When oil was discovered in 2007 off the shores of small, sturdy Ghana, the country’s government officials called the discovery “perhaps the greatest managerial challenge” the country had faced since independence. John Kufuor, Ghana’s president at the time, warned that “instead of a being a blessing, oil sometimes proves the undoing of many … nations who come by this precious commodity.”
Ghana’s reaction no doubt surprised oil-starved observers in developed countries, but the Ghanaian officials were referring to the “resource curse” that has wreaked havoc in other resource-rich, developing countries. Natural-resource wealth not only increases civil violence but, in a bizarre development paradox, is linked to lower economic growth.
In The Bottom Billion, the economist Paul Collier cites three reasons why resource wealth results in low levels of economic growth. First, the discovery and extraction of natural resources can lead to the crowding out of other sectors, otherwise known as “Dutch Disease.” The booming natural resource sector draws labor and capital away from other areas, and the natural-resource revenues result in a stronger exchange rate, reducing the competitiveness of non-resource exports.
Second, commodity price volatility enables boom and bust spending cycles characterized by poor investments and irresponsible spending. Collier writes that during an asset-price bubble in Kenya, “one ministry raised its proposed budget thirteenfold and refused to prioritize.”
Finally, Collier argues that resource revenues can cause deterioration in governance and public institutions through a variety of channels. Bribery becomes a more efficient means of obtaining votes than the delivery of public services. Citizens paying low taxes thanks to resource revenues are less likely to scrutinize their leaders.
Last week, the Natural Resource Charter was launched in Oslo. Developed by a group of economists including Collier and Nobel Laureate Mike Spence, the charter is “a set of economic principles for governments and societies on how to use the opportunities created by natural resources effectively for development.” Essentially, the charter tells countries how to avoid the resource trap.
Will a charter actually do anything? There might be some lessons gleaned from the experience of the Extractive Industries Transparency Initiative (EITI), which was proposed by the British government in 2002 and is now widely supported by governments and industries.
Resource-rich governments that commit to the EITI agree to implement increased transparency measures. The EITI board announced this week that Albania, Burkina Faso, Mozambique, and Zambia will join the 26 candidate countries already committed to implementing the EITI protocols. The jury is still out on the effectiveness of the EITI in candidate countries, but preliminary results are encouraging.
Perhaps more importantly, the EITI is already shifting attitudes in resource-rich developing countries. Collier writes of sitting in a meeting of West African ministers as they discussed resource-revenue governance. The EITI served as a concrete rallying point for both reformist countries and for reformers in reluctant countries. Collier writes, “An international charter gives people something very concrete to demand: either the government adopts it or it must explain why it won’t.”
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Great article Ms. Gunn. Now, if only we can get it in the hands of the corrupt officials of these very impoverished resource-rich countries.
Several years ago I saw an oil industry analyst being interviewed on TV. He said that Norway was the only oil producing country whose government didn’t get corrupted by the wealth produced by the oil industry. I suppose it was the egalitarian values of a Viking culture that saved them. The president of their state oil company is a philsopher and he helps decide how the income is distributed. The Norwegians know it’s a finite resource and are planning for the future without that income. I’m not surprised the conference was in Oslo.
I would argue that we can see the economic development of the last 30 years in the US as an example of a resource curse.
Sometime in the 1980′s we discovered that we could sell dollars, “as good as gold”, and IOUs to the rest of the world for goods.
We developed a huge financial sector to mine the debt and package it for sale abroad and a large retail sector to distribute the loot. Everything else withered.
http://wonksanonymous.com/2008/09/27/the-american-disease.aspx
Of course we are a civilized nation and never experienced the corruption that happens in countries like Ghana.
The problem is very easily described: people who see a treasure chest spend all their time scrabbling at the locks until they finally get it open, and then they find they cannot eat gold.
Societies plagued by legal gambling, legal prostitution, drugs and all sorts of shortcuts to pleasure are in a similar state as those plagued by oil, diamonds or other extractive resource industries. The equivalent is a society that has a wealthy government with seemingly unlimited borrowing potential. When the people finally spring the lock on welfare and all sorts of other handouts, money flows through the fingers of corrupt officials… and nothing good comes of it.
The resource curse could also be applied to the financial sector in the last 15 years. It has (a) crowded out other sectors, (b) created boom and bust cycles due to poor investments and irresponsible spending and (c) caused deterioration in governance and public institutions.
How smug. While we sit and analyze the Third World we are unable to see what is immediately around us.
Resource Curse, it looks logical. many assertetations are looks realistic. examples are all around us.
But why on earth in the world, scientist in every type telling deep core truth.
Curse is the population of world. Corruption, political exhaustion, going nowhere but staying same with rich natural resources are real because of population.
Today’s world is not worse than yesterday world,but surely more corrupted. Our conciousness simply not enough to cover this weakness
#4 nails it.
Perhaps this is analogous to children of rich people who grow up with wealth, and become wastrels. Wealth can function like a narcotic, and wealth can be toxic. It isn’t inevitable, but it is common. Haven’t we all seen articles about lottery winners who find themselves with a worse life after their win than before? Money doesn’t necessarily make things better; only if it’s used wisely.
From what I’ve read, Botswana is a good example of a nation that has managed their resource wealth with foresight and wisdom.