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Jewish World Review Nov. 20, 2001 / 5 Kislev, 5762

Amity Shlaes

Amity Shlaes
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Unbalanced by a wealth of oil and diamonds -- BEHIND the celebrations of the victorious past few days is the concern that establishing an Afghanistan controlled by the Northern Alliance does not do enough for the cause of democracy. The absence of democracy is, after all, one of the causes of instability in the Middle East.

Radical Islam is usually blamed for that instability - mullahs are theocrats, not democrats. But there is another, more obvious, fuel powering dictators and terrorists: oil. Without the existence of state-owned oil, Osama bin Laden's family would have found it harder to become rich and he could not fund al-Qaeda. Without state-owned oil the Iranian regime could not nurture radical Islam and oil sheikhs would have little power.

The trouble with oil is a simple one: it is a commodity. Such commodity wealth is different from other forms of wealth in a way that makes it politically destabilising. It is even possible to say that natural resources are the curse of the less developed world, retarding the rise of democracy and the pursuit of prosperity.

The idea of a commodity curse does not fit comfortably into market economics, which holds that any form of wealth gives a nation something to trade, yielding prosperity. Certainly that has been true in most democracies, where commodities such as oil are in private hands and private property is respected.

But things play out differently in places that do not yet have democracy or a culture of private property. There, what matters is that commodities lend themselves to monopoly. Whoever captures control of the oil field or the diamond mine in an otherwise poor nation also captures the nation.

The prize is so valuable that those who have won it will do just about anything to protect it. The commodity lords will form cartels, such as the Organisation of Petroleum Exporting Countries, in an effort to sustain its value. At home, they will nationalise their wealth. (It is telling that the country by country descriptions on Opec's website contains a category for all Opec members: national oil company.) They will oppress their subjects, denying them freedom, good schools, the chance to export - anything that enables them to develop competing wealth.

The commodity curse thesis does a lot to explain why so many Middle Easterners do not seem eager to hammer swords into ploughshares, or trade Kalashnikovs for Windows XP. Subjects of Saudi Arabia or the youth in Iran have little hope of collecting huge material rewards in their own lifetime. That is why some embrace Islam's paradise, Koran school and suicide hijacking.

In such hope-free zones, radical Islam has an added attraction: it offers followers and junior warlords a chance to be part of the next power grab. In other words, Mr bin Laden's game plan may well be, as many say, to topple the Saudi sheikhs and gain control of the biggest commodity prize of all, Saudi oil reserves.

But the commodity curse also works its evil in places without Islam, preventing democracy or hobbling its progress. In the Americas, oil-rich Venezuela is the prime example, where oil has sustained undemocratic or troubling regimes for many decades. State-controlled oil reserves have helped Hugo Chavez, the president, consolidate power and, perversely, made popular his remarkably retrograde philosophy: free markets, he says, are the road to hell.

The commodity curse also works its damage where there is no oil. Thus the competition for Africa's mineral wealth has generated instability, as warlords fight for control of the trade in "blood diamonds".

Even agricultural commodities can have the same anti-democratic effect. In America's antebellum South, plantation owners enslaved humans in an attempt to hold on to their cotton and tobacco, smothering individual enterprise. As a foreign visitor, Alexis de Tocqueville noted: "On the right bank of the Ohio everything is activity, industry, labour is honoured. Pass to the left bank and the enterprising spirit is gone. There, work is not only painful; it is shameful."

One might even go so far as to argue that the absence of commodities is a blessing. Governments of countries that do not have an obvious hoard to sustain them have to hunt for other sources of revenue: they have to tax labour. They therefore are interested in creating a freer environment where individuals feel they have something to gain by developing other forms of capital - especially, nowadays, brain power. It is no accident that Israel, with not much more than Dead Sea salt to sell, has turned out to be the Middle East's only democracy and a technology exporter.

The commodity curse thesis has radical implications for our new war. It suggests that hunting down Mr bin Laden while sending the Northern Alliance to sweep towards Kandahar and massing troops at Kuwait's border is, in the long run, insufficient. It must also push its allies to implement democratic reform. A war against terror is not enough. There has to be a war for democracy.

This notion will be dismissed as ludicrous by defenders of the Saudi regime. But pro-democratic forces possess a new and powerful weapon. It is the fact that today all the world's citizens, even those who live impoverished on desert terrain, do have a kind of capital they can develop and sell: intellectual capital. If democracy can be established in their homelands, they have a shot at stable lives. Here the new middle class in India provides an example.

This idea will not be welcome to those who wish, naturally enough, that this war would now evaporate, as the Gulf war seemed to do. Still, it is important to ask: who are those who support Osama bin Laden, or Hugo Chavez? The west's best hope lies in proving to those people that commodities are not destiny.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


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© 2001, Financial Times