Social Degradation in the Context of Economy of Rent- and Resource-based Colonialism

Director for Research of the Planetary Development Institute

14 December 2016

The social sphere, culture and education hardly ever draw investments or become the focus of government care in the so-called “pipeline economy”, or to use a better term, in the economy of rent- and resource-based colonialism. On the other hand, voter loyalty and mobility is crucial for the authorities that imitate democratic procedures. National solidarity, identification with, and agreement between people and government in the autocratic or totalitarian states, also known as political conformism, are considered to be very important, too. In order to build these relations, the ruling elite uses part of resource rent to stimulate economic growth in sectors that depend on government funding in the form of national projects, government grants or contracts. “This pattern of economic growth leads to an increase of the number of voters that are interested in preserving the current “status quo”. In the rentier state, the political rent, appropriated through various forms of allegiance, is just as important as the financial one, while civic virtue, professionalism and business initiative are not as popular. High quality human, social and political resources become functionally redundant; thus, they stop playing any significant part»1.

Here are some conclusions regarding rent- and resource-based economy:

  • Inherent in rent-based economy, popular belief in the lack of alternatives and the view of society as a means of making the country more powerful lead to social and economic regression while abandoning technological development results in deindustrialization;

  • Any practical capabilities of rent-based economies are confined to overcoming conventional cyclical crises;

  • The rent-based economy could be called the “economy of fading grounds”: it is stable until its resource are depleted or a sudden decrease of demand causes the fall in prices.

Today’s rent- and resource-based economies face challenges of a broad socio-historical, rather than purely economic nature:

  • The extensive exploration of natural resources has put the planet on the brink of an ecological disaster. Some catastrophic processes have spread across the world; they are characterized by different scales, rates and degrees of reversibility;

  • Many experts believe that subterranean nonrenewable mineral resources (particularly, hydrocarbons) are extremely close to their ultimate depletion;

  • It would take a huge amount of money to develop new onshore and offshore deposits, the money that national budgets of rent- and resource-based countries just do not have;

  • Global economic development trends, including changes in consumption patterns and market demand, do not favor traditional energy export businesses (“Shale gas revolution”, growing liquid natural gas supply, global economy environmental orientation, and a possible increase of control over transactions on the financial market, all of which could lead to lower oil and gas prices»2, a slowdown in international economic growth, etc.).

It is also important to mention another risk. Rent-based economy and the rentier state run a serious risk of socio-political upheavals. Nevertheless, the policy of appropriating rent revenue from all available resources including human ones cannot go on forever. It tends to ends quite dramatically with severe negative consequences.

Furthermore, the negative influence of such factors as bureaucracy, systemic corruption, administrative markup, ideological pressure from top down leads to the inevitable: the climate of mistrust expands, aggressiveness is accumulated, while social tension and craving for conflicts only grow. The suffocating containment of social development, industrial modernization, and cultural and economic innovation, as well as other attempts to artificially slow down the natural historical development of productive forces unavoidably cause a response. Its logic is shown in the following chart:

Risks of rent and resource based economy

Risks of rent- and resource-based economy

Consequently, “the conservation of negative stability in the country’s socio-economic and political spheres complicates any possibilities of further innovative development. In this case, the idea of the “resource curse” is both an economic phenomenon and socio-political event, which makes the rent problem a systemic one; it is reproductive from an economic point of view and institutional in from a socio-political perspective”3.

In a country with retrogressive rent economy, the most dangerous way to resolve social, political and economic contradictions is spreading armed aggression outside the country’s borders. It is so, because in our extremely global world every local conflict tends to grow wider, taking in lots of new territories and different parties, including geopolitical antagonists and giving them a perfect reason to continue turning on each other. One of the examples are the events that took place in August, 1990, when a cross-border argument about the ownership of oil fields between Iraq and Kuwait made the Middle East problem a global one. The Iraq question still remains a “hot spot” on the region’s map. It creates dangerous waves spreading both to the Old World and the New World as international terrorism, which is still associated primarily with Islamic State, the product of Saddam’s legacy. This organization, which is banned in many countries, has made oil trade its resource base.

Later USSR collapsed; the sovereign state of Yugoslavia broke apart; and color revolutions took place in Georgia, Libya, Egypt. Ukraine and Syria are part of the trend today. These events had internal and external reasons, including ethnic tension, religion, resources and territorial disputes. These reasons got mixed up so much, that in some cases it is almost impossible to see any clear links between them and the events. Although it is obvious now: these historic disasters had been caused by the rent-based economy and autocratic regimes, which produced misbalanced governance structures, deformed market relations and broke natural laws of social development4.

At this point, it is hard to escape this conclusion: unstable and ineffective economies pose a serious threat to the fragile geopolitical balance and global security.

1 - L.N. Danilenko. Rent- and resource-based economics in Russia and the problems of its transformation. St Petersburg, 2014. p. 23.

2 - Danilenko, L.N.. Russia’s rent- and resource-based economy and problems of its transformation. St Petersburg, 2014. p. 24.

3 - Danilenko, L.N.. Russia’s rent- and resource-based economy and problems of its transformation. St Petersburg, 2014.. p. 21 – 22.

4 - By the way, in some examples the economy was not in crisis, power-wielding and proprietary elites were not in confrontation with each other. Therefore, there was little destruction or violence. The Czechs and Slovaks are a good example of this. The once united country split into two independent nations rather peacefully. Officially legalized on the 1st of January 1993, the breakup of the sovereign state of Czechoslovakia was termed the “velvet divorce”.

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