states. The thesis of the “rentier state” and the “political resource curse” could help to explain such a negative relationship. According to them, rent does maintain authoritarianism and hinders democratic development. States that have large revenue from exploitation of oil resources can use them to reduce popular discontent by maintaining low tax rates and paying massive public subsidies. They can also spend more on internal security and thus prevent the formation of opposing organization that could undermine internal peace. Growth driven by natural resources would fail to lead to democratic gains if its not accompanied by increased educational efforts and greater professional specialization of citizens. A second reason may explain why high income and a low a degree of democratization could be observed in a given economy. The slowdowns in economic growth are likely to lead to protest movements and therefore a reversal of the regimes in place. If one political party can supplant another in a democratic regime, an authoritarian regime can be replaced by a democratic regime. When growth slows down, authoritarian regimes are weakened and the likelihood of a coup rises, especially in a context of high poverty. The transition between dictatorship and a democracy, since it is accompanied by a socio-political instability, risks constituting a period of weak growth.
Fayad and Ali then drew on the theses of the rentier state and the political curse of resources to refine their results. They break down per capita income into a natural resources component and a second, independent component of these same resources. They find that source and level of income are important to clarify the relationship between income and democracy. It appears that this relationship is positive and significant in countries where income comes only very little from rents derived from natural resources. On the other hand, in countries rich in natural resources, there is a negative relationship between the level of income and the degree of democratic development.
Micheal Ross expands on that theory and argues that, in fact, wealth in the Middle East impedes democracy. He studies the role of wealth in three main ways in the region. First, he wants to know if oil underpins non-democratic states. He finds that oil has predominantly antidemocratic impact on states. Second, he looks to see if this antidemocratic effect is only limited to the Middle East or that it can be the same for other world regions. Thirdly, if we suppose that oil always has these undemocratic influences, how and why is that? As such, Ross contends that oil wealth has three main impacts on a country: a rentier effect, a repression effect, and a modernization effect. In the rentier effect, he believes that “resources-rich governments use low tax rates and patronage to dampen democratic pressures.”(Ross 2001) The repression effect suggests, “resource wealth enables government to strengthen their internal security forces and hence repress popular movements.”(Ross 2001) Finally, the modernization effect states: “growth that is based on the export of oil and minerals fails to bring about deep social and cultural changes that tend to produce democratic governments.” (Ross 2001)
Larry Diamond, the Former Director of the Center on Democracy, Development, and the Rule of Law at Stanford University, and one of the main writers and scholars on democracy and democratization, similarly addresses the issue of the absence of democracy in the Middle East. Diamond wrote a paper on “Why are There No Arab Democracies?” in which he argues that it is not the wealth but the structure of these economy that impedes democracy in the Arab countries. Same as Ross, he cites the rentier nature of these countries the state becomes big due to all the oil resources available to it, and it is also centralized because the government usually controls oil money. (Diamond 2010) In other words, this means that there are some inherent problems in the economic structure of these countries, and that is regardless of their individual socio-economic settings.
It is obvious that we cannot say that oil revenues are the only justification to why the Middle East have not democratized, however, in addition it remains persuasive due to the rentier countries that are continuously influenced by external actors such as Iraq (Karl 2008). According to Karl, “ once the dynamics of oil-exporting countries are understood, it is folly to believe that the democratization of any oil-exporting country, or military intervention will be easy and cost-free, regardless of the nature of the previous autocratic regimes”. (Karl 2008) He highlights that this case is true in Iraq and Iran.
As it could be noted not much studies were dedicated to the explicit theme of this study i.e. “The relationship between democracy and economic development in rentier states”. Hence it is evident that we need to bring certain aspects of democratization and economic development in this geographic setting into a better light of appreciation. The absence of democratization in the Middle East and Africa is not solely coming from oil rents. The main scope of the current research is to demonstrate the relationship between natural resources and democratization or the lack of it that is studied in relation to the nature of rentier state, patron-client networks, and weak private sectors. This research paper will contribute to a better understanding of why rentier states have not democratized and analyzing the nature of the problem, which lies at the heart of the rentier state mechanism. These countries still lack taxation that justifies demands for representation and gives the public the power over decision making which is essential for sustaining democratic polities. In addition, there is patron-client network still deep-rooted in these societies; this phenomenon shows the different types of corruption. Lastly, the paper explores the role of the state as the main political and economic hegemon.
Accordingly, the current research is structured as below: Chapter 1 will explore the relation between democracy and economic development. This is an important conceptual foundation on which further analysis will be constructed. Chapter 2 will move on to provide a closer analysis of the nature of the rentier state and tendencies of democratization. This will make up the main bulk of argument of the current study by providing the necessary theoretical framework for further elaboration in a specific case study. Specific cases study from both sides of the economic and political spectrum will be presented to evaluate the main theories that were hitherto presented.
Chapter 1
The relation between democracy and economic development has ben subject of debate for nearly a century. The aim of this chapter is to analyze this relationship, it is important to clarify the content of democracy, then to define the concept of development and, finally, to analyze the interaction between democracy and development. This chapter uses democracy as measured by Marshall and Jagger, (2012) which take into account political right and civil liberties. Then there are theoretical, conceptual and methodological difficulties. When we talk about relationship, it is as if we were interested in two different concepts. Can we dissociate “democracy and development?” are they not linked as some might think? Assuming that “democracy” and “development” correspond to two distinct concepts. How can we characterize them? What is meant by “democracy” and “development”? which definition should be retained? Finally once the concepts are defined, how to measure them or more precisely how to specify them empirically? What criteria, for example, make it possible to distinguish “democracies” from other types of regime? What are the best indicators of development?
In an article published in 1959, the American political scientist Seymour Lipset hypothesized that economic development (measured by income level, literacy rate, degree of industrialization and degree of urbanization) is a necessary condition for the stability of democratic regime (as defined by the westerners, an organization on a regular basis of elections considered free). (Lipset 1959) This conveys the idea that development leads to democracy, in other words that democracy is a result of modernization. Since then, a voluminous literature has emerged that has been devoted essentially to test “the lipset hypothesis” and to position itself regarding it. (Lowenthal 1963). From a methodological point of view, the comparative literature has focused on the development experiences of countries on the periphery of the capitalist system in the period from the late 1950s to the present, when international data have been put in place that allowed a quantitative evolution. Moreover, due to its “methodological nationalism”, it tends to consider economic and political developments within state as products of essentially endogenous dynamics. This tends to seriously underestimate the determining role that geopolitical power relations have had in the political and economic order of the world today. However, as this paper attempts to demonstrate, a study of the relationship between democracy and development cannot fail to emphasize the historicity of this problem and the way in which the hegemonic logics associated with capitalism have shaped the contemporary world.
The Concept of Democracy
Democracy is a system in which the whole of society can
participate at all levels in the decision-making process and exercise
control over it. As defined by the Universal Declaration of Human rights
and the Vienna Covenants and Declaration of 1993, full respect for human
rights is the foundation and the promotion of these rights and respect
for differences and freedom of expression are essential prerequisites.
There can be no democracy without an independent jurisdictional system
and without institutions that guarantee freedom of expression and the
existence of free media. The power to legislate must be exercised by
representatives of the people, elected by the people.1
Legally responsible people, must implement laws and the administrative apparatus must be accountable to elected officials. This is why a parliament that is truly representative of the people in its diversity is indispensable to the democratic process. In this respect, the holding of free and fair elections by universal suffrage is a necessary not sufficient condition for the existence of democratic regime.2
Democracy can, in short, be defined as a “system policy capable of correcting its own dysfunction. But a true democracy cannot be limited to this institutional framework alone. It must also be embodied in culture, a state of mind promoting tolerance, acceptance (respect for other) as well as pluralism, balance, dialogue between the constituent forces of a society. Unlike traditional conceptions exclusively limited to the state sphere, the concept of democratic culture requires that we take into account the entire social, financial, governmental and non-governmental actors, as well as all the relations that bind them or oppose them.” (Boutros-Ghali and Badinter, 2002)
These fundamental democratic principles constitute a fund of common values that can be described as the common heritage of humanity. Without these values, there can be no democracy or sustainable development. But the recognition of universal values does not mean that is necessary to conceal the historical, religious and cultural specificities of each society and each nation state. In fact, the general principle of democracy can be embodied differently, depending on the context. Thus, if democracy is the system in which “the sovereign power resides in the people”, the modal quality of its exercise can vary with the social system and the economic development unusual to each country. They also tend to be transformed into political, demographic, economic and social developments.
Democracy cannot be conceived without freedom, but it also implies the rule of law and the existence of a common rule emanating from those who have been by the people to define the contents. More concretely, justice is a precondition for democracy. Justice guarantees the exercise of democracy because its mission is o make effective the principle of equality before the law, the right for every individual to express his opinion within the society to which he belongs, the right to be heard and to present his defense. Democracy is only viable if it has a serious and independent judiciary. (Boutros-Ghali and Badinter, 2002)
With regards to the above explanation of democracy, the 1993 Vienna Declaration stressed “the importance of national and regional particularities and diversity must be borne in mind, historical, cultural and religious, it is the duty of States, whatever the political, economic an cultural system, to promote and protect all human rights and fundamental freedoms.”3
The Concept of Development
There are several development analysis, it must be understood as all the economic, social and cultural progress that people aspire to. This is the meaning of ‘sustainable human development’ as defined by the United Nations. Sustainable development is therefore multidimensional it is no longer, narrowly economic of financial. To be complete, it must also be cultural, social, and more broadly, take into account all the factors that contribute to the development of the individual. Environment, social justice, democracy, education and knowledge sharing are closely linked to development. This is why the right to development naturally finds its place among human rights. The concept of development has multiple implications. For example, it modifies the long-standing vision of the problem of poverty. If the economic dimension remains greater, it is not enough to apprehend the whole problem. Getting out of poverty by starting a dynamic of development, are not only the needs directly related to survival, but also the needs of good health, housing and education. It also involves strengthening the capacity of individuals and groups to participate and influence decisions that affect them.
Economic Growth
Economic growth refers to the positive change in the production of goods and services in an economy over a given period of time. Practically, the indicator used to measure is the Gross Domestic Product (GDP). The growth rate is the rate of change in GDP. Per capita GDP growth is often used as an indication of improvement in individual wealth, assimilated to standard of living. Growth is a fundamental process of contemporary economies, based on the development of factors of production, linked to the industrial revolution, access to new mineral resources (deep mines) and energy (coal, oil, gas, nuclear energy) and technical progress. It transforms people’s lives to an extend that it creates more goods and services. In the long run, growth has a significant impact on the demographics and standard of living of societies. Similarly, the enrichment that results from economic growth can help to reduce poverty. Some consequences of economic growth such as pollution and damage to the environment, increased social inequalities or the depletion of natural resources (oil) are often considered as perverse effects that make it necessary to distinguish between growth and progress. Economists use the term growth to describe an increase in production over a long term. 4 According to Simon Kuznet’s definition, economic growth occurs when GDP growth is greater than population growth. (Kuznet 1966)
Democracy-Development Interaction
Democracy and development are complementary and mutually reinforcing. The link between them is strong because it originates in the aspirations of individuals and the rights they enjoy. Moreover, history shows that the experiences in which democracy and development have been dissociated have, most of the time, failed. On the other hand, the interweaving of democratization and development helps to entrench one another in the long run. Indeed, political democracy must find its continuation in economic and social measures that promote development, likewise, any development strategy needs to be validated and implemented so it can be reinforced by democratic participation. Furthermore, the absence of justice directly undermines development, on the one hand because it promotes mismanagement and corruption, and on the other because it discourages investment and economic exchanges. There can be no development in a context of arbitrariness, in the absence of a primacy of the law. (Boutros-Ghali and Badinter, 2002)
One of the major obstacles to achieving democratic development is the serious inequality in the distribution of income and wealth.5 This is why the implementation of political freedoms will not be enough to ensure the sustainability of democracy in developing countries if it is not accompanied by strategies to promote democracy, economic and social rights. Similarly, in developed countries, the existence of extreme poverty causes distortions in exercising democratic rights. (Peterson 2018) It also limits and sometimes prevents participation that are effective for political, social and cultural life of these poverty victims. Social and economic inequalities not only undermine social peace and political stability, they also contrary to the spirit of democracy. They also promote corruption and nepotism, which are obstacles to development. 6
Some Examples of Non-Correlation
In his recent book, Gilbert Etienne notes the failure of explanation concerning the democracy-development equation. He quotes Montesquieu: “the tyranny of a Prince does not bring the state closer to ruin than indifference to the common good in a republic” (Etienne, 2003: 63) In fact, history as well as modern period have shown many examples of economic successes recorded under authoritarian regimes. East Asia represents the first group. In ancient times, they were called the “hydraulic societies” of the Far East (Wittfogel 1964). Especially, in imperial China that was governed by despotism. Then japan where modernization economic and technological was built on the authoritarian and undemocratic style of the Meiji Restoration. The “miracle” of the East Asian economies (in 1960, their share in the world economy was 4%, in 1992, 25%) was achieved with an authoritarian background. Also, Singapore served as a model throughout the region until the financial crisis of 1997. In total, the success of the “dragons”, whose rate of annual growth was 9.2% in the 1960s, 9% and 8.2% in the following decades (Domenach 1998:35) preceding by the “tigers” and the “tiger babies” owes a lot to political voluntarism and rigorous social control but little to the vitality of political pluralism. It remains to mention the case of China whose rate of growth has been impressive for a quarter of century: 10% per year from 1980 to 1996, other revealing figures: china’s foreign trade fell from less than 1% of the total in 1980 to 4% in 2002 while foreign private investment amounted to $350 to 400 billion these remarkable figures must be related to a political system that remains hostile to democratic change. (Etienne 2003: 53)
According to this relation, democracy is a fundamental factor for sustainable economic development. This chapter has analyszed the relationship between democracy and economic development. It has claimed that democracy can lead a country to a situation where not only will it be possible to have more democracy, but it will be necessary for economic development to continue and guarantee against economic instability, both nationally and internationally. This chapter has further analyzed some examples of non-correlations.
In economic development, the role of state has been reshaped and the importance of good governance is at the center of development policies. the role of state in rentier state is described as undemocratic. However, I will not be looking into a specific case of rentier state that could be used as a clear example of the relation between democracy and economic development but rather studies used cross-country and analyze the difference between rentier and distributor state.
Chapter 2
Economists working in oil countries at the end of 1960s first adopted the concept of a rentier state, for example, in the Middle East and Africa (Mabro 1969, Mahdavi 1970). Some authors used rentier state to explain occurrences such as the “patrimonial domination”(Luciani 1987),”state autonomy and its vulnerability” (Skocpol, 1982, 1985), the emergence of a political dynamic based on culture and ideology (Delacroix, 1980, Sham Bayati 1994). The aim of this chapter is to analyze a critical evaluation of the theoretical function of these models. The outbreak of this chapter will provide the works of Luciani (1987, 1988, 1994,19995), Anderson (1987), Najmabadi (1987, 1993) and Crystal (1994,1995), particularly on the two main statements. One is since the rentier state does not need to tax its population; it would feel immune from reporting its action. So, its political autonomy derives from its fiscal autonomy. The second one is that rentier state would also be immune from democratic demand, by practicing a distribution policy that has the effect of depoliticizing the populations. This chapter will review these analyzes of political science and then provide an understanding on their theoretical foundations. This chapter will also provide studies used cross-country, and the assumption that countries share similar characteristics might not necessarily be the case.
When we analyze rentier state, a critical distinction must be made with a distributor state. This chapter will define rentier state, as “a state that derives a substantial share of its income from abroad, in an annuity form” and the distributor state as “a state whose expenditure represents a very large part of the national income”. (Beblawi, Luciani 1987: 11). In the first definition, it appears that since the share of external rent increases in government revenue the importance of tax tend to decrease. Saudi Arabia during 1973 and 1974 did not collect income tax at all. What distinguishes the rentier state from the “capitalist” or “producer” state is that in rentier state the rent comes from the outside. (Mabro, 1969, Delacroix, 1980, Luciani, 1987). A state that “derives income from surplus produced domestically, will seek to maximize the tax base through economic growth, while the rentier state can maintain its economy without a productive sector”(Beblawi 1987). From the fiscal autonomy of the state they deduce political autonomy. In other words, it is reasonable to assume that the state will not tax its citizens since an external rent makes this effort less necessary. Theorists of rentier state define this situation as “state autonomy”, not only in relation to its financial base but also as political actors regarding its citizens. Richards and Waterbury (1996; 17) claim, “rent has allowed government to avoid heavily taxing their own citizens, thus breaking the vital link between government and taxpayers”. For Anderson (1987), “the notion of rentier state is one of the major contributions of the Middle East Studies to political science. This literature, sometimes referred to as the “school of the rentier state” is based on the observation that the so-called rentier states are generally authoritarian and link this to oil and gas revenues that come from sources outside the society, as foreign companies pay gas and oil directly to the government. Therefore, this is the main factor that explains the authoritarian nature of these structures, by the fact that they have significant means to finance forced institutions or more generally, not taking their responsibilities vis-à-vis society by failing to meet its demands for better governance. However, Anderson also notes that little work is being done on finance, taxation, and credit in the region, particularly those generated by the export of oil. A study by the World Bank (2003) summarizes this relationship by three main effects: the taxation effect, when the government has significant revenues, it can afford to reduce the tax burden and at the same time the counterpart that it must make to the tax (no taxation, no representation). The expenditure effect, the emergence of a class of rentier that weakens the institutions and reduces pressure for reforms: group formation effect: the government has the means to prevent the formation of social groups independent of the state. Hence, if taxation “created the conditions for a no tax without representation political claim. To Anderson, (1987: 9-10) the absence of tax liberates the state from the need to answer for its actions and take accountability. “No representation without tax” made famous by Luciani (1987). There is no theoretical concept that shows a link between tax and the rise of the democratic objective in society. In order for rentier state to raise taxes it must promote economic growth, which divides society into different economic interests that will influence public policies. The groups that are excluded for this possibility of influence will demand institutional changes. Also, tax needs a minimum of acceptance from the taxpayer, which can only be obtained by a responsible government. Thus, a state that increases its tax burden will face a growing demand for institutionalized democratic control (Luciani 1987:73, 1994: 132-133). Furthermore, tax gives the citizens a say in the public decision and the state infiltration encourages patriotism towards society, which will incite citizens to demand changes within the country (Anderson 1987: 9-10, 12-15). The reasons above do not explain why the lack of taxation would necessarily result in the state’s defense from rights of representation and responsibility towards society. However, these reasons are valid if one accepts that tax is the only condition that can lead citizens to demand a system of representation. To North and Weingast (1989) tax is conceived as a bargaining chip between the state, that needs money and the actors of the society. In a rentier state, the actors are powerless in the face of the state because it does not need the society to find income, so it remains autonomous regarding the state.
Claiming that the theory of rentier state, allows government to buy political legitimacy by the distribution of rentier wealth, this is what makes the sustainability of regimes dependent on rent. Authors of this theory, argue that the state’s fiscal crisis boosts and stimulates democratization, they also note that “the capacity to last authoritarian regimes that are unable to cope with their fiscal crisis is so reduced that technological progress, especially as regards to communications and criteria or international acceptability, makes the task of dictators increasingly difficult.” (Luciani 1996). He also argues that “democracies can be strongly desired and yet fail” (Luciani 1996) However, many authors ask why, in Arab rentier state from 1985 to 2002, the extended and severe fiscal crisis did not lead to democratization nor to the collapse of authoritarian regimes. If the allocation of the benefits of the rent to the population is supposedly able to guarantee the consent or the depoliticizing, during the oil boom, how can one explain the rise of the popular uprisings in these countries, rentier countries such as Bahrain, Egypt, Libya, Syria and Yemen? Did the Iranian revolution not arise in 1979, when oil taxation included 66% of government revenue and per capita income reached 1999$, (Haber & Menaldo 2011) Iran during Shah is not an exception. Counter examples are not lacking, which prove that authoritarianism is a product of oil dependence. Iran as an example served as a founding model, in 1941 after Reza Pahlavi came to power. Iran then produced oil with hydrocarbon experts not surpassing 1% of the government’s income. (Haber & Menaldo 2011). Furthermore, Iraqi and Libyan monarchies have also been wiped out by revolutions despite western support and rising oil revenues by claiming this theory of rentier state7, two lessons are important, the first one the sustainability and collapse of authoritarian regimes are independent of the oil, and suppression financed by rent is not enough to guarantee the sustainability of an authoritarian regime. The more the income of the state increases, the more the state becomes the important factor in the economy (Mahdavi, 1970: 432, Katouzian 1978; 348). The oil business has become capitalistic, the citizens have no relation with the production of the rent, they just use it. Therefore, the public sector will expand and society will benefit from jobs created by the public sector and social services. According to (Crystal 1995: 9-11) when the state is in possession of centralized resources, it can buy potential opponents and even existing political groups. The state obtains the politicization of the elite (Najmabadi 1995: 203). Such states are different from the capitalist welfare state because they only distribute an external rent, while the other redistribute surpluses produced internally. Distribution would make citizens more tolerant of inequalities and corruption (Mahdavy 1970: 437) In addition, when the citizens are dependent on the distribution of the state, it would need to exercise less pressure to ensure social peace (Delacroix, 1980: 9). When a rentier state does not spend the external rent internally, so when it does not play a role in the domestic economy, we can say they are purely rentier state. However, in reality, Iran, Iraq, Saudi Arabia, Kuwait, Algeria, Libya, Indonesia Venezuela, Nigeria are distributor state. They distribute the rent that comes from the export of oil or other type of natural resources. Even though the contribution can vary depending on internal or external factors, the distribution policies makes the state a central player in the socio-economic life of the citizens. It weakens the claim that the absence of tax liberates the state from popular pressure. Two arguments one by (Snider 1988: 484) state that “once a generous policy is put in place, the state can hardly react, as the case of Saudi Arabia has shown. The second one by (Chaudhry 1989: 137) state that “if the distribution of the oil rents offers the state various possibilities, it cannot fail to provoke disputes.” The difference between rentier state and distributor state is essential to this argument. However, theorists might argue that their thesis is that a low tax joined with the distribution of benefits, has the effect of easing popular pressure in favor of democratization. As Przeworski (1990: 35) emphasized “the state is autonomous with respect to a certain group of society and it is of theoretical interest only if the power of that group over the state is conceivable”. Therefore, Marxist theorists have mainly reflected on the autonomy of the capitalist state regarding the economically dominant class. In contrast, theorists of rentier state question the degree to which these state are free from constraints in the pursuit of its own ends, they suppose that the state primarily conveys the interests of the elites. This view is related “to the weberian-neoclassical tradition, to which the state is an independent, self-governing organization” (Skocpol 1985). Autonomy of state depends on the reaction of the actors in society and they will have to depoliticize them. Unlike the Marxists theorists, rentier state theorists claim that the state can make itself autonomous regarding the whole society.
Going back to answering the question: are the rentier state and distributing state a good example for defining the political mechanism of oil-exporting countries? the character of oil exporting countries is that foreign rents comes directly to the state in the form of an inflow that is immediately usable currencies. The use of that currency is of extreme importance for rentier state and for distributing state. There are two different observations one is from the role of oppression and one of politics. However, neither rentier state nor distributing state has space for oppression. In pure rentier state the balance is based on the physical threat, as for distributing state, there is little reason to exercise coercion. In reality, it is commonly known that many oil-exporting countries do not hesitate to make use of their forces for domestic oppression. A complication arises from the fact that the external rent is used to pay for the powers of oppression. The security growth has been accompanied by the capacity of distribution in countries like Iran, Iraq and Saudi Arabia. Furthermore, oil revenues can change the power structure by the changing relations between groups in society and also by changing the state’s organization. In Venezuela as well as in Iran, the oil rent provided the rulers in the 1920s with the resources necessary for the centralization of the structures of authority and the contruction of the state (Karl 1987: 67-68). In Nigeria, the federal government took advantage of the oil windfall of the 1970s to strengthen centralization and expand its field of actions (Watts 1987: 64-69). Once oppression is accepted as a clarifying element, the economic of rentier state (the tax autonomy) loses much of its relevance. Moreover, the distinction between the rentier state and the distributor state weakens the importance of the rent factor, which is essential to the theory of rentier state. Noticing that rentier state rests on an unstable theoretical base of political autonomy. The main argument is not that rentier state misjudges oppression but once it is taken into account it is difficult to discriminate. Also, the autonomy of a distributing state is not only dependent on its tax base. Two other factors have been identified: the oppression capacities of the state and the weak mobilization capacities from the socio-economic condition of the period prior to oil exploitation. 8
The Case of Norway
Norway has always been rich in natural resources, however it is only the education of the workforce that has allowed them to use it on a significant measure. 9The growth of human capital has been the main factor in the country’s economic transformation and natural capital has been secondary. According to the world Bank, 62% of Norway’s national wealth is intangible capita, which includes human capital, 21% produced capital and urban land, and 13% natural capital: the remaining 4% is net foreign assets (The Wealth of Nations, world bank 2010). Currently, oil revenues account for one-quarter of the country’s GDP and investment, one-third of budget profits and half of exporting revenues. in 1990, The Norwegian Petroleum Fund was established, and renamed the State Pension Fund of Norway in accordance with its mission, will soon hold USD 100,000 per citizens, which is almost double the per capita GDP changed for obtaining power equality.10
It is fully invested in foreign securities, currently 60% equities and 40% fixed income securities. Norway’s fiscal policy and its management of oil wealth have largely contributed to the stabilization of the economy. Previously, a variable part of the annual net product of the oil tax was transferred to the state, mainly to cover the non-oil budget deficit. Nevertheless, as importance of the oil sector decreases, the proportion of oil revenue allocated to cover the deficit will naturally increase. Having said that, the domestic economy was safe from the massive influx of oil money, it avoided the Norwegian Krone from escalating. Due to this strategy, non-oil exports and import-competing sectors did not suffer from a strong real escalation of the koruna the damage was limited. The low Norwegian inflation stops from severe fiscal and monetary policy, particularly, to devote much of the national oil wealth to direct use has been opposed, despite strong requests to use it more on internal social needs rather than continuing to feed the State Pension Fund. This clever management of oil wealth deserves the attention of other resource-rich countries around the world. The main features of the Norwegians were from the start, the law defined the Norwegian oil and gas reserves as the community owned resource, (Ofstad, Kittilsen and Alexander-Marrack, 2000) thus establishing the rights of the Norwegian people in this area. Furthermore, the state engaged about 80% of the rent. During 1970s, the state learned from its own expense the need to allocate a relatively small proportion to the coverage of current budget needs, instead, most of the oil revenues was kept in the Oil Fund. In addition to the protective legislation firstly adopted, the government has laid down economic and ethical principles to direct the use and exploitation of oil and gas for the advantage of present and future generations. From the beginning, the major political parties have all understood the need to protect the national economy from an extreme injection of oil money, this opinion however was not shared by the government progress party (East, 1973). The Central Bank became more independent of the state from the adoption in 2001 of an inflation target. It manages the fund on behalf of the ministry of finance, keeping it out of political intervention. The development of the fund raised it to about $195’000 in May, 2018 (per Norwegian citizens.) Under Norwegian law and in accordance with the International Covenant on Civil and Political Rights, oil wealth belongs to the state. Oil and gas are removed from the public area. In fact, the entire oil and gas rent should be distributed to the Norwegian population through the State. Public ownership of these resources is the legal basis for government regulation of the sector and its taxation. The Norwegian state appropriates oil and gas rent through taxes as well as trough direct intervention in the development of resources, before directly selling or offering the rights of exploration and production. Due to these reasons, Norway has not experienced the problems of rent-seeking and other related difficulties suffered by other oil-exporting countries such as Saudi Arabia, Iran, Lybia, Sudan Mexico, Venezuela, Nigeria, Russia etc.
Conclusion
According to the logic of the models of rentier state used by theoreticians, they must democratize only in the context of a change in their economic development situation. Generally, this is the decline of external rents. The fiscal crisis will then incite the state to democratize in the long run (Luciani 1994: 131-132). This could be one possibility, however it does not exhaust all options. A state crisis may develop and bargaining may succeed even when the state is fiscally strong and does not impose itself too heavily on its citizens. Distributing states’ case assumes that the state’s strategic role in distribution of goods depoliticizes the population. Yet, this might be the case for a lot of citizens, but others mobilize for ideological reasons such as personal security, to protect themselves from religious or ethnic persecution or professional reasons such as economy, the distribution of resources in a more efficient way, or even resistance to an undemocratic domination. According to (McAdams 1996) “the strength and effectiveness of these movements will depend on a variety of factors, the most important of which are probably political opportunity structure and mobilization structures.”
An economically developed rentier state may be able to create an unfavorable context for such phenomena. In any case, its effectiveness in this area will depend not only on its actual economic base, but also on society and its interactions with the state. To have a model that is more favorable to the emergence of democracy, we need a state like Norway where society is less dependent on the state. This dissertation has shown that contrary to what most theorists claim that the rentier state will not democratize as long as they remain rentier, is not entirely valid. This dissertation has proceeded in two stages, it has first demonstrated the relationship between economic development and democracy, that a country does not necessarily need to become democratic to develop, even though some authors have argued that democracy and development are mutually supporting and democracy leads to justice and the absence of justice undermines development. But, some countries like China and the “Tigers” have proven to be superior to liberal democracies from the point of view of economic policy. Subsequently this study has evaluated rentier state and distributor state models. As the logic of the models show, the argument that the rentier state develops its mechanical political autonomy from its budget is valid only when the state has no economic role at home. On the other hand, the distributor state develops its domestic economic role by increasingly getting involved in social processes and may encounter limitations from its fiscal asset. Finally, the autonomy it can acquire by distributing rent is never anything more than virtual and will depend on the situation of social forces and their relations with the state. Also, the autonomy of distributor state may collapse when the state takes into account their capacity for oppression and their lack of capacity to mobilize social resources in the period preceding the rent.
It is easy to convince oneself that citizens can make democratic demands even in rentier states or distributing states. However, at the same time their exclusively state-centered and non-interactive character prevents them from taking into account the way in which social actors are supposed to react. As a result, the theoretical foundations of the political autonomy of the rentier state or the distributor state are unstable. The question is not to downplay the importance of the literature of rentier state which hqs been developed for well over q decade, but mainly that oil revenues are a structural factor that can help the state to strengthen its hold on society and thus block the development of democracy: Iran, Iraq, Saudi Arabia or Libya are evident examples. What this dissertation presented is that in examining the relationship between democracy and economic development one has to shift the focus to the economic foundation of the rentier state. It is necessary to explore the actual socio-economic conditions, the structure of social actors, the resources available to them for political mobilization to know to what extend rentier state lack democratization.
Notes
Vienna Declaration on Human Rights.” Population and Development Review, vol. 19, no. 4, 1993, pp. 877–882. JSTOR, JSTOR, www.jstor.org/stable/2938429↩︎
Archive.ipu.org. (2018). Declaration on free and fair elections. [online] Available at: http://archive.ipu.org/cnl-e/154-free.htm [Accessed 18 Jun. 2018].↩︎
The Vienna Declaration and Program of Action, Part I, paragraph 5↩︎
Nuffield.ox.ac.uk. (2018). [online] Available at: https://www.nuffield.ox.ac.uk/users/Broadberry/ModernEconomicGrowth6a.pdf [Accessed 18 Jun. 2018].↩︎
Ed.stanford.edu. (2018). [online] Available at: https://ed.stanford.edu/sites/default/files/inequalitymatters.pdf [Accessed 18 Jun. 2018].↩︎
Anon, (2018). [online] Available at: https://www.palmecenter.se/wp-content/.../Corruption-an-obstacle-to-development.pdf [Accessed 18 Jun. 2018].↩︎
Citeseerx.ist.psu.edu. (2018). [online] Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.829.4428&rep=rep1&type=pdf [Accessed 18 Jun. 2018].↩︎
Brookings.edu. (2018). [online] Available at: https://www.brookings.edu/wp-content/uploads/2016/06/2010_confronting_poverty.pdf [Accessed 18 Jun. 2018].↩︎
Bbk.ac.uk. (2018). [online] Available at: http://www.bbk.ac.uk/ems/faculty/zoega/research/Natinvest31.PDF [Accessed 18 Jun. 2018].↩︎
The Economist. (2018). Norway’s sovereign-wealth fund passes the $1trn mark. [online] Available at: https://www.economist.com/finance-and-economics/2017/09/23/norways-sovereign-wealth-fund-passes-the-1trn-mark [Accessed 18 Jun. 2018].
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