Tim Worstall

Oil Revenue Hampers Democracy?

NY Times piece:

Oil and democracy do not mix easily in countries that depend highly on
oil revenue. Among the 10 top oil exporters, only two (Mexico and
Norway) are truly democratic and only three (Nigeria, Russia and
Venezuela), have even limited elements of democracy. Of course,
countries that do not export oil can also be undemocratic, but evidence
shows that oil revenue flowing freely into government coffers has a
particularly pernicious effect, encouraging corruption and lack of
accountability and fostering systems based on patronage rather than
popular representation. For countries that discover large amounts of
oil before their economies become diversified and their regimes
democratic, oil can easily become a curse.

She’s quite right in her analysis of course, but doesn’t, to my mind, go far enough. The same is true of any export commodity dependent economy. Cuba with sugar and nickel suffers from exactly the same problem.  In years past, Bolivia and Chile with tin and copper respectively, Columbia at times with cocaine, Sierra Leone and diamonds. There are even those extremists (like me) who argue that aid can have such an effect. When, as in some poor countries, 5-10% of GDP arrives in aid, passing through the government, being in that government and being corrupt is the way to make money. Zaire in the 1970’s for example.

If an economy has just the one source of concentrated wealth then the political system will be (sorry, at least attempts will be made) taken over by those who wish to control that wealth. There is some hope, for such attempts do not always succeed, as Botswana with its diamonds shows.

In

6 responses

  1. Mark T Avatar
    Mark T

    it’s known as the resource curse or the paradox of plenty….west africa is probably the best (or worst) example of this. Wealth is based on control of assets, this means big armies and repression and corruption. By contrast with no natural resource eg switzerland, Singapore there is a need to develop a co-operative framework since the value added/wealth is created by other people.

    Reply
  2. Phil Hunt Avatar
    Phil Hunt

    If a country has oil, it can get rich without having a social structure able to generate wealth (an educated population, civil society etc). But if a country has few natural resources, and wants to be rich it must develop the right social structure, which includes the elements that make people want democracy.

    Reply
  3. Monjo Avatar
    Monjo

    Then how do you explain Canada, second only to Russia in natural resources? The US is also resource-rich. It is a fact that democracy developed in white nations and not in black and asian ones. A couple of exceptions, such as Japan – which adopted a very pro-British/Western outlook in the late19th century; and India.
    Democracy even in Europe is an accident. It started in Greece thousands of years ago, then died. It really only returned a few centuries ago, and only 30 years ago in Greece. If anything, Democracy was spread by the British Empire – the fact it persists in some ex-colonies and not others is interesting.

    Reply
  4. Monjo Avatar
    Monjo

    Then how do you explain Canada, second only to Russia in natural resources? The US is also resource-rich. It is a fact that democracy developed in white nations and not in black and asian ones. A couple of exceptions, such as Japan – which adopted a very pro-British/Western outlook in the late19th century; and India.
    Democracy even in Europe is an accident. It started in Greece thousands of years ago, then died. It really only returned a few centuries ago, and only 30 years ago in Greece. If anything, Democracy was spread by the British Empire – the fact it persists in some ex-colonies and not others is interesting.

    Reply
  5. Tom Kratman Avatar
    Tom Kratman

    And don’t forget Chile’s previous nitrate export addiction. _That_ is the root of most of Chile’s problems.

    Reply
  6. Foobarista Avatar
    Foobarista

    Actually, Canada is nicely explained by having developed its institutions before there was much world trade in commodities – as was the US. The “oil curse” happens when you have a big percentage of national wealth coming exclusively from the commodity in question.
    Arguably, the US’s equivalent was cotton and slavery in the South before the Civil War. Before the invention of the cotton gin, the South’s economy was diversifying away from cotton and slavery was decreasing. After its invention, the days of King Cotton arrived and slavery as an economically viable institution got its second wind.

    Reply

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