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The Devil’s Excrement Can oil-rich countries avoid the resource curse?

BY MOISÉS NAÍM | AUGUST 24, 2009

Oil is a curse. Natural gas, copper, and diamonds are also bad for a country's health. Hence, an insight that is as powerful as it is counterintuitive: Poor but resource-rich countries tend to be underdeveloped not despite their hydrocarbon and mineral riches but because of their resource wealth. One way or another, oil -- or gold or zinc -- makes you poor. This fact is hard to believe, and exceptions such as Norway and the United States are often used to argue that oil and prosperity can indeed go together.

The rarity of such exceptions, however, not only confirms the rule, but also serves to clarify what it takes to avoid the misery-inducing consequences of wealth based on natural resources: democracy, transparency, and effective public institutions that are responsive to citizens. These are important preconditions for the more technical aspects of the recipe, including the need to maintain macroeconomic stability, prudently manage public finances, invest part of the windfall abroad, set up "rainy-day funds," diversify the economy, and ensure the local currency does not reach too high a price.

It all sounds sensible, and a recent book edited by Jeffrey Sachs, Joseph Stiglitz, and Macartan Humphreys, Escaping the Resource Curse, synthesizes the consensus about what countries beset by the combination of rich subsoil and poor institutions should do. As Brazil, Ghana, and others are soon likely to become major oil players for the first time, they will provide rare real-life test cases of these recommendations.
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Unfortunately, for most underdeveloped countries, the suggested defenses are as utopian as the larger goal they are supposed to help achieve. Countries that already have all these institutional strengths need not worry. For the rest, like an autoimmune disease, the curse undermines the ability of a country to build defenses against it. Indeed, we've learned in recent years that concentrated power, corruption, and the ability of governments to ignore the needs of their populations make it hard to do what it takes to resist the resource curse.

Juan Pablo Pérez Alfonzo, Venezuela's oil minister in the early 1960s and one of the founders of OPEC, was the first to call attention to the oil curse. Oil, he said, was not black gold; it was the devil's excrement. Since then, Pérez Alfonzo's insight has been rigorously tested -- and confirmed -- by a slew of economists and political scientists. They have documented, for example, that since 1975 the economies of resource-rich countries grew at a slower rate than countries that could not rely on the export of minerals and raw materials. And even when resource-fueled growth takes place, it rarely yields growth's usual full social benefits.

http://www.foreignpolicy.com/articles/2009/08/17/the_devil_s_excrement...

By tasco66 on Sep 3, 2009, 04:46 in Friendly Talkzone.

kenblanquito says on Sep 3, 2009, 06:09:

I will read that later, thanks tasco.
I understand that one country that has this sorted is Norway, which places some of its gas/oil revenue into a special fund for future use: very forward thinking and the country has no doubt learnt by watching the problems associated with the aforementioned countries in your post.

0 funny, 0 helpful.

Timba says on Sep 3, 2009, 09:29:

Hey......look at Canada, specifically Alberta.

The province collects less money (per barrel) now than it did under its former Premier, Peter Lougheed ($15 oil).
It was Peter Lougheed that made this point and indicated what a crime it was.

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El Expatriado says on Sep 4, 2009, 02:49:

Can't use Alberta as an Example Timba. Most Alberta Oil is Super heavy and costs $60 to $100 a barrel to produce. Steady Eddie (the left leaning "conservative" premier) put royalties up on natural gas and conventional oil and drove what little drilling there was left over after the crash out of the province into BC, Sask and US.

The problem in Alberta isn't the royalty rates. It is and always will be the prolifigate government spending and wastage- just like in Nigeria or Venezuela. How the hell else would they go from a $10 billion surplus last year (which was not really a surplus, since they pissed it away as soon as they realized it was extra money) to a $8 billion deficit this year?

I agree, Norway may be a socialist contry, but they and Brazil are one o the few rich plaes that "get it right" as far as efficiencies in royalties, taxes, spending and saving. Saskatchewan and BC apear to be doing OK at this particular period in time , too.

We need Ralph back in power!

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