The discovery of oil in poor countries seems very seldom to result in general prosperity. What accounts for this so-called “resource curse”?Read the other five Q & As.
It’s an odd thing–you’d think every country with a lot of oil would be lucky. And many are. The United Arab Emirates, Kuwait and Brunei have so much oil and suchsmall populations that it would be impossible for them to not prosper. Canada certainly benefits, thanks to a diversified economy that saves it from the downsides of depending on a sole resource. Norway is in great shape because its institutions were solid when its North Sea tap was opened, enabling it to withstand the pressures and temptations of oil dependency (hence the lesson that it’s best to find democracy before finding oil).
But in poor countries, dependence on exports of a single resource or just a few resources can lead to destabilizing booms and busts. Without good oversight and management, resource revenues can be siphoned off through corruption and waste. When oil dominates an economy, the farming and manufacturing sectors can suffer from neglect as well as exchange-rate imbalances. That’s a bigger problem than you’d think, because the oil industry is capital intensive, creating few jobs. Even Saudi Arabia, which has more oil than any other country, has high unemployment. And research from Paul Collier and other scholars shows that a dependence on resource revenues can lead to less democracy and higher risks of violence, due to struggles for access to state-owned resources. Resources are central elements in the violence that afflicts countries like Nigeria, Congo and Iraq.
I think “curse” might be too strong a word, because it implies a fate that is inescapable or that operates like an economic law. Better to think of it as a peril. And it’s good to remember the advice of J. Paul Getty, the legendary oilman who did a good job of summing up the underlying problem. As he is credited with saying, “The meek shall inherit the Earth, but not the mineral rights.”
--Marshal Zeringue