Teaching Comparative Government and Politics

Monday, March 28, 2016

Rentier states

Adam Davidson begins by trying to explain Donald Trump's understanding of economics, but goes on to explain rentier states and why they are prone to corruption and authoritarianism. Your judicious editing might make this good for understanding Iran, Russia, or Nigeria (or maybe even Mexico and Iran).

What Donald Trump Doesn’t Understand About ‘the Deal’
Donald Trump loves the word ‘‘deal.’’… His view of trade with China is summarized in this quotation from his speech announcing his candidacy for president: ‘‘When was the last time anybody saw us beating, let’s say, China, in a trade deal? They kill us. I beat China all the time. All the time.’’…

I have spent much of the past few months trying to make sense of Trump’s policy proposals… Any serious economic proposal to ‘‘make America great again’’ would surely mention education, fiscal policy, entrepreneurship and trade with the entire world, not just China — issues he makes little or no reference to.

In Microeconomics 101, deals are an afterthought: Transactions have the most socially optimal outcome when buyer and seller reach a mutually beneficial agreement. The very idea of a ‘‘good’’ deal for one party and a ‘‘bad’’ deal for another suggests a suboptimal outcome; an economy built on tough deal-making, with clear winners and losers, will always be a poorer one. Meanwhile, in macroeconomics — which covers the big, broad issues that a president typically worries about — the concept of the ‘‘deal’’ hardly exists at all. The key issues at play in a national or global economy (inflation, currency-exchange rates, unemployment, overall growth) are impossible to control through any sort of deal. They reflect underlying structural forces in an economy, like the level of education and skill of the population, the productivity of companies, the amount of government spending and the actions of the central bank…

But I’ve come to see [Trump] as a canny spokesman for a different sort of economy, one that often goes by the technical name ‘‘rent seeking.’’ In economics, a ‘‘rent’’ is money you make because you control something scarce and desirable, whether it’s an oil field or a monopolistic position in a market…

I learned a great deal about rentier economies, as they’re sometimes known, when I spent a year in Baghdad, covering the American occupation of Iraq between 2003 and 2004. I met many of Iraq’s leading businesspeople, and they always talked about ‘‘deals.’’ As one explained to me, there would be some business opportunity — building a hospital, say, or getting a license to import a new line of cars — and Saddam Hussein’s family would essentially auction off the opportunity to the handful of wealthy businesspeople whom they deemed trustworthy. Success came not from being better at building hospitals or more efficient at importing cars. It came from understanding the internal family politics of the Husseins and the power of the state bureaucracy…

Many economists and political scientists now think that the United States economy has shifted, over the past few decades, toward one in which a higher proportion of the economy comes from so-called rents… The left, right and center of the economics profession all agree that reducing rent-seeking behavior, and improving overall growth, is essential if we want to ‘‘make America great again.’’…

In a rentier state, every ambitious person knows that the way to become rich and powerful is to grab the sources of wealth and hold onto them, by force if necessary. It’s no accident that, around the world, rentier states tend to be run by unelected dictators — the ultimate dealmakers in chief.

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