Avoiding the Curse of the Oil-Rich Nations

ALASKAEvery nation wants to strike oil, after it happens, nearly every nation is worse off for it. It may seem paradoxical, but finding a hole in the ground spouts money can be one of the worst things that can happen to a country. Oil-dependent countries, writes the Stanford professor Terry Karl, “eventually become among the most economically troubled, most authoritarian, and the most conflict-ridden in the world”. This phenomenon is called the resource curse. Oil is the world’s most capital-intensive industry, so it creates few jobs. Worse, it obliterates jobs all across economy. Export of oil inflates exchange rate, so whatever else a country manufactures is less competitive abroad. Oil concentrates nation’s economy around the state. Instead of putting resources into making things and selling them, ambitious people spend their time currying favor or simply bribing politicians+government officials who control the oil money. That concentration of wealth, along with the opacity with which oil can be managed, creates corruption. Petro-dependence also leads to conflict. The conventional wisdom used to be that grievances were the cause of conflict, but that ended after the economists Paul Collier and Anke Hoeffler found in a series of ground-breaking studies more important was opportunity to grab oil or other commodity resources. They showed if a third or more of a country’s G.D.P. came from export of primary commodities, the likelihood of conflict was 22%. Similar countries did not export commodities had a 1% chance. If government can finance itself through profits on oil, it needn’t collect taxes. Let me suggest that this is not a good thing. Taxes create accountability, citizens want to know how the government is spending their money. Substituting oil revenues decouples government from the people. The list of the world’s worst-governed countries today features many that are dependent on the production of oil: Nigeria, Angola, Chad, Venezuela, Libya, Equatorial Guinea. Big exception is Norway, which had the foresight to become wealthy and democratic before striking oil. As almost all the world’s untapped oil reserves now lie in developing world, Norway is not likely to have much company. Do these countries have a way out of the resource curse? Todd Moss, senior fellow and vice president for programs at Washington-based Center for Global Development, believes they might. He points to an unlikely source of inspiration: Alaska. The state of Alaska is bound by law to put at least a quarter of its revenues from oil into the Alaska Permanent Fund, which was established in 1976. The money is invested and each year, every resident of Alaska gets a share of the dividends; for consistency, the amount is calculated using an average of fund’s earnings over the past five years. Dividend check is considered a taxable income. Last year, the check was for $878. In 2008, the high point, every Alaskan got $2,069. These payments stimulate the economy and reduce income disparities. They have contributed to a large reduction in poverty in Alaskan Natives, the state’s poorest group (…..)

Link: http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-rich-nations/

Acerca de ignaciocovelo
Consultor Internacional

3 Responses to Avoiding the Curse of the Oil-Rich Nations

  1. Professor Uziel Nogueira says: The resource curse or oil curse is a misnomer. It only applies to backward societies, dominated by a small ruling kleptocracy. Great Britain, Norway and the USA are oil producing-exporting countries in which resource curse is never mentioned. However, the resource curse is often raised in case of poverty stricken but oil rich Mexico, Angola and Nigeria. The crux of the problem is the political system rigged in favor of an elite stealing the money coming from exploitation of natural resources. This occurs particularly in countries located in Latin America and Africa.

    http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-rich-nations/

  2. doug mclaren: The other name for the resource curse is “Dutch Disease” after what happened to their economy after natural gas was developed in the 1950s. Holland at that time was an advanced democratic country. The economic distortions from becoming dependent on resource extraction and export will occur in any country (it’s really just the math at work), the political situation and other aspects of human nature will determine if the economic effects are well managed or turn in a serious problem. Russia is a very good case to study. Their manufacturing industry continues to fall behind the rest of the world, in part due to the strength of their energy exports and the negative effect this has on investment and competitiveness of their manufacturing industries compared to China, Germany, Japan, etc. Aside from some advanced weapons and titanium products Russia exports virtually no high value manufactured products to the rest of the world (autos, computers, machine tools, agriculture, commercial aircraft, etc.). This phenomena will become a challenge for Brazil as the pre-salt formations come into full scale export production.

    http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-rich-nations/

  3. Apex: The US/UK are not net exporters. And Norways welfarestate ain`t sustainable.

    http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-rich-nations/

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