Oil and Democracy

“No taxation without representation!” – This was the cry made famous during the American revolution. Not just because it has a ring to it but also because it makes sense: if the State requires its citizens’ taxes to finance itself then the citizens have the right to be represented in the State’s decisions.It is an argument that makes sense in the traditional Western State model. But what if the State no longer requires taxation to finance its activity? What if the State extracts revenue solely from the resources under its control (namely oil, gold, diamonds)?

Excluding morals from the equation, if the State no longer needs taxes it is safe to assume it will worry less about its citizens. This happens in what scholars define as “Rentier States” – States’  whose economy is dependent on “rents” from the exploration of a single resource. Rentier because it works in a similar way as when a landlord rents property: the state just owns it, does the occasional repairs and collects its share at the end of the month.

Besides being almost entirely dependent on one single resource, there are three other common traits to rentier States. The first is that the origin of the rent is external to the country, meaning the State is able to sustain itself without developing a strong and sustainable domestic sector. The second is that only a small part of the population is involved in the rent’s generation and in most of its spending. Although these rents are usually redistributed among the population, most of the wealth is concentrated in the upper classes. Last but not least, most of these revenues will be concentrated in the State.

Most oil-producing countries fall into this category and most of them are not democracies (even though some do claim to be). They have reduced or even eliminated most taxes and inverted the American revolution motto: “no representation without taxation”.

It is not easy to maintain a non-democratic regime under these conditions. However, in rentier States, a subsequent patronage system has been developed in order to assure that governments control the most influential sectors of society and keep the bulk of the population in check.

Governments fomented the rise of a new private sector that was, from the start, dependent of the State for funding and subsidies. The government also became the major employer in the country, allowing it to become the most important economic actor, intervening in both the public and private sector.  It also provides huge subsidies to the religious elites (which play a very important role, mainly in Middle Eastern oil-producing States) and spends extensively in military equipment (Saudi Arabia spends 10,1% of its GDP on its military, the highest percentage in the world). By subsidizing these pillars, the rulers of these countries assure that there is  almost no civil unrest and in the cases where protests might exist, they tend to be violently silenced.

The reality seems to confirm these theories as most of the countries that are oil dependent are authoritarian (just think of Russia, Saudi Arabia, Venezuela, Qatar, Kuwait and the UAE). The big exceptions are the United States, Canada and Norway but, in these cases, the economy is highly diversified with other sectors contributing heavily to the country’s GDP.

Taking all these data into account it seems that there is evidence to support that oil can be counterproductive when it comes to democracy, especially, if strong state structures were not in place before these countries started collecting oil revenues. It is a grim sight that, nonetheless, comes with a hint of hope. These systems are unsustainable as populations and the number of those under patronage increase. Oil revenues have increased at a slower rate and rentier States will eventually collapse (or so I believe). Iran and its Islamic revolution are a good example of it, even if the final outcome has not been the most desired one.

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