By Jonathan S. Greenstein
Jonathan S. Greenstein ’10 attends Harvard College and is an Economics concentrator in Currier House.
In the aftermath of the September 11, 2001 terror attacks by Al Qaeda, the United States Government has heightened its focus on global cash flows. Vast and increasing amounts of money travel across international borders on a daily basis, generated and funneled by a wide range of sources, including charitable, as well as criminal and terrorist, organizations. A close look at the political economic aspects of terrorism and its relation to the state suggests that terrorism presents an opportunity for rentier states in the Middle East to benefit directly and indirectly from terrorist-related rent generation.
According to The Economist, rent-generation is figuratively the act of cutting yourself a bigger slice of the cake without making the cake bigger.  Hazem Beblawi, a noted political economy theorist, explains that a rentier state is one that relies on substantial external rent, keeping in mind that there is no purely rentier economy. Few people generate the rent, but the government is a major beneficiary.  One effect rentierism subsequently has on a state is to undermine the idea of work-reward causation, as it is unearned income, and to create an exploitative mentality where layers of beneficiaries emerge as groups take advantage of their special situations.  A rentier mentality consequently damages a state’s commitment to real economic development and its accountability to citizens. Instead, the rentier state becomes a “welfare” state that allocates resources based on political patronage,  thereby fostering cronyism and corruption. Several states in the Middle East exhibit these tendencies to varying degrees. Whereas the Saracen countries of North Africa, formerly known as the “Barbary States,” can be seen as historical examples of rentier states, Saudi Arabia and Syria are modern-day examples.
While these ideas of the rentier state were initially formulated to describe the behavior of oil-producing states,  the rent dynamic and its effects can be applied to things other than natural resources. It is important to note then that rents were a source of income for Middle Eastern and North African countries centuries prior to the discovery of oil. In the eighteenth century, for example, the Barbary States de-manded ransoms, or external rents, to allow ships safe passage on trade routes through the Mediterranean Sea. “Styling themselves as mujahideen—warriors in an Islamic holy war—Arabic-speaking pirates preyed on Western vessels, seizing their cargos and enslaving their crews,” among them, three American ships in the mid-1780s.  When Massachusetts Federalist and then-future U.S. president John Adams approached officials from Tripoli in an attempt to negotiate safe passage for merchant ships, he was advised that “no nation could navigate [the Mediterranean] sea without a treaty of peace.” It is difficult today to estimate the real monetary value of rents generated by Barbary piracy, but it is known that the proposed price of the “treaty of peace” with Tripoli, together with the price of treaties with other North African pirate states, totaled approximately 10 percent of America’s annual budget.  This cooperation between the mujahideen and North African governments was an early form of state-sponsored terrorism, designed to produce revenues for the state.
Today, terrorist rent-generation can take several recognized forms. The first form is state terrorism, whereby governments seek rents from other states, as Nazi Germany did by annexing Austria and looting its gold. The second form can be called the “rent-seeking” model. Gordon Tullock, the economist who coined the phrase “rent-seeking,” cites as a simple example a protection racket in which a gang takes a cut from the shopkeeper’s profit.  On a broader scale, “rent-seeking” terrorist organizations compete with governments for rents  and are therefore likely to advocate their overthrow. The third form is state-sponsored terrorism. This model is distinct from state terrorism as the state distances itself from terrorist organizations while secretly benefiting from them and assisting them. Under this model, terrorist organizations are “engaged in gains from trade” and seek to obtain sponsor-ships by providing “disruptive services” for governments. Governments proceed to capture external rents while limiting their own exposure. 
In the first case, it is easy to condemn state terrorism internation-ally and to hold states accountable in various ways. For example, Nazi Germany was held accountable by having to pay reparations to those whose property it confiscated. In the second case, governments them-selves have an interest in controlling competing terrorist organiza-tions, although, paradoxically, they can and do sometimes benefit from them. In the third case, where states and terrorist organizations are nominally separate but actually closely connected, states deny their complicity in terrorism and it becomes difficult for other coun-tries or international institutions to hold them accountable. State sponsorship of terrorism has therefore proved an effective way to achieve a state’s foreign policy goals and further its economic objec-tives, while shielding itself from international condemnation. 
It is a paradox of terrorism that the “rent-seeking” model, in which terrorist activity is considered a threat to a government’s monopoly on power and resources, can sometimes benefit the government. This paradox is best illustrated by Saudi Arabia’s relationship with Al Qaeda. To achieve its aim of “bringing down the royal family,” Al Qaeda has targeted the regime’s principal rent generator: its oil infrastructure. In 2006, Saudi Arabia’s oil industry accounted for 10 percent of world oil supply and 75 percent of Saudi Arabia’s revenues. Since 2000, the value of its oil exports has increased from $71 billion to $191.5 billion.  Somewhat ironically, Saudi Arabia generates addi-tional oil rents from Al-Qaeda’s activities because “the fear of attacks is a key factor in oil prices remaining high.”  In addition, the U.S. has showered Riyadh with aid and arms for counter-terrorism as a direct result of the threat Al-Qaeda poses to the Saudi royal family.  While Saudi Arabia appears to be taking Al-Qaeda’s domestic threat seriously, it uses some of the additional oil rents to finance terrorism abroad.  The Saudi Arabian case shows that when rent-seeking terrorism is contained and successfully prevented from toppling a regime or triggering a global recession, it can produce rents for the state.
The state-terrorism model can describe Syria’s militaristic behavior before the rise of Hezbollah in the 1980s, but the “gains-from-trade model” of state-sponsored terrorism  is a better description of Syria’s behavior since then. A comparison of Syria’s two strategies reveals the benefits and costs of each. Historically, Syria has generated significant strategic rents through militarization and aggression. By maintaining a military conflict with Israel and acting as the Soviet Union’s client state for much of the Cold War, Syria generated a war dividend through financial transfers estimated at $12-13 billion, between five and six percent of its GDP.  By stationing troops in Lebanon from 1976 onwards, Damascus furthered maintained its military opposition to Israel. But these policies exposed the Syrian government to Israeli retaliation. Syria sustained catastrophic losses in Israel’s 1982 invasion of Lebanon, which demonstrated that although the threat of war may generate rents, direct confrontation can be costly. The result ever since has been Syria’s adoption of a de facto “no war, no peace” policy. 
Further, Syria’s occupation of Lebanon allowed it to generate addi-tional rent from criminal activity. In the 1980s, the Syrian army was involved in significant drug cultivation and trade in Lebanon.  While the exact drug-trade revenues are unknown, one study reports that in 1985 the participation of Syrian troops in looting, taxing, and re-exporting Lebanese goods generated $5 million per day in rents.  Although Syria’s armed forces formally retreated from Lebanon in 2005, Syria’s proxy, Hezbollah, built up a growing political and military presence in Lebanon, which has facilitated Syria’s ongoing rent-generation. Syrian officials, including the former Minister of Defense and chief of Syria’s intelligence operations in Lebanon, have continued to be involved in drug trafficking. The same intelligence chief was later implicated in the assassination of Lebanese Prime Minister Rafik Hariri. 
A comparison of public responses to the 2005 Hariri assassination and the 2006 Second Lebanon War with Israel demonstrates the differences between the two strategies and the benefits of Syria’s indirect rather than direct involvement in Lebanese affairs. Following the assassination, the U.S. condemned the attack, recalled its ambas-sador to Syria,  and demanded a comprehensive UN investigation.  In contrast, during the 2006 war, Lebanon and Hezbollah bore the brunt of Israeli military might, while Syria remained unscathed. In fact, Syria was regarded as a positive force and was congratulated for opening its borders to refugees and providing humanitarian aid to displaced Lebanese people. 
Ultimately, state-sponsorship or facilitation of terrorism can be a rational economic choice for a state that relies on rents. Such behavior can give a state access to additional external rents that would other-wise be unavailable without placing its regime at risk. As a result, however, terrorism perpetuates the unproductive behavior, corruption and cronyism that are characteristic of a rentier mentality and that are among the main causes of political and economic underdevelopment in the region. The Saudi Arabian government’s schizophrenic relation-ship with terrorist organizations that claim to want to overthrow it and Syria’s ability to generate revenue through criminal activity in Lebanon are demonstrative of terrorism’s economic appeal. Only when the potential economic motivations of terrorism are understood and terror-sponsoring regimes are held directly accountable for the actions of their proxies will there be any chance of overcoming the regional problem of rentierism and defeating terrorism.
 Matthew Bishop. Essential Economics. London: Profile Books, 2006. Available at http://economist.com/research/Economics/alphabetic.cfm?letter=R#rent-seeking
 Hazem Beblawi. “The Rentier State in the Arab World,” in Luciani Giacomo (1990), Pg. 87-88
 Ibid, Pg. 96-97
 Giacomo Luciani. “Allocation vs. Production States: A Theoretical Framework,” in Luciani (1990), Pg. 71
 Beblawi, Pg. 86
 Michael B. Oren. Power, Faith and Fantasy: America in the Middle East 1776 to the Present. New York: W.W. Norton & Company, 2007. Pg. 18
 Ibid, Pg. 26
 Gordon Tullock, “The Fundamentals of Rent-Seeking.” The Lock Luminary 1, no. 2, Winter 1998, Part 2.
 Richard M. Kirk, “Political Terrorism and the Size of Government: A Positive Institutional Analysis of Violent Political Activity.” Public Choice, no. 40 (1983). Pg. 44
 Ibid, Pg. 48
 Louise Richardson, What Terrorists Want. New York: Random House, 2006. Pg. 51
 “Saudis Round Up 172, Citing A Plot Against Oil Rigs.” The New York Times, April 28, 2007.
 “Saudi Arrests Stoke Oil Facility Worry.” The Wall Street Journal, April 28-29, 2007.
 International Affairs Congressional Budget Justification for Fiscal Year 2008. February 14, 2007. Available on the U.S. State Department Web site. http://www.state.gov/documents/organization/80701.pdf. Pg. 514
 Matthew Levitt, Hamas: Politics, Charity, and Terrorism in the Service of Jihad. New Haven:Yale University Press, 2006. Pg. 188
 Kirk, Pg. 48
 Perthes, Volker. “Si Vis Stabilitatem, Para Bellum, State Building, National Security, and War Preparation in Syria,” in Steven Heydemann (2000), Pg. 158
 Ibid, Pg. 160
 Picard, Elizabeth. “The Political Economy of Civil War in Lebanon,” in Steven Heydemann (2000), Pg. 305
 Ibid, Pg. 298
 Feinberg; Benjamin, Sarah Marek, and Jan Snaidauf. “Hizbullah and its Worldwide Crime/Terror Infrastructure.” December 20, 2005. http://www.american.edu/traccc/resources/publications/feinbe01.pdf. Pg. 9
 “U.S. Recalls Ambassador to Syria.” International Herald Tribune, February 17, 2005.
 Mehlis, Detlev. Report of the International Independent Investigation Commission Established Pursuant to Security Council Resolution 1595 (2005). United Nations Security Council. Beirut, October 19, 2005. http://www.un.org/Docs/journal/asp/ws.asp?m=S/2005/662. Pg. 61
 Raman, Aneesh and Hala Gorani. “Lebanese Refugees Pour Across Syrian Border.” July 20, 2006. http://www.cnn.com/2006/WORLD/meast/07/20/lebanon.refugees/