Association for Public Policy Analysis & Management

The recent COP-21 agreement in Paris between the world’s leading carbon-emitting nations may be the most significant signal to date that the global economy is committed to the realization of a hydrocarbon-free world. Although historically low oil prices have started to shine a light on the vulnerabilities of hydrocarbon rentier states (HSRs), few have seriously reflected on the ramifications to regional and global stability that could result if these countries fail to peacefully transition to more diversified economies. The inevitable reality is that a great deal of oil, natural gas, and coal, will remain in the earth if carbon mitigation pathways are pursued. This transition will be disruptive, but also uneven. At the same time that this should be considered a global security risk, it also represents a unique opportunity to address the high levels of economic inequality that rentierism helps to perpetuate. This is due to two fundamental characteristics of rentier states: 1) Low labor force requirements (and these tend to be highly skilled jobs) relative to hydrocarbon revenues as well as the detrimental impact on exports in other markets by a single, dominant resource (sometimes referred to as “Dutch Disease”), and 2) because oil revenues accrue directly to government coffers where they are used to finance and support government projects, it bypasses public accountability of government outlays through a system of political favoritism. This research first examines the scope of hydrocarbon rentierism within three geographically and culturally diverse hydrocarbon rentier states, Saudi Arabia, Venezuela, and Russia, outlining the relative dependencies that these economies have on hydrocarbon incomes to sustain government functions. Next, it examines the levels of economic inequality in each of these countries, both in absolute terms and after adjusting for government hydrocarbon-generated subsidies, and compares those to comparable economies within their region that are not HRS’s. Lastly, it proposes a potential set of economic sector expansions that would, relative to their current GDP/capita: 1) replace the loss of hydrocarbon revenues and bring them to parity in macroeconomic terms, and 2) reduce their current level of wealth inequality. Of course, this parametric analysis is largely economic and does not offer a remedy for institutional failures and rampant corruption, which is worthy of further research.