The role of rents in emerging market economies

The rents play immanent role in the economy. Many types of rents thwart economic development, few of them deliver incentives. In case of emerging market economies, the most usual forms of rents are scarcity rents (mainly natural resources and arable land), regulatory rents and geopolitical rents. The existence of these rents and the creation of rent sources may impose serious moral hazards. In case rentiers collude with politicians (who are responsible for the control of the negative effects of rents) the hazards increase. This danger is smaller if the society is more open. The negative effects can lead to growth collapses if the society and the political arena is more closed. The paper compares two very different countries from the viewpoint of the negative economic effects of rents: Iran and Hungary. Iran is treated as a classic example of rentier state with closed social and political relationships. Hungary is placed historically at the crossroads of the Western competition state model (open society) and the traditional Byzantine rentier state (closed social relationships). The paper discusses the Iranian and Hungarian efforts of the introduction of competition state model elements from the angle of rent creation and rent control. The comparison showed that in Iran the strong legacy of closed society and the large-scale rent stream allowed little political space for the competition state institutions. The country suffered repeated growth collapses. In Hungary the transition process created many control institutions over rent seeking especially during the 1990s. However, the establishment of rentier state especially after 2010 could be implemented. Political, social and economic controls over rent seeking were not powerful enough to block the process. Yet, the rent streams are much more limited, and the control devices could not be eliminated entirely. Thus, rent seeking is not so much pervasive than in Iran. Nevertheless, its negative consequences are strong enough to block sustainable development, and direct Hungary towards the middle-income trap.