The Problem of Rentier Elites

Syria has a once-in-a-century opportunity to reconstitute its political economy and promote productive economic activity over rent seeking behaviour

Syria’s Central Bank in Damascus.

The ousting of the Assad regime has not only rid Syria of its oppressive security apparatus but has also removed the chief source of patronage for a network of deeply corrupt businessmen. For decades, this network exploited their political connections to seize vast swathes of Syria’s economy and crippled domestic economic life.

Notoriously corrupt businessmen such as Samer Fawz, Mohammed Hamsho, and the Duba brothers, to name but a few, have now lost the source of their ill-gotten fortunes and many have fled the country. Those who have remained lack political protection and are tarred by association with the previous regime, and now depend on the mercy of Syria’s new government.

Syria has a once in a lifetime opportunity to reconstitute the Syrian political economy on principles like productive economic activity (as opposed to rent seeking), fair market competition (as opposed to monopolies), and a greater distribution of wealth and opportunities to benefit society as a whole.

Before tackling the challenge of reforming the Syrian political economy, it is necessary to understand the deeper nature of what had afflicted the country’s political economy under the Assad regime, namely: the problem of entrenched elite rentierism. The bribery and cronyism that has been endemic to economic life in Syria is but one manifestation of an economy defined by the pernicious rent seeking behaviour of a small and powerful rentier elite class, at the head of which lay the Assad family itself (recall the corruptly accumulated commercial empires of of Rami Makhlouf and Asma Al-Akhras, for example).

Syria must take the firmest measures to guard against the re-entrenchment of a rentier elite class. To implement effective guard rails we must first grasp the nature, scope, and gravity of the problem.

So, what is rent seeking? What forms does it take? And how does rentierism harm the health of economic and political life?

Rent vs Profit

At the heart of any economy defined by rentierism is rent. In everyday language, the term "rent" refers to the payment made to the owner of an asset or resource in exchange for its temporary use. For instance, one might pay rent to use a car for a week or to live in a flat for a month. The owner of the car or flat would consider these earnings as profit once the total rental payments exceed the original cost of the asset. However, classical political economists would classify this income as rent, not profit.

In classical political economy, profit and rent are distinct concepts with different origins.

Profit arises from productive activity—creating goods or services through bringing together land, labour, and capital in a production process that generates a new product of value, which is then sold in a market. The profit is the difference between the selling price and the costs of production, which include, for example, wages, raw materials, and interest.

Rent, on the other hand, is not tied to production. Economic rent, broadly defined, is income derived from ownership or control over a scarce or privileged or otherwise limited resource or asset. This income is typically earned passively, with little to no effort or expenditure on behalf of the resource holder or in excess of their opportunity cost – crucially, income from rent is generated without the creation of new value for society. As such, rent could be classified as a form of value extraction: the rentier takes value but produces none. When a flat owner rents out their flat to a tourist on AirBnB, there is no new value being created in that transaction, only the one-way movement of value from tourist to the flat owner (and to AirBnB.)

While rent and profit stand in contrast to one another, it is important to note that rent often comes together with profit. For example, consider the Syrian telecoms sector under the Assad regime, where Syriatel and MTN were the only two licenced mobile phone network operators. Together, these companies held a duopoly over the market to supply mobile phone network operating services to the Syrian public, which meant that they colluded to set prices. For a while, Syriatel and MTN were both controlled by one man, Rami Makhlouf, rendering the situation monopolistic. While Syriatel and MTN were certainly producing something of value – mobile phone network services – and generating profit, a significant portion of their revenue they earned from producing and marketing those services was not profit, but rent. Specifically, this was a monopoly rent, derived from exclusive control over the supply of mobile network services, created through the artificial means of highly scarce state-granted licences. This allowed Syriatel and MTN to charge inflated prices to consumers beyond the price that may have been paid for the services in a competitive market.

The Characteristics of Rent Seeking

The pursuit of rents above profit defines a rentier economy. In such an economy, elite individuals and groups attempt to create or expand opportunities to maintain and expand their privileged position in the economy – and, thereby earn rents – by manipulating the social, legal, market, or political environment. This is ‘rent seeking’.

Unlike profit seeking, which involves creating value through innovation, capital investment, and improving productivity, rent seeking focuses on attempting to extract ever increasing value from others without contributing to the creation of new wealth, creating a self-reinforcing cycle of economic stagnation.

The rentier elite can exist as a separate class to the holders of political office or there can be a degree of overlap between the two. In the case of Syria, the overlap has been enormous. The Assad family were chiefs of the country’s rentier elite class. Most famously, when at the height of his powers in the early 2000s, Rami Makhlouf, Bashar’s cousin, was reported to control over 60% of Syria’s economy, functioning effectively as the commercial arm of the regime. After looking out for themselves, the regime dispensed patronage to their loyal clients in the country’s business elites. Ambitious businessmen seeking to transform modest wealth into a substantial fortune, or seeking to preserve and expand their pre-existing fortune, jostled for favours at the court of the Assad family, who held the keys to the nation’s wealth and doled it out to protegees in exchange for political loyalty.

The regime distributed patronage principally through the manipulation of law and legal devices, such as the granting of exclusive licences, enforced through violence. For example, from 2019 until the fall of Assad in December 2024, regime loyalist businessman, Khodr Taher, was granted an exclusive licence for the retail distribution of mobile phones through his company, Emmatel LLC. The monopoly was enforced by the security services, who fined, jailed and attacked phone retailers who failed to prove that they had acquired their products through Emmatel.

The now dormant Marota City and Basilia City real estate developments in the Mezzeh-Basatin al-Razi area in Damascus are another case in point. In 2012, the government issued Legislative Decree No. 66 which, under the guise of redeveloping irregular housing, forcibly displaced approximately 30,000 people without compensation. It was essentially a state-mandated land grab for a luxury real estate development project intended to enrich Assad regime cronies.

In situations where the rentier elite class exists separately from the formal political power, rentier elites ‘work from the outside’ to achieve their goals, so to speak. This is what typically occurs in broadly democratic political systems. Elites harness their wealth and control of key resources (including, for example, the press) to influence politicians, either through classic lobbying, manipulation of the media environment, or outright bribery, to pass – or not to pass – laws or regulations that favour their business, often to the detriment of the public good.

For example, US drug companies have historically spent hundreds of millions of dollars on lobbying the US Congress against passing legislation that would allow the US federal government’s Medicare programme, to negotiate prices with drug companies, essentially allowing the drug companies to name their price.

Similarly, in Brazil and Argentina, for example, the small rural landowning elite has historically used its wealth and influence to resist land reforms that might have advanced rural economic development.

A more extreme situation predominates in Pakistan, a flawed democracy where many feudal-style landowners often hold political power themselves and act as a permanent block on serious land reform.

Rentier elites may also establish monopolies, or otherwise seek rents, through their market behaviour. Amazon, for example, has long practiced a strategy of aggressive competitor acquisition in pursuit of monopoly rents in the online retail sector, often using the weapon of deliberate below-cost pricing to first drive rivals to the wall.

Some firms, such as asset managers, are inherently rent seeking enterprises. Since the financial crisis of 2008, companies such as Blackrock and Macquerie, have spent hundreds of billions of dollars buying up vast expanses of real estate and public infrastructure in the UK. Practically speaking, this has translated into sky-rocketing property prices and rents. The British economy has arguably become dependent on this trend of real estate price inflation, which undergirds the country’s highly financialised economy centred on the City of London.

The rent seeking behaviour of rentier elites can frequently take the form of exploiting state subsidies. Egypt provides a case in point. The Egyptian military controls a vast network of civilian businesses, most of which are supported by a wide range of generous state subsidies, such as tax exemptions and exclusive contracts. One unique subsidy available to them is a pool of effectively free labour in the form of conscripts, who are often put to work in the Egyptian military’s civilian businesses for part of their 2-year mandatory military service. These heavily subsidised inputs ensure the profitability of many Egyptian military-owned companies that would have either collapsed or have been compelled to become more efficient to survive in a genuinely competitive market. This distorts Egyptian markets and suppresses the growth and development of truly competitive, efficient, innovative private-sector businesses.

Rentier Entrenchment Creates Systemic Problems

The entrenchment of rentier elites and rent seeking behaviour is the source of huge systemic economic problems. Rentierism typically leads to economic stagnation as rentier elites have little incentive to invest in productive activities, as their wealth derives from value extraction rather than value creation. Huge amounts of capital that might have been put to productive use in, for example, the creation of a factory or a research laboratory are sunk into wholly unproductive enterprises, such as, for example, buying up more and more real estate.

For rentier elites actually involved in the production process, their rent seeking stifles innovation by protecting them from competition and discouraging them from improving their products or services. As is the case in Egypt’s military economy, rentier elites can severely distort an economy’s growth by diverting factors of production away from more economically efficient and productive uses toward bloated, inefficient, poorly run enterprises that would not survive in anything resembling a competitive market. These enormous but inefficient businesses benefit from vast economies of scale and dominating positions in the market that put up often insurmountable barriers to entry for smaller, well-run but politically unconnected companies, which fall by the wayside before they have a chance to thrive.

Finally, rentier elites can also cripple an economy’s dynamism by suppressing demand through the highly inflated prices that often come along with the oligarchies and monopolies that are characteristic of rentier-dominated economies. Take the London real estate market, for example, where a huge amount of demand is sucked out of the economy simply due to the fact that businesses and individuals are compelled to spend an inordinate amount of their income just to keep a roof over their head or rent premises for their company to operate from.

Rentier elites are deeply invested in the maintenance and entrenchment of the economic, social, and political status quo, as it ensures the perpetuation of their wealth, power, and influence. Therefore, rentier elites typically expend great efforts to influence governments to serve and protect their narrow group interests over the broader interests of society. Through lobbying and bribery or various kinds, rentier elites can undermine and, ultimately, terminally cripple the integrity of governments and legislatures.

Democracies are no less vulnerable to rentier elite capture than non-democratic systems. As Americans and Brits know all too well, the placing of a ballot in a box once every four or five years, followed by the occasional correspondence with a Congressman or MP, means very little when the oligarchs can meet the President or Prime Minister for lunch or a round of golf several times a week.

Crafting a Political Economy Without Systemic Rent Seeking

Rent seeking is a form of economic parasitism that harms society in myriad ways, by distorting markets, diverting resources away from productive activities, perpetuating underdevelopment, crippling demand, exacerbating inequality, and by undermining the integrity of the entire political system.

Syrians have been fortunate enough to cut the head off the snake that perpetuated these problems in Syria by toppling the regime of Bashar Al-Assad, and dealt a hammer blow to the interests of the top tier of Syria’s exploitative business elites by depriving them of their chief patron and protector. These corrupt businessmen are licking their wounds in exile and, with sanctions on their back and facing the ire of a liberated Syrian people, are unlikely to make a comeback any time soon on the Syria commercial scene.

However, mid-to-lower tier members of the former regime’s patronage network remain in the country. Many have held onto their assets and are biding their time to rebuild their former network's influence and begin extracting rents again. Potential new rentier elites – diaspora and domestic, Syrians and non-Syrians, foreign state actors and private individuals – are also eyeing up opportunities for rent extraction that may present themselves in the new Syria. The imminent rebuilding of the country’s infrastructure and the reconstitution of the state and its political and administrative institutions offer rich pickings to the aspiring rentier.

Democracy in Syria may well have a part to play here. But, contrary to what many sincere and well-meaning liberal democrats may believe, the mere establishment of democratic politics in Syria will not on its own protect the country from the scourge of elite rentierism, as demonstrated by many examples from the democratic world.

The existence of systemic rentierism is the absence of strong government. The Syrian state must be reconstructed in such a way that the disease of rentierism, in any form, does not have a chance to again infect Syria. This means the enabling institutional structures of rentierism must be razed to the ground and a ‘salting of the earth’ must be carried out to create a truly equitable political economy.

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