Iran, as a rentier state, faces the same problem as Saudi Arabia, Kuwait, and Iraq. That problem is the problem of economic immobility. Rentier states, drawing from their namesake, rest on the pillar of rent- a flimsy pillar like property rent in its more common usage; something that has no backing of ownership and guarantees nothing when discontinued. It is because of this that Iran's economy is so fragile, and for the very same reason that Iran's politics have always been a mess since the discovery of oil at Masjed-e-Soleyman. I will attempt to illustrate the plight of the rentier state in laymen's terms with an analogy for those who are confused about its dynamics and the dangers it presents to developing a democratic society and strong economy.
The Rentier State in an Analogy:
Oil is like heroin. The drug-dealer-to-be can go to college and get an education, learn a trade, and profit from doing legally sanctioned work and living a healthy, normal lifestyle, but this is a long process filled with ups and downs. He must first finish secondary school and get a diploma. He must then attend a post-secondary school, and get a degree in a general field. He must then advance to a professional or graduate program and endure the hard mental and physical work necessary to become a professional. After years of struggle and investments that do not guarantee anything per se, he can finally taste the fruit of his labor with a lucrative profession and the ability to live a fuller, happier life without money presenting itself as a problem. But all of these steps are riddled with tests- examinations for acceptance, hardships, flips of the proverbial coin, and uncertainty. So he looks and sees what his friends from the block are doing, and sees them in fancy cars, with jewelry, and with entourages of women. He learns that this is brought about by the magic powder- heroin- that is being peddled by bigger dealers from the city. His friends establish contacts and work as minions and small-time sellers in their area for these bigger men, and are rewarded bountifully. It seems like a deal too good to refuse- the drawbacks and consequences are overshadowed by the easy, quick path to fame. He thus decides that selling heroin is the best route because it is very easy money and very lucrative, with the minor side effect of losing one's dignity (not to mention jail, murder, injury and other obvious, but minor in his mind, consequences). The dealer falls into the trap of believing he's lucky and won't be hurt like the rest of them. He believes he can do this job for a year or two and get out while the going is good. He believes he is different from all the other dealers.
And so he embarks on his dealing. He meets with the overlords and buys large quantities from them, setting out for his area and making clients. He imagines the bounties of fancy cars, beautiful women, and shimmering jewelry. He imagines with his newfound money that he can acquire guns- the latest in street protection, bullet vests and submachine guns, an entourage of bodyguards, a collection of fake identities and friends in the police department that can get him out of trouble. If push comes to shove, he can rat out the other dealers and fill in their void when they are kicked out of the competition. Life is good, he just needs to be serious about his new "profession". He faces a dilemma- can he really do this for only a year? The answer is no, but it escapes him. He thinks of the return, he reasons that he needs to build right now, to work hard, to watch out for danger, and to peddle, peddle, peddle. He needs to "grind and hustle" as his friends call it. Then, he can go back to the mundane life of degrees, a wife, and kids.
He deals drugs for years. He incites wars with other dealers in the area, seeking to take his clients from him. He wishes death upon them, and they do in return. One day, he comes home to notice his stashes have been raided. He is being threatened by local dealers and police men. He invests more in weapons. He puts out an outward show of fancy cars and bling-bling. He is hollow inside, and the money flowing into his hands is escaping him just as fast. He never thought it would be this way. But he'll continue soldiering on, because he believes he will be able to save enough to move out of his dangerous neighborhood.
He is now forty years old. He has a wife that he found in his neighborhood, and had saved her from welfare. He has three kids with different women. He is getting money, but has a criminal record. He has been to jail several times and has scars from fights and attempts at his life. And the heroin keeps flowing. He eventually decides to try some of his product to ease away the pain. He becomes addicted and is unable to care for his kids. His wife leaves him. He is a mess. He throws himself into his work again, and the customers want his product for cheaper. He needs the money- because now he needs his fix. He is forty years old and too old to start fresh. He must make do with what he has. He could have spent this time working in society, accumulating experience and skills in clean jobs, getting degrees, certificates, connections with professors and businessmen, clubs and societies, writing and settling contracts in clean business. He is too old for that; he cannot look back now. But a vacant feeling plagues him. He realized his mistake, but too late. There is a warrant out for his arrest.
Oil is like heroin- it is easy money and fast money. When a country becomes a rentier state, it loses the incentive to diversify and expand other sectors of its economy, remaining stagnant in the raw materials sector. Most rentier states do not even bother to improve refining capabilities, preferring just to sell raw materials by the bulk because of the capital that can be gained by doing such. Without a diverse and expanded economy, there are no business classes based on different sectors, no competing and diverse interests, and no foundation for democracy that fits within the confines of capitalism. There is a foundation for an authoritarian state that keeps within the confines of the lucrative rentier model. The citizens are kept quiet and loyal through government handouts and there is a lack of a youthful skilled labor force that is found in advanced industrial societies. People become used to handouts from authoritarian governments and would rather not go through the trouble and hardship of working for better conditions, clamoring for more political and economic improvement. They are happy with the system deep down, as long as they get their benefits. When the system gets too brutal, thats when the more educated class take to the streets to demand for reforms. But they are overshadowed by the larger poorer class and beneficiaries of the regime which continue receiving handouts.
What happens when oil, the heroin of the rentier state, runs out?
Poverty. The country could have spent those years diversifying and bolstering its economy, building social institutions that can support an industrial capitalistic society with democratic values and a decent social safety net, but instead they pour their resources into high-tech weapons, proxy groups, corruption, momentary pleasures, and the vast and burdensome welfare system that defines their consolidation of power. When their raw material runs out, they, like the drug dealer, realize they are forty and too old. They let their addiction get the best of them and implode- and lose absolutely everything. Thus is the plight of the rentier state.
What Iran Should Do:
Iran must use its oil revenues to fund long-term projects that may have little yield in the immediate future. It must fund new sectors and the expansion of sectors already thriving, to create a new class of professionals and industrialists with vested interests in a more expansive economy. Without an expansive economy, with multiple economic interests, we will never have a stable country that is not susceptible to dictatorship and foreign involvement. We will never have a people that are ready for democracy and competitive capitalism. We will never engage in the free market without being taken advantage of by foreign investors. A Middle Eastern Japan we will certainly not be. Iran must slowly dismantle its welfare class while simultaneously pouring resources and capital into new, burgeoning sectors such as the automotive, information, computer, academic, biomedical, and defense sectors with government subsidies that make their products and research competitive in the global market. By adopting a subsidized, centralized state apparatus that strengthens these economic sectors, Iran will create a new class with vested interests and make itself competitive abroad as well as strong and stable at home. Until then, Iran will remain plagued by authoritarianism, poverty, corruption, and upheaval.