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Escaping the Resource Curse

Published online by Cambridge University Press:  07 March 2008

Angela V. Carter
Affiliation:
Cornell University
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Extract

Escaping the Resource Curse, Macartan Humphreys, Jeffrey D. Sachs and Joseph E. Stiglitz, eds., Foreword by George Soros; New York: Columbia University Press, 2007, pp. xviii, 408.

Escaping the Resource Curse provides economic and political analysis of resource curse theories as well as practical policy advice to governments on managing oil and gas developments. Twelve chapters by natural resource specialists from multiple disciplines discuss a broad range of oil and gas development issues in three sections, “Dealing with Oil Corporations,” “Managing the Macroeconomy,” and “Handling the Politics.” Beyond the specific policy advice elaborated in detail throughout (relating primarily to transparency), the book succeeds in its accessible analysis of resource curse theories and state-industry tensions as well as its reinterpretation of oil wealth.

Type
REVIEWS / RECENSIONS
Copyright
© 2008 Canadian Political Science Association

Escaping the Resource Curse provides economic and political analysis of resource curse theories as well as practical policy advice to governments on managing oil and gas developments. Twelve chapters by natural resource specialists from multiple disciplines discuss a broad range of oil and gas development issues in three sections, “Dealing with Oil Corporations,” “Managing the Macroeconomy,” and “Handling the Politics.” Beyond the specific policy advice elaborated in detail throughout (relating primarily to transparency), the book succeeds in its accessible analysis of resource curse theories and state-industry tensions as well as its reinterpretation of oil wealth.

The resource curse, the text's theoretical frame, acknowledges a basic paradox: countries strongly dependent on natural resource exports experience slower or poorer economic and political development. Research in this vein originated in the 1970s, and the theory has recently been synthesized and significantly revived through contributions such as Michael Ross's 1999 “The Political Economy of the Resource Curse” (World Politics 51 (2): 297–322) and Andrew Rosser's 2006 “Escaping the Resource Curse” (New Political Economy 11 (4): 557–70). The early literature which emanated from economics departments emphasized a negative correlation between resource dependence and economic growth. Political scientists were then encouraged through contributions like Terry Lynn Karl's 1997 The Paradox of Plenty (Berkeley: Univ. of California Press) to broaden the work by considering links between resource dependence and authoritarianism, weakened state capacity and civil war. Following this political turn in the literature, contributors to Escaping understand policies or political institutions as mediating what was originally considered a deterministic relationship between resource dependence and political economy outcomes.

One of Escaping's most valuable theoretical contributions is Karl's specification of the political nature of resource curse outcomes. Karl summarizes the curse's political dynamics which she understands as a combination of the plundering of oil wealth by non-state actors and the disintegration of the state-society relationship. First, the oil state becomes a “honey pot” myopically ravaged and contorted by both domestic and foreign actors. At the same time, the “fiscal social contract,” binding government and citizens and established through the state's taxation of citizens and citizen's concomitant demands for elements of democracy, is broken. Oil revenues permit the government in power to be financially independent from citizens; therefore, instead of being accountable to and gaining power from citizens, the power of petro-governments is primarily dependent on oil companies. Freed from public scrutiny, the government in power frequently becomes a corrupt “kleptocracy” and development potential is thereby wasted.

Equally important is the book's treatment of tensions in state-industry relations and the clash of public-private interests, a point which subtly questions the possibility of a fair state-industry “partnership.” Where a state seeks the maximization of benefits and minimization of socio-economic and environmental costs, oil corporations seek maximum profits, minimum payments and oil reserves accumulation—and, as Karl observes, they do so “in large part by shaping the regulatory environment in their own interests rather than for the long-term benefit of people living in oil-exporting countries” (262). For Stiglitz, this is “a natural and inevitable conflict of interest” (24) between private and public interest.

Beyond these theoretical contributions, Escaping is most provocative and fresh when it redefines and disaggregates standard notions of oil wealth and development. Heal addresses this most directly in his chapter “Are Oil Producers Rich?” Here he argues that if oil producers are using this non-renewable, finite asset and if the resulting revenue is not transformed into another form of income, the state is worse off after oil production. Increasing a state's income through oil extraction is “like augmenting the family income by selling the family silver: It cannot last and is really a form of asset disposal—not a source of income”; it is “a sure road to poverty in the long run” (170). To more accurately ascertain the “long-term welfare potential” of an economy, Heal considers losses in natural capital and the social costs associated with the development in his equations. Based on his calculations, he concludes, “All resource exporters appear to be depleting natural capital faster than they are building up other forms of capital, and so are becoming poorer, whatever their income levels” (158).

While Escaping comprehensively addresses central oil policy issues and provides provocative resource curse arguments, it leaves several methodological and theoretical questioned unanswered. First, with regards to theoretical applicability, does the theory speak only to developing states or does it travel further? Second, relating to appropriate levels of analysis, why is analysis exclusively undertaken at the level of the nation state and would it not be useful, particularly in federal states, to consider subnational cases? Finally, on the subject of the dynamics of change, through what precise mechanisms can an oil state transform its oil management? Nor does the book overcome two obvious limitations of resource curse theories: the longstanding inadequate discussion of social equity and environmental outcomes. Nonetheless, Escaping bravely cuts through arcane debates in the literature to do the hard work of offering practical oil management advice. Simultaneously, it serves as an accessible framework to compare and evaluate our governments' management (or mismanagement) of oil. Given the intensification of oil and gas developments across Canada, this appraisal is urgently needed.