The Devil’s Excrement

Can oil-rich countries avoid the resource curse?

BY MOISÉS NAÍM | SEPT. / OCT. 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.

 SUBJECTS: OIL, CORRUPTION
 

Moisés Naím is editor in chief of Foreign Policy.

PER KUROWSKI

12:56 PM ET

September 7, 2009

Devil's excrement? Yes after the government’s digestion.

It is said “The premise is that more transparent information will curtail the ability of unaccountable politicians to use national resources as if they were their own.”

Unfortunately improved transparency about the revenues could also be more like allowing the tortured to be able to see when they extract his fingernails.

Any moment when any government perceives revenues of more than 5% of GDP from a different source than the pockets of its citizens then it becomes de-facto independently wealthy, and de-facto a communist state. http://bit.ly/P4m

And, while debating oil curse, always remember that there is no such thing as an oil-cursed politicians, oil-cursed governments or oil cursed policymakers, on the contrary they are all most often shining examples of oil blessings... there are only oil-cursed citizens.

Juan Pablo Perez Alfonso, who is named in this article and with whom I agreed with on so many issues never debated once, as far as I have been able to establish, the possibility that the oil revenues where to be handed over directly to the citizens.

And another great Venezuelan, Arturo Uslar Pietri and who coined the great phrase “Venezuela needs to sow its oil” never considered anything different from the government doing the sowing of the oil seeds.

Yes, oil is indeed the “devil's excrement”... not ex-ante, but post facto, after it has gone through the digestive system of an oil-ingested government.