Kenny’s answer (No, not really) is obviously no answer at all. On balance I would say that his own evidence shows, especially in the long term, that over-reliance on extractive industries do indeed produce negative outcomes. As a citizen of one of those countries (Australia) I can tell you it has become acknowledged among the few that think strategically about our future that we are at severe risk of suffering the curse. In the previous 15 years we have had one of the largest sustained resources booms ever, thanks to China and Asian development, but our government has largely wasted this windfall by using the easy approach by any government wanting to get re-elected, adopting the “solution” proposed in this article: “pass on oil revenues directly to citizens -- a model adopted in Alaska “. Tax breaks and one-off giveaways (just prior to elections) has squandered this bounty but meanwhile it is estimated we need to spend a trillion dollars in neglected infrastructure.
We are now in the second phase of this boom which surpasses the first, yet we are in no better position to safeguard this wealth for productive use and future generations. This is because of politics, in our case, democracy in which the voters have become habituated to the giveaways (like those Alaskans). I wrote about this recently using as an example Spain and their looting of the mineral wealth of their American colonies :
http://www.abc.net.au/unleashed/stories/s2913836.htm
My article was provoked by the then political furore about the government’s attempt to bring in a special resources (rent) super-profits tax, similar to Norway’s, to recover and safeguard more of this wealth. The mining companies (BHP-Billiton, the world’s largest miner) put $100 million into a media campaign against the tax and claimed responsibility for bringing down our Prime Minister (Kevin Rudd) and resulting in the first hung parliament for 70 years in the subsequent election. The fight over this new tax continues.
You will soon see on your tv screens—via the Oprah Down Under shows—that, yes, Australia is one of the most prosperous countries in the world. But we are complacent and neglectful of investment in our own future because of this easy money from resources--the current generation have known nothing else. But all resources booms eventually come to an end.

The curse -though I am no scientist myself- could be more accurately defined as countries having natural resources (oil and minerals, but also land, cattle in past centuries) that they can exploit and of which the products they can export. In the case of rare resources, it can be expected, at least in the short term, that demand will not go down, even if prices should go up. So the country sitting on the natural resource has no incentive to produce in a more efficient way, nor has it any incentive to diversify its economy. More often than not, politicians from the region in which the resource is situated are more powerful, as well as the industries working in that field of activity. From an economic and political standpoint, they have no interest whatsoever in seeing other industries develop: that would only lead to a relative loss of power. Consequently, the institutions may be corrupt or inept to efficiently use the money coming in and set up coherent long term economic plans. But not just because they are incapable of doing so, but because there are other interests stopping them from doing so. Those involved and benefiting from the natural resource have no incentive in changing what is working for them. This attitude permeates the society in its whole, leading many of those countries to being highly conservative (the whole Middle East) , autocratic (Venezuela, Nigeria to some extent) and with little regard for human rights and democracy (Russia, Libya, Gabon).

This is how it "works" in countries that have at least a minimal political (autocratic or not) and industrial structure to actually exploit and export the abundant resource at hand. Where that is not case, some kind of civil war is likely to occur at some point (Congo comes to mind) in which "rebel groups", thanks to unexpected funding, fight for "liberation", in particular of the region in which the rare resource happens to be.

I think it might be insulting the intelligence of proponents of the resource curse/Dutch Disease theory by suggesting that they believe that simple access to resources is going to cause civil war and economic collapse in a country. Kenny claims countries with natural resources flounder economically when they do not have expanded manufacturing and services sectors, but he seems to ignore what the causes of this, such as a heavy reliance on natural resource extraction, might be.

The article deliberately oversimplifies the argument of proponents of the resource curse, particularly with reference to countries with kleptocratic regimes in conflict. This in no way refutes the correct point that mineral or oil wealth whose exploit is available only to a tyrannical, violent government is a curse to the people in that country actively excluded from the benefits of revenue that is used to wage war against them. The oil, coltan or wolframite under their feet is in fact a curse.

What's to blame is the Human Condition, cheesy as it sounds. Or at least the ambition that manifests itself as an aspect of the human condition.

"So countries where digging stuff out of the ground is an especially large part of what goes on in the economy are in trouble. But they are in trouble because they've failed so miserably to create an environment where services and manufacturing can flourish -- not because they happen to have a diamond deposit."

They've failed so miserably precisely because mineral rents are a barrier to an environment where manufacturing can flourish, even without coups or civil wars (and in fact mineral rents encourage growth in services). That is the essence of Dutch Disease.

There are at least two purely economic mechanisms by which mineral rents make a flourish manufacturing industry extremely difficult. The first is the exchange-rate mechanism. Large mineral rents (or any rents, really) lead to a rate of inflation in the rentier economy that exceeds the rate of inflation elsewhere. Since many such economies have fixed exchange rates, the differential inflation amounts to an overvalued real exchange rate, which makes imports cheaper and exports more expensive. That makes manufacturing really, really hard to do--your exports are artificially expensive to foreign consumers, and domestic consumers would rather buy artificially cheap imports. The deck is stacked against a vibrant manufacturing sector.

The second mechanism is easier to understand, and it has to do with the labor market in the rentier economy. Large mineral rents, again, lead to inflation. But the inflation is higher for non-tradable goods and services than it is for tradable goods and services. Why? Because tradables face international competition, which keeps prices relatively contained (a flatter supply curve). Wages follow prices, and as a result the wages rise faster in the non-tradable sector than in the tradable sector. And, wouldn't you know it, workers follow wages. Since virtually all manufactures are tradable, workers are moving out manufactures and into non-tradables, mostly services (but not the Wall Street kind of services--more like waiting tables and driving taxis). The cards are once again stacked against "an environment where... manufactures can flourish," as a direct result of large mineral rents.

If you've made it this far, congratulations. You should be proud of yourself. If you understand it, fantastic. If not, please ask me what isn't clear, and I'll try to explain it. Large mineral rents stab the manufacturing sector in the face. Seriously.

PS - Some people in the comments section should go a little easier on Kenny. I think he did a good job of explaining a lot of things; there are, after all, several varieties of the "resource curse," and they're not all easy to understand. I also like the whole optimist angle. Everything I read is so dreary lately...