The Political Economy of Extractivism: Global Perspectives on the Seduction of Rent 1032300582, 9781032300580

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The Political Economy of Extractivism

For many countries, primarily in the Global South, extractivism – the exploiting and exporting of natural resources – is big business. For those exporting countries, natural resource rents create hope and promise for development which can be a seductive force. This book explores the depth of extractivism in economies around the world. The contributions to this book investigate the connection between the political economy of extractivism and its impact on the sociopolitical fabric of natural resource exporting societies in Asia, Africa, Latin America, and Eastern Europe. The book engages with a comparative perspective on the persistence of extractivism in these four different world regions. The book focuses on the formative power of rents and argues that rents are seductive. The individual contributions flesh out this seductive force of rents on different political scales and how this seduction affects a variety of actors. The book investigates how these actors react to the prevalence of rent, how they align or break with specific political and economic strategies, and how myths of resource-driven development play out on the ground. The book, therefore, underlines that rent theory bridges current debates in different area communities and offers fresh insights into extractivist societies’ social, economic, and political dynamics. This book will be of significant interest to readers in political economy, political science, development studies, and area studies. Hannes Warnecke-Berger is coordinator of the collaborative research project www.extractivism.de and Senior Researcher at the Institute of Political Science at the University of Kassel. Jan Ickler is a PhD student at the University of Kassel.

Global Challenges in Political Economy

Taxation and Inequality in Latin America New Perspectives on Political Economy and Tax Regimes Edited by Philip Fehling and Hans-Jürgen Burchardt The Political Economy of Extractivism Global Perspectives on the Seduction of Rent Edited by Hannes Warnecke-Berger and Jan Ickler For more information about this series, please visit: www.routledge.com/GlobalChallenges-in-Political-Economy/book-series/GCPE

The Political Economy of Extractivism Global Perspectives on the Seduction of Rent Edited by Hannes Warnecke-Berger and Jan Ickler

First published 2024 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2024 selection and editorial matter, Hannes Warnecke-Berger and Jan Ickler; individual chapters, the contributors The right of Hannes Warnecke-Berger and Jan Ickler to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-032-30058-0 (hbk) ISBN: 978-1-032-30059-7 (pbk) ISBN: 978-1-003-30326-8 (ebk) DOI: 10.4324/9781003303268 Typeset in Bembo by SPi Technologies India Pvt Ltd (Straive)

Contents

List of Contributors Introduction: The Political Economy of Extractivism

vii 1

HANNES WARNECKE-BERGER AND JAN ICKLER

PART I

Global Configurations

15

1 Trade, Unequal Specialization, and the Persistence of Extractivism

17

HANNES WARNECKE-BERGER

2 Rent, Profit, Mass Consumption, or the Political Economy of Taming Rent

42

HARTMUT ELSENHANS

PART II

Actors, Strategies, and the Politics of Rent

65

3 Uganda’s State Class and the Politics of Oil

67

JULIAN FRIESINGER

4 Extractivism and the Resurgence of the Agrarian Elite: The Case of Coal Mining in Cesar, Colombia

84

KRISTINA DIETZ

5 The Patronal Politics of Regional Development Projects: Exploring Russia’s Far Eastern Rent Management SEBASTIAN HOPPE

104

vi Contents

6 Patronage Networks and the Hope for a Better Future: Coal Mining in Indonesia

123

KRISTINA GROßMANN

PART III

Rent and Societies: Legacies, Trajectories, and Inertias

137

7 Analyzing Rentier Societies: The Case of Venezuela

139

STEFAN PETERS

8 Wasn’t the AKP a Developmental Coalition? The Shifting Political Settlement of the AKP

162

LUDWIG HEHL

9 Resource Boom and Social Policy in Authoritarian Regimes: A Case Study of Russia

181

HEIKO PLEINES AND ANDREAS HEINRICH

10 Rents Hinder Capitalism: The Rentier Middle Classes in the Middle East

199

RACHID OUAISSA

Conclusion: Extractivism and the Seduction of Rent

215

JAN ICKLER AND HANNES WARNECKE-BERGER

Index

223

Contributors

Kristina Dietz, Dr., Professor of International Development at the University of Vienna Hartmut Elsenhans, Dr., Emeritus Professor of International Relations at the University of Leipzig Julian Friesinger, PhD student at the University of Bremen. Kristina Großmann, Dr., Professor for Anthropology of Southeast Asia at the University of Bonn Ludwig Hehl, PhD student at the University of Kassel Andreas Heinrich, Dr., Senior Researcher at the Research Centre for East European Studies at the University of Bremen. Sebastian Hoppe, PhD student at the Free University of Berlin Jan Ickler, PhD student at the University of Kassel. Rachid Ouaissa, Dr., Professor of Politics of the Middle East at the PhilippsUniversity of Marburg Stefan Peters, Dr., Professor of Peace Studies at the Justus-Liebig-University of Gießen Heiko Pleines, Dr., Professor of Comparative Politics at the University of Bremen Hannes Warnecke-Berger, Dr., coordinator of the collaborative research project www.extractivism.de and Senior Researcher at the Institute of Political Science at the University of Kassel

Introduction The Political Economy of Extractivism Hannes Warnecke-Berger and Jan Ickler

Extractivism is big business. The extraction and export of natural resources1 continue to shape the lives of a substantial share of the world population. Today, more than 100 economies in the international division of labor have specialized in exporting raw materials, minerals, fossil fuels, and agricultural products (United Nations Commission on Trade and Development 2019). However, extractivism is not only connected to the production and export of natural resources but also linked to issues of distribution. Flows of raw materials reflect the North-South divide: energy transitions in the Global North and efforts to industrialize and catch up in economies like China or India lead to a rising global raw material demand. This demand tends to amplify and deepen existing patterns of extractivism while also opening spaces for new extractivist practices (Warnecke-Berger, Burchardt, and Ouaissa 2022). Thus, extractivism is continuing its own history. After 1945 and during decolonization, many political leaders have begun associating increasing revenues from raw material exports with enormous hopes for economic and social development. Because natural resource exports promise windfall gains, they have become synonymous with national progress. Thus, a development myth based on natural resources has emerged, nourishing the drive toward national self-determination over raw material deposits. This myth materialized in claims initially discussed at the Havana and the Bandung Conferences in 1948 and 1955, laying the ground for United Nations (UN) resolution 1803 in 1962 regarding the permanent sovereignty over natural resources. The myth also led to intense discussion over a New International Economic Order during the 1970s. Since then, this myth has repeatedly been linked to the idea that the international transfer of money from rich to poor countries would propel development. Consequently, the call for better prices for natural resources on the world market has become a central political claim.2 Better prices also regularly stir up expectations to eventually overcome the dependence on natural resources by using windfall gains for development policies. A diverse array of political couleurs from left to right and authors ranging from Neoclassic over Neoliberalism to orthodox Marxism have fallen prey to this myth of development. Nevertheless, extractivism has turned out to be a very persistent phenomenon. This persistence is surprising due to a number of reasons. First, extractivism is risky. Prices for raw materials are highly volatile. Intense boom periods with DOI: 10.4324/9781003303268-1

2  Hannes Warnecke-Berger and Jan Ickler increasing world market prices and revenues from natural resource exports – as the world experienced in the decade after 2003 – are followed by dramatic busts due to decreasing export earnings and shrinking quantities sold when prices fall sharply (Williamson 2012; van der Ploeg and Poelhekke 2009). International price volatilities also translate into recurrent domestic crises, threatening to wipe out achievements of high-price periods. Second, extractivism is dirty. Natural resource exploitation and processing deeply intervene in nature (Bardi 2014; Carter and Wynn 2020; Dunlap and Jakobsen 2020). Deforestation, oil spills, and a remarkable carbon footprint are the main concerns of a growing body of literature on the topic. In addition to ecological threats, extractivism has serious social and health effects on the local populace. This discussion has grown further and taken on more importance as it links resource extraction to socio-ecologic conflicts and civil wars (Conrad et al. 2019; Billon and Philippe 2001). Third, extractivism is contested. Governments, often together with transnational corporations (TNCs), push for deepening and expanding extraction (Kirsch 2014; Welker 2014). Social movements, in contrast, are engaged in changing the course of extractivism. The resulting social conflicts over extractivism can disrupt entire societies and often threaten to erupt into violence (Kröger 2021a; Menton and Le Billon 2021; Neville 2021; Shapiro and McNeish 2021; Dietz and Engels 2017). These contrasting approaches underline that extractivism is prone to crises, suggesting that it should collapse one day because of its political and economic contradictions, environmental barriers, or being overcome through intelligent policies. Why has extractivism been such a persistent phenomenon despite these negative consequences? The literature provides two different sets of answers to this question. The first set focuses on the external conditions that force countries to adapt to extractivism. As the demand for raw materials stems from only a few countries – the Global North, China, and India, precisely where the mining companies have their headquarters – many authors relate extractivism to imperialism (Veltmeyer and Petras 2014; Brand and Wissen 2013). In resemblance to discussions of the dependency theory, this view contends that global capitalism forces societies of the Global South3 to provide raw materials for the centers of industrial production in the Global North. Capitalism would create dependent social structures and class configurations in resource-exporting countries (Dunlap and Jakobsen 2020; Amin 1973; Cardoso and Faletto 1979; Palestini and Madariaga 2021). This reasoning also highlights the colonial legacies of raw material exports (Acosta 2013), stressing global power hierarchies and linking natural resource exploitation to neocolonial practices (Joseph 2019; Kröger 2021b). These approaches mostly point to exogenous causes for the rise, the dynamics, and the persistence of extractivism in countries of the Global South. The second set of answers focuses more on the domestic roots of extractivism. Neoclassical and institutionalist approaches highlight endogenous factors that led to the rise, demise, and/or overcoming of extractivism (Auty and Furlonge 2019; Ross 2012; Auty 2001). This answer relates the persistence of extractivism to weak institutions (Acemoglu and Robinson 2013), to the behavior of elites (Pritchett, Sen and Werker 2018; Amsden, DiCaprio, and Robinson 2012), or to malfunctioning markets that allow rent-seeking in the first place (Kadt and Simkins 2013). Whereas the first answer focuses primarily on international

Introduction  3 relations of power and exploitation and tends to ignore internal causation, the second is precisely the opposite. Here, domestic structural features are seen as general explanatory factors, but exogenous factors, i.e., external to the cases, are ignored. This book aims at rebalancing these opposing approaches. In doing so, it draws a nuanced picture of the persistence of extractivism. It takes up the need for analyzing the interplay between international factors and domestic conditions in countries of the Global South. In doing so, this book pursues three concrete objectives that the remainder of this introduction will present: •

•

•

First, we bring together case studies from different world regions to offer a genuinely global perspective on the topic. This perspective allows us to create discussions among area specialists and contribute to a trans-regional and global debate. Second, going beyond the regionalized literature, we want to create a common ground for future discussions. We propose a political economy approach to extractivism and discuss the concept of rent. Although the literature on extractivism often mentions this concept (Vergara-Camus and Kay 2017; Rosales 2016; Tetreault 2020; Gudynas 2020), the role of rents is still underestimated. Third, this allows us to elaborate on a shared understanding and definition of extractivism and to take a closer look at the internal working of extractivism as a persistent development model in the current world economy, in which the seductive power of rents is crucial.

In pursuing these three objectives, we lastly want to shed light on the following dilemma that posits a challenge to many countries of the Global South: creating a sustainable future necessarily means overcoming extractivism. Thus, at one point, windfall earnings from resource exports have to be used to eradicate extractivism and enable alternative development strategies (Addison and Roe 2018). However, intensifying extractivism to make the necessary financial resources for this endeavor available tends to reinforce existing structures. As extractivism and the underlying economic rents remain seductive, intensifying extractivism might not lead to alternative development models. More often than not, and despite numerous efforts, history shows that extractivism persists.

Regionalized Discussions on Extractivism The first objective of this volume is to bring together regional accounts of extractivism to establish a global perspective. As of yet, the literature on extractivism is highly regionalized, and cross-area research remains relatively scarce (e.g., Bebbington et al. 2018). While extractivism has provoked many studies within particular world regions investigating the detailed working of raw material production and export, cleavages between different research communities are visible. Different disciplines, such as economics, social sciences, and history, have widely debated natural resource-driven development, in which contrasting theoretical

4  Hannes Warnecke-Berger and Jan Ickler approaches and methodological toolkits compete. However, these various fields of inquiry remain disconnected and even depart from one another. As development studies increasingly turn toward area studies, so does the conceptualization of their observations. On the one hand, local, national, and regional particularities are often subordinated to large-N statistical studies focusing on robust economic growth correlations, institutional strength, or political regime types. However, regional perspectives on extractivism have developed independently within area studies, leading to exciting and often complementary conceptual approaches. In Latin America, the concept of neo-extractivism has flourished since the commodity boom in the early 2000s (Burchardt and Dietz 2014; Burchardt, Dietz, and Warnecke-Berger 2021; Gudynas 2016; Acosta 2013; Veltmeyer and Petras 2014; North and Grinspun 2016; Deonandan and Dougherty, 2019). Neo-extractivism refers to natural resource export strategies paralleled with increasing social spending, particularly for marginalized groups. Neo-extractivism is often associated with left-wing “pink tide” governments and their reformist – sometimes revolutionary – claims. However, rather than diversifying exports and dynamizing the domestic economic structure, this “commodity consensus” (Svampa 2015) led to the reprimarization of exports (Cypher 2009) and increasing dependence on raw materials coupled with higher levels of redistribution of natural resource revenues. In the Middle East and North Africa, both state-class theory (Elsenhans 1996) and the rentier state concept have been attracting attention for some time. Introduced by Mahdavy (1970) and popularized by Beblawi and Luciani (1987), rentier state theory focuses on political regimes in oil-exporting countries. It relates the strong dependence on oil exports to barriers to economic development and shows that this dependence shapes political regimes, including a certain tendency toward authoritarianism. The state-class theory further expands its focus on state-society relations and recently pointed to middle-class dynamics in shaping the outcomes of the Arab Spring (Ouaissa 2014). In the post-soviet region and Central Asia, and particularly in Russia and Kazakhstan, where the exploitation of natural gas is paramount, the concepts of “patrimonial capitalism” (Schlumberger 2008) and “rentier capitalism” (Sanghera and Satybaldieva 2021) have become prominent. They describe an inevitable fragmentation of capitalist practices and entanglements with clientelism, bribery, and other forms of corruption. Here, and against the conceptualizations in Latin America and the Middle East and North Africa, the analysis of the economic system, as well as geopolitics, is at the forefront. The concepts delineate the long process of authoritarian regimes rising to competition on the world market due to commodity exports (Heinrich and Pleines 2015). As a result of this integration into the world market, the economies of patrimonial states need to adapt to a changing environment in which “strong states” are empowered to redistribute the revenues from commodity exports but need to accept a certain degree of competition on external markets (N. Robinson 2011). The discussion on sub-Saharan Africa seems to be much more focused on political regimes than on their economic foundations (but see Saunders and Caramento 2018). Notably, the concept of neopatrimonialism (Erdmann and Engel 2007; Mkandawire 2015) plays a pivotal role. At its center is the concentration of power,

Introduction  5 which often remains in the hands of a single president and focuses on channeling state resources into political legitimacy. Many authors use the concept to explain why sub-Saharan Africa has economically underperformed during the last several decades, particularly emphasizing the low capacity of states to collect taxes or the siphoning of surplus in order to fuel clientelism and patronage (van de Walle 2001). In sum, while each of these approaches highlights essential factors in explaining the depth of extractivism, they only rarely speak to each other. For instance, the discussion on extractivism in Africa often leans on the experiences of “developmental states” (Haggard 2018) in Southeast and East Asia, somewhat neglecting Latin America. The discussion in Latin America, in turn, largely ignores African as well as Central Asian contributions to the debate. These competing approaches almost exclusively focus on a partial set of variables within specific regional backgrounds, highlighting regional articulations of the state and political institutions, culture, identity, and economic factors. A comparative view of different regional experiences and a cross-area perspective on extractivism are still lacking. These approaches indeed support the idea that extractivism is a persistent feature despite the recurrent crisis tendencies. Self-enrichment of the few and defending the political status quo seems to outperform long-term improvements for the masses. Extractivism and its underlying logic turn out to be seductive. Thus, what often starts as a development strategy that channels raw material money into development usually becomes problematic. Rather than diversification and auto-centric development with broad popular support, clientelism, elite power, non-democratic, and even authoritarian rule prevail and grow stronger.

The Internal Dynamics of Extractivism: Rent The second objective of this book is to learn from these different and highly regionalized approaches and contribute to an ongoing discussion about the internal dynamics of extractivism. This, of course, depends foremost on definitions. For instance, the UN Commission on Trade and Development (2021, v) defines resource dependence and extractivism as an export share of natural resources on total exports of at least 60 percent. Gudynas (2020, 6), advancing from this concept, defines extractivism based on three criteria: high volumes of extraction, no local processing, and the exportation of at least 50 percent of natural resources. This definition focuses on intensity, quantities, and the process of extraction. However, the view of the qualitative depth of extractivism is somewhat confused. Such accounts merely take an epiphenomenon as the starting point, usually export dependence. In contrast, we contend that extractivism should be relinked to its specific qualities, focusing on two dominant logics: (1) the enclave character of extractivist economies and (2) modes of appropriation and redistribution of resource revenues. Regarding the first logic, extractive sectors form small enclaves, isolated, often remote, and disconnected from other economic activities. This enclave character not only refers to the place of resource production itself but also considers the general economic structure. While the extractive sector usually contributes significantly to the gross domestic product and total exports, it adds little to employment (Ericsson

6  Hannes Warnecke-Berger and Jan Ickler and Löf 2018). Many net-raw material exporting countries are trapped in a structural and stable un- and underemployed equilibrium in the domestic sphere. Regarding the second logic, extraction is also linked to the multiple processes of appropriation and redistribution of wealth emanating from natural resources (Ye et al. 2020). This second logic potentially dominates extractivism in economic, political, social, and cultural terms (Mezzadra and Neilson 2017). Both logics highlight the relevance of economic structures and configurations of actors involved in and benefiting from extractivism. Moreover, they point to the necessity of a macro concept that can relink both logics. We argue that the concept of rent achieves precisely linking both logics. Rents are a particular form of economic surplus. In contrast to capitalist profit that depends on net investment and market mechanisms, especially competition, rents cannot be appropriated through market mechanisms (see also the contribution by Hartmut Elsenhans in this volume). They can only be siphoned off through political mechanisms.4 Rents, then, imply a natural or political monopoly that prevents the production of the same good with the same means more efficiently at lower prices. We, consequently, propose that actors in such societies appropriate rents because of their control of market restrictions, monopolies, or political power (Warnecke-Berger 2021). The literature regularly tends to understate or even ignore the formative impact and the social embeddedness of rents. Prevailing perspectives focus on the presence and/or absence of natural resources, equaling rents with certain raw materials, commodities, and natural resources (Warnecke-Berger 2022). Terms such as “oil rent” or “copper rent” are showcases of these imprecisions. We, in contrast, emphasize the relative distance between the production process, hence the extraction of natural resources in the narrower sense, and the realization of rents in monetary terms, which mostly happens on international markets. Therefore, the source of rent and its multiple forms of appropriation need to be carefully distinguished. While rents create autonomy from diverse economic, social, and political constraints, they encourage agency, at least for those who decide on the course of extractivism. Rents tend to nourish the image of a positive-sum game for all players involved. Consequently, different actors and social groups engage in alliance-building and social conflicts to organize access to rent. For their legitimization, political actors may choose the redistribution of rents. Thus, the dominance of rent influences actors’ strategies, institutional settings, and class configurations. Societies in which rent is ubiquitous are characterized by centralized access to surplus, often through and by the state. The control, appropriation, and redistribution of rent are highly interwoven with political power and often even with violence (Warnecke-Berger 2018). Political accountabilities tend to be rather verticalized, and elite rule becomes strengthened.

The Political Economy of Extractivism The third objective of this volume is to establish a common conceptual ground for analyzing extractivism. Our theoretical focus on rent elaborated on earlier allows us to define extractivism in qualitative terms. Accordingly, extractivism means that

Introduction  7 rents dominate society’s surplus structure. In this regard, rents influence and even dominate the social reproduction of extractivist societies in all its facets.5 Following this perspective, the qualitative significance of rent is the defining factor of extractivism. Rents also open windows of opportunity for development; they influence economic structures and impact political processes, responsibilities, and (national) identities.6 However, rents are seductive, and actors regularly choose to maintain the rent flows and neglect to follow alternative strategies to abandon extractivism. In its totality, we understand extractivism as a development model that shapes entire societies rather than singular economic sectors. In our perspective, thus, extractivism is defined by three interlinked phenomena: (i) export specialization on raw materials, (ii) surplus structure dominated by rent and the appropriation of rent, and (iii) the social reproduction being dependent on rent. This definition provides several advantages: first, it introduces the concept to an interdisciplinary field of research and formulates a veritable political economy perspective that engages in discussion with economics, political science, sociology, and anthropology.7 Second, the definition shifts the focus toward elaborating on the underlying drivers of extractivism – hence on mechanisms and forces – rather than scrutinizing the surface appearances of extraction. Third, this perspective allows us to relink the concrete sites where extraction happens on the ground with broader societal dynamics that are not directly linked to extraction. Finally, this perspective permits us to re-approach the continuities and changes of extractivism and illuminate why extractivism proves so persistent.

Persistence of Extractivism and the Seduction of Rent: Cases Presented in this Volume Following our definition of extractivism, this book presents several case studies on extractivism in different world regions. In reference to the literature, they show that extractivism materializes in variegated political measures on different scales (such as local, national, or regional development plans). Additionally, different extractivist societies feature particular institutional settings (e.g., statehood, tax regimes, currency exchange regimes, resource management and resource nationalism, property rights regimes). They portray various configurations, alliances, and conflicts between actors (such as state actors, political parties, labor unions, interest groups, national enterprises, TNCs, civil society movements, and nongovernmental organizations). Furthermore, the cases presented in this volume delve into different factors, conditions, and processes that render extractivism persistent. The contributions employ different methodological and theoretical perspectives, focusing on rents and their impact on societies, actors, policies, and institutions. In this regard, they collectively contribute to uncovering the concrete ways in which the seductive power of rents unfolds and how rents accruing from natural resources shape societies in the Global South at different times. The presentation of cases is structured in three blocks. The first one is devoted to introducing global conditions for extractivism from a rent-theoretical perspective. How are rents from exporting natural resources linked with specialization patterns of economies in the Global

8  Hannes Warnecke-Berger and Jan Ickler South? What are possible ways for extractivist societies to overcome the dependence on rent? In his chapter, Hannes Warnecke-Berger analysis first the specialization on natural resource exports by using a neo-Keynesian and neo-Ricardian framework. The chapter shows how historically, the emergence of rents in the international economic structure pushes economies to specialize in raw material exports. By covering the last 80 years, Warnecke-Berger shows the persistence of extractivism and rents. Hartmut Elsenhans picks up this threat by discussing the formative power of rents on resource-exporting countries of the Global South – including the emergence of state classes. His chapter then portrays the internal and external conditions under which development, in the sense of overcoming rent, might be possible. In doing so, Elsenhans mixes a thorough theoretical consideration of rent with illustrative examples from all over the world, arguing that cleverly designed development policies that use natural resource rents to overcome them might prove a solution for transitioning out of extractivism – although this path is highly unlikely. The book’s second section sheds light on domestic configurations in extractivist countries. This includes an analysis of actors and their strategies that shape and are shaped by extractivism. The individual contributions show how the seduction of rent plays out at different scales and is affecting development coalitions, governments, workers, and class relations. As a rather atypical case in this selection, Julian Friesinger focuses on Uganda, featuring a political configuration in which natural resource rents have not become dominant yet. The chapter shows how the projected revenues from freshly found oil deposits begin to shape the expectations for development and how the to-be-expected rents influence the relations between different actors. In this way, the Ugandan case sheds light on the moment of a lock-in on the natural resource-riven development model and how the conflicts around future rent evolve even before natural resource exports are started. Kristina Dietz engages with a similar topic: the relationship between different classes in changing rent flows. The chapter deals with the strategic adaptation of traditional land-based elites in Colombia in the face of new economic challenges. The chapter demonstrates how elites might choose to change from one rent source to another. In the study of Dietz, this is forgoing traditional lad-based-revenues for acquiring new ones in the context of Colombia’s coal mining boom. The contribution shows that even if economic activity changes, e.g., from agriculture to land speculation, elites tend to stabilize extractivist patterns. While the case of Colombia emphasizes the role of elites, Sebastian Hoppe, in his chapter about rent management in Russia, directs the reader’s attention to patronage client relationships and the state. His contribution analyzes the Russian rent-led development strategy by focusing on newly planned and established shipyards. Hoppe investigates the dynamic between different strategic groups inside the Russian developmental state and how natural resource rents are managed to propel development. In doing so, this chapter unravels the distinct logic of patronage, as well as the aspect of foreign and military policy. In the last contribution of block three, Kristina Großmann switches the scale of analysis by focusing on coal workers and their families located in patronage networks in Indonesia. She links the revenues generated by the countries booming coal industry to the everyday

Introduction  9 livelihoods of the people affected. Her contribution shows how parts of the population that, while directly affected by the negative consequences of extractivism, can be co-opted by receiving parts of the rent. Thus, Großmann expands on the dimension of seduction of rents by including the following. The authors in the third bloc of the book demonstrate to what extent extractivist societies are reproduced by rent. This concept of the rent-based society provides insights into the social, economic, and cultural mechanisms that tend to stabilize extractivism. Stefan Peters chooses one of the posterchild of extractivism in Latin America, Venezuela, to illustrate this hypothesis. In his chapter, Peters covers Venezuelan extractivism from a historical perspective, demonstrating the longlasting impact oil exports and the accompanying rent had on Venezuelan society. He identifies political, social, and cultural causes for the persistence of extractivism and the mechanisms by which the population could be integrated into the development paradigm. Heiko Pleines and Andreas Heinrich introduce a different facet of the seduction of rent. Unlike Venezuela, they show with regard to Russia that integration of the population through social policies in Russia is not as responsive as assumed by existing theoretical and empirical approaches. Thus, while the seduction of rent is still the case in Russia, the channels of this seduction vary. In exemplifying their argument, Pleines and Heinrich also refer to the role of political ideology as a means of integrating the population into a development project. In Turkey, a developmental coalition that could push through rent management patterns leading to industrialization failed. Ludwig Hehl analyzes this case by highlighting the importance of sound and working alliances between development coalitions and other social forces. In doing so, Hehl identifies the seductive force of rents as a limiting factor to crafting such alliances. The chapter demonstrates that, although a developmental coalition might be strong enough by itself, the logic of rent can render development projects impossible due to missing inter-class relations. Middle classes are often seen as essential for modernization, democratization, and economic growth. In his contribution, Rachid Ouaissa, by describing the role of the middle classes in Maghreb and Egypt, shows how these societies have depended on the logic of rent. Rather than a modernizing factor, natural resource-driven development gave direction to conservative, passive middle classes that allied with the rent-distributing elites. The contributions of this volume show that the seduction of rent is manifold. However, the mechanisms of this seduction and individual facets of certain actor constellations, elite strategies, and state institutions are similar. We perceive the logic of rent to be the connecting factor. The last chapter of this volume, apart from working as a conclusion, develops this idea further.

Notes 1 There is no finally shared definition of natural resources, raw materials, and primary commodities. The following definition, therefore, servers as a starting point: natural resources are unprocessed materials that potentially serve living beings to manage their existence and livelihood. Raw materials are part of natural resources that are further processed to enter production and consumption eventually. Primary commodities, in turn, are raw materials that are (internationally) traded and therefore commodified.

10  Hannes Warnecke-Berger and Jan Ickler 2 This line of argument, focusing on unfavorable price developments for primary commodities and declining terms of trade, was discussed relatively early (Singer 1950; Prebisch 1962). A large body of empirical literature has since attempted not only to research the evolution of the terms of trade but also to explain the causes for their volatility, as well as their deterioration. Furthermore, these arguments played a crucial role in development strategies such as import substitution (Ahmed 1989). 3 In this introduction, the meaning of “Global South“ is guided by the considerations of Dados and Connell (2012). 4 At the same time, rents appear as a particular form of income following standard textbook descriptions on the micro-level: those who control rents can freely use them. This might lead to economic sectors and parts of the population being dependent on rent transfers, often imprecisely described as market distortion. 5 The connection between rent and social reproduction links to the debates put into the discussion by the feminist political economy (Bakker 2007). 6 However, we cannot deduce actual development strategies, relevant actor constellations, and their choices from the existence of rents. As rents do not automatically end up in the pockets of the powerful, actors need to appropriate rents to use them. Thus, the mode of appropriation is crucial and can be specific to different countries. 7 On the one hand, this discussion revolves around the surplus structure of entire societies. This includes the income of individuals but further points to the need for analyzing the market process, including the market’s mechanisms to exploit, use, and reinvest surplus. On the other hand, it has to focus on the non-market sphere and mechanisms that allow for appropriating economic surplus by circumventing, uncoupling, blocking, or even abolishing the market (Warnecke-Berger 2022). The approach then opens the debate for the detailed experiences that area studies have and still produce on the topic.

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Introduction  11 Bebbington, Anthony, Abdul-Gafaru Abdulai, Denise H. Bebbington, Marja Hinfelaar, and Cynthia Sanborn, eds. 2018. Governing Extractive Industries: Politics, Histories, Ideas. Oxford: Oxford University Press. Beblawi, Hazem, and Giacomo Luciani, eds. 1987. The Rentier State. London: Croom Helm. Le Billon, Philippe. 2001. “The Political Ecology of War: Natural Resources and Armed Conflicts.” Political Geography 20 (5): 561–84. Brand, Ulrich, and Markus Wissen. 2013. “Crisis and Continuity of Capitalist SocietyNature Relationships: The Imperial Mode of Living and the Limits to Environmental Governance.” Review of International Political Economy 20 (4): 687–711. Burchardt, Hans-Jürgen, and Kristina Dietz. 2014. “(Neo-)Extractivism – a New Challenge for Development Theory from Latin America.” Third World Quarterly 35 (3): 468–86. Burchardt, Hans-Jürgen, Kristina Dietz, and Hannes Warnecke-Berger. 2021. “Dependency, Rent, and the Failure of Neo-Extractivism.” In Dependent Capitalisms in Contemporary Latin America and Europe, edited by Stefano Palestini and Aldo Madariaga, 207–29. London, New York: Palgrave Macmillan. Cardoso, Fernando H., and Enzo Faletto. 1979. Dependency and Development in Latin America. Berkeley, Los Angeles: University of California Press. Carter, Angela V., and Graeme Wynn. 2020. Fossilized: Environmental Policy in Canada’s Petro-Provinces. Vancouver: UBC Press. Conrad, Justin M., Kevin T. Greene, James I. Walsh, and Beth E. Whitaker. 2019. “Rebel Natural Resource Exploitation and Conflict Duration.” Journal of Conflict Resolution 63 (3): 591–616. Cypher, James M. 2009. “¿Vuelta Al Siglo XIX? El Auge De Las Materias Primas Y El Proceso De ‘Primarización’ En América Latina.” Foro Internacional 49 (195): 119–62. Dados, Nour, and Raewyn Connell. 2012. “The Global South.” Contexts 11 (1): 12–13. Deonandan, Kalowatie, and Michael L. Dougherty, eds. 2019. Mining in Latin America: Critical Approaches to the New Extraction. London: Routledge. Dietz, Kristina, and Bettina Engels. 2017. “Contested Extractivism, Society and the State: An Introduction.” In Contested Extractivism, Society and the State: Struggles over Mining and Land, edited by Bettina Engels and Kristina Dietz, 1–19. London: Palgrave Macmillan. Dunlap, Alexander, and Jostein Jakobsen. 2020. The Violent Technologies of Extraction: Political Ecology, Critical Agrarian Studies and the Capitalist Worldeater. Cham: Springer International Publishing. Elsenhans, Hartmut. 1996. State, Class and Development. New Delhi: Radiant Publishers. Erdmann, Gero, and Ulf Engel. 2007. “Neopatrimonialism Reconsidered: Critical Review and Elaboration of an Elusive Concept.” Commonwealth & Comparative Politics 45 (1): 95–119. Ericsson, Magnus, and Olof Löf. 2018. “Mining’s Contribution to Low- and MiddleIncome Economies.” In Extractive Industries: The Management of Resources as a Driver of Sustainable Development, edited by Tony Addison and Alan Roe, 51–70. Oxford, London: Oxford University Press. Gudynas, Eduardo. 2016. “Beyond Varieties of Development: Disputes and Alternatives.” Third World Quarterly 37 (4): 721–32. ———. 2020. Extractivisms: Politics, Economy and Ecology. Black Point: Fernwood Publishing. Haggard, Stephan. 2018. Developmental States. Cambridge: Cambridge University Press. Heinrich, Andreas, and Heiko Pleines. 2015. “Mixing Geopolitics and Business: How Ruling Elites in the Caspian States Justify Their Choice of Export Pipelines.” Journal of Eurasian Studies 6 (2): 107–13.

12  Hannes Warnecke-Berger and Jan Ickler Joseph, Sabrina, ed. 2019. Commodity Frontiers and Global Capitalist Expansion: Social, Ecological and Political Implications from the Nineteenth Century to the Present Day. London, New York: Palgrave Macmillan. Kirsch, Stuart. 2014. Mining Capitalism: The Relationship Between Corporations and Their Critics. Oakland: University of California Press. Kröger, Markus. 2021a. Iron Will: Global Extractivism and Mining Resistance in Brazil and India. Ann Arbor: University of Michigan Press. ———. 2021b. Extractivisms, Existences and Extinctions: Monoculture Plantations and Amazon Deforestation. London, New York: Routledge. Mahdavy, Hussein. 1970. “The Patterns and Problems of Economic Development in Rentier States: The Case of Iran.” In Studies in the Economic History of the Middle East, edited by M. A. Cook, 428–67. Oxford, London: Oxford University Press. Menton, Mary, and Philippe Le Billon, eds. 2021. Environmental Defenders: Deadly Struggles for Life and Territory. London, New York: Routledge. Mezzadra, Sandro, and Brett Neilson. 2017. “On the Multiple Frontiers of Extraction: Excavating Contemporary Capitalism.” Cultural Studies 31 (2–3): 185–204. Mkandawire, Thandika. 2015. “Neopatrimonialism and the Political Economy of Economic Performance in Africa: Critical Reflections.” World Politics 67 (3): 563–612. Neville, Kate J. 2021. Fueling Resistance: The Contentious Political Economy of Biofuels and Fracking. New York: Oxford University Press. North, Liisa L., and Ricardo Grinspun. 2016. “Neo-Extractivism and the New Latin American Developmentalism: The Missing Piece of Rural Transformation.” Third World Quarterly 37 (8): 1483–504. Ouaissa, Rachid. 2014. Die Rolle der Mittelschichten im Arabischen Frühling: Ein Überblick. Wiesbaden: Springer VS. Palestini, Stefano, and Aldo Madariaga, eds. 2021. Dependent Capitalisms in Contemporary Latin America and Europe. London, New York: Palgrave Macmillan. Prebisch, Raúl. 1962. “The Economic Development of Latin America and Its Principal Problems.” Economic Bulletin for Latin America 7 (1): 1–22. Pritchett, Lant, Kunal Sen, and Eric Werker. 2018. Deals and Development: The Political Dynamics of Growth Episodes. New York: Oxford University Press. Robinson, Neil. 2011. “Russian Patrimonial Capitalism and the International Financial Crisis.” Journal of Communist Studies and Transition Politics 27 (3–4): 434–55. Rosales, Antulio. 2016. “Deepening Extractivism and Rentierism: China’s Role in Venezuela’s Bolivarian Developmental Model.” Canadian Journal of Development Studies/ Revue canadienne d’études du développement 37 (4): 560–77. Ross, Michael L. 2012. The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. Princeton: Princeton University Press. Sanghera, Balihar, and Elmira Satybaldieva. 2021. Rentier Capitalism and Its Discontents: Power, Morality and Resistance in Central Asia. Cham: Palgrave Macmillan. Saunders, Richard, and Alexander Caramento. 2018. “An Extractive Developmental State in Southern Africa? The Cases of Zambia and Zimbabwe.” Third World Quarterly 39 (6): 1166–90. Schlumberger, Oliver. 2008. “Structural Reform, Economic Order, and Development: Patrimonial Capitalism.” Review of International Political Economy 15 (4): 622–49. Shapiro, Judith, and John-Andrew McNeish, eds. 2021. Our Extractive Age: Expressions of Violence and Resistance. New York: Routledge. Kadt, Raphael de, and Charles Simkins. 2013. “The Political Economy of Pervasive RentSeeking.” Thesis Eleven 115 (1): 112–26.

Introduction  13 Singer, H. W. 1950. “U.S. Foreign Investment in Underdeveloped Areas. The Distribution of Gains Between Investing and Borrowing Countries.” American Economic Review 40 (2): 473–85. Svampa, Maristella. 2015. “Commodities Consensus: Neoextractivism and Enclosure of the Commons in Latin America.” South Atlantic Quarterly 114 (1): 65–82. Tetreault, Darcy. 2020. “The New Extractivism in Mexico: Rent Redistribution and Resistance to Mining and Petroleum Activities.” World Development 126: online first. United Nations Commission on Trade and Development. 2019. Commodity Dependence: A Twenty-Year Perspective. Geneva: United Nations. ———. 2021. State of Commodity Dependence 2021. Geneva: United Nations Publications. van de Walle, Nicolas. 2001. African Economies and the Politics of Permanent Crisis, 1979– 1999. Cambridge: Cambridge University Press. van der Ploeg, F., and S. Poelhekke. 2009. “Volatility and the Natural Resource Curse.” Oxford Economic Papers 61 (4): 727–60. Veltmeyer, Henry, and James F. Petras, eds. 2014. The New Extractivism: A Post-Neoliberal Development Model or Imperialism of the Twenty-First Century? London, New York: Zed Books. Vergara-Camus, Leandro, and Cristóbal Kay. 2017. “The Agrarian Political Economy of Left-Wing Governments in Latin America: Agribusiness, Peasants, and the Limits of Neo-Developmentalism.” Journal of Agrarian Change 17 (2): 415–37. Warnecke-Berger, Hannes. 2018. Politics and Violence in Central America and the Caribbean. London, New York: Palgrave Macmillan. ———. 2021. “Rent, Capitalism and the Challenges of Global Uneven Development.” In Development, Capitalism, and Rent: The Political Economy of Hartmut Elsenhans, edited by Hannes Warnecke-Berger, 1–16. London, New York: Palgrave Macmillan. ———. 2022. “Rents, the Moral Economy of Remittances, and the Rise of a New Transnational Development Model.” Revue de la régulation 31 (2): 1–22. Warnecke-Berger, Hannes, Hans-Jürgen Burchardt, and Rachid Ouaissa. 2022. Natural Resources, Raw Materials, and Extractivism: The Dark Side of Sustainability. Extractivism Policy Brief 1/2022. Kassel: University of Kassel; Philipps-University of Marburg. Welker, Marina. 2014. Enacting the Corporation: An American Mining Firm in Post-Authoritarian Indonesia. Berkeley: University of California Press. Williamson, Jeffrey G. 2012. “Commodity Prices over Two Centuries: Trends, Volatility, and Impact.” Annual Review of Resource Economics 4 (1): 185–206. Ye, Jingzhong, Jan D. van der Ploeg, Sergio Schneider, and Teodor Shanin. 2020. “The Incursions of Extractivism: Moving from Dispersed Places to Global Capitalism.” Journal of Peasant Studies 47 (1): 155–83.

Part I

Global Configurations

1 Trade, Unequal Specialization, and the Persistence of Extractivism Hannes Warnecke-Berger

Introduction The international division of labor is hierarchical but changing, with extractivism rising. Extractivism is a highly persistent phenomenon. Extractivism is a development trap in which the exploitation and the export of raw materials are paramount (see introduction). At the same time, extractivism embodies a political prediction that links natural resource exploitation to international and domestic change. However, that has some theoretical weaknesses on closer examination, mainly because unequal specialization – the central causal element for the emergence of global unequal development – is not recognized as a causal variable or deduced from endogenous factors. This is the starting point for this chapter. This persistence is an issue through which the driving forces of the global economy become particularly evident. It is as the world economy has undergone a profound structural change in recent years, mainly attributed to the “rise of the Global South” (Dargin 2013; Gray and Gills 2016; Horner and Nadvi 2018), particularly China and India, and to the relative decline of Europe and North America as the engines of growth and prosperity (Itoh, Rowthorn, and Ghosh 2016). Nevertheless, the expectations of global convergence of growth rates, quality of life, and welfare have not yet been fulfilled, even though textbook economics continues to assume so. Global uneven development still is the norm rather than the exception, and this chapter argues that extractivism is one of the most visible of its expressions. More than a hundred economies in the world economy specialize in raw material exports. This picture has changed little in the last four decades (United Nations Commission on Trade and Development 2019). Apart from a few exceptions, these economies recurrently trap in an almost never-ending vicious cycle of export dependence and the inability to diversify; only a minor set has eventually escaped from this pattern of specialization (Torvik 2009). In a nutshell, upscaling, structural change toward value-added activities, and industrialization have been rare in the Global South. The commodity super-cycle experienced during the first 15 years of the new millennium created enormous expectations regarding the growth, development, welfare, and prosperity of those exporters of raw materials. While prices fell in the 2010s, quickly increasing due to geopolitical tensions such as the Ukrainian war, or structural transformations such as energy transitions in the Global North, they DOI: 10.4324/9781003303268-3

18  Hannes Warnecke-Berger are refueling these expectations. As a result, a new orthodoxy returns, one that relates terms of trade improvements directly to development, reminiscent of the discussions on a new economic international order in the 1970s. Obtaining better prices has advanced to a politically powerful discourse. It finds expression, for example, in how Venezuelan President Hugo Chavez discussed a just trade order and South-South cooperation or the claim for fair trade agreements in Europe and the United States. Although from different starting points, both Neoclassical and Marxist approaches bring this orthodoxy back to the discussion. Both approaches propose resource transfers from the North to the South to overcome extractivism and global unequal development. However, higher prices and higher revenues from raw materials exports did not translate into domestic growth or diversification. Explanations for this phenomenon have roots in extractivism as a development model. This chapter links extractivism and international trade1 to bridge the weaknesses in both bodies of literature, connecting domestic with international forces to explain the rise and persistence of extractivism. As a corollary, this chapter elaborates on the concept of unequal specialization,2 arguing that extractivism is an expression but not a cause of uneven global development. For that, it elaborates on a theoretical model that locates the emergence of rents and unequal specialization reinforced by uneven technological capabilities and structural unemployment as the root cause of extractivism. This concept of unequal specialization adds to the discussion on extractivism and international trade theory by linking domestic and international factors. Extractivism emerges and persists because the technological superiority of core capitalist economies forces underperforming economies to accept comparative advantages in extractivist branches. This way, rents are an essential explanatory factor for extractivism because they emerge within the international economy but shape the domestic sphere, where they reveal a seductive force. The chapter builds on neo-Ricardian and post-Keynesian heterodox political economy to connect the international to the domestic. It seeks to advance these approaches focusing on rents and unequal specialization. Therefore, the chapter shows that the structure of the current global economy necessarily generates rents. It maintains that the main problem with extractivism is not natural resources, endowments, raw material production, and exports per se but the logic of rents. In other words, the most relevant factor for explaining extractivism is not the availability of (cheap) natural resources but the structure of the domestic and the international markets that allows the generation of rents.

Trade and Global Uneven Development Marxist approaches to international trade presuppose a hierarchical division of labor associated with the nature of capitalism following the concept of unequal exchange (Emmanuel 1972) and imperialism (Amin 2018). Thus, uneven development is the logical outcome of diverging profit rates in different locations, sectors, or branches, a process that prevents the emergence of an economy-wide average profit rate (Marx 1972 [1894], 182–202). In its strictest sense, patterns of specialization follow functional assignments from core capitalist economies (Ricci 2019) and capitalism’s need for overexploitation of the labor force in the Global

Persistence of Extractivism  19 South (Féliz 2021). Similarly to Marxism, the extractivism literature usually highlights imperialism and capitalism’s laws of motion to establish and maintain the exploitation of raw materials in the Global South (Gudynas 2020; Harvey 2005). Recently, this debate has broadened to incorporate topics such as “unequal ecological exchange” (Somerville 2022; Infante-Amate and Krausmann 2019) and ecological imperialism (Hickel et al. 2022). However, similar to their theoretical predecessors, these new approaches cannot adequately explain the processes of change within the world economy and changing patterns of specialization that lead to shifts within the global power configuration. In turn, the competing mainstream perspective, the neoclassical model of international trade based on the Heckscher-Ohlin style comparative advantage, explains specialization patterns by factor endowments. Assuming full employment, domestic factor mobility, zero transaction costs, and excluding intermediary goods-producing sectors, the model predicts that economies with abundant labor specialize in exporting labor-intensive products. Economies with abundant capital specialize in exporting capital-intensive goods (Flam and Flanders 1991). In this perspective, the world is flat, and adjustment mechanisms immediately equilibrate asymmetries between economies. The convergence, in this model, is achieved by domestic and international relative price adjustments and ongoing specialization. Therefore, uneven development and diverging growth rates are just disrupting policy impacts that should dissolve over time through the impact of market forces. Then, extractivism becomes a usual pattern of specialization linked to natural resource endowments and the cheap accessibility of raw materials (Engerman and Sokoloff 1997). Both models are highly restricted to factors that are not realistic. The specificity of the models, particularly the neoclassical one, is far too narrow to explain the shift of specialization patterns and the timing of this shift. Furthermore and theoretically, in both perspectives, capitalism, as the main driver of this shift, is essentially described as dependent on what a particular group of actors within the system wants and does. Insofar, it is a genuinely non-relational, de-socialized perspective (Warnecke-Berger 2020, 116), and both models are less successful in capturing or even explaining processes of systemic change. To make this point more explicit: in textbook approaches to international trade, convergence is achieved due to internal and external adjustments, in the case of neoclassical economics, predominantly in the form of price adjustments. Given that two or more economies trade, countries specialize in following comparative advantage. As soon as one economy experiences a technological innovation that eventually reduces unit costs, internal and/or external demand will increase, and this economy will increase the volume of sales of this new product. New products usually experience higher price and income elasticities of demand, so the decrease in unit costs will increase volume sales. As a result, trade will increase, and the innovative economy will experience trade surpluses. Domestically, the sector in which the innovation once became implemented will attract more labor, and in the case of full employment, average real wages will rise. Thus, relative prices shift, and the currency appreciates. At the same time, as international prices for products from this economy increase, the non-innovative branches in this economy will lose international competitiveness.

20  Hannes Warnecke-Berger The most innovative economy plays a leading role as a growth pole of the world economy. Even though other economies do not introduce innovations that decrease their unit costs, these economies become competitive and eventually specialize in producing the now no longer cost-competitive branches of the innovative economy. Therefore, applying innovative (cost-reducing) technology in one economy can shift the comparative advantage of all other economies. Implicitly, therefore, even the neoclassical models underline that the international division of labor is technology-induced. However, as the innovative economy increasingly turns to producing its innovative product, the non-innovative economy increases the non-innovative product’s sales. It is being pushed into its existing pattern of specialization. Thus, the non-innovative economy drags along the more innovative economy. The backward economy cannot overturn the innovative economy without employing unit cost-reducing technology. It will be locked into the pattern of specialization induced by the technologically advanced economy. The defense against comparative cost advantages becomes more and more difficult as the technology gap between innovative and non-innovative economies increases (Cimoli, Pereima, and Porcile 2019). If, in turn, the once backward economy implements a new technology either in its “old” branches, or can set up an entire “new” branch, this economy can catch up and overturn the other economy. Therefore, convergence depends on three processes: first, on the flexible reaction of relative prices on introducing new technology in terms of currency exchange rate adjustments. Second, on the flexible reaction of real wages in the domestic sphere. For that, labor needs to be mobile, and real wage increases in one sector need to translate into economy-wide average real wages also increase independently of intersectoral labor productivity differences (Appelbaum and Schettkat 1995; Salter 1960). Finally, convergence depends on the capabilities to learn from the technologically advanced economies and apply technology that reduces costs and leads to higher volume sales (Dosi, Pavitt, and Soete 1990; Gerschenkron 1962). Hence, technology needs to spread equally. My argument is that, due to the prevalence of economic rents in the current world economy, these three criteria for convergence rarely materialize together. The following section, therefore, enters further into the discussion on rents.

The Necessary Emergence of Rents I argue that rents necessarily emerge in the international economy and are the root cause of uneven development. If rents are not neutralized, they undermine the adjustment mechanisms highlighted in the textbook models of international trade. Their persistence is even more aggravated if rents appear in the context of domestic structural unemployment and international technology gaps. Under these conditions, rents lead to unequal specialization. Unequal specialization, in its turn, signifies that economies are trapped in a subordinated development path characterized by the persistence of both structural unemployment and the incapability to introduce equitable innovations on the one side and rents and, therefore, significant revenues from the existing pattern of specialization.

Persistence of Extractivism  21 Rents can be defined as a surplus earned by a particular factor of production over and above the marginal earning necessary to employ this factor of production (Robinson 1933, 102). In other words, rents appear because (1) more than a single supplier of a particular product engages in production to meet global demand; (2) there are productivity gaps between the different producers; (3) producers sell at the same prices on global markets. Under these three conditions, the producer with lower than marginal production costs receives a rent. However, the appearance of rents is not initially a problem if offset by the aforementioned adjustments. In this case, a single producing economy would temporally enjoy an extra profit and then lose the advantage because competing economies adapt to the innovations and offset productivity gaps. Notwithstanding, rents become problematic if they are permanent, incentivizing the continuance of specific political structures that decide on the appropriation and the redistribution of rents. Rents distort the adjustment of international relative prices and lead to Dutch disease. Ricardian differential rents emerge at a given level of demand because production costs differ considerably, and production sites are not fully substitutable. Directing domestic economic activity to the rentier sectors, non-rentier sectors, and above all, manufacturing, experience rising relative prices. This process is even aggravated if the rentier sector imports technology instead of locally produced intermediate products – which most of them do (Poelhekke and van der Ploeg 2013). Furthermore, the disproportional high productivity of the rentier sector impacts the exchange rate, and exchange rates appear overvalued, a classic expression of the Dutch disease (Bresser-Pereira 2020; Bahar and Santos 2018; Corden and Neary 1982). Externally, the rentier sectors outperform the non-rentier sectors because of exchange rate level is too high under the impact of the rentier sector, thereby hampering the international competitiveness of the first. Thus, while overvalued exchange rates express Dutch disease, the hidden background is a sectoral production structure that can no longer respond flexibly to price incentives. This is a result of Ricardian rents. These rents distort the economy’s capacity to govern its activities through the price mechanism. Apart from the supply structure in production, the persistence of rent depends on the demand structure. Elasticities are, therefore, crucial to understand this mechanism. Usually, price elasticities of demand are distinguished from income elasticities. Price elasticity plays a unique role in the level of rent. Income elasticity, in turn, is significant in terms of how specialization patterns can be changed.3 If price elasticities are low, demand reacts inflexibly to changing export volumes. The reduction of supply then translates into increasing prices, and consumers are willing to cover higher costs. Producers receive a consumption rent. International export quotas can increase revenues, and suppliers receive an additional markup. Both factors highlight the importance of questions related to income distribution and underline that there are barriers to increasing production in established patterns of specialization focused on raw materials. If income elasticities are low, an increase in income does not translate into increasing demand for a particular good (the so-called Engel’s law), which is particularly relevant for raw materials and

22  Hannes Warnecke-Berger foodstuffs. Following these basic assumptions on demand structure, polarization within the world economy is normal as income elasticities for exports diverge, and growth is constrained by balance of payments problems (Thirlwall 2012). Adjustment mechanisms are finally offset if structural unemployment is recognized as a crucial factor. That is a further driver that supports uneven development. Indeed, a key characteristic of many Global South economies is structural underand unemployment, an argument first discussed by the classics of early development economics (Lewis 1954; Fei and Ranis 1964; Georgescu-Roegen 1960). An economy characterized by labor surplus can show high growth rates, but structural unemployment keeps impacting the patterns of sectoral change. Thus, structural unemployment exacerbates the effect of rents, further increasing intersectoral productivity differences. This way, the rentier sectors become increasingly decoupled from the rest of the economy. They might experience high levels of labor productivity growth, attracting a high share of investment (Botta 2009; Diao, McMillan, and Rodrik 2019), but they impact the non-rentier sectors, which lag in terms of labor productivity and real wage growth. Finally, rents reinforce international technology gaps, deepening unequal specialization even further. Catching up depends on learning, appropriating technological knowledge, and obtaining the capabilities to embed this knowledge into an existing production structure (Cimoli, Dosi, and Stiglitz 2009). However, learning is not a flat and automatic process. From the early beginnings of capitalist development, technology diffusion has been uneven (O’Rourke and Gale 2017). Switching from products with low-income elasticities to products with higher income elasticities is dependent on product cycles (Vernon 1966). Hausmann and Klinger (2006, 2) note that the probability that a country will develop the capability to be good at producing one good is related to its installed capacity in the production of other similar, or nearby goods for which the currently existing productive capabilities can be easily adapted. Nevertheless, newly developed products usually experience high price and income elasticities, but their production involves technological capabilities that must be first learned and incorporated. Outsourcing and technological diffusion thus follow the rules of product cycle theory, which states that old products with low-income elasticities are outsourced at first. However, it is precisely these product groups that are particularly prone to Ricardian rents. In a nutshell, this means that what you export matters (Ricardo Hausmann, Hwang, and Rodrik 2007).

Unequal Specialization and Development Traps These three issues together – the necessary emergence of rents and the rent’s propensity to persist due to structural unemployment and technology gaps – point to a cumulative process in which Ricardian rents deepen unequal specialization. If prices and income elasticities for products are low, and current sales generate high revenues, increasing production and sales on the world market will lead to

Persistence of Extractivism  23 diminishing returns (Reinert 1996). However, the current production level guarantees high revenues due to Ricardian rents. I argue that unequal specialization describes a configuration in which Ricardian differential rents incentivize specializing in product groups that internationally generate high revenues but inhibit auto-centric and equitable growth domestically. In other words, unequal specialization hinders sectoral change and structural transformation and reinforces rents. Returning to extractivism, the one-sided orientation of the production structure on exploiting and exporting raw materials, we can conclude that it is the most evident expression of unequal specialization. However, the root cause of extractivism is the necessary emergence of rent within the international economy. Technologically leading economies, because of their capabilities to introduce innovation, pressure technologically backward economies indirectly to accept unequal specialization patterns that neither allow them to achieve full employment nor to catch up technologically despite intensified production and increased exports. Unequal specialization leads to a development trap in which the textbook adjustment mechanisms no longer function, and the system of relative prices is no longer efficient in allocating scarce resources. Price incentives cannot overcome this setting as unequal specialization undermines the price mechanism in itself. The usual option to confront increasing technology gaps is importing technology, which ultimately unusually strengthens the sectoral disconnection mentioned earlier. Therefore, unequal specialization leads to the cumulative reinforcement of (1) Ricardian rents, (2) structural unemployment, and (3) technology gaps. The argument is that economies once experiencing unequal specialization can hardly escape from this pattern due to external and internal constraints. As already stated, externally, the intensification of this pattern does not lead to higher revenues due to low-income elasticities of demand and the difficulty of abandoning Ricardian rents. Conversely, internally the labor surplus prevents rents from being neutralized through the democratization of consumption while also hindering structural transformation and sectoral change due to the problems of the technological learning process. Therefore, in this regard, unequal specialization is a cumulative process and self-reinforcing, affecting growth potentials as this divergence continues to expand. Simultaneously, the leading economies increase their technological superiority. Moreover, unequal specialization also means that, based on the structure of the world economy, development opportunities are unequally distributed. Accordingly, focusing exclusively on either domestic or international factors will not be sufficient to leave unequal specialization. Therefore, changing this situation would require, first, ignoring current revenue opportunities in the international markets and discriminating against the rentier sectors; second, overcoming structural unemployment; and third, at the same time, initiating a technological learning process that generates new product groups and creates export opportunities while pushing back unemployment. This, however, as will be analyzed in more depth in the following, creates a trade-off between short- and long-term objectives and facilitates the appropriation of rents.

24  Hannes Warnecke-Berger

Trade, Uneven Development, and Unequal Specialization: An Empirical Assessment to Extractivism The central argument of this chapter is that unequal specialization, and hence the rise of extractivism, is rooted in the emergence of rents. Rent became a significant driver of unequal specialization due to a system of relative prices, hence the rise of the world market that emerged in the second half of the 19th century. As a first step, therefore, this section elaborates on the emergence of rents and its relations to export patterns. In the second step, this section focuses on the impact of rents in unequal specialization. As a final third step, this section elaborates on the persistence of unequal specialization during the last 150 years to highlight the factors that account for the continuity and the change of this pattern. Global history has underlined that extractivist activities have been connected to trade for centuries and often (but not necessarily) linked to colonialism. However, precapitalist long-distance trade relations and newly emerging unequal patterns of specialization in the course of the emerging capitalist world market are different, as the distinction between archaic and modern globalization (Bayly 2004) underlines. Archaic globalization is characterized by monopolistic long-distance trade. Tributary elites usually extracted agricultural surplus from the population to produce export goods (Makki 2011). They followed the imperative of “buying cheap and selling dear” (Wood 1994, 18).4 The tributary elite mostly did not incentivize the use of technology, and investment in raising labor productivity mostly failed to materialize, a fact often documented in the Latin American colonial mining sector (Tandeter 2006; Fisher 1986). During this long period until well into the 19th century, trade relations and specialization patterns followed these political imperatives, often related to imperial interests. The high proportion of agriculture in total production, the immobility of labor, and high transport costs explain why the share of trade in the total product was relatively low. For this reason, the basket of traded goods between the emerging core capitalist economies and their southern counterparts was limited, at least until the early 19th century, to precious metals (Findlay and O’Rourke 2005, 22) and tropical agricultural products such as sugar or tea, which could increasingly be consumed by a broad population thanks to their real wage increases (Reynolds 1985). In the course of industrial capitalism development in Western Europe, particularly throughout the 19th century, these trade relations changed fundamentally. The Global South increasingly experienced a comparative advantage in raw material exports, first in agriculture and then in minerals. By this time, world trade still consisted of primary commodity trade; in 1913, food accounted for 29 percent of world exports, agricultural raw materials for 21 percent, and minerals for 14 percent (Yates 1959, 222–23). While the emerging capitalist economies in the Global North began to specialize in exporting industrially manufactured goods, the Global South got locked in a cumulative process of unequal specialization. Hence, rents began to play a crucial role. It did so, however, not because of the low prices of nature but because of relative productivity. What is central to notice is that these patterns emerged later than the prevailing trade theories would have expected.5 First, transport costs during the 19th century

Persistence of Extractivism  25 fell tremendously, and new technologies such as steamships allowed the shipping of larger quantities and shorter periods, eventually bringing even remote territories into contact with the trading centers (O’Brien 1997, 80). Moreover, accessibility and location were key for production and even more critical than colonial affiliation and political control (Kenwood and Lougheed 1999; Levin 1960, 168). For example, by 1830, transporting one ton of goods from the Argentinean hinterland of Salta to Buenos Aires was still 13 times higher than transporting the same from Buenos Aires to Liverpool (Platt 1972, 67). Second, the Global South only modestly increased its share in world trade during the 19th century, but to a much lesser degree than trade within the Global North (Hanson 1980, 8; 52). Economies within the North became much more economically entangled among themselves than with the South. The South’s contribution to world raw material trade only slightly increased from 38 percent in 1876–80 to 44 percent in 1928 and 50 percent on the eve of World War II in 1937 (own calculation based on Yates 1959, 227). By 1830, the share of primary production in non-Western (excluding non-Western settlement overseas territories) economies was around 92 percent of total exports and even increased to around 98 percent in 1880. Still, the share of imports from this region to Europe remained essentially stable from 1830 to 1950 (P. O’Brien 2005, 234). Mexico, for instance, one of the largest Latin American raw material exporters in the 19th century, exposed a share of mining in a gross domestic product (GDP) of less than 10 percent during the 19th century, and this share even declined to 6.3 percent at the turn of the century (Coatsworth 1989, 42). Third, during the 19th century, the Global South had heavily focused on agricultural exports and only slightly began specializing in minerals (Bairoch and Etemad 1985). Between 1815 and 1914, the export composition of the Global South was only 2 percent metals and 1 percent energy resources (Bairoch 1993, 69). Even in 1913, the share of minerals and ores in total exports of the Global South was less than 12 percent,6 which amounted to less than the export of beverages (Bairoch and Etemad 1985, 30). Overall, agricultural exports accounted for more than 75 percent of total exports in 1913, and all types of primary commodities for more than 95 percent (own calculations based on Yates 1959, 240). Fourth, the rise of industrial capitalism in Western Europe and the United States was mainly based on their endogenous natural resource endowments. From an economic standpoint, there is “very limited impact of colonialism on the first stages of the Industrial Revolution” (Bairoch 1993, 84), especially when it comes to the supply of raw materials (O’Brien 1997, 88). During the 19th century, Europe was not dependent on raw material imports from the Global South (O’Brien 2005, 235). Core capitalist economies were self-sufficient in almost all industrial raw materials until 1913. The United States and the United Kingdom have even been net exporters of raw materials (Bairoch 1993, 65; Barbier 2011, 379; David and Wright 1997; Wright 1990, 661). However, at the beginning of the 20th century, natural resource deposits in the Global North experienced deteriorating ore grades and increasing extraction costs. Thus, confronting these rising costs, technological innovations emerged to maintain or even increase production volumes, as the example of copper demonstrates.7

26  Hannes Warnecke-Berger The rise of real wages in Western Europe and North America created new demand for tropical agrarian goods. This increased volume of export. However, demand for non-agrarian goods increased faster than demand for agrarian goods, with shifting relative prices due to changing consumption patterns. Conversely, agricultural exports from the Global South suffered from low-income elasticities of demand throughout the entire 19th century. Eventually, increasing real wages in the North translated into deteriorating terms of trade for the Global South (Blattman, Hwang, and Williamson 2007; Williamson 2012; Ocampo and ParraLancourt 2010). Fifth, the emerging patterns of specialization between the Global North and the Global South further entrenched yet prevailing domestic inequality in the countries of the Global South, particularly in Latin America (Warnecke-Berger forthcoming). The elites, particularly the landholding factions, were empowered to appropriate rents (Clemens and Williamson 2012). The belle époque of the first wave of globalization became the main driver of both elite wealth and the structural unemployment of the majority (Williamson 2015). These factors contributed to unequal specialization, as rents, structural unemployment, and increasing technology gaps advanced to a significant driver of export specialization. In time, technological innovation became available for locations with higher ore grades in the Global South, and these world regions began more and more to import modern technology and attract foreign direct investments, particularly in the mining sectors. This also led to capital exports from the Global North into raw material-producing sectors in the Global South (Woodruff 1966). Even more important, it led to technology gaps since mining technology was not produced locally in the Global South, and the South increasingly accepted technology imports from the North. The import of modern technology also affected employment. While in the second half of the 19th century, almost 40 percent of total employment was in the extractive sector in leading raw material export economies such as the United States (Walker 2001, 174–75), only a minor share of total employment was engaged in extractivist sectors in the Global South (League of Nations 1945, 26–27). This means that the production of raw materials, especially minerals, has been highly capital-intensive in the Global South from the very beginning, affecting, in turn, the Global North’s specialization patterns. As a result, the rise of extractivism did not depend on absolute cheap natural resources. Instead, it depended on relatively cheap raw materials and comparatively more productive production sites. Outsourcing the production of raw materials, especially minerals, occurred because the Global North became increasingly industrialized and established specialization patterns in manufactured products. This pattern created new export opportunities for the Global South and affected the South’s patterns of specialization. However, it is precisely these specialization patterns that were prone to rents. More specifically, these rents did not disappear once they emerged due to deepening technological gaps and an underperforming demand for labor in extractivist sectors because of its capital intensity.

Persistence of Extractivism  27

The Persistence of Extractivism A careful interpretation of available data throughout the 20th century reveals that the Global South has remained locked in an unequal specialization on raw material exports. Only in the last third of the century did some economies escape from this pattern. As a result, primary commodities dominated the composition of exports of most Global South economies. However, a process of fragmentation within the Global South countries emerged beginning in the 1960s, with a small group reaching to shift its export composition to manufacturing, implying that, under certain conditions, extractivism can be abandoned. The composition of exports, especially in the developing economies without China, grew during the 1980s, stagnating at the beginning of the 1990s. An average ten-year data on export composition in Figure 1.1 shows a drop in the share of primary commodities of total exports from more than 86 percent in the 1950s to less than 45 percent in the 2010s. However, low-income developing economies show a remarkably high share of primary commodity exports on the total of their exports, becoming even more dependent: from 82.5 percent in 1995 to 86.1 percent in 2020. Furthermore, the trend of decreasing the share of raw materials in total exports is linked to a very restricted set of economies. This process translates into a divergence within the Global South that began in the late 1970s. Some minor economies, spearheaded by the East Asian economies followed by countries such as India and China, as well as Malaysia, Turkey, Tunisia, Mexico, and Vietnam, managed to abandon the extractivist path by catching up in terms of manufacturing exports and even in some cases by autochthonous technology development.8 However, apart from these cases, technology gaps between North and South deepened with the ongoing Global North’s specialization in high-tech production and exports (Castellacci 2008; Fagerberg and Verspagen 2021; Gala, Camargo, and Freitas 2018), and particularly in those

Figure 1.1 Primary Commodities as a Share(%) of Total Exports of Developing Countries, 1951–2018. Source: Own elaboration based on United Nations Monthly Bulletin of Statistics, various years, and United Nations Commission on Trade and Development online statistics database.

28  Hannes Warnecke-Berger product groups where “smart specialization”(Balland et al. 2019) on complex technologies that are embedded in innovation systems becomes possible. Technology gaps have been increasing (Kemeny 2011), and productive capabilities on a global scale somewhat diverge (Hartmann et al. 2016, 83). This has also affected the extractive sectors where the Global North maintained its position as a technology innovator (Okada 2021). Even though the Global South has a vital market share in the global raw material trade, overall, the Global North seems to be less dependent on raw material imports than expected, as Figure 1.2 underlines. Only after 1969, the Global South began to dominate world raw material exports. It lost its position again by the late 1970s due to the oil crisis through which core capitalist countries relocated crucial raw material production sectors back into their territories (Bairoch 1993, 66). The Global North’s share of world raw material trade remained somewhat stable and oscillated from around 50 percent in the late 1950s to around 54 percent in 2020. The Global North still considerably produces raw materials and maintains a high share of global production. This means the global demand for raw materials is so high that the Global South’s supply alone cannot satisfy world demand at the current technological level. Therefore, the North remains a crucial player as a producer of raw materials. This way, with similar production technologies but different production costs, inevitably, Ricardian rents emerge. Overall, the marginal consumption of raw materials in the Global North tends to decrease (Rosenberg 1982, 84; Krausmann et al. 2016, 207; Schaffartzik et al. 2014, 92). Most countries have improved their material efficiency and “use less material per unit of GDP. Most countries have followed this path over the past four decades with the exception of a number of resourceexporting countries whose material intensity has been stagnant” (Schandl et al.

Figure 1.2 World Raw Material Trade between Global North and South, 1951–2018, in percent. Source: Own elaboration based on United Nations Monthly Bulletin of Statistics, various years, and United Nations Commission on Trade and Development online statistics database.

Persistence of Extractivism  29 2018, 834). This pattern creates severe barriers to export-led growth for raw material exporting economies but simultaneously allows for appropriating Ricardian rents. These factors explain the persistence of Ricardian rents within the global economy and explain the overall stability of unequal specialization on extractivism. The role of rents becomes particularly clear in the following figures. Figure 1.3 shows the share of Ricardian rents in raw material trade as a share of total exports of geographical world regions. On a global level, rents account for more than 9 percent of total merchandise trade in 2020, and this figure is remarkably stable from the 1970s up to today, resulting in an average share of 15 percent. The Middle East and North Africa region (MENA) and sub-Saharan Africa expose an exorbitant high share, both currently and on average. In MENA, this is presumably related to petroleum exports, and in Africa, total export is comparatively low, so rents expose a higher share. Moreover, Latin America shows a share of 18 percent in 2020. Interestingly, if Mexico, as one of the most potent industrial producers, is excluded from the regional dataset, this share is even higher. Additionally, Figure 1.3 signals that Ricardian rents have a substantial impact on the regional export composition and that rents have remained very persistent over time, as the theoretical model predicts. Even if rents boomed during the 1970s oil crisis or the 2000s recent commodity super-cycle, data shows that they remained high even during economic stagnation or decreasing primary commodity prices. In per capita terms, this picture is more precise, as Figure 1.4 shows. Per capita rents in the MENA region are extraordinarily high, related to relatively sparse populations compared to other world regions. Similarly, the numbers show high per capita rents for North America and Latin America despite their larger overall populations. Moreover, while Latin America, Europe, Africa, and the Middle East almost maintained a stable share, North America has seriously lost shares, whereas East Asia and the Pacific have gained shares.

Figure 1.3 Ricardian Rents as a Share(%) of Total Exports of World Regions, 1970–2020. Source: Own elaboration based on World Development Indicators.

30  Hannes Warnecke-Berger

Figure 1.4 Per Capita Rents in current US$ in World Regions, 1970–2020. Source: Own elaboration based on World Development Indicators.

Figure 1.5 Regional Distribution of Rents as a Share(%) of Total Rents, 1970–2020. Source: Own elaboration based on World Development Indicators.

A further assessment of rents is related to the regional distribution of rents within the world economy. Figure 1.5 presents data on this global share of geographical regions. The figure shows that rents have become more and more visible in East Asia and the Pacific, and that North America lost shares. Finally, suppose rents are deconstructed into their respective individual sources, as shown in Figure 1.6. In that case, it becomes clear that oil is a particular case

Persistence of Extractivism  31

Figure 1.6 Sources of Rents as a Share(%) of Total Rent, 1970–2020. Source: Own elaboration based on World Development Indicators.

compared to other sources of rent, such as minerals or coal. Oil as a veritable source of rent is related to the fossil energy age in which the current world economy is still locked (Warnecke-Berger, Burchardt, and Ouaissa 2022). Regarding oil, regional production costs diverge vastly, but overall demand remains sufficiently high to even take those locations with comparatively high production costs into production. Due to the envisioned energy and socio-ecological transition, at least in some parts of the Global North, this configuration will change considerably in the next decades, with a decreasing role of oil and an increasing impact of minerals and metals used for “green” energy.

The Seduction of Extractivism Overall, the analysis underlined that global demand, particularly from the industrialized centers of the world economy, and existing and even increasing technology gaps between North and South stabilize the overall pattern of unequal specialization that had emerged in the 19th century. Rents persist, both in total world trade and in the oil sector. Within the domestic sphere, unequal specialization prevents domestic sectoral transformation and structural change. This is shown above all by the fact that the economic structure in extractivist economies is not only unilaterally oriented toward extractive sectors, but that this sector sends price signals that make it appear particularly productive, thus attracting further (foreign) investment (Poelhekke and van der Ploeg 2013; Teixeira, Forte, and Assunção 2017). The domestic articulation of economic sectors within extractivist economies mirrors this setting. The configuration leads to significant labor productivity differences between sectors, as shown in Figure 1.7. The figure shows that the extractivist sector has been extraordinarily profitable compared to manufacturing and agriculture. However, because extractivism is capital-intensive, this sector cannot absorb structural

32  Hannes Warnecke-Berger

Figure 1.7 Ratio of the Extractivist Sector’s Labor Productivity to Total Labor Productivity, Five-Year Average, 1970–2009. Source: Own elaboration based on data provided by Kruse et al. (2022).

unemployment. The problematic link between rents and employment becomes particularly clear if one considers labor productivity differentials. In the Global North, labor productivity differentials between sectors remain minor compared to those in the Global South, as Figure 1.7 underlines. The average ratio within the Global North between extractivist sectors and total average labor productivity is 1:3, while in the Global South, this ratio is up to 1:14. As shown in the previous section, the Global North has a minor share in overall rents compared to the Global South. However, it still maintains an overall high market share within global raw material trade. In this setting, where extractivist sectors expose extraordinarily high levels of labor productivity compared to non-extractivist, especially manufacturing and agriculture, domestic technology gaps become evident. Nevertheless, the extractivist sector cannot carry along the remaining sectors. It cannot produce positive spillovers in the long run. As a result, the sector continues to be strongly delinked from other productive sectors. This is an expression of the capital intensity of mining, which in the end is also an expression of global technology gaps. Usually, the contribution of the extractivist sector to total employment is minor and oscillates between 1 to 4 percent (Ericsson and Löf 2018, 62; International Council on Mining & Metals 2016, 41–42). The resource allocation between different sectors does not occur. As a consequence, the extractivist sector appears disproportionally profitable. However, by giving continuity to extractivism, the issue of structural unemployment is not solved. The decoupling of different economic sectors because of the lacking interconnections is a signifier of the persistence of unequal specialization. Moreover, it expresses a lack of convergence of intrasectoral productivities, in the sense that labor productivity between different sectors does not react to each other or even

Persistence of Extractivism  33 equilibrate. As a result, the price mechanism fails to allocate resources between sectors, and factor mobility is restricted to within-sector allocations. This way, the persistence of rents within the extractivist sector hinders or even disrupts the system of relative prices. This has a pivotal impact on policies. First, price incentives within different sectors do not necessarily materialize. Therefore, political planning is needed in order to overcome the problems imposed by unequal specialization. Second, this scenario translates into a trade-off between long-term and short-term expectations. In the long run, general political and economic objectives of overcoming unequal specialization by using revenues from existing export specialization patterns seem clear. In the short run, however, the persistence of rents empowers social groups that appropriate revenues and eventually turn against the overall long-term objective. Rents in the context of unequal specialization, therefore, turn out to be seductive.

Conclusion The model and the empirical evidence presented in this chapter answer why extractivism emerged and remained so persistent over the long period of the belle epoque until today. The chapter highlighted the necessary emergence of rents as a causal factor for unequal specialization, and extractivism is one primary expression of this casuality. It is unequal because, on the one hand, extractivism appears to be highly lucrative, generating rents and windfall revenues for raw material-producing and exporting economies. However, on the other hand, it does not create sufficient employment and tends to lead to asymmetric political relations in the domestic sphere. In addition, it is also a consequence of the disparate diffusion of technology on a global scale. As soon as the Global North began to industrialize and specialize in the export of technology, the South faced comparative advantages in extractivist sectors. Due to their technological composition and income elasticities of demand, these sectors are weaker in growth potential. Thus, through the historical perspective employed in this analysis, it becomes visible that the Global South could only defend against these comparative advantages in some minor cases, being, in most cases, locked in a development trap. The primary outcome of this chapter is extractivism is a showcase of unequal specialization. The so-called extractivist economies suffer from technology gaps and appropriate excessive rents. Within their economies, rents advance to a defining force, both because extractivism appears to be profitable due to the structure of the market and because of costs of alternating this path appear too high. However, as this chapter also showed, the cost calculation based on prices that emerge from these economic structures will eventually fail. Hence, it is not the average price or market share that explains the rise of extractivism but marginal costs of production, technology gaps, unequal specialization, structural unemployment, and, ultimately, rent. Moreover, since both the income and the price elasticities of demand for raw materials are low, and the share of raw materials in both world GDP and world trade is tendentially decreasing,9 both the production of raw materials, as well as their potential growth, leads to higher production costs. That further intensifies the role of rents. Furthermore, given the

34  Hannes Warnecke-Berger low elasticities, increasing production costs can be passed on to the consumers and producers, who will necessarily generate rents and continue to hinder any domestic production shift to other than extractivist sectors. In a nutshell, extractivism is too lucrative and profitable relative to its alternatives, while non-extractivist sectors appear to be relatively underperforming. So, in the end, alternatives to extractivism appear to be too expensive to engage in, and policymakers, independent from which political side they come from, continue to be seduced by rents. From this perspective, further issues are essential to highlight. First, the Global South specialized later than often argued on raw material exports. While some forerunning economies, such as Chile, Bolivia, or Malaysia, began specializing in raw materials in the mid-19th century, for the vast majority of the Global South economies, this began at the earliest in the last third of the 19th century, just before the eve of the Great War. This needs to be included in the ongoing discussion in development theory, bringing unequal specialization as a root cause for global asymmetries and inequalities to the table. Second, changing trade shares will not necessarily change unequal specialization. I argued that rents, the root cause of unequal specialization, depend on marginal production cost differences, something that does not alter via trade shares. Third, increasing terms of trade for the Global South, particularly via increasing prices, will not neutralize rents. Instead, this option will increase rents, deepening unequal specialization. Fourth, the Global North is less dependent on raw material imports than is often discussed. Furthermore, as income elasticities of demand for raw materials are relatively low, increasing costs for raw materials can be handed over to consumers, creating consumption rents both in the North and the South, as the recent energy crisis in Europe due to the war in Ukraine shows.

Notes 1 International trade theory has undergone a remarkable development in recent years. Mainstream (neoclassical) textbook approaches to trade theory (in its initials in particular Heckscher-Ohlin-models) are unable to explain patterns of specialization, as Leontief (1953) has demonstrated decades ago. While the new trade (Krugman 1979) and new new trade theory (Melitz 2003) intended to improve the explanatory power of the initial neoclassical core idea, it is still confronted with its weak empirical evidence in explaining patterns of specialization (Thirlwall 1991; Sheppard 2011). In particular, these approaches to not integrate possibilities of structural unemployment (Sato 2021, 287) and are therefore blind to international wage differences (Shiozawa 2007, 182). Furthermore these approaches ignore the uneven diffusion of technology and its relation and barriers to technological catching-up (Dosi and Tranchero 2021, 450). Heterodox approaches, particularly from the post-Keynesian tradition (Dutt 2002; Thirlwall 2013; Sasaki 2021), from the neo-Ricardian tradition (Depoortère and Ravix 2016; Sato 2021; Shiozawa 2007; Shiozawa, Oka, and Tabuchi 2017; Findlay and Lundahl 1994), and from a structural change perspective (Botta 2010; Dosi and Tranchero 2021; Cimoli, Porcile, and Rovira 2010; Gala, Camargo, and Freitas 2018; Alcorta et al. 2021) are much more aware of structural unemployment and technological differences. However, although these approaches advance the understanding of the general patterns of unequal global development, they still do not integrate the role of economic rents in shaping patterns of specialization. This is the primary theoretical objective of this chapter.

Persistence of Extractivism  35 2 The approach of unequal specialization initially developed by dependency approach writer Samir Amin (1973) describes a different pattern to mainstream textbook economics. Unequal specialization is related to polarization within the world economy, a topic brought into discussion by structuralist economists such as Raúl Prebisch (1962) and Hans-Wolfgang Singer (1950). It relies on the fact that economies specialize in the export of products following comparative advantage, which, however, neither allows them to generate full employment nor to flexibly adjust the production apparatus toward more sophisticated and technology-driven products. 3 Overall, these models underline, that elasticities are much more important than factual prices (Kohler and Stockhammer 2022, 8). This has recently been advanced by the discussion on the product space in international trade (Hidalgo et al. 2007). 4 Revenues from monopolistic trade relations also could have been increased by lowering the cost of reproduction under the cost of subsistence of labor, and hence accepting population decreases or engaging in the slave trade, as the case of the Atlantic slave trade highlights. 5 Marxist accounts to international trade would argue for a much earlier lock-in to this pattern and usually accentuate on the role of colonialism in enforcing this pattern (see, e.g., Acosta 2013, 62). However, the distribution of the production of mineral raw materials within the Global South, particularly at the eve of World War I in 1913, does not overlap with the geography of the expansion of the colonial empire of once independent countries (Elsenhans 2007, 345). Neoclassical approaches, in contrast, stress resource endowments and institutional patterns to be causal factors for specialization patterns. Also for these approaches, the lock-in was too late as core capitalist economies still maintained a rather dominant role and a considerable market share within the world raw material trade, even though the ore grades diminished and modern technology was available even in the Global South. 6 For Latin America, this share is 12.9 percent, Asia 9.4, and Africa 15.8. 7 In 1800, the United Kingdom produced copper at a ore grade of 9.27 percent, which was reduced to a degree of 6 percent in 1885. The United States was even lower, with 2.5 percent in 1906, reducing its degree to less than 1.5 percent in 1930 (Schmitz 1986, 339). 8 The Global South increasingly gained shares in total world trade during the 20th century, particularly in its last third. The developing economies’ share of world trade increased from 28 percent in 1995 to more than 46 percent in 2020. For the developed regions, hence the Global North, this has translated into a considerable loss of trade shares. This is also visible in the trade of manufacturing, as well as in trade with raw materials. In both categories, the share of the developed regions decreased: in the case of primary commodities from almost 60 percent of the world’s primary commodity trade to around 53 percent. However, the Global South did not increase its overall share in raw material trade, but particularly in manufacturing trade. But this trend is restricted to some Asian economies Decomposing this general pattern further illuminates a considerable shift. Overall, the Global South intensified its contribution to world trade, both in the category of raw materials and, and even more impressive, in the category of manufactured goods, most prominently spearheaded by India and China. While the share of the developing regions’ primary commodity exports in total world trade was 40 percent in 1995, this share increased to around 47 percent in 2020. In manufacturing trade, the developing regions increased their share of total world exports from 25 percent in 1995 to more than 47 percent. However, if China is excluded from this group, this same share increased from 22 percent in 1995 only modestly to 27 percent in 2020. The developing region without China lost shares in the segment of fuels, but it gained considerable share in the segment of ores and metals from about 31 percent in 1995 to little less than 41 percent in 2020. The Global South, then, both including and excluding China, has played a considerable part in the last wave of globalization during the last 25 years, but it did not manage to fundamentally alter the structure of the world economy.

36  Hannes Warnecke-Berger 9 Raw materials are ultimately necessary for production. Even though the relative share of raw materials on world GDP might decrease, their total production volume is still able to increase.

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2 Rent, Profit, Mass Consumption, or the Political Economy of Taming Rent Hartmut Elsenhans

Introduction Prior to the advent of capitalism, rent was the universal form of surplus appropriation. And yet, despite the rise of capitalism, it has persisted. This persistence occurs when capitalism is blocked from its natural tendency toward generalization of profit as the unique form of surplus appropriation. Capitalist innovation is generalized if there are no political or natural barriers to the spread of new technologies. This leads to standard levels of productivity – that is, to Marx’s category of “abstract labor.” Under such circumstances, conventional economic assumptions hold, and producers with above-average costs are eliminated, while costs of production factors converge. Blockages of these mechanisms result from capitalism’s inability to universally create the social conditions for its existence – namely, the empowerment of labor. Such blockages are not overcome by the generalization of market relations. After all, market relations do not exclude insufficient demand. Such blockages may be so severe that overcoming them requires social and economic restructuring on a global or local scale. Either way, this will not be automatically achieved through market regulation. Raw material rents constitute a special type of such blockages. They have a relatively limited impact in advanced capitalist economies. By contrast, they have an enormous economic, social, and political impact in underdeveloped economies. This is because, in such economies, the conditions of capitalist growth – above all, the empowerment of labor – have not been realized. Rent will persist because of a lack of empowerment of labor on a global level. Understanding rent is therefore crucial for evaluating the dynamics of social change in today’s Global South. Furthermore, rents can be used to transform economies, but the transformation of the economy through rents depends chiefly on the economic and political orientations of those in control of the rents.1 This chapter draws on four theoretical approaches: Kalecki’s (1942) theory of profit, my own theory of capitalism being dependent on (rather than merely being accompanied by) expanding mass consumption (Elsenhans 2019b), the stability of the capital-output ratio, and structural heterogeneity in dominated economies. I insist on the necessity of combined supply-side and demand-side approaches in order to eliminate rent by increasing mass consumption in order to sustain profit DOI: 10.4324/9781003303268-4

The Political Economy of Rent  43 (Elsenhans 2004). I closely examine those emerging social forces in the Global South that are generated by rent and block the transition to capitalism. In contrast to conventional wisdom, I show that foreign trade tends to miss the transition to capitalism in countries specializing in exports with low prices and income elasticity of demand on the world market. It, therefore, creates new rents. The internal structures of these economies constitute a major obstacle to the transition to capitalism characterized by empowerment of labor and rising mass incomes in line with productivity. The major element in such economies is the persistence of marginal labor, which produces less than it needs to consume for survival. Furthermore, my approach underscores that today’s prevalence of rents is accompanied by a new comparative advantage of many economies of the Global South. This is transformed into manufacturing exports. These contemporary circumstances lead to the development of major underconsumptionist tendencies at the global level. This tends to facilitate a shift to rent-based strategies even in the developed industrialized countries of the Global North. Rising mass incomes in the South are required in order to block the globalization of rent. The concentration on the good governance of rent neglects rent’s basis in the lack of the mechanism of mass consumption triggering investment. This sustains profit through income creation. In the first section of this chapter, I will present my theoretical framework based on post-Keynesian heterodox macroeconomics and my theory of capitalism. In the second section of the chapter, I turn toward evaluating the performative power of rents. I argue that rents tend to distort foreign trade relations and ultimately lead to unequal specialization. A third section discusses the possibilities of overcoming underdevelopment, first through mobilizing internal resources in line with industrial policy and second through the planned integration into the world market through depreciated currencies and export-led growth offensives. A final section puts a rather pessimist evaluation on these strategies, pointing to the future threat of the world economy: the globalization of rent.

Theoretical Framework Economic surplus is the portion of production that is not required for maintaining the various elements of this economic and social structure at the level already achieved. Surplus is comprised of three principal components: profit, taxes, and rents. Profit is a special category of surplus. It is appropriated on competitive anonymous markets that are not subjected to direct political intervention by nonmarket-oriented agents (such as the state). Profit competes with other forms of income, especially rent. It could be conceptualized as the economic surplus that results from the exclusive, unencumbered, “pure” operation of market mechanisms, as Marx put it, the “dull compulsion of economic relations” (Marx 1977 [1867], 523). Rent is in contrast to profit the part of the surplus, which is not controlled by the mechanism of competition, but rather by a political mechanism issuing from a source other than a “legitimate” political power. Rent is surplus appropriated on the basis of natural or politically created market imperfections. These imperfections do not allow equal access for all competitors; they create a monopoly of one or a limited number of economic agents and normally require

44  Hartmut Elsenhans political instruments. As rents accrue to the better-off, they lead to rising consumption (normally of luxury items). Rent implies the orientation of the productive apparatus in favor of luxuries and protection from competition for the privileged. Rents, however, block the empowerment of labor. No economic mechanisms exist with which to impose an investment-driven use of rents. In fact, the use of rent is determined not by the market, but by political factors. The market imperfections that allow for appropriating rents are diverse. One such imperfection comprises access to low-cost raw material deposits when highcost production is required for satisfying demand (in oil, for example). Another involves suppliers’ cartels when price elasticity of demand is low, like in tropical beverages. Others include technical monopolies by patent laws, government market protection (customs duties, non-tariff barriers), and government subsidies (industrial policy). In contrast to rent, tax is the part of the surplus that is appropriated by a (more or less legitimate) political authority. In a precapitalist economy, the political appropriation of surplus is generally not undertaken by a formally institutionalized and therefore legitimized authority. In such systems, rent and tax become difficult to distinguish. Let us imagine a hypothetical economic system unencumbered by either political interference or market imperfections. In such a system, all surplus would be profit – but only, as I will show, if there is enough final demand. In fact, rising mass incomes eliminate all forms of surplus except profit appropriated on the market. They achieve this through income creation in the wake of net investment spending. This is triggered when full capacity utilization is reached, or when better products or new technologies become available. However, there are strong tendencies among capitalists to try to evade or reduce competition and to make access to surplus dependent on market imperfections or political power. Capitalists search for surplus in whatever form it takes, whether rent or profit. They are thus entirely comfortable with increasing market imperfections in their favor because these entail easier access to surplus in the form of rent. Let us make the usual simplifications: there are two social classes, capitalists and labor; there are two types of income, wages and profit. All wages, including those accruing to capitalists for their managerial work, are used for consumption goods; consumption goods are bought only with wages; there is neither foreign trade surplus nor government deficit spending. Under these simplifications, capitalists of the consumption goods industries can sell their total production only at the amount of total wages. They can make a profit only if there are wages in addition to those they have themselves directly paid or indirectly financed through taxes for the government sector. Such additional demand originates in wages paid in investment goods production. Under such circumstances, technical knowledge is concentrated in the production of investment goods (machinery). Investment goods producers will thus continue their production only if they receive a rate of profit comparable to the consumption goods producers. Total profit, therefore, equals wages and profits in investment goods production, i.e. the net value of investment goods production (Kalecki 1942). From that follows that profit depends on spending on investment because of its contribution to effective demand and not because of its contribution to productivity increases. Investment spending is demand dependent.

The Political Economy of Rent  45 Investment in income-creating equipment (especially machinery) is triggered more by mass demand than by luxury consumption. Indeed, the latter is often catered to through artisanal methods of production. Machinery is appropriate for the execution of near-identical processes at a cheap cost. If quantities produced are high, then the equipment used in them may also be produced on a massive scale. This allows for the spread of development costs on large sales, and for the rationalization of production. From its very inception, then, capitalism (and industrial development) have been inextricably linked to rising mass incomes (Elsenhans 1975, 1983). Investment in so-called rationalization technologies that reduce only unit costs also tends to reduce overall demand. Investment in expanding production capacities requires extending markets. Investments into new products must be considered as rationalization investments if the new products replace existing ones. Otherwise, their consumption requires rising incomes. If less capital-intensive technologies lose cost-effectiveness because of higher wages, then more capital per worker may be invested without reducing unit costs of production. Net investment and profit require rising mass incomes, while the rise of mass incomes depends on empowerment of labor and rising mass incomes. These factors are basically accidental in the origin of capitalism (Elsenhans 1997, 652). Capitalism is capital saving because of competition. Lenin’s solution (1960 [1899], 54–69) of expanding effective demand by the capitalist demand for investment goods is only temporarily viable. This is due to the fact that new investment goods are required to follow the Bortkiewicz (1907, 456–57) criterion of reducing unit costs of production. The observation of rising capital employed per labor is a statistical artifact in which quantities of labor are compared with investment goods measured in prices. In capitalist economies, rising real wages render identical investment goods more expensive from period to period. Consequently, an identical price of the capital stock in a later compared to a previous period represents less labor value. On the one hand, the cost of labor can be compared to the value of the capital stock. At a constant share of labor in national income, this is indicated by the capital-output ratio. On the other hand, the capital stock can be deflated by the index of real wages and then compared to the quantity of labor employed. Technical progress in the leading economies is not accompanied by parallel increases in capital intensity of production. This is referred to as disembodied technical progress because its cost cannot be traced (Denison 1967, 298). It can increase in otherwise totally disconnected production lines. Today, for example, the development of microelectronics has given rise to the perception that we can now feasibly produce items that had previously been considered beyond the realm of human creativity. Some economists have retrospectively attributed the origin of this (disembodied) technical progress to human capital – obviously because they wanted to preserve the viability of neoclassical foreign trade theory. Nonetheless, spending on human capital is not the decisive factor, and total years of schooling is not of central importance. The quality of the acquired skills and capabilities, however, is absolutely critical. In contrast to the circumstances in centrally planned economies, capital-output ratios in capitalism are remarkably constant in any given period (Helmstädter 1969, 54–60; 2002; D’Adda and Scorcu 2003). They probably tend to decline because of

46  Hartmut Elsenhans the deceleration of economic growth and therefore due to an increase in the share of rationalization investments that create unemployment. Following Keynes and Kalecki, potentially producible or actually produced surplus may therefore be much higher than the surplus required for the investment level chosen by the capitalists. This results in underconsumptionist crises.

Rent as the Result of Limited Capitalist Development In capitalist economies, differences in productivity growth occur normally. Technical innovation proceeds at different paces in different production lines. It does so independently of production line-specific increases of capital. However, within capitalist economies, factor productivities in different branches of the economy converge. This is evident from standard descriptions of the formation of average profit rates and average wage rates for labor with comparable physical or psychological burdens and training requirements. Capitalism in the center appears as relatively homogeneous, with average profit rates, converging real wages, and converging branch-wise productivities (Salter 1960, 161; Appelbaum and Schettkat 1995, 607f.). Factor incomes do not depend on productivity but on scarcity. Let us suppose that there is an innovation in a particular industry due to new processing technology or the invention of a new product for which there is dynamic social demand. Entrepreneurs in an innovative industry will fetch innovation-based profits with the enterprise-specific profit rate above any other profit rate in the economy. They will reinvest their profits in order to expand production and, for that purpose, they will hire additional labor. Saturation of markets will bring down prices and therefore the profit rate. Before saturation occurs, workers from industries with lower wages will try to get hired in the innovative industry. In cases of high levels of employment when this process begins, labor in lower-paying industries becomes increasingly scarce. In such sectors, the supply of goods may decrease. Scarcity leads to higher prices, meaning that entrepreneurs in this area can pay higher wages without losing profitability. They can thus retain part of their labor force at higher wages. Despite enormous differences in production-line-specific productivity growth, there exists the tendency for the convergence of productivity measured in prices across the entire economy – provided, of course, that labor is scarce. This convergence is produced by changes in relative prices. If labor does not become scarce, entrepreneurs in highly productive branches will be limited in their search for additional labor. They may pay relatively high wages for reasons of stabilization of employment and scarce new skills. Conversely, labor does not become scarce in branches without productivity advances. In such sectors, there will be no wages or price increases. Production-line-specific monetary productivities will diverge. Homogeneity thus results from the empowerment of labor. The Limits of the Transformative Capacity of Trade Economies that have not participated in the capitalist innovation process described earlier have also not participated in the process of productivity convergence. In such countries, some production lines are highly competitive because they do not

The Political Economy of Rent  47 lag much behind in productivity in relation to the leading industrial economies. Others lag massively behind. These differences are made visible if relative productivities of industrially leading economies determine relative prices of products, also in the lagging economy. In such cases, products where lags are important are rendered relatively expensive and thus uncompetitive. This difference in lags of productivity is called “structural heterogeneity” (Amin 1973, 188). Other production lines lag behind massively. These branches cannot become competitive on the international market, and they even lose domestic market share. Such processes appear as deindustrialization in the cases of 19th-century China, India, and Latin America (Williamson 2011, 60ff.). This leads to the withering away of major competencies in these countries, especially those that involve innovation in machinery. Productivity may lag, especially in industries required to launch mass consumption. If rents are very high, then even redistribution of income might not promote local mass production. A mere redistribution of demand will not necessarily raise relative prices sufficiently for products of an egalitarian chain of production (mass consumption goods and the input and investment goods production related to it). This is especially so if these require skills in technology production. At the prevailing exchange rate, the lagging economy can only acquire such goods through imports. Good export prices for products where lagging behind is less marked means that such imports can be paid for. This also discourages the option of local production, as shown by the neo-populist experiences of Algeria and Venezuela (Dorraj and Dodson 2009, 147). To be sure, mass consumption goods may have been originally produced by the informal sector at relatively low prices. However, increasing demand might render capital-intensive production based on imported technology more competitive at an excessively high exchange rate (Boatler 1975). Both mechanisms demonstrate the importance of industrial policies for which rents can constitute a major source of finance. There is a significant difference between internal rents and external rents. External rents do not require a corresponding mobilization of internal factors of production. This is because such a mobilization occurs only in production of the rent-generating product with different intensities (high in tropical agrarian products, low in minerals). Internal rents enrich the powerful, but it might be necessary to use local factors of production for their transformation into consumption. In both cases, however, the penetration of society by the political struggle over rent and subsequent patterns of behavior may be devastating. The problem of the rentier state is not its independence from local financial resources (Beblawi 1987, 51), but rather its relative independence from mobilizing local labor. External rents can be much more important than internal rents. There is no need for local production in order to satisfy the demand originating from external rents. Saudi Arabian oil wells are surely highly productive. However, Saudi Arabia would not be able to generate rents comparable to those it currently enjoys if it could not export its oil to highly productive economies. These economies are, of course, able to pay high prices. As total income corresponds to the sum of wages, profits, and rent, an increase in rent (e.g., because of the emergence of a highly productive mineral deposit) leads to a decrease in either wages or profit in relation to total production. In the case of external rent, this decrease hits the importing country. The rentier country

48  Hartmut Elsenhans may use the external rent for state-induced capital export, collective consumption, and state-induced or market-induced investment, which reacts to increased consumption. The internal decline in profit or wages is avoided, and rent may be used as a supplement to consumption (social security payments) without affecting comparative advantage or giving rise to Dutch disease. Norway constitutes a clear example of this tendency. In cases where internal rent was used for investment (as in the early beginnings of capitalism in Western Europe), the equivalence between investment spending and profit no longer holds. Here, part of the spending out of wages will go to the rent-generating sector. Capitalist profit is thereby reduced. Specialization in Products with Low Price and Income Elasticities Initially, the Global South became competitive only in products in which, in the leading industrial countries, productivity increases faced specific problems. Natural conditions of production are particularly important for minerals and agricultural products, and these were the first that replaced the high-quality luxury exports from the tributary modes of production of Asia. Certainly, both the northwest European centers of industrialization and the United States were rich in mineral raw materials. However, the deposits in these areas were continuously deteriorating due to exhaustion. The remaining options comprised less abundant deposits close to industrial centers, or rich deposits far from these centers. Since the 1880s, the technologies developed for counteracting the continuous deterioration of the quality of deposits in the industrial centers have also been applied to rich deposits in the Global South. This allowed Western companies to outcompete local producers of such minerals who still used traditional technologies (Elsenhans 2007, 341). They did so through direct investment during the era of so-called high imperialism. Similarly, the growth of real incomes in the leading industrial countries allowed the articulation of new needs that could not be satisfied on the basis of European and North American natural conditions of production. This was the time of a rapid expansion of demand for typical agricultural raw materials produced in the Global South. This gathered pace from the late 19th century in the case of products such as coffee, tea, cocoa, and other tropical fibers, but much earlier for sugar and cotton (Lamartine Yates 1959, 240). The appropriation of differential rents in minerals by monopolistic Western companies and the deteriorating terms of trade for agricultural producers in the Global South became the major economic issues in the process of decolonization. This accelerated in the late 1930s and culminated in the dramatic oil price increases of the 1970s (Rangarajan 1978, 35–38). The Global South’s burgeoning debt crisis induced the governments of these countries to discontinue policies geared toward the cartelization of commodities. Such policies had strongly intensified due to the success of OPEC (International Program for Commodities). Since the debt crisis of the 1980s, differential and consumer rents earned from raw materials were greatly diminished. Consequently, the Global South’s comparative advantage shifted to manufactured products, initially those of a labor-intensive character. Formerly raw material-rich countries tried to follow the example of the raw material-poor, but newly industrializing countries (South Korea, Taiwan, Hongkong, Singapore).

The Political Economy of Rent  49 The creation of internal markets through raw material exports has been described in the so-called staple theory of growth (Watkins 1963). This was successful only in those regions of European settlement where labor was scarce. Generally, it succeeded either due to political structures (Australia) or to a relatively egalitarian distribution of land (Canada, New Zealand). For much of the 19th century, the United States, the most prominent example of growth via raw material exports, needed a dynamic internal market protected by high transport costs (besides customs duties). Moreover, the United States suffered from a lack of industrial competitiveness in the world market due to the high international price of its labor. This is evident from a cursory examination of the early delocalization of some of its best-performing export industries (sewing machines, Godley 2001, 5–15). In most raw material exporting countries, internal political, economic, and social structures ensured that there would be no scarcity of labor. Because of the low marginal productivity of labor, the impulse from exports was too low to transform local labor markets. Employment was limited and normally characterized by privileged income positions. Consequently, solidarity between newly employed workers and the rest of society could be prevented. Part of the ensuing rent was used to destroy the unity of the exploited classes. Capitalism is raw material saving (Rosenberg 1982, 84). Price and income elasticities for raw materials are low because their share in industrial value creation and household spending decreases. An extension of production can be expected to accompany decreasing export incomes in the case of products with low prices and income elasticity of demand in industrialized countries. This fact provides the North with consumer rents; it also lies at the basis of dissatisfaction with the Global South’s deteriorating terms of trade. Certainly, in some cases, high-cost production sites were maintained, perhaps for security reasons or for meeting total demand. Under such circumstances, the owners of rich deposits in the Global South (initially Western mining companies and highly privileged Western and local plantation owners) were able to appropriate differential rents. If there were no such mechanisms for keeping world market prices high, and price and income elasticity of demand in the industrialized countries were low, exporting countries could organize supplier cartels and increase total revenues. This was especially the case when the immiseration of producers in the Global South came to constitute a political challenge. In such conditions, “marketing boards” of the late colonial period allowed the appropriation of consumer rents (Cooper 2002, 22ff.). Rents were considered a source of finance for development spending and avoiding social upheaval. Their effect of blocking industrial diversification was neglected, though early on criticized (Singer 1950, 482). The decades of decolonization that followed the 1955 Bandung Conference culminated in the Third World debt crisis of the 1980s. In effect, this crisis centered around access to these rents. The so-called New International Economic Order basically consisted of a network of mechanisms designed to facilitate rent transfers from a prosperous North to an indebted South. The 1980s saw a crisis of the state-led model of economic development. This crisis gave rise to the view that good raw materials earnings with rents could create Dutch disease. This essentially comprises a scenario in which export earnings are too high for manufacturing

50  Hartmut Elsenhans to be competitive. Both exports and internal markets are affected. In such circumstances, raw material exports appear as a blockage to industrial diversification, and rent serves as an income that discourages economic diversification (Sid Ahmed 1989, 19–66). The mainstream theory of specialization cannot explain the pattern of comparative advantage. According to the explanation of specialization that highlights the role of factor endowments, the backward economy specializes initially in laborintensive products and shifts slowly to more capital-intensive products with increasing earnings from exports. Lagging economies would have gradually improved their competitiveness by slow capital accumulation on the basis of their earnings in initially labor-intensive areas of production. The main lesson to be drawn from the weak link between productivity increases and production line-specific capital intensity is clear; there is, in essence, no continuum between competitiveness and capital intensity of production. As early as the 1950s, Leontief (1954) defied neoclassical foreign trade theory to show that the United States exported labor-intensive products and imported capitalintensive products. Specialization followed comparative advantage but not comparative advantage depending on factor endowment. Following Ricardo (1951, 135–51), countries specialize in products where their lag in productivity in relation to an industrially more advanced economy is low. They do so irrespective of whether these are labor-intensive or capital-intensive industries. Based on the premise of structural heterogeneity, the multiplier from increased manufacturing exports may be limited. Similarly, integration industries promoting the diffusion of technical improvements may not be triggered by rising industrial production. Lagging economies have low productivity deficits in highly capitalintensive productions operated with imported investment goods (Boatler 1975). These countries then experience comparative advantage in some labor-intensive productions and some capital-intensive productions. Productivity increases in leading capitalist countries are concentrated in new products. The innovative character (scarcity, high prices) of these products provides high productivity in relation to older branches. This is despite the fact that these older branches are perhaps highly capital intensive. As theories of the product cycle indicate, technically lagging economies tend to enjoy a comparative advantage in old products. Lags in productivity should be lowest in older products where technology is known and is no longer dynamically changed in the leading industrialized countries. Specialization in products with mature technologies such as textiles and standard cars can be expected. However, specialization in most modern technologies is regularly discouraged if comparative advantage is followed. Machine producers who exploit a technical innovation under competitive conditions will reduce their price to the level where they recover their cost of production. They will also make an average profit rate, which includes the cost of development of the future generation of machinery. Otherwise, their companies cannot survive. The users of the machinery will enjoy a reduction of their capital costs when opting for the new machine in relation to total production. This decrease in relation to their total output is lower than in the case of the machine producers.

The Political Economy of Rent  51 The innovation in the development of new machines does not occur in economies that are only machinery using. There is an increase in comparative advantage – that is, in comparative productivity advances of the machine-producing economy in machine production. Comparative advantage for the innovators is therefore self-reinforcing and unequal specialization is therefore deepened. The pattern of specialization of the Global South has been characterized by low price and income elasticities of its products. This has severely limited employment effects. Consequently, local labor markets have failed to transform. There has been little overall impact on local mass incomes. This has resulted in limited expansion of the local market, and thus limited expansion of simple industrially produced products that would provide high multipliers of exports. Increasing productivity limited to some production lines enlarges the possibility of rent appropriation from these production lines. Deepened international specialization even leads to the possibility of appropriating more rents. This occurs if perfect specialization via integration into the world market is blocked by diverging productivities in the lagging economies. The spontaneous effect of rents is to discourage diversification. Nevertheless, rents are a source of finance. Rents can be used for investment instead of being wasted. There is, however, no mechanism for transforming needs into demand because of marginality: marginality is the manifestation of some labor producing less than required for its reproduction. Therefore, labor does not become scarce only because of market mechanisms (Elsenhans 2021, 103–08; 1994, 394–400). There is a surplus of labor (Lewis 1954, 171), which keeps labor from being empowered. Without strong incentives from a growing internal mass demand, the transformation of needs into demand and adaptation of the productive apparatus to a new pattern of demand requires political intervention. From its beginning, development theory was about complementing the market through political interventions, such as industrial policy and social reform (Cullather 2010, 44f., 146; Farese 2016).

Mobilizing Rent for Overcoming Rent by Development All development theory and practice consist in mobilizing rents and using them for projects and programs. Because of a lack of mass demand, these rents have to be invested according to political preferences. Investment is not chosen on the basis of its profitability as revealed by its most probable returns on the market. In fact, resources are invested on the basis of expectations about their future social usefulness. Such evaluations derive from expectations about the probable future structure of demand. Market and nonmarket mechanisms are used for their creation. Of relevance here are the expectations of the state and its large organizational outreaches (such as mass organizations, or nonstate, nonmarket institutions such as nongovernmental organizations or foreign assistance agencies). All development policies comprise the following factors: an identification of a dynamizing sector, projections of the future economy to be achieved, key target groups to be addressed and with which to work, and a political apparatus that appropriates and channels rent. This apparatus has to maintain its efficiency through internal and external controls.

52  Hartmut Elsenhans On the basis of a dynamizing sector, one can distinguish the promotion of investment in a state or state-subsidized industrial sector, redistribution of income in order to enlarge the internal market, and increasing employment by foreign demand of the locally abundant factor of production, unskilled labor. The dynamizing sector is expected to power other elements of the economy. The promotion of industry is thus expected to lead to employment and, ultimately, through scarcity of labor, to mass income growth. Income redistribution is expected to trigger production in sectors that are underutilized because they are demand-constrained (e.g., the informal sector). This can even trigger additional hours worked, as in the theory of agrarian reform. Export orientation in industry is expected to increase the size of the internal market through employment growth. It is also expected to improve productive capabilities by skill formation and technical trickle-down effects. These patterns are distinguished by the differing significance they attribute to market forces triggered by the dynamics of the sector they concentrate on. They never exclude the importance of the market; they always include some type of state intervention. Balanced growth assumes the capacity of planning the development of all major elements of the economic growth process (Nurkse 1953, 23). Conversely, unbalanced growth centers on the promotion of a sector that was expected to power the rest of the economy by integrating new locally produced inputs downstream and upstream into more coherent chains of production (Hirschman 1958, 65f.). As comparative advantage and the market do not necessarily launch the industries necessary for developing mass markets, state intervention is required. The greater the degree of state intervention, the greater the danger of corruption. Relying on internal and external demand allows for more targeted and controlled state intervention because it is more limited. It also saves on a scarce resource: efficient administration. The Promotion of Industry and the Contradictions of State Classes Promotion of productivity and productive potential in industry by state-planned investment is at the origin of systematic development thinking (Rosenstein-Rodan 1943). The parallel development of interlinked industries requires a mass of detailed information on interindustry linkages and the evolution of demand structures in case of rising household incomes, as well as administrative capacity (Elsenhans 2019a, 218–20). Interindustrial linkages can be modeled by input-output matrixes, as undertaken by Leontief (1951) and available today as social accounting matrixes. Coefficients of interindustry linkages are normally drawn from more advanced countries. They reflect their capacities of efficiently using inputs of industries in another industry. With their concentration on accumulation, the planners neglect extension of mass consumption. This is considered a waste of scarce rents. Planners try to realize their targets through an often-indiscriminate increase in spending. They are therefore interested in high exchange rates for defending external rents. This discourages the pursuit of world market competitiveness of the new industries. Given the

The Political Economy of Rent  53 uncertainty of information, the main problem is political. There is a moral hazard for those in control of the allocation of rents for projects. There also exists an evident absence of economic and especially political accountability. I have analyzed this problem in my theory of the state class in bureaucratic development societies (Elsenhans 1996, 173–254). The administrative-political apparatus in control of rent has the appearance of a bureaucracy. In contrast to the typical Weberian bureaucracy, however, this is a dominant social class. It uses its overwhelming share in economic surplus for subordinating all other social forces. This state class is also able to exercise patronage by dominating, in a clientelist fashion, traditional social organizations (in the form of, for example, state-led unions and state-led professional organizations). Such an apparatus is organized by a class of agents who depend on their access to surplus their position within the political administrative structure. Their efficiency in the competitive market is immaterial. Instead, they prioritize political power aims, irrespective of the sociocultural heritage. Any member of the state class faces unexpected problems in terms of fulfilling the targets of the more central institutions of plan formulation and plan execution. Failure in this area must be justified – and indeed, it is justified by recourse to paradigms of “inflexibilities” resulting from underdevelopment. Such interpretations are generally accepted within the governing institutions of the political administrative apparatus. After all, “inflexibilities” are experienced by all members within the state class, regardless of their specific allegiances within this structure. A member of the state class is thus maintained within this milieu on the basis of interpretations that are shared by rivaling sections of the state class. This requires coalitions. Coalitions across formal administrative divisions are the basis of imposing oneself against rivals because no single agency can prevail by itself. What matters are interpretations of achievements (rather than their actual reality). Thus, the control of information is important. After the death of Boumediene, it became apparent that, during the process of Algerian industrialization, the different instances of the state had realized state spending targets, but they had not delivered on production targets (MPAT 1980, 7, 80). This failure had been carefully hidden at all levels of the state class. It underpinned an attempt to radicalize the Algerian revolution against the establishment of a “new bourgeoisie.” This massive deception was ultimately revealed by a segment of the state class that, for political reasons, opposed the deleterious tendencies. The world of information is a murky one (Elsenhans 1987, 83–86). Falsification of data becomes common practice. In some cases, rivals and partners within the state class have their own rules for evaluating the probable degree of cheating. All of this has nothing to do with sociocultural heritages. After all, similar such patterns were visible in the German Democratic Republic (Schürer 1990). The inefficiency in control of the instances of the rent allocation process, coupled with this rampant secrecy and subterfuge within the state class, have been important elements of failure in developing economies. High capital-output ratios reflect the inefficiency of investment and balance of trade deficits, and a basic failure to achieve production targets. Even before the collapse of Soviet-style planned economies at the end of the 1980s, economic liberalization became inevitable in many

54  Hartmut Elsenhans rent-stricken countries. Rent no longer contributed to development, as it did in the ’50s and ’60s, when a drive for the international redistribution of resources set the agenda. This was to be accomplished by improving terms of trade and transferring differential rents in raw material exports to southern countries (as practiced in the oil price crises of 1973 and 1979). Even if rents may have been invested by the state classes, employment creation and therefore empowerment of labor was limited. Labor in the high-earning sectors of the economy was closely controlled by the state classes. The goal of empowering the mass of labor through employment was not met, and the expansion of the internal market was too limited for creating a drive for rapidly rising employment. Strengthening Mass Incomes by Redistribution and the Political Economy of Agrarian Reform Shedding because of marginality can be blocked through an egalitarian distribution of land. Marginal labor is integrated into the farmstead (Georgescu-Roegen 1960; Elsenhans 1979, 552f.). The farmer family already achieves high yields within the first hours it can engage in production. However, the resulting product is not sufficient for survival. Additional labor time that adds even only small and decreasing amounts to production is available, provided that a satisfactory household income is not achieved and there are no alternative possibilities. In such a scenario, production increases, though at a lower rate than labor input. This remains the case even if agricultural surplus decreases. The farmer household can supply labor, despite its productivity being lower than the average product of an hour of work necessary for survival. The farmer household mobilizes a rent achieved from its very productive hours, thereby subsidizing the low returns of the less productive hours. The rent that previously went to the landlord goes to the farmer family. Rising mass incomes and a more equal income distribution become the basis for launching industrialization through the production of initially simple goods in large quantities. The prospects for a later technical upgrading are also preserved. Mass demand drives industrialization with high backward linkages. This is so even in the domain of investment goods. Redistribution in the form of land redistribution illustrates the combination of the mobilization of rent for subsidizing marginal labor and opening an internal market for technically easily accessible products (including investment goods) on which the initiation of industrialization can be based. Land redistribution is a politically difficult endeavor. Export-oriented manufacturing achieves the same mechanism of limited state intervention (not absence of state intervention). A Particular Form of Mobilization of a Rent: Export-Oriented Industrialization A number of economists currently advocate for an export of manufactures in order to create income and local employment. This is considered a major instrument for checking Dutch disease and excessively high rent-based exchange rates (Bresser-Pereira

The Political Economy of Rent  55 2013, 171; Steinberg 2016, 419f.). There is an economic and a political limit for devaluation-driven, export-oriented manufacturing in technically backward economies, and an economic limit for continued reliance on this strategy when overcoming of rent is achieved. Let us first take a definition of specialization based on Ricardo’s comparative advantage. Even in this model, the strategy works because of changes in the price levels of the two partners. Changes in price levels are no longer dependent on specie movements, as they were when Ricardo formulated his theory. By contrast, in our world of paper money, they are embedded in exchange rates. The 20th-century initiators of such a strategy had certainly been poor in raw materials. However, not all economies poor in raw materials automatically shifted to this strategy. In order to exploit comparative advantages, these have to be transformed into cost competitiveness by lowering the international costs of local factors of production, especially labor. When shifting to export-oriented manufacturing, successful exporters had exchange rates that did not reflect purchasing power parity. Exchange rates had been devalued below purchasing power parity (Elsenhans 2002, 66–73). In cases where the exchange rate is below purchasing power parity, the additional consumption in the wake of increasing employment cannot be entirely satisfied by imports. This is because additional international purchasing power has, by definition, grown less than additional internal demand. Devaluation-driven export orientation thus requires the capability to locally produce a surplus of wage goods and, at low levels of economic development, additional food. Hence the Green Revolution, with its massive increase in yields, has been central to the new export drive of some countries of the Global South. Historically, and with the exception of the city-states, successful export-oriented industrializing countries were already self-sufficient in food prior to embarking on their export drives (South Korea, Taiwan, People’s Republic of China, Vietnam). This applies also to Japan, which was able to initiate its export drive after World War I on the basis of an exchange rate at one-half of purchasing power parity (Morimotu 1918, 144). A low share of imports in the consumption of the better-off (Felix 1989, 1466) and a relatively egalitarian income distribution contribute to the possibility of reducing the international prices of one’s own local factors of production. In case of reliance of consumers only on the internal market, export earnings can be accepted at the level of the cost of imported goods necessary for exports. In Marxist terms, devaluation below purchasing power parity constitutes a transfer of value, a subsidizing of local labor, and therefore surplus ceded to the benefit of a foreign trade partner. This can be justified if the cost of an inefficient state class is higher than the surrendered surplus. The People’s Republic of China shows the application of this principle. The transfer of profits by affiliates of multinational companies is permitted. However, priority is given to domestic access to the technologies of these multinationals through training and majority participation of local companies (Elsenhans and Babones 2017, 94f.). Devaluation is costly. At least initially, comparative advantage can be transformed into cost competitiveness only in a few production lines with acceptable rates of devaluation. Consequently,

56  Hartmut Elsenhans any attempt to concentrate all efforts in export orientation on the exchange rate entails high costs. A less costly strategy consists in limiting price reductions on the world market and subsidizing industries with potential comparative advantage, but still excessively high costs. Local content rules (Hodara 1985, 5–11), or taxing exports where demand has become price inelastic (not necessarily only raw materials), contribute to earnings available for subsidizing technical upgrading upstream and downstream of the respective export production. This can even result in the launching of new exports. When Korean textile exports became price- and income-inelastic, Korea forbade the import of textile machinery. This forced its textile exporters to turn to the local spare parts industry in order to construct textile machinery that previously had been imported (Mytelka 1986, 258). Textile exporters had to accept rising local production costs (implying rising export prices), just as if an export tax had been introduced. The proceeds went to the local investment goods industry in the form of higher local prices for its products, just as if the producers of textile machinery had received government subsidies. Moreover, this type of state appropriation of rent entailed very low transaction costs because textile exporters proved to be better extension agents than state planners. Singapore taxed low-wage industries in order to finance skill acquisition and technically more demanding industries. There are myriad examples of such practices of intelligent rent appropriation and channeling. Successful entry into export-oriented manufacturing requires state-induced devaluation below purchasing power parity. Devaluation can be limited if those lines of production which are already cost-competitive at low rates of devaluation are burdened with the cost of technology upgrading. This may occur as a result of, for example, taxes, the imposed use of initially expensive locally produced inputs, or government spending on an at least initially costly national innovation system (Khan 2000, 72). There is a political issue around devaluation. Middle-income strata are able to transform their national currency holdings into international purchasing power, often by transgressing politically imposed limits. This allows them to purchase products from the world market at a rate of exchange that does not reflect the marginal productivity of their national labor force. Let us assume that there is a highly productive export sector, perhaps because of its raw material content or its low degree of technical backwardness in relation to the leading industrial producers. Under such circumstances, limiting export growth may increase total revenues or revenues available for the middle strata from exports in relation to the option of a lower exchange rate. This should be the expected scenario when the capacity to diversify industrial production is low. Raw material exporters with very remunerative goods have such high external rents that the development of new industries and even state-supported technical innovation systems appear as not particularly promising. I have drawn on the example of the Algerian economy in order to demonstrate that devaluation was necessary to render the Algerian industry competitive, first on its local market (Elsenhans 2010, 15–22; Elsenhans and Ouaissa 2019) but then also on export markets. This argument met with considerable scholarly opposition. One objection was that the Algerian middle class would not accept such a curtailing of its foreign-exchange income.

The Political Economy of Rent  57 There is a third limit to devaluation for the strategy’s applicability at the global scale. Devaluation is ineffective for lowering the international cost of local labor whenever the economy approaches high levels of employment. If labor becomes scarce, further devaluation leads to competition between export industries and internal market industries for labor. Rising labor costs are the result. This is known as imported inflation, as observed in Germany in the early 1960s and after 1971 in Japan (Iwami 1992, 459). Economies reaching high levels of employment on the basis of undervalued currencies are compelled to either accept an appreciation of the exchange rate, imported inflation, or politically imposed wage restraint (the latter is the contemporary German solution). This limit to devaluation constituted by high levels of employment echoes my argument that rent is based on incomplete capitalist transformation. Marginal labor has all but disappeared here. A mixture of strategies presented as instruments for overcoming rent, state-led industrialization, redistribution, and export-oriented manufacturing may, if applied intelligently, contribute to development, provided that capitalism is not generalized. In the absence of profitable investment opportunities, increasing investment through market-wise unprofitable spending on new productive capacities and redistribution of rents to mass consumption is superior to the simple loss of these resources. In the long term, however, such spending is only efficient if it contributes to the establishment of the capitalist mechanism of production for mass markets – including internal mass markets – via the empowerment of labor. If the strategy is oriented to new exports, major inefficiencies can be avoided.

The Globalization of Rent The replacement of internationally expensive labor (such as Western labor) by internationally cheap labor (whatever its real wage, which may be higher in national currency than in purchasing power on the world market) constitutes a reduction of global consumptive capacity in relation to global productive capacity. Since the 1970s, this process has taken on a qualitatively new dimension. In the wake of the globalization drive of the late 19th century, the Global South could not transform comparative advantage into a competitive advantage by lowering the international price of its labor through its subsidization by local wage goods production. The attempt was scuppered by decreasing food availability. The activities of labor organizations in industrially “competent” countries were sufficient for coordinating productive potential and consumptive potential. An innovation in leading country A may have replaced similar production lines in the less innovative country B. The price level of A appreciated, while old products in B became competitive with additional employment in these supposedly “old” branches. In the late 19th century, then, unions in the West European countries concentrated on the inclusion of social clauses in trade agreements in order to maintain their negotiating power in the face of wage dumping from partner countries (Huberman and Lewchuk 2003, 33). I refer to this configuration as benign globalization (Elsenhans 2006). Let us assume that the less innovative country B has a larger share of products that can be produced by country C, where there is labor surplus because of marginality. In this situation, this mechanism of shifting to older products is not

58  Hartmut Elsenhans available for industrially developed but (often only temporarily) lagging economies. Due to the onrushing process of globalization, which characterized the latter decades of the 20th century, these economies have effectively become intermediate countries. They are caught between, on the one hand, the anvil of hightechnology economies and, on the other, the hammer of low labor cost economies capable of high rates of devaluation. All countries will endeavor to graduate into the select group of leading technology countries. This practice of using politically appropriated resources for catching up technically is not restricted to the Global North. Intermediate and leading countries as well as countries of the Global South also engage in it. Technically leading countries cannot assume that the position they have already achieved through learning-by-doing will remain perpetually secure (Elsenhans 2001a, 62–73). There exists a danger of being overtaken despite good performance in technical innovation. In a totally new technology, an old leading economy has no production line-specific learning-by-doing. The leading country, however, has a productivity advantage in the old leading technologies because of learning-bydoing. Learning-by-doing in a formerly leading technology also provides a competitive advantage in the new leading technology. However, the effect of previous learning-by-doing cannot be completely transmitted to the new technology. In such cases, the leading economy will have a higher advance in productivity and therefore comparative advantage in the old leading technology. The old leading economy is compelled to specialize in those technologies where it already has an established advantage. The pattern of German specialization is instructive here. Germany loses massively in world export shares in the most technically advanced products (Elsenhans 2020). Furthermore, the broadening of the spectrum of manufacturing trickle-down effects of skills and technologies in manufacturing leads to productivity increases in the export-oriented Global South. Export drives at undervalued exchange rates are facilitated, as long as marginality is not overcome. Structural heterogeneity thereby shifts to the Global North. Here, important lines of production lose competitiveness at the prevailing exchange rates, which results from high-technology branches. Leading economies react by reducing labor costs, government subsidies to technical innovation systems, and welfare spending on shed-off labor (Rodrik 2008, 114f.). They usually strive to keep wage increases below productivity increases. This intensifies underconsumptionist tendencies. Most job losses in the global West are not due to delocalization of production to the Global South, but rather to productivity increasing more rapidly than production (Gindin and Panitch 2012, 290f). With production potential increasing more rapidly than consumption, a space for appropriating resources by political means inevitably opens up. All three of the mechanisms identified here favor a shift to rent-based economic policies in the Global North, as well as the Global South. The globalization of rent is thus triggered by the new pattern of competitiveness of the Global South. Any attempt to combat this phenomenon thus requires the transition of the Global South to capitalism with high levels of employment. Under these conditions, the mechanisms of scarcity of labor reducing rent operate. The tendency to devalue the currency

The Political Economy of Rent  59 below purchasing parity is checked. The faster the removal of marginality in the Global South, the more rapidly the disappearance of rent. This is facilitated by launching mass consumption and promoting integration industries via state support for maximizing multiplier effects (Elsenhans 2019b). The employment effects of export-oriented manufacturing thus have to be intensified. The more that additional employment favors internal mass demand in the Global South, the more rapid the transition to capitalism. The successful East Asian countries have shown the way in this respect. In South Korea, Taiwan, Vietnam, and the People’s Republic of China, marginal labor was reduced through land redistribution. In cases of egalitarian land distribution, a farming family will use all its available labor time on its own plot until the marginal product is lower than the rate offered by Industrial employment (Dasgupta and Ray 1987, 177f.). The advantage of low labor costs is not eliminated. As economic development proceeds, this advantage disappears because of rising employment. Farmer households will first supply female labor, which, physically, is less highly performing in agriculture (Murayama and Yokota 2009, 75). The new export industries are thus initially feminized until scarcity of labor leads to higher wages and therefore also male migration to industry (Caraway 2006, 33). This mechanism can be accelerated by establishing artificial industries. No labor value is created if we simply throw paper money to the poor out of a helicopter. However, it is possible to create labor value if we use the helicopter for throwing clearly identifiable stones over remote areas. These cannot be collected without labor effort. If a day’s collection of stones corresponds to the cost of survival of a poor family, household heads will migrate to collect the stones and bring them to local exchange centers. If an aid agency announces its preparedness to exchange the stones at a given rate, then lorry drivers will buy a day’s collection for the cost of survival of the collector’s family. Otherwise, the collectors would not even bother to pick up the stones (Elsenhans 1991, 281–83). This strange scenario – in effect, the construction of an artificial industry – is really not as fanciful as it might seem. After all, doubling the income of that section of the global population identified by the World Bank as “poor” (2015; 734 million below $1.90 per day) would cost less than the early subsidization of the American banks during the financial crisis ($3 trillion until 2009, Anderson and Gascon 2011, 5). Overcoming rent thus depends on the intelligent use of market mechanisms and state mechanisms. It implies a break with both neoclassical and Marxist economics, which interpret growth as the result of capital accumulation. The alternative – a real economy Keynesian approach – holds that rent is a resource for investment. However, it only serves as such if it is used for the transformation of the economic structure into a capitalist one through empowerment of labor. Any attempt to redirect resources into not-yet-profitable investment carries significant dangers of corruption. That said, rent remains a possible source of redistribution. The lower import intensity of mass consumption, either already existing or easily achieved by currency devaluation, together with the possibility of creating backward linkages by locally produced technologies for it, makes redistribution a relatively safe instrument against corruptive practices. This, however, requires the necessary political will. The decisive element is not making the correct choice between market and

60  Hartmut Elsenhans planning, investment, and consumption. In fact, of key significance is the use of a mixture of market mechanisms and central planning in order to orient the growth process to the production of mass consumption goods. In this way, popular needs can be met.

Note 1 Most recent contributions to rent theory are supply-side approaches (at least implicitly). These contributions inquire into how the efficiency of rent utilization might be improved in order to achieve economic growth in the face of wasteful agents. Such agents are considered to have become wasteful because of sociocultural factors – and so “good governance” suggests itself as the advisable solution for taming rent (Elsenhans 2001b; Aytaç, Mousseau, and Örsün 2016). Institutional economics has proven itself prolific in outlining the social and political conditions for such a struggle against waste. This supply-side orientation is also evident in the many contributions that insist on appropriate exchange rates. This line of inquiry generally does not focus on the rise of mass incomes as a condition for capitalist growth in the wake of undervalued currencies. It thus comprises a new extractivism because it also perceives the outflow of rent from rent-generating exports as an outflow of value (Burchardt and Dietz 2014; Bresser-Pereira 2006).

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62  Hartmut Elsenhans Elsenhans, Hartmut, and Rachid Ouaissa. 2019. “Sauvegarder la transition politique par une transition économique efficace. ” El Watan, May 5, 2019, 8. Farese, Giovanni. 2016. “The Culture of Investment-led International Development: The Chatham House Circle (1939–45) and Lessons for Today.” International Affairs 92 (6): 1481–98. Felix, David. 1989. “Import Substitution and Late Industrialization: Latin America and Asia Compared.” World Development 17 (9): 1455–69. Georgescu-Roegen, Nicholas. 1960. “Economic Theory and Agrarian Economics.” Oxford Economic Papers 12 (1): 1–40. Gindin, Sam and Leo Panitch. 2012. The Making of Global Capitalism: the Political Economy of American Empire. London: Verso. Godley, Andrew. 2001. “The Global Diffusion of the Sewing Machine, 1850–1914.” Research in Economic History 20: 1–45. Helmstädter, Ernst. 1969. Der Kapitalkoeffizient: eine kapitaltheoretische Untersuchung. Stuttgart: Gustav Fischer. ———. 2002. “Kapitalstock, Kapitalintensität, Kapitalkoeffizient in Preisen von 1995 (1960–2000), Kapitalkoeffizient nach Wirtschaftsbereichen in Preisen von 1985 (1960– 1989).” Gesis Historische Statistik ZA 8533, Wiesbaden: Gesis. Hirschman, Albert O. 1958. The Strategy of Economic Development. New Haven: Yale University Press. Hodara, Isodoro. 1985. Countertrade: Experiences of Some Latin American Countries. Geneva: United Nations Conference on Trade and Development. Huberman, Michael, and Wayne Lewchuk. 2003. “European Economic Integration and the Labour Compact, 1850–1913.” European Review of Economic History 7 (1): 3–41. Iwami, Tōru. 1992. “Japan’s Experiences Under the Bretton Woods System: Capital Controls and the Fixed Exchange Rate.” Banca Nazionale del Lavoro Quarterly Review 183: 431–62. Kalecki, Michal. 1942. “A Theory of Profits.” Economic Journal 52 (205–206): 258–67. Khan, Mushtaq H. 2000. “Rent-Seeking as Process.” In Rents, Rent-Seeking and Economic Development: Theory and Evidence in Asia, edited by Mushtaq H. Khan, and Kwame S. Jomo, 70–144. Cambridge: Cambridge University Press. Lamartine Yates, Paul. 1959. Forty Years of Foreign Trade: A Statistical Handbook with Special Reference to Primary Products and Underdeveloped Countries. London: Allen & Unwin. Lenin Vladimir, I. 1960. “The Development of Capitalism in Russia [1899]. The Process of the Formation of the Home Market for Large-Scale Industry.” In Collected Works, edited by Vladimir I. Lenin, 21–607. Moscow: Progress Publishers. Leontief, Wassily. 1951. “Input-Output Economics.” Scientific American 185 (4): 15–21. ———. 1954. “Domestic Production and Foreign Trade: The American Capital Position Re-Examined.” Economia Internazionale 7 (1): 9–38. Lewis, W. Arthur .1954. “Economic Development with Unlimited Supply of Labour.” Manchester School of Economic and Social Studies 33 (2): 139–91. Marx, Karl. 1977. Capital (1): The Process of Production of Capital [1867/1887]. Moscow: Progress Publishers. Morimotu, Kokichi. 1918. The Standard of Living in Japan. Baltimore: Johns Hopkins University Press. MPAT (Ministère de Planification et de l’Aménagement du Territoire). 1980. Synthèse du bilan économique et social de la décennie 1967–1978. Algiers: MPAT. Murayama, Mayumi, and Noburo Yokota. 2009. “Revisiting Labour and Gender Issues in Export Processing Zones: Cases of South Korea, Bangladesh and India.” Economic and Political Weekly 44 (22): 73–83.

The Political Economy of Rent  63 Mytelka, Lynn K. 1986. “The Transfer of Technology: Myth or Reality?“ In The European Community’s Development Policy, edited by Carol Cosgrove, and Joseph Jamar, 243–81. Brugge: De Tempel. Nurkse, Ragnar. 1953. Problems of Capital Formation in Underdeveloped Countries. New York: Oxford University Press. Rangarajan, L.N. 1978. Commodity Conflict: The Political Economy of International Commodity Negotiations. London: Croom Helm. Ricardo, David. 1951. On the Principles of Political Economy and Taxation [1817]: The Works and Correspondence of David Ricardo (1). Cambridge: Cambridge University Press. Rodrik, Dani. 2008. “Why Do More Open Economies Have Bigger Governments.” In Embedding Global Markets: An Enduring Challenge, edited by John G. Ruggie, 113–44. Aldershot: Ashgate. Rosenberg, Nathan. 1982. Inside the Black Box: Technology and Economics. Cambridge: Cambridge University Press. Rosenstein-Rodan, Paul N. 1943. “Problems of Industrialization of Eastern and Southeastern Europe.“ Economic Journal 53 (210/211): 202–11. Salter, Wilfred E.G. 1960. Productivity and Technical Change. Cambridge: Cambridge University Press. Schürer, Gerhard. 1990. “Die Bilanz war gelogen” Wirtschaftswoche, 44 (30): 14–15. Sid Ahmed, Abdelkader. 1989. Économie de l’industrialisation à partir de ressources naturelles (I.B.R.) (2): Le cas des hydrocarbures. Paris: Publisud. Singer, Hans W. 1950. “U.S. Foreign Investment in Underdeveloped Areas. The Distribution of Gains between Investing and Borrowing Countries.” American Economic Review 40 (2): 473–85. Steinberg, David A. 2016. “Developmental States and Undervalued Exchange Rates in the Developing World.” Review of International Political Economy 23 (3): 418–49. von Bortkiewicz, Ladislaus .1907. “Wertrechnung und Preisrechnung im Marxschen System (3).” Archiv für Sozialwissenschaft und Sozialpolitik 25 (2): 445–89. Watkins, Melville H. 1963. “A Staple Theory of Economic Growth.” Canadian Journal of Economics and Political Studies 29 (2): 141–58. Williamson, Jeffrey G. 2011. Trade and Poverty. When the Third World Fell Behind. London: MIT Press.

Part II

Actors, Strategies, and the Politics of Rent

3 Uganda’s State Class and the Politics of Oil Julian Friesinger

Introduction In 2006, when large oil deposits alongside some smaller gas fields were discovered in Uganda, the resource finds were considered a blessing, and expectations ran high that the discovery of oil and gas would improve the lives of Ugandans.1 Some thought that the cost of transportation would decrease as Uganda could now potentially use its crude to produce fuel and other petroleum products. Others instead harbored hope that the government would be able to fulfill its promises on development and use the oil revenues to improve the country’s health care system, e.g., by building more government clinics. Uganda’s president Yoweri Museveni, in power since 1986, fueled even bigger expectations. After organizing a national prayer ceremony to thank God for the discovery, Museveni immediately announced that the oil discoveries would fast-track Uganda’s plan to reach middle-income status and make it more autonomous in financing infrastructure developments and other public investments in the country (Kavuma 2009). This discursive shift comes after two decades of neoliberal restructuring of the country. Approximately 2.5 billion barrels of oil have been discovered so far in the Albertine Graben in Uganda’s Western region. While the Ugandan government estimates the total deposits in the entire country to be around 6.5 billion barrels (Musoke 2014), so far, circa 2 billion barrels seem to be exploitable (Patey 2015, 9). Uganda’s oil finds are mainly onshore (Kinyera 2019, 111). However, the exploitation seems to be complex, which partly helps to explain why the prospected date of production has been delayed several times since the discovery. The transport of the crude to the nearest port on the Indian ocean necessitates the construction of a pipeline. Uganda’s oil is waxy and thus requires the pipeline to be heated (van Alstine et al. 2014; Vokes 2012). The ca. 1,500-km-long pipeline will run from Hoima, Uganda, to Tanga in Tanzania but is prospected to operate only in 2025 (BBC Swahili 2021). In order to serve the local market with refined fuel products, Uganda has signed an agreement over the construction and operation of a refinery producing 60,000 barrels per day (Biryabarema 2018), which should be fully operational in 2023 (The East African 2019). The Ugandan crude was originally discovered by wildcatters Heritage Oil and Hardman Resources. Yet, the resource will now be exploited by the French company TotalEnergies and the China National Offshore Oil Corporation (CNOOC). DOI: 10.4324/9781003303268-6

68  Julian Friesinger Uganda’s deposits are much smaller than those of other African countries, such as Libya (46 billion barrels), Nigeria (37 billion), Algeria (12 billion), and Angola (9.5 billion), but are nevertheless bigger than South Sudan’s (3.5 billion; Oil in Uganda 2012a; US Energy Information Administration 2021; Patey 2020). The estimated production capacity of Uganda’s oil fields would make it the fifth-largest petroleum producer in sub-Saharan Africa. Yet, as it is projected that other midlevel producers’ production capacities are likely to decrease, Uganda’s role as an oil producer on the African continent may become even more important (Patey 2020, 1184). Once oil exploitation eventually begins, revenues from oil will likely be significant.2 This is not only shown by Museveni’s discursive shift but also by the fact that resource discoveries in Uganda have given rise to debates about how to use the revenues from oil rent, sparking significant conflicts between the state class, legislators as part of the middle class and former kingdoms (Vokes 2012). The construction of infrastructure to exploit oil has also provoked conflicts between subalterns and the state. Existing studies on the recent oil discovery in the East African state have focused on issues related to the governance of oil in Uganda, looking at the country’s steering capacity of the oil sector or what is called “pockets of effectiveness,” the regulation of the sector and delays (Hickey and Izama 2017, 2020; Schritt and Witte 2018; van Alstine et al. 2014; Polus and Tycholiz 2016, 2017; Byaruhanga and Langer 2020; Langer, Ukiwo, and Mbabazi 2019; Doro and Kufakurinani 2018). Further research has examined the discursive shift of the sitting government turning from a neoliberal to a more developmental discourse (Hickey 2013; Rubongoya 2018). Other scholars have looked at the local expectations of people (Mawejje 2019; Witte 2018) and the significance of resource finds for the local population and their livelihood (Kinyera 2019; Kinyera and Doevenspeck 2019; Kinyera 2020; Bybee and Johannes 2014; Byakagaba et al. 2019; also Witte 2018). In this chapter, I try to add to the literature on the politics of oil in Uganda by bringing together the research strands on discursive shifts, Uganda’s centralization efforts of the rent, and expectations. It situates these issues in the broader politico-economic and historical context of Uganda’s state class and renders ideational shifts and the conflicts around rents more intelligible. I analyze two related dynamics: the change of strategy and the nexus between rent and conflicts over its appropriation and distribution among different groups. Uganda represents an ideal case to study the societal dynamics through which the anticipation of rent produces a lock-in effect and starts to shape the course of development even before the exploitation of this resource begins. In order to understand these dynamics, I chose a theoretical approach rooted in political economy. Such a theory allows me to analyze the constellation of different classes and, hence, the behavior of actors and their strategies in relation to rent. One seminal work in which the concept of “rent” and the constellation of classes play a crucial role is the state class theory originally developed by Hartmut Elsenhans (1996, see also 2021, 125–31). State classes in postcolonial states emerged and expanded due to the fact that low agricultural productivity and a significant labor surplus

Uganda’s State Class and the Politics of Oil  69 generated rents, and then appropriated by the bureaucratic apparatus. Since the appropriation of rents is not bound to an imperative of reinvestment, state classes oscillate between the pressure to legitimize their rule and the freedom to squander this surplus. Although there were state classes in sub-Saharan Africa that tried to transition from rent-based to capitalist growth, these postcolonial governments ultimately failed to overcome the status of a rent economy. Uganda represents a case where the state class initially partly pursued plans to transition to capitalist growth during Obote 1 (1962–71) but then abandoned this project, transitioning to neoliberal restructuring, only to return to pursuing capitalist growth after finding new rents. Tanzania provides a further case in point of a wavering state class. Uganda’s state class has been oscillating between those two extremes. Past legitimization strategies of President Museveni, in power since 1986, began to lose their luster. In line with the state class theory, I argue that the discovery of crude allows Museveni to pursue a new developmental discourse focusing on infrastructural developments.3 This project helps to further legitimize his decades-long rule, as the more active developmental approach partly allows him to honor his pledges to transform the country. Using the state class theory as foundation, I then combine Elsenhans’s approach with the works of Rachid Ouaissa to analyze the bargaining between the state and middle class. As Ouiassa (2018) has stated, the middle class plays a crucial role in the continued rule of the state class and the maintenance of the status quo. As middle classes in former bureaucratic development societies depend on rents, they have the self-interest to ensure that the state class distributes part of this rent to them. While this renders intelligible the conflicts between state class and legislators, who count among the most outspoken actors in the centralization of the rent and, as part of the middle class, engaged in fights with the state class, the discovery of oil has caused further conflicts. Here, the overwhelming focus on infrastructural development gave rise to clashes between the subalterns in the oil region and the state that centered around land, inmigration, and jobs. I trace the recent dynamics within the state class, between the state class and middle classes, and the state class and subalterns by using newspaper articles, and secondary and gray literature. The chapter also benefits from insights gained during two field trips to Uganda in 2020 and 2022, during which I conducted research on Uganda’s state class, social movements, and opposition politics. As part of my PhD research, I conducted semi-structured interviews with a wide variety of actors, such as journalists, scholars, politicians, activists, police officers, nongovernmental organizations staff, and personnel from the diplomatic field, further complemented with participant observation. This chapter is divided into six sections. In the next section, I provide the theoretical foundation needed to develop the argument in more detail. The third section examines the legitimization strategies of President Museveni, while the fourth section describes the recent infrastructural developments and their financing. The dynamics of the conflicts between the state class and middle class rivaling for the rent are analyzed in the fifth section. Thereafter, in the sixth section, I turn to the conflicts in the region where crude will be extracted.

70  Julian Friesinger

State Class Theory Following independence, African states saw the emergence of bureaucratic development societies with a new ruling class, the so-called state class, which in many cases sought to fast-track development (Elsenhans 1996). The basis of their existence is a surplus income called rent, which in essence results from imperfect market competition and is appropriated through political means. Such rent is characterized by its ambivalence: it can be used for economic transformation or simply squandered (Elsenhans 1997). One good example of a resource rent is seen in oil. Since rents are in essence ambivalent, state classes also play an ambivalent role in overcoming underdevelopment. On the one hand, state classes have to legitimize their rule, for example, with development projects. On the other hand, since rents are a specific surplus earned on non-competitive markets and therefore do not have to be reinvested to remain competitive, rents can also be squandered when elites prefer to pursue self-privileging. In times of rent abundance, the state class experiences stability and is able to co-opt important social groups, whereas low levels of rent entail instability of the state class and lead to its fragmentation (Ouaissa 2005). Basically, Elsenhans defines the state class as those public sector employees who receive higher wages, have more prestige and increased possibilities to participate within the state than the average laborer, and are involved in the appropriation as well as the distribution of rents (Elsenhans 1996, 177). Other personnel employed by the state are considered “organic clientele.” The organic clientele possesses privileges in the form of formalized jobs and depends on the growth of the state class. Despite the liberalization of the economy and politics in the 1990s, state classes persist to date, even though today it is often more apt to speak of the remnants of the state class. During the past six decades, state classes have oscillated between state-driven development policies and market-driven policies. Following the liberalization period in the 1990s, African states largely lacked developmental strategies. Remnants of the state class survived as their leaders smoothly transitioned from leftist positions to neoliberal stances and adapted to the new multiparty context. However, countries such as Tanzania and Uganda have recently pursued a more state-driven form of development (see Paget 2020; Rubongoya 2018; Hickey 2013; Hickey and Izama 2017). In the case of Uganda, in the mid-1980s, Yoweri Museveni advocated for a leftist agenda, then implemented neoliberal reforms in the late 1980s and 1990s and now partly picks up the earlier discourse again. Although the state class can be regarded as the central actor in the (former) bureaucratic development societies, it is equally important to consider the relations of the state class to other strata of society – the organic clientele, or what can be better understood as the middle class, and subalterns – and the bargaining over rents. A useful extension of the state class theory was provided by Ouaissa (2018), who highlighted that the middle class is a crucial actor in rent economies. In (former) bureaucratic development societies, the middle class, including the organic clientele, along with professionals of the private sector, which expanded after the liberalization in the 1990s, is interested in maintaining the status quo of those rent

Uganda’s State Class and the Politics of Oil  71 economies (Ouaissa 2018). Middle classes in rent economies are historically the outcome of the growth of the state class and still depend on the status of structural heterogeneity and are not the product of the development of the productive forces leading to capitalism. Middle classes are therefore, as Ouaissa argues (2018, 125, 127), mainly interested in the easy capture of rents and a guarantee of continued rent income. The capture of rent necessarily leads to conflicts between the state class and the middle class. It is important to add that the organic clientele of the state class, as part of the middle class, also seeks to gain access to the state class through a process of intra-elite bargaining. This bargaining additionally demonstrates that the boundaries between these groups can be fluid (Elsenhans 1996, 177). In her study on legislatures in Tanzania and Uganda, Collord (2019) singles out the Parliament as one important arena of conflict for such bargaining over rents between the state and the legislators as part of the middle class. Whether rents are used for economic transformation depends on the constitution of the state class and the existence of economic programs that address the question of economic transformation. Important, however, is that these programs ultimately focus on raising mass incomes. In Elsenhans’s state class theory, which offers a crucial post-Keynesian macro-economic perspective, the practical way to eliminate the large labor surplus, itself a result of the low agricultural productivity, is to reduce rents and instead trigger mass income growth to transition to profit-based growth. According to this theory, productivity increases in the agricultural sector have to be combined with income redistribution toward an egalitarian income profile and rising mass incomes. In the parts that follow, I use the state class theory developed by Elsenhans (1996) to analyze the politics of oil in Uganda. Building further on the works of Ouaissa (2005, 2018), I posit that the discovery of crude allows Museveni to pursue a new developmental discourse, which helps to legitimize his continued rule. Using the insights of Ouaissa (2005, 2018) and Collord (2019), I further argue that the middle classes as regime stabilizers have a self-interest to ensure that the state class distributes part of the anticipated rent to the middle class or that it gets included in the state class to provide them greater access to rent. However, as I show in the empirical sections, these fights play out along the lines of the struggles dividing different segments of the state class. As Collord (2019) has shown, Parliament is one crucial arena in which such fights are waged for rents. While the aim to shift to a middle-income country by using rents for infrastructural projects partly honors pledges made to socioeconomic transformation, infrastructural developments, as will be briefly shown later, cater to a large part to middle-class demands. Subalterns currently benefit less from these infrastructural developments or are even negatively affected by conflicts caused by oil developments, such as intensified land struggles, exacerbated competition for a livelihood, and in-migration.

Museveni’s Varying Legitimization Strategies Museveni has used several strategies to legitimize his continued rule since 1986. Bringing peace to Uganda following Idi Amin’s despotic rule (1971–79) and the Bush War of 1986 was and is a key strategy to legitimize the National Resistance

72  Julian Friesinger Movement (NRM) rule. The broad-based and inclusive government, the expansion of the state sector, and the reinstatement of Uganda’s kingdoms, although solely relegated to cultural functions, have all been further important strategies. The embracing of neoliberal reforms has made Uganda a poster child for World Bank and International Monetary Fund (IMF) policies, while Uganda’s swift deployment for peacekeeping missions, such as in Somalia under the mandate of AMISOM, conferred to it increased international legitimacy. Although Museveni initially proposed a leftist discourse during his studies at the University of Dar es Salaam and before coming to power, Museveni and his party, the NRM, swiftly changed course after having won the Bush War in 1986. Museveni then argued in favor of a lean state and the privatization of the country’s assets. In the late 1980s and early 1990s, the World Bank and the IMF needed positive examples for their reform policies and found such a ‘test laboratory’ in Uganda while it was dependent on financial support from these institutions. Focusing on the liberalization period in Uganda, Mwenda and Tangri (2005), Tangri and Mwenda (2001), and Himbara and Sultan (1995) have highlighted the stark dependence on donors but also the divestment process of parastatal enterprises to some of the members of his inner circle,4 as well as the cushioning of state retrenchment by creating employment opportunities through special statutory bodies for former public officers. Museveni retained not only a sort of international legitimacy by becoming a showcase country for neoliberal reform but also by engaging in peacekeeping missions in conflict-affected neighboring states (on the latter see Fisher 2012). Domestic strategies were equally important. He cushioned the effects of liberalization policies for his organic clientele, introducing a “broad-based government,” which sought to include opposition politicians in the government and make it more representative of Uganda’s different regions (Lindemann 2011; GoloobaMutebi and Sjögren 2017). The reintroduction of multiparty politics in 2005 created important administrative and parliamentary positions. The size of Parliament, the number of districts, and hence the roles for various regional posts due to the decentralized government structure, have grown ever since 1986. The number of districts has increased from 33 in 1986 to 135 in 2020, and Parliament has grown from 270 in 1989 to 530 seats in 2021 (Carbone 2008, 66; Election Guide 2021; Tangri and Mwenda 2001, 458–60). Additionally, Museveni aimed at shoring up support from former kingdoms abolished by Uganda’s first president, Milton Obote, in the late 1960s. Museveni’s Bush War was mostly fought within close proximity to the capital city of Kampala, a Bugandan stronghold, and relied on crucial support from the Baganda. In the 1990s, the NRM welcomed the exiled Baganda monarch, still a very popular figure, back to Uganda and allowed the kingdom to be reinstated in 1993, although only as a cultural institution (Goodfellow and Lindemann 2013, 9–12), and further handed back the property expropriated during the Amin era (Kasfir 2019, 530). However, despite these strategies, bitter fights about the succession of Museveni unraveled between different segments of the state class already in the 1990s. The threat of a split of the NRM emerged when a more frugality-oriented segment campaigned against the self-privileging tendencies of Museveni and his inner

Uganda’s State Class and the Politics of Oil  73 circle. In 1999, Kizza Besigye, Museveni’s former physician in the Bush War, then later minister for internal affairs and political commissar of the NRM, heavily criticized Museveni’s inertia to stop his relatives and close allies from privileging themselves (Booth et al. 2014, 67). Besigye’s decision to run against Museveni in the 2001 presidential polls affronted the NRM. Later, Besigye together with further former key figures from the NRM founded the Forum for Democratic Change (Carbone 2008, 191–94), the most important opposition party from the reintroduction of multipartyism in 2006 to 2021. A second serious challenger emerged when NRM stalwart Amama Mbabazi, secretary general since 2005 who also held various positions such as defense and security minister and later prime minister, broke away from Museveni’s key segment and challenged Museveni at the presidential polls in 2016. I will focus on the conflicts between the key segments of the state class over the centralization and distribution of rent, in which Mbabazi has played a crucial role, after outlining for what infrastructure projects the anticipated rent revenues were used.

Catering for Middle-Class Demands: Infrastructural Development and Prestige Projects Museveni’s past legitimization strategies start to lose their luster as the “liberation argument” (having brought peace to Uganda after protracted periods of war and insecurity) seems to be less convincing to the youth who have not experienced the civil war but only the very limited progress under the NRM (Reuss and Titeca 2017). The discursive shift to a new developmental vision, therefore, comes at a time when domestic dissatisfaction with the continued NRM rule becomes more evident. In 2007, following the discovery of oil, Museveni outlined his Vision 2040 for Uganda, which essentially aimed at transitioning to a middle-income country by 2040. The plan, among other things, also envisioned large-scale infrastructural developments, such as the construction of dams and roads, but also included reviving the national air carrier and the construction of a bullet train network, new international airports, and highways, to create jobs and integrate the country better (National Planning Authority 2007). In anticipation of future revenues for oil, several of these large-scale infrastructure programs have been commissioned and financed with loans (Wolf and Potluri 2018, 7).5 Part of this infrastructure is a ca. 50 km highway from Entebbe, where Uganda’s State House and only international airport are located, to Kampala, Uganda’s capital. Furthermore, two hydroelectric dams in Karuma and Isimba, which together are expected to generate almost 800 megawatts, fall in this category of debt-financed infrastructure (Ogwang and Vanclay 2021). A range of further road and dam projects, the upgrading of Entebbe International Airport and the construction of the second international airport in Kabaale, the reestablishment of Uganda Air, and the construction of industrial parks have also been financed by loans (Wolf and Potluri 2018, 7). Further, Uganda is part of a larger railway corridor development aiming to link Tanzania and Kenya to the Eastern part of the Congo and South Sudan. Uganda’s plans for the construction of a

74  Julian Friesinger standard gauge rail from Kenya’s border to Kampala have, however, not yet received financing, but the construction of the railway is prospected for 2022–23 (Wakabi 2020). Moreover, the critical oil infrastructure – namely, the oil refinery, as well as the pipeline, has not yet received any funding. This debt-financed infrastructure in anticipation of rent revenues has led to a significant increase in the national debt level. From 2011 to 2021, the debt-togross domestic product ratio increased from 20 to 50 percent (Draku and Ladu 2021). Initially, the Ugandan planning authorities had “presumed that the first repayments [for these projects] would not be due until after oil revenues had commenced” (Ogwang and Vanclay 2021, 7). The Ugandan government initially prospected to start oil production already in 2013 but had to delay the extraction of the resource several times (Lakuma 2020). In 2021, given the significant delay in oil exploitation and the negative economic effects of the COVID-19 pandemic on tax revenues, Uganda had to consider negotiating a debt moratorium with its creditors. According to a news report, China demanded that oil revenues be used directly to repay one of the loans that Uganda was seeking to renegotiate (Biryabarema 2018). The upgrading of Entebbe Airport, the expressway from Entebbe to Kampala, and the reestablishment of Uganda Air are excellent examples of prestige projects that are extremely expensive and accessible to only a select few. The cumulative costs for these three projects in the period 2012–21 were ca. USD1.38 billion (Wolf and Potluri 2018, 7). Conversely, the agricultural sector suffers from a general lack of attention and inadequate allocation of funding toward agricultural support services (Asiimwe 2022, 2018).

Fights between the State Class and the Middle Class Over the Use and Distribution of the Anticipated Rent After oil was discovered in 2006, Museveni first tried to define oil as a strategic resource, bringing it under the control of the presidency and the military (Hickey and Izama 2017, 173) and then moved to centralize power over the resource. Since Uganda’s legislation on natural resources dated back to 1985, from 2011 to 2015, the NRM sought to pass a number of new bills regulating the oil sector. Subsequently, Parliament became the arena in which power struggles between segments of the state class played out. The conflict over centralization and distribution of rent unraveled along two segments of the state class and legislators, who are part of the middle class aligned to these segments. Specifically, these revolved around Museveni’s key segment, which included the former prime minister Amama Mbabazi and an opposing faction aligned with the former justice minister Kahinda Otafiire and former vice president Gilbert Bukenya. The legislators who initially opposed Museveni’s centralization efforts of the rent in 2012 comprised a set of young, outspoken, and ambitious backbench members of Parliament (MPs) from the ruling party, either opposing Mbabazi or directly aligned with the Otafiire segment. Already in 2010, Henry Banyenzaki, a so-called rebel MP from the ruling party who previously clashed with the party leadership over his defiant behavior (Gyezaho 2007), was one of the young backbenchers opposing Museveni’s

Uganda’s State Class and the Politics of Oil  75 government on the basis of oil policy (Edwards 2010). He pressured the NRM government to publish the Production Sharing Agreements between the Ugandan government and oil companies but was co-opted in 2011 as state minister for industry (Edwards 2010; Matsiko 2013). In 2011, before key legislation on oil was presented in the legislature, allegations emerged that accused Prime Minister Amama Mbabazi, Foreign Minister Sam Kutesa, and the Energy Minister Hilary Onek of accepting bribes from Tullow Oil, the company that later sold its stake in the oil projects to TotalEnergies and CNOOC. MPs passed a vote to stop any negotiations on new oil projects (BBC 2011). After it emerged that the documents showing the alleged corrupt behavior of these figures were fabricated, the prime minister and the foreign minister were cleared. However, the energy minister had already been replaced. It was believed that the documents were launched by Justice Minister Kahinda Otafiire (Collord 2019, 246). Otafiire and Mbabazi, who both share a long history with Museveni since the Bush War and belong to a number of NRM “untouchables” (Daily Monitor 2010) who are not prosecuted for any corrupt behavior, clashed already a number of times since 2005. In 2005, and again in 2010, both competed for the position of secretary general of the NRM, which Mbabazi won both times (NTV Uganda 2016). Spats ensued between Mbabazi and Otafiire, as well as between Mbabazi and Vice President Gilbert Bukenya, over corruption issues and mismanagement of the party. Bukenya and Otafiire accused Mbabazi of being behind a mafia group that wanted to sideline them from government positions (Obore 2008). Bukenya and Otafiire subsequently tried to retaliate against Mbabazi, seeking to remove him from his powerful position as secretary general and minister over a corruption scandal in 2008 (Gyezaho and Wanambwa 2008; Matsiko 2008). A second important figure who had an interest in discrediting Mbabazi was the Speaker of Parliament Rebecca Kadaga. Already during the corruption scandal in 2008, Kadaga, who was then still deputy speaker of Parliament, sided with the Otafiire faction in seeking to remove Mbabazi (Gyezaho and Wanambwa 2008). When Parliament discussed and then passed legislation on the oil sector, she opposed the party leadership, siding instead with legislators who criticized the ruling party over the centralization of the resource (I will return to this issue later). The conflict over the centralization of the rent ensued over the draft of the Exploration, Development, and Production Bill. The draft stipulated that the energy minister, among other authorities, could not only engage in any negotiations with oil companies over the exploitation of the resource but also grant, revoke, and renew these licenses (Oil in Uganda 2012b; Oloka-Onyango 2019, 56). This legislation would have allowed Museveni to gain control over the licensing and negotiation, and supported plans to appoint the board of governors of the National Oil Company (NOC; Oloka-Onyango 2019, 59). The counter-proposal of the “rebel” backbench legislators stipulated that the Petroleum Authority (PA) instead of the minister would grant licenses (Mukasa and Odyek 2012) to the oil companies. The MPs’ proposal further suggested that MPs endorse candidates selected for the PA and for NOC, as well as administer the budget of the NOC (Mukasa and Odyek 2012). The defiant MPs additionally demanded to have a say in the management of the Petroleum Fund to which all revenues from oil –

76  Julian Friesinger royalties and profit oil – are transferred (Kakaire 2012). If the draft bills of the MPs had been passed, the legislation would have created a powerful PA and an independent body, solely accountable to Parliament, administering the Petroleum Fund. This would have created power centers outside the ambit of the president. Given the opposition of the legislators, the energy minister initially proposed to share the responsibility of awarding production licenses with the PA. However, Museveni urged MPs to return to party discipline and pass the original draft. He then called the MPs individually and eventually pushed through his agenda to centralize the control of oil. Over 100 MPs abstained and 4 legislators voted against the law (Oil in Uganda 2012a; Collord 2019, 247–49). Although, as stipulated in the Exploration bill, Parliament approves the board of directors of the NOC and the PA, the granting of licenses is solely the responsibility of the energy minister. After the crucial act was passed, the core segment sought to punish the unruly MPs. The NRM pushed to suspend the membership of the defiant MPs who voted against party discipline and expel them from Parliament (Daily Monitor 2013), which, however, was thwarted by Speaker Kadaga. All of those defiant MPs previously had engaged in fights with either Mbabazi or a further figure from this core segment such as Kuteesa (Kjær and Katusiimeh 2021; Sserunjogi 2011; Mutaizibwa and Kakaire 2011). Kadaga was a crucial figure in the fights between the two segments, as she allowed the debate in Parliament about the corruption scandal in 2011 to drag on and exposed the core segment. Later, she also sided with the unruly MPs and opposed plans to have them expelled (New Vision 2013). As stipulated in the Public Finance Management Act, the revenues from the exploitation of oil – royalties as well as profit oil – accrue to the NOC, which transfers the revenues to the Petroleum Fund at the Central Bank of Uganda (Kazi 2019, 183). Although to date no oil has been extracted and only money from a tax dispute over capital gains with oil companies has been transferred to the account, the government has recurrently withdrawn money from the Petroleum Fund, transferring revenues to its Consolidated Fund without following procedures as laid out in the Public Finance Management Act (Ssekika 2020). Further, the withdrawn sums by the government since mid-2010 increased considerably with every budgetary cycle between 2017–19 (2020). Although the executive claimed that the money withdrawn would be used for infrastructure projects, the auditor general asserted that these claims could not be verified as information on infrastructure developments was not disclosed by the government (Kasemiire 2020; Ssekika 2019). The oil discoveries have also given rise to conflicts between the state class and the reinstated cultural kingdoms. However, these fights appeared to be aligned with the fights between the different segments. The resource finds are located in the Western region of Uganda in districts that previously belonged to the kingdom of Bunyoro. Hence, the Bunyoro king demanded that the central government share at least 10 percent of the oil revenues with the cultural institution. When the series of oil-related bills were discussed in Parliament in 2012, the Bunyoro king demanded 12.5 percent of the oil revenues be allocated to his kingdom (Oil in Uganda 2020). Claiming that this was standard practice around the world, the Bunyoro king tried to lobby MPs and demanded this share in order to foster development in the Western region (Sekanjako 2012). The king’s position was

Uganda’s State Class and the Politics of Oil  77 supported by MPs who came from the oil region and also partly belonged to the unruly MPs engaging in fights with the core segment (Kakaire 2012; Sekanjako 2012). However, the Public Finance and Accountability Act, passed in 2015, stipulated that the central government receives 94 percent of the revenue from oil, while the rest goes to local governments of the oil-producing districts. Cultural kingdoms such as Bunyoro receive just 1 percent of the royalties.

Conflicts in the Region between Subalterns and the State Class Conflicts between the state and subalterns also unfolded in the region affected by the oil projects. Expectations of the local population over the benefits of the oil discovery were well pronounced, as were the fears that the discovery would negatively impact the lives of residents living in districts with oil wells (Mawejje 2019). These were all connected to the development of the production facilities and the oil infrastructure, which are part of Museveni’s larger developmental project to develop Uganda’s infrastructure. The construction of an export pipeline, a pipeline for refined products toward Kampala, two oil production sites, the refinery, and an industrial park comprising the construction of Kabaale airport, Uganda’s second international airport, would require 115,000 hectares of land (Ogwang and Vanclay 2019, 12). In particular, residents expected the oil discovery to lead to increased business opportunities, better infrastructure (roads, electricity, and water), better health care and education, and job opportunities (Mawejje 2019, 131f). While the oil sector provided few direct employment opportunities (131f) from which mostly qualified people have benefited (Ogwang and Vanclay 2019), the expected negative repercussions were tied to issues of land, in particular, the loss of access to land due to resettlement, in-migration and, thus, increased competition for land and jobs (Mawejje 2019, 132). According to Ogwang, Vanclay, and van den Assem (2019: 5–6), residents spoke of a “local resource curse” since the oil discovery and the impacts it had on the local population caused the aforementioned conflicts. The development of the oil infrastructure and the production sites required the acquisition of land. In fact, after the discovery of oil, a frequently voiced complaint by residents was that politicians had allegedly acquired land in the area under exploitation for speculative purposes and evicted residents (Bybee and Johannes 2014, 140; see also Ogwang, Vanclay, and van den Assem 2019, 5). A report by the Resettlement Advisory Committee (2016, 22) outlining a land acquisition and resettlement framework asserted that the increased speculative behavior has led to “a sharp increase in land disputes.” The price of land rose dramatically due to the oil discovery (Bybee and Johannes 2014, 140). Hence, compensation paid for land could therefore not buy the same plots due to speculation. Apart from issues with delays in resettlement payments and allocation of land not equivalent to the prior farmland, pastoralists and farmers also clashed over access to land as infrastructure development partly led to increased rivalry over land (Ogwang, Vanclay, and van den Assem 2019, 8; Kinyera and Doevenspeck 2019, 396). According to Ogwang and Vanclay (2019, 11), rising population figures in the districts have already led to “tensions over job opportunities between local youth (meaning those who are

78  Julian Friesinger born in the region) and ‘foreign people’ (Ugandans and others from outside the project areas).” In-migration was not the only threat worrying residents. Access to fishing at the lake has also been restricted (Ogwang, Vanclay, and van den Assem 2019), undermining the possibility of fishermen to earn a living.

Conclusion This chapter has focused on the discursive shift regarding development and the various conflicts that unfolded between different segments of the state class, the middle class, and subalterns in the aftermath of the discovery of oil in Uganda in 2006. Although Uganda’s oil deposits are much smaller than those of other oil-rich states, such as Nigeria, Algeria, or Angola, the currently exploitable resources are still significant. The production of oil has been delayed since the initially prospected date in 2013 and is now set for 2023–25. The crude discovery has fueled enormous expectations of development. The pursuit of infrastructure projects allows Museveni to partly honor pledges to socioeconomic transformation made during his earlier rule. The debt-financed development of Uganda’s generally much-needed road and electricity infrastructure cannot hide the fact that the state class pursues several prestige projects that are not directed at the long-term improvement of the masses. In general, the financing of infrastructure with debts in anticipation of oil revenues bears the risk of increasing dependency on foreign creditors and donors if revenues materialize at a later stage than initially expected and do not meet the projected income. The infrastructural developments are not complemented with a strategy to direct rents into not yet productive sectors. One of the most important sectors clearly would be agriculture, which today still suffers from a lack of serious attention.

Notes 1 Funding information: Julian Friesinger received financial support for his research from Deutsche Forschungsgemeinschaft (German Research Foundation), grant number: 405630485 (project title: “Figurations of Internationalized Rule in Africa”). 2 How significant the impact of crude on Uganda’s society will be depends most crucially on the price of oil. Wolf and Potluri (2018) proposed different scenarios concerning oil revenues. Their reference scenario estimates that revenues will be on average USD2.1 billion per annum over a 33-year period with peak oil in 2031/32 at USD4.5 billion (Wolf and Potluri 2018, 11f). In a more conservative scenario, the authors project peak oil already at USD1.1 billion, or approximately at a quarter of the revenues of the reference scenario (13). The more optimistic scenario projects peak oil at USD12 billion. Uganda’s budget for the financial year 2021/22 was an estimated USD12.6 billion, as Bloomberg (2021) reported, out of which ca. USD3.6 billion were external grants and loans from project and budget support (Lugolobi 2021). The revenues, as estimated in the reference and even more so in the optimistic scenario, would therefore represent a significant contribution to Uganda’s budget. However, besides the price of oil, these projections are also dependent on the production sharing agreements that the government has signed with TotalEnergies and CNOOC. To date, these contracts have not been made public. 3 By developmental approach I understand a strategy aiming at socioeconomic transformation that empowers subalterns by making them scarce on the labor market via

Uganda’s State Class and the Politics of Oil  79 developing the productive forces of an economy and eventually transitioning from rentbased to profit-based growth. Although the approach of focusing mainly on better market integration pales against meaningful approaches of development, Museveni’s strategy nevertheless signifies a more active approach in development than the hitherto fully neoliberal approach. 4 The core is constituted around Museveni’s inner family circle, which, among others, currently include the first lady who serves at the same time as education minister; his brother Salim Saleh; his son Muhoozi Kainerugaba, commander of the Land Forces of the Uganda People’s Defence Forces; and Sam Kutesa, the former foreign minister and an in-law to Museveni. 5 Anticipated revenues from rent are used to finance not only infrastructural development but also defense projects. Back in 2011, Museveni bought at least eight Russian fighter jets for USD740 million using foreign reserves of the Central Bank of Uganda. He argued that the amount would be paid back by future revenues from oil (Daily Monitor 2011a, 2011b).

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4 Extractivism and the Resurgence of the Agrarian Elite The Case of Coal Mining in Cesar, Colombia Kristina Dietz

Introduction Due to high prices for raw materials on the world market and the increasing economic importance of mining at the national level, mining activities have expanded rapidly into rural areas in the Global South since the mid-2000s. Between 2009 and 2013 – the peak of the recent resource boom in terms of prices – the majority of transnational capital investment in the resource sector was made in Latin America and sub-Saharan Africa. Until around 2015, a high percentage of global mining investments targeted projects in Latin America (SNL Metals & Mining 2015). The region possesses some of the world’s largest deposits of copper, nickel, tin, lithium, and gold, as well as of fossil fuels like gas, oil, and coal (Farthing and Fabricant 2018; Walter 2016). Colombia is one of the countries in Latin America that has received major mining investments since the beginning of the 21st century. With the enclosure of arable land for mining, land-based livelihoods, and social (re)production patterns have been destroyed. Due to mining, rural dwellers have lost access to land and/or have been forcefully displaced (Sankey 2018; Vargas Valencia 2013). Hence, in many contexts, the appropriation of land by mining companies has led to an increase in rural social conflicts (see Bebbington and Bury 2013; Conde 2017; Conde and Le Billon 2017; Dietz and Engels 2017; RodríguezLabajos and Özkaynak 2017). Whereas the literature on conflicts over extractivism, and mining in particular, focuses mainly on those between peasants, ethnic communities, and social movements on one side, and companies and/or the state on the other, the role of the agrarian elite and other large-scale landholders in the process of mining expansion has hardly been studied. This is particularly surprising in the context of Latin America, a region where large latifundio estates1 and low-intensity land use are still relevant factors for explaining the persistence of highly unequal land distribution and the increasing de-peasantization of rural societies in many countries of the region, Colombia chief among them (Carlson 2018; 2019; Zinecker 2004). In this chapter, I focus on the interrelation between the expansion of mining, the reconcentration of landed property, and the role of the agrarian elite in this process. The case selected for this research is the coal mining district in central Cesar in northern Colombia (see Figure 4.1). The chapter develops two arguments: first, in the context of extractivism and the global commodity boom, the DOI: 10.4324/9781003303268-7

Extractivism and the Resurgence of the Agrarian Elite  85 agrarian elite tend to act as “land speculators” for mining firms (see Capps and Mwana 2015; Gutiérrez-Sanín and Vargas 2017; Sankey 2018). Second, I argue that the expansion of mining in regions that are characterized by a dominance of large latifundio estates and unequal land distribution contributes (a) to a reconcentration of landownership and wealth in the hands of the agrarian elite, (b) a decrease in staple food production, and (c) an increase in low-intensity, land-use patterns. All these developments result in the stabilization of elite rule over the countryside (see Warnecke-Berger 2020 for the stabilization of elite rule in the context of a transnational remittances economy). To develop these arguments, I refer to materialist approaches on rent and value grabbing in the context of the global commodity booms (Andreucci et al. 2017; Coronil 1997; Emel and Huber 2008; Richani 2012). I link these approaches to recent scholarly debates on rural elites in Latin America and their ability to adapt to changing political-economic conditions, i.e., to self-modernization (Paige 1997; Robinson 2003; Warnecke-Berger 2020; Zinecker 2004). The chapter is structured as follows: in the next section, I describe the methodology applied. Then, the theoretical framework and concepts are outlined. Subsequently, I provide an overview of mining in Colombia, followed by an introduction to the history of coal mining, the changing agrarian structure, and the transformation of the agrarian elite in central Cesar. In the fifth and sixth sections, I analyze the role of the agrarian elite in the dynamics of appropriating land for mining and the effects of this on land property relations, land use, and wealth distribution in the mining region. It is concluded that under the conditions of high prices for mineral resources, the expansion of mining in the countryside fosters the reconcentration of landed property, leads to the dissolution of peasant agriculture, and strengthens rural elite rule.

Methodology The chapter is based on a qualitative case study that integrates fieldwork interviews with analyses of governmental statistics, governmental and nongovernmental organization (NGO) documents, and media articles. I conducted fieldwork for this analysis over four periods: March and October 2018, and March and July 2019. I conducted interviews in Cesar with trade unionists, members of human rights organizations, regional administrative officials responsible for agriculture, mining, land restitution, and the environment, a representative of the people’s defense office, activists in social movements and local peasant organizations, members of community committees and of a victim’s organization representing people displaced from their land. These interviews were held in Valledupar, the regional capital, and in three of the five municipalities most affected by coal mining: La Jagua de Ibírico, El Paso, and Chiriguaná. Additionally, in Bogotá, I interviewed members of national NGOs and journalists working on land and mining issues, officials from a mining company operating in Cesar, and officials from the Ministry for Mining and Energy, the National Agency for Mining, the National Agency for Environmental Licenses, and the Colombian and Regional Truth Commission. One interview was held in Barranquilla, where one of the mining firms has its

86  Kristina Dietz headquarters. For background information, statistics, and media articles, two leading national newspapers, El Tiempo and El Espectador, and the media platform Verdad Abierta were consulted. All direct citations from the sources used in the articles were translated from Spanish by the author.

Political Economy of Rent, Value Grabbing, and the Landowning Agrarian Elite The starting point here is that in order to exploit minerals, mining firms confront what Marx calls the “modern form of landed property” (Marx [1894] 1981, 752; see also Neocosmos 1986, 13–14). Modern landed property “presupposes that certain persons enjoy the monopoly of disposing of particular portions of the globe as exclusive spheres of their private will to the exclusion of others” (Marx [1894] 1981, 752). Modern landed property creates a particular class actor – namely, the “class of landowners,” who demand from the mining company a certain part of the surplus value generated in the immediate process of resource production through the exploitation of labor in return for the use of the land for mining. This demanded value is referred to as capitalist ground rent (Emel and Huber 2008, 1394; Capps 2016, 459). The relationship through which ground rent emerges is a social and distributional one found between the landowner and – in the context of mining – the mining company. Listed transnational mining companies usually lack property rights to the land they want to mine. Thus, they can only mine if they get access to the land, either by buying it or paying lease money to the landowner. In contrast, landowners have the power of disposal over their land through property rights, but often do not have the capital or technical know-how to extract raw materials from their land. Therefore, such landowners can only profit from a commodity boom if they negotiate with mining companies for access to their land. “These negotiations form the substance of rent” (Emel and Huber 2008, 1394). The basis for this rent is the monopoly of land and judicial tenure (Fine 1979; Neocosmos 1986, 19–27; Coronil 1997). Only the party who holds the monopoly over land, i.e., who achieves the instituting of property rights, can extract wealth or “grab value” from that land through rent relations (Andreucci et al. 2017, 29). This explains why classes of landowners benefit from commodity booms as compared to the landless and peasant classes, and why they are so eager to expand their landed property in mineral-rich areas. However, ownership alone does not create rent; surplus profit is also needed. Rent depends on the existence of both “surplus profit and the institution of landed property” (Coronil 1997, 47). Whereas the creation of rent is independent of what the landowner does, the magnitude of that rent depends on many factors, including political institutions, regulations, legal norms, the level of demand, as well as the bargaining qualities and powers of the landowners in relation to capital investors (Basu 2018, 11; Neocosmos 1986, 20). Rent usually manifests in royalties or lease money (Basu 2018, 2; Sørensen 1996, 1137). Insofar as the speculative revenues from land sales to mining companies are negotiated through the barrier posed by landed property, I argue first that revenues from land sales can also be understood as a form of rent and, second, that speculation and

Extractivism and the Resurgence of the Agrarian Elite  87 selling of resource-rich plots of land can be considered a form of “value grabbing” (Andreucci et al. 2017). However, this speculative practice might finally lead to the abolition of modern landed property (Capps 2016, 461). In Marxist terms, landed property is a barrier to the circulation of capital. However, Capps and Mwana (2015) and Capps (2016) show, in the case of chief-controlled tribal lands in the Southern African platinum belt, how the monopoly over land exercised by chiefs facilitates the expansion of mining and the access of mining capital to high-value mineral resources. The authors give two reasons: first, the mining companies have to negotiate with only one rights holder – in this case the chief – for access to the tribal land they wish to mine, eliminating the barriers to investment which arise from the requirement to recognize multiple rights holders (Capps and Mwana 2015, 620). Second, the effective control that chiefs exercise over the tribal land that mining corporations want to exploit opens up the possibility for chiefs to extract ground rent from mining capital in the form of royalties paid to them by the companies. Both chiefs and mining companies thus share a common interest: the profitable development of mines. Due to this common interest, the authors argue, chiefs in the South African platinum belt increasingly act as “land brokers” for platinum companies (610). These findings are important for the purpose of this chapter, as they show that modern landed property and capitalist mining do not necessarily contradict but, rather, may mutually favor each other. In order to analyze the historically specific relationship between modern landed property, agrarian elites, and the expansion of coal mining in Cesar, understanding rent relations is a first step, but not sufficient alone. In addition to the dynamics by which the agrarian elite manage to institute property rights over resource-rich land and restrengthen their position, both the Colombian armed conflict and the commodity boom as decisive factors in rural areas need to be considered. Until March 2013, approximately five million people were displaced from their lands and homes during the Colombian armed conflict (Centro Nacional de Memoria Histórica (CNMH) 2013, 33). Around 8.3 million hectares of peasant land were coercively appropriated during the conflict, mainly for agroindustry, palm oil, drugs, exploitation of hydrocarbons, or mining (CNMH 2013, 76). Frances Thomson (Thomson 2014) calls this intentional form of displacement “land-grab-induced displacement.” The height of this land-grab-induced displacement started in 1996 and continued until the mid-2000s, a period marked by the overlap of neoliberalism, extractivism, and political violence (Gill 2016, 99). In the Colombian countryside, it entailed the growing emergence of export-oriented agroindustry and extractivist projects along with the “reorganization of social and economic life on more unequal and authoritarian terms” (99). Displacements in the Colombian context were primarily done by paramilitary groups. However, paramilitary units did not operate in isolation but were often supported financially and otherwise by the agrarian elite. By agrarian elite, I understand what Jeffery M. Paige (1997, 54) calls the “landed fraction” of the rural elite, which he distinguishes from the “manufacturing or agro-industrial fractions” (emphasis in original). The two fractions are mostly bound together by ties of kinship, economics, and function. However, Paige (55). underlines the analytical

88  Kristina Dietz importance of the division due to differences in their political orientations: “The agrarian fraction has been a bulwark of authoritarian politics throughout the region. The agro-industrial fraction is less closely tied to the authoritarian order and, under some circumstances, more open to democratic initiatives.” In their study on agrarian elite participation in Colombia’s civil war, Francisco GutiérrezSanín and Jenniffer Vargas (2017) demonstrate that large-scale landowning cattle ranchers participated directly in the development and actions of the paramilitaries as leaders of the units or as promoters and final beneficiaries of coercive land dispossession. The authors state that after the economic crisis of the 1980s, which also affected the agrarian elite, the central motivation for this fraction to accumulate land by dispossession was to expand landownership in order to – sooner or later – derive “legal” economic benefit from it by either pocketing state subsidies, putting it to productive use, or by speculation and value grabbing (Richani 2012). In order to render such land profitable, an institutional recognition of property rights, what Rocío del Pilar Peña-Huertas et al. (2017, 761) call “legal dispossession,” was needed. Legal dispossession means “the planned and coercive transfer of land from one agent to another (…) through the legal institutions that regulate and assign property rights” (761). Mechanisms of legal dispossession vary from “voluntary” agreements between two parties with unequal bargaining power, to the falsification of title deeds or extortion. In any case, the support of the state is needed. And elites often have such support at their disposal, due to the fact that they are mostly party to “collusive networks” (Grajales 2011, 785), consisting of themselves, state officials, politicians, and armed actors.

Mining in Colombia Colombia is rich in hydrocarbons (gas, oil, and coal), minerals, and metals (gold, copper, ferronickel, and tin). Between 2010 and 2014, more than 52 percent of all foreign direct investments (FDI) went into the mining sector. FDI in this period totaled US$7 billion annually. Despite falling commodity prices and a significant decline of FDI since 2013, over one-third of all FDI in Colombia remains dedicated to mining (CEPAL 2015, 2016, 2021). Other indicators that underline the strong political-economic importance of mining in the 21st century are the share of mining in total exports, as well as the mining concessions granted and requested over the last two decades. Mined materials make up the biggest share of all exported commodities, with oil accounting for the largest share. In 2014, two-thirds of all exports came from mining, with coal being the most important mining export, followed by gold and ferronickel. Until the beginning of the coronavirus pandemic in 2020, the share of mining in total exports had not principally changed, although volumes declined (García Granados 2014; UPME 2021, 142). With regard to concessions, the country experienced a wave of concessions between 2002 and 2010. During this period, the number of granted concessions rose from 1,900 to 7,774. Not coincidentally, this period overlaps with the term of office for right-wing president Álvaro Uribe Veléz (2002–10). Later, concessions rose to over 10,000 in 2014, declining thereafter. According to the National Mining Agency (Agencia Nacional de Minería (ANM)), as of June 2020, Colombia had

Extractivism and the Resurgence of the Agrarian Elite  89 7,403 mining titles granted, mostly for building materials, gold, precious metals, and coal (Extractive Industries Transparency Initiative (EITI) Colombia 2020). This comprises around 4 million hectares of land, with additional concessions requested for another 9 million hectares (interview with member of the ANM, November 10, 2017, Bogotá). Whereas high demand and commodities prices on the world markets provide the global political-economic background for the expansion of mining in Colombia, it cannot solely explain it. Rather, political decisions and institutional reforms by the state turned the last commodity supercycle into a bonanza for transnational mining companies and created the conditions for diversely used agricultural land to become mines and speculative assets (Sankey 2018; Vélez-Torres 2014). Major institutional changes included the liberalization and opening up of the sector for foreign capital, the slimming down of the government’s mining administration, the privatization of national mining companies, and the redesign of fiscal policies in order to attract FDI. In 2001, a new mining law (Código de Minas, Ley 685 2001) was introduced with the aim of implementing a neoliberal resource governance model. After the law came into force and Uribe took office in 2002, he used the award of mining concessions as a means of attracting transnational companies and FDI. More than 60 percent of today’s valid mining concessions were granted during Uribe’s administration. During the presidency of Juan Manuel Santos (2010–18), mining was listed as one of five key growth engines. The “mining locomotive” was intended to trigger development processes in rural areas, bring prosperity, end poverty, and increase the overall level of well-being in Columbia. Mineral extraction, including hydrocarbons, generated the backbone of public revenues. Under the administration of Iván Duque (2018–22), support for mining continued; however, FDI in the sector declined.

Coal Mining and Agrarian Change in Cesar With the neoliberal sector reforms, the global price boom, and growing capital investment, the extraction of steam coal grew at a national scale from 38 million tons in 2000 to 86 million tons in 2016 (EITI Colombia 2016). Colombia is the eighth-biggest producer and the fourth-biggest exporter of steam coal in the world; 94 percent of the country’s coal is exported (Oei and Mendelevitch 2019). More than 90 percent of the coal is extracted in eight industrial mines run by transnational companies in the northern departments of La Guajira and Cesar (ANM 2021). In Cesar, coal mining is concentrated in the mining district known as La Jagua, which is comprised of five municipalities located in the center of Cesar: Agustín Codazzi, Becerril, El Paso, La Jagua de Ibírico, and Chiriguaná (see Figure 4.1). Between 2012 and 2017, 53 percent of total national coal mining originated from this district (ANM 2021). From the beginning of the 19th century until the 1970s, land in the mining district was concentrated in the hands of an agrarian elite with land holdings of 500–1,000 hectares and up, who used land mainly for livestock production (Barrera and Víctor 2014; Bernal Castillo 2004; Santos Delgado 2002; Van Ausdal 2009).

90  Kristina Dietz

Figure 4.1  Localization of Mining District in Cesar, including Municipalities, Mines, Existing and Requested Mining Titles. Source: ANM 2021; Departamento Administrativo Nacional de Estadística (DANE), 2020; Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM), elaborated by Natalia Caro.

From the 1960s onwards, the subregion underwent structural changes driven by a cotton boom and the expansion of capitalist agriculture. The traditional cattle ranching elite also expanded their lands and participated in cotton production. Due to an open agrarian frontier and vast public lands, land was abundant and allowed tenants and migrant peasants to become owners of small and medium-sized

Extractivism and the Resurgence of the Agrarian Elite  91 plots for cotton production. In some of the current mining municipalities, particularly Agustín Codazzi, this facilitated the consolidation of a middle-scale agricultural class that did not compete with traditional ranchers for access and control over rural lands (Barrera and Víctor 2014, 254). From the cotton boom, practically all agrarian classes gained, given the availability of land for peasant settlement, high profits from cotton production for the landed elite, and the high demand of labor in cotton farming (Barrera and Víctor 2014, 251ff.). However, by the end of the 1970s, the cotton sector entered into crisis, and production practically came to a halt in the 1980s. Rural workers lost their jobs, small-scale landowning peasants lost their lands, and middle-class landholders as well as the agrarian elite abandoned their plots of land or had to sell it to the banks. This “rural crisis” (CNMH 2016, 73) coincided with an increasing presence of guerrilla organizations (in particular, FARC-EP) in northern and central Cesar, the economic liberalization of the agricultural sector, and the rise of paramilitarism in the 1990s as a response of the agrarian and political elite to the guerrilla forces. Finally, the agrarian crisis of the 1980s overlapped with an overhaul of the regional economic development model, from one based on the expansion of capitalist agriculture to an enclave mining-based economy (Barrera and Víctor 2014; CNMH 2016). Industrial coal mining in Cesar began in the 1980s. As a consequence of the oil crisis of 1973 and the subsequently high prices for crude oil on the world market, demand for coal rose significantly. Thus, by the end of the 1970s, the Colombian government had granted concessions to national mining companies to explore, exploit and export coal. From the end of the 1980s onwards, these concessions were gradually sold to multinational companies (CNMH 2018; Viloria de la Hoz 1998). In 1989, the US-based company Drummond Ltd obtained the concessions for its first mine in Cesar’s mining district, the La LomaPribbenow mine, which began operations in 1995.2 Also in 1995, the Swissbased company Glencore acquired the Colombian firm Grupo Prodeco and obtained several mining concessions in the region. Glencore (still under the name of Grupo Prodeco) runs the Calenturitas and La Jagua mines. In 1997, Drummond Ltd won a public tender organized by the Colombian carbon company Ecocarbón Ltda (Empresa Colombiana de Carbón) and obtained the concessions for another mining project called El Descanso, which comprises a total area of 274,053 hectares.3 Up to August 2021, Drummond Ltd and Grupo Prodeco held more than 80 percent of all concessions granted for coal mining in the region. Extraction took place in seven industrial open pit mines run by five transnational companies. Concessions for mining covered an area of 120,000 hectares, plus 125,000 hectares of requested concessions, which together made up 11 percent of the entire area of the five municipalities of the mining district. In some municipalities, such as La Jagua de Ibírico (see Figure 4.1), granted and requested concessions cover an area of around 50 percent of the municipal territory (ANM 2021). In September 2021, Grupo Prodeco (Glencore) announced its withdrawal from its mining operations in Cesar. The company cited profit slumps during the pandemic, a gradual reduction in coal production, and poor earnings prospects in global markets as reasons for its withdrawal. At the same time, the company

92  Kristina Dietz became the sole owner of Cerrejon, the largest coal mine in the neighboring La Guajira department (Ovalle Jácome 2021). A complete phase-out of coal production is not expected for the next 20 to 30 years (interview with representatives from Drummond Ltd, March 29, 2019). With the acquisition of mining concessions in the 1990s and 2000s, the companies began to buy plots of agricultural land. However, they did not acquire the land needed for mining all at once. Land purchases for mining purposes are both ongoing and gradual, as a mine develops (interview with representatives from Drummond Ltd, March 29, 2019). The first phase of land purchases began in the 1990s, before and during the opening of the first mines. A second phase of massive land purchases took place in the 2000s, during the boom phase of coal mining (interview with a member of a human rights organization, March 28, 2019). Currently, Drummond Ltd is buying land in order to advance exploitation at its Descanso Norte mine. According to its land officer, the company owns around 36,000 hectares of land in the center of Cesar (interview, March 29, 2019). Irrespective of whether these figures are accurate, both Drummond Ltd and Grupo Prodeco (Glencore) have stressed that they have bought land mainly from large-scale landowners, and not from smaller-scale farmers (Drummond Ltd; interview with sustainability officer of Grupo Prodeco, July 30, 2019).

Mining, Land-Grab-Induced Displacement, and the Role of the Agrarian Elite The mining companies’ statements that they mainly bought land from large landowners, and not from peasant families, obscure processes of land appropriation and displacement that occurred before the companies bought the lands. The key question surrounds what role was played by the agrarian elite in the dynamics of land appropriation for the use of mining. In the following, I will discuss how, and to what extent, members of these groups act as “land speculators” for coal corporations. Displacement of the peasant families was done by paramilitary units, who were either supported by the cattle ranching elite or staffed by members of that elite. A case in point is Hugues Manuel Rodríguez, a cattle rancher from the region known for his role in the paramilitary as “Commander Barbie,” who owns 8,000 hectares of land in the same area as Drummond Ltd’s Descanso Norte mining project Verdad Abierta 2010). Much of Rodríguez’s land includes areas that agrarian elite families lost during the cotton crisis due to bank debts. In the 1980s and early 1990s, parts of these lands were either squatted on by landless peasants or were purchased by the Colombian Institute for Agrarian Reform (Instituto Colombiano de la Reforma Agrarian, INCORA, later: Colombian Institute for Rural Development, Instituto Colombiano de Desarrollo Rural, INCODER) and then distributed to landless peasants. Peasants who lost their land to people like Rodríguez either abandoned it or were forced to sell it “voluntarily” for prices below fair market value. The latter occurred particularly in areas where revenue from land sales would otherwise be

Extractivism and the Resurgence of the Agrarian Elite  93 high due to the expected development of coal mining. “Behind the arrival of paramilitarism was the interest in coal” states a human rights lawyer (interview, March 14, 2019; see also “Carbón y sangre” 2010). In a witness statement before the Justice and Peace Unit of the Colombian Attorney General’s office in 2009, an ex-member of a paramilitary group who had been based in La Jagua de Ibírico explained that he was ordered to pressure as many people as possible to sell their land because it was known that there was coal in the ground (cited in Moor and van de Sandt 2014, 75). An emblematic case is the hamlet of El Platanal in the municipality of Agustín Codazzi, which today is the property of Drummond Ltd (Anaya Flórez 2015; Verdad Abierta 2018; Comisión Colombiana de Juristas (CCJ) 2015; Verdad Abierta 2016). At the beginning of the 1980s, peasant families occupied the lands of the abandoned private farm, and in 1984, each family was assigned 22.5 hectares of land by INCORA (CCJ 2015, 12). Between the late 1990s and 2010, following threats and the murders of family members, peasants vacated their farms or sold them to front men and/or intermediaries. In other cases, intermediaries bought the plots from the displaced peasants. One of the buyers was cattle rancher Ramiro Quintero Zuleta, who “had information about the carbon deposits in the area,” asserts Yamile Salinas, a lawyer and activist scholar on land issues in Colombia (interview, March 11, 2019). Between 1992 and 2009, Quintero Zuleta bought several plots of the El Platanal farm, selling them – in some cases – to family members or other relatives, who then sold the land to Drummond Ltd (CNMH 2018, 160ff; “Proceso Declarativo” 2020; Verdad Abierta 2018). Before selling to Drummond Ltd, the land was speculated on and legalized in the land registry under the name of the last buyer. When first purchased, the prices paid to peasant families ranged from around US$1,800 to $2,500 per farm (CNMH 2016, 95). Fear lowered the costs of dispossession and increased revenues for land brokers. Drummond Ltd then bought these same plots between 2010 and 2013 from the last owner at inflated prices, varying from between US$68,000 and $1.1 million (CNMH 2016, 94–97; CNMH 2018, 164–65;). In a comparison of the 32 Colombian departments, average land prices in Cesar are in the top third of the price scale (Sebá and González Borrero 2016, 87–88). According to Héctor Mondragón (2012), land prices in Colombia are among the highest in Latin America, a phenomenon he attributes to the increasing land speculation. Due to their bargaining power, the agrarian elites are able to extract higher rents when negotiating with mining firms, in comparison to small and medium-scale farmers. “When the elites sell land to the mining companies, they always get more than what is offered to us,” confirmed a peasant from La Jagua de Ibírico (interview, July 25, 2019). Whereas the creation of absolute land rent is independent of whether the landowner belongs to the agrarian elite or the class of peasant farmers, the magnitude of this rent is not. The latter depends on the social position and bargaining qualities and powers of the landowner in relation to mining capital investors. A mechanism that has influenced land-grab-induced displacement and land accumulation by the agrarian elite in mining areas is rent prospection based on

94  Kristina Dietz “privileged information”4 (Velasco 2014, 298). Knowledge of coal deposits and mining concessions locations provides a privileged position in terms of prospective investments and value grabbing. In particular, state actors and those with good connections to them have early access to such privileged information. Related to land deals in the concession area of the Descanso Norte mine, Rodolfo Campo Soto, a member of a traditional agrarian elite family and former mayor of the provincial capital Valledupar (1992–94), is alleged to have benefited from such privileged information. In 1996, only two years after he left office as mayor, the national government authorized the state company Ecocarbón to organize a public tender to award concessions for the Descanso mining deposits, which was won by Drummond Ltd (“Campesinos de Platanal” 2018). According to Juan David Velasco (2014, 300), the Campo Soto family used prior knowledge of this information to buy around 2,300 hectares of land from crisis-hit cotton farmers at prices below fair market value, with the aim of later selling it to the mining firm. Another mechanism that helped to successfully transform agricultural lands into rentier capital in the context of mining is the collusion of state officials, politicians, armed actors, mining companies, and members of the agrarian elites. A legally prosecuted case of the reallocation of plots to third parties through the issuing of forged title deeds in the municipality of La Jagua de Ibírico demonstrates the significance of “local collusive networks” (Grajales 2011, 785) in the concentration of landed property in extractivist settings. In 1994, INCORA bought a large estate of more than 4,000 hectares (the Mechoacán Farm) from a member of the agrarian elite who had gone into debt during the cotton crisis. In 1996, INCORA divided the estate into smaller plots, which were assigned to landless peasants, receiving their title deeds. However, the plots were located close to Drummond Ltd’s La Loma-Pribbenow mine, and it was clear that at some point, the company would try to acquire the plots for mining. In 2008, Drummond Ltd obtained the property rights for most of the plots on the Mechoacán estate through a memorandum of understanding between INCODER and the former landowners. However, many of those listed as the latter were not who had originally received the title deeds in the 1990s. Between the end of the 1990s and 2004, a large amount of the peasant families fled their farms due to threats of violence. In order to appropriate the expected rent generated from these “abandoned” plots through the expansion of the La Loma-Pribbenow mine, the then-director of INCODER arranged for the legalization of the plots by bribing a local notary and issuing false papers to third parties. Two of the beneficiaries were former mayors of La Jagua de Ibírico (Amaya Navas et al. 2015; CNMH 2018; Verdadas Abiertas 2010).

Agrarian Change and the Resurgence of the Agrarian Elite The question remains, what effects does the reappropriation of peasant lands by the agrarian elite in the context of mining have on landed property relations, land

Extractivism and the Resurgence of the Agrarian Elite  95 use, and the distribution of wealth? In the following, I will discuss this question by studying the configuration of the regional economy, land-related property relations, and land use before and after the onset of the mining boom. Since the end of the 1990s, coal mining has become the dominant driver of the rural economy in the mining district of La Jagua. Between 2000 and 2016, Cesar’s gross domestic product (GDP) registered an average annual growth rate of 5.4 percent, higher than the average national growth rate of 4 percent (Bonet-Morón and Aguilera-Díaz 2018, 31). In 2000, coal mining accounted for less than a fifth of the regional GDP; in 2012, the share rose to nearly 50 percent and declined only slightly to 42.7 percent in 2018. At the same time, the share of the agricultural GDP declined from around 20 percent in 2000 to a mere 8 percent in 2012 and has remained constant since (Departamento Nacional de Planeación 2019). Other sectors of the rural economy, such as services, trade, and rural industrial production, generally stalled during this period. Thus, mining has generated few economic opportunities for other sectors of the rural economy, a situation that is also reflected in the income structure of the mining district’s five municipalities (Departamento Nacional de Planeación 2019; Rudas Lleras and Espitia Zamora 2013). Until 2012, 80 percent of the royalties that companies paid to the Colombian state were directly allocated to the mining municipalities and departments. With the introduction of a new general system of royalties (Sistema General de Regalías) in 2012, this changed. Today, mining municipalities and departments receive only 10 percent of all royalties paid to the state (EITI Colombia 2018). As a result, municipal budgets in the mining district have declined sharply, though in 2017, resource rents still made up between 36 and 70 percent of the municipal budget, compared to the share of taxes, ranging from 14 to 44 percent.5 Further, the public income from land taxes is especially low. In many rural municipalities, the land tax rate is set at less than 3 percent of land values. In 2014, the share of land taxes in Colombia’s national GDP was 0.75 percent, compared to an average of 1.86 percent across Organization for Economic Co-operation and Development countries (Sebá and Cristina 2018). Thus, in Colombia, and particularly in the Cesar region, landownership represents a profitable tax shelter for the landowning class (Richani 2012, 60) With the consolidation of the enclave economy model based on coal mining and influenced by the ineffective land taxation system, a process of re-latifundización of landed property relations began (Carlson 2019, 687; Bernal 2004, 78; PNUD 2011). By the end of the cotton boom, the distribution of land in Cesar was somewhat more equal; in particular, the very large-scale landholdings had lost their dominance. Whereas in 1970–71, before the cotton boom had a significant effect, more than 50 percent of the land in Cesar was occupied by very large farms (500 to 1,000 hectares and up), by 1980 this share declined to less than 30 percent. At the same time, middle-sized farms of 10 to 100 hectares occupied 23.6 percent of the land and large farms of 100–500 hectares 45.9 percent, compared to 14.4 percent and 33.4 percent, respectively, in 1970–71. However, in general, the cotton boom did not result in a more equitable land distribution in all

96  Kristina Dietz municipalities. In 1980, in municipalities like Becerril and Chiriguaná, more than 70 percent of agrarian land was still concentrated in properties larger than 200 hectares (Barrera and Víctor 2014, 254). By 2013–14, in the midst of the mining boom, the amount of land occupied by 348 very large-sized farms had increased again to 42.4 percent of total agricultural land, the vast majority of which is now used for cattle ranching. In terms of land use since the mining boom, the department has experienced a sharp decline in the cultivation of transitory crops and the expansion of permanent crops (particularly oil palms) and pastures (see Figures 4.2 and 4.3). According to the 2014 National Agricultural Census, 67.3 percent of the total farming area in Cesar is dedicated to cattle ranching: of 1,477,787 hectares of agricultural land, 957,942 hectares are covered by pastures (DANE 2016, 52). In 1971, the area dedicated to cultivating transitory crops (cotton, staple foods) reached 129,406 hectares, while in 2014, it decreased to 53,545 hectares. What is striking is that, compared to the 1970s, the area used for cattle ranching increased, although, since the 1980s, the total number of livestock has declined by 40 percent. Parallel to this, the area used for transitory or staple crops decreased substantially (Instituto Colombiano Agropecuario 2017; DANE 1972, 2016). The monopoly over land in a resource-rich region is obviously not an important means of production for the agrarian elites, but a guarantee to profit – sooner or later – from the commodity boom through speculative land sales to mining companies. In Cesar, the agrarian elite, traditionally dedicated to cattle ranching, has regained a powerful position within the department’s agrarian structure through its control of land. Together with a class of large-scale proprietors (100 to 5,000 hectares) that accumulated capital thanks to the cotton boom, they have capitalized upon the mining boom that has transformed the political economy of the department since the 1980s.

Figure 4.2 Variation of Permanent and Transitory Crops in Cesar, 1971–2016. Source: Own elaboration, based on DANE 1972, 2016.

Extractivism and the Resurgence of the Agrarian Elite  97

Figure 4.3 Land-Use Changes in the Mining District in Cesar, 2002–18. Sources: Departamento Administrativo Nacional de Estadística (DANE) 2020; Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM) 2018; elaborated by Natalia Caro.

98  Kristina Dietz

Conclusion In recent years, studies focusing on conflicts over mining have devoted less attention to the structural effects of mining on agriculture and agrarian societies. I have argued that under the conditions of a global resource boom with high prices for mineral resources on world markets, the expansion of mining in the countryside impacts rural social structures and agriculture in a particular way: it leads to the reconcentration of landed property and the revitalization of the agrarian elite. This results in the perpetuation of land-based social inequalities in rural areas, the disappearance of small-scale agriculture and staple food production, the expansion of pastoral and permanent crop production, and the redistribution of landbased wealth from the bottom to the top, as the landowning agrarian elites are much more successful in extracting value from mining than other agrarian classes. In the context of rising land values and extractivism, the agrarian elite expands their exclusive property rights over land and herewith their territorial rule, as it is the monopoly over land that guarantees them a share of the boom in the first place. By gaining and exercising the monopoly over resource-rich land, the agrarian elites provide capitalist firms with access to land for mining. At the same time, they participate in the resource boom through value grabbing. The reason for this is a two-step process: first, agrarian elites engage in the successful, and mostly coercive, appropriation of resource-rich land that mining corporations need to access. Second, profitable land speculation and sales allow the agrarian elites to “grab value” (Andreucci et al. 2017) from the capitalist firms. Although selling the land means losing the monopoly over it, the elites gain from mining through land speculation, in contrast to former peasant landowners, who are often violently forced to give up their land, either for nothing or for minimal compensation, ultimately ending up landless. The relationship between the agrarian elites and mining companies in the coal mining district of Cesar is characterized by common interests – namely, the profitable development of the mines, as the agrarian elites benefit from high revenues from land sales paid by mining companies in order to access land they control. The more profitable the coal mines, the higher the profits for the companies and the more likely they are to be willing to take risks and pay high prices for additional land (Emel and Huber 2008), which means higher revenues for land sellers. Anthropologist Fernando Coronil (1997, 47) has argued that landownership and the institution of landed property alone do not create rent; it also depends on surplus profit. Surplus profit from resource extraction is generally higher in boom times, i.e., when resource demand and prices are high. For the coal mining companies in the Cesar region, the global resource boom meant significant increases in production, exportation, and as a consequence, surplus profits. For example, in 2016, Drummond Ltd increased its coal exports from Cesar from 8.7 million tons in 2000 to 32.6 million tons. In 2012, revenues from coal exports were as high as US$4.8 billion (Drummond LTD. Colombia 2011, 2014, 2016). For the agrarian elite, this boom opened up the possibility for high rent revenues through highpriced land transactions. From this, I conclude that beyond the profit outlook for

Extractivism and the Resurgence of the Agrarian Elite  99 companies, it is the prospect of rent extraction, i.e., value grabbing (Andreucci et al. 2017), that triggers processes of dispossession experienced by small landholders in resource-rich rural areas and leads to the resurgence of elite rule in rural areas.

Notes 1 Latifundium refers to large parcels of privately owned land, often used for agriculture. 2 See contract No. 078-88 between Carbocol and Drummond Ltd: https://www.anm. gov.co/sites/default/files/contrato_078-88.pdf. 3 See contract No. 144-97 between Ecócarbon Ltda and Drummond Ltd: https://www. anm.gov.co/sites/default/files/contrato_144-97.pdf. 4 Privileged information denotes information that is not public and can only be accessed directly by certain groups and persons based on their offices and positions within the state apparatus. Having such knowledge can be used to enrich oneself or others (CNMH 2018, 109; Superintendencia Financiera de Colombia 2007). 5 Data on revenues and resource rents are taken from the TerriData website of the National Planning Department. For data for Agustín Codazzi: https://terridata.dnp. gov.co/index-app.html#/perfiles/20013; for Becerril: https://terridata.dnp.gov.co/ index-app.html#/perfiles/20045; for El Paso: https://terridata.dnp.gov.co/index-app. html#/perfiles/20250; for La Jagua de Ibiríco: https://terridata.dnp.gov.co/index-app. html#/perfiles/20400; for Chiriguaná: https://terridata.dnp.gov.co/index-app.html#/ perfiles/20178. Latest access to all websites February 18, 2022.

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5 The Patronal Politics of Regional Development Projects Exploring Russia’s Far Eastern Rent Management Sebastian Hoppe Introduction This chapter explores rent management in the Russian Far East (RFE) by disaggregating one particular flagship project in the Primorye region on Russia’s Pacific coast: the modernization and commissioning of the shipbuilding yard Zvezda. Throughout her Tsarist, Soviet, and post-Soviet history, Russia’s political economy has relied on rents generated from the export of natural resources, be it medieval fur, pre-World War I grain, or post-World War II oil and gas (Gaddy and Ickes 2013; Bradshaw and Connolly 2017; Etkind 2011). Russia’s current rent management system is primarily based on hydrocarbon exports, i.e., oil and gas. Historically, the specter of resource dependence and corresponding patterns of economic backwardness have regularly elicited Russian state strategies seeking to both maximize the rents from natural resource extraction and, at the same time, utilize these rents for industrial policy and economic diversification, technological and infrastructural upgrading, as well as military grandeur (Gerschenkron 1962; Nolte 2016). The RFE, a region occupying 40.6 percent of Russia’s territory while including only 5.6 percent of its population, has been the latest of these developmental frontiers. Here, a distinctive natural resource-dependent economic profile meets an ambitious developmental agenda amid geopolitical fears of being outperformed by Asia’s emerging economies. Especially the rise of China, bordering Russia on a length of 4.200 kilometer, has compelled the Kremlin to come up with a more thorough strategy for the RFE since the late 2000s – a region abundantly rich in natural resources and cultivable lands.1 The result has been a selfproclaimed ‘turn to the East’ (povorot na Vostok), a set of intertwined domestic and foreign economic strategies, has aimed at developing Russia’s Far Eastern and Northern territories and integrating the country into the broader politicoeconomic landscape of the Asia-Pacific region (APR; Макаров 2016; Blakkisrud and Rowe 2018). This pivot has led to some moderate successes, such as the establishment of a new ministry dealing with the development of the RFE and the Arctic, the build-up of 23 special economic zones, the realization of large-scale energy and arms trade projects with some Asian partners, and the infrastructural overhaul of Vladivostok. However, actual dynamics in the region have not matched the overarching developmental aim of making the RFE catch up with both Russia’s DOI: 10.4324/9781003303268-8

The Patronal Politics of Regional Development Projects  105 Western regions and Asia’s leading economies. Instead, the focus of large energy projects and infrastructural megaprojects tends to reproduce the securitized and unbalanced structure of Russia’s extractivist economy (Makarov 2017). These obstacles notwithstanding, Russia’s developmental aspirations for the RFE and the APR have enjoyed the sustained backing of the Russian state elite. Moreover, as global warming has been gradually opening the so-called Northern Sea Route (NSR), thus rendering the Russian Arctic both economically interesting for resource extraction and geopolitically rewarding (Renner 2020), the RFE increasingly tends to be seen by the advocates of Russian state power as an essential piece of Russia’s Asian and Arctic strategy (Karaganov et al. 2017). This chapter is an attempt at conceptual disaggregation and analytical “deep drilling,” uncovering the mechanics of Russia’s regional rent management at the intersection of Arctic and Far Eastern natural resource extraction, industrial policy, socioeconomic development, and geopolitical ambition. The shipbuilding yard Zvezda encapsulates these contradictions and thus constitutes a promising case study. The yard is located in the city of Bolshoi Kamen, close to the region’s capital Vladivostok. It occupies an important place in the Russian state elite’s aim to develop its shipbuilding capacities, engage in industrial upgrading, and, potentially, compete with Asian facilities, which it has hitherto been relying on. The project is set to nurture the region’s social development and establish new backward and forward linkages for the regional economy. Based on Zvezda’s hitherto mixed developmental track record, one can trace the mechanisms accounting for the channeling of rents toward large-scale regional development projects. The chapter shows that Zvezda, while having induced limited local socioeconomic and infrastructural gains, reproduces and, in fact, deepens institutional and political structures detrimental to broader socioeconomic development and the overcoming of extractivist patterns discussed in this volume. It is argued that this reproduction results from the patronal pyramids in charge of Russia’s Far Eastern rent management, in which domestic corporate and individual actors deeply linked with the Russian state elite fulfill crucial parts in the implementation of infrastructural and economic projects. Moreover, the top-down geopolitical clout ascribed to the project by the Russian state elite has further strengthened the pivotal role of patrons and sub-patrons, reinforcing the patronal nature of Russia’s rent management. The case of Zvezda illustrates the conflicts elicited by this geopoliticized regional development agenda, as individual and collective actors compete over access to and control of funding, infrastructures, and markets. It is shown that actors rooted in Russia’s extractive industries, particularly in oil and gas businesses, occupy a pivotal role in the personal and corporate networks steering Zvezda’s implementation and commissioning process. Zvezda also reveals that it is not resource extraction per se, but the power constellations and material exchange relations among patronal, sub-patronal, and client actors in Russia’s political economy that shape the outcomes and beneficiaries of its state-induced regional development strategies. The chapter proceeds as follows. The following section introduces the heuristic concept of patronal rent management. The subsequent case study reconstructs the institutions, corporations, and individual actors involved in the conflicts over the modernization and commissioning of Zvezda and argues that two constellations of

106  Sebastian Hoppe actors have faced each other in the process. While one ‘enabling’ patronal pyramid managed to implement the project, another likewise powerful yet less cohesive set of actors contested the patronal rent management of Zvezda yet failed to be pivotal due to its lack of patronal relationships with the state elite. The final section draws two conclusions about the paradoxical reproduction of Russia’s political economy of rent and the role of geopolitics in reinforcing patronal pyramids.

Conceptual Framework Russia is often considered a case of neopatrimonialism or patrimonial capitalism (Schlumberger 2008; Gel’man 2016a; Erdmann 2012). Neopatrimonialism denotes a hybrid consisting of premodern patrimonial and modern legal-rational types of domination, leaning politically toward authoritarianism and economically toward high and extra-economic transaction costs for businesses operating under these conditions. Due to political-institutional structures characterized by rent-seeking, informality, and political intrusion, neopatrimonialism is usually considered detrimental to democracy, economic growth, and poverty reduction (van de Walle 2001; Gel’man 2016b). Neopatrimonial detriments to development tend to be even graver if underpinned by natural resource dependence, as described, for instance, in the resource curse literature (Auty 2001; Frankel 2010; Ross 2015). However, recent interventions into the debate, informed by qualitative analyses of African, Asian, and post-Soviet experiences, have challenged such a monolithic perspective (Khan 2005; Kelsall 2012; Altenburg 2013; Ngo 2020) by shifting the debate from a conceptual preoccupation with resources to a focus on the management, political embeddedness, and circulation of rents (Auty 2018). The chapter ties in with these attempts by combining insights from the scholarship on neopatrimonialism and rent. As maintained by the former, rents are often managed in emerging economies through various configurations of patron-client relationships, hierarchical configurations, and exchange relations between various individual and collective patrons and clients (Khan and Kwame Sundaram 2000a, 10–11; Hale 2015, 24–25). The specificity of patron-client relations stems from the personalization, reciprocity, and hierarchy among the involved actors. However, hierarchy does not automatically entail a clear top-down structure of power relations, as patrons and clients are bound together by complex relationships. The client can negotiate with and, at times, change the patron’s behavior. Patronalism can thus be described as “a social equilibrium in which individuals organize their political and economic pursuits primarily around the personalized exchange of concrete rewards and punishments,” leading to “collective action based […] on extended networks of actual acquaintance” (Hale 2015, 20). Rent management, in turn, denotes the interplay of politics, institutions, and the market structure through which an industrial sector or an entire economy are organized. It is also the manner in which rent-receiving firms are incentivized or pressured to upgrade or an economy to configure its industrial structure. (Ngo and McCann 2019, 723)

The Patronal Politics of Regional Development Projects  107 Concerning strategies of economic development, patron-client relationships feed processes in which decisions over the allocation of resources are made based on political and power consideration, following logics of rent – in contrast to the economic enhancement of productivity and efficiency through profit-driven investments in the means of production (Elsenhans 2022, 36). The variety of patronal pyramids in emerging countries leads to different sectoral, foreign economic, or institutional outcomes (Khan and Kwame Sundaram 2000b). The notion of patronal rent management seeks to capture both the ubiquity of rents in emerging economies and state efforts to channel them toward specific ends, as well as the patronalist mechanisms through which such efforts unfold. This conceptual perspective highlights actors’ strategies, local peculiarities, as well as political and cultural contexts in processes of resource-dependent regional development. Methodologically, this chapter is informed by an analysis of Russian-language media, official documents and statistics, qualitative interviews, and secondary literature. The following section proceeds in three analytical steps. The first part provides an account of the origins and context of Zvezda. The second part describes the implementation of the project through an ‘enabling’ patronal pyramid headed by the two leading corporate players of Russia’s extractivist sector. The third part illustrates how the patronal rent management behind Zvezda has been contested by individually powerful yet collectively less efficacious actors.

Origins and Context of Zvezda In 2008, the Russian government decided to modernize and expand shipbuilding capacities in the RFE based on an already existing defense enterprise used for repairing and dismantling nuclear submarines.2 This coincided with increasing strategic interest by the Russian state in the natural resources of the Arctic and a new potential global transport corridor along the NSR from Asia to Europe (Указ Президента Российской Федерации № 164, 2020), as well as the decision to engage more strategically with the RFE and the APR. Moreover, 2008 saw a peak in geopolitical tensions between Russia and NATO, exemplified by the former’s military intervention in Georgia, leading the Russian leadership to plan for the redomestification of critical industrial production (Fortescue 2020, 3). Initially, Zvezda was envisioned as a project with international involvement. To this end, in 2009, the United Shipbuilding Company (USC), put in charge of Zvezda, formed a joint venture with South Korea’s Daewoo Shipbuilding and Marine Engineering (DSME) (Дагаева 2009). In 2012, however, DSME pulled out due to doubts over the project’s economic viability, followed by a transfer of responsibilities for the yard to a consortium of Rosneft and Gazprombank. The withdrawal of a mainly commercially interested foreign investor and potential provider of technology and the subsequent transfer of the supervision over the project to corporate entities underscores the project’s personal relevance to core members of the Russian state elite. The merging of Russia’s Arctic and Far Eastern developmental objectives is institutionally mirrored in the fact that the Ministry for the Development of the Russian Far East, newly established in 2012, had been extended in 2019 to now

108  Sebastian Hoppe also include the management of Arctic matters (Libman and Yakovlev 2021, 1144). Russia’s Arctic Strategy (Президент Российской Федерации 2020) states that the share of natural oil and gas extracted in the Arctic zone should increase in the future. Consequently, the exploitation of the Arctic and the NSR is expected to secure the demand for ship construction at Zvezda. Primorye, the region where the yard is located, in turn, shall gain socioeconomically by necessary follow-up investments. The modernization of Zvezda is expected to develop manufacturing capacities and industrial-technological upgrading and create high-paying jobs in the RFE (Eastern Economic Forum 2017). To support these plans, one of 23 Far Eastern ‘territories of accelerated development’ (TOR) was established around the yard in the city of Bolshoi Kamen. A TOR is a distinct type of special economic zone aimed at attracting domestic and international investments through preferential regimes, free customs zones, improved infrastructure, and support in recruiting much needed qualified workforce (Правительство Российской Федерации 2016). While the modernization of the yard is still ongoing, Zvezda has already been producing ships and parts for platforms that can be used in the exploration, extraction, and transportation of hydrocarbons from the Arctic continental shelf.3 Two overarching factors, one economic and one geopolitical, have further contributed to the decision to modernize Zvezda. Economically, one rationale for upgrading Zvezda has been safeguarding and expanding Russia’s comparative advantage in constructing gas tankers and nuclear icebreakers, which are necessary for service on Arctic shores (Fortescue 2020, 5). The project’s ship production is an integral part of the infrastructure and logistics necessary to make Russia’s Arctic ambitions work, which is why Zvezda has enjoyed sustained backing from the upper echelons of the Russian state (Putin 2013; Eastern Economic Forum 2017). There has been an increased interest in the Arctic by Rosneft, Russia’s leading oil conglomerate, and Gazprom, the world’s largest gas company. Fathoming their technical capabilities for oil and gas extraction, including the maritime transport of natural resources, against a global political economy, in which advanced industrial countries control the access to necessary cutting-edge technology, both realized that only 10 percent of the equipment necessary for Arctic resource extraction was produced in Russia. For the managers of Russia’s large-scale energy corporations, this was, in the first place, an economic and technological challenge. Geopolitically, these fears of technological dependence and backwardness gained a security spin after Russia annexed Crimea in 2014, and the subsequent decay of Western-Russian relations led to mutual sanctions regimes between Russia and the West’s advanced industrial countries. Consequently, the Russian government established various import substitution schemes, led by the Government Commission on Import Substitution, which included shipbuilding in its plans to domesticate production integral to what has been termed ‘economic sovereignty’ (Connolly and Hanson 2016). As a consequence, statist developmental impulses, corporate commercial interests, and a geopolitical environment perceived as hostile translated into fears over the country’s economic dependence on foreign technology and morphed into security interests (Мордюшенко 2015).

The Patronal Politics of Regional Development Projects  109

Implementation through Patronal Brokers Zvezda launched its production in September 2016 under the personal attendance of Putin. When it comes to the implementation of the project, two patronal pyramids have opposed each other. They may be grouped, for the sake of illustration, as ‘enabling’ and ‘vetoing,’ respectively. One pyramid, which ultimately prevailed, has enabled and now controls the fate of Zvezda, is led primarily by Rosneft and Gazprom and consists of a faction of the managerial elite of Russia’s large corporate players. These actors are deeply intertwined with the state elite and Putin personally, even beyond their own core businesses. On the other hand, a second pyramid consists of actors who are less closely – that is, less personally intertwined with the state elite and coordinate their strategies rather loosely among themselves. Although this second pyramid includes powerful institutional veto players, such as the Ministry of Finance (MoF), it is less coherent, and hence its opposition against Zvezda less strategic and efficacious. Funding for Zvezda constitutes a field where the enabling patronal pyramid around Gazprom and Rosneft has clashed with institutional yet less coordinated veto players. Instead of the initially envisaged mode of combining Russian state corporations with international investors, the two mammoths of Russia’s extractive sector were put in charge of the project in 2013 (Президент Российской Федерации 2013).4 Through close relationships with state agencies, both helped secure the project’s necessary funding, which was initially set at 111 but quickly increased to 200 billion rubles, appr. $3.6 billion (Fortescue 2020, 6). With foreign capital pulling out due to fears over non-profitability, at the end of 2013, the consortium reached out for 100 billion rubles from Vnesheconombank (meanwhile named VEB.RF). One of Russia’s most potent investment and development vehicles, this bank was then headed by Vladimir Dmitriev (2004–16) and later (since 2018) by one of Vladimir Putin’s closest cronies Igor Shuvalov. The project also received 27.5 billion rubles from the state program for the Development of Shipbuilding. However, this share was reduced to 6 billion rubles, while the major cash injection was taken over from VEB.RF by Russia’s National Welfare Fund (FNB), from which the consortium initially claimed additional resources of about 90 billion rubles (Попов and Мельников 2015). The involvement of the FNB with such a high amount of money was not only due to the broader trend in post-2014 Russian industrial policy toward import substitution, given Russia’s dependence on foreign shipbuilding capacities, particularly on those in South Korea (Попов and Мельников 2015).5 Instead, although a full-scale involvement of the FNB was eventually prevented by the intervening MoF, the access granted to FNB resources cannot be understood without taking into account the involvement of high-level sub-patrons (Барсуков, Зиброва, and Циноева 2015b). The FNB’s primary concern is mainly the cofinancing of voluntary savings by Russian pensioners, for which it usually pursues a low-risk investment strategy – a condition Zvezda clearly did not fulfill. Despite the MoF opposing Zvezda, the funding could be secured through patronal brokers such as presidential aide and head of Rosneft’s board of directors Andrey Belousov, who are simultaneously linked with Russia’s state and corporate elites (Джумайло 2015).6

110  Sebastian Hoppe Since 2013, Rosneft, a vertically integrated corporation mainly involved in the exploration, extraction, and transport of oil, has been the dominant corporate player in the steering structure of Zvezda. The company occupies a twofold position in the political economy of the project. On the one hand, it is in charge of modernizing the yard, including safeguarding the project’s financial viability. Rosneft’s CEO, Igor Sechin, has a biographical background in the so-called siloviki, individuals from the security services. Sechin has been one of Putin’s closest cronies ever since he became the chief of staff for Putin when the latter was deputy mayor in St. Petersburg in 1994. Sechin’s whole bureaucratic and corporate trajectory follows Putin’s rise to the Russian presidency. Moreover, Sechin served as long-time chair of the board of directors of the state-owned USC, a group of shipbuilding and maintaining facilities with assets also in the RFE, which likely makes him an individual beneficiary of investments in shipbuilding. Alexey Miller, Sechin’s CEO counterpart at Gazprom, the other company in the Zvezda consortium, has likewise pursued a career in steady dependence on his patron Putin since he joined the Committee for External Relations of the mayor of St. Petersburg in 1991, which Putin headed at that time. Rosneft is also foreseen as the shipyard’s primary buyer, especially of icebreakers, oil tankers, and small support vessels for Arctic extraction projects. Initially, Zvezda was expected to attract a broad national and international demand. However, it quickly dawned on those responsible that demand for ships and thus at least some level of efficiency could only be established through additional legal or informal requirements, as South Korean shipyards, in particular, produced far more costeffectively (Веденеева 2017). Consequently, Rosneft has developed an interest in the Russian state guaranteeing qua legislation that new ships will be built or at least leased on a long-term basis at Zvezda. Accordingly, Sechin has been lobbying from early on for such laws to be drafted, including a property tax for the use of foreign-made ships, the obligation for companies purchasing ships abroad to place orders also at Russian shipyards, special amendments to offshore licenses forcing actors to include a high percentage of marine equipment acquired in Russia, and a quota for fishing vessels to be built in Russia (Барсуков, Зиброва, and Циноева 2015b). By doing so, Rosneft seeks to secure access to resources by using the state to compel other actors to constitute a domestic market. In the same vein, for example, the recent nationalization of the production of ship propellers formerly build in Sweden, Switzerland, and Germany has been progressing through new legislative provisions (Веденеева 2020a). While such lobbying takes place in Western contexts as well, the pivotal role of figures such as Sechin as patronal brokers distinguishes Russia’s politics of development planning. Sechin’s position within the Russian rent management system is of central importance for the implementation of large-scale state projects. He is not only close to Putin’s innermost circle but, due to his connections to Asia and particularly China, has proven capable of managing geopolitically inflicted adaptations to Rosneft’s business model, especially since 2014. For example, in May 2015, in the course of a massive credit and loan restructuring following the geopolitical outfall and subsequent sanctions caused by Russia’s annexation of Crimea, Rosneft added China’s Yuan to the list of currencies for its loans. Moreover, the company increased the

The Patronal Politics of Regional Development Projects  111 amount of loans denominated in rubles. Also, due to sanctions, Rosneft struggled to issue new bonds that it needed to continue with its large-scale projects. Despite limited or no access to Western capital markets, in December 2014 and January 2015, Rosneft was able to issue bonds worth about 1,025 billion rubles through an opaque mechanism facilitated by the Russian Bank for Reconstruction and Development, the Central Bank of Russia (CBR), and other intermediaries (Мордюшенко and Мельников 2015). This shows Sechin’s role as a primary patronal broker central to managing and securing the flow of rents within Russia’s political economy. Another player interested in the build-up of Zvezda is Rosatom, which both runs a major power plant delivering energy for Zvezda and is supposed to run the icebreakers Zvezda will produce. From 2005 to 2016, Rosatom’s director was Sergey Kiriyenko, a long-time Putin ally and experienced politician who, as first deputy chief of staff of the Presidential Executive Office, occupies an important position in the Presidential Administration, one of the most powerful formal institutions in modern Russia (Burkhardt 2021). Kiriyenko is still involved in Rosatom as its chairman. Rosatom’s aims with Zvezda are twofold. For one, the yard is to be integrated into a shipbuilding cluster spanning the whole of Russia. Moreover, Rosatom seeks to gain a foothold in the Chinese market for nuclear icebreakers by sounding out ways to establish production facilities in China for Rosenergoatom, a company managed by Rosatom and USC (Фомичева et al. 2015). For Rosneft, Zvezda is mostly a matter of securing a steady supply of vessels for its Arctic undertakings and, by having taken over responsibility for the modernization of Zvezda and social and educational development in Bolshoi Kamen,7 a more personal and patronal service from Igor Sechin to Vladimir Putin. Rosatom, on the other hand, is using the shipyard as a technological springboard for its plans to develop joint shipbuilding clusters with Chinese partners (Фомичева et al. 2015). However, both sets of strategies meet in the fact that the heads of these corporate entities are all part of a small circle of sub-patrons around Putin and that Zvezda allows them to either underscore their monopoly position domestically or use this position to compete technologically with foreign companies. Rosatom, occupying a pivotal position in the patronal network surrounding Zvezda, has also been a key player in linking development policies in the RFE with the management of Russia’s NSR since 2018 (Президент Российской Федерации 2018). Furthermore, Rosatom has been the administrator of Russia’s nuclear icebreaker fleet since 2008, a task it took over from Atomflot, which was in financial trouble due to a lack of orders for icebreaking services (Moe 2020, 63–64). Later, however, the financial situation of Atomflot improved, as since 2012/13, the massive Arctic joint-stock company Yamal LNG (50.1 percent Novatek, 20 percent Total, 20 percent Chinese National Petroleum Company, 9.9 percent Chinese Silk Road Fund) appeared as a massive driver of demand for nuclear icebreakers. The Russian state granted substantial tax breaks and subsidized the expansion of harbor infrastructure to make Yamal LNG conclude a long-term contract over the delivery of ships. Apart from the companies in the Yamal LNG ensemble, Gazprom Neft, also active in the Yamal Peninsula, depicts another major buyer of icebreaking capacities, thus rendering the state-induced commissioning of these ships a highly lucrative business again (Moe 2020, 67).

112  Sebastian Hoppe By functioning as a “regulatory authority, investment agency and commercial service provider in one” (Moe 2020, 79), Rosatom constitutes a crucial part of the Russian rent management system. Formally, since 2018, the Russian Ministry of Transport and Rosatom have shared the responsibilities of managing Russia’s NSR. However, a closer look reveals a particular hierarchy in the distribution of competencies between both players. While the Ministry drafts and controls the laws and provisions, Rosatom manages the ports and state property, to which, among others, also belongs the icebreaking fleet. Most importantly, however, Rosatom coordinates and allocates state investments and supervises revenues from the commissioning of the NSR, thus having de facto organizational power over the flow and distribution of rents in Russia’s Arctic policies (Moe 2020, 70–71). Its organizational power to fund, cross-subsidize, and block projects trumps other formal institutions and ministries of the Russian state. Putin’s continuous backing of both the opening of the NSR and the necessary increase in the production of ships capable of crossing Arctic shores provide the proponents of Zvezda with leverage in the upper echelons of the Russian state (Fortescue 2020, 12). Far Eastern industrial policy in the form of an expansion of shipbuilding capacities constitutes a crucial part of Russia’s overall resource exploitation strategy in the Arctic. Within this strategy, the pivotal role of the patronal pyramid headed by Rosneft and Gazprom has been further reinforced through corporate actors, which have initially been unrelated to the project yet benefit from the legislative and political-economic reconfigurations Zvezda and the NSR entail. For the holding Neftegaz, for example, a provider of equipment and technology for oil and gas industries and a long-time partner of Sechin’s Rosneft, Zvezda and the opening of the NSR provides an opportunity to circumvent the transportation infrastructure of its competitor Transneft, operator of the world’s largest oil pipeline network and a monopoly in that sector within Russia. The opening of the NSR will potentially have grave repercussions for conflicts over the management and sharing of natural resource rents within Russia. In the case of Neftegaz, it would open up the possibility of delivering oil from the new and yet-to-be-explored deposits in the Paiiarkhsk and Vankor fields, against which Transneft has been lobbying heavily, as the building of a new pipeline and shipping by sea would decrease the volume of oil, and therefore the amount of rent obtained through the control of transportation infrastructure controlled by Transneft (Fortescue 2020, 11).

Contested Rent Management The configuration of actors enabling and steering Zvezda has been opposed by a more incoherent and less organized cluster of patronal actors. Individually powerful yet less weaved into the state elite and collectively incapable of pushing their own agenda, these actors have continually tried to undermine or play down the importance of new shipbuilding capacities in the RFE, as Zvezda and the way it relates to Russia’s plans for the NSR threaten to limit their own access to financial resources and hence their respective share of the rent pie.

The Patronal Politics of Regional Development Projects  113 One area of contestation is ensuring sufficient demand for ships and technology to be produced at the yard. To guarantee Zvezda’s economic viability, the state wants Rosneft, as the player in charge of the facility, to safeguard a sufficient demand for ships by Russian corporations (Президент Российской Федерации 2019). Since the demand for ships from state corporations alone would be insufficient, Zvezda depends on orders from private corporations, which constitutes a salient point of conflict. Novatek, a privately owned Russian gas company with heavy financial involvement in Russia’s Arctic projects, has been very reluctant to make binding commitments when it comes to buying ships from Zvezda (Президент Российской Федерации 2014). While Novatek’s leadership and especially its founder and current chairman Leonid Mikhelson, another oligarch, are considered close Putin cronies, they are more independent than the boards of state corporations in making their business decisions. They can thus balance state requests and market incentives (Fortescue 2020, 8–9). Consequently, Novatek’s reluctance to commit to a sufficient number of orders from the yard is rooted in the somewhat rational calculation that the price offered by the yard for the necessary ships will be up to 40 percent higher than if they were ordered in South Korea, which provides high-technology ships at competitive prices (Петлевой 2019). Through legal constructs and a strategy that plays against each other for the backing of the Russian state for Zvezda and global markets, Novatek has sought to maximize its revenue. For operating the transportation of the hydrocarbons from its Arctic LNG-2 facility, for example, Novatek has relied both on discounted ships built at Zvezda and commissioned jointly with stateowned hydrocarbon transport company Sovkomflot and on ships ordered at the South Korean firm DSME. For its Arctic Yamal LNG project, DSME has already built 15 ships for Novatek. In the past, DSME even discounted orders by Novatek, possibly in order to outcompete Zvezda (Дятел 2020). Novatek’s stance toward ship orders from Zvezda mirrors that of Lukoil, the second-largest, yet private, company in Russia headed by Vagit Alekperov, another top-ten Russian oligarch, when it comes to Arctic drilling: expectations of low profits outstrip the prospects for rent-seeking, whereas the latter is a function of the relatively looser integration into patronal power networks and the “freedom” to maneuver state directives and markets. The resulting gap in demand for ships, which private actors are reluctant to fill, has eventually led to further subsidies from the Russian budget for Novatek orders, to at least maintain a face-saving amount of orders by the enterprise for the yard (Веденеева 2019a).8 Lukoil, in fact, has been lobbying to gain access to Arctic shelves and receive the necessary licenses from the Russian government, which, in turn, might have boosted the demand for ships at Zvezda. However, the state has precluded private actors in Arctic drilling, although it would spur the technological upgrading necessary to become less dependent on foreign suppliers. That Lukoil’s requests have been met with reluctance from state authorities points to the latter’s differential relations to large energy corporations (Попов and Барсуков 2015). Even though Lukoil’s head Alekperov is considered one of Russia’s wealthiest and most influential private CEOs, he does not have similarly close contacts within the highest circles as, for example, Rosneft’s Sechin (Alexander 2017). Freer to put profit over

114  Sebastian Hoppe rent-seeking interests than state-owned enterprises, Alekperov has stated that Arctic resource extraction would only be profitable for Lukoil at a world market price of $80 to $120 (Warsaw Institute 2019), an argument harder to maintain for politically enlisted entities such as Rosneft and Gazprom. Seeking to settle the tension between coercive industrial policies, on the one hand, and the dependence on foreign technology while pursuing geopolitical and developmental aims, the Russian state since 2017 has put forward legislation aimed at “nationalizing” the commissioning of the NSR. The use of foreign-flagged vessels is now prohibited along the NSR. However, Novatek has been granted numerous exemptions – for 26 tankers until 2044 and for other vessels until 2021 – and now still has pending orders at foreign ship suppliers (Барсуков 2019). Asked why it was a bad idea to compel ships using the NSR to sail under the Russian flag only, Novatek’s CEO Leonid Mikhelson responded that the respective legislative amendments make it practically impossible to fulfill the Russian President’s instruction to increase the cargo turnover along the Northern Sea Route up to 80 million tons per year. It is necessary not to prohibit the navigation of certain ships in any water area, but to support domestic shipbuilding. That is why we suggested the government to create a special law to support shipbuilding in the Russian Federation. (Барсуков 2018) Behind such maneuvring by (semi-)private companies lies not only considerations over cost but also the reliance on foreign technology. Since 2014, for example, Rosmorport, a federal state enterprise maintaining Russia’s seaports, has been balancing the thin line between embracing import substitution and regular hints toward the still-existent dependence on foreign technology in strategic branches. As one representative of Rosmorport noted, while the company would in principle support the policy of import substitution, “due to objective circumstances, a significant part of the equipment of imported origin and has no domestic analogues, so a significant impact on the plans for the construction of ships has the volatility of international financial markets” (Веденеева 2020b), mainly referring to difficulties in acquiring necessary foreign technology under a weak ruble. Other corporations have directly sought to oppose the Zvezda project. Transneft, with its hitherto unchallenged control over domestic pipeline infrastructure, has been lobbying publicly against both the proactive utilization of the NSR and increasing shipbuilding capacities offered by Zvezda (Козлов, Веденеева, and Мордюшенко 2019). Although Rosneft and Transneft have been cooperating in other areas, for example, during the implementation of Russia’s large-scale energy projects with China, the conflict over the tariffs applied by Transneft for the use of oil pipelines on which Rosneft depends for the realization of its project constitutes a recurring pattern between both players (Старинская 2013). The broader question behind these infights is who carries the costs and secures the viability of large-scale regional development projects such as Zvezda. The international experience shows that a project of the scope of Zvezda, with its

The Patronal Politics of Regional Development Projects  115 necessary follow-up investments, could not be realized without direct state support of some sort. This can be illustrated by the debate over the production and supply of steel necessary to construct ships at the modernized yard. The envisaged independence in shipbuilding capacities, especially concerning technologically sophisticated oil and gas tankers, would also require domesticating the necessary steel production capacities.9 Currently, Zvezda buys its steel from a joint venture between Rosneft and Ural Mining Company (UMC; note the double duty of Rosneft, at once running the shipyard and selling steel to its own facility). So far, the steel is imported from South Korea, by all measures the cheapest way. However, Rosneft and UMC have been instructed to set up their own facilities in Russia, which turns out to be a challenging task since the two closest plants are Amur Steelworks (1,100 kilometers away from the yard) and the Magnitogorsk Metallurgical Combine (7,000 kilometers away). While the former would require massive modernization efforts to establish the capacity for the necessary rolled steel plates, the sheer distance from the Pacific to Magnitogorsk renders the latter unfeasible. Even if capacities were to be modernized or the challenges of a 7,000-kilometer transport route to be accepted, railroad infrastructure, including tunnel logistics, would need to be expanded, further increasing the eventual production costs of both the steel as well as the ships constructed at Zvezda (Henderson and Yermakov 2019, 28). However, given government support and the fact that Rosneft’s costs for Zvezda in buying steel would, at the same time, constitute Rosneft’s income at the steel plant, there is a chance for steel production capacities to be set up in the future. The question of necessary follow-up investments by the state and state support to private companies has started to elicit conflicts of its own. For example, while the subsidies for Zvezda supporting the construction of Novatek’s ships occupy a firm place in the state planning (in this particular case, the program Development of Shipbuilding and Equipment for Offshore Fields Development for 2021–23), voices from the Russian fishery industry in the Far East have surfaced, criticizing the disappearance of subsidies envisaged for their own ship orders. The implications of this conflict reach beyond the everyday struggle over access to the pie of state subsidies. The technological spillover effects and the development of industrial competencies are supposedly higher in the production of high-tech fishery vessels with on-board processing capacity, as compared to the large-scale assembling of gas carriers with relatively few prospects for technological learning (Скорлыгина 2020). Such conflicts indicate the superior role of actors nested in the natural resource sector, with far-reaching consequences for the direction of industrial development in the RFE. This is not to deny that there are indeed technological spillover effects from Zvezda’s international cooperation, especially from its relationship with Samsung Heavy Industries (Веденеева 2019b). That the modernization of Zvezda is explicable in terms of geopolitically mediated state aspiration and implementation through patronal brokerage, rather than the bureaucratic execution of a developmental state, becomes clear when one considers that influential institutional players were opposed to the project. The Russian MoF and the CBR have been long-time critics of the project, especially given the billions of rubles mobilized to make the project happen. The MoF, in particular, has been eager to point out its dissatisfaction over the shady financial

116  Sebastian Hoppe and ownership reshuffles undertaken to realize Zvezda, not to speak of its opposition against tapping into Russia’s FNB to fill the gaps in the financing schemes (Барсуков, Зиброва, and Циноева 2015a). Moreover, the MoF has made clear that to approve further funding for the yard, it requires an exact recording of the requirements for the localization of ships in Russia. Behind this formality lies the aim of ensuring that technological upgrading for the Russian shipbuilding industry will indeed materialize (Веденеева 2019b). The conflict over the financial feasibility of Zvezda reflects deeper intra-elite rifts over the role of budget discipline and the “right” way of channeling rents to projects of high significance for the Russian state. While the MoF and the CBR advocate for transparent budget allocation and uphold economic viability, a faction of authoritarian modernizers within the Russian government and Putin himself show a more ad-hoc approach (also known as ruchnoe upravleniye, manual control) to developmental state strategies. Putin even referred to the revenues flowing from Rosneftegaz, the Russian state’s holding company for the shares it holds in Rosneft and Gazprom, as a separate budget utilizable for “off-budget” projects, such as Zvezda (Папченкова and Воробьев 2016).

Conclusion The findings in this chapter point to the contested nature of regional development projects in natural resource-dependent societies. The chapter has conceptualized this contestation as different patronal pyramids competing over state funding, access to technologies, legislative regulation, and sales markets. The patterns of this competition in Russia are tightly linked with yet not completely reducible to the politics of natural resources. By zooming into one particular large-scale project, the chapter has shown the merits of shifting the analytical focus from a preoccupation with aggregated assessments of natural resource endowments or policy effectiveness to a disaggregating perspective on how rents are managed. Zvezda shows that corporate entities rooted in the extractive sectors of Russia’s political economy and their well-connected individual patrons in the form of oligarchical CEOs have been operating as crucial brokers who helped the project to materialize – in contrast to other measures set up to uplift the RFE. At the same time, however, the successful implementation of the Zvezda project cannot be traced back to its importance for Russia’s extractive industries per se. Instead, the players of Russia’s natural resource sectors form different patronal pyramids with other actors in working toward or against specific projects while at the same time interacting with political and international contexts. Two conclusions can be drawn. First, while it is plausible to argue that “fossil fuel-based and diversification choices can co-exist when Russian actors attempt to serve several interest groups simultaneously” (Aalto and Lowry 2020, 32), the attempt to induce broad and diversified socioeconomic development through large-scale regional projects such as Zvezda seems limited by the interest of key patronal players to secure control over the management of rents. Certain patronal pyramids tightly interwoven with the Russian state elite may successfully implement selected industrial policies under neopatrimonialism, which can trigger

The Patronal Politics of Regional Development Projects  117 follow-up investments, e.g., pipelines or a new steel plant, or benefit the respective regions, e.g., in Bolshoi Kamen. However, the case of Zvezda shows that the emergence of new productive capacities in the region does not automatically overcome the patronal architecture of Russia’s state power and political economy (Hosking 2000), which politically hinders development in other regions and sectors. Instead of transforming the political-economic fabric of Russia, projects like Zvezda reproduce the patronal pyramids through which rents circulate. Second, Zvezda shows the necessity of incorporating geopolitics in the analysis of rent-channeling through patronal pyramids. Conceptionally, two theoretical claims compete in conceptualizing the relationship between geopolitics and development. On the one hand, most Russianists hold that a geopolitical motivation on the side of the Russian state elite is considered detrimental to sustainable economic growth in the Russian regions (Appel and Gel’man 2015). On the other hand, scholarship on Asia’s 20th-century developmental states has argued that perception of vulnerability on the side of state elites, “staring down the barrels of three different guns” (Doner, Ritchie, and Slater 2005, 328) – the threat of decreasing living conditions and mass protest, an increasing need for foreign exchange and materials due to a perceived threat to national security, and a lack of easily disposable resource – may give rise to the institutional configuration necessary for economic development. For one thing, the case of Zvezda confirms the salience of geopolitics. How factions of the Russian state elite perceive geopolitics indeed translates into how resources are allocated and how patronal actors in the RFE and the Arctic become inscribed in large-scale state strategies. This is illustrated, for example, by the plans to make the NSR a global transport corridor and incorporate Zvezda for the supply of ships operating there. Another geopolitical layer of Zvezda has been its embeddedness in Moscow’s import substitution strategy, itself a product of security considerations and military conflict at the country’s Western flank. Both the reproduction of patronalism through large-scale projects and the salience of geopolitics for the management of rents constitute promising angles of comparison with similar regional development strategies outside the post-Soviet space, similarly located at the intersection of resource extraction and industrial policy.

Notes 1 Together with Siberia, the RFE contains about 10 percent of the world’s known oil and 15 percent of gas reserves, 12 percent of coal, 9 percent of gold, 7 percent of platinum, 9 percent of lead, 5 percent of iron ore, appr. 14 percent of its molybdenum and 21 percent of its nickel. Moreover, 16 percent of the global freshwater reserves and 21 percent of forests can be found in these regions, adding to more than one-fifth of Russia’s arable land (I. A. Makarov 2017, 95). As a result, the export structure of the RFE is dominated by energy, fishery, wood, and paper products, with China, Japan, and South Korea importing nearly 99 percent of the seafood, 96 percent of hydrocarbons, and 98 percent of wood (Larin 2017, 34–35). 2 The first shipyard at Bolshoi Kamen was set up after World War II and went into production in 1954. Since 1962, the facility served as the main base for maintaining Russia’s Pacific Fleet (Henderson and Yermakov 2019, 27). 3 See for the official mission of Zvezda at www.sskzvezda.ru. 4 See for an illustration of the ownership structure, Suchorukova (March 20, 2018).

118  Sebastian Hoppe 5 Note that existent legislation prohibits the FNB to fund more than 40 percent of a project. In 2015, however, doubts arose as to whether this limit should be applied to the construction of Zvezda, given the weak ruble and expensive credits, which increased the costs of the project. 6 The high-level backing by major institutions and agencies, however, did not prevent a significant amount of money (about 4 billion rubles) from being siphoned off illegally in the process into overseas assets and accounts in the United States and Singapore by the former director of the DCSS and one of the region’s most known businessmen Igor Borbot and the head of the construction company RDS Alexey Haris, among other managers, utilizing various intra-holding schemes between 2011 and 2013 (Чернышев and Сергеев, April 18, 2015). 7 According to the mayor and first financial deputy of Bolshoi Kamen, Rosneft is heavily involved in modernizing the surrounding city’s infrastructure. Moreover, the company has promised to invest in an educational center, which will train parts of the necessary workforce for the yard. Interview on August 10, 2021. 8 Notably, the Russian state has announced that subsidies for the construction of gas carriers shall be limited to 20 percent of the price that would be requested if the ships were to be built in South Korea (Веденеева, November 01, 2019). 9 One may think of these necessary follow-up investments as backward linkages, as laid out by Hirschman who defined “the linkage effects of a given product line as investment-generating forces that are set in motion, through input-output relationsm when productive facilities that supply inputs to that line or utilize its outputs are inadequate or nonexistent. Backward linkages lead to new investment in input-supplying facilities and forward linkages to investment in output-using facilities” (Hirschman 1977, 72).

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6 Patronage Networks and the Hope for a Better Future Coal Mining in Indonesia Kristina Großmann

Introduction Central Kalimantan is one of the five provinces in Kalimantan, the Indonesian part of the island of Borneo, rich in natural resources. I was reminded of that when I entered the airport of the provincial capital Palangkaraya. In a glass cabinet, positioned in the middle of the entrance area of the airport, the diverse natural resources of the province were displayed: a piece of coal, a whitish rectangular plate that was supposed to depict rubber, some oil palm fruits made of plastic and a small rock painted gold in color. The content of the showcase underlined that, in Central Kalimantan, priority is given to the extraction of resources, feeding the development narrative that it increases the wealth of the nation and the people. During my journeys to Central Kalimantan, it became clear that resource extraction is omnipresent in the province. Not infrequently, when I visited Palangkaraya, people asked me what I was doing in Kalimantan, suspecting that I worked either for a mining or a palm oil company. Indeed, many mining and agribusiness companies maintain offices in the provincial capital. This strong focus on resource extraction resonates with the national government’s policy considering the export of natural resources as a crucial pillar of the state’s economy. From 1966 until 1998, the New Order under the authoritarian regime of President Suharto enhanced the extraction of natural resources tremendously. In accordance with the national developmentalist paradigm, they viewed the extraction of natural resources as being a motor of economic growth and thus a benefit of the Indonesian people since this was considered synonymous with economic and social development (pembangunan). In this regard, Indonesia provides a good example for elaborating further on the narrative of development through natural resource extraction, commonly explained with examples from Latin America. In Indonesia, in particular, policymakers at the time saw the export of timber as the fastest and easiest way to strengthen the weak Indonesian economy. The social and ecological costs of these developments were often huge. To this end, from 1967 onwards, the government opened up the forestry sector to large-scale commercial logging, and huge areas of logging concessions were granted to commercial companies. Many of these companies have had close links to members of the political and military elite, and concessions are a means of ensuring their loyalty to a regime DOI: 10.4324/9781003303268-9

124  Kristina Großmann constructed around patronage networks. This patronage system was established during the New Order based on lucrative bureaucratic positions and economic opportunities. Through collusive relationships between private businesses and state functionaries, the capitalist elite has been closely tied to the state (Aspinall and Berenschot 2019). Patronage is common among many countries in Southeast Asia, historically deeply rooted and especially prevalent in the natural resource sector (Varkkey 2016). In Indonesia, patron-client relationships played an important role in the relationship between peasants and the local elite in precolonial times in the mid-20th century, as described by anthropologist James Scott (1972). Today, the social and political order in Indonesia continues to be marked by high inequality and rigid hierarchy. Edward Aspinall (2013) argues that patronage networks are a key feature of Indonesia's economic, political, and social organization despite the fact that the foundational principles of the modern state are based on equality (Nevins and Peluso 2008). The unchecked exploitation of forests and resources under the Suharto regime had a tremendous negative impact on the autonomy and access to land and resources of people living in these areas. The outer islands, and especially the uplands (i.e., in Central Kalimantan) where most of the extraction of natural resources took place, were portrayed by the Suharto regime as ‘marginal areas,’ whose role was to contribute to the center’s (i.e., Java’s) progress (Haug, Rössler, and Grumblies 2017). At the same time, the inhabitants of these areas were regarded as homogenized, clearly demarcated ethnic groups (e.g., the Dayak) who were standing in the way of progress (Li 1999). According to state narratives, these ethnic groups should, in the name of development and modernization, give up their simple and pagan life, swidden agriculture, and nomadic mode of subsistence, as well as convert to an officially recognized religion (Li 1999). The territorialization process marginalizing indigenous groups was the cornerstone of the developmentalist paradigm, whose implementation has played out for decades over the vast territory of Indonesia, affecting the lives of millions of people, especially in the periphery such as Central Kalimantan. Natural resource extraction remains one of Indonesia's principal sources of foreign revenue today, which particularly concerns coal mining. In 2012, the mining sector accounted for more than 17 percent of the export revenues of the Indonesian economy (Price Waterhouse Coopers Indonesia 2013, 53). Within the mining sector, coal is the biggest player. Coal production has largely been driven by exports and is one of Indonesia’s principal sources of foreign revenue. Although Indonesia produces only 6 percent of global coal output (based on data from 2017), it is one of the world’s two leading coal exporting countries.1 Since global and especially Asian demand for coal remains high, the coal mining sector is seen as promising massive riches for years to come. In recent years, the demand for coal on the domestic market has also increased. Currently, the principal domestic user of Indonesian coal is the power sector, accounting for 88 percent of the domestic market, followed by the cement industry accounts for 9 percent (CornotGandolphe 2017, 18). Domestic demand is projected to continue to rise, as the state is promoting the construction of more coal power plants in order to meet the country’s rising demand for energy. Coal mining is particularly prevalent in the

Patronage Networks and the Hope for a Better Future  125 most northern district, Murung Raya, of the province, where I stayed most of the time when visiting Kalimantan. This region is seen as an Indonesian El Dorado: where men can make their fortunes via resource extraction. Murung Raya is also the new frontier for coal exploitation, as the principal location of the mega-mining project Adaro Met Coal, which covers 350,000 hectares and is expected to deliver 20 million tons of coal over the coming years. People living in mining villages in this area of large-scale open-cast coal mines, such as Tumbang Batubara, are influenced by decades of large-scale coal mining, which is currently being expanded even further through the implementation of the mega-mining project. Some villagers still practice shifting cultivation to sustain their livelihood; however, the majority in such villages are now employed by one of the mining companies. Despite the environmental destruction all around villages and their minimal share in the benefits of mining and rising exclusion from land, the miners generally still support large-scale mining. The mining companies provide income opportunities and infrastructure, leading to the association of coal with development and the possibility of a better future. Actors on the local level support mining despite the immense negative consequences because of their tight economic and moral entanglement with the mining companies in historically rooted patronage networks. The state’s inability to provide infrastructure, education, and alternative income structures contributes to the mining companies’ elevation to ‘steward of good growth,’ hindering any exit from extractivism in the near future. Since 2016, I have been visiting mining families in the north of Central Kalimantan in the course of my research on human-environment relationships and resource extraction. Specific insights into the topic of mining and development were gained during a two-month ethnographic fieldwork phase in 2018 in Tumbang Batubara, where I conducted participatory observation and interviews. In order to protect my collaboration partners, I use pseudonyms for all persons. The village name Tumbang Batubara and the village itself are fictional. The village and its inhabitants that I describe are based on observations at several settlements in this mining area that I visited. In the following section, I give a brief overview of the increasing coal extraction in Kalimantan, Indonesia, which is paired with an ongoing lack of overall economic development, infrastructure, and education. I continue by describing that coal functions as a symbol for a better future, compensating for the state’s dysfunctionality by zooming into the lives of miners in the village of Tumbang Batubara. In the last part, I show that the village elite and the company are able to enforce their interests through patron-client relationships, while critical voices are excluded. I conclude that clientelistic practices are strongly embedded in social norms and, thus, cannot be changed easily.

Coal Mining on the Rise The expanding Indonesian coal industry is concentrated in Kalimantan where more than 80 percent of Indonesia’s coal reserves are located (Lucarelli 2010, 40). The national Master Plan for the Acceleration and Development of the Indonesian

126  Kristina Großmann Economy (Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia) for the period 2011 to 2015, identifies Kalimantan as the “[…] centre for production and processing of national mining and energy reserves […]” (Government of Indonesia 2011, 96). Whereas East and South Kalimantan are already established mining areas, Central Kalimantan is the new frontier for coal exploitation, as the area contains vast coal fields that are yet to be exploited. Murung Raya: Black Gold The Adaro Met Coal mega-mining project covers 350,000 hectares and is projected to deliver a total of more than 700 million tons of coal by 2045. Most of the area earmarked for coal extraction is situated in the north and east of Central Kalimantan, first and foremost in the district of Murung Raya. This northernmost district is rich in natural resources such as timber, rubber, coal, gold, and gemstones. It is therefore sometimes referred to as an Indonesian El Dorado, but I always think of the area as a ‘wild north,’ a frontier area comparable to the wild west in the early history of the USA. People, mostly men from Java or other islands of Indonesia, travel to Murung Raya to try their luck in small-scale mining for gold or gemstones. Each of these travelers hopes to return home from Murung Raya as a rich man. However, the abundant natural resources of the district attract not only individuals but also international logging and mining companies (Gellert and Andiko 2015). Forestry was traditionally the dominant economic sector in Murung Raya; however, by 2014, timber extraction had dropped to only 6 percent of the district’s gross domestic product (GDP), while rubber plantations contributed a further modest 9 percent to the district’s economic output (Badan Pusat Statistik Kabupaten Murung Raya 2018a, 13). Mining for gold and coal was the dominant economic sector, accounting for 35 percent of the district’s GDP (District Government of Murung Raya 2015, 9). The district government has prioritized the further expansion of mining, which it sees as the foundation for future economic development. Coal mining in particular is expected to play a major role, as the district contains huge coal deposits for which there is increasing demand from both domestic and international markets. The intensification of primary commodity exploitation, such as coal mining, could parallel increasing social spending, particularly for formerly excluded social groups, as the concept of neo-extractivism suggests. This strategy has flourished since the commodity boom in the early 2000s in South America (Burchardt and Dietz 2014). In Indonesia, however, the claim of balancing the extreme levels of inequality and exclusions in the country has not been fulfilled, as the example of the district of Murung Raya in Central Kalimantan shows. Lack of Improvements in Infrastructure, Basic Income, Education, and Health Services The provincial government of Central Kalimantan and the national government both support the Adaro Met Coal project, as they assert that it boosts the province’s economic development. However, rich deposits of natural resources do not automatically generate increases in overall economic development, the enhancement

Patronage Networks and the Hope for a Better Future  127 of infrastructure, or the improvement in human well-being. In Central Kalimantan, and especially in the coal-rich district Murung Raya, the slow progress toward improvements to infrastructure, basic income, education, and health service is evident. The sluggish expansion of infrastructure and failure to improve social conditions in Murung Raya is particularly striking in contrast to steadily rising indices of economic development in the province. The gross regional domestic product of Central Kalimantan increased significantly from 1.3 billion euro (20,000 billion rupiah) in 2011 to 8.4 billion euro (126,000 billion rupiah) in 2017. Similarly, the Human Development Index (HDI), a composite index of life expectancy, education, and per capita income, in Central Kalimantan increased from 65.9 in 2010 to 70.4 in 2018 (Badan Pusat Statistik 2019), lifting the province into the tier designated as ‘high human development.’2 However, such quantitative data should be treated with caution since the values represent averages and do not provide information on social disparity. In 2017, the resource-rich district of Murung Raya had the fourth lowest HDI score (67.16) among the 14 districts that comprise the province of Central Kalimantan (Badan Pusat Statistik Kabupaten Murung Raya 2018b, 32). Murung Raya also ranks fourth worst out of 14 for the percentage of people living below the poverty line (Badan Pusat Statistik Kabupaten Murung Raya 2018b, 33).3 Of 115 villages in Murung Raya, 43 are situated in the northern mountainous area, where there are serious deficiencies in the provision of education, health services, transport links, and electricity and water supply. The electricity supply network in Murung Raya reaches only a minority of the inhabitants, a situation that is particularly ironic given the vast amounts of coal being extracted from the district, much of it destined to fuel power plants in Indonesia and across Asia. Based on district government statistics from 2012, 85 percent of the villages in Murung Raya have access to electricity (District Government of Murung Raya 2015, 13). However, strikingly, only 33.8 percent of the total households have access to electricity supplied by the state electricity company, Perusahaan Listrik Negara (PLN; District Government of Murung Raya 2015, 13). The other 51.2 percent organize their power supply individually, using diesel generators or solar panels. Access to grid electricity is concentrated in urban areas; the more remote a village is, the less likely it is to be connected to the grid. In the sub-district of Laung Tuhup, only 3 out of 26 villages receive electricity from the PLN (Badan Pusat Statistik Kabupaten Murung Raya 2018c, 105). The transportation infrastructure in Murung Raya is also in bad condition. Based on 2017 data from the district government, the total length of roads in the district is 919.54 kilometers. Almost all (99 percent) of these roads are maintained by the district government and the remainder by the provincial government. Approximately 70 percent of roads in the district are classified as dirt roads, where travel is frequently disrupted by potholes during rainy weather. Not surprisingly, 70 percent of roads classified by the district government are classified as being in ‘very bad’ condition, and only 15 percent are in ‘quite good’ condition (Badan Pusat Statistik Kabupaten Murung Raya 2018b, 18). The roads that are built and maintained by the mining and logging companies operating in Murung Raya are in better condition than those maintained by the state. On a general level, resource extraction has not balanced

128  Kristina Großmann inequality and socioeconomic exclusions in the area. The slow advancement in the region underlines the state’s inability to use the earnings from mining for the enhancement of infrastructure, education, and health services. For people who work for mining companies, however, this is not the priority. They appreciate the further expansion of coal extraction because the mining companies provide opportunities for paid employment and bring improvements to village infrastructure. For them, coal is a symbol of development and the promise of a better future, as I will show in the case of Tumbang Batubara. Mining in Tumbang Batubara: Promise of a Better Future The village of Tumbang Batubara4 is located in the district Murung Raya, situated in the area of the mega-mining project Adaro Met Coal. The village was founded by ethnically Dayak-Murung families in the early years of the 20th century. They initially did not mine coal for either their own use or for sale before companies arrived to start large-scale coal mining. Villagers earned their livelihoods from the shifting cultivation of rice and other food crops, as well as the maintenance of rubber tree plantations. Several decades ago, companies first started to extract coal there. Some villagers found jobs at coal mining companies operating nearby, and over the years, employment in coal mining rose. From the 1990s onwards, more and more people migrated to the village from the nearby region, as mining boomed and employment opportunities increased. Today, the village is inhabited by about 700 people, and approximately two-thirds of the adult villagers work, directly or indirectly, for mining companies. As a result, mining currently dominates the social, political, and economic lives of most families. Most of these families also maintain a swidden field where they continue to practice small-scale cultivation of rice, rubber, vegetables, fruits, and spices. However, as the mining companies took possession of more and more land close to the village, agricultural activity decreased, and mining is now the principal source of income for most families. The extensive exploitation of coal, ongoing for decades, has led to massive socio-ecological changes such as environmental destruction and the exclusion of local people from land and resource use. Those villagers who criticize coal mining usually do not work for the mining companies or receive any regular income through employment. The majority of villagers critical of mining are affiliated with the Dayak animist belief system called Kaharingan, in contrast to supporters of mining who are predominantly Protestant. To sustain their livelihoods, Kaharingan Dayak rely on agriculture, agroforestry, or small businesses. One of their major concerns surrounding mining is that the benefits will only last for a short time, and they do not trust the companies to provide stable income in the future. Further, they criticize the mining companies for causing increased levels of pollution in the river, asserting that they find fewer fish in the river than previously and that the water has become increasingly turbid since the mining companies arrived. Despite the environmental destruction all around villagers, the critique of shortterm profit, and the loss of access to land, those who work for the mining companies still support the expansion of coal mining through the Adaro Met Coal

Patronage Networks and the Hope for a Better Future  129 project. One important deciding factor is the opportunity for paid employment. Employment in the mines is financially beneficial for miners and their families. The income is perceived by them as a route to a better life. Miners in low- and middle-ranking positions can earn between 600 and 800 euros (10 million rupiah) per month, which would be difficult to obtain from employment outside mining. This enables them and their families to enjoy a higher quality of life with more opportunities compared to those with no involvement in mining. Coal mining is therefore associated with the notion of a better future. Imla and her husband Maik are an example of a mining family in Tumbang Batubara who derive their livelihood from mining and plan their future around the expectation that it will continue to expand. They highly approve of the mines and plans for expansion. One day, I was sitting with Imla, Maik, and Alex, a friend of mine from Germany, in the small coffee shop (warung) at the side of the haul road that passes through Tumbang Batubara, waiting for the company bus to take us to the mining company’s port on the River Barito. Maik has worked as a truck driver for the mining company for decades. Now that the youngest of their three children is old enough to go to nursery school, Imla works part time on a voluntary basis as a teacher at the village elementary school. They have a small plot of land, half an hour away from the village by motorbike, where they grow a little bit of rice, some vegetables, and fruits, but these are not enough to live on. Maik’s salary is not only essential to cover their living costs but also enables them to send their oldest son to study in the provincial capital Palangkaraya. Alex and I were on our way back from Tumbang Batubara to Palangkaraya, and we knew that we would be away from the village for quite a long time, so we wanted to walk a short distance down the haul road to have a last look at the village. In the days before, it had rained a lot, and so the path from the village to the warung, the little front yard of the warung, and the haul road were all muddy and slippery. Alex was wearing sandals, but he managed to keep his balance for the first meters as we walked away from the warung along the side of the road. Suddenly, the mud under his feet became softer. He slid a few centimeters until one foot landed in the ditch at the side of the road where the mud was deep and sticky. He did not fall down but sank into the mud. We looked at Imla, rolled our eyes, and all laughed loudly. When this little adventure was over, and we sat next to Imla and Maik again, I said, “I think it is a shame. You know, here around the village there is so much coal being extracted by the company and they can’t even build a proper road.” And I added with a wink, “You ask the company to build a proper road if they expand the mining sites in the future.” We all giggled, and Imla answered, Yes, you are right. But unfortunately, the road is only for the trucks and not for us, which is sad. Otherwise, we could just ride on our own motorbikes to the port without getting stuck in the mud. I do think that the company should be a bit more engaged in improving our lives. But on the other side, I am glad that the company built the road which connects the village to other places. Before that we had to travel by river to the village, which took ages. But if we ask too much from the company, maybe they will withdraw from coal mining here, and that would be even worse than bad roads.

130  Kristina Großmann I asked Imla and Maik, why it would be bad if the company withdrew from the area. I argued that they have a small plot of land for growing rice and that the road should be maintained by the government anyway. Maik could maybe start planting cash crops for sale and secure their livelihood in this way. Maik answered, You know, the coal is there, in the earth, in front of our eyes. It would be a shame not to take it. The coal can improve our lives; it gives us wealth and provides our children education. You know I feel sorry that there is still so much coal which hasn’t been extracted yet. Natural resources are thrown away if they are not used. It is a waste if they are not dug out. Maik is no exception. For him, the question is not whether this natural resource should or should not be exploited, which they answer with a clear yes, but who gets the biggest share. Like many residents of Tumbang Batubara, he agrees with the government and the companies that mining is a driver of development, on both a collective and an individual level. His notion of coal aligns with the prevailing developmentalist paradigm established and enforced during the New Order regime under the authoritarian President Suharto. This paradigm portrays coal as a motor of growth, which is perceived as synonymous with economic and social development (pembangunan). I asked Maik and Imla if they perceive any problems with the current large-scale coal extraction. Both shook their heads and said that there are no major problems. Maik added, The biggest problem is the share [we get]. You know, we, the villagers, we cannot extract the coal alone. We don’t have the equipment to extract the coal. We don’t have the money for investment. For that, we need the company. But the company has to share their profit with us. Because the coal is ours. And so, the company has to compensate us if they take our coal. Mike and Imla’s argument that they would need the companies to extract ‘their’ coal shows that they generally accept and support the current structure of resource extraction. However, they try to negotiate their share and participation in what is a common feature of patron-client relationships, elaborated on in the following.

Patron-Client Relationships, the Company as ‘Steward of Good Growth,’ and the Exclusion of Opponents Employment opportunities with mining companies are part of a wider patron-client network that binds the villagers of Tumbang Batubara to the coal mining companies. Relationships between miners, members of the village elite, and company representatives take the form of patronage, which is highly asymmetrical in terms of power, status, and wealth. It is unregulated, personalized, multifunctional, and often quite flexible, but always embodies highly unequal power relations. Mutual expectations that patron-client obligations will be fulfilled are extremely high (Scott 1972, 94). If the patron or client is not able to fulfill these expectations, he

Patronage Networks and the Hope for a Better Future  131 or she in turn asks their patron or client. Thus, many people enact both roles, as patron and client, and are interlinked in a pyramid-shaped network of patronage. In Tumbang Batubara, the mining companies as patron provide opportunities to earn or otherwise make money, personal support for life milestones, as well as village infrastructure under the terms of Corporate Social Responsibility (CSR) programs. In return, the village elite and miners as clients provide labor and support. They are prepared to endure the increasing pollution and acquiesce in the destruction of their environment caused by the mines. The patron-client relationship is not limited to business relationships but also extends into the private sphere. Representatives of the company attend wedding ceremonies and funeral rites in the village. In so doing, they not only contribute gifts and financial support to the family concerned but are also seen to be fulfilling the social responsibilities of the person with a higher status. The enhancement of village infrastructure is mostly negotiated under the terms of CSR programs. Members of the village elite usually represent locals in negotiations over these compensation payments. Representatives of the company meet formally and informally with the village apparatus, as well as the customary leader (Kepala adat) at the sub-district level (Damang) and the district head (Bupati). Members of the village elite and the Damang, as clients, cooperate with the mining companies, the patron, in arranging land leases and giving tacit approval to mining activities outside of licensed areas. In return for their support, the company gives money and grants favors to their families. Tumbang Batubara is classified as a ‘Ring 1’ village, i.e., as being in the area closest to mining sites and therefore eligible to receive the highest amount of compensation. Meetings with PT Adaro to negotiate and plan CSR projects in the context of the planned expansion of mining activities started in 2017. The conduct of these meetings exemplifies the patron-client relations between the company and the villagers while highlighting the powerful position of the village apparatus and the exclusion of critical voices from the discussion. The initial meetings took place in the house of the village head, attended by company representatives responsible for CSR and members of the village apparatus. The company’s representatives provided information about the current situation of the mining sites, and both parties agreed on a program of further meetings. It was agreed to set up a ‘Communication Forum’ for the formulation of wishes and demands of villagers, as well as the articulation of different interests. The members of the Forum were chosen by the village head and company CSR staff. Villagers who were not part of the village apparatus were excluded from the initial meetings. They were thereby kept in the dark about the current situation and denied the opportunity to participate in drawing up the CSR program. Requests by the villagers who did participate focused on measures to improve health services, education, and the village infrastructure. The biggest project they proposed was to repair the drinking water supply system in the village. Other demands included improvements to the village health center (posyandu) and education for its staff, as well as asphalt surfacing for the elementary school courtyard (which was regularly flooded after rainfall, forcing pupils and teachers to make their way to school over a bridge made of old excavator tires). However, rather than providing compensation for the negative impacts of mining, the CSR

132  Kristina Großmann programs make up for deficiencies in services and basic infrastructure that, many would argue, should be provided by the state. This enables the companies to present themselves as “[…] purveyors of best practice and stewards of good growth […]” (Gilberthorpe and Rajak 2017, 187), drawing attention away from their role in the destruction of the natural resources on which local people’s livelihoods and well-being depend. Patron-client relationships in the village are used to justify actions by ‘passing the buck’ to a patron or a client. For example, the district head (Bupati) and the district government justify their support of the extension of coal extraction by pointing out that it enables them to fulfill their responsibility to develop the district (but say less about the opportunity for personal gains in the form of bribes for issuing licenses and permits). Similarly, some members of the village apparatus legitimize their supportive stance toward companies by arguing that, as patrons, they have to provide villagers, their clients, labor opportunities and infrastructure improvements in the village. At the same time, members of the village apparatus assert, as clients of the district head (Bupati), that their patron exerts pressure on them to support the companies. However, in my opinion, members of the village apparatus understate their decision-making capacity in negotiations with representatives of the companies. Blaming the Bupati as patron is a strategy to distract from their corrupt behavior. That they are not ‘victims’ or subjugated by the company was underlined by one villager: You know, the moment a villager takes money from the company, he has lost, because he has been bribed and thus is dependent. He cannot challenge the company anymore because both he and the company have transgressed law and are guilty. However, if he doesn’t take the money then he has a strong position because he can sue the company. The law is on his side. Both the company and members of the village apparatus commonly make use of bribes and threats to push through their agenda and interests. Thus, villagers who are critical of the mining activities or demanding in negotiations about land leases are, in most cases, threatened and sidelined. Members of the village apparatus who adopt an oppositional stance toward the companies or the agenda of the other members of the ruling village elite are usually excluded by being removed from their position. This was what happened to Pak Aloi, one of the former Kepala adat of Tumbang Batubara. Adat leaders are typically elected by the villagers for a period of five years. Pak Aloi was elected in 2008 and reelected in 2013. In 2016, as a member of the village apparatus, he took part in the negotiations with a mining company over the lease of about 20 hectares of land where the company wanted to expand coal extraction. He described how during the meeting with the company, the village head and the Damang agreed on a very low price for the lease of the land: The company wanted to lease land, good fertile land, in order to expand. We sat together with the company and they offered us 25 million rupiah (1,666 euro) per hectare. I said to the company: “Look that land is very fertile.

Patronage Networks and the Hope for a Better Future  133 Villagers grow rice and vegetables on it. The forest gardens are important for their livelihoods and for their subsistence. It is also the security for their children and their grandchildren. I have 11 grandchildren. What should I give them to eat when the land is gone? 1,666 euro is too little. I say at least 50 million rupiah (3,333 euro) per hectare.” But I was alone with this opinion. The others from the village just kept quiet and looked to the floor. I said to them: “Come on, it is your duty to represent the villagers, not the company. Twenty-five million rupiah isn’t enough.” But they stayed silent. At the end the village head signed the contract according to which the villagers got 25 million rupiah. What a shame. Pak Aloi was still visibly angry when he described the meeting with the company and the compliant stance of the other village representatives. He said bitterly, “The company holds the reins and the village apparatus do whatever they say. They have us in a stranglehold.” He underlined what he said by gripping his hands around his neck and choking himself. Shortly after the meeting, the Damang sent him a letter informing Pak Aloi that he was dismissed from his position as adat leader with immediate effect, without any further payments from the next month onwards. Pak Aloi stated that no reason was given for his dismissal, and the Damang refused to answer any questions. After he quit his office, the district head (Bupati) appointed the nephew of the Damang as Kepala adat of Tumbang Batubara.

Conclusion Most people who live in the village of Tumbang Batubara support mining, to which they are bound in extremely asymmetrical power relations. Coal is their main source of income and is associated with development and the chance of a better life. The national, provincial, district, and village governments also support mining, which is lucrative for them, as they lack the capacity and motivation to develop alternative income-generating opportunities for villagers. The establishment of small-scale businesses or small-scale agroforestry production of cash crops could offer villagers a way out of destructive resource extraction and their dependency on mining companies. However, in the absence of these economic alternatives, villagers will continue to support coal mining for the foreseeable future. Coal is not only a symbol for development. Mining companies enforce existing patronage systems and are well positioned in personalized loyalty networks through which resources flow and political influence is pushed through. There seem to be few opportunities for the village apparatus and miners in Tumbang Batubara to break out of these patronage networks. The company, in its role as ‘steward of good growth,’ retains the allegiance of locals through the provision of employment opportunities, infrastructure, education, and social security, while those who question the dependency that these patron-client relationships entail are threatened and excluded. The presented ethnographic insights stress the ubiquity of clientelism and asymmetrical relationships. I show that patronage systems constitute the norm in resource extraction in Indonesia, permeating society to structure everyday lives. Thereby, the example of Pak Aloi makes clear that patronage generally is enforced

134  Kristina Großmann in a top-down manner. If villagers are too critical or demanding, they are threatened and excluded. However, others like Maik and Imla accept the asymmetries between them and the company, and within that frame, try to enlarge their space of maneuver and negotiate their share. They conceive their relation to the company as give-and-take, a kind of mutual dependency. They indeed feel disadvantaged in this relation; however, they see possibilities of enlarging their power. The described patron-client relationships show that they are played out mostly on the individual level and are highly personalized. Further, if people accept the general asymmetrical relationships and do not question their subordinate position, there might be possibilities to enhance one’s benefits. Clientelistic practices are deeply rooted in Indonesia’s history and strongly embedded in social norms. Thus, they cannot be changed easily. However, knowledge about the inner workings of patron-client relationships in Indonesia’s resource extraction sector is still rare despite being essential for the understanding and addressing of inequalities.

Notes 1 In 2008, Indonesia overtook Australia as largest exporter of coal in the world. Since 2015, Australia has regained the number one position; however, Indonesia remains the largest exporter of steam coal for power generation (Devi and Prayogo 2013; CornotGandolphe 2017, 15), accounting for an impressive 38 percent of the market share for global steam coal exports in 2013 (Cornot-Gandolphe 2017, 15). Between 1998 and 1999, the coal production increased from 4.4 million tons to 80.9 million tons (Lucarelli 2010, 25). Production peaked in 2013, with 489 million tons, of which 426 million tons were exported (World Coal Association 2014). By 2017, the coal production had decreased slightly to 461 million tons, of which 298 million tons were exported (Ministry of Energy and Mineral Resources 2018, 63). China, India and Japan are the principal importers of Indonesian coal; thus, the Indonesia’s coal industry is a major player in the in the Asian coal market (Cornot-Gandolphe 2017: 17). 2 For comparison, the index score of 70.4 is roughly comparable to Paraguay and slightly above the scores of South Africa and Indonesia as a whole. 3 Although HDI is a more rounded indicator of well-being than GDP per capita, it provides little direct information on people’s access to the basic necessities of life (apart from education), such as health services, housing, transport, electricity, water, and sanitation. 4 Names of persons and places are changed for anonymization.

References Aspinall, Edward. 2013. “The Triumph of Capital? Class Politics and Indonesian Democratisation.” Journal of Contemporary Asia 43 (2): 226–42. Aspinall, Edward, and Ward Berenschot. 2019. Democracy for Sale: Elections, Clientelism and the State in Indonesia. Ithaca: Cornell University Press. Badan Pusat Statistik. 2019. Indeks Pembangunan Manusia menurut Provinsi, 2010–2018 (MetodeBaru).https://www.bps.go.id/dynamictable/2016/06/16/1211/indeks-­pembangunanmanusia-menurut-provinsi-2010-2018-metode-baru-.html. Accessed February 2, 2019. Badan Pusat Statistik Kabupaten Murung Raya. 2018a. Statistik daerah Kabupaten Murung Raya 2018. Puruk Cahu. https://murakab.bps.go.id/publication/download.html?nrbvfeve=NzFiM2JiNTNjYTEzYmFiMzU4OTNkMWYz&xzmn=aHR0cHM 6 Ly 9 t d X J h a 2 F i L m J w c y 5 n b y 5 p Z C 9 w d W J s a W N h d G l v b i 8 y M D E 4 L z E

Patronage Networks and the Hope for a Better Future  135 wLzEwLzcxYjNiYjUzY2ExM2JhYjM1ODkzZFmy9zdGF0aXN0aWstZGFlcm FoLWthYnVwYXRlbi1tdXJ1bmctcmF5YS0yMDE4Lmh0bWw%3D&twoadfn oarfeauf=MjAxOS0wNS0zMCAxNDoxMTo1NA%3D%3D. Accessed May 30, 2019. ———. 2018b. Kecamatan Uut Murung dalam Angka 2018. Puruk Cahu. https://murakab.bps. go.id/publication/download.html?nrbvfeve=NzBhNjljZDkxNzEwODFjM2M1NW QyMDhl&xzmn=aHR0cHM6Ly9tdXJha2FiLmJwcy5nby5pZC9wdWJsaWNhdGlvbi 8yMDE4LzA5LzI2LzcwYTY5Y2Q5MTcxMDgxYzNjNTVkMjA4ZS9rZWNhbW F0YW4tdXV0LW11cnVuZy1kYWxhbS1hbmdrYS0yMDE4Lmh0bWw%3D&twoadf noarfeauf=MjAxOS0wNi0wMiAyMToyOTo1Mg%3D%3D. Accessed February 2, 2019. ———. 2018c. Kecamatan Laung Tuhup dalam Angka 2018. Puruk Cahu. https://murakab. bps.go.id/publication/download.html?nrbvfeve=Y2UwNTA3MmM3Mzkx MTc0YzgwN2EwN2E1&xzmn=aHR0cHM6Ly9tdXJha2FiLmJwcy5nby5pZC 9wdWJsaWNhdGlvbi8yMDE4LzA5LzI2L2NlMDUwNzJjNzM5MTE3NGM4 M D d h M D d h N S 9 r Z W N h b W F 0 Y W 4 t b G F 1 b m c t d H Vo d X A t Z G F s Y W 0 t YW5na2EtMjAxOC5odG1s&twoadfnoarfeauf=MjAxOS0wNi0wMiAyMjow Njo1NQ%3D%3D. Accessed February 2, 2019. Burchardt, Hans-Jürgen, and Kristina Dietz. 2014. “(Neo-)Extractivism – A New Challenge for Development Theory from Latin America.” Third World Quarterly 35 (3): 468–86. Cornot-Gandolphe, Sylvie. 2017. Indonesia’s Electricity Demand and the Coal Sector. Export or Meet Domestic Demand? Oxford: Oxford Institute for Energy Studies. Devi, Bernadetta, and Dody Prayogo. 2013. Mining and Development in Indonesia. An Overview of the Regulatory Framework and Policies. Perth: International Mining for Development Centre, University of Western Australia. District Government of Murung Raya. 2015. “Murung Raya Green Growth Strategy.” Edited by District Government of Murung Raya, Provincial Government of Central Kalimantan, Ministry of National Development Planning (BAPPENAS) and the Global Green Growth Institute (GGGI). Purukcahu. http://gggi.org/wp-content/ uploads/2015/06/MR-GGS-ENG-Final.pdf. Accessed May 25, 2020. Gellert, Paul K., and Andiko. 2015. “The Quest for Legal Certainty and the Reorganization of Power: Struggles over Forest Law, Permits, and Rights in Indonesia.” Journal of Asian Studies 74 (3): 639–66. Gilberthorpe, Emma, and Dinah Rajak. 2017. “The Anthropology of Extraction: Critical Persepectives on the Resource Curse.” Journal of Development Studies 53 (2):186–204. Government of Indonesia. 2011. Masterplan: Acceleration and Expansion of Indonesia’s Economic Development 2011–2025. Jakarta: Coordinating Ministry for Economic Affairs. Haug, Michaela, Rössler, Martin, and Anna-Teresa Grumblies, eds., 2017. “Introduction. Contesting and Reformulating Center Periphery relations in Indonesia.” In Change and Continuity in Dayak Societies, edited by Cathrin Arenz, Michaela Haug, Stefan Seitz, and Oliver Venz, 1–25. Berlin: Springer. Li, Murray Tania. 1999. “Marginality, Power, and Production: Analysing Upland Transformations.” In Transforming the Indonesian Uplands. Marginality, Power and Production, edited by Tania Murray Li, 1–46. Amsterdam: Harwood. Lucarelli, Bart. 2010. “The History and Future of Indonesia’s Coal Industry: Impact of Politics and Regulatory Framework on Industry. Structure and Performance”. PESD Working Paper 93. Stanford: Stanford University. Ministry of Energy and Mineral Resources (MEMR). 2018. Handbook of Energy and Economic Statistics of Indonesia. https://www.esdm.go.id/assets/media/content/­contenthandbook-of-energy-and-economic-statistics-of-indonesia.pdf. Accessed May 28, 2019.

136  Kristina Großmann Nevins, Joseph, and Nancy Lee Peluso, Eds., 2008. Taking Southeast Asia to Market. Commodities, Nature, and People in the Neoliberal Age. Ithaca: Cornell University Press. Price Waterhouse Coopers Indonesia. 2013. mineIndonesia 2013. 11th Annual Review of Trends in the Indonesian Mining Industry. Jakarta: Price Waterhouse Coopers Indonesia. Scott, James. 1972. “Patron-Client Politics and Political Change in Southeast Asia.” American Political Science Review, 66 (1): 91–113. Varkkey, Helena. 2016. The Haze Problem in Southeast Asia. Palm Oil and Patronage. London: Routledge. World Coal Association. 2014. Coal Facts 2014. London: World Coal Association. https:// www.worldcoal.org/search/node/2014. Accessed April 1, 2020.

Part III

Rent and Societies Legacies, Trajectories, and Inertias

7 Analyzing Rentier Societies The Case of Venezuela Stefan Peters

Introduction The Bolivarian Revolution in Venezuela has undoubtedly failed. According to official data from the Venezuelan central bank, the country’s gross domestic product (GDP) fell by 55 percent between the end of 2014 and the end of 2018 (Banco Central de Venezuela 2020), presently reaching the level of 70 years ago. There is hardly any manufacturing, and in light of rampant inflation, many everyday goods are now traded only in foreign currency. The social situation is also bleak, with real monthly wages typically having collapsed to low double-digit dollar sums (van Roekel and de Theije 2020; Bull, Rosales, and Sutherland 2022, 17). Poverty rates are reaching record levels, and according to the International Organization for Migration, as of December 2021, more than six million1 mostly young and increasingly impoverished Venezuelans have emigrated to neighboring South American countries in search of a livelihood for themselves and their families. In short, after seven years of severe crisis, Venezuela is among the most impoverished South American countries. A recent modest recovery does not change the general picture. The analysis of the failure of the Bolivarian Revolution generally focuses on the political regime, political decisions of the government, corruption (López Maya 2018), or blames socialism for the Venezuelan debacle. This chapter argues that these positions fail to provide an appropriate analysis, as they omit the importance of oil for understanding Venezuela. Therefore, this chapter argues that rents emerging from oil exports strongly influence the country’s economy, social structures, socio-culture, and political system. To this end, the chapter takes up recent references for the need to further develop research in the field of rentier theory (Harvey 2010, 183) and opposes the focus on the dichotomy of resource curse vs. resource blessing seen in mainstream debates surrounding natural resources, rents, and development (van der Ploeg 2011; Ross 2015). Rather, this chapter introduces a new analytical framework for the study of rentier societies that goes beyond current theoretical contributions to rentier economies or rentier states by including a critical consideration of social factors and rentier habitus. Based on this framework, the empirical part of this chapter will provide an in-depth study of Venezuela, including a historical perspective on the ongoing structures of rent distribution in Venezuela. The chapter DOI: 10.4324/9781003303268-11

140  Stefan Peters aims to highlight the logic of a rentier society, focusing particularly on rent distribution by the government and its consequences for the (re-)production of social formations and social inequalities. Thereby empirical evidence of a rentier society is offered to be used to further develop innovative approaches from rentier theory to the field of natural resources and development. This chapter is based on a literature study and includes official data from state institutions, including the Venezuelan central bank and the national statistical institute. However, official data are usually published with considerable delay or are not available. As a consequence, alternative data on the living standards of the population, published by the Catholic University Andrés Bello have also been taken into account.2 Generally speaking, the quality of quantitative data on Venezuela is rather poor. A situation that has worsened in recent years. Therefore, information has also been interpreted based on in-depth knowledge of the case and has been confirmed by experts from Venezuela. Furthermore, the chapter is also based on extensive fieldwork in Venezuela taken place over various trips between 2012 and 2021. Fieldwork included expert interviews, observations, and data collection in Caracas and the oil regions of the country. Strong political polarization requires special attention when interpreting these data (Lander 2014, 10). However, in Venezuela, security concerns must be considered (García Pinzón and Mantilla 2021). For instance, fieldwork in the mining belt (Arco Minero del Orínoco) or at the Colombian border has not been possible, and access to stakeholders from the government has become increasingly difficult in recent years. The same is true for the military (Jácome 2018). Moreover, information on business deals between the government and private actors and on the role of the military is often opaque (Bull, Rosales, and Sutherland 2022) with some observers even characterizing Venezuela as a “mafia state” (Watters 2021, 6).

From Rentier Economies and Rentier States toward the Analysis of Rentier Societies Economically, many countries pursuing extractivism depend to a considerable degree on external rents. These can be defined as “payment that recognizes mere ownership” (Sørensen, 1996, 1337; see for discussion of rent income also VergaraCamus and Kay 2017 and the contribution of Elsenhans to this volume). Rent income is not based on work or investment by the recipient and is therefore at the recipient’s free disposal. The rentier character releases its recipient from the capitalist structural constraint of the valorization of value, as well as the continuous reinvestment of profits. Rather, the nature of rent income enables the rentier to decide how to use such income according to social and/or political criteria rather than economic imperatives. The focus of debates on natural resources and development has been mostly centered on the economic and political consequences of natural resource dependence or natural resource wealth. Based on neoclassical theoretical foundations, scholars working on rentier economies have analyzed the impact of the dependence on rent income for developmental performance in terms of growth, productivity, inequalities, corruption, democracy, or political violence (van der Ploeg

Analyzing Rentier Societies  141 2011; Ross 2015). Latin American contributions also highlight the detrimental effects of natural resources on development by emphasizing the tendency toward a deterioration of the terms of trade or the dependency on the world market (Alarcón 2022). Focusing on the political regime, institutionalist approaches introduced the concept of the rentier state in order to better understand the particularities of the political regime in natural-resource-dependent countries (Mahdavy 1970; Beblawi and Luciani 1987). Although these approaches have a lot of differences, they all take Western categories as the benchmark for the developmental performance of natural resourcedependent countries within the Global South. This is highly problematic, as it only allows one to see these countries as deviations or deformations of Western models. As a consequence, there are only limited efforts to understand the particularities of these countries on their own accord. This is not only academically unsatisfactory, but also repeatedly leads to ill-fitting policy recommendations – strengthening the institutional framework, fighting corruption, rent-seeking, clientelism and nepotism, or promoting efficiency and transparency – which garner the sympathy of the international community but, at the same time, usually prove unhelpful for actual political practice.3 A more sophisticated approach, understanding that rent income enables the creation of a state class that controls rent distribution (Elsenhans 1981), provides anthropological insights into the particularities of social formations based on rent appropriation and distribution (Coronil 1997; Behrends, Reyna, and Schlee 2011), as well as the political ecology of natural resource exploitation (Watts 2004). In the context of the recent commodity boom (2003–13/14), a new theoretical contribution from Latin America has shed further light on natural resource exploitation and social-environmental conflicts as a development model (Gudynas 2009; Svampa 2019). However, with few exceptions (Burchardt and Dietz 2014; Peters 2016; Vergara-Camus and Kay 2017; Alarcón 2022), these contributions do not take into consideration the rentier characteristics of the (neo-)extractivist development model. The current chapter is based on recent discussions on Latin American (neo-) extractivism and introduces the concept of rentier societies (Peters 2019). Rentier societies are social formations that have been shaped by substantial rent inflows for several decades. The assumption here is that rent inflows permeate the economy, society, and politics, and contribute to the formation of particular social configurations and state-nature relations that cannot be adequately captured by conventional categories based on the Western model. This implies, first, recognizing that economic, social, and political dynamics in rentier societies are not necessarily better or worse, but different from those in the Global North. This difference is rooted in the peculiarities of rent income. Capitalist logics are at least partially suspended in rentier societies (Coronil 2008). Rents empower political and/or social considerations rather than economic efficiency. Consequently, potentially risky investments to increase economic productivity and efficiency can be avoided, as economic success depends foremost on maintaining good relations with the government. After all, the material basis of rentier societies is not based on the valorization of value, but on the “export of nature” (Coronil 1997). Second, the rentier society approach aims to counter the apolitical focus of development

142  Stefan Peters economics research on the so-called curse or blessing of natural resource orientation, rather focusing on the winners and losers of the process of appropriation and distribution of rent revenues. Third, the social and sociocultural characteristics of rentier societies must be considered without falling into moral categories. There is often a pejorative characterization of rentier mentality or rentier culture, described as a “break in the work-reward causation” (Beblawi 1987, 52) or as a “culture of easy life, consumerism, and therefore self-centeredness” (Hafez 2009, 466). In part, these phenomena can be demonstrated based on survey data (for the Arabian Peninsula: Hertog 2020). When classifying these observations and findings, however, it is important not to fall into the temptation of moralizing political and economic contexts. Rather, the challenge is precisely to understand the consequences of long-standing rent dependency for the emergence of a particularized social formation and the habitual imprints that are deeply inscribed in the “mental infrastructures” (Welzer 2011) of rentier societies and produce quasi-naturalized claims to participation in rent distribution on the part of the population. This is linked to the naturalization of environmental affectations and the legitimation of environmental damages in the “sacrifice zones” (Shade 2015; Barrionuevo and Peters 2019). Based on these preliminary considerations, the following section analyzes the political economy of Venezuela with a focus on the Bolivarian Revolution.

Venezuela in the 20th Century: The Rise and Fall of a Rentier Society At the beginning of the 20th century, Venezuela was a very poor Latin American country with hardly any economic importance. Only with the beginning of oil exports in the 1920s, did Venezuela become a booming rentier society. In 1926, oil revenues exceeded those of the traditional exports of coffee and cocoa for the first time, and by 1928, Venezuela had become the world’s second-largest oil exporter (Tinker Salas 2015, 62). Initially, it was primarily the elites who benefited directly or indirectly from oil revenues. Social development or economic diversification was not part of the political agenda. This changed in July 1936 when the young intellectual Arturo Uslar Prieti published a short article entitled “Sembrar el petróleo” (Sowing the Oil), setting the tone for further debates. He called for using oil revenues to promote diversification and thus for reducing dependence on the finite fossil fuel. The novel formula behind “sembrar el petróleo” was widely discussed and soon became part of the political agenda (Baptista and Mommer 1987; Quintero 2014). Initially, the focus was primarily on infrastructure projects, but soon state efforts were extended to the expansion of sociopolitical services and the development of industrial capacities (Sonntag and de la Cruz 1981). Oil exports thus promoted economic growth, accelerated urbanization, fostered social mobility, and fueled notable social development achievements. Moreover, in 1958, these rapid advances in key socioeconomic development indicators were combined with a political transition to a liberal-representative democracy, solidifying Venezuela’s exceptional status as a “privileged third-world nation” (Ellner and Salas 2007, 3).

Analyzing Rentier Societies  143 Oil revenues and their distribution by the state were the keys to Venezuela’s rise. The state further expanded its financial leeway following the nationalization of the oil industry in 1976. Combined with the sharp rise in oil prices in the 1970s, government revenue grew significantly, and there seemed to be no limitations on Venezuela’s development anymore. The state became a seemingly all-powerful developmental state with almost ‘magical’ powers (Coronil 1997). Its central goal consisted in the promotion of the country’s economic development. Indeed, thanks to the massive transfer of rent to industry, cheap loans, and state protection, manufacturing increased during the boom (di John 2009). However, the overvaluation of the national currency and the lack of productivity increases hampered efforts toward self-sustaining economic growth. As a result, industry continued to be dependent on the siphoning of rents from the oil sector (Boeckh 1988, 640). The selection criteria for getting access to state support were political and/or social rather than economic in nature, which had a correspondingly negative impact on economic efficiency. However, this is not the result of political mismanagement, as the oil rents allowed Venezuela to ignore economic efficiency. As a consequence, the state managed to guarantee high profits for businesses without economic risks. Examples can be seen in the communication and construction sectors. Moreover, the state’s modernization project also offered attractive business opportunities for industrial companies. Generous subsidies from the government reduced economic risks to a minimum and tied the industrial sector to the government. Consequently, economic success did not depend on economic criteria but was primarily achieved through access to the state and respective bargaining power as a basis for securing participation in the distribution of rents. Promoting production was often at the same time a developmental necessity and legitimization for the siphoning of rent revenues. This is a key element in understanding the political economy of Venezuela’s rentier society (Coronil 2008; Peters 2019). Nevertheless, the focus on rent distribution is not restricted to entrepreneurs but permeates the entire Venezuelan society. The capitalist structural conflict between labor and capital is disrupted in Venezuela and other rentier societies. Yet, a crucial aspect of our understanding of rentier societies consists of focusing on the disputes over the control of rent and access to the channels of its distribution. In Venezuela, the state quite successfully managed to appropriate large parts of the oil rent. Thus, the Venezuelan state is of particular importance for the distribution of rents (España 1989). The system of rent distribution stabilized the democratic order of the IV Republic (1958–99), offering many Venezuelans upward social mobility and mitigating potential conflicts. Even critical voices agreed that during the boom, this arrangement allowed for (almost) the entire population of the country to benefit from oil wealth (Lacabana 2006, 326). Still, the state is by no means a neutral arbiter that administers the allocation of funds solely according to technical and transparent criteria. Rather, the example of 20th-century Venezuela provides rich empirical evidence of how rentier states influence social structures through the unequal distribution of rents. In other words, rent distribution is an eminently political act, and its analysis is of crucial importance to understanding Venezuelan rentier society. Oil rents provide the state with opportunities to fuel economic and social development without demanding

144  Stefan Peters the population’s own resources for this purpose. According to Diego Bautista Urbaneja (cited in Mommer 1994, 156), oil rents made it possible “to privilege everyone without disadvantaging anyone.” Oil revenues put the state in the comfortable position “to distribute substantial wealth to the have-nots without taxing the haves” (Myers and Mertz, 1986, 441). In other words, oil rents made it possible to harmonize important social development gains, while at the same time maintaining the privileges of the military, trade unions, political parties, and especially the economic and political elites. The mechanisms of (unequal) rent distribution are extremely diverse and include direct and visible measures but also more obscured and indirect paths. The most visible way of rent distribution is public spending. Under the government of Carlos Andrés Pérez, public spending skyrocketed from 20.3 percent of GDP in 1973 to 37.9 percent in the following year (Mandato 1998, 154). However, this increase was also accompanied by a growing lack of transparency in the allocation of funds and opened and expanded old and new channels of rent distribution with fresh petrodollars. Public spending included subsidies for basic foodstuffs, medicines, water, electricity, and fuels, high government spending in the social sector (e.g., health, education, housing), the funding of various economic programs, and the expansion of public employment. On the other hand, the indirect mechanisms of rent distribution are less obvious but remain highly relevant. These include the notorious under-taxation of income, wealth, and capital. This extreme under-taxation included a hidden but very effective form of rent distribution. Although the boom turned the Venezuelan state into a powerful fiscal giant, the basis of its potency was the siphoning of oil rents and not the taxation of the population (Bird 1992, 28; García et al. 2000; Baptista 2010, 179–80). Although tax rates in Venezuela were not significantly lower than the Latin American average, the country’s tax revenues were only a fraction of those of many other Latin American countries. This was a consequence of a large number of tax breaks and other opportunities to evade taxation without penalty. As a consequence, even former president Jaime Lusinchi had to admit that in Venezuela “only the stupid pay taxes” (cited in Karl 1997, 172). A look at the data shows that the message underlying this statement was not an exaggeration. Between 1980 and 1992, the amount of taxes paid by individuals was 0.8 percent of income received, while nonoil corporations paid an average of only 2.4 percent (Baptista 2010, 179). Another mechanism for rent distribution is related to the currency. Until 1983, the national currency had remained strongly overvalued. The currency gained 20 percent in value against the US dollar between 1930 and 1980, while most other world currencies gradually depreciated. This was an expression of the political will to secure the acceptance of the rentier economic development model by continuously overvaluing the bolívar (Baptista 2010). The overvaluation allowed the consumption of international goods and supported the desire to travel among the Venezuelan middle and upper classes witnessed in their notorious shopping trips to Miami. Finally, rent favored direct corruption (Myers and Mertz, 1986, 441; España 1989, 105) that ensured that the lion’s share of oil revenues was distributed to the country’s growing middle class and, even more so, to upper-class elites (Karl 1997, 138–40; Zelik 2011, 452).

Analyzing Rentier Societies  145 The different distribution channels effectively ensured that the entire population could feel the impact of oil wealth in everyday life, e.g., through cheap basic foodstuffs, low transport costs, and easier access to imported consumer goods. At the same time, however, the various social groups profited from the distribution of rents to very different extents with a strong bias toward urban areas and the middle and upper strata. Until the early 1980s, the middle and upper classes were able to benefit fully from the amenities of living in a prosperous rentier society. Subsidies, price controls, and an overvalued currency guaranteed high purchasing power and the opportunity to consume imported goods and luxury items, while the Gran Mariscal de Ayacuhco state scholarship program sent 3,000 young adults annually, primarily from the middle and upper classes, to study or earn doctorates abroad (Paulus 2013, 160). Additionally, the middle and upper classes in particular benefited from extremely favorable interest rates to purchase real estate that quickly gained in value and proved to be an attractive form of investment during the crisis following the currency devaluation. Further, the system of the Oficina del Régimen de Cambios Diferenciales granted businesses access to cheap foreign currency for their imports. This mechanism quickly proved to be an opportunity for quick enrichment via personal relationships (Pérez Perdomo 1990, 561). In the context of high oil prices, the possibilities for siphoning rent revenues were almost inexhaustible, but often seeped into the swamp of corruption and with wealth often transferred to foreign accounts for the self-enrichment of those in power (Karl 1997; Buxton 2019). Formally employed workers also managed to get a share of the oil rent due to huge increases in their wages, participation in housing schemes, and access to the social system. Many Venezuelan workers therefore often considered themselves middle class (Baptista 2006). Moreover, favorable credit conditions enabled many workers to buy cars, and when stopping at the gas station, the highly subsidized fuel reminded them of the advantages of living in an oil-rich country. Furthermore, the creation of a large number of jobs with above-average pay in the civil service helped to confirm hopes of social upward mobility. Rent distribution also aimed at securing the loyalty of the military and bureaucrats, as well as maintaining the electoral base, often favoring entrepreneurs with political ties (Myers and Mertz 1986; Rey 1991, 565). Yet, there were limits to the extent of the rent distribution’s reach. In the countryside, oil wealth hardly improved the livelihoods of poor agricultural workers who suffered from a process of “relative impoverishment” (Valecillos Toro 2007, 312–13). Those living in the rapidly growing urban poor districts received at most a few drops of the oil wealth. The lower income strata experienced the expansion of consumption thanks to the overvaluation of the bolivar, as well as the benefits from subsidies, price controls, and the expansion of the (social) infrastructure, but this expansion remained modest. The government resorted to a variety of policy instruments, often expressing a high degree of creativity, to allow the low-skilled urban population to receive at least a small part of the country’s wealth. One example is seen in legislation requiring businesses in all commercial, industrial, or service buildings to hire staff to operate the elevator and attendants for the toilets (Gallegos 2016, 73). However, these measures accounted for at most a small portion of the oil revenues.

146  Stefan Peters All-in-all, most Venezuelans were better off, while, at the same time, the system of rent distribution (re)produced existing structures of inequality (Chossudovsky 1977). The boom period saw the emergence of a collective understanding and assertion of the right to material improvements, grounded upon the underlying claim to a share of the rent income (Bautista Urbaneja 2013). Maintaining this collective imaginaire was only possible in a context of sustained high rent income, as it implied an acceptance of a high state budget and corresponding inefficiencies (Rey 1991). At the beginning of the 1980s, these conditions were no longer a given, and the rentier model quickly fell into a profound crisis. The strategy of containing social antagonisms through rent distribution reached its limits. The Venezuelan government’s reaction to the ensuing crisis was a turnaround in economic policy: The state was to be modernized and oriented toward a market economy. The crisis and the withdrawal of the state caused a massive rise in poverty, unemployment, and social inequalities. The government’s neoliberal measures led to a popular uprising (caracazo) in February 1989, which was brutally repressed, claiming at least 400 lives. The caracazo buried the myth of Venezuela’s exceptional position as a prosperous and comparatively harmonious democracy in Latin America (Ellner and Salas 2007). Venezuela’s political system was further shaken by corruption scandals. In this context, Hugo Chávez, a failed ex-putschist and political outsider, presented himself as a real alternative to the political establishment with a program that combined social development with nationalist politics. He won the 1998 presidential election on the promise of fundamental change and convened a constituent assembly shortly after taking office. Venezuela embarked on the path of the Bolivarian Revolution and was soon under the banner of “21st-century socialism.”

Continuity in Change: On the Political Economy of the Bolivarian Revolution in Venezuela Hugo Chávez’s inauguration marked a critical juncture in Venezuelan history and the beginning of the much-discussed left turn in Latin America. Chávez’s government program focused on rejecting neoliberal policy prescriptions, strengthening the role of the state in the economy, addressing the social question, fighting corruption, and promoting the diversification of the Venezuelan economy. These ambitious development goals were to be funded through oil exports. The Chavista transformation project was thus based on a central continuity with the country’s past: rent distribution. At the beginning of Chávez’s presidency (1999–2013), he focused on oil. The key goals consisted in regaining the state’s control over the oil company PdVSA and reactivating OPEC in order to increase the price of oil on the world market. This political turnaround meant that the winners of the state-led rent distribution changed. This resulted in fierce opposition, including a US-backed coup attempt. Chávez’s government won the power struggle and thus laid the basis for the Chavista transformation project. The state now had direct access to the oil revenues of the state-owned corporation PdVSA, thereby managing to appropriate a much larger part of the oil rent, and the government was soon able to bypass troublesome checks and balances in the use of the ever-growing oil income (Vera 2015).

Analyzing Rentier Societies  147 The commodity boom led to a brief ‘Golden Age of Chavism’ between 2003 and 2013/14, with high growth rates and significant social improvements. Chávez’s government used the unprecedented access to rents to finance ambitious reforms. The state once again became developmental and increased its role in the economy. Despite a high degree of discontinuity in economic policy, the Bolivarian Revolution also aimed – at least in official speeches – to diversify Venezuela’s economic and export structure. In 2006, during his Sunday television program Aló Presidente, Chávez offered to viewers his vision of successful diversification and the reduction of import dependence: You will see that every day we will repeat more often: “Made in Venezuela”. Yes! Tractors made in Venezuela, in the future, computers made in Venezuela, vehicles made in Venezuela, etc. Weapons made in Venezuela! This is the process of liberation of the fatherland, liberation by means of technology. (quoted by Ávalo and Ramón, 2014, 101) However, this announcement never materialized. Like its predecessors, Chavism too failed in reducing the country’s oil dependency. In practice, there was hardly any serious promotion of industrialization. The support for economic projects in the communal economic system brought as little success as the implementation and broad-based financing of land reform (Álvarez 2013; Gutiérrez 2015). The reasons for this are to be found primarily in the rentier characteristics of the Venezuelan economy. The oil boom led to considerable growth rates, mostly benefiting trade, service, and construction sectors. Agriculture and manufacturing, on the other hand, suffered from the overvaluation of the currency, which was maintained by the government due to political criteria, as it was allowed to satiate the appetite for imported consumer goods (Peters 2019, 311). As a consequence, the Venezuelan economy and the population’s consumption remained dependent on rents. When world market prices for oil collapsed, this proved to be the central Achilles’ heel of the Bolivarian project. The reasons for the failed diversification certainly do not rest on a lack of resources. This is particularly evident with regard to the hoped-for flagship of Bolivarian economic policy: the communal economic system. “[T]here were resources to promote development, [but, S.P.] it wasn’t possible to use them appropriately in the country!”4 A social worker from the gobernación of Anzoátegui soberly summarizes her experience with the municipal economy, stating that there is “little interest in the development of production” and often access to a portion of rent income is the main reason for engaging in the communal economy.5 In fact, the government supported the communal economic system with extensive resources, providing not only technical advice, education, and training programs but also loans at favorable interest rates, which often appeared as quasi-gifts given the long maturities with high inflation rates and few checks on repayments (Paulus 2013, 170). However, the results were very disappointing, and the communal economic system failed to meaningfully contribute to any reduction in oil dependency. Economist Víctor Álvarez (2013, 284) even called it an “indicator of the failure of Bolivarian socialism.”

148  Stefan Peters Nevertheless, the lack of economic upgrading has not been limited solely to the communal economic system. The small manufacturing sector as well as stateowned enterprises continue to rely on alimentation through rent distribution by the state: Private companies were nationalized. […] Military officers were often put in charge of the companies. There was no investment in technological renewal. […] The companies are in a very, very poor technological condition. And on top of that, there are macroeconomic conditions. […] Thus, the majority of nationalized companies […] operate at a loss for a variety of reasons and survive thanks to subsidies from oil.6 During the boom, the state was able to absorb economic losses, cushioned by the high price of oil on the world market. During the crisis, however, they turned into a heavy fiscal burden. The private sector has not been successful in strengthening productivity either. In part this is due to the limited use of costly and long-term technological innovations by companies. Multiple opportunities to generate high short-term returns through access to rent income have proved far more attractive than the arduous and, given frequent changes in framework conditions, hardly calculable process of building technologically sophisticated production facilities (Gutiérrez 2015; Amitrano 2017). As a consequence, the productivity performance is weak. Since the early 1980s, productivity in the Venezuelan economy has stagnated beyond the petroleum sector (Aravena and Fuentes 2013). This situation has recently worsened. According to estimates of the International Labor Organization, output per hour worked has plummeted in Venezuela since around 2013 and is now well below comparative levels from the beginning of the 21st century.7 In part, this is a direct consequence of the country’s severe economic crisis. When allocating foreign currency, the government increasingly prioritizes the import of food and consumer goods so that urgently needed inputs for production are not available (Aravena and Fuentes 2013, 12).

The Distribution of Rent during the Bolivarian Revolution In order to achieve a proper understanding of the Venezuelan rentier society during the Bolivarian Revolution, an analysis of rent distribution is crucial. These schemes of rent redistribution comprise the manipulation of exchange rates and preferential access to US dollars, as well as social programs. In 2003, after devaluation, the government opted for a fixed exchange rate. In the years that followed, the government repeatedly devalued the national currency. However, according to calculations by Dachevsky and Kornblihtt (2017, 86), the bolívar always remained overvalued by at least 200 percent. In 2010, overvaluation even reached 459 percent, and this number subsequently rose further during the crisis to over 1,500 percent in 2015. As a consequence of the overvaluation, imports became cheaper, while exports lost competitiveness. Overvaluation also meant cheaper access to intermediate products and capital goods for industry and agriculture. While the latter had manageable effects on the export sector, given the

Analyzing Rentier Societies  149 overall limited competitiveness and the domestic market-oriented model of endogenous development, the massive expansion of imports contradicted the government’s diversification strategy. It was almost always significantly cheaper to import than to produce (Vera 2017, 11–12). As a result, hopes for industrial development were not fulfilled. Eventually, the industrial sector, after initially positive relations with the Chávez government, turned against it in the context of the political power struggle of 2002/03. Moreover, the overvalued currency in combination with price controls on basic foodstuffs and consumer goods for everyday use opened opportunities for smuggling. Even the Venezuelan government cites staggering figures for the extent of illegal border trafficking. The then-director of the oil company PdVSA, Eulogio del Pino, estimated daily fuel smuggling at 100,000 barrels in September 2014, while the then-minister of petroleum, Asdrúbal Chávez, put the scale of smuggling at $2 billion that same year. Non-official estimates even suggest that smuggling during the boom reached $3.6 billion per year at the Venezuelan-Colombian border alone, with 40 percent of Venezuelan consumer goods entering Colombia through illegal channels (Pabón León et al. 2016). These dimensions, of course, did not go unnoticed by the Venezuelan government, and often state agencies were even involved.8 Additionally, the overvaluation of the currency allowed for the “democratization of consumption” (Carosio 2015, 229). During the peak period between 2004 and 2008, consumption in Venezuela increased by more than 15 percent per year (Carosio 2015, 230). Overvaluation thus filled the shopping bags of the Venezuelan population, but it has not meaningfully leveled inequalities. In contrast, it rather generated an elevator effect whereby the entire society experienced an expansion of consumption without a reduction in absolute inequalities (see also Burchardt and Dietz 2014). An example of this is the expansion of motorization. The exponential increase in the number of small motorcycles mostly for the poorer strata was countered by the significant expansion of the fleet of middle-class cars and the increase in the number of luxury cars (e.g., high-priced Hummer SUVs) on the streets of Caracas and other major cities in the country (Carosio 2015, 232–33). Similar developments can be observed in the food and beverage sector. Before the crisis, the population’s daily calorie consumption had increased significantly, while at the same time, the import of high-priced whiskey as a means of indulgence and distinction for the middle and upper classes also skyrocketed (Zeuske 2008, 539). However, the population did not always benefit from the expansion of consumption. The oil boom and the Bolivarian Revolution were made even sweeter for the middle and upper classes by granting them limited access to preferential dollars for online purchases or for foreign travel. Given the divergence between official and informal exchange rates, access to dollars increasingly took on the character of de facto gifts. However, these gifts were not distributed evenly. They primarily favored the middle and upper classes, especially for foreign travel, as the amount varied according to the destination. Moreover, allocating preferential dollars became a cornerstone of discretionary rent distribution, which soon grew into a “focus of corruption” of considerable proportions (Giordani 2014). Cheap dollars were used to support entrepreneurs

150  Stefan Peters close to the government, as well as broad sections of the military. The system of assigning preferential dollars thus contributed significantly to the emergence of the so-called boliburguesía9 (Peters 2019, 333). Even traditional Venezuelan business elites benefited from the distribution of rents. Economic success was “very much based on relationships”10 with the government or relevant authorities and allowed for high profit margins. The winners of socialism in the 21st century, therefore, came to include businesses with political ties and those sectors of the traditional elite that came to terms with Chavism (Ellner 2019). One example that demonstrates the importance of having good contacts within the state is found in the company Alimentación Balanceada (Alibal), which focuses on the production of food and fodder. During the first nine months of 2014, Alibal received nearly $250 million at highly discounted rates from the state’s foreign trade authority (CENCOEX 2014). Quite surprisingly, during the boom period, international airlines, pharmaceutical, and automotive companies also found favorable business conditions in 21st-century socialism (see Table 7.1). Access to cheap dollars made it possible not only to increase sales but also to use a variety of mechanisms for the private appropriation of rents. This allowed many companies to achieve unusually high profit margins. This is clear, for example, in the pharmaceutical industry. While the cost of importing pharmaceutical products in 2012 was eight times higher than in 2003, the volume of imported products shrank to a quarter. These figures represent strong indications that the multiple opportunities for fraud through the foreign exchange allocation system were vigorously exploited. International airlines benefited from the ability to offer flights to Venezuelans at low prices. In the midst of the boom, journalist Tim Padgett (2007) reported in Time magazine on the consequences of Venezuelans’ desire to travel: Table 7.1  Government Allocation of Foreign Exchange to Selected Companies between 2004 and 2012 (Millions of US Dollars) Branch

Company

Allocation of Foreign Currency 2004–12

Airline Airline Airline Airline Airline Automotive Automotive Automotive Automotive Automotive Pharmaceutics Pharmaceutics Pharmaceutics Pharmaceutics Pharmaceutics Pharmaceutics

American Airlines Air France Iberia Deutsche Lufthansa Alitalia General Motors Venezuela Toyota de Venezuela Ford Motor de Venezuela Chrysler de Venezuela MMC Automotriz Procter & Gamble Venezuela Abbott Laboratories Productos Roche Merck Novartis de Venezuela Bayer

1.863 743 592 428 313 5.910 2.959 2.622 1.974 1.664 1.466 1.391 1.375 1.357 1.021 923_S

Source: Own elaboration based on CADIVI (2013).

Analyzing Rentier Societies  151 Venezuelans are flying around the world like capitalist nouveaux riches as a result of all that oil wealth pouring in, filling the seats on almost every flight for the foreseeable future to and from Caracas from destinations ranging from Miami to Madrid. This did not change until the onset of the crisis. Conditions for multinationals then deteriorated abruptly, with many leaving the country, while some pointed their claims toward the government (Nagel 2014). The attractive business conditions for international corporations in the midst of the boom context were not seriously dampened by the legal restrictions on the repatriation of profits. While the legal restrictions led many companies to invest part of their profits in acquiring real estate in the capital city of Caracas (Gallegos 2016, 115), at the same time, they provoked a massive increase in capital flight. Based on central bank data, economist Manuel Sutherland calculates that between 2003 and 2013, the country lost approximately $270 billion to capital flight, which would correspond to an annual average of nearly 9.5 percent of GDP.11 Further, nationalizations were often not the socialist specter they are commonly made out to be. Companies were often compensated by the state with large sums of money, or the state took over technologically obsolete as well as low-productivity and low-profit enterprises (Álvarez 2013, 285). While some business elites lost their former economic privileges, this followed primarily political criteria and did not result in a fundamental change of course. When the system of differentiated exchange rates was abolished and the prohibition of the free circulation of foreign currencies was stopped, new ways of benefiting some social groups based on opaque contracts and administrative favors were introduced. Bull et al. (2022, 21) recently highlighted a continuity and characteristic trait of the Venezuelan rentier society: “Who does not have connection to the power elites starts with a commercial disadvantage.”

Social Reforms and the Realignment of State the Class in Venezuela The Bolivarian Revolution has always received special attention for its social aspects. Indeed, considerable social development successes were achieved during the boom phase. Poverty rates drastically decreased, income inequality as measured by the Gini coefficient declined, and access to health and education increased (Peters 2013; España 2015). Democratic participation for the population initially also expanded (Azzellini 2010). The basis of these successes was the modification of the distribution of rents, distributing a substantial share to the poor population with the establishment of novel channels. This included subsidies for basic foodstuffs, transportation, and projects in the communal economy; a considerable gain in purchasing power from the overvalued currency; an expansive social policy through the so-called Social Missions; and the significant expansion of public employment but through yet existing channels and new social policy measures such as the Social Missions (Peters 2019, 339). These measures improved the living conditions of historically disadvantaged population groups in particular (Carosio 2015).

152  Stefan Peters However, these measures have not been based on supposedly neutral technical criteria, nor have they aimed to make the most efficient use of funds. On the contrary, due to their low institutionalization and non-transparent use of funds, they favor spending patterns according to political and/or social criteria (Hawkins 2010, 230). At the same time, the Social Missions have proven to be a successful mechanism for empowering population groups that previously had hardly benefited from social development. This was made possible due to the unbureaucratic use of funds, bypassing the blocking potential of established institutions. The previously excluded population felt that the government, embodied in the person of President Chávez, was addressing their concerns for the first time: “He took care of them, he gave them benefits, resources, missions, and finally even housing.”12 The success of the Social Missions cannot be measured primarily in quantifiable terms, as it also includes the political appreciation and social recognition of social groups that had previously been largely neglected by politicians: “People rate the missions very positively, people feel included.”13 Historically marginalized groups thereby received political recognition. Particularly during the boom, the omnipresent slogan in everyday life that Venezuela or PdVSA “now belongs to everyone [ahora es de todos]” had a high degree of everyday plausibility (Strønen 2017, 253– 55). This contributed decisively to the establishment of a close affective relationship between the president and broad segments of the affected population and explains the high emotional attachment to Chávez. Another key mechanism for distributing rents, similar to other rentier societies (Ross 2012, 30), has traditionally been the creation of public employment (España 2015, 82). In this regard, former minister Víctor Álvarez notes that “[h]ere the jobs are created by the state, by the ministries, by the federal states, by the municipalities.”14 This statement is also clearly reflected in the figures: the number of state employees in Venezuela almost doubled between 2002 and 2015, and the relative share of the workforce also increased from 14 to more than 20 percent during the same period (Peters 2019, 358). Venezuela exhibits the highest proportion of state employees in the workforce in the Latin America context, apart from Cuba. Moreover, state employees are paid better on average than in the private sector and enjoy certain other privileges (Gasparini et al. 2015). The increase in the number of state employees followed the already well-documented clientelistic practices and created a large number of so-called empleados de pasillo with no identifiable area of work.15 This practice contributed to reducing unemployment and securing existing jobs (Ellner 2010, 87; De Luca et al. 2013, 163). Rents have also been used to finance subsidies for electricity and fuels. Gasoline and diesel, in particular, have traditionally been highly subsidized and are effectively given away for free (Peters 2017, 59). Still, in the middle of the crisis, Venezuela was by far the country with the lowest fuel costs worldwide and at the same time had the vehicle fleet with the highest average fuel consumption in Latin America (Mendoza 2014, 12). PdVSA supplies fuel free of charge and further pays gas stations a sum for services, as the rock-bottom prices set would make it impossible to maintain operations. Estimates by the International Monetary Fund for the period from 2011 to 2013 suggested that the cost of energy subsidies reached approximately 8.9 percent of Venezuela’s GDP annually, with fuel subsidies

Analyzing Rentier Societies  153 accounting for the lion’s share at 7.1 percent of GDP (di Bella et al. 2015, 10). For perspective, the Venezuelan state has always spent more money on fuel subsidies than education (Rentschler and Bazilian 2017, 896). The distribution effect of energy subsidies is highly regressive, and the subsidy practice is de facto a distribution of rent to the middle and upper classes and their energy-intensive lifestyles. Calculations by Rodríguez Sosa (2015, 222) conclude that the income transfer from fuel subsidies for the top income decile is more than 13 times the savings of the poorest decile in absolute terms.

The Role of the State Class While the poor and the (lower) middle class benefited from visible state spending in the social sector and, to a large extent, from the creation of jobs in an oversized public sector, a new Chavista segment of the Venezuelan state class emerged at higher hierarchical levels in the ministries and other authorities (Corrales 2015, 398). Especially during the oil boom, cronies of the Bolivarian Revolution enjoyed a variety of privileges, were able to take advantage of various opportunities for personal enrichment, and formed part of the so-called boliburguesía without necessarily having close ideological ties to Chavism (Jeannot 2010, 282; Bautista Urbaneja 2013, 399).16 In addition, there were old and new opportunities for legal and illegal enrichment through friendly contacts within the government. In this way, a new layer of businesses close to the government, often composed of high-ranked militaries, and members of the state class merged during the Bolivarian Revolution with the boliburguesía. In distributive terms, the Bolivarian Revolution thus remained much more moderate than its radical discourse suggested. Rent distribution thus, at best, contributed to considerable social development gains during the boom, without however seriously affecting the privileges of the middle and upper classes. This is complemented by the integration of part of the military into the state class. This happened, on the one hand, through the expansion of the higher ranks and appointments of high-ranking military officers to political posts, for example, at the head of ministries. Between 1999 and 2013, 1,614 active or former military officers took up positions in public administration (Strønen 2017, 23). In this way, many military officers became politically tied to the government and, in return, received a variety of exclusive opportunities for personal enrichment. On the other hand, a look at defense spending during the Bolivarian Revolution also confirms the government’s interest in maintaining close ties with the military (Jácome 2011). By expanding the force levels, salary increases, targeted promotion practices, but also beneficial credit terms for the purchase of housing or cars, parts of the military were tied to the government through the distribution of rent income (Garay Vera and Ramos 2016; Kuehn and Trinkunas 2017). The Bolivarian Revolution did not touch the traditional privileges of the middle and upper classes, such as massive under-taxation. According to official data from the Venezuelan tax authority, the tax burden has risen from 10.4 percent in 1998 to a peak of 11.9 percent of GDP in 2012 (Peters 2019, 363). Despite this slight increase, Venezuela remains a fiscal dwarf outside the oil sector. Put pointedly, “the only tax that really matters […] is levied on the petroleum economy”

154  Stefan Peters (Santeliz Granadillos 2017, 228). Venezuela remains well below average taxation levels even within Latin America, a region that is already characterized by a below-average tax burden by international standards (Gómez Sabaini and Morán 2017, 39). The Venezuelan tax policy continues not only with regard to the low tax burden but also with regard to the regressive tax structure. Although the share of direct taxes on personal and corporate income in the total tax burden rose from 20.3 to 22.0 percent between 1998 and 2016, the same applies to value-added tax, which increased from 53.8 to 57.1 percent in the same period. A closer look shows that other consumption taxes (especially on alcohol and tobacco) gained significant weight, while import taxes lost importance.17 However, it is not the tax structure alone that constitutes a regressive distributional effect: the tax rate for the highest incomes is 34 percent. This is above the regional average, and this rate is reached at a relatively low threshold (Jiménez and Podestá 2017). However, there are multiple opportunities to reduce the tax burden. Widespread and hardly prosecuted illegal practices of tax evasion seem to remain a central mechanism of rent distribution. The persistence of extreme under-taxation is proving to be an enormous financial burden for the government, especially in times of declining oil revenues. Against this backdrop, President Maduro announced in mid-2014 a “fiscal revolution.” However, the general record of tax policy initiatives since the beginning of Chávez’s term has been rather skeptical about a successful change in tax policy direction. While initiatives called for higher taxes on capital, high incomes, or luxury consumption, apart from the abolition of the match tax and the increase in tobacco and alcohol taxes, most of the reform proposals could not be successfully put into practice. As a result, the central structures of the tax system remained almost completely intact during the Bolivarian Revolution. As a consequence of the regressive distributional effect of the tax system, under-taxation, especially in the field of direct taxes, represents an important mechanism for the hidden rent distribution, primarily to the middle and upper classes, as well as to the country’s corporations (Hanni et al. 2017, 127).

Venezuela in Crisis This relativizes, but does not negate, the political change brought about by Chavism. In fact, the success of Chavism during the boom era and the continued support of a relevant minority of the Venezuelan population for Maduro’s government during the crisis can be explained in part by the fact that the Bolivarian Revolution partially integrated the socially disadvantaged groups for the first time into the arrangement of rent distribution and, moreover, gave them not only bread but also a voice and recognition (Strønen 2017; Peters 2019). However, rentier social structures were maintained. Popular support for the Chavista project was also based on the fact that Venezuelan socialism served the population’s propensity to consume by opting to subsidize the import of cheap consumer goods and including new groups in the consumption society (Carosio 2015). Whereas in other parts of Latin America natural resource exploitation was quite contested (Engels and Dietz 2017), this has not been the case in Venezuela. Despite huge socio-environmental repercussions, the extraction of natural resources continues to

Analyzing Rentier Societies  155 be approved by the overwhelming majority of the population. The Chavista government and the opposition agreed upon the importance of oil for the development of the country and there are no powerful stakeholders who seriously question the oil-based development model (Lander 2014). Beginning in 2013, economic and social development stagnated, leading the country to experience the worst economic crisis in its history and a process of massive impoverishment in the wake of the collapse of oil prices on the world market and later the significant decline in production volume. In this context, former social development successes vanished. Today, the social situation in the country can only be characterized as catastrophic in view of the lack of affordable basic foodstuffs, consumer goods, and medicines. In the current crisis, even the supply of gasoline can no longer be guaranteed (van Roekel and de Theije 2020). In the context of the COVID-19 crisis, while the government managed the pandemic public health threat surprisingly well, the social situation further worsened. The severe crisis is the result of the limits of the rentier society development model. The government coffers quickly dried up, while low reserves and the lack of alternative economic footholds hinder efforts to cushion the downturn. Despite the deep crisis, there are still winners within this model. On the one hand, they are seen among the circles of power, including the military and parts of the remaining traditional elite. On the other hand, winners are counted among those with the possibility of obtaining foreign currency, benefits from contracts with the state, or favors from the government (Bull, Rosales, and Sutherland 2022), while other rents like mining, drug trafficking, remittances, and cryptocurrencies gain importance in Venezuela (Rosales 2021).

Conclusion Venezuela is an exemplary case of an oil-based rentier society. While per capita rent income is comparatively low in comparison to extreme rentiers such as Kuwait or Qatar (Herb 2014), nevertheless, for about 100 years, the Venezuelan economy, society, and politics have been significantly shaped by the unilateral dependence on oil income. Yet, debates on the so-called resource curse vs. resource blessing seem ill-fitting for the country’s analysis. After all, both the developmental successes and the crises are each a consequence of the oil-based rentier society model of development. Rather than continuing to engage in normatively charged discussions of the pros and cons of the commodity-based development model, it seems more useful to focus scholarly attention toward a deeper understanding of the particularities of rentier society developments. A rentier analysis of Venezuela also provides new insights into the country’s political power struggle. Given the intractable rentier society logics, such a struggle revolves primarily around who decides the names and faces of the winners in the rent distribution. Both Maduro’s government and the Venezuelan opposition are united in their support for the continuation of the extractivist and rentier development model. In doing so, they can also rely on the support of broad segments of the population. Beyond small groups of intellectuals (Lander 2020), a fundamental questioning of the development model is not seriously discussed in

156  Stefan Peters Venezuelan society. Yet, this model has clearly reached its limits. Since rents from the export of natural resources have largely disappeared, many Venezuelans rely in everyday practice on remittances from family members to soften the social crisis, though these too are declining significantly in the wake of the COVID-19 crisis. In this regard, this chapter has pursued a threefold shift of the analytical focus. First, the widespread focus on measures of economic efficiency is misguided for the analysis of societies that can assign them a secondary role thanks to the continuous inflow of rent. Thus, the first task is to understand the peculiarities of rentier societies more precisely. Second, it is necessary to draw attention to the modes and socioeconomic consequences of the state’s rent distribution and, in this way, to pose the question of the winners and losers of the rent-based development model. Third, the analysis of rentier societies implies including the factors of legitimating the model based on quasi-naturalized social claims to participate in rent distribution and the delegitimization of socio-environmental concerns.

Notes 1 https://www.acnur.org/situacion-en-venezuela.html. 2 See: https://www.proyectoencovi.com/. 3 The explanation of such failures by development organizations as a lack of “ability and willingness to use natural resources sustainably and for the benefit of all” (BMZ 2010: 3), demonstrates a lack of in-depth understanding of the dynamics of natural resource-dependent countries from the Global South. 4 Interview with the director of the Office for Planning and Development of the Gobernación de Anzoátegui, November 24, 2015, in Barcelona. 5 Interview with social worker of the Gobernación de Anzoátegui, November 24, 2015, in Lechería. 6 Interview with Edgardo Lander, Venezuelan Sociologist, November 17, 2015, in Caracas. 7 https://ilostat.ilo.org/topics/labour-productivity/. 8 Interview with Francine Jácome, Venezuelan political scientist, Universidad Central de Venezuela, December 10, 2015, in Caracas. 9 “Boliburguesá” refers to a newly emerged bourgeoisie under the self-proclaimed “Bolivarian Revolution.” However, it must be stated that the term has important political connotations and misses the point that a lot of businesspeople tied to the government became so more for tactical than for political-ideological reasons and that the so-called boliburguesía was in itself often very divided (Ellner 2019). 10 Interview with representative of international business, November 13, 2015, in Caracas. 11 Interview with Manuel Sutherland, economist of the Centro de Investigación y Formación Obrera, November 13, 2015, in Caracas. 12 Interview with Nicmar Evans, Venezuelan politician, December 9, 2015. 13 Interview with Staff of Amnesty International Venezuela, October 7, 2009, in Caracas. 14 Interview with Víctor Álvarez, former minister and director of PdVSA, December 9, 2015. 15 Interview with Víctor Álvarez, former minister and director of PdVSA, December 9, 2015. 16 This was confirmed by several informal conversations with people from the boliburguesía during field work in Venezuela. 17 http://declaraciones.seniat.gob.ve/por tal/page/por tal/MANEJADOR_ CONTENIDO_SENIAT/05MENU_HORIZONTAL/5.4ESTADISTICAS/ 5.4ESTADISTICAS_03.xls, accessed September 12, 2017.

Analyzing Rentier Societies  157

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8 Wasn’t the AKP a Developmental Coalition? The Shifting Political Settlement of the AKP Ludwig Hehl

Introduction The Justice and Development Party (Adalet ve Kalkınma Partisi, AKP) in Turkey was once celebrated as a liberal force, ending the rule of the old Kemalist oligarchy. The party took power through elections in 2002 and has been leading the government since then. In a global context, featuring a rise in fundamentalism, the AKP was initially praised for being moderate in contrast to the extremism of radical Islam (Şişman 2013, 142). The AKP’s first decade of rule was considered a period of significant transformation for Turkish society toward a relatively well-functioning bourgeois democracy, dismantling the old patron-client relations of the Kemalist state (Duzgun 2012). According to a vast array of literature, stretching from Marxist to neoclassical approaches, the character of the AKP as a developmental, middle-class party was decisive for its success. The strategy of mediating the claims from conservative Islamic lower middle classes with those of the secularist upper bourgeoisie was interpreted as a dual movement of decreasing lower-class radicalism and increasing the ‘rational’ behavior of the bourgeoisie (away from rent-seeking). In contrast, the second half of the ongoing AKP era draws a rather different picture. The political and economic crisis has increasingly hit Turkey during this second period. The Gezi Park protests of 2013 led to aggravated domestic political cleavages, while inflation has risen dramatically since 2018. Turkey remains in the middle-income trap, and the AKP increasingly resorts to authoritarian political practices (Akcay 2021). This opens the research question: Why is this relatively broad middle-class party less developmental than often assumed by theorists? A developmental coalition is defined by its ability to maintain a stable policy coalition providing political stability for developmental policies (DP). As Bresser Pereira and Ianoni (2017, 166) underline, the political capability of a given developmental state depends “on the existence of a developmental class coalition supporting and legitimating it.” DP can be characterized as functioning if the following objectives can be met: first, food autonomy as a result of a productive agricultural sector; second, favorable distribution for strong domestic demand; third, active industrial policy and indigenous developments in technology. This is particularly the case within the manufacturing sector, which not only supports exports but also achieves relative wage and investment goods autonomy to avoid inflationary DOI: 10.4324/9781003303268-12

Wasn’t the AKP a Developmental Coalition?  163 pressures. Fourth, and finally, highly regulated financial markets that enable functional finance through developmental banks (Chandrasekhar and Ghosh 2013; Bhaduri 2018). The first wave of classical development economics was characterized by an interest in analyzing the class dynamics ‘before’ the implementation of policy. They were all concerned with the forces that would be required to create the demand necessary to mobilize domestic resources and to channel domestic demand to the creation of a domestic industrial sector subject to increasing returns that could support the growth of real wages and consumption demand. (Kregel 2009, 42) Even dependency school critics of development economics like Cardoso and Faletto stressed the conditions under which “states could become proactive agents of accelerated development, even in contexts of overall dependency” (Heller, Rueschemeyer, and Snyder 2009, 289). The next round of the debate comes from the developmental state authors criticizing dependency authors whose position differs fundamentally from neoclassical accounts and heterodox economists who primarily focused on the nexus between policy and economic outcomes. This new round was “not simply interested in the effects of policies but in the institutional and political arrangements that produce and implement them in the first place” (Haggard 2018, 20). More recent post-Keynesian theories, in contrast, do “not provide a framework for the analysis of class relations. Rather, it focuses on the economic outcomes of changing class relations” (Stockhammer, Durand, and List 2016, 4). This chapter contributes to this ongoing debate over the underlying political dynamics that shape policy. In particular, the chapter scrutinizes how distributive structures influence potential developmental coalitions. This is also a methodological challenge. Linking changing political power dynamics with policy shifts affords analyzing institutions and tracing the process of class and business group cleavages and the critical realignment within the Turkish economy. This chapter aims to analyze the political power struggles behind such policy shifts. In doing so, it draws on institutionalist approaches. However, while institutionalist approaches usually assume institutions to be relatively static and only subject to change during critical junctures (Acemoglu and Robinson 2013), this chapter relies on the political settlements approach (PSA) developed by Khan (2018, 1). This approach links concrete institutional dynamics to power struggles. Khan describes this approach by highlighting that the distribution of organizational power is important for understanding the economic and political effects of institutions and policies. Institutions and policies describe rules that in turn determine resource allocation, and these can affect different types of organizations in very different ways. Organizations can be expected to support, resist or distort particular institutions or policies depending on their interests and capabilities […] this directs our attention to the importance of accurately identifying the relative power and capabilities of relevant organizations that describe a particular political settlement and how these may be changing over time.

164  Ludwig Hehl Relevant development organizations are those able to organize a broad supportive developmental coalition. On the political level, these coalitions need to provide stability in the process of structural change. On an economic level, they can push and pursue DP. The big challenge of development is building a broad coalition in the sense of relevant organizations it represents but still concentrated regarding the policies it implements – akin to what Evans (2005) described as embedded autonomy (see also Kelsall and vom Hau 2020, 21). Successful DP often entails four key features: 1) Supporting the rural sector to achieve food self-sufficiency and decreasing urban bias in development; 2) Implementing active, leapfrogging industrial policy beyond broad passive industrial policy; 3) Targeting functional finance through developmental banks without shifting into financialization; and 4) Strengthening domestic mass demand through active redistribution. In order to achieve such concentrated developmental policies, the “institutions and policies that have developmental objectives also create new flows of incomes (rents) and disrupt old ones” (Khan 2018, 15), but “some policies and institutions create rents for explicitly political purposes, rather than to achieve economic or developmental objectives.” Kahn (2018, 16) continues, “[N]ot all political rents are therefore necessarily wasteful when these political costs and benefits are factored in.” For example, investment in health, housing, or education can be political rents and have no immediate impact on DP. A healthy, educated, well-off workforce is essential for long-term human capital development. The central argument is that the AKP, especially in its early years, represented a broad political coalition based on relevant organizations for a concentrated developmental potential. However, the historical strength of rentier fractions in Turkey undermined potential developmental coalitions within the AKP and hindered rival attempts to reorganize demand, as well as industrial and financial policies toward DP. Substantial parts of the bourgeoisie as well as the middle and lower class were bound to the AKP through clientelist networks without pushing developmentalism. The rentier oligarchy is defined as a group with command over rents (e.g., ‘classical’ resources, land, financial market rent-seeking, oligopoly extra-profits, or results from institutional capture). Their access to economic surplus is determined by their political power, not economic efficiency. Rent is, therefore, not defined as an antipode to perfect markets, which also rarely exist in developed countries. Instead, rent is a politically acquired surplus that enables an oligarchy to vertically integrate society by creating dependent relations via dripping down rents to their cronies. However, rent can also be used productively for industrial policy (Elsenhans 2004). This chapter’s argumentative structure runs as follows: The first section explains which ‘relevant organizations’ the AKP brought into its governing coalition on an economic and political level. The following analysis links the political economy dynamics behind AKP policies to the requirements of successful DP. The second section focuses on the contradictory tendencies of increasing welfare expansions in

Wasn’t the AKP a Developmental Coalition?  165 agriculture, education, and health while crushing organized labor on demand and distribution structures. The third section clarifies that the AKP pursued a financialized and external debt-led growth model rather than aiming for functional finance through developmental banking (which has recently changed due to a massive financial crisis). The fourth section elaborates on the issue that the significant oligarchic holdings would have had the resources and capabilities to play a central role in policies designed for setting up a National Innovation System (NIS). However, these holdings opted against a developmental state as it would have undermined their preferential access to rents. New developmental actors pushing for active industrial policy were integrated and ‘seduced’ into a rent-sharing system. The liberalized and financialized low-wage model was the minimal consensus within the AKP elite settlement. Oligarchic groups would have had to accept a decline in their relative power position vis-à-vis middle- and lower-class groups in implementing active industrial policy, functional finance, and inclusive labor market policies.

Promising Economic and Political Features of the Broad Settlement of the Early AKP This part explains why the AKP brought new members with an interest in DP into the governing coalition. The AKP initially knit close relations with the old oligarchy centered around the Turkish Industry and Business Association (TÜSIAD; Karadag 2010, 27). On a business level, the AKP also linked itself to new rising Anatolian Tigers, the ‘devout bourgeoisie’ capital fractions found beyond the oligopolist family holdings set around the Sea of Marmara. These capital fractions are partly centered in underdeveloped or rural regions. They mainly comprise small and medium-sized enterprises (SMEs) and provide the bulk of employment in Turkey. On a political level, the AKP represented a relatively broad middle-class ‘catch-all’ party that provided relative political stability crucial for long-term DP. Three characteristics make the Anatolian Tigers potential stakeholders for DP, especially concerning the cyclical inflationary pressures that Turkey witnesses. First, they mainly produce simple consumer goods, though they are also engaged in food processing and simple goods manufacturing (e.g., furniture). These prove essential for an export-oriented devaluation strategy as the goods are central to domestic workers’ consumption. Such devaluation without the ability to domestically produce for workers’ consumption creates inflationary pressures as devaluation increases import prices. In this way, they have shown enormous importance for employment generation. Furthermore, their involvement in both export and domestic markets is of primary importance as stakeholders of DP. Their central organization, the Independent Industrialists’ and Businessmen’s Association (MÜSIAD) is focused on increasing the consuming power of the working class. The fact that they “were mostly producing consumer goods such as food, apparel and furniture made them more sensitive to the purchasing power of the working class” (Deniz 2019, 139). Second, inflation in Turkey is, among other factors, triggered by a huge reliance on imported inputs. This is also true for some larger Anatolian Tiger producers who spend “two-thirds

166  Ludwig Hehl of sale income […] for the purchase of machinery and equipment, intermediate goods, semi-manufactured goods and energy required for the production” (Oguztimur 2018, 10). However, contrary to western Turkish big business, the Anatolian Tigers are not as firmly integrated into global value chains. They have less access to cheap imported inputs and an increased interest in industrial policy. From this policy, they expect support for producing inputs domestically, which is central to DP. Third, the Anatolian Tigers and other exporters questioned Turkey’s financialized and debt-driven growth model. The Turkey Exporters Assembly (TIM) president was obvious already in 2006, as Deniz (2019, 111) mentions: It is clear that the economic program is not for industrial production but for commerce. The IMF is pulling us into a trap. IMF says, “you need sustainable growth, the rest is easy.” However, this growth is not based on production. It is only in statistics. Turkey largely grows thanks to the hot money flows. The real growth will only be possible with domestic industrial production-based development. TIM gained increasing importance during the AKP reign and is dominated by the MÜSIAD. The establishment of TIM has also initially been opposed by TÜSIAD. Hence, the third argument making developmental fractions within the AKP political settlement potential stakeholders for DP relates to the fact that their organizations, such as MÜSIAD and TIM, regularly spoke out for less financialization and more DP. On a political level, the AKP represented a relatively broad coalition as the party managed to appeal to the more conservative, Islamic middle class, the poor, and even partly to the more secular middle-class segment. In contrast to the older rent-seeking secular Kemalist bourgeoisie, the religious bourgeoisie fractions the AKP brought into governing coalition have been assumed to have a positive impact on development and political stability as a “more competitive, more democratic, non-monopolistic, export-oriented “new middle class” that is independent of the state” (Tanyilmaz 2015, 95). Marxist conceptions in the tradition of Brenner, where it is understood that a well-functioning, capitalist state is the result of a rising, non-monopolistic bourgeoisie, predicted the successful capitalist transformation under the leadership of the AKP, “the bourgeoisie has finally become a fully capitalist class” (Duzgun 2012, 141). Liberal theories, such as the situational modernization theory, argue that, in the absence of strong labor movements, the emergence of a cross-class coalition around religious movements can be crucial for successful development (Thachil 2017, 908). These forces unite ideologically via cultural-identarian issues (Elsenhans 2015, 186). The AKP is a party that appealed to different fractions of society, especially as the radical Islamists were sidelined after playing a specific role in the Islamic parties of the ’90s. The religious networks that dominated those Islamic parties in the ’90s have been replaced by a conservative middle-class ideology (Cavdar 2016, 60). The granting of access for conservative small and medium businesses to state resources and the integration of the former religious welfare networks have been interpreted as the absorption of organizations of radical Islam into state resources

Wasn’t the AKP a Developmental Coalition?  167 (Madi 2014, 147–49). The effects have been hailed as “the end of Islamism in Turkey” (Şişman 2013, 142), and “Turkey’s economic and social structure had never witnessed such a great transformation in such a short period before” (Serdal and Haşim 2014, 3). The AKP must be seen in a broader global context of conservative ‘social service’ parties, where social services are the glue holding these movements together because they “recruit the poor and retain the rich” (Thachil 2014, 263; Dorlach 2020). These movements could be conducive to economic development and democratic coalitions as they enlarge the governing coalition from small rent-controlling groups to large mass movements that can serve a broader spectrum of interests. The centrality of mediating the demands of the conservative lower middle class and the more privileged liberal and globalizing upper middle class has been the focus of development theory for a long time (Quaissa 2014, 4). The AKP has been regarded as a party that was highly successful in mediating middle-class conflicts (Özcan and Turunc 2011, 82).

Distribution and Demand Policies within the Process of Structural Change in Turkey A central component of DP is the creation of favorable distribution and demand structures through redistribution. Establishing new structures requires different policies during different stages of structural change. In mainly agrarian societies, land reforms are central, combined with infrastructure support; progressing toward a semi-industrialized structure requires extensive technical training and essential education investments. The move to higher incomes requires massive state spending in higher education, a broad welfare state for human capital development, and the ability to absorb rising productivity with increasing wages (with, for example, rising minimum wages; Storm 2015). Those policies require a state able to tax high incomes and redistribute wealth. Instead of the decisive programs for DP, the AKP employed the strategy of retaining the rich and recruiting the poor. This strategy is insufficient because “the most significant difference between middle-income growth strategies and those of low-income countries is the need for the former to focus more on demand” (Kharas and Kohli 2011, 285). In order to reach higher incomes, higher productivity is necessary. It can be triggered by improving supply-side policies, but a more egalitarian income distribution is equally important. As Herr and Sonat (2014, 65) note, “[T]he Turkish government must make an active effort to create a more equal disposable income distribution.” Moreover, this is precisely where many middle-income countries fail, as Doner and Schneider (2016, 635) underline. Increasing demand directly affects the supply side as it increases the scale and the complexity of tasks, hence, learning curves (Kattel, Kregel, and Reinert 2012, 16). Regarding the agrarian sector, land is unequally distributed, especially in Kurdish regions. Land reform would significantly improve the agricultural productivity there because smallholders’ intense labor input is much higher per acre than that of big landholders: “a small farmer operating a farm with fewer than 20 decares of land uses, on average, 44 times more man-days per decare than the largest ones (i.e., those larger than 1,000 decares) in Turkey” (Unal 2012, 155). Decreasing the concentration of landownership would also significantly alter the

168  Ludwig Hehl conflict in the Kurdish regions where the AKP’s mega infrastructure projects (e.g., dams and roads) cannot truly develop the region if not combined with the development of local mass markets. Still, today “rapid growth in agriculture, if the income gains benefit lower income groups, will result in a demand composition that favors the consumption of simple, mass-produced manufactured goods which are likely to be labor intensive in nature” (Grabowski 2017, 166). Further, big landholders often have a monopsony in rural labor markets (Griffin, Khan, and Ickowitz 2002, 287). However, when the AKP, during the first financial crisis in 2001, was confronted with the International Monetary Fund’s (IMF) and the World Bank’s demands to liberalize and fundamentally dismantle the remaining system of price support for peasants (Güven 2016, 5), the party refused to squeeze the remaining smallholders radically. The implemented policy was a compromise; on the one hand, support schemes were also upheld for smallholders, but with a strong bias to the benefit of big landholders. The AKP was “implementing a direct income support system to financially help the countryside […] Although the subsidized pricing system was open to a patron-client type of relationship, the suggested system opened the way for big corporations, domestic and international, to enter the sector and establish a near monopsony in some crops and localities” essentially, it was “making the poor poorer and the rich richer. (Adaman, Arsel, and Akbulut 2019, 523) This distributive pattern can be repeatedly observed in AKP policies – the massive concentration of assets and income combined with some ‘sweeteners.’ Those sweeteners certainly had some positive effects on the process of urbanization “since no one will migrate from the countryside to the city unless they expect to be at least as well off as before migration. Higher rural incomes will therefore raise the ‘reservation wage’” (Griffin, Khan and Ickowitz 2002, 292). On the other hand, the high concentration of landownership in Turkey decreased rural demand. It also led to an unfavorable productive structure in the Turkish agricultural sector because, as Aydin (2010, 182) notes, the “vacuum created by de-agrarianization and de-peasantization is being filled by TNCs, which move in to produce just-intime crops using bio-technology and the abundantly available cheap labor.” As the AKP failed to fundamentally reorganize the state toward DP, the question arises of how the party created such dominance. Besides its increasingly repressive stance, the AKP maintains a relatively stable support base through redistributive policies, especially in healthcare, education, and social housing (Onaran and Oyvat 2016, 24). Other studies imply that those sectors have the “highest redistributive effect of the different components of fiscal policy” (Lustig 2016, 20). The expansion of welfare toward middle-lower and lower classes led to a significant decrease in poverty until 2018 (according to World Bank data, Turkish poverty headcount declined from 35 percent to 5 percent in the upper-middle-income countries section 2002–18, World Bank 2020, 2)). This was accomplished, in part, through the institutionalization of pre-AKP Islamic charity organizations (Somer 2016, 10). Social policy has a significant macroeconomic effect “because of its role as a

Wasn’t the AKP a Developmental Coalition?  169 countercyclical buffer, in creating new sources of demand and its significant multiplier effects, social policy should not be seen in simplistic terms as a welfare measure but rather as part of a macroeconomic strategy for sustained growth” (Ghosh 2015, 327). Social policy has been identified as a central driver for economic development via human capability expansion, social upgrading, and demand effects (Herr and Dünhaupt 2019, 24). However, once again, the dominance of the oligarchic interests can too be seen in such measures because “the source of this redistribution was the income losses of the organized blue collar and white-collar/professional working people rather than taxes on corporate profits and the rich. […] Between 2006 and 2013 the share of the bottom 40% as well as the top 20% within the total wage income has increased, whereas the share of the middle 40% decreased” (Onaran and Oyvat 2016, 25). Social housing has been a massive income stream for real estate companies close to the AKP and the creation of an atomized working class, detached from their former urban networks, which “helps the AKP to build strictly regulated new living spaces and to ensure long-term political loyalty of its residents” (Cavdar 2016, 42). This kind of social policy expansion has to be seen in the broader global context of neoliberal social service parties, as “the recent expansion of social assistance in middle-income countries such as Turkey and Mexico has been an attempt to politically contain ethnic and racial unrest” (Dorlach 2020, 9). Part of the AKP’s strategy to contain unrest in the Kurdish region was through social service expansion (Akcay 2018, 11), primarily until new clashes with the PKK emerged. Yet, the contradictory nature of the AKP’s strategies of ‘social neoliberalism’ is also visible in their attempt to weaken organized labor. Turkey has witnessed the most dramatic union decline within the Organization for Economic Cooperation and Development between 2002 and 2011 (Dorlach 2016, 531), with only unions close to the AKP benefiting from the provision of limited regulatory improvements (Güven 2016, 1018). The absence of a strong labor movement that can enforce productivity-oriented wage increases and push for upgrading is of little surprise in the context of abundant labor. Once more, the AKP bolsters this ‘social’ neoliberal labor market policy with enticements like cheap credits, which “created a base for aggregate demand by placing money in the hands of working-class households, while also further atomizing the working class by sucking members more deeply into financial circuits” (Akcay 2018, 13). That the AKP currently relies on a center-right coalition with Milliyetçi Hareket Partisi is also related to the dominance of those oligarchic elements, which calculate that the repression of Kurds and a nationalist agenda would serve their interest in controlling the working class: “Employers try to divide workers along nationalist lines, playing Turkish against (Turkish)-Kurdish workers” (Becker 2016, 105). A successful transition to Keynesian demand-led policies requires more integrative Kurdish policies, as successful pro-worker struggles often coincide with more inclusive national policies regarding minorities (Amsden 2007, 41). Demand-driven DP would also advance the material basis for liberalizing the middle class. The AKP certainly stabilizes demand with its social program but its clientelist “dependence on land enclosure and construction […] make it questionable whether they can produce the kind of pro-democratic bourgeoisie and middle classes that theorists of democratization have long conceptualized” (Somer 2016, 17–18).

170  Ludwig Hehl

The Political Economy of Financialized External Debt Led Growth in Turkey Financial instability remains the third central problem of middle-income countries. Turkey has a reoccurring balance of payments crisis. In the last sense, these problems are not the result of lacking revenues but of controlling capital flight and taxing high incomes. Mobilizing domestic resources through taxation and developing a domestic profit-investment nexus becomes critical in the age of financialization (Blankenburg 2019, 260). Furthermore, developing countries find themselves in a subordinate position within the global currency hierarchy once financialized (Bonizzi, Kaltenbrunner, and Powell 2019; which has been the case in Turkey since the ’90s); they witness a considerable loss of fiscal and monetary autonomy, and thus, the ability to regulate capital flight. Overall, they lack a hard currency and progressive taxation regimes as the revenue and regulatory basis for industrial policy (Ghosh 2018, 205). Turkey displays classical features of a dependent bourgeoisie that undermines efforts to rebalance the economy toward a domestic demand-led growth regime. Finance, agricultural and oligopolistic rents in Turkey are the “protective device of differential rent” that “locks social formations in a specialization which displays many disadvantages like instability of foreign exchange and tax revenues or few links with other economic sector” (Becker 2015, 4). To become a full developmental state, Turkey must first develop a functional finance system that “frees today’s investment from the shackles of yesterday’s accumulated savings” (Blankenburg 2019, 25). As the AKP middle-class coalition is still heavily biased toward the oligarchy, it fails to significantly raise DP by taxing the rich or forcing them to share their surpluses by massively raising wages. However, the AKP tried to fill the demand lack through financialization. The effects are that “with the beginning of financialization, growth has become highly dependent on foreign capital inflows and economic policies have been focused on attracting foreign capital, first loans and, with the coming of the AKP, foreign credits and FDI” (Becker 2016, 99). Some developmental state policies regarding finance are clearly forbidden in today’s World Trade Organization and IMF regulations, including selective foreign direct investments (FDI), free exchange rate policies, specific research and development policies, and strategic pricing (Haggard 2018, 58–59). Though, policies that are not so clearly under a foreign constraint include those that relate to demand management and demand-driven productivity increases by increasing wage share or the development of entirely new industries by a NIS. The following two sections explain the inability to stabilize the exchange rate by increasing domestic demand and regulating capital flight and imports. In contrast, the following part will illuminate the failure to form a developmental coalition within the industry, resembling a ‘national bourgeoisie’ NIS strategy. Financialization in Turkey was not only driven by rentier forces. Instead, it resulted from the European Union conditionality (Aydin 2010, 161) and the IMF stabilization program of 2001. The latter decreased the AKP’s ability to raise taxes, forcing them to decrease corporate and personal income taxes, while indirect taxation increased (Yagci 2017, 100). This decreased mass demand and increased oligopoly profits (rents) but also brought high inflation under control, increased

Wasn’t the AKP a Developmental Coalition?  171 regulatory authority, and rule-based decision-making of state institutions. Especially in comparison with the highly corrupt forms of financialization and liberalization as well as the exchange rate manipulation of the ’90s, the IMF and World Bank program increased financial stability (Duzgun 2012, 140). Although, the overvalued exchange rate constrained domestic demand and ultimately failed to incentivize domestic investments, particularly in the imported inputs on which the Turkish industry is still highly dependent (Voyvoda and Yeldan 2015, 22). Those kinds of policies are, at once, triggered by foreign actors and signify a dominant rentier class trying to increase its financial market rents while maintaining working-class support with an overvalued exchange rate (Oreiro et al. 2020, 3). This has adverse effects on mass demand and productivity growth because an overvalued exchange rate triggers destabilizing short-term FDI inflows and incentivizes both low-wage shares and increased profit shares (Lavoie 2015, 576). Such low-wage shares again worsen the problem, as beneficial long-term FDI in labor-saving technology is also triggered by growing domestic mass markets. The AKP’s “wage repression was clearly a brake on production and investment dynamics” (Becker 2016, 99). This policy reflects the dominance of the oligarchy and high-income groups in policymaking – working-class families were integrated through access to cheap credits that subsequently led to a massive increase in household indebtedness (Önis and Kutlay 2020, 12; Onaran and Oyvat 2016, 16). After the financial crisis of 2007, “the government’s weak response to the crisis illustrated a continued commitment to fisco-financial prudence. […] For foreign asset holders to continue financing its deficit-led growth pattern, Turkey had to remain a financial safe harbour” (Güven 2016, 1009). The finance-led growth regime then triggered the even worse financial crisis of 2018. The Turkish lira lost 30 percent in just four months. This came in line with massive inflation, which was largely caused by the huge capital flights and savings transfers (some $17.4 billion were sent abroad by the country’s richest following Önis and Kutlay (2020, 11)). The sheer existence of that enormous amount of savings, as much as the considerable increase in productivity until 2013, shows the very origin of Turkey’s balance of payments problems (Herr and Sonat 2014, 41–42) – the inability of the Turkish state to redirect those savings to the consumption of domestic products and investment demand. The pressure of external actors, such as the IMF and the European Union, for financialization policies was certainly favorable for the oligarchy. However, the second generation of financialization policies implemented in Turkey in the early 2000s (Dorlach 2016, 536) would have given much more room for a domestic demand-led growth path. Turkey’s balance of payment problems cannot fully be reduced to rigid center-periphery relations, but “as Eichner and Kregel […] said, ‘At the heart of the inflationary process is the question of relative income distribution’” (Lavoie 2015, 534). As the financial crisis worsened following 2018, the AKP implemented a quasiimport substitution program to decrease import dependence and, additionally adopted soft capital controls and increased developmental banking for SMEs and other domestic producers, along with some elements of functional finance (Akcay 2021, 94–95). While it has become increasingly clear that Turkey’s debt-financed development model is coming to an impasse also within the AKP (Önis and Kutlay

172  Ludwig Hehl 2020, 19–20), those policies are instead born out of acute crisis and are not the result of a planned DP and NIS program. The central features of the financialized state of the Turkish economy remain jobless growth, a massive wage productivity gap, and extensive private and cooperate indebtedness, combined with the fact that “85 percent of total imports consisted of capital and intermediate goods” (Orhangazi and Yeldan 2021, 3). Upper middle-income countries like Turkey feature the most unequal income distributions in the world (Lustig 2016, 23). This indicates that revenues could be used for solving supply-side bottlenecks through a NIS and increasing domestic demand for scale economics, hence, ‘walking on two legs’ (van der Hoeven 2019, 315). The question remains whether Turkey is able to mobilize enough surplus and, particularly, which political constellations would execute efficient industrial policy.

NIS and Active Industrial Policy vs. the Seduction of Rent An effective NIS consists of passive and active industrial policy. The passive industrial policy aims to reduce the costs for business as it consists of building infrastructure and education and can be implemented without high ‘political costs.’ In contrast, active industrial policy is precisely the area where most MICs fail because “active policy where governments have expectations on desired shifts in private behavior, use subsidies to induce the shift, and establish performance standards (e.g., increases in exports) which if not met cause the governments to withdraw the subsidies” (Schneider 2015, 20). All successful developmental states have had pilot agencies for industrial policies that actively redistribute rents to firms enabling them to pursue a ‘trial and error period’ in new industries. Those rents were bound to a system of gradually rewarding and punishing firms for building up entirely new industries. Today’s technological frontier is undoubtedly much more challenging than some decades ago. The very fact that those pilot agencies aimed at improving existing industries but also creating new ones (Bascavusoglu-Moreau 2011, 1) shows that arguments for the inability to use a NIS in today’s regressive intellectual property rights regime do not fully apply. A NIS is implemented precisely to reduce a country’s dependence on foreign technology, expertise, and FDI because it is financed mainly by redirecting domestic resources. In this context, the critical issue is not whether rent-seeking occurs. However, the state must manipulate rent-seeking opportunities, forcing private companies to invest in employment and productive activities. The leading cause of failure for middle-income countries is not the availability of domestic resources for a NIS. As Acemoglu and Robinson (2000, 126) note, “[T]he effect of economic change on political power is a key factor in determining whether technological advances and beneficial economic changes will be blocked […] groups whose political power (not economic rents) is eroded who will block technological advances.” Actors within oligarchic conglomerates are mainly active in oligopoly manufacturing but can also be found in other rent sectors, like natural resources and clientelist infrastructural projects: “these concentrated business groups have had little to gain from pushing for policies that would help their economies break out of the trap […] and wield power to maintain institutions favorable to their existing businesses” (Doner and Schneider 2016, 622).

Wasn’t the AKP a Developmental Coalition?  173 The existence of huge Marmara-centered conglomerates indicates that organizational capabilities and revenues are there for a successful NIS as “large, diversified business groups can easily and successfully raise venture capital to enter risky, hightech startups. But second, business groups almost never do so on their own” (Schneider 2015, 78). Notably, in the case of Turkey, it can be argued that a successful NIS through active industrial policy was not necessarily in the interests of oligopolies with huge, diversified portfolios, making manufacturing only partially relevant for them (Becker 2016, 103–04). Regarding trade policy, such oligopolies depend on imported inputs and rather seek an overvalued exchange rate (which currently cannot be maintained due to the financial crisis). Some authors argued that the oligopolies relied on the power of the military and that the retreat of the military from politics would be conducive to a more rational use of revenues, compared to the Kemalist military’s use of surpluses to corrupt politicians and create loyalty among the privileged fractions of the workers. The decline of military authority (which has only increased since the failed coup of 2016) should thus increase rational policymaking (Oh and Varcin 2010, 89). There was also widespread optimism that with the ascendance of the AKP, a more developmental ‘Anatolian Tiger’ SME-based coalition would gain greater access to those resources (Özcan and Turunc 2011, 68). Chiefly, the SME claims for a lower exchange rate (Becker 2016, 105), the demands of some SME groups to increase the minimum wage (Madi 2014, 149), and the gradual increase in spending on technical education during the AKP era (Doner and Schneider 2019, 11), can be compared to the development of a classical ‘Mittelstand’ or with the Chinese township and village enterprises. Thus, increasing good governance through developing an SME market-oriented power center is a move away from rent-seeking oligopolies. Turkey has the revenues and organizational capability of its huge conglomerates, wellfunded universities, technical education, developing SME sectors, and, finally, eliminating the military’s role as a politically uncontrollable rent-actor. With this backdrop, therefore, already in 2011, the “European Trend Chart Report reckons that Turkey has almost every element that makes up a national innovation system: a broad policy mix with a wide range of instruments and measures in almost all areas of innovation policy” (Bascavusoglu-Moreau 2011, 5). If Turkey has all the ingredients for a successful NIS, why does it not come about? The inability to increase investments, especially of those with the necessary revenue (like the conglomerates), the inability to tax the wealthy, the inability to expand mass demand, and the inability to enforce active industrial policy all directly relate to dominant oligarchy interests (Voyvoda and Yeldan 2015, 36; Onaran and Oyvat 2016, 40). The AKP undermined its limited industrial policy successes by excessively reducing wage share. An SME-based NIS strategy cannot function if demand stagnates. Elsenhans and Fuhr (1991, 301) argue that “growth of small-scale enterprises triggered by such measures is insufficient for considerably expanding the market for such enterprises. Such an expansion would require mass incomes.” Just because successful SME strategies, as in the case of China, indicate that those sectors are not as rent-oriented or integrated into foreign markets as the oligarchy does not necessarily mean that the SMEs naturally represent a ‘national bourgeoisie’ interested in a NIS and increasing wages. Although some SME

174  Ludwig Hehl fractions indicated an interest in redirecting resources, they were mainly interested in “consolidating their position concerning rent distribution” (Kalkan 2016, 12), which the AKP did through a “diffuse system of limited investment supports that accords significant discretionary powers to the government” (Güven 2016, 1016). As both the SMEs and western Turkish conglomerates want to maintain their relative power position in the rent system wherein the government vertically trickles down rents, the SMEs fear that building up NIS new industries would benefit the conglomerates more, despite potentially enormous increases in SME competitiveness. From the SME perspective, “a policy reorientation that will benefit these elite segments of Turkish industry would be politically undesirable” (Güven 2016, 1017). This once more confirms how dynamic ‘capitalism from below,’ as seen in China, depends on rising mass demand (which was achieved in China through multiple land reforms; Grabowski 2014). As much as the SMEs, Turkish big businesses depend on rent redistribution through the AKP because mass demand as a potential revenue source is too small. Such businesses cannot agree on policy change because they fear losing out if resource allocation is bound to efficiency (which requires scale). Richard Grabowski (2013, 345) describes how the Chinese SME strategy solved these collective action and coordination problems: Rural growth dramatically increased the demand for labor-intensive, simple manufacturing goods. Township and village enterprises expanded production in response to the dramatic growth in demand. These enterprises […] were controlled by local levels of government and paid taxes to the local, government jurisdiction. The central state and the political elite used economic decentralization initiatives to create new political coalition partners among provincial officials. These lower-level officials provided the base from which the influence of conservative coalition members in the center could be offset. Turkish SMEs were created as an unintended consequence of dismantling Import Substituting Industrialization and liberalization efforts in the ’80s (Kalkan 2016, 8). However, contrary to China, no land reform was implemented. The agricultural support schemes were insufficient to boost lower-class demand for SMEs. In 2009, all Turkish SMEs combined in their most prominent organizations, MÜSIAD and ‘Turkish Confederation of Businessmen and Industrialists,’ only represented 7.48 percent of the volume of the 500 biggest Turkish companies. This figure does not even reach half the amount of the most significant holding of the Koc family, representing 15.8 percent (Öztürk 2015, 5). It is not surprising that Turkish SMEs did not have sufficient power to face the entrenched oligarchic interests that block any shifts away from a rent-seeking system toward a mass demand-driven system of economic upgrading. It is even less surprising that the AKP switched soon after taking office from its main ally MÜSIAD, which had stronger connections to SMEs and the Anatolian Tigers, to the more oligopolistic TÜSIAD. As Akcay (2018, 5) adds, “[T]he motivation behind this new alliance was a joint commitment to a more thorough liberalizing agenda.” From the onset of SME growth in Anatolia during the 80s, the oligarchy wanted to avoid the creation of a competing

Wasn’t the AKP a Developmental Coalition?  175 power center and extend control over the SMEs (Sylvest 2018, 60) through the AKP and a system of rent sharing. In this, the oligarchy succeeded.

Conclusion The Turkish case lends some exciting insights into the struggle of development – a struggle that is not only between growth-supporting bourgeoisie vs. rent-seeking oligarchy. Economically speaking, both groups are interested in growth; not only immiserizing growth but also tremendous employment growth enriches the oligarchy. Demand-driven capitalism is not a zero-sum game but, instead, massively increases surplus, and, thus, can even be adopted by traditional elites: “the workers will have larger employment and incomes; the capitalists will have larger surplus value, savings and wealth and since the financial interests derive their incomes from surplus value, they too will be better off” (Jha 2011, 11). The real development struggle surrounds relative power positions, as Evans (2005, 101–02) adds by highlighting that “even growth-enhancing institutional transformations that would expand the potential revenues of politically dominant elites are likely to be rejected if such changes imply diminished relative political power.” Long-term political power positions are more important for the rent and capital-holding class than short-term economic gains (Scherrer 2014, 351). However, all levels of successful DP require reducing the relative political power position of the oligarchy vis-à-vis labor and a newly competitive bourgeoise. For active labor market policies, the rentier oligarchy must accept a reduction in the reserve army of labor. The oligarchy must accept higher taxes and a decline in private investment decision dominance for functional finance. For effective industrial policy, the elite faces a state that not only rewards but also punishes the misuse of funds to solve collective action and principal-agent problems. The example of increasing employment rates shows that full employment incentivizes and forces capitalists to orient their investments to economic efficiency. If labor becomes expensive due to labor scarcity, they must invest in labor-saving technologies, or they will vanish from the market (alternatively, their products are too expensive). This increase in economic rationality replaces politically determining resource allocation, as in oligarchy-dominated societies, with resource allocation according to economic efficiency. However, the oligarchy wants to distribute the surplus according to their political preferences. These oligarchic groups are not dependent on DP. DP and the oligarchy’s political preferences only coincide in the few cases where they confront the severe threat of getting replaced, historically witnessed in East Asia under communism, while facing “systemic vulnerability” (Doner, Bryan, and Slater 2005). In East Asian Developmental States, external pressures came together with the domestic replacement of the existing oligarchy after World War II. Turkey, in this regard, is a very different case. Those states had “profound changes in political power relations, changes which allowed relatively autonomous states to pursue the redistribution of assets, not just growth with technological transformation,” leading to “transformations of class structures and political power relationships that preceded industrialization processes in the developed North Atlantic and Asian worlds” (North and Grinspun 2016, 6). Juxtaposed with Turkey, three key factors

176  Ludwig Hehl stand out: first, regarding historical path dependency, the AKP was not the result of a fundamental transformation of class but was established with direct influence from the oligarchy, which only accepted the party on the condition that it would not fundamentally challenge their command over significant rents. Otherwise, the AKP would have been dismantled like many other Islamic parties. Second, since 1995, the Turkish external trade framework in the European Union free trade area undermined industrial policy autonomy as much as the IMF standby agreement undermined financial policy autonomy. Today, Turkey still has limited options in the global currency hierarchy. Third, because of these internal power dynamics and external constraints, the existing developmental fractions in the AKP political settlement did not become dominant enough to change the policies and distributive structures required to outgrow oligarchic elements. Instead, every improvement in the direction of DP came with lavish payments to the oligarchy, enabling them to defend and extend their relative power position vis-à-vis labor and the developmental fractions of the bourgeoisie. Regarding demand, the welfare state and urban and agricultural support programs for the poor have been combined with massive union-busting efforts (especially with the 2003 labor law), leading to a massive wage productivity growth gap. Regarding industrial policy, more passive forms like infrastructure, education, and vocational training have been accompanied by the sidelining of those who pushed for active forms, all with the result of continued reliance on (inflationary) imported inputs and the creation of a giant clientelist construction sector. Regarding finance, additional investment schemes for SMEs, the financial inclusion of lower classes, and, lately, even development banking have all been undermined by extreme waves of financialization and privatization. However, without the enlargement of mass markets combined with rational resource allocation through DP, a developmental coalition cannot become a strong enough alternative power center to confront the oligarchy (Elsenhans 2015, 173). Therefore, newly integrated developmental fractions did not become dominant enough within the AKP’s political settlement to impose DP on the rentier groups. Instead, they enlarged the old oligarchy with new conservative business groups. The ‘seduction of rent’ integrated the potential developmental groups. The particular form of breaking up old dominant coalitions and the selective reintegration of new allies led to contradictory policies. Such policies have been politically broad because the AKP managed to maintain a relatively stable enough coalition to replace the Kemalists and win elections. Nonetheless, its policies have, in the sense of PSA typology, not been concentrated and developmental but broad and dispersed-clientelist (Kelsall and vom Hau 2020, 19). Some authors have described the lack of a fundamental power shift during the AKP era as a Gramscian passive revolution (Sylvest 2018, 40). Similar interpretations have been made regarding the pink tide governments in Latin America, wherein “the regime incorporates some ideological elements (and organic intellectuals) of the revolutionary forces […] without radically transforming the class relations that sustain the system of domination” (Vergara Camus and Kay 2017, 22). The AKP seems to fit this scheme as well.

Wasn’t the AKP a Developmental Coalition?  177

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9 Resource Boom and Social Policy in Authoritarian Regimes A Case Study of Russia Heiko Pleines and Andreas Heinrich

Introduction There exists an extensive literature on the economic, political, and social consequences of an export boom based on natural resources for the exporting countries.1 The concepts of a ‘resource curse’ (Auty 1993) or ‘paradox of plenty’ (Karl 1997) describe the phenomenon of countries with a sizable endowment of natural resources having been largely unsuccessful in translating the financial wealth resulting from the export of these resources into economic development, social prosperity, and political stability. Concerning the economic development this is largely due to the fact that the massive influx of US dollars, the currency of the international resource trade, distorts the currency balance, worsens the terms of trade, and consequently may lead to a de-industrialization of the national economy (a phenomenon called ‘Dutch disease’). Additionally, the inflow of huge amounts of foreign currency is often seen as increasing the level of corruption and thereby promoting bad governance (for a short summary, see Heinrich 2011). The impact of a resource boom on the political system is described by the concept of the ‘rentier state.’ Mahdavy (1970, 428) defined rentier states as “those countries that receive on a regular basis substantial amounts of external rent.” Studying the petrostates of the Middle East, the literature states that as a result of the monopolization of oil exports through state organizations, oil revenues come to dominate the state budget and rapidly become the single largest source of state income. As the extraction of natural resources in general does not require large investments, the governments in exporting countries can use these ‘rents’ to ‘buy’ the support of the populace by promoting generous state projects, establishing patronage networks, and waiving taxes (cf., e.g., Anderson 1987; Chaudhry 1989; Karl 1997; Robinson et al. 2006; Vicente 2010). Abundant natural resources also provide the ruling elite with the revenues to buy off political opponents (Acemoglu et al. 2004). However, large price fluctuations on the global markets for natural resources can lead to a sudden plunge in state revenues, thereby endangering the government’s political survival as reduced capital inflows make it impossible to continue dispensing patronage at previous levels (Cooley 2001; Smith 2004). The ample literature on the topic has largely neglected the aspect of social policy. Though its principal relevance has been acknowledged (cf., e.g., Cockx and Francken 2014, 2015; Hinojosa et al. 2010; Keller 2020), there have been only a DOI: 10.4324/9781003303268-13

182  Heiko Pleines and Andreas Heinrich very few studies that have analyzed the relationship between resource booms and social policy. In a quantitative study, Bellinger and Fails (2021) use the example of child mortality to show that in authoritarian regimes with a short time horizon, the additional revenues from the export of natural resources result in a worsening of the health situation in a country (probably due to a deteriorating health-care system). Similarly, there exist only a very limited number of case studies on the link between a resource boom, increasing social spending, and political stability, which provide brief descriptive overviews (cf., e.g., Franke-Schwenk 2012b; Loewe 1999). Only for Latin America has the relationship between resource booms and socioeconomic development been analyzed more prominently. However, the focus lay not on the state’s social policy but on broader development trends in form of a modernization of society (for an overview, see Heinrich and Pleines 2012; more current, but less detailed Ross 2018). At the same time, applying a political economy perspective to social policy and without a focus on rentier states, Haggard and Kaufmann (2008, 9) claim that “strong [economic] growth […] did not necessarily lead to an expansion of social entitlements. […] However, it did provide the basis for increased social spending among those governments that chose to do so.” In a similar vein, the literature on authoritarian regimes has started to include the aspect of social policy in its research agenda (cf., e.g., Cassani 2017; Eibl 2020; Kailitz and Wurster 2016; Kailitz, Wurster, and Tanneberg 2017; Knutsen and Rasmussen 2018; Wurster 2019). It distinguishes between inclusive and exclusive authoritarian regimes whereby only inclusive regimes use social policies to generate broad public support (Pelke 2020). In this regard, Beloshitzkaya (2020) was able to show that among the post-socialist regimes, the democratic ones spend a smaller part of their gross domestic product (GDP) on social policies than inclusive authoritarian regimes. A methodically similar study claims that authoritarian regimes with limited political competition (‘electoral authoritarian regimes’) are characterized by less social inequality in comparison with other forms of authoritarian regimes (Teo 2021); this, in turn, might indicate a more active social policy. Thus, Neundorf, Gerschewski, and Olar (2020) and Rosenfeld (2021) can show that inclusive authoritarian regimes are capable of reducing the population’s support for democratic values via social policies. Transferring this approach to authoritarian rentier states, the following analysis examines how far resource revenues have been used for an expansion of social policies, which types of support programs have been implemented, and how the government has framed related policies. In order to assess the impact on regime legitimation, the results are linked to public expectations and perceptions of social policies. For a better understanding of the impact of resource revenues on social policy, a boom and a bust phase are compared. Accordingly, the first working hypothesis is that governments in such states will use natural resource revenues to fund an expansive social policy in order to gain popular support. This is especially likely if the population largely expects the state to provide public welfare and if the political regime is based more on co-optation and legitimation than on repression. Thus, in inclusive (or ‘competitive authoritarian’, ‘electoral authoritarian’) regimes, by definition, larger groups of the population should be

Resource Boom and Social Policy in Authoritarian Regimes  183 included to benefit from generous social policies because they are either important pillars of the regime or potential participants in social protests that have to be pacified. For example, shortly before election time in Azerbaijan, well-off households in the capital were the main recipients of social transfer payments (Fan and Habibov 2008; Walewski and Chubrik 2010, see also Kendall-Taylor 2012). However, beyond such rather anecdotal evidence, systematic studies are still missing. Concerning the types of social policy promoted, it should be expected that in inclusive authoritarian regimes, social policies focus on the short-term satisfaction of beneficiaries, for example, to avoid protests at critical moments. Accordingly, the second hypothesis is that such regimes should prefer measures that provide financial benefits swiftly to larger parts of the population. This means that social policies would focus on direct transfer payments (such as pensions, child support, antipoverty payments), while structural reforms – prominently in the health and education sectors – would be neglected. Transfer payments that benefit only a small target group (such as benefits in case of unemployment or work accidents) should also be passed over. Based on such reasoning, Franke-Schwenk (2012b) argues that in those Central Asian states of the post-Soviet region that benefited from an oil boom, the health-care sector remained systematically neglected in favor of social transfer payments. A central element of regime legitimization is the rhetorical presentation of the regime’s ‘successes.’ Due to firm control over the mass media, authoritarian regimes can present their views more directly and unopposed to the public (for the case of Russia, see, e.g., Pleines 2020; Somfalvy 2020). The third hypothesis thus claims that in authoritarian rentier states that apply an inclusive strategy, (a) social policy plays an important part in authoritarian legitimization, and (b) it is focused on performance and results (as opposed to, for instance, intentions, principles or fairness; for typologies of modes of authoritarian legitimization, see, e.g., Burnell 2013; Holmes 2016; Soest and Grauvogel 2016). No systematic research exists for the framing of resource boom-based expansionary social policy by authoritarian regimes. Case studies have so far documented the framing of an authoritarian leader as a ‘benevolent father of the nation’ (cf., e.g., Franke-Schwenk 2012a). For a frame analysis, it is important to keep in mind that the frames used refer to the regime’s desired perception of its social policy measures, which do not necessarily reflect the actual effects of these measures. In addition (or as an alternative) to an active social policy, in times of a resource boom, a regime can refer to increasing wealth for the whole society due to economic growth and higher salaries and wages as a legitimizing frame (Crowley 2021). As the literature on the rentier state has so far largely neglected the aspect of social policy, we start with an exploratory case study in order to analyze the link between resource booms and social policy.

Research Design In order to examine in an exploratory study for which kind of expansionary social policy additional financial resources are used in inclusive authoritarian rentier states, we look at a most likely case. This should be a country that has already

184  Heiko Pleines and Andreas Heinrich achieved the level of modernization and socioeconomic development at which the population is expecting the state to provide comprehensive welfare and where the authoritarian regime is ‘soft’ enough to make the population’s expectations relevant for regime survival. We consider Russia to be a fitting case. According to the World Bank, Russia is an ‘upper-middle-income’ country. As part of the Soviet Union, the country had a comprehensive socialist welfare state. Even three decades after its dissolution in 1991, the expectations of the populace are still strongly influenced by the image of an all-encompassing welfare state that the Soviet Union promoted (Cerami 2009; Gugushvili 2015). The simultaneous end of the planned economy and rise of private enterprise in combination with a dramatic economic crisis saw the collapse of the welfare system and severe social hardship in the 1990s. In the late 1990s, however, Russia experienced a resource boom. The world market price for crude oil, which languished in the 1990s between US$10 and US$20, increased dramatically in the next decade, reaching a peak of US$150/barrel in 2008. As a result, Russia’s GDP (measured in US dollars) rose ninefold between 1999 and 2008. This gave the country the financial resources for an expansionary social policy (Cerami 2009). In parallel, Vladimir Putin, who was elected Russian president in 2000, swiftly consolidated power using increasingly authoritarian means. The sharp decline of oil prices in 2008 and again (and more durably) in 2014 provides the opportunity to analyze the impact of dramatic budget shortfalls on social policy. In Russia, as a result, crisis-related cuts in social policy measures have been discussed. However, the literature is limited to short case studies contrasting austerity measures with subsequent climb-downs of the politicians in charge. The most prominent case is the (to a limited extent) revised Russian pension reform of 2018 (Brand 2018). As the state’s measures to mitigate the social consequences of the COVID-19 pandemic make the year 2020 a clear turning point in social policy (cf., e.g., Tarasenko 2021), this case study fully covers two development phases: from 2000 to 2008, the ‘resource boom’ phase, and from 2009 to 2019, the contraction and stagnation of the Russian economy after a sharp decline in world energy prices. The case study covers, first, the economic situation, namely, the impact of the resource boom on socioeconomic development and state revenues; second, the state’s social policy; third, its framing by the government; fourth, public expectations around social policy; and, fifth, the perception of actual policies. The different aspects require different methods of data collection: (1) Statistical data on Russia’s economic and social development as well as on the state budget have been taken from standard providers of national statistics – namely, the Russian State Statistics Committee, the Russian Central Bank, and the Russian Ministry of Finance. Wherever possible, data have been retrieved from institutions that provide an additional quality check and publish data in an internationally comparable format – namely, the World Bank and the Bank of Finland’s Institute for Emerging Economies. (2) The analysis of social policymaking and policy output is based on a systematic literature review and additional analysis of related official documents, first of all, relevant laws and regulations.

Resource Boom and Social Policy in Authoritarian Regimes  185 (3) The analysis of the official framing of social policy is based on a full corpus of public statements (oral and written) of the Russian president from 2000 to 2020, which has been compiled in a project conducted by the Research Centre for East European Studies at the University of Bremen. The text corpus allows for quantitative content analysis.2 (4) Results of public opinion polls concerning expectations of the Russian population toward social policy have been taken from the three rounds of the European Bank for Reconstruction and Development’s Life-in-Transition Survey (2006, 2010, 2016),3 several waves of the World Value Survey (1995, 2006, 2011, 2017),4 and (at least) annual omnibus surveys by the Russian independent polling institute Levada Center.5 (5) To analyze the role of social policy as an element of legitimization, and thus stabilization, of the authoritarian regime, we combine public expectations and actual policy measures with polls on the satisfaction of the population with government policies and popularity rankings of the Russian president. The data on satisfaction and popularity have been taken from the Russian independent polling institute Levada Center.

Socioeconomic Development and Resource Revenues6 Russia’s economic development has tracked closely with world market prices for crude oil. From the end of the 1990s, when oil prices started rising, until the global financial crisis of 2008, when they briefly collapsed, Russia experienced an economic boom based to a large degree on oil and gas exports (for a comprehensive overview of this development, see Rutland 2008). From 1999 to 2008, the country’s GDP grew on average by 7 percent a year. This had two major effects on the country’s social policy. First, social indicators improved dramatically in the wake of the economic boom, thus decreasing the pressure on social policy. Unemployment fell from 13 percent in 1999 to 6 percent in 2008, while average wages (converted into US dollars to capture real purchasing power) rose from US$64 per month to US$694 per month over the same period. Poverty fell strongly; according to the World Bank’s World Development Indicators, the share of the population living on less than US$5.50 per day (measured at purchasing power parity) declined from 43 percent in 1999 to 7 percent in 2008.7 Second, revenues of the national state budget grew even faster than the economy. While they equaled 12 percent to 14 percent of GDP in the second half of the 1990s, the same figure stood at 20 percent for the period 1999 to 2008. As a result, the rough doubling of GDP between 1999 and 2008 was accompanied by a threefold increase in state revenues over that same period. According to calculations by the Russian Ministry of Finance, oil and gas accounted for a third to half of all national budget revenues.8 The Russian government used parts of the additional revenues to create an oil fund in 2004; its value had reached US$225 billion by 2008. The Russian economy was hit hard by the global economic crisis of 2008–09, which saw oil prices collapse. Though GDP rebounded by 5 percent in 2010, overall, the Russian economy did not return to the fast growth of the earlier

186  Heiko Pleines and Andreas Heinrich period, recording another year of GDP contraction when oil prices collapsed again in 2015. On average, GDP rose by just 1 percent per year from 2009 to 2019. Overall, the social situation remained largely stable (up to the crisis caused by the COVID-19 pandemic in 2020). In 2012, unemployment fell to the lowest level since the end of the Soviet Union and stabilized at around 5 percent. Average wages returned to their pre-crisis level already in 2010 and continued to grow until 2014. As the exchange rate of the Russian currency collapsed together with oil prices in 2015, US-dollar-denominated wages fell by a third, while real wages in Russian rubles remained stable. Poverty did not react to the economic crises and even fell slightly below the level reached in 2008, with the share of the population living on less than US$5.50 per day dipping below 4 percent for the first time in 2017 (for a critical discussion of poverty figures for Russia, see Brand 2021).9 As the Russian government introduced a progressive taxation scheme for the oil and gas industry linked to world market prices for oil, state revenues suffered strongly when oil prices collapsed (on Russia’s tax regime for the oil industry, see Vatansever 2020). From 2009 to 2019, revenues of the national state budget equaled less than 18 percent of GDP. Budget shortfalls were partly covered with money from the oil fund, which shrank to a mere US$58 billion in 2018, and with increased government debts, rising from a value equal to 5 percent of GDP in 2008 to 13 percent in 2019. Independently of changes in economic growth and poverty levels, social inequality has remained high in Russia throughout the Putin presidencies (for a study linking resource wealth and social inequality at the level of Russia’s regions, see Buccellato and Mickiewicz 2009). The World Bank estimated that Russia’s Gini index10 has remained rather stable in a range from 37 to 42, rising from 2001 to 2007 and then slowly and unsteadily falling back to the level of 2001.11 Similarly, according to calculations by Piketty (2018), the share in total income of the richest 10 percent of the Russian population remained largely in the range between 45 percent and 50 percent over the period covered here. As a result, it has for most of the time been slightly higher than the corresponding figure for the United States, while the figure for, for instance, France remained below 35 percent.

Social Policies Starting from a very low level, state spending on social policies (including from non-budgetary funds) has been increasing strongly during the boom phase. Converted into US dollars, social spending rose tenfold from 1999 to 2008, similar to GDP, but slower than the increase in state revenues. The following economic crisis in 2008 led to a small decrease in social spending, but already in 2010, it exceeded pre-crisis levels (Fruchtmann 2012, 20). This was due to a government stimulus package. As a result, the national government’s spending on social policies measured as share of GDP increased from 9 percent in 2007 to 13 percent in 2010, mainly in order to finance pensions (Robinson 2013, 459). However, Russia’s social policies are not a simple story of expansion. For example, as a share of GDP, government expenditures on health and on education have been oscillating in a narrow range over the two decades covered here.12 In

Resource Boom and Social Policy in Authoritarian Regimes  187 summary, social policies are assessed as “a complex mix that changes inconsistently and incoherently” (Kulmala et al. 2014, 528; see also Matveev 2021). This is due to four parallel trends that can be observed with differing strengths in Russian social policies over the period under study. (1) In the boom phase from 2000 to 2008, social policy debates were dominated by neoliberal technocrats who focused on financial austerity and a lean state (Cook 2007). They stood behind the major social policy reforms – a pension reform, the introduction of a single (unified) social tax, and the simplification (that is, de facto reduction) of social benefits and entitlements (cf., e.g., Nies and Walcher 2002; Pleines 2022; Sokhey and Sarah, 2015). Most opposition parties represented in parliament strongly opposed any reform attempts aimed at controlling expenses. “As a result of this principled opposition, their contributions on social policy-related issues usually do not propose alternative solutions, but mainly attribute blame for perceived policy failures” (Pleines 2021, 46). Though neoliberal reformers lost prominence in the wake of the global economic crisis, they remained able to influence social policies, with the pension reform of 2018 being the most prominent example (Brand 2018). (2) Expansionary social policies were introduced only in the form of ‘national projects’ backed by President Putin himself. These national projects were framed as major long-term initiatives to promote the country’s modernization and ‘human capital’ in key areas. The first wave of projects was announced in the autumn of 2005 with a focus on health, education, housing, and agriculture. A total of US$13 billion was allocated to these projects in the state budget for 2006–07. They were meant to run for over a decade but faded out in 2008 in the context of the global economic crisis. Instead, a stimulus package was designed to tackle the impact of the crisis. However, while the national projects had the ambition to substantially and sustainably improve the socioeconomic situation, the stimulus package was simply meant to ensure (increased) payments, first of all pensions (Robinson 2013, 459). In 2018, President Putin announced a new wave of now 13 national projects with a total budget of US$400  billion for a period of six years. With health and education, the same two social policy fields as in 2005 featured prominently. Again, a global crisis, this time the COVID-19 pandemic, hampered implementation. (3) While austerity and the national projects were based on long-term strategies, ad hoc measures also featured prominently in Russian social policy. Debates about the state oil fund can serve as an example. Neoliberal technocrats had designed the fund in 2004 to skim off resource revenues in order to limit inflationary pressure and avoid symptoms of Dutch disease, but a debate about how to spend the huge sums soon emerged. In late 2007, the money was mainly earmarked for subsidies to enterprises as part of an active industrial policy. Additionally, “only a few months before the presidential elections pensions and social benefits were raised, to be financed with oil revenues” (Dabrowska and Zweynert 2015, 536).

188  Heiko Pleines and Andreas Heinrich (4) Right from the start of Putin’s first term in 2000, a further strand visible in social policy has been related to ‘traditional values.’ In this perspective, it was the task of social policy to ensure or to restore what was perceived as the moral and physical health of the nation. When neoliberal reformers lost influence in the Russian government and the end of the boom phase limited government spending, a conservative turn and a ‘shift to statism’ were diagnosed in social policy, which led to a focus on traditional family policy and more interventionist policies. In 2007, a ‘mother capital’ payment was introduced with the explicit aim to increase birth rates. At their peak in 2013, the payments made for every second and further child amounted to nearly US$8 billion (Bluhm and Brand 2018; Chandler 2013; Cook 2011).

Framing Social Policy13 Obviously, the four trends described in this chapter have not been equally present in the official framing of social policy. Instead, Putin’s statements are characterized by a strong focus on social policy as a precondition for the improvement of the country’s ‘human capital’ (though he usually uses other terms), starting with the ‘demographic problem’ (of low birth rates and low life expectancy). Already in 2000, in his first Annual Address to the National Assembly (‘state of the nation’ address), he justified neoliberal reforms, not on ideological grounds, but claimed that we pass numerous laws, knowing in advance that they are not provided for by real financing. […] We have no other choice but to reduce excessive social obligations and strictly follow the ones we keep. Only this way can we restore the people’s trust in the state. As an actual aim, however, he presented something else: Social policy is not just aid for the needy, but also investment in the future of people, in their health, and in their professional, cultural, and personal development. This is why we will give priority to developing the spheres of health, education and culture.14 Of the five traditional social policy fields – pensions, health care, education, poverty, and unemployment – the last two are mentioned the least often in public statements by Russian presidents. It is telling that over the period 2000 to 2020, references to wages are more numerous than those to unemployment and poverty combined. Poverty is never a prominent issue in public presidential statements. Unemployment was a frequent topic only in 2009 in the wake of the global economic crisis, at the time being addressed by then-president Dmitry Medvedev and again in 2020 in reaction to the COVID-19-related economic crisis (i.e., after the period under study here). While this indicates that unemployment is addressed when it becomes an urgent problem, the opposite has become true for pension reform. During Putin’s first presidential term from 2000 to 2004, second to education pensions were the main

Resource Boom and Social Policy in Authoritarian Regimes  189 issue addressed in the area of social policy. A first pension reform was implemented but ultimately proved to be unsustainable. Since 2009, the president has referred to the issue with decreasing frequency. Although the 2018 pension reform legislation caused large public protests, Putin’s references to the issue remained at the low level of the preceding years. Education and health care, by contrast, have continuously received attention from the Russian president. Although these are further areas that have been subject to largely failing reform efforts for many years, they are both tackled as part of the so-called national projects. Accordingly, there is a peak in references during the first round of national projects after 2005 and a second peak – much more pronounced for health care – with the new national projects announced in 2018. However, the explosion of references to health care in 2020 mostly relates to emergency measures in reaction to the COVID-19 pandemic and not to traditional social policy issues. The ‘conservative shift’ in social policy with a focus on ‘traditional values’ is also visible in the president’s rhetoric. The frequency of references to family-related policy measures has been rising steadily, albeit in waves, over the past 20 years. In 2019, Putin’s use of the word family hit a new record high. In summary, this means that economic growth and wages as well as traditional values are more prominent in presidential rhetoric than any social policy field. At the same time, references to unemployment, health care, and education follow policy patterns, while poverty – and to a certain extent pensions as well – are ignored.

Public Expectations The question, then, is whether the priorities Putin presented were in line with public expectations and whether this contributed to a positive perception of regime performance. In a first step, it is important to note that a huge majority of the Russian population considers the state to be responsible for its social well-being. As Kainu et al. (2019, 446) assert, “In the Russian case, due to the Soviet legacy, the citizens expect the state to serve as the main provider of social welfare, despite the fact that the state has been constantly withdrawing from its previous social obligations.” This is confirmed in representative opinion polls of the Russian population, which show that from 2001 to 2020 between half and two-thirds of all respondents supported the view that “the state should care for all citizens, providing them with a decent standard of living.”15 Second, one has to investigate into which specific expectations the perception of state responsibility translates. The question about priorities for state spending combines two dimensions, the urgency of a problem and the responsibility of the state to tackle it. In order to assess the overall relevance of social policy issues for the Russian population, the question about the most pressing problems of the country is telling. Of the ten most prominent problems from 2005 to 2020, five refer to social policy. For most of this period, poverty ranked second (named by 40 percent to 60 percent of the respondents, multiple answers possible) and unemployment third (named by 30 percent to 40 percent, with peaks of up to 60

190  Heiko Pleines and Andreas Heinrich percent in years of acute economic crisis). In most of the years, social inequality is in fifth or sixth place (25 percent to 35 percent), followed by the lack of access to health services (15 percent to 30 percent). Problems with access to education are usually at the bottom of the list (15 percent to 30 percent) of the ten most prominent problems.16 However, to the question of what the first priority of additional state spending should be, in 2006, 2010, and 2016, the most popular answer was health care, with a share of 30 percent to 40 percent. The second most popular answer, named by a fifth of respondents in 2006 and 2010, was education. In 2016, pensions gained in popularity in terms of deserving increased state spending, being named by nearly a fifth of respondents. Assistance to the poor was named by only around 10 percent.17 At the same time, the population is highly skeptical of the state’s ability to improve the situation. For example, when the four national projects, which included health and education, started in 2006, over 70 percent of Russians supported the view that doubling the budget would not cause substantial improvements in the health system or the education sector.18 Third, there is an important dynamic element in public perceptions of social problems and expected state reactions. Exactly at the time when the global economic crisis of 2008 brought the economic boom to an end, expectations were rising, indicating a qualitative shift: Economic recovery based on rising energy prices looks like a failure, rather than a success, and highlights the underlying structural problems of the Russian economy. Arguments about the need for modernization from within government exacerbated this perception. This seems to have weakened the connection between approval for the leadership and economic growth, a staple of pre-crisis politics. (Robinson 2013, 450) The implications for social policy are obvious. After 2008, sustainable social policy increasingly became a basic demand that had to be guaranteed by the state independently of economic cycles. Its delivery was taken for granted, while failure to do so led to dissatisfaction. At the same time, the large majority of the population did not see a substantial improvement in the health and education sectors or in the fight against poverty.19 Finally, looking at public perceptions of social inequality, there is a broad agreement that the distribution of wealth is unfair. Throughout the survey period, those who think that the distribution of material wealth is becoming fairer are a small minority, with a share in single digits.20 According to the World Value Survey, in 1995, 22 percent of Russians favored measures to make incomes more equal; in 2006, this share stood at 30 percent. In 2011, it had risen to 64 percent, but by 2017, it had fallen back to 27 percent.21 The Life-in-Transition Survey also shows high support for active measures to reduce social inequality in the aftermath of the global financial crisis. In 2010, about half of the respondents were in favor.22

Resource Boom and Social Policy in Authoritarian Regimes  191

Public Perceptions and Reactions Looking at the overall perception of the country’s situation by the population,23 the most visible feature is that the approval rate of the president seemed rather detached from day-to-day politics. The approval rate of the president24 never fell below 60 percent and was much higher than that of the national government.25 It was also continuously about 20 percent higher than the share of people who thought that the country was moving in the right direction.26 Nevertheless, these three indicators moved in parallel. The approval rates for the president, the government, and the overall development of the country reached a first peak at the end of 2003, followed by a sharp drop in 2004. They then climbed again, reaching a new, higher peak in 2007–08. Afterward, they declined until the end of 2011, substantially increasing again only in 2014, followed by another decline bottoming out in 2018. In summary, the lowest approval rates were recorded in 2004, from 2008 to 2013, and since 2018.27 While the period from 2008 to 2013 covers the aftermath of the global financial crisis, the low points at the end of 2004 and in 2018 coincided with controversial social policy reforms which had sparked large public protests. In the summer of 2004, a law to streamline and thus reduce the costs of social benefits and entitlements was passed, which implied substantial losses for recipients, especially pensioners. When the law came into force, demonstrations erupted countrywide, developing into Russia’s biggest protest wave of the decade (Pleines 2022). In the summer of 2018, a pension reform increased the pension age considerably. Opinion polls indicated that the reform was opposed by over 80 percent of the population. Almost three million people signed an online petition. “Several hundred to several thousand demonstrators took part in each of the 100 plus demonstrations nationwide. Ultimately, it was not so much the number of demonstrations and participants that attracted attention, but the broad spectrum of organizers” (Brand 2018, 3–4; see also Dollbaum 2020).

Conclusion Overall, social issues are a key concern for the Russian population. In public opinion polls, they are regularly named as some of the country’s most pressing problems. At the same time, the natural resources boom of the 2000s led to a rise in expectations among the population. The huge sums parked in the oil fund prior to the economic crisis of 2008 were a visible sign of opportunities for increased state spending. Health care and education regularly topped the list of the population’s priorities for additional state spending. However, social policy was clearly not the major focus of state policies. In the boom phase, spending was rising in line with wages and GDP, but slower than state revenues, indicating that it was not seen as a priority for the state budget. Thus, the results of the Russian case study stand in stark contrast to the assumption (Hypothesis l) that a rational authoritarian leadership uses natural resource revenues to finance an expansive social policy in order to gain popular support. Instead, social policymaking is more complex in Russia; it had to incorporate

192  Heiko Pleines and Andreas Heinrich different ideas – namely, those of neoliberal technocrats who dominated the boom period for several years with their focus on financial austerity and the avoidance of Dutch disease symptoms. Moreover, there has been a policy focus on the development of ‘human capital.’ As a result, reactions to public discontent with the actual social policies have mainly taken the form of ad hoc measures. Most prominently, increases in social payments were used in the 2008 presidential election campaign to shore up support for Vladimir Putin’s chosen interim successor to the presidency, Dmitry Medvedev. However, protests against major social policy reforms in 2004 and 2018 achieved only minor corrections to the original spending cuts. The limited attention paid to public discontent with social policy could also explain why measures that provide financial benefits swiftly to larger parts of the population do not dominate (contrary to Hypothesis 2). More importantly, however, the framing of social policy measures by the president highlights a different task for social policy. As Putin explained already in his first ‘state of the nation’ address in 2000, the focus was not on ‘aid for the needy’ but on ‘investment in the future of people.’ He singled out health, education, and culture for this investment. Health and education formed a central part of the national projects announced in 2004 and of the follow-up projects announced in 2018. Culture referred to ‘traditional values,’ which were expected to solve the ‘demographic crisis’ by promoting the ideal of a Russian family consisting of a heterosexual couple with several children. The key policy reform related to this was the introduction of child benefits, the so-called mother capital. Accordingly, the most prominent policy areas in the public statements of the Russian presidents over the last two decades were family policy, health care, and education (in this order). Neither health care nor education policies were targeted at smaller segments of society. Moreover, neither reform promised any short-term success and, indeed, the overwhelming majority of the Russian population did not see any improvement in either health care or education. Accordingly, these policies could neither serve to provide transfer payments to groups critical for regime survival (as expected by Hypothesis 2) nor could they be employed to frame social policies as a success (as expected by Hypothesis 3). Similarly, family policy, though based on transfer payments, did not target a group relevant for regime support and used only relatively modest amounts of money. At the same time, the family policy seems to be just one part of a broader focus on ‘traditional values,’ which more prominently takes the form of legal regulations (banning ‘gay propaganda,’ attacking ‘Western nihilism,’ decriminalizing domestic violence; cf., e.g., Bluhm and Varga 2018). However, while the three policy fields of family, health, and education are clearly visible in social policy measures as well as framing, they were not a priority for the state budget. Overall spending on family policy remained rather small. Measured as a share of GDP, there were no sustainable increases in state spending on health or education over the period studied here. There had clearly been no sustainable long-term plans. In summary, the Russian leadership is not focusing on social policy as an instrument to legitimize political rule. Social policy features, first, in the form of rare ad hoc measures in reaction to public discontent and, second, in a low-key strategy to

Resource Boom and Social Policy in Authoritarian Regimes  193 improve the country’s ‘human capital.’ As the population is clearly expecting social guarantees from the state, social issues have a permanent place among the ‘most pressing problems’ and are a prominent cause of large-scale public protests. This indicates that even an inclusive authoritarian regime is not necessarily responsive to public pressure about social issues. It also shows that the rentier state literature may overestimate the rationality of political elites and their ability to agree on long-term policies and to implement them collectively.

Notes 1 This article has been produced within the Collaborative Research Centre 1342 ‘Global Dynamics of Social Policy’ (project no. 374666841), which is funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation). 2 The data collection has been published for open access as dekoder.org (2021). 3 See https://www.ebrd.com/what-we-do/economic-research-and-data/data/lits.html. 4 See http://www.worldvaluessurvey.org/WVSOnline.jsp. 5 See www.levada.ru. Social policy-related polling data used here have been provided directly by the Levada Center and have been published for open access as Levada Center (2021). 6 If not indicated otherwise, data in this section have been taken from the ‘Russia Statistics’ of the Bank of Finland’s Institute for Emerging Economies, https://www. bofit.fi/en/monitoring/statistics/russia-statistics/ (collected April 9, 2021). 7 World Development Indicators (as of December 16, 2020), https://databank. worldbank.org/source/world-development-indicators. https://databank.worldbank. org/source/world-development-indicators. 8 See https://minfin.gov.ru/ru/statistics/fedbud/ (as quoted by https://www.russiamatters. org/node/11300). 9 World Development Indicators (as of December 16, 2020), https://databank. worldbank.org/source/world-development-indicators. 10 The Gini index measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 thus represents perfect equality, while an index of 100 implies perfect inequality. 11 World Development Indicators (as of December 16, 2020), https://databank. worldbank.org/source/world-development-indicators. 12 World Development Indicators (as of December 16, 2020), https://databank. worldbank.org/source/world-development-indicators. 13 This part is based on a full corpus of public statements of the Russian president from 2000 to 2020, published as dekoder.org (2021). 14 Quoted according to the official English translation, http://www.en.kremlin.ru/ events/president/transcripts/21480. 15 Levada Center Omnibus poll: “In your opinion, what should the relation between state and citizens look like” [closed question] (figures for 2001–20: https://www.levada. ru/2020/02/25/gosudarstvennyj-paternalizm/). 16 Levada Center Omnibus poll: “Which of the following problems in our society alarm you the most/do you find the most acute?” [closed question, 25 options, multiple answers possible] (figures for 2003–20: https://www.levada.ru/2020/03/05/ samye-ostrye-problemy-4/). 17 Life-in-Transition Survey: “In your opinion, which of these fields should be the first and second priorities for extra government investment?”, Questions 3.04 a+b in 2006, 3.05 in 2010 and 4.06 in 2016 (https://www.ebrd.com/what-we-do/economic-researchand-data/data/lits.html). 18 Representative opinion poll by the Institute of Sociology of the Russian Academy of Science (quoted according to Buhbe 2006).

194  Heiko Pleines and Andreas Heinrich 19 Levada Center Omnibus poll: “In which way did the standard of living of the majority of the Russian population / the work of the education sector / the work of the health sector change in the last year?” [for the better, for the worse, no change, hard to say] (annual, figures for 2010–20: https://www.levada.ru/2020/12/29/2020-god-itogi/). 20 Levada Center Omnibus poll: “In which way did the fairness of the distribution of material wealth change in the last year?” [for the better, for the worse, no change, hard to say] (annual, figures for 2010–20: https://www.levada.ru/2020/12/29/2020-god-itogi/). 21 WVS Survey: “Incomes should be made more equal” vs. “We need larger income differences as incentives” [agreement on a 1 to 10 scale], Question V125 in 1995, V116 in 2006, V96 in 2011, Q106 in 2017 (http://www.worldvaluessurvey.org/ WVSOnline.jsp). 22 Life-in-Transition Survey: “To what extent do you agree with the following statement: The gap between the rich and the poor today in this country should be reduced” [scale from 1 to 7], Questions 3.01 h in 2006 and 2010, and 4.01 h in 2016 (https://www. ebrd.com/what-we-do/economic-research-and-data/data/lits.html). 23 It must be noted, though, that Russians seem unlikely to answer questions about politics honestly. In a public opinion poll conducted by the Levada Center in January 2016, only 30 percent of respondents stated that they would always honestly answer questions related to politics; furthermore, only 13 percent of them were sure that other people would do so (https://www.levada.ru/2016/01/22/strah-vyskazat-svoe-mnenie/). 24 Levada Center Omnibus poll: “Overall do you approve or do you not approve of the actions of [Vladimir Putin/Dmitry Medvedev] as president?” (annual figures from November/December for 2000–20: https://www.levada.ru/2020/11/27/odobrenieinstitutov-vlasti-28/). 25 Levada Center Omnibus poll: “Overall do you approve or do you not approve of the actions of the government of Russia?” (annual figures from November/December for 2000–20: https://www.levada.ru/2020/11/27/odobrenie-institutov-vlasti-28/). 26 Levada Center Omnibus poll: “The situation in the country is overall developing in the right direction or the country is developing on a wrong path” (annual figures from November/December for 2000–20: https://www.levada.ru/2020/11/27/odobrenieinstitutov-vlasti-28/). 27 The low approval rates at the start of Putin’s first presidential term in 2000 are ignored here, as they improved dynamically and thus indicate a positive development after a prior crisis.

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10 Rents Hinder Capitalism The Rentier Middle Classes in the Middle East Rachid Ouaissa

Introduction The rentier approach and the rentier states theorem have been common theoretical approaches to analyzing the social, political, and economic processes and structures in the Middle East and North Africa (MENA) for some years now. As early as the 1960s, scholars critical of imperialism attributed the phenomenon of underdevelopment to exploitation and, thus, ultimately, to rents. At the same time, the North American approaches to rent-seeking viewed rents as an obstacle to development (Krueger 1974). Since the 1980s, the rentier state concept linked political structures and behaviors of both the political elite and society to the generation of rents (Pawelka 2000). The relationship between rents and regime type, especially the relationship between rents and authoritarianism, has been examined. The theory of “rentier states” and “rentier economies” has, thus, been one of several advances to explain the predominance of authoritarian regimes in MENA and the apparent lack of success of democracy in the region (Abulof 2017). Advocates of this approach argue that an abundance of natural resources leads to economic, societal, and political-institutional distortions, which ultimately undermine both development and democracy. The argument that the rentier economy hampers democracy has been advanced theoretically and in case studies by Lisa Anderson, Jill Crystal, Dirk van der Walle, and Giacomo Luciani, among others (Harb 2005; Hachemaoui 2012). Regarding the emergence and consolidation of democratic structures, classical modernization theory posits the pivotal role played by the middle class in economic development and democratization. In this regard, economic development changes the class structures of society, improving the chances for democratization and democratic stability (Lipset 1959; Dahl 1971; Huntington 1991; Luebbert 1991; Rueschemeyer et al. 1992; Huber and Stephens 1999). Modernization theory identifies the middle class as the consistently driving class for democratization. Barrington Moore’s (1966) statement, “No bourgeoisie, no democracy,” is one of the most famous maxims in comparative politics (Chunlong 2005). Yet, Middle East scholars have only recently begun to investigate the role of the middle class in the democratization process (Mazaheri and Monroe 2018; Nasrn 2009; Bellin 2010; Ouaissa 2014). However, the middle classes are not democratic per se, as they can also act as a vehicle for extremist and fascist movements. In his essay DOI: 10.4324/9781003303268-14

200  Rachid Ouaissa “Panik im Mittelstand,” Theodor Geiger showed how economic uncertainties led to extremist patterns of behavior among the middle classes (Geiger 1930). In the 1930s, the middle classes in crisis gave National Socialism electoral success. Lipset (1959) expressed it with the term “extremism of the middle.” The fact that democratization is not always the primary goal of the middle classes is further illustrated by examples from Asia. As long as solid income and prestige are assured, the middle classes have proven willing to put up with authoritarian regimes. For the rising middle classes in Asia, democratic development is not a primary goal, but rather state-led capitalization (Schwinn 2006: 213). Regarding Singapore, for instance, Tamura describes the middle classes as “oriented to the 4 Cs (credit card, club membership, car, condominium).” For the case of Congo, John Clark notes, “many in the Middle classes ignored the corruption and oppressiveness of the regime as long as they benefited from oil-generated salaries and positions” (Clark 1997). This is also true in MENA, where the middle classes were often identified as the driving force of the 2011 protests (Diwan 2013; ESCWA 2014). After acting as a vehicle for the anti-colonial struggle and becoming the main pillar of the authoritarian postcolonial states, the protests show that the contract between the ruling regimes and the middle classes seems to have broken down (Prasad 2014). The question remains: did the Arab middle classes demand democracy through the protests of 2011 and 2019 during the so-called second wave of Arab Spring in Algeria, Sudan, Lebanon, and Iraq? This chapter argues that the Arab middle classes are rentier middle classes. They do not prioritize democracy, but rather renegotiate a new authoritarian social contract with the ruling class. The chapter discusses the relationship between the rentier state approach and democracy in the MENA region from the perspective of the middle classes. Contrary to the arguments that rents hinder democracy, this chapter argues that rents hinder the emergence of capitalist structures, particularly the emergence of an internal free market, which precludes the emergence of social and political counterforces to ruling regimes. The middle classes in the MENA region are not market-oriented, as Weber (1922) would argue. Instead, they are rent-dependent. Their goal is not regime change and asserting democratic structures but preserving the status quo. The disillusioned and blocked middle classes were the main force behind the revolts against ruling regimes in 2011 in Tunisia, Egypt, and Algeria in 2019. Yet, these middle classes pursued a reform of the regimes and not fundamental regime change. For the middle classes, the regime was responsible for their malaise. Corruption, moral decadence, and fear of the emergence of new social groups, who participate in the distribution of rents and therefore minimize the share doled to middle classes, have together encouraged revolt. This chapter argues that, first, the middle classes do not have a mechanism to secure their position, foregrounding their progressive orientation, in the sense of the young Marx, as the bearers of the bourgeois revolution and therefore their liberation as a result of their ability to reproduce themselves through profit; second, the Arab middle classes that revolted were not able to develop or offer integrating ideologies due to rents. In the French and English Revolutions, there were social revolutionary ideologies developed around the idea of human rights. In

Rents Hinder Capitalism  201 other European examples, nationalist, liberal, or social-democratic left ideologies functioned as vehicles for the stronger alliances of the middle classes with the lower strata of society. In the Arab region, the middle classes cannot develop an integrative ideology. Ideologically, the middle classes are divided between Islamist camps and those that are secular and Western-oriented.

Rents Hinder the Emergence of Capitalist Structures and Free Markets Rents are the result of politically created market restrictions or natural monopolies. Rents, therefore, represent any surplus that is not controlled by the mechanism of market competition, but by a political mechanism. They influence political structures and thus affect the strategies of actors through the mediation of interests. The emergence and maintenance of rentier economies are a logical consequence of structural heterogeneity. Due to the lack of industry diversification and capital, economically stalled states must tailor their foreign trade relations to their commodity production. Burchardt et al. (2021) argue that rents are both an external and internal mechanism of dependency. For Pawelka (1994), the integration into the capitalist world system further reinforces this structure. For the contemporary MENA region, the rentier state concept was applied by Mahdavy (1970) in the early 1970s, using Iran as an example. In the meantime, this concept has become the primary tool for analyzing the states, the economies, and the societal structures of modern MENA (Beblawi and Luciani 1987). The rentier state approach is used primarily to explain the emergence and consolidation of authoritarian forms of rule in the countries of the MENA. Mostly, advocates of the approach refer to two negative effects of rentier economics: first, the deformation of efficient economic structures and, second, the establishment of rigid repressive apparatuses. Ross (2001) is among the most recent scholars who attempted to test the rentier hypothesis, using time-series cross-national data from 113 states between 1971 and 1997, he showed that oil exports are strongly associated with authoritarian rule. Ross (2001) tests three casual mechanisms of which the rentier effect is one, with the other two being the “repression effect” and the “modernization effect.” He uses three different components to test and validate a possible rentier effect. These are (1) the “taxation effect” (low taxes – low demand for accountability), (2) the “spending effect” (patronage), and (3) the “group formation” effect (blocking the formation of independent social groups). For Ross (2001), governments that are financed by oil revenues and have large budgets are more likely to be authoritarian than those that are financed by taxes and have relatively small budgets. Through rent accumulation and distribution, the state gains a high degree of autonomy vis-à-vis society and, at the same time, ties the diverse groups of society to itself in a clientelist manner. Rents do not have to be used economically rationally, but are freely available to the ruling elite and are usually used politically to buy loyalties. The preferred use of rents is in the social sphere. This creates a political “rentier pact” between the rulers and the ruled, based on the strategic distribution of rents. Thus, any autonomy sought by groups below the ruling class is difficult

202  Rachid Ouaissa or even impossible. The state remains involved in all areas: the political, the economic, the social, and the cultural. These realms are monopolized, leaving no “state-free spheres” for an independent civil society. The development of the state and its rents has led to the regression of politicized civil societies (Ouaissa 2010). In short, rent promotes the stability of authoritarian regimes and makes overthrows difficult. In addition to co-optation through rent distribution, grand narratives, cultural-identitarian ideologies, friend-enemy schemes, and populist discourses are important strategies used by the state classes to patronize society. In this way, Arab nationalism, the theological justification of power, anti-Western and anti-Israel narratives, and egalitarian discourses are among the legitimation strategies of ruling elites in the Arab world. Rent appropriation within the institutional setting of the state gives rise to a bureaucratic elite. Under these conditions, a ruling class usually prevails, but its genuine interest is not development, but securing rule and maximizing power. Unlike other types of rent, the rent from oil demands a strong state centrality while promoting heterogeneity among the ruling elite. By continuing to collect and distribute rents, these classes can secure their political dominance without much risk and with less effort, acting according to domination criteria rather than economic efficiency. In summary, rent influences both the structure of the ruling apparatus and the behavior of social groups and, thus, the relations between the two spheres. A scarcity of rents leads to a reduction of distributional possibilities and possibly to an end of loyalties and the associated stability of the rentier state. In order to better understand the relationship between rent and the nature of the political system, it is necessary to go beyond a purely quantitative consideration of rents. We consider rentier states – that is, states in which social groups and classes that secure their privileges through the accumulation of profit in the market are marginal if not nonexistent. Capital accumulation through market mechanisms – i.e., competition – unlike the appropriation of capital through bureaucratic mechanisms and collusion with the political class, is part of the market-based production system and is therefore missing in rentier economies. In a rent-based, non-market system, the poor, the marginalized strata, and the middle classes have no structural possibility to establish a counterpower to the powerful ruling classes. Since mobilization through labor (as in trade unions or strikes) is impossible in such societies, struggles between privileged and marginalized classes, between rulers and ruled, are articulated in cultural, identitarian, religious, and moral forms. The idea that rents hinder democracy, asserted by many experts and scholars, does not refer to an automatic process. Rather, this article argues that rents reinforce already existing authoritarian structures of rule and influence already existing social and cultural behavior. The economic history of Europe as well as a close study of the concept of rent suggest that rents can occur in any society and in all economic systems. Unlike profit, rent arises from market imperfections and where market mechanisms are distorted. Consequently, rents require different types of monopolies or political access. Profit, on the other hand, must be reinvested in market systems due to market competition. Otherwise, even the most powerful capitalists risk falling behind in innovation and consequentially disappearing from the market

Rents Hinder Capitalism  203 altogether. Investments are made because entrepreneurs expect greater consumer demand. Innovation competition, as a result of investment, leads not only to technical superiority but also to rising real wages. In Keynesian dynamics, rising real wages lead to rising demand and thus to the upgrading of labor as a bargaining power (Elsenhans 2019). The empowerment of labor not only erodes the supremacy of the ruling elite, but further serves as the basis of a potential bourgeois revolution and, in this way, provides the basic precondition for the emergence and preservation of democratic structures and civil rights. In this logic, both the state, which acts as a moderator between workers and employers since every unemployed person increases state expenditure, and entrepreneurs, who need mass markets to increase their profits, are interested in full employment. Entrepreneurs are interested in skilled workers to compete in innovation. The state invests in education and structural conditions. Large strata of society benefit from the extension of the market, leading to what Hobsbawm called the “self-empowerment of the aristocracy” (Hobsbawm 1989) in the history of the industrialization of Europe (Ouaissa 2013). Capitalist structures determine the political behavior of the elite in addition to the cultural behavior of workers. The mobilization of labor as a bargaining power rather than ethnic, religious, and clan solidarity becomes the preferred means of asserting interests. The transition from community to society, as described by Ferdinand Tönnis (2002), is thereby enabled. Class alliances for the assertion of democratic rights, in the sense of Barrington Moore (1966), are also only promising under these special capitalist conditions. Rent does not hinder democracy per se, but it hinders the establishment of the historical precondition of capitalism, and at the societal level, it prevents the transition from community to society. In rent-led societies, the economic surplus does not need to be invested economically. The control and monopoly over the surplus require the use of political and repressive instruments. However, the percentage of the rent used for this purpose is relatively small. The measure of corruption is also relatively manageable, despite the self-privileging tendencies of the ruling classes. The attempts at industrialization in much of the Global South and Arab countries, as well as government efforts to provide welfare, show that most rents are mobilized for large segments of society after all. In societies dominated by rents, surplus does not get invested productively. In this type of economic structure, labor is not linked to productivity but to patronage. Despite exceptions in some sectors of a few Arab countries, these economic structures are dominated by what Hartmut Elsenhans (2001) termed “marginality.” A marginal worker is one who costs more than what they can produce and is thus employed as part of a pre-capitalist social contract. The marginal worker cannot assert their own interests by mobilizing their peers. On the contrary, they become clientelistically bound to a patron and clan (or religious community) since employment is based on wasta (Henni 1993). Wasta describes nepotistic relationships in the form of patron-client relationships in Arab societies. Any form of organized protest can lead to the use of the reserve army of cheap labor (Kalecki 1943). This in turn reinforces social pre-capitalist structures, the patronage system, and the fragmentation of society along communal lines.

204  Rachid Ouaissa The ruling elite clientelizes groups of society by creating employment, i.e., for marginal labor, and subsidizes most consumer goods. At the same time, the provision of welfare, free education, medical care, etc., leads to the emergence of broad middle classes. These middle classes migrate to the cities because such services are usually more available there. Additionally, for the Arab world, where the agricultural economy is neglected due to special climatic conditions as well as the import strategies of the ruling elite, subsistence agriculture is not enough to feed the rural population. The overpopulation of the cities, in turn, increases the importation of food and other consumer goods. The new, marginally employed middle classes, however, are not market-oriented in Weber’s sense (1922), but rent-based. They consume more than they produce, and their social status depends on the share of the surplus distributed by the ruling classes for consumption. These middle classes are not the result of the enlargement of production-based consumption, but of rent-based consumption. Therefore, they can only be described as middle classes in their habitus, and thus cannot be mobilized against the ruling elite (Bourdieu 1998). At the same time, however, they indirectly pressure the ruling elite to spend even more on consumption. Historically, the middle classes in the Middle East have had no great interest in industrializing or establishing capitalism and internal competitive market economies. Since the middle classes in the Middle East preserved power and status after independence, they were not forced to impose capitalist structures.

The Arab Middle Classes are Rentier Classes par Excellence Among the few attempts at a comprehensive account of the Arab middle classes is Théo Cosme’s chronological systematization. For the time after the mid-19th century, he has identified three phases of development, each of which was characterized by a specific segment of the middle class: the first phase of the so-called Arab Renaissance (Nahda) between 1859 and 1950 was marked by the influence of large landowners, the urban merchant bourgeoisie and Islamic legal and religious scholars. This was followed in the postcolonial phase between 1950 and 1970 by the increasing influence of the secularly oriented petty bourgeoisie, before their subsequential replacement by a rent-oriented middle class through the 1990s (Cosme 2002). The fourth phase, in the 1990s and 2000s, can be called the period of liberal structural adjustment measures, which, under the aegis of international financial institutions, produced a globally oriented, new middle class (Cohen 2004), while at the same time marginalizing some of its segments. In the history of the Arab region, it is precisely these broadly consuming, rent-seeking middle classes that have often comprised the rebellious strata (Ouaissa 2012). Their success in enforcing new, non-patrimonial social contracts with the ruling class, and the disempowerment of the ruling class, depends on the capability of the middles classes to forge alliances with the marginalized strata of society (Ouaissa and Elsenhans 2019). The middle classes had an important role in the struggle for independence. The so-called évolués (Ageron 1986) are considered to be colonial middle classes whose rise was prevented by colonial structures (Leca and Vatin 1979). Several analyses

Rents Hinder Capitalism  205 also focus on the role of the middle classes in the establishment of postcolonial state structures, especially nationalist and authoritarian regimes (Gherib 2011). Many authors consider the middle classes to be the most important driving force of Arab nationalism (Gershoni 1997). Such middle classes were also the focus of the state-centered development models of the 1970s (Sayad 1980). The main argument of this chapter is that the Arab middle classes are the principal agents and supporters of the protests. They neither possess the necessary structural leverage to develop into a driver of radical regime change nor the will to depart from rent. Taking the Western societies as a starting point for this argument, their middle classes are the result of intensified industrialization and consumer-oriented production. They became capable of acting on and negotiating their interests because the aristocracy was eager to increase its surplus. This attempt to increase surplus went hand in hand with an intensification of investment, which in turn depended upon supporting measures that promoted consumerism among broader strata of society. Such an intensification of industrialization and associated consumption entailed the generation of employment for broader sections of society. This raised political demands and fostered the participatory will of these social segments. This was only possible when the middle classes had acquired an advantageous position in the production system to negotiate their interests through the intensification of profit-oriented industrialization. The more the capitalist class wanted to accumulate wealth, the more the middle classes gained numerical and then political importance. In contrast to the European middle classes that originated in consumption-oriented industrialization, the Arab middle classes’ genesis is found in rent-based consumption. They are, thus, much more fragmented as they tend to compete internally for rents and do not struggle against a common enemy. Due to their socio-economical origin, the Arab middle classes continue to be susceptible to rent and ideology. The middle classes in the Middle East have been trapped in two specific structural conditions: colonialism and rent. First, colonialism limited the actions and means of a national aristocracy to initiate an autonomous economy or effective industrialization. Colonialism was only concerned with the exploitation of resources without showing any interest in establishing capitalist structures that could generate viable industrialization. From the outset, the middle classes that emerged from the few modernized industrial sectors that were fruitful for colonial enterprises were politically marginalized. After World War I, these marginalized middle classes became the mainstay of the nationalist movements and the anti-colonial struggle. With the end of colonialism, these middle classes, or at least a segment of them, assumed power. In this constellation, therefore, there was no struggle between the middle classes and a ruling class since the ruling class rose from the middle classes. This marks an important distinction between the Western middle classes and the middle classes in postcolonial and rentier societies found in the majority of the Global South. The middle classes in industrialized Europe have been forced to fight for their participatory rights and for democracy. As Samir Amin wrote, power, in the Arab region, is the source of wealth, whereas in capitalism, conversely, wealth is the source of power (Amin 1994).

206  Rachid Ouaissa On the other hand, the middle classes in the Arab world in general acquired political legitimacy, in addition to access to rents, through the role they played in anti-colonial struggles. Such legitimacy was further attained as a result of postcolonial policies of newly independent states that needed broad support to assert their own legitimacy. This is why, structurally, the middle classes in Europe are profit-oriented, while the middle classes in the Arab region are fixed upon the guarantee of rent. For Badawi (2014), the national elite that took part in liberating the country from colonialism in some Arab countries gained control of the means of production and was able to enshrine its wealth and power based on semi-capitalist/ semi-socialist tendencies. Unlike the Western bourgeoisie, the military elite plays an enlarged role in Arab class structures due to its significant participation in the economic and political spheres, and its willingness to assert itself through the use of force. All the industrial development plans of Arab countries, even with the infrastructural, material, and human capacity to sustain industrial growth, have failed, and the productive base of their projects has been exhausted, both materially and economically, turning them into decrepit projects ready for liquidation. In Egypt, among other states in the region, regimes have attempted to industrialize, but the goal of industrialization has been the establishment and legitimation of the ruling apparatus or the “state class.” Nasserism and its derivatives were established throughout the region, with the state acting as the sole employer. This model was called state capitalism or peripheral capitalism (S. Amin). The antiWestern discourse, pan-Arabism, and the rhetoric of overcoming underdevelopment served as an ideological superstructure. For Cosme, in the 1950s, the nationalist bourgeoisie that emerged from military coups in Egypt, Syria, and Iraq ousted the traditional Arab big bourgeoisie from power. The rise of this class has taken place through state institutions, the university, the army, modern and secular political parties set up by the traditional bourgeoisie itself, and via the judiciary and health systems as well (Cosme 2002). The postcolonial state used social policies and subsidies on fuel and food to “buy” support in the process of nation building and to create a base for the regimes’ legitimacy (Karshenas and Moghadam 2006). Since the state promised a certain level of welfare, citizens traded their political freedoms for this support, establishing a kind of authoritarian social contract between regimes and the masses, especially the middle classes. Providing such services was of prime importance for the legitimacy of these regimes since repression alone could not guarantee their survival. Loyalty from the middle class was essential for the regimes’ survival (Karshenas and Moghadam 2006). The social contract mostly entailed the state’s heavy presence in economic activities, the provision of basic social services, guaranteed public sector jobs, land reform during the early years of independence to address inequalities, and the centralization of trade unions and professional associations (Prasad 2014, 16). The result of the social contract was phenomenal growth and social development from 1965 to 1985, with decreased mortality and increased life expectancy, higher school enrollment rates and literacy levels, declining poverty, and high employment growth.

Rents Hinder Capitalism  207 The countries in the region took different directions. Referring to Morocco, for example, Cohen (2004, 65) shows that in the postcolonial independence era, the social fabric of Moroccan society was transformed by the new middle class during the 1960s and 1970s. She further argues that “the modern middle class was created as a necessity of nation building” in the aftermath of the independence. This signifies that the new middle class emerged when the state attempted to control the economy and society with new ideologies for nation building, economic development, and garnering legitimacy. Prasad (2014, 16) notes that “the rulers also realized the creation of such as class for political support where he allowed the business and political elite to dominate the economy.” The Egyptian middle class was not overly interested in entrepreneurship because, first, this function was taken up by foreigners, and, second, native Egyptians lacked the experience to compete. For Mellor (2016, 62), the Egyptians eager to climb up the social ladder tended to favor administrative positions rather than commercial activities, as industrial and entrepreneurial activities were backed by the state at the end of the 19th and early 20th centuries, rather than by the market itself. This is the reason behind the failure of establishing an Egyptian bourgeoisie to fill the political gap during the late 19th century. The ruling elites controlled production through their bureaucratic machinery and coercive military and police power, which left little material incentive for a new bourgeois class to emerge. The new class of civil servants and small merchants had to associate with those in power in order to maintain their status. The Free Officers’ coup of 1952, the so-called Egyptian revolution, helped the middle and lower classes, especially through the provision of free education, free health care, and guaranteed jobs for graduates in the Egyptian bureaucracy. The size of the middle class increased particularly in those positions running the bureaucracy, civil services, and public enterprises. This led to the emergence of a complex middle class with rural land owners, professionals, civil servants, military officers, small retailers, and entrepreneurs (El-Mikawy 1999). Mellor (2016, 65–66) argues, [In the following], the Egyptian army grew exponentially as it was able to draw from a much wider section of the social strata. Salaries paid by the army, police and diplomatic services were considered to be high relative to the rest of the remuneration system and were therefore very desirable. The rentier state began in Nasser’s era when land became state-owned by decree and limited acreages were sold to small farmers, with the rest owned and controlled by the government. Other sectors of the economy were nationalized, along with the Suez Canal from which remittances increased from USD189 million in 1974 to USD2,750 million in 1980. This form of economy was intensified during Sadat’s era, with the escalation of “various forms of unproductive income or rent” (Mellor 2016, 68–69). In the case of Tunisia, too, the middle classes have been at the center of the state’s development model since Tunisia’s independence from France in 1956, forming an important pillar in the architecture of the political system and an anchor of stability for the authoritarian regime. Rising revenues from the oil and

208  Rachid Ouaissa phosphate industries enabled investment in the promotion of the industrial sector, as well as the massive expansion of the state apparatus. As a result, the 1970s saw the growth of those making up state employees and a general increase of a state-dependent middle class. From the beginning of independence, Algerian politics were characterized by nationalization. The fight against underdevelopment, anti-imperialism, and the goal of completely overcoming colonial structures were central elements of a nationalist rhetoric and policy that henceforth shaped Algeria’s development. Under the governments of Ben Bella (1962–65) and Boumedienne (1965–78) and financed by rising oil revenues (Abdi 1985), the public sector and administrative apparatus grew significantly; the Algerian People’s Army and other security organs emerged, as did the Front de Libération Nationale unity party and its mass organizations. These newly established political structures offered numerous opportunities for social advancement into a growing middle class, with the number of employees in public administration alone increasing by 60 percent between 1966 and 1973 (Nair 1982). The differentiation of the state sector led to the formation of numerous different middle-class groups in the bureaucracy, the military, the state party, public enterprises, and the agricultural sector, each of which had a relationship of loyalty to the corresponding segments of the state elite. What they all have had in common, however, is their fundamental dependence on state (financing) structures and their commitment to the nationalist, interventionist state model as unifying elements. Thus, since the 1960s, the middle class has developed into the central pillar of Algerian authoritarianism in the sense of a “state class.” During the 1970s, the sharp rise in oil prices enabled a further consolidation of loyalties through extensive state investment in education, health care, and housing, which primarily benefited the urban middle classes. This rent-based policy led to the rise of a new middle class in the mid-1970s (Richards and Waterbury 2007), which grew to comprise more than 70 percent of the population in the 1990s in the most Arab states (Ravallion 2009). El-Mikawy (1999) argues that the middle class depended on the state for its well-being and therefore depended on rent-channeling. This is in marked contrast with other regions where the middle class was an agent for change toward progress independently of rent. Unfortunately, the Arab middle classes have become the main pillar of dictatorships. Noland and Pack (2007, 201) show that the middle class of Arab countries is unique, arguing that although the increasing middle class normally demands political reforms, the middle class in the Arab world emerged thanks to the authoritarian regimes and was, therefore, less inclined to demand economic and political reform. Prasad (2014, 20) characterizes this as “middle-class authoritarianism,” in which bureaucrats and military actors form the largest groups (Diwan 2013).

Crisis of the Rentier Model By the mid-1980s, this rent-based policy, that has rested on the distribution of rent for the demands of the Arab middle classes, experienced a severe crisis as international oil prices began to fall drastically. Most states in the region were forced to implement conditional structural adjustment programs under the aegis of the

Rents Hinder Capitalism  209 International Monetary Fund and World Bank. The crisis of the rentier state led to its retreat from social responsibility and the end of loyalty-securing distribution strategies. With the implementation of structural adjustment programs in the 1980s, the Arab middle classes came under increased economic and social pressure. In the 2000s, the size of the state-dependent middle class began to decline rapidly, especially in Egypt, plunging an increasing share of the population into the ranks of the poor (Prasad 2014, 8). The failure of rentier models and state ideological discourses led to the rise of Islamist parties, groups, and movements. The Islamist movements provided a new political home for the frustrated and blocked middle classes. The confrontation between the different segments of society manifested itself in many Arab states, such as Algeria and Egypt, as a confrontation between the military and Islamist military groups (Ouaissa 2015). At the same time, with the neoliberal reforms, neoliberal alliances emerged between broad sections of the ruling elite and the international investors. The reforms resulted in the demise of the old state-dependent middle classes (Nasserist for Egypt) and the rise of global, rent-based, cosmopolitan middle classes (Mitchell 2002; Cohen 2004). This social reconfiguration can be explained by the fact that the crisis of rent-based models caused the state to withdraw from its social functions, bringing about the decline of the old middle classes. All these developments and social transformations led to the revolts of 2011 and 2019. Depending on the country, the reforms and developments emerged along different timelines, but they follow similar schemes. Cammett and Diwan (2013) explain the rationale behind the Arab uprisings, which were triggered by the rollback of the state and deteriorating economic conditions, increasing repression by government regimes, and an increase in crony capitalism. The role of the middle classes in the Arab uprising has so far been the subject of a few studies (Kandil 2012), including the comprehensive analysis by Farhad Khosrokhavar (2012), who takes a closer look at the role of middle classes in the Arab uprising. The neoliberal turn provoked cleavages among competing segments of the middle class. At last three segments of the middle class can be identified. The first segment is the neoliberal and global-oriented middle class. The second group played a significant role in the formation and rise of Islamist groups. The third group is the beneficiary of the neoliberal reforms and has formed the backbone of “crony capitalism.” Kandil calls this group a “parasitic class” (Kandil 2012). The groups adopt distinct positions toward neoliberal reforms and therefore divergent positions toward the ruling class. The differences are also often expressed in ideological attitudes and, for example, in their view of the role of religion in everyday life. In reference to Egypt, Paul Amar (2011, 18) distinguishes between a business-oriented middle class that, however, rejects globalization and a frustrated middle class: (…) a coalition around nationalist businessmen in alliance with the military – a military which also acts like nationalist middle-class businessmen. This group ejected the “crony globalisers” and “barons of privatisation” surrounding Gamal Mubarak. (…) The Muslim Brothers represented frustrated, marginalized elements of the middle class.

210  Rachid Ouaissa Further, Khosrokhavar (2012) distinguishes between an economically successful but politically frustrated upper middle class, an economically fragile middle segment, and a young group characterized by a lack of professional, economic, and political prospects. He follows the widespread assumption that members of the middle class, for different reasons, appear as supporters and carriers of a political transformation process. Neoliberalization has neither promoted nor dismantled the protectionist and interventionist legal framework, nor has it led to the emergence of a truly competitive capitalism. Above all, privatization has not led to the emancipation of the economy from politics. With the reforms, the state gave itself another source of distribution: that of trade and import licenses. This middle class is still rentier, but commercial in nature and maintains close relationships with global networks. In most Arab states, this group forms alliances with the regime’s neoliberals and benefits from import licenses and contacts with the world market. Regarding Egypt, Magdi Amin et al. (2012, 43) argue, The military and business groups that had posed credible challenges to ruling elites in previous decades were co-opted to support Arab rulers. The merchant class that in other societies has been a natural advocate of a limited, constrained executive did not play a strong role in the change in Arab economies, preferring to enter alliances through which they received a portion of the economic rents and other benefits that the state distributed. Ideologically, this new class is characterized by a kind of ideological bricolage, claiming to seek both a 7th-century Islamic utopia and a 21st-century neoliberal globalism. Although these new classes advocate an alternative to Western modernization, they are ultimately only the product of the latter, adapting neoliberal globalization to Islamic values and vice versa. The bridgework between the two ideological codes is finally found in the benefits from oil rent, supporting two key fractions of the middle classes: the military/bureaucratic segment and the pious segment. Thus, these new middle classes, characterized by a different habitus from that of the old middle classes, are both pious and neoliberal and have become the basis of stability and endurance of power for ruling regimes. This new alliance anchored the structure of the ruling class after the Arab Spring, which contains both military nationalist and Islamist elements and discourses. The phenomenon of the new middle classes, with bricolage ideologies, seems to be observed in many parts of the Global South. Donner and De Neve (2011) note that the ‘new middle classes’ that have emerged in the ‘post-liberalization period’ comprise various categories of ‘newly rich’ with a much broader range of occupations and often fewer educational credentials. Since the so-called Arab Spring, we have seen a process of re-authoritarianization throughout the MENA region. In search of a new ideology, after the discrediting of the revolutionary, pan-Arabist, and socialist discourse, the ruling class finds in the instrumentalization of political Islam both a means of social control and legitimization. Since the Arab Spring, ruling regimes have been Islamized and militarized, just in line with the new middle classes on which it is based.

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Conclusion The Arab middle classes always have been a vehicle for political ideologies. Until the 1970s, they were the bearers of Arab socialism and nationalism. Afterward, they became the most important proponents of political Islam. The rentier crisis and the neoliberal turn in policy as well as the implementation of structural adjustment measures simultaneously led to the division of the middle classes and their turning away from the state. The withdrawal of the state from its welfare obligations divided the middle classes into a segment close to the lower classes (marginalized middle classes) and a segment close to the regime, demanding reform (business middle classes). The revolts of the middle classes in the Arab region are the result of the failure of social utopias and the increasing fragmentation of society that has gone along with it. The primary goal of the rent-oriented middle classes is the realization of a fair distribution of rents. Democratic demands have not been a principal cause of the revolt, as one witnesses an increasing politicization of the middle classes along a different ideological course from that of Europe and elsewhere. With regard to relations between the state and the contemporary middle classes in the Global South, most researchers would concur that even though neoliberal policies have provoked “a certain disengagement of the middle classes from the project of the developmentalist state … a majority of middle-class households still depend – directly or indirectly – on services and opportunities provided by the public sector” (Donner and De Neve 2011, 15). For Samir Amin, there is no real and important Arab middle class that can carry the project of capitalist development. The real bourgeoisie, consisting of rich peasants and merchants, does not have the courage to follow the modernist project. This class, condemned to mediocrity by peripheral capitalism, submits to the social power of ritualistic religion, to political autocracy, and to foreign domination. As for the upper classes, which monopolize local political power, the large landed property, and rents, benefit from integration into the world market and drive the vehicle of capitalist peripheralization (Amin 1994).

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Conclusion Extractivism and the Seduction of Rent Jan Ickler and Hannes Warnecke-Berger

Natural resources and raw materials play an essential role in the world economy. Fossil fuels, especially, have a crucial impact: the world still consumes more than 80 percent of global energy using extracted oil, coal, and gas (Kuzemko, Lawrence, and Watson 2019; BP 2021, 11). Natural resource production and trade, however, are precarious. As the effects of the war in Ukraine and the influence of the COVID-19 crisis highlight, supply problems can have severe ramifications. After February 2022, energy import-dependent countries such as Germany or France tried to diversify their import origins, accepting much higher costs than predicted. On the other hand, food security in many countries has deteriorated considerably, as exports from a single country, Ukraine, were missing. It is already apparent that global raw material trade composition will change fundamentally in the coming decades. Climate change forces humankind to deal with a profound energy transition, possibly paving the way for a post-fossil energy age. New technologies and digitization efforts will accompany this transition, further impacting the global demand and supply of raw materials. In this configuration, minerals and metals will certainly gain shares, challenging the world economy’s foundation away from oil (Warnecke-Berger, Burchardt, and Ouaissa 2022). This edited volume underlines that while commodity production and trade composition are changing due to these shifts, the character of extractivism will not. Quite in contrary, extractivism is and probably will be a highly persistent feature of the world economy. It marks the reality of many countries in the Global South now and will stay their preferential development model in the future. Independently of the underlying materiality of the commodity exported – be it oil, gas, copper, or lithium – natural resources continue to fuel a powerful myth, promising economic, social, and sustainable development. Both in the ‘old’ and the ‘new’ energy age and its corresponding economic configuration, extractivism is likely to remain the most easily accessible development model for a large number of countries. This is not to hide the fact that extractivism also involves many risks, as illustrated in this book. Extractivism can be dangerous and dirty. It promotes enclave industries, is dependent on volatile world market prices, and induces devastating consequences for nature. In the long run, extractivism is terrible for populations living in extractivist societies and for the world’s ecosystems. At the same time, DOI: 10.4324/9781003303268-15

216  Jan Ickler and Hannes Warnecke-Berger extractivist societies face considerable challenges in overcoming extractivism. As a matter of fact, using extractivism to overcome extractivism remains a fantasy, creating political and economic dissolutions and disappointments. This book has argued that the central ‘extractivist’ promise – using resource windfalls stemming from natural resource exports for economic development – is highly seductive on different scales and potentially limits the scope of social change rather than promoting it.

Extractivism and Rent In general terms, the logic of rent is the underlying characteristic of extractivism. Rent not only informs the economic configuration of extractivism but also shapes society to its core. The logic of rent, thus, can be grasped as a mode of ordering society, also impacting the interaction between actors. As already stated in the introductory chapter, related ideas have been developed in different bodies of literature (e.g., the resource curse thesis) or in highly regionalized debates. Both considerations, the formative power of rents and the regionalized debates, are reflected in the individual contributions to this volume. Despite the different disciplinary, conceptual, and methodological foundations of individual chapters, the observed processes in extractivist societies in the Global South are surprisingly similar. Comparing the effect of rents and resource-driven development in cases with deep-rooted differences (e.g., regarding history, politics, institutions, culture, and language), the seduction of rent seem to produce similar outcomes. Therefore, the following paragraphs aim to systematize these mechanisms of seduction. The results of this seductive power of rent have already been acknowledged by proponents of the resource curse thesis debate (Smith and Waldner 2021), as well as in the rentier state literature (Hertog 2020; Yamada and Hertog 2020). However, these approaches remain strongly deductive. They, therefore, do not differentiate the causal chains, and they do not open up to agency. On the one hand, while the political resource curse mainly links the propensity to spend resource windfalls to regime stability, economic resource curse studies emphasize negative impacts on economic growth. On the other hand, rentier state theory focuses on the authoritarian character of rent-based societies. These bodies of literature explain the continuity of the overall patterns of extractivism through structural variables such as redistribution and patronage. The contributions to this volume enrich these approaches by emphasizing the diverse mechanisms that render natural resource rents seductive, highlighting the internal dynamism in societies dominated by rent. First, as the chapters of Warnecke-Berger and Elsenhans show, rents evolve because the structure of the international economy cannot neutralize them. Rents, in this sense, are linked to global uneven development and asymmetries within the international division of labor. The chapters of Peters and Friesinger underline that rents appear as a form of revenue that is not subject to any kind of systemic compulsion and constraint for resource-exporting countries and their governments. Rents do not need to be invested and can be used or directed to whatever political,

Conclusion  217 economic, social, or cultural end. Peters shows that these rents are distributed among the population and allow for otherwise denied consumption patterns; broad segments of the lower and middle class are included in rent-based social redistribution schemes. In Pleines and Heinrichs’s description of Russia, the social policy does not respond to the population’s frustration, in contrast to Peters’s account of Venezuela. In comparison, they demonstrate that the factual channel through which rents flow depends on historical developments and the rule of power. Hence, the political configurations, actor constellations, and party politics matter in defining the paths of rent channeling. Second, governments and political coalitions controlling state institutions get access to revenues and allocate rents for different purposes, often rendering these purposes as development for the majority. However, the rent allocation often turns out to be self-privileging instead of empowering the masses. This ambiguity of rent opens up discussions on agency and contingency. Dietz shows in her account of Colombia how oligarchic segments and land-holding elites in Colombia use upcoming economic opportunities that stem from shifting flows of rent to modernize their power base and renew elite rule. Ouaissa highlights a similar process in his account of ‘Arabellions’ in the Maghreb. He turns to a detailed analysis of the middle classes. He concludes that they maintain a developmental discourse, but in effect, they (re)align with traditional power groups in and around the state. In Hehl’s chapter on the case of Turkey, for instance, the shift from a veritable development coalition to a self-enriching comprador bourgeoisie can be retraced in detail. In Turkey, at some point, the development process lacked legitimacy and reordered groups of winners and losers. The government shifted its emphasis toward softer policies and international alignment. Friesinger highlights the domestic sphere of this re-shifting process in the case of Uganda. Here, the power coalition reacts to its audience and frustrations with vote-buying and clientelism. Grossmann describes the reverse case and turns to the (non)response from below. She also points to the (indirect) economic support from popular population segments in the lack of economic alternatives. Rents then become attractive, particularly for those who struggle to make a living. Hoppe’s results show, in the case of Russia, that future rents maintain this patronage and clientelism, but it also shields the powerful against systemic pressures from below. At the same time, this process of co-optation opens ways for industrial policy and even geopolitical imagination. These observed politics of rent, thus, paint a broad picture of possible scenarios in which rents are seductive. Third, all chapters show that rent is a persistent feature of natural resourcedriven development. Rents are ubiquitous in raw material exporting societies. The logic of rent affects critical political actors’ political, social, and economic interactions. While the state plays a significant role, the impact of the rent does not stop at the boundaries of the state and its bureaucracy. It also affects relations between employers and employees, people and the state, and interactions among ordinary people in their daily lives. The seduction of rent is, thus, manifold. The studies in this volume indicate that the ways extractivism is reproduced, prolonged, and stabilized are much more complex than argued by broad parts of the literature. We argue that our approach to the seduction of rent adds to

218  Jan Ickler and Hannes Warnecke-Berger understanding this complexity. However, it needs to be methodologically saturated, as well as qualitatively elaborated. We assume that the causal path between the appearance of rents in the economic sphere and the (suboptimal) outcomes concerning development is not linear but ruptured. Agency and social struggles shape this path, which is prone to contingency. At the same time, however, some general patterns can be identified, which we describe as the seduction of rent.

Rent Orders Society: Toward the Seduction of Rent A synopsis of the individual contributions in this book suggests three causal channels that are able to explain both the persistence of extractivism and the changes within the overall pattern of extractivism. Rents create opportunities, and they do so without any systemic compulsion that forces actors in control of rent to do something specific. Under market imperatives and capitalist constraints, capitalists are forced to reinvest their profits. Rentiers, the actors in control of rent, in contrast, are not. Rentiers can invest, but they do not need to; they can consume, but they also can save or even waste their revenue. One could argue that actors’ social position would be independent of their income precisely because of this economic ‘freedom.’ However, this is certainly not the case. Quite the contrary: in extractivist rent-based societies, social positions are ‘negotiated’ through access to rent and the power over the flow of rent. Thus, rents are seductive in a double sense. They generate economic opportunities and are the means and ends of power games. While various social actors directly or indirectly benefit from rents in extractivist societies, rents are usually appropriated and distributed through an institutional setting: by the state. The state, for example, might use exchange rate manipulation, tariffs, and import taxes to change the volume of rents retrieved. It also might draw on direct taxation, royalties, or nationalizations to appropriate rents from the extractive sector. In addition, through redistributive policies, the state can utilize rents in its national budget to finance infrastructure, social reforms, industry subsidies, or conditional cash transfers. However, by opening the black box of the state, different actors become visible that impact the way appropriation and distribution are organized. The contributions in this volume have shown that the way elite factions change their position vis-à-vis other actors and follow their respective political and economic strategies in changing environments is pivotal. Second, rents facilitate social change, but the impact of this change is too superficial to affect the fundamentals of extractivist rent-based society. Opportunities rents create are distributed unequally. Rents create dependencies for segments of the population that expect future rent inflows. These very dependencies significantly impact how people perform and interact in extractivist rent-based societies and in which preferential alliances people struggle for social change. The book highlights that crosscutting alliances between large social groups and inter-class coalitions tend to be organized vertically, marginalizing and/or co-opting already disadvantaged social groups. From the perspective of the underdogs, the have-nots, and the ‘ordinary people,’ indirect access to rent initially translates into the security of livelihoods and survival. However, stability here moves in opposition to equal participation. As stated by various chapters of this book, then often, but not necessarily

Conclusion  219 always, politics of distribution support patronage and clientelism. From the perspective of the haves and the elite, the control of rent allows for shielding against social pressure from below. Rents create a social environment in which specific actors are empowered relative to others, and this empowerment allows these actors to pursue their interests. Actors who can secure access to and control rent are empowered to shape their lifeworld. With this, however, they usually also develop a sense of securing their future position. Rulership stabilizes. Indeed, it verticalizes. However, this does not automatically diminish the susceptibility to crises and change. It shifts the level of social conflict to within their we-groups and peers. Thirdly, rents dynamize social relations and affect the perceptions of people. Specifically, rents shorten the time horizon of actors involved in this struggle. As a result, actors tend to subordinate long-term goals to short-term benefits, contributing to the overall persistence of this mode of ordering society. Suppose equitable development is understood as overcoming extractivism in the long run. In that case, the resources that stem from the extractive sector are pivotal to initiating this strategy in the short run. Both short and long-run objectives are caught in a zerosum game. Even under optimal political, economic, and social conditions, diversification in rent-based societies is hard to achieve. Any attempt to shift the economic basis away from extractivism also means at least a short-term dependency on the rents stemming from extractivism. Therefore, rents usually promote overvalued exchange rates and the Dutch disease, stagnating labor productivity and the discrimination of non-rentier sectors, as well as deepened social inequalities and self-enrichment among elites that eventually feed patronage and clientelism. It is precisely this time horizon that is a social glue that consolidates the coalitions discussed earlier. Everyone benefits from rent, and for literally everyone, a shift away from rent will be too demanding, as it would require giving up established lifestyles and certainty. Extractivism prevails because resource rents are seductive, and actors involved perceive engaging in structural change appears too risky. In a nutshell, rents tend to stabilize extractivism than support alternatives. Nevertheless, they do so by incentivizing fragmented and superficial social change.

Debunking the Myth of Development By referring to the seductions of rent, this book deconstructs the laws of motion and drivers of extractivism. The notion of seduction of rent thereby refers to a social climate in which overcoming extractivism is unlikely. Nevertheless, as the Introduction to this book and several chapters underline, extractivism regularly creates a myth of development, and many societies fall into similar traps repeatedly. Extractivism has persisted for at least 150 years because it appears too attractive and lacks alternatives. The development myth has not been losing its appeal. As before, extractivism generates promises to bolster development for the masses, social change, and increase participation and well-being. Moreover, extractivism is often advocated under the banner of national selfdetermination and ‘permanent’ sovereignty, a rationale that in highly competitive and nationalist times, as induced by the war in Ukraine and the COVID-19

220  Jan Ickler and Hannes Warnecke-Berger pandemic, will undoubtedly continue to gain momentum in the future. However, the expectation surrounding rent, or relatively successful rent management, will also rise in the process, as will the frustration about the lack of its materialization. If the seductions of rent are taken seriously, catch-all solutions can be deconstructed, as they tend to promote the myth of development instead of providing alternatives. Managing rent, in this context, does not only refer to crafting good governance or introducing best practices but instead comprises a complex set of actions that impact societies at a fundamental level. Efficient rent management is precarious and steadily threatens to produce a mismatch, both in the economic sphere of market distortions that disadvantage former beneficiaries or in the political sphere through excluding stakeholders. In both spheres, rent management will likely reorganize groups of potential winners and losers, haves and have-nots, and supporters and opponents. The most unlikely case, in the end, is that rent management eventually leads to overcoming rent (Elsenhans 2004). The seductions are too strong for society to free itself from its proper and often self-imposed bonds and those imposed by others. Any hopes for successful rent management should therefore be treated with caution. In this regard, the seductive force of rents and their impact on the interactions and relationships between actors in extractivist rent-based societies tend to repeatedly “freeze” the natural resource-driven development paradigm once in place. Rent management seldom achieves a change in the development pattern but instead tends to reinforce the seductive force of rents.

Toward the Political Economy of Rent The findings of this book broaden existing debates around natural resource-driven development and extractivism by establishing a more nuanced picture of its foundation. Against notions of either exogenous or endogenous drivers of extractivism (see “Introduction”), this book has introduced rent as a conceptual link, bridging both seemingly opposing reference points. The focus on the seduction of rent allows for explaining the continuity amid changes. This conceptual move also contributes to locating extractivism in an everchanging constellation of actors and economic and political environments on different scales. Following this approach, extractivism appears to be a self-reinforcing social formation with rent as its core modus operandi. The insights of the book indicate that a deeper understanding of the rent’s formative power in ordering society in different regions around the globe is pivotal not only to understanding the pitfalls of natural resource-driven development but also to fleshing out processes of (gradual) social change in general. This poses a set of challenges for scholars working in political economy and different area communities alike. First, on a theoretical level, rather than concentrating on particular rents and their microeconomic foundations, a proper macro-theoretical foundation is needed. This call thus joins a protracted and simmering discussion in the broader disciplinary self-description of political economy (Blyth and Matthijs 2017; Stockhammer 2022; Schwartz and Tranøy 2019). Following post-colonial

Conclusion  221 approaches, questions must be raised against too many generalizations. However, the shift toward pure ideography, deconstructions, and detailed and ‘thick’ descriptions of single extraction sites only gets a part of the picture. Instead, we advocate that extractivist societies should be considered societies sui generis. By granting rents its formative power, the political economy will be able to lay focus on surplus structures that may be fundamentally different than in capitalist societies (WarneckeBerger 2021). The same could be said regarding the ontological penetration of capitalism (Moreno Zacarés 2021; Durand 2020; Dean 2020). Therefore, acknowledging rents more broadly opens the perspective on the myriad ways rents create opportunities for social action and change. Second, on a methodological level, this affects the research design. Interdisciplinary and cross-area approaches can contribute to comparative research on extractivism. The contributions in this volume have already shown that despite huge differences between extractivist societies, similar processes can be observed. Rent, as a conceptual bridge, can make these similarities understandable. Therefore, the discussion of rent theory needs to emphasize stringent comparisons to contrast cases that differ, revealing similarities in the direction of social change. Linking the logic of rent and its seductive force to processes of social change illuminates how profoundly entire societies are affected. However, this can only be achieved if political economy transgresses the boundaries of regionalized discussions and engages in cross-area research. Third, a central aim of a political economy of rent will be sending a revitalizing theoretical stimulus to other debates. As the configuration of the international system and the global economy is changing, rent becomes more critical. Trends such as concentration and monopolization, both by companies and the state, as well as the positioning of powerful actors, such as the rise of platforms and software cartels, seem to be highly entangled with rent. Additionally, different forms of rent are about to gain significance (Birch 2020; Mazzucato, Ryan-Collins, and Gouzoulis 2020), not only in the Global South but also in the North, as the discussion on rentier capitalism highlights (Christophers 2020; Hudson 2021; Standing 2016; Sanghera and Satybaldieva 2021). Understanding the logic of rent and its seductive force on different scales contributes to a proper debate on the character of the dynamics of the world economy and the international system. Rent theory offers an integral approach to researching these issues. The experiences in extractivist societies that are collected in this volume might, thus, serve as starting points for even broader debates about our present and future.

References Birch, Kean. 2020. “Technoscience Rent: Toward a Theory of Rentiership for Technoscientific Capitalism.” Science, Technology, & Human Values 45 (1): 3–33. Blyth, Mark, and Matthias Matthijs. 2017. “Black Swans, Lame Ducks, and the Mystery of IPE’s Missing Macroeconomy.” Review of International Political Economy 24 (2): 203–31. BP. 2021. Statistical Review of World Energy. London: British Petrol. Christophers, Brett. 2020. Rentier Capitalism: Who Owns the Economy, and Who Pays for It? London: Verso.

222  Jan Ickler and Hannes Warnecke-Berger Dean, Jodi. 2020. “Neofeudalism: The End of Capitalism?” Los Angeles Review of Books 05/12/2020. https://lareviewofbooks.org/article/neofeudalism-the-end-of-capitalism/. Durand, Cédric. 2020. Techno-Féodalisme: Critique De L’économie Numérique. Paris: Zones. Elsenhans, Hartmut. 2004. “Overcoming Rent by Using Rent: The Challenge of Development.” Intervention. Zeitschrift für Ökonomie 1 (1): 87–115. Hertog, Steffen. 2020. “The ‘Rentier Mentality’, 30 Years on: Evidence from Survey Data.” British Journal of Middle Eastern Studies 47 (1): 6–23. Hudson, Michael. 2021. “Finance Capitalism Versus Industrial Capitalism: The Rentier Resurgence and Takeover.” Review of Radical Political Economics 53 (4): 557–73. DOI: 10.1177/04866134211011770. Kuzemko, Caroline, Andrew Lawrence, and Matthew Watson. 2019. “New Directions in the International Political Economy of Energy.” Review of International Political Economy 26 (1): 1–24. Mazzucato, Mariana, Josh Ryan-Collins, and Giorgos Gouzoulis. 2020. Theorising and Mapping Modern Economic Rents. UCL Institute for Innovation and Public Purpose Working Paper 2020–13. London: University College London. Moreno Zacarés, Javier. 2021. “Euphoria of the Rentier?” New Left Review (129): 47–67. Sanghera, Balihar, and Elmira Satybaldieva. 2021. Rentier Capitalism and Its Discontents: Power, Morality and Resistance in Central Asia. Cham: Palgrave Macmillan. Schwartz, Herman M., and Bent S. Tranøy. 2019. “Thinking About Thinking About Comparative Political Economy: From Macro to Micro and Back.” Politics & Society 47 (1): 23–54. Smith, Benjamin, and David Waldner. 2021. Rethinking the Resource Curse. Cambridge: Cambridge University Press. Standing, Guy. 2016. The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay. London: Biteback Publishing. Stockhammer, Engelbert. 2022. “Post-Keynesian Macroeconomic Foundations for Comparative Political Economy.” Politics & Society 50 (1): 156–87. Warnecke-Berger, Hannes. 2021. “Rent, Capitalism and the Challenges of Global Uneven Development.” In Development, Capitalism, and Rent: The Political Economy of Hartmut Elsenhans, edited by Hannes Warnecke-Berger, 1–16. London, New York: Palgrave Macmillan. Warnecke-Berger, Hannes, Hans-Jürgen Burchardt, and Rachid Ouaissa. 2022. Natural Resources, Raw Materials, and Extractivism: The Dark Side of Sustainability. Extractivism Policy Brief 1/2022. Kassel: University of Kassel; Philipps-University of Marburg. Yamada, Makio, and Steffen Hertog. 2020. “Introduction: Revisiting Rentierism – with a Short Note by Giacomo Luciani.” British Journal of Middle Eastern Studies 47 (1): 1–5.

Index

agriculture 94, 167 AKP 162 Algeria 56, 208

natural resources: copper 25; definition 9; oil 67, 142; role in the world economy 24

capitalism 43; definition of 45; vs. rent 42, 201 class dynamics: elite pacts see rule of elites; incorporation see patronage politics; middle class 73, 146, 165, 199 coal 84, 89, 123, 126 coalition 162 Colombia 84 comparative advantage 19, 48 consumption 142

patronage politics 104,123, 151; patronage pyramids 109

East Africa 67 Egypt 206 elite: composition of 92, 162; factions 112, 165; modernization 84; rule of 92, 170 extractivism: definition 7, 216; neoextractivism 4, 141; persistence of 2, 27; reproduction 216 foreign policy 117 global capitalism: colonialism 2, 24, 201; neoliberalism 24, 130 Indonesia 123 Latin America 3, 84, 139 Maghreb 199 Middle East and North Africa 199 Morocco 207 natural resource-driven development: definition 2, 215; industrialisation 52; infrastructure policies 73, 128, 167; myth 1, 219

raw materials see natural resources reforms 128, 151 rent: appropriation of 86, 141; channeling of 51, 148; management of 104, 112; theory 43, 216; in the world economy 57, 201 rentier state 140, 181 resistance 88, 130 resource curse thesis: authoritarianism 142, 181, 199; Dutch disease 2, 140, 142; enclaves 5, 91 Russia 104, 181 seduction 218, 172 social policies 142, 181 Southeast Asia 123 state: export taxes 46, 218; institutions 68, 106, 163; policies 186; state class 53, 70, 153, 202 structural heterogeneity 47, 71, 201 trade 17 Tunisia 206 Turkey 162 Uganda 67 unequal specialization 17; lock-in 24 Venezuela 139; Chavismo 146 world economy 1, 17, 57