Jewish World Review June 22, 2004 / 3 Tamuz 5764
Oil as a curse
Of all the statements made by all the politicians in the last week, arguably the most important came from Vladimir V. Putin. The Russian president made it clear that he won't allow the corruption trial against two Yukos Oil tycoons to bankrupt the company. It mattered because the fraud and tax-evasion trial has become a kind of proxy test of capitalism in Russia, and Russia's economic success is, in turn, a proxy for capitalism's potential in the broken nations of Africa and the Middle East, particularly Iraq. Thus there was a sense of relief when Putin said the Russian government did not want to smash Yukos altogether.
But perhaps there ought not to have been. That, at least, is the conclusion we can draw from an article by Nancy Birdsall and Arvind Subramanian in the newest issue of Foreign Affairs. The authors Birdsall heads the Washington-based Center for Global Development, while Subramanian is at the International Monetary Fund offer a one-word explanation for the globe's diverse troubles: oil.
Oil wealth may benefit a place with a developed legal culture Britain, Norway, the state of Alaska. But where civic accountability, the rule of law and democratic process are not firm, nations cannot handle the windfall. The very presence of oil turns citizens into thugs and pushes nations backward into chaos.
The million Africans who died in the Biafra civil war in the 1960s were the most tragic casualties of this dynamic. Their story was not merely about starvation (as the press wrote at the time) but also the attempt by Nigeria's Igbo people to control oil reserves.
The "oil curse" argument is not new, but it is also not traditional development economics, which views such natural resources as blessings to industrializing countries representing the equivalent of money in the bank, available for, say, infrastructure spending.
Economists on the left long ago began noting that control of natural resources the oil of the Middle East, the poppy fields of Central Asia, the sugar cane of British Guyana, the tobacco of the American South enabled imperial or colonial powers to oppress the locals. (This view was the intellectual forerunner of the notion that the U.S. wants to rule the world through Halliburton petro-dollars.)
The market-oriented right has bridled at the idea that any capital, even petro-capital, is evil. Then, in the last century, free-market thinkers such as Mancur Olson and P.T. Bauer pointed out that the natural resources themselves, and not the colonizers, were the problem. Indeed, a lack of oil constitutes an advantage. Japan, West Germany and Singapore all profited when, absent what nature provides, they were forced to develop industrial or intellectual capital.
Now Birdsall and Subramanian are adding to the debate. They note that oil wealth relieves a nation of the pressure to tax (Saudi Arabia). The state therefore has no stake in the private-sector creation of wealth or citizens' day-to-day well-being. There is no need for a civic relationship on either side. Property rights, contract law, reliable courts to us, basics seem dispensable. And the state is free to bully. Or to steal remember the $4 billion in oil money that recently disappeared in Angola?
Even where there is real separation between the state and oil riches, in Russia for example, the wealth can still be corrosively corrupting when it comes to civic institutions. That is because government, in the end, doesn't really like competing power. The prosecution of individuals (as in the Yukos case) may in reality be about the desire of governments to vanquish a competing power center (an oil concern) or capture control of it. This dynamic functions even when the parties involved swear up and down that their actions represent reform or justice (Putin, perhaps).
Where does this leave Petro-land Iraq? Birdsall and Subramanian reject the idea of privatizing its oil, because privatization, they posit, would create a corrupt Iraqi oligarchy. An international authority could be devised to control oil production and distribute revenues to the Iraqi people, but in light of the news about corruption in the U.N.'s "oil for food" program is there any guarantee it would be any more trustworthy?
Privatization may still be the best path. After all, there are better ways to distribute ownership than the Russian method, where a loans-for-shares program allowed the wealth to fall into the hands of a few. Every citizen could get oil shares, for example.
And Putin may yet manage to create a trustworthy economic culture in Russia. Then companies such as Yukos will eventually become tame and reliable. Although we tend to forget it, a number of blue-chip U.S. companies have robber-baron ancestors.
Still, what is interesting here is not the details of each natural-resource debacle but the growing consensus about the price they extract. If we can see how the Yukos affair and the violence of the Igbo are linked, then we can also see that our biggest economic task is to lift the oil curse.
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