The Rentier State Theory
A rentier state is one whose economy entirely depends on the income obtained from the selling of natural resources to the outside world; in other words, the proceeds obtained from renting of these resources. Natural resources, in this case, are oil, natural gas, and other mineral elements. A major difference between a rentier state and a production state is that the former uses the rental proceeds obtained from the rest of the world to support its citizens.
The latter depends on its citizen’s tax to develop its economy (Hazem 1987, 49). The rentier state theory of the Persian Gulf is a hypothesis explaining why the rentier states or the oil-rich countries tend to be less developed and their governments less democratic compared to their counterparts in natural resources deficient countries. Some researchers associate underground wealth with curses. However, this theory holds water. According to Hossein Mahdavy’s rentier theory, a rentier state with a rentier economy can lead to a rentier mentality, which serves to destroy the future of that state’s economy.
The theory was first developed by Hossein Mahdavi, taking into account Iran’s pre-revolution economy of the 1970s. This theory was then adopted to suit the whole Arab world. Mahdavi’s theory covers the whole of the Persian Gulf, but it can also apply to the rest of the world.
Iran’s oil concerned the West in this manner; Germany attacked its former ally, the Soviet Union, in 1941, which on the other hand, befriended Britain. Afraid that Reza Shah, Iran’s leader, would link the oil-rich country to Germany, Reza’s son, Mohammed Reza, took over from his father and helped his country to get aid from Britain.
Mohammed Mossadegh, the godfather of the populist petroleum politics, forced the shah to flee from Iran in 1953. Bargains for higher oil prices failed in 1951, and Iran’s oil industry was nationalized to National Iranian Oil Company, which replaced the British owned Anglo Iranian Oil company. The Suez Canal was then nationalized by Nasser in 1956, followed by the northern and sub-Saharan Africa.
Mahdavi believed that this period made major transformations in the Middle East as it was an era when spontaneous nationalizations led to transformations of former colonies of petroleum. This turned them into states capable of governing their destiny and vesting every initiative to their governments alone (Yates 1996, 83). The huge amounts of foreign currencies gained from petroleum converted some states to rentier states. The extreme cases of such states are Kuwait, Qatar, and to some extent Dubai.
History of Dubai as a Rentier State
Dubai’s history is dated more than 300 years ago, with its growth taking enormous unique forms. The forms range from the seven-star hotel to the vast horse racetrack. The discovery of oil deposits in the year 1966 along the offshore fields of Fath by the heading Maktoum’s family contributed heavily to the efforts of placing Dubai on the world’s economic map. More profoundly is the coming up of the Jebel Ali Free Trade Zone, which enhances world economic integration.
Dubai has outgrown most cities in the world, mostly because of the fact that its shoulders are free from the burdens of heritage and history. Renowned scholars refer to this as the tabula rasa approach, which is the Latin word for an erased board. Dubai has been undergoing continuous and systematic transformations to conform to the dynamic changes in its social, political, and cultural practices. This has taken place over a short stint of time, making it one of the most dynamic and developed cities. This implies that the city is relentlessly being reinvented.
Although it was once a British colony, Dubai leaped from being solely an Arab fishing ground to a renowned tourist destination with the reclamation of the sea to establish beach resorts and mega structures forming the major attraction sites (Davidsons 1893, 147).
The year 1799 marked an important landmark in Dubai’s urbanization history. During this time, the only inhabitants of Dubai were the Bani Yas tribe, who had migrated from the neighboring emirates of Abu Dhabi and whose main economic activities were fishing and trading. Urbanization took a different positive direction when the Al Fahidi Fort was constructed that year since up to date; it forms one of Dubai’s oldest surviving buildings. This is indicative of the superior structural design and the quality of construction material used. In the early nineteenth century, Great Britain embarked on colonizing the Persian of Gulf countries.
An agreement between the then ruler of Dubai and the British was laid down in the form of a peace treaty. The agreement proceeded for thirteen years putting Dubai under Abu Dhabi politically, socially, and culturally. More migrants from Abu Dhabi, The Al Bu Falasha, settled in Dubai in 1833; the two tribes contributed to Dubai’s establishment of its unique identity. Just like all other Moslem settlements, Dubai was then ruled by the powerful Al Maktoum family, which had just entered the country. The first Ruler, Sheik Maktum bin Bati came from this ruling family and compelled all the city organizations to conform and suit their desires.
Dubai city branched into three discrete zones, namely the Deira, which is the largest central business district, the Shindagha that formed mainly the residential zone for the Bas Yas, and the Bur Dubai, where the majority of the Dubai citizens resided in baristas, special huts constructed using palm fronds.
In the nineteenth century, the strong urban structure made Dubai shun off the invasion of the Qawaism pirates. In 1892, it further signed a colonial treaty with Great Britain, allowing its citizens to reside in the urban area for eighty years, after which it set itself free from colonization and became a free state.
The Political Economy of Dubai
Dubai is basically a small country in the Middle East; being a member of the United Arabs Emirates, its leaders have developed strategies that have seen Dubai’s economy shift from trading of gold and fishing to a vast dynamic economy dealing in shipping, mass communications, finance and tourism in a span of fewer than four decades. This brings out Dubai as an outstanding state from the rest of the rentier states.
To date, Dubai has developed into a city of its own kind in the world owing to its high profile investments. To begin with, it owns a seven-star hotel, which is the only one of its kind in the world as most of the world’s big star hotels hold up to the fifth level, but Dubai has gone beyond the olds to develop a seven-star hotel. This landmark also serves as a point of tourist attraction all over the world. The presence of a racetrack, the six million dollars Dubai World Cup race course at Nad al Sheba, is another great economic development for Dubai (Kanna 1984, 57)
Dubai’s pride has been in pulling foreign investments into its economy. The city has taken advantage of its strategic position in the Arabian Gulf and has a natural harbor located along the Gulf, which allows it to become a great trading nation owing to the convenient stopover along the Far East and the Western sea route (Ramos 2010, 71). This allows in and outflow of goods hence raising its economic standards.
Dubai also hosts tennis and golf tournaments, and to show its ambitions in the systematic growth of its economy; it is even set to host the 2022 soccer world cup. This will make an impact on its economy due to the number of visitors. Being a host of many games, the security of the state and its political stability are greatly enhanced. The hosting further improves the infrastructure of the city, which is the key pillar of economic growth.
As earlier alluded, the city has reclaimed the sea to construct a Palm-Jumeirah manmade island worth $1.5 Billion to house its growing population and attract tourists and further enhance trading activities. This reclamation portrays its technological prowess, which is a basis for a stable political economy.
The duality principle is evident in modern Dubai development. Unlike other colonized countries, Dubai maintains its culture, which is manifested in the snail-shaped Burj A-Arab hotel and the palm-shaped Palm- Jumeirah island. The snail and the palm symbols form a rich part of the Arabs cultural history. Besides maintaining their culture, these recent projects act as a platform for generating more income from revenues collected in the form of foreign exchange while hosting international conferences and possible corporate headquarters. This country’s interest in tourism is further shown by the location of the two projects, in areas where the common citizen who earns an average income cannot access.
Dubai enjoys a vast service-knowledge based economy that is portrayed by these three known examples. The first example is the construction of the Dubai Media City, which is a demarcated free region for news anchoring and unbiased presentation of news. Second is the Dubai internet city, which is an area set aside for technological harbor where there is unlimited access to the internet, a major prerequisite for business outsourcing. The final example is the establishment of the Dubai International Financial Centers, which serves a dual purpose of merchandising and financial exchange (Shemiran 2011, 113). This has further boosted the economy of Dubai as a city.
The success of the DIFC will mean a great deal to the world at large. It will recruit highly skilled labor in other firms hence forming a base for great output. It will also be a pathway for the passage of investments to several parts of the world. On top of this, it will allow Dubai to act as a central ground for financing and lending of money and hence boost its economy a great deal. Due to its small size geographically, any improvement in the service sector should benefit the entire world at large.
Factors Contributing to These Vast Changes in Dubai
Several interlinked factors have generally placed Dubai to the place it is now. The first most important factor is that Dubai’s development is government-initiated. The private sector is politically deprived of its strength and hence contributes insignificantly to the overall development despite its financial strength (Dumper 1978, 54). A good example is the developments observed in the year 2000-2005. These developments were made possible by the initiation and supervision of the government in place at that time. The government contributes immensely to the upgrading of the laws, institutional guidelines, and the overall infrastructure through the finances from tourism.
Secondly, Dubai’s institutional infrastructure is highly regional, meaning that it is centralized. Scholars look at Dubai as a two-level system with the first one comprising of the municipal council together with the other bodies involved in the running of the various sectors such as the infrastructure, water, electricity, and other necessary departments such as the police so as to ensure peace, order, and stability.
The second level is a relatively new structure put up during the Shaykh Mohammed era and is actually the office of the ruler of his time. This office is responsible for all up-to-the-minute developments in the country. All major projects in the economy are outlined in this office. It also controls the government-owned industries, ports, airports, and health care facilities owned by the government.
This is why Dubai’s institutional infrastructure is centralized; in fact, all these activities are entitled to two major companies, that is, the Dubai Holding and the Dubai World. The government-owned companies and the roads are separately controlled by these two companies. The key fiscal positions have been assigned to the ruler’s four most endeavored men. This makes it easy for all the leadership of the office to work under his supervision. To add to this, the local municipal system is controlled and led by his appointee, who is currently Shaykh Hamdan, his brother.
The fourth point is that the city obtains highly trained and educated fellows from within and from other countries worldwide to form its workforce. This is advantageous to Dubai as it never invests so much in re-educating its citizens during the various developmental stages of its economy. Consistent with the common saying money talks, Dubai basically buys skilled labor to match its level of development.
Its ability to buy labor and exploit people’s talents and skills upon which they are sent back home allow for Dubai’s flexibility in obtaining labor. Any number of laborers is obtainable, and the quality of the workers can change to meet the current market demands and future visions and goals. A good example would be in establishing a new airline with adjustments from the rest of the airlines. This is achieved by getting engineers with the best knowledge and skills to work for them from all over the world. This further reduces the bureaucratic rigidity associated with retrenching a workforce and also reduces the time taken in the decision-making process. Worldwide consultation from knowledgeable people from all over the world ensures the best quality of work above the set standards; no wonder Dubai will always be ahead of the economy.
The last most important feature of Dubai’s economy is the fact that Dubai does not base its development on industrialization. Consequently, Dubai has leaped from a trading zone to a mega-service-knowledge economy, which has been mentioned above. This means that this country has skipped the industrialization stage.
The other factor that helps boost Dubai’s economy is the fast decision-making process and the equally fast implementation of the decisions made. This can be portrayed in the profound economic changes that have occurred over the last four decades. Considering its vast, rich history, the present Dubai is an entirely new entity. The decision-making process has made it easy for the transformation in Dubai, making it a world-class country. Rather than being a pull factor, Dubai’s economy moves at a supersonic speed, making it hard for both the private sector and other investors to adjust to it.
Another aspect of Dubai is the fact that it works on a demand-driven supply, meaning that it supplies only what is needed. An initial market survey shows the relative demand of the people, after which the companies work on the goods with high demand to ensure sufficient supply. Most projects in Dubai have followed this formula and seen great success (Hrischl 2010, 98). This aspect of Dubai’s economy has seen it grow tremendously over the past four decades to the new Dubai.
Dubai has also encouraged foreign investments even in its vision 2010, given that the greater percentage of its population is made up of foreigners. The creation of investment opportunities has greatly boosted Dubai’s economy, aligning it with the other world’s super powers. Remarkably, Dubai’s growth and developments can be attributed to the peace and political stability prevailing in it, unlike in other states, which operate under the rentier economy. This also allows them to have a great deal of resourceful international partners. Dubai has generally succeeded in reducing the Emirates dependency on oil and achieved stability in its economy.
In conclusion, a rentier economy is not a curse but a product of a rentier mentality, which drags behind the economy of a given city. Dubai is a city that has gone beyond the norms of the dragging rentier perception in most of the Persian Gulf cities to acquire a more stable and democratic state. This has boosted the economy from reliance on mere fishing and trading of gold to a vast dynamic economy that deals in shipping, mass communications, finance, and tourism in a span of fewer than four decades. Currently, Dubai has a population of 1.4 million people from all walks of life, doing a vast collection of sophisticated savings (Oxford Business Group 1966, 157).
As stated earlier states, Dubai has worked on several principles, which have enabled it to undergo various. These transformations include the total control of the government on the economy, adoption of a fast decision-making process and equally speedy implementation of decisions, outsourcing labor force, coming up with investment opportunities, use of a supply that is demand-oriented to reduce the number of losses, the formation of great linkages with rest of the world to harness most investment opportunities and finally use of a superior brand in its products to obtain vast markets. Re-branding is a strategy that Dubai has also put in place. Dubai’s economy has leaped from a trading zone to a service-knowledge economy.
Davidsons, Christopher. 1893. Dubai: Vulnerabity of Success. New York: Columbia University Press Publication.
Dumper, Michael. 1978. Cities of the Middle East and North Africa: A Historical Encyclopedia. Santa Barbra: ABC CLIO Publication.
Hazem, Beblawi. 1987. The Rentier State. New York: Routledge Publication.
Hrischl, Ran. 2010. Constitutional Theocracy. Cambridge: Library of Congress Publication.
Kanna, Ahmed. 1984. Dubai, the City as a Corporation. New York: University of Minnesota Publications.
Oxford Business Group. 1966. The Report: Dubai 2008. London: The Oxford Business Group Publication.
Ramos, Stephen. 2010. Dubai Amplified: The Engineering of a Port Geography. Surrey: Ashgate Publication.
Shemirani, Manda. 2011. Sovereign Wealth Funds and International Political Economy. New York: Ashgate Publications.
Yates, Douglas. 1996. The Rentier State in Africa: Oil Rent Dependency and Neocolonialism in the Republic of Gabon. Asmara: Africa World Press Publications.