The Oil Curse: How Petroleum Wealth Shapes the Development of Nations

Michael Ross talks to Viv Davies about his recent book ‘The Oil Curse: How Petroleum Wealth Shapes the Development of Nations’. They discuss the irony of how those countries with the greatest social and economic deficits are also the most vulnerable to the oil curse and as a result grow less quickly than might be expected given their wealth. The video interview and original transcript originally appeared on the VoxEU.org website here.

Viv Davies: Hello and welcome to Vox Talks. I'm Viv Davies from the Centre for Economic Policy Research. It's the 20th of March, 2012, and I'm at the London School of Economics, talking to Michael Ross, Professor of Political Science at the University of California, Los Angeles, about his recent book on "The Oil Curse: How Petroleum Wealth Shapes the Development of Nations." We discuss the analytical basis for this study and how a country's mineral wealth is not necessarily the blessing it might seem.

Professor Ross describes how the irony of oil wealth is that those countries with the greatest social and economic deficits are often the most vulnerable to the curse.

He also points out the fact that countries that are rich in petroleum have less democracy, less economic stability and more frequent civil wars. The question Ross tries to answer in the book is how oil can be turned from a curse into a blessing.

Michael Ross: There's been an explosion of research on this issue in the last 12 years or so and even though there are some popular accounts I didn't feel like there's one book that is kind of relatively comprehensive and that tries to identify the most robust findings in the literature. I realized that, like any issue, what exactly is going on in the oil rich countries is kind of a moving target but I thought it would be useful to have an effort to craft a comprehensive analysis that could hopefully then be used for further research. It also seemed to me useful from a policy perspective because we're at a point when growing demand for oil is leading to the lateral spread of production to new low income countries.

For the last 20 years or so, the number of oil producing countries in the world has been more or less flat. It's begun to rise now and it's projected to rise by maybe one or two dozen states in the next five years or ten years. And so, if there's a time to figure out interventions that can mitigate the resource curse, the oil curse, this is that time.

Viv: OK. So, could you perhaps give us a sense of the sort of data and type of analysis that was involved in the study?

Michael: The study is based on a quantitative analysis of observational data from all countries, basically 170 countries, from 1960 to 2006. So, I've tried to kind of take in the full scope of the last 50 years. I think one of the innovations in the project is to use what I think is a better measure of a country's oil wealth. Early studies would measure it by looking at a country's dependence on oil exports but I and others have noticed that sometimes being dependent on oil exports can itself be a sign of some underlying proceeding ailment. And so it's not a very good way to measure a country's geological wealth, which I think is closer to the core of the idea that some sort of exogenous environmental factor has an effect on a country's political and economic development.

So I look at oil income per capita and try to follow the effects, not just in the whole 50 year period as looking as a unit, but also to look at how the effects have changed over time. I think one of the innovations in the book, or one of the messages in the book, is that the oil curse really only emerged in the 1970s. Before the 1970s you didn't have the kinds of problems that we see today. And when we go back and look, of course, at what happened in that period, it's not surprising because that was the period of nationalization.

Not that things were all rosy during the era when the petroleum world was controlled by the seven sisters, the big oil companies. But the fact that you had major international oil companies scooping up the rents and repatriating them in oil-producing companies meant that the governments were more or less insulated from, unaffected by, the geological riches underneath their soil.

After nationalization, however, the full consequences of their oil wealth became apparent as the governments collected much, much greater windfalls and the market much less stable.

Viv: And they channeled a lot of their spending through these nationalized industries.

Michael: That's right. If national oil companies were simply national oil companies, I think we'd see many fewer problems, but they became vehicles for all kinds of projects, often patronage, corruption, transfers to the military. And politicians, incumbent leaders, realized that they can use their control over national oil companies to circumvent other political checks and balances. That's made them, I think, a central, core part of the problem of the oil curse.

Viv: So it's an issue of governance in many ways?

Michael: I think it mostly comes down to governance. The initial idea of a resource curse, which was sort of popularized in 1995 in this famous paper by Jeffrey Sachs and Andrew Warner, was that there was an economic curse. That if you had more resource wealth, you would grow more slowly. I think that's not really right, and in the book I show that that may have been true during the specific period looked at by Sachs and Warner, but that's partly because this was the period of falling commodity prices, so commodity-dependent countries naturally saw their incomes fall as well.

If you expand and look before and after, you find that the oil producing companies have done really not much better, not much worse than other countries. The mystery is not why they've grown slowly, the mystery is why they've grown at a relatively normal rate when they should be growing faster given the access to capital that they have.

Viv: So I guess that's one of the key questions of your book. It's not that oil producing countries are growing less slowly relative to other countries, but they're not growing as quickly as you might have expected, given their wealth.

Michael: That's right. I call it disappointingly normal growth. Now, some dimensions of this are relatively well understood, and many people have written quite insightfully about it. I focus on two dimensions that I think are not well explored. One is why it is that governments have such a hard time stabilizing the revenue streams and why oil stabilization funds typically don't work. The second is how economic growth is undermined by unusually high fertility rates, that is, high population growth, in the oil-producing countries. If, instead of looking at income per capita, you look at total income, the oil-producing states have done quite well. The problem is that their populations are growing faster than populations in the rest of the world.

And I have developed an argument in the book about why this is so, suggesting that oil wealth tends to crowd women out of the labor force. It creates jobs for men but not women, under certain conditions, and the result is with fewer women in the labor force, you have higher fertility rates. Higher fertility rates mean less growth per capita over the long run.

Viv: Is this what you mean when you state in the book that "the irony of oil wealth is that those countries with the greatest social and economic deficits are also the most vulnerable to the oil curse"?

Michael: Yes. I think many studies show, and mine confirms this, that the poorer you are ex ante when you discover oil, the more difficult it's going to be to manage and invest those resources well. There's a whole variety of reasons, some political, some fairly straightforward and technical. The absorptive capacity of the domestic economy may be limited, and the revenues may grow much, much faster than the economy's ability to absorb reasonably efficient new investments. And even though, in theory, you could park the surplus in a stabilization fund, in fact, those funds just don't work very well, and usually the surplus disappears through inefficiencies or corruption.

As you get richer and richer and you tend to have better and more effective institutions and greater checks and balances ex ante, this becomes less of a problem. It's much easier to invest a lot of capital. Typically, oil wealth is a smaller fraction of your total economy, even if the number of barrels produced is quite large. And you have generally more effective institutions for dealing with some of the problems that arise from large windfalls.

Viv: So what is it about the nature of the problems associated with oil revenues that's different from those sort of problems that are associated, or as a result of, other natural resource curses?

Michael: The evidence seems to show that the curse is most strongly associated with petroleum and not with other kinds of hard rock minerals. Now, that's not a very precise evaluation, because we don't measure other kinds of mineral production as well as we measure oil production. And on top of that, oil is far and away the dominant mineral resource in international trade. Something like between 90 and 95 percent of all traded minerals are made up of petroleum and its by-products.

So, there aren't so many economies that are dominated by mineral production that is not oil production. So, we don't have as many observations, as many cases. And it could be a statistical fluke.

Having said all that, I would guess that oil is particularly problematic because the rents it tends to generate are huge. Because it is capital-intensive, typically more than extraction of other hard rock minerals. And very little of the rent is diffused through labor costs and spillovers to the regional economy.

Instead, the vast majority of the rents accrue to the government directly. And hence, the ultimate economic consequences for the economy depend heavily on the quality of the government and the government's ability to spend and manage this money.

Viv: So is the oil curse an inescapable fate or are there particular policy recommendations or conclusions that you make in the book which will help towards finding a solution for this issue?

Michael: I do argue there are quite a few policy interventions that could make a difference. Having said that, they're often based on…they're not based on the same kind of careful analysis, because we don't have that many examples of countries that have done well, even though they have considerable oil wealth. So, a lot of it is sort of theory and speculation. But having said that, I think there's quite a bit that can be done. Particularly, you can change what I think is the heart of the problem, that is the unusual qualities of oil revenues, their size and speed with which they accrue to the government. You can change the volatility, and I have some suggestions, some ideas about better ways to offset volatility than the standard stabilization funds.

And I think transparency plays a big role, a bigger role than I appreciated when I first began to do the analysis. And transparency is important also because it gives the oil importing countries a role.

And in fact, there's some important initiatives under way, both in Europe and in the US, to force companies, extractive industry companies, to disclose much more specifically the payments they make to governments in the territories they do business. And that would be an important step towards triggering greater accountability.

Viv: Well, it's a great book. It's a great read, very accessible. Michael Ross, thanks very much for taking the time to talk to us today.

Michael: Thanks very much. It's a pleasure.
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When I was recently introduced to the concept of a "Resource Curse" I had to look it up in Wikipedia where I have to admit I was extremely sceptical about the validity of this concept:

http://en.wikipedia.org/wiki/Resource_curse

The resource curse (Paradox of Plenty) refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources.

It struck me that resource wealthy USA, Canada, Australia, Norway and "Great" Britain were doing OK. Britain has perhaps been cursed by the fact that oil, gas and coal production are now all in steep decline. In Africa, resource rich S Africa and Libya had the highest per capita GDP on the continent. In The Middle East (without checking) I'm betting that resource rich Oman, UAE, Saudi Arabia, Qatar and Kuwait have higher per capita incomes / GDP than resource poor Jordan and Syria, especially if you confine analysis to the indigenous populations. Would Russia really be better off without her abundance of oil, gas and coal?

And so the same applies to this article / interview with Michael Ross on "The Oil Curse". Whilst there may be some examples of oil rich countries that have become "basket cases" like Nigeria and perhaps Venezuela, if it is oil that has caused the "social and economic deficits" then this seems perhaps to be an exception rather than a rule.

Professor Ross describes how the irony of oil wealth is that those countries with the greatest social and economic deficits are often the most vulnerable to the curse.

There may be something to this...

He also points out the fact that countries that are rich in petroleum have less democracy, less economic stability and more frequent civil wars.

This seems a sweeping statement that could be hard to defend. What about the oil rich OECD countries listed above?

Not that things were all rosy during the era when the petroleum world was controlled by the seven sisters, the big oil companies. But the fact that you had major international oil companies scooping up the rents and repatriating them in oil-producing companies meant that the governments were more or less insulated from, unaffected by, the geological riches underneath their soil.

This is great stuff. The idea is that developing countries may be shielded from the ravages of oil wealth if Major OECD Oil companies are simply allowed to nick it:-))

That's right. If national oil companies were simply national oil companies, I think we'd see many fewer problems, but they became vehicles for all kinds of projects, often patronage, corruption, transfers to the military. And politicians, incumbent leaders, realized that they can use their control over national oil companies to circumvent other political checks and balances. That's made them, I think, a central, core part of the problem of the oil curse.

I haven't read the book! But at this point I'm really wanting some specifics - which national oil companies have been engaging in this? Statoil? Aramco?

If you expand and look before and after, you find that the oil producing companies have done really not much better, not much worse than other countries. The mystery is not why they've grown slowly, the mystery is why they've grown at a relatively normal rate when they should be growing faster given the access to capital that they have.

At this point I'm totally lost. So oil producing countries aren't actually cursed at all? They are quite normal.

The second is how economic growth is undermined by unusually high fertility rates, that is, high population growth, in the oil-producing countries. If, instead of looking at income per capita, you look at total income, the oil-producing states have done quite well. The problem is that their populations are growing faster than populations in the rest of the world.

Well yes, oil wealth enables countries to buy food and water (desal plants) and to go into overshoot - but this is a different kind of curse to the one being presented i believe that is based on non-existent social and economic deficits.

And I have developed an argument in the book about why this is so, suggesting that oil wealth tends to crowd women out of the labor force.

Presumably this has been normalised for religion and culture - I've heard for example that women are not expected to work throughout much of the Islamic world.

Having said that, they're often based on…they're not based on the same kind of careful analysis, because we don't have that many examples of countries that have done well, even though they have considerable oil wealth.

Well I've not read the book and I'm not sure I'm about to rush out and buy it. But it is quite a feet to get through this interview and to only mention one country by name.

"It struck me that resource wealthy USA, Canada, Australia, Norway and "Great" Britain were doing OK."

It fits nicely with Greer's Empire series. All of these countries are part of, or close to, the western, US lead imperial core. Everything here seems to fit this model quite well.

I wouldn't necessarily say that these countries are following the US lead. All of them except Norway were once part of the British Empire. Britain more or less invented the concept of the incorruptible civil service responsible to the public, and passed it on to its colonies, including those that may have revolted (i.e. the US). Norway is an exception, but it follows the Scandinavian pattern of democracy and social responsibility.

I watched a very interesting video recently of Jorgen Randers (of Limits to Growth fame) speaking at the Smithsonian on the 40th anniversary of the book's publication. He said (I have not confirmed) that Norway has put a lot of its oil money into the stock markets of the word. The consequence is that a nation of 5 million people owns 2% of all the stock in the world.

If true this is an amazing development - at least unless/until the markets tank.

http://youtu.be/ILrPmT6NP4I

The other videos of this symposium are worth watching as well - especially the ones of Dennis Meadows, Lester Brown and Richard Alley (once you acclimate to his voice...)

That's true - the Norwegian national pension fund has over $600 billion invested in other countries, which is over $100,000 for each man, woman, and child. It should provide a nice, comfortable retirement for them compared to other countries.

The Norwegians have traded their oil for paper. It will be interesting to see how this unfolds over the coming decades.

Good analysis, EM. Other than one point,"women are not expected allowed to work throughout much of the Islamic world."

Good to have your comments to keep the lazy writers on their toes. Thanks again.

Craig

totally false though

What is false?

The interview, at least, was sloppy. No specifics. A sort of general, some dogs are brown, Lassie is a dog, therefore Lassie is brown. Maybe she is, maybe she isn't. I was left with a feeling that, well, maybe one or two oil exporting countries did not do so well (lack of specificity leaves me thinking it was the leaders, not the oil, that were at the heart of their problems). I do not get the sense that oil created the problem. And as EM noted, not all oil exporting countries have done quite so badly. Some oil exporting countries are now oil importing countries. Looking at the US, I'd have to say we did a whole lot better when we were cursed with an abundance.

All in all, I am not likely to pick up the book. If I see it lying around somewhere, I might... if I have nothing else to do at the moment. Simply because the topic is of interest.

Craig

That women aren't allowed to work throughout most of the muslim world, that's all, simply false, no need to get all worked up.

My comment used a literary meme called hyperbole. It is used to make a point. In those Muslim countries where Shariah Law is kept, women are not allowed to work, go to school, leave the house unattended, etc. There are other aspects of Shariah that may be worse from a Western POV.

From the viewpoint of the Wahabi sect, Shariah is all very logical and good. Their view of Western libertine license is that it violates the word of God, and to allow women to work, etc., is evil. That view was a large part of why OBL was so adamently anti-American. We sent women into KSA, the holy ground, as soldiers! It is a widely overlooked fact that OBL demanded we leave KSA (after the first Gulf War); when we didn't he took action against us. After we moved our armies out of KSA (into Iraq), he stopped direct action against us - we had complied with his foremost demand.

Not sure whether they ask the women what they think of the restrictions in Shariah... and I am not sure what they would say. I guess it depends on the woman, and how indoctrinated she is. Or how intimidated (which is part of my point, I suppose).

In any case, I know that there are Muslim nations where women work, go to school, and even wear skirts and sweaters. Iran was like that for a while. More strict Muslims viewed that as apostasy, and they took over. Whether the statement I made was true depends on your definition of what is the Muslim world - do you include apostate nations (today that would include Iraq, KAS (though the Wahabi are pressing for Shariah there), Egypt and of course Lebanon... any nominally secular nation where Shariah is not practiced, in fact). This view pervades the religion, encompassing Shia and Sunni alike. Suffi friends tell me they are above such squabbles, though I have not had sufficient interaction and discussion with them to understand quite why that is. In depth discussion of religion is a problematic endeavor, undertaken carefully, especially with folks of whom you are fond and whom you respect.

Anyway, I understand that you do not like universal affirmations... and I would like you to understand that when I make a universal statement of any sort, it is almost always hyperbole, usually to call attention to something aligned with the topic, and not meant to be a verity.

Craig

whatever (btw sharia doesn't forbid women to work), and KSA USA are still best friends as far as I know (since 1945), and did you know there was never any effective embargo from KSA to the US ?, and that the proper label if any for the first oil shock should simply be "US 1971 production peak" ?

My comment used a literary meme called hyperbole.

Around here if you want to use hyperbole, you need to surround it with begin hyperbole / end hyperbole tags. Otherwise people will just think you have gone off your meds and drifted into your manic phase.

My comment used a literary meme called hyperbole.

The problem with this particular meme, and especially when the topic gets anywhere near Islam, is that most people don't recognise hyperbole for what it is and take it at face value. And, taken literally, the statement about female workforce participation in Muslim-majority countries is wrong - amongst others, Indonesia, Bangladesh, Iran and Egypt all have large female wage labour workforces.

When discussing touchy subjects, hyperbole is best avoided. Keep it for safe topics like sport or TV.

Point taken.

Craig

Thanks, EM & Zap. Next up: "Why it is Good (Or Maybe Bad) the Moon is Not Cheese"

Euan,

I've not read the book either, but from the interview the definition of the "resource curse" seems a bit at variance with my understanding. The concept is really of limited usefulness in itself anyway, as I'll explain.

The "curse" part of the resource curse is that starting to export a lot of oil, gas, coal or whatever pushes a country's exchange rate up suddenly, greatly, and persistently.

The effects of the exchange rate jump are, first, that your other exports (carpets, cars, cell phones, whatever) become uncompetitive - manufacturing costs in your country have risen when looked at from outside your country. So suddenly businesses inside your country find it hard to export anything except the resource.

Second, and worse, is that the cheapness of imports means that your own factories can't compete, even when selling to the home market. Retailers will always be able to import stuff more cheaply. The same with construction projects - foreign firms can do the work more cheaply. This makes it really hard to grow or keep any industrial base.

Countries with strong civil institutions - especially open, meritocratic, impartial bureacracies and well-educated populations - such as the Netherlands, Norway and Canada, don't collapse under this stress. They eventually reconfigure. This can take some time, as with the "Dutch Disease" - uncompetitiveness of Dutch exports due to exports of North Sea gas, which resulted in sustained high (by Dutch standards) unemployment, despite great restraint on the level of exports.

Countries with weak, non-inclusive institutions and low capacity to negotiate a collective path tend to struggle under the stress of a high currency. Rulers fail to control exports of the resource and imports of everything else, and fail to invest in upgrading "social capital" or even to save the new money. Instead, they spend money for ideological or political reasons or on vanity projects, or just to keep people quiet. This hampers long-run social and economic development. The textbook examples would be Indonesia under Suharto, Venezuela, Nigeria, Angola, Iraq, Iran, Saudi Arabia, and perhaps Russia.

So the "resource curse" is a chronically over-valued currency, caused by exports of a resource suddenly becoming a large fraction of total GDP, which (a) makes it hard for the country to do anything for itself, even internally, but export that resource; and (b) allows weakly governed countries to avoid their problems.

Looking at the Wikipedia entry for the resource curse, I've covered institutional strength. The other aspect, volatility of GDP due to price fluctuations, is easily managed in a country with strong institutions and an able bureaucracy. But even such countries can struggle with a chronically high currency, as did the Netherlands. Some of the criticism listed on the Wiki page suffers from a basic confusion between stocks and flows, so can be ignored. Other criticism centres on the examples of Australia, California and Canada, which were empty and then filled with immigrants from high "social capital" countries - people who knew how to create good government. These examples are not relevant to the countries I listed above.

Spain is suffering a "resource curse" effect without the resource, from joining the Euro area. The change from the peseta to the Euro was, in effect, a huge jump in its exchange rate, which made most of its exports uncompetitive. Spain used to have a growing car manufacturer, it ran budget surpluses, and unemployment was low, by Spanish standards, and falling. Then in 2002 it joined the Euro area... Adjustment is now under way. The point being, resources are not needed to suffer a "resource curse".

The UK has not suffered from the resource curse because its North Sea oil exports were not a large enough fraction of GDP to cause a sudden, large, chronic exchange rate rise. Britain was "saved" partly by the oil price slump in the 90s, but mostly because oil receipts were too small (Total goods exports are about a sixth of GDP; oil could have been at most a third of that).

So really the "resource curse" idea in itself is not of fundamental importance. What matters is a large and chronic rise in the exchange rate of a poorly diversified export-reliant country, and how that is dealt with. Resources are just one of the possible causes of the problem.

Greg, thanks for this. I was out with Phil Hart last night (he just happened to be in Aberdeen) and he was explaining how the parts of Australia with resources are booming at present while the rest is struggling under the weight of high valued Aus$. So I can accept what you say here about exchange rates. And you provide a good explanation of how "resource curse" may impact economies at different stages of development. But central to the thesis of the "resource curse" is that countries would be better off without the resources. Would Holland be better off today if it never had the gas. One impact of that would be the whole of Europe sucking in more gas from Russia and N Africa. but then we need to argue that Russia and N Africa would also be better off without natural resources. Soon we are back to the rural idyll of a Medieval world.

Would Australia really be better off without its coal, gas, uranium and iron ore? Could China (and Europe and the US) have had its industrial revolution without its coal?

Whilst I accept that there may be a penalty to pay linked to exchange rates, and that the presence of resources may shape the industrial evolution of a country, I find it hard to accept that countries would have been better off had the resources not existed. Would the UAE have been better off without its oil? Some may argue yes. But that boils down to philosophical nuances.

I'm thinking that if, say, the Netherlands was French (a plausible scenario if the French late 18th century overpopulation problem was solved through immigration to neighbouring countries rather than war), inhabitants in the Netherlands would not be as affected, since it would not represent as large part of the French economy, which the Netherlands is a part of. Larger states are simply more resilient to the shifts of the global economy, since they tend to be more diversified (and lend themselves more to diversification, I'd say) than smaller countries. The structures of the national state is simply more benevolent to individual regions than the coldbloodedness of the free market.

Euan,

It's a question of balance, workforce training and timeframe.

Balance: if oil production is too large, it crowds out other forms of goods and services production.

Training: if the sale price of oil is very far above the production cost, the country receives "rent": an artificial value that comes from scarcity. This allows many people to not work, and they don't develop self-governance and production skills.

Timeframe: High oil prices and high exports won't last forever: things may look good at the height of the bubble, but when oil exports disappear then the country is left with underdeveloped physical and social capital.

Spain is a pretty good example: they lived off of New World gold for roughly a century (El Siglo de Oro) - it took them several hundred years to recover.

I think it is probably better to observe that resource wealth does not guarantee "success" at the national level rather than being an intrinsic certified curse.

As posters have said there is a multitude of other factors involved, many being the result of history.

Sure - it all depends on how countries manage the resource.

The factors above describe the ways in which the resource can be mismanaged.

Sorry for the late reply, Euan.

Nick has it covered pretty well, I think. After the party, the hangover that never ends, unless you've prepared for the end of the party.

For countries with strong institutions and a rich, diversified economy, worse or better is probably a matter of accident. And the exchange rate isn't affected much by resource exports, because the economy is large to start with.

Australia is an interesting current case. But note that mineral exports are a relatively small fraction of Australia's GDP: it was already a wealthy, diversified country before the mineral export boom, so the "resource curse" is heavily attenuated in its case. The rise in the Aussie dollar is as much due to the inability of large investors to invest directly in China as it is due to Australia's exports - an investment in Australia is a "proxy" investment in China.

That said, the mineral boom is increasing Australians' purchasing power, without so far creating divisions in Australian society or affecting the diversity of its economy. Give it another twenty years, though... I think things will still be fine, but who knows?

In countries that start from a low economic base and lack "social infrastructure", the resource curse is felt more strongly.

Europe, the US and China have never exported significant amounts of mineral resources (relative to their GDPs), so the resource curse concept doesn't really apply to them.

Would the UAE have been better off without its oil? Ultimately that depends on the wisdom of its rulers. Would Iran have been better off without its oil exports? I think so, looking at its history.

Hey hey Greg,

Nice review of the issue. There is one more angle though. The possesion of a resource doesn't mandate it's export. That is, the 'resource curse' could is only a problem when the country's currency strengthens from increased exports. If the country were to do use the resource in some value added manufacturing before export their economy would grow faster than average. Like Dutch in the 18th, the UK in 19th, US in 20th, and China in the 21st centuries.

This is from my mobile so I can't check exactly or post links, but I believe that each of those countries produced and consumed over half of the worlds supply of some major fuel source in the listed century. Dutch peatmoss in the 18th, British coal in the 19th, US oil circa 1950, and right now china produces and consumes half of the world's coal.

In essence the cursedness of the resource curse only measures how well a country is run when it finds the resource. If they have their act together they will use the resource more efficiently then anyone else and it will get used in house. If they don't run a tight ship then they will export it to someone who does, and the importer will also import some of the growth that the energy or minerals allow.

Hi Everyone. Let me out myself right away: I'm Michael Ross, the author of The Oil Curse and the interviewee. Lots of insightful posts, but there are some things I'd like to clarify.

Euan: I realize that from the interview it might sound like I'm making off-the-cuff generalizations, but the book (and my academic articles) are based on quite careful analyses of global patterns, using widely-accepted statistical methods. Of course, this doesn't make them infallible - we all know that you can lie with statistics - but for what it's worth, I have made all of my data available on my UCLA website, and carefully describe my statistical procedures in the book's appendices. So the patterns I'm describing aren't ironclad 'laws' but strong tendencies. For example, in the past three decades, authoritarian states WITH oil (think Russia, Angola, Congo, the Caspian Basin, much of the Middle East) are drastically less likely to become democratic than authoritarian states with little or no oil

Hi Michael, thanks for turning up and welcome to TOD. I appreciate that the interview was perhaps not a good reflection of the book content - I will try and get a copy since I am still very sceptical about this whole concept, whilst accepting that their may be penalties to pay for resource rich underdeveloped countries, these penalties need to be weighed against the benefits. But here it becomes very hard to define what a benefit actually is. For example, I'm guessing that many of the ME OPEC oil producers have more advanced health care and wellfare programs than their resource poor peers. The ability to provided developed world services within developing economies may keep more babies / children alive? A good thing on the face of it leading to overpopulation though in short order.

As for governance, I would not necessarily assume that democracy is a positive outcome in tribal developing countries. It may be a good outcome one day but not necessarily right now. The Egyptians, for example, are about to learn that it was not necessarily their totalitarian system of government that lay at the heart of their socio - economic woes. When you say Russia et al are far less likely to become democratic, can you list their resource poor peers who are demonstrably more likely to become / have become democratic and how they have benefited from this?

Euan, I take your point. And I show in the book that in general, oil-rich countries have done a better job improving the welfare of their citizens (measured by changes in infant mortality rates) than the typical oil-poor country - although there is a big difference between the successful countries of the Persian Gulf, and the less successful African states (plus Iraq). I'm quite critical in one chapter of others who suggest that finding oil makes countries worse off economically. As I said in the interview, the mystery is why most of these countries haven't done better - given the mountains of cash they often have for investing in their countries.

I'm more optimistic than you about democracy. It's like swimming - you can't know how to swim without getting wet. If you jump in the water, most of the time you'll figure out how to swim. Many low income countries - India, Indonesia, Senegal, virtually all of Latin America - have jumped into democracy in recent decades, most with pretty good success. I don't see why the Arab countries wouldn't be just as likely to succeed, even if it took a few years to make things work.

Granted, no country is quite like Russia. But its income level in the 1990s was quite similar to the East Bloc countries, and European pieces of the former Soviet Union (the Asia parts were much poorer and less developed). Education levels were high. Today Poland, the Baltic states, even Albania are functioning democracies (more or less), with more freedom than Russia.

Like Dutch in the 18th, the UK in 19th, US in 20th, and China in the 21st centuries.

That's a nice summary of the dominant empire by century... As GliderGuider says below, it's not so much a resource curse as it is 'planned bleeding by the Vampire Squid'.

* - of course I don't think China is quite going to make it, having come to the party a smidge too late...

Hi Everyone. Let me out myself right away: I'm Michael Ross, the author of The Oil Curse and the interviewee. Lots of insightful posts, but there are some things I'd like to clarify.

Euan: I realize that from the interview it might sound like I'm making off-the-cuff generalizations, but the book (and my academic articles) are based on quite systematic, statistical analyses of global patterns. Of course, we all know that you can lie with statistics - but for what it's worth, I have made all of my data available on my UCLA website, and carefully describe my statistical procedures in the book's appendices.

So the patterns I'm describing aren't ironclad 'laws' but strong tendencies. For example, in the past two decades, developing states WITH oil (think Nigeria, Angola, Congo, Sudan, Colombia, Algeria) are more than twice as likely to have civil wars as similar states without oil. Many exceptions, but still a worrisome pattern.

Which national oil companies are used for corruption and patronage? Outside the OECD countries, many if not most of them – PdVSA, NNPC, Sonangol, SOCAR, etc. The closer you look – which isn’t easy, given how opaque they tend to be – the dirtier they seem to be.

Craig: it’s true that I didn’t mention many specifics in the interview, but I can assure you that it’s not just a handful of countries that haven’t done well. For example: while most of the developing world (including the former Soviet Union) since 1975 has become democratic, this is untrue for the developing world’s 25 or so significant oil producers. And not just in the Middle East: it’s also true in most of Africa (Congo Republic, Angola, Equatorial Guinea, Gabon, Sudan, Chad, etc.), Russia, and the Caspian Basin. Even in Latin America – which is (outside Cuba) almost wholly democratic – oil-rich Mexico was the slowest country to democratize, and Venezuela has become mildly authoritarian since 2000. Fortunately, there are some important exceptions – again, Mexico, and Nigeria.

What about the rich OECD countries? Clearly they don’t have the same problems, probably for the reasons that Greg cogently states: if you have strong government institutions, a free press, well-educated population (etc.), then you are well-equipped to handle the challenges and temptations that oil creates. If not, be very careful.

Greg, it’s obvious you know these issues well, but I don’t think it’s correct to equate the resource curse with the Dutch Disease (though you might not know this from the spotty Wikipedia entry). The DD is a very specific, well-understood economic pattern that you nicely describe – basically that when you discover lots of oil, some of your other export industries will suffer, as your currency rises in value. In most ways, it’s not even a ‘disease’ – that’s just a clever moniker.

The resource curse is a term that covers a much wider range of problems, like the failure of governments to effectively use their windfalls, the loss of democratic accountability, and the heightened danger of civil war. Norway has the Dutch Disease (to some degree) but no resource curse. Nigeria and Iran have a resource curse.

Finally, is it really true that oil creates jobs for men more than women? Within the Muslim world – even within the Middle East – there is great variation in the number of women in the labor force, and the protection of women’s rights. Granted, these countries have historically been highly patriarchal. But around the world, low-wage manufacturing (i.e., sweatshops) provide women with jobs that are the first step towards economic and political empowerment. In the Arab world – and in fact, many other regions, like East Asia – women have made faster gains in countries that have lots of manufacturing and little oil (like Morocco, Jordan, Egypt and Tunisia); and they’ve made very few gains in places have lots of oil, which hence have the Dutch Disease and little manufacturing.

Here’s a link to a Washington Post article that explains my argument, maybe better than I can: http://www.washingtonpost.com/wp-dyn/content/story/2008/03/10/ST20080310...

For anyone who wants to read the first chapter of my book (free), it’s easily accessed through my publisher (also you can see some reviews): http://press.princeton.edu/titles/9686.html

Finally, anyone curious about my other writings, on oil and other matters, can look at my UCLA website: http://www.sscnet.ucla.edu/polisci/faculty/ross/

"Even in Latin America – which is (outside Cuba) almost wholly democratic"

Really? Lots of direct democracy there? Somehow I find that really dubious.

It amuses me to no end seeing people arguing that Cuba's brand of democracy simply must be changed, while the liberal style of democracy is perfect, and any attempt to make it more democratic will result in anarchy.

Well, Cuba is the only country in the world which fulfills WWF's goal of sustainable development, so obviously they must be doing something right.

- There are no political parties in Cuba except the government.
- There are no press in Cuba except the government´s.
- Cuban citizens are not allowed to travel for other countries without a permission from the government.
- Cuba had the same leader for nearly 5 decades, followed by his brother.

Sound like a typical dictatorship to me, but some people call it "a brand of democracy"

If democracy means its leaders are elected, then Cuba is wholly democratic.

If democracy means its leaders are elected and there are several political parties, then Cuba isn't wholly democratic.

If democracy means "rule by the people", there isn't a single wholly democratic country in the world.

Don't most authoritarian governments have fake elections?

The USSR, Libya, Egypt...

Even Saudi Arabia is planning fake elections...

What most people refer to as "democracy" is best described as "capitalist democracy", since:

(a) The picture of democracy in their minds includes the economic features of society best described as capitalism; and

(b) It is a specific and very limited form of democracy, much less democratic than either ancient Athens or your average union.

In those terms, therefore, I'd have to count all but two countries in Latin America as capitalist democracies. The exceptions are Cuba and Colombia.

Cuba is neither capitalist nor democratic - although it has a good deal more democracy than most people in the US realise, you can't organise politically outside of the so-called "Communist" Party. This is a particular problem in the unions, which are prevented by the Party from acting in the interests of the workers.

Colombia has the formal institutions of capitalist democracy (as do many tyrannical regimes around the world), but it is really governed by Right-wing death squads. Colombia is the most dangerous place on Earth to be a trade unionist - union officials are regularly assassinated by the death squads, even ones working in well-known multi-nationals. No country can be a democracy of any sort if death squads operate with impunity.

Finally, Venezuela counts as a capitalist democracy. It has elections, an opposition, a free press, an independent union movement and much more. Certainly, from the point of view of the US, the Venezuelan people have been recalcitrant in electing the "wrong" candidate as President, but it meets the test set out for other countries. Even the much criticised removal of term limits merely sets Colombia up in line with governments in Europe (and hey, even FDR got elected four times). Venezuela is also capitalist. Although Hugo Chavez imagines that he is a Socialist, he is simply a populist caudillo in the mould of Lázaro Cárdenas of Mexico in the 1930s. Much of the economy remains in the hands of the private sector, which has grown splendidly under this so-called Socialist so-called dictator.

Greer, this week: Democracy's Arc

By this point I suspect some of my readers may be wondering if I’m opposed to democracy. Quite the contrary, I’m very much in favor of it; despite its problems, it beats the stuffing out of most systems of government. It has three benefits in particular that you don’t usually get in other forms of government....

It's an interesting discussion and the concept of anacyclosis is an intelligent one. I would disagree, but it's the sort of disagreement where one has to think carefully and accept that one's opponent is a serious thinker.

Greer's major failing is that he doesn't give economics the priority that it deserves and thus falls for idealist schematism in his approach to history. On the other hand, he is on much sounder ground in describing the virtues of democracy as opposed to dictatorship. Capitalist democracy, although it almost never compels the government to do what most people actually want (and I would thus reject it on this ground alone), frequently compels the government to refrain from doing things to which almost everybody strenuously objects (and is thus preferable to forms of government which do not do so).

Let's try to look at this from another angle: how resilient is each system to the coming (and present, but to lesser degree) adversaries of dangers in all sorts of things, from financial collapse to diminishing energy and natural resources, overpopulation, natural catastrophies, loss of habitats, all the bad things that is quite different to the context of the post-war period, which a lot of these discussions seem to be grounded in. Since this is the Oil Drum after all, I think it should be a bit easier than in other places. The sort of capitalist democracy you seem to refer to, while pretty decent in a context where all these issues are not as relevant, does not seem to be well-suited if they are. For one, economic growth is imperative for the system to work in practice*, which is not good since economic growth is directly in conflict with the imperative to become more sustainable. These sort of systems also tend to be remarkably short-sighted.

When looking at the best examples of sustainable development (the few of them there are), it strikes me that it either are made possible through either 1) strong, direct influence from the State or 2) local groups managing to improve their community. When looking at the future ahead, I thus think these two "tools" will be the best ways to handle it, and I'm obviously partial to number two since I, as a person can influence developments better through that way.

*To be fair, the USSR also had this inbuilt function, and I would agree that if its failure to keep economic growth going was the most important thing contributing to its fall.

If it's a choice between Henriksson's 1) or 2), I'll take the 2) every time. The only example I've seen of 1) not leading to disaster is Cuba after the USSR fell apart. Castro & co decided "Hell, we have to get sustainable & we have to do it fast". And it worked, at least to the extent that things didn't fall apart and then they improved somewhat after a few years. Every other example of 1) I've seen has made things a hundred times worse. Give me local community action, networking in with like-minded communities elsewhere, any day.

Second, I've noticed an ambiguity in my previous post:

Capitalist democracy, although it almost never compels the government to do what most people actually want (and I would thus reject it on this ground alone) ...

It's possible to interpret this to mean that my only objection to capitalist democracy is the insufficiency of its democracy. That is not what I meant. I mean that the insufficiency of its democracy is a sufficient reason to reject it, regardless of other considerations. Those other considerations are also weighty, however, leading me to reject capitalism as such, in favour of workers' democracy (which, I'm afraid it's necessary to point out, never got a look in during the existence of the USSR).

I've often wondered why it is only Holland that has suffered from the "Dutch Disease".

There are ways to mitigate the monetary imbalances caused by resource revenues. One of them is to just take the money and invest it outside the country as Norway has done. If you put it in other countries then it doesn't overheat the domestic economy.

Another way is to just give it to other countries. This is what Canada did during WWII - it gave the UK about $1 billion a year every year for the duration of the war - which was an enormous amount of money back then, especially for a small country like Canada. It wasn't a loan, it was an outright gift - and it was in US dollars, not Canadian dollars.

The UK took the money and used it to buy armaments from the US to fight the Germans. Canada started manufacturing components for the US armaments industry, and eventually complete aircraft, vehicles, and ships. The net result was a huge increase in Canadian manufacturing - in fact Canada converted from a predominantly agricultural to an industrial economy during the war. After the war, the new Canadian manufacturing plants converted from supplying armament components to the US to supplying automobile and aircraft components to the US, and life was good in North America, less so in the UK whose plants were all obsolete by that time.

This was actually a stated objective of the Canadian government at the time - giving money to the UK knowing it would all eventually come back and stimulate Canadian industry.

If a producing country wants to avoid overheating its economy like Holland did, it has to be creative about it.

Written by Euan Mearns:
I find it hard to accept that countries would have been better off had the resources not existed. Would the UAE have been better off without its oil?

It depends on what the country does with the resource. If they export the resource, then they have the problems described in this thread. If they instead use the resources for domestic manufacturing and export some of the goods, then the country prospers.

I find it hard to accept that countries would have been better off had the resources not existed.

Interestingly, coal-rich counties in the US's Appalachian region have slower economic growth than coal-poor regions, in what appears to be a statistically significant relationship.

The comparison is within-country, within-region, and within-culture, suggesting that there's a reasonable chance the presence or absence of resource extraction really is responsible for the difference.

This is some of the problem the US has with a really strong dollar. People want dollars because of US political stability, and that is now undermining that political stability by forcing jobs overseas and increasing unemployment at home.

The problem comes when wealth influences politics so as to preserve and favor that specific type of wealth. That was the problem of slavery in the US. Much of the capital of the South was tied up in the "assets" of slaves, which were easily sold and which didn't depreciate (slave populations increased over time).

The same thing is happening now with fossil fuels. The asset of fossil fuel deposits is so large that it dwarfs other assets and can be used to borrow against. CO2 emission taxes can't be considered because it would greatly reduce the value of those in-ground fossil carbon deposits. Attaching a reasonable cost to emitting CO2 would drive the value of those deposits to near zero.

Gregvp has elaborated the economic drivers of the "resource curse" well. When it comes to oil, there is a political dimension, too, though.

In a country with oil reserves that are a major part of the national wealth, and which are in the hands of the State, the State turns into a honeypot. Everybody and their dog wants a slice of the action, while the current holders of State power have enormous resources at their disposal to ensure they stay in power. Therefore, you get either patronage networks or violent dictatorships or both. A nationalised oil industry isn't the only possible honeypot, but it's the most common. If a country is already at a reasonable stage of development, my analysis won't apply, since there is both a larger & more diversified economy in which the oil industry can exist (thus removing the honeypot effect, since oil isn't the only game in town) and a stronger civil society exists which can restrain State power.

Now, I don't know whether "Saudi" Arabia would be better off if it didn't have oil, but certainly the rest of the world would be. The House of Saud rules the only country known universally by the name of its ruling family and, as well as governing in the most reactionary way currently existing on Earth, exports its extremely reactionary social views to half the world via its funding of Salafist schools, institutions, political parties and welfare organisations. This gives the Salafists power far beyond their numbers and, in Muslim-majority countries, has a powerful negative effect on the position of women in society.

Ghawar can't fail quickly enough.

If you look more closely, it will turn out that the curse is not the resource, but imperial (nowadays US) meddling (to steal that resource).

Actually, they're two separate things. There is imperialist meddling and there is home-grown tyranny too. The interplay between them, and between them both and popular political movements, define the history of much of the Third World in the last 60 years.

I think there is a huge difference between oil producing countries with a history of democracy and free-enterprise economies (The US, Norway, Canada, the UK), and countries with a history of absolute monarchy or totalitarian dictatorships and non-free enterprise economies (Saudi Arabia, Russia, Iran, Iraq, Venezuela).

In the former, the excess revenues from oil production generally get put into infrastructure and social spending (schools, roads, hospitals) whereas in the latter, the money is captured by the ruling hierarchy and goes into lavish palaces, homes, and cars; and into half-baked economic schemes that ultimately fail.

I don't think the presence or absence of oil makes much of a difference in where the money goes, it only makes a difference in the amount of money that gets put into the spending.

It's true that in an absolute monarchy or dictatorship the ruling hierarchy can use oil money to stabilize the country by bribing the people not to revolt, but I don't think a revolution usually improves things. In most cases it just ends up in another dictatorship.

Insightful perspective, thanks.

My own experience with an oil economy occurred because I grew up amidst the oil fields of Alberta. I was born the year after the first big oil discovery was made in Canada (the Leduc field).

Some of my earliest memories are of going to a 1-room rural school (grades 1-9). The school had outdoor toilets, a coal furnace, and a barn the students could stable their horses in. My family was too poor to afford the luxury of a horse, so we walked two or three miles.

Then the seismic crews came through and dotted the landscape with brightly colored ribbons. We started taking them to class to decorate our desks. The oil men came to our school and politely asked us to stop because it was messing up their surveys. Then the oil rigs came through, drilled a bunch of oil wells all over the countryside, and then they built an oil pipeline right past our school. We used to go out on our lunch hour and watch them weld.

The contrast between pre-oil and post-oil was rather striking since the provincial government had gone bankrupt during the Depression and defaulted on its debts, so it couldn't borrow money or build new facilities for about 20 years. It operated on a strictly cash basis - as tax money came in, they spent it. However, as the new oil money came in, it went straight into building infrastructure.

So, the government built us a new school in a nearby town with modern conveniences such as flush toilets and gymnasiums, closed our school, and moved us there. They bought school buses because it was too far to walk. Then they paved the main roads and built hospitals in nearby cities. By the time I was ready to go the university, they had built one for me - unfortunately it was one massive construction site because it had been officially established the year I started and much of it wasn't finished. When I graduated, there was a job waiting for me with an oil company.

When I was born, Calgary had about 100,000 people and was mostly a cowtown with a lot of frantic oil company activity. Now it has over 1 million people, and is the second biggest head office and financial center in Canada after Toronto, but oil company activity is even more frantic.

Now the province has some of the best schools in the world in terms of academic standards, good hospitals, and jobs galore. It would have good roads if they weren't all beaten to pieces by heavy trucks. It is no longer rural but is the most urbanized province in Canada, and certainly the most affluent one.

Not all the effects of oil money were positive, but I think on balance it worked out much better for me than being a rural share-crop farmer in a bankrupt province, which was my father's experience.

For my school-mates it worked out rather well, too, because the oil companies discovered the rural farm boys weren't averse to working long, hard hours for decent pay. They didn't like unions because they inhibited their ability to work longer and harder for even more money. This was popular with oil companies who didn't much like unions either, but weren't averse to paying more money for harder work.

I recall one farmer telling me he sold his farm and drove into the big city. As he drove in, he saw a big factory by the highway, so he went right in and asked if they had any jobs available. "Yes, we do," they said, "Can you start right now?" "Sure no problem I'll just lock up the truck and start working", he said. They were used to farmers showing up unannounced, and knew that if he could manage a farm he could do anything they needed on the factory floor.

This is an amazing story. Thanks for sharing it. I imagine a lot of people in a lot of places had similar experiences. The mystery is why in many cases it doesn't happen - or the benefits that go to locals are much smaller than they should be. I think nationalization is a big part of the answer in many countries - but as my book suggests, it's a complex story.

I think the difference is that many of the oil-producing nations were absolute monarchies or totalitarian dictatorships when they discovered oil, and the ruling elite made sure that most of the money went into the pockets of the ruling elite.

Canada is a democracy and the provincial governments (who have constitutional jurisdiction over natural resources) are responsible to the people. As a result, the Alberta government ensured that the benefits of oil production went to the people of Alberta.

This resulted in some confrontations with the Canadian government, which felt that the benefits of the oil production should go to all of Canada. However, in recent years the Canadian government has come around to the point of view that the system can be made to work for the benefit of everyone. Part of the reason is that 5 of the 10 provinces are now major oil and gas producers, rather than just 1, and the federal government is now collecting a lot of money from the oil industry in them through profit and value added taxes. There's a lot of money to be spread around.

They didn't like unions because they inhibited their ability to work longer and harder for even more money.

Are you sure that was realistic? I've never ever seen a union that discouraged well paid overtime.

Unions tend to have a lot of rules that discourage working more efficiently and firing incompetent workers. The farm boys didn't like people making rules for them who weren't paying them for putting up with the rules.

The farm boys were used to working 12 hours a day, so an 8 hour day was pretty easy for them. They tended to believe that working more hours for more money was great, but working more efficiently for the same amount of money was also good, because if the company made more money, it made their jobs more secure, and the oil companies made sure some of the profits found its way into their pockets.

Both management and workers felt that the incompetent workers should be tossed out on their ears so they would have only competent workers in the company.

If the company treated them badly, the workers wouldn't strike, they would just quite and go to work for some other company that appreciated their hard work more. This was ultimately a more effecting technique than getting involved in confrontions with management.

Unions tend to have a lot of rules that discourage working more efficiently and firing incompetent workers.

Show us an example. This sort of thing is a myth invented by people who profit from being able to treat their workers like dirt and spread by people who, having no knowledge of unions themselves, fall for it. Being incompetent is actually one of the least frequent reasons for which workers get fired. Usually it is a behavioural issue, for which the blame lies just as often on the employer's side as the employee's and which can almost always be tackled more constructively than the employer wants. One of the least competent people in my workplace is a manager whose job is safe because he's known as the one to whom to transfer staff who senior management find inconvenient. Because he's willing to have "the hard conversation", his bosses put up with his own inefficiency.

The farm boys didn't like people making rules for them who weren't paying them for putting up with the rules.

And who says that there would be anybody else making rules for them? Unionising is about organising democratically to present a common front to the boss.

If the company treated them badly, the workers wouldn't strike, they would just quite and go to work for some other company that appreciated their hard work more.

That sometimes works if there are plenty of alternative jobs around (like, say, for Alberta during an oil boom). Under more usual conditions, however, not only are the workers usually easily replaceable, but there is usually a shortage of jobs for workers to go to. Reacting to poor treatment from the boss by leaving would often mean risking getting a worse job, or even unemployment. And if you wait till you get a job before leaving your current one, you could be waiting a long time.

Finally, my conscience won't let me see injustice go unchallenged. An employer who's behaving badly should be stopped, not left to continue to mistreat others.

I don't have any examples of my own because I have never worked in a union job. Alberta is rather anti-union, and the oil industry in particular doesn't like unions, although it does pay very high wages.

I'm just relying on what people who have worked in union positions told me. They had to work with a lot of incompetent people who both they and management would dearly love to kick out onto the streets, but couldn't.

I've always just relied on my wits. If you don't like the way the management of a company treats you, just go work someplace else. If you don't like the way a manager treats you, go up to his boss, and hand him a letter of resignation telling him what a scumbag his manager is, and then stomp out.

Of course, you have to be fairly gutsy to do this, and have a lot of money in the bank in case you don't find another job soon. Under worst-case conditions, you might have to throw everything you own into the back of a van and drive halfway across the continent to find a new job. The consequences can be fairly devastating to a company if everyone does it, though.

They had to work with a lot of incompetent people who both they and management would dearly love to kick out onto the streets, but couldn't.

I've seen incompetent managers say that often - not so much the competent ones. Competent managers know how to get the best out of people, and get rid of the ones that can't be motivated. There are a lot of incompetent managers!

If we didn't have unions, those farm boys would be working 12 hours, 7 days a week, for much less than they're getting for 40 hours per week. They think union workers are living off other people's work - it's the exact reverse - those farm boys are the ones living off the blood, sweat and tears of union organizers over many, many decades.

It is very true in this article what the author saying. When british were in control of iranian oil in 1940 and 1950 ,a popular uncorrupted Iranian Senator wrote a book " Black oil or pain of Iran " at the time which was published in several languages.

For resource rich nations, how much correlation is their between their level of democracy and lack of corruption (for example) and their climate zone? (e.g., temperate, sub tropic, tropic, etc)

Hey hey Will,

I wonder about this too. Countries with temperate climates have higher per capita GDP and lower corruption than those with hotter climates. What I wonder though, is how much of this is the legacy of colonialism and how much is environmental conditioning.

The world was colonised by Europeans from temerate climates and they settled lands with friendly climates (USA, Canada, Australia, New Zealand, Argentina, Chile, South Africa) and managed lands that were inhospitable. They brought the culture and institutions of their developed home country to places that they settled, but more or less raped and plundered the lands that they were unsuited to live in. This left a legacy of corruption in places where Europeans were poorly aclimated.

Makes me wonder what the corruption/development correlation with climate would look like if another culture had gotten the steam engine first and colonized the world from a home base of China, India, Persia, Tukey, Egypt, Carthage, etc.

On the other hand John Micheal Greer said recently that civilizations in temperate climates last longer than those in arid environs which last longer than tropical ones. Makes me think that an environment which necessitates planning and foresight does better than one with easy year round access to food and shelter.

From mobile with tiny keyboard an no spell checker.

an environment which necessitates planning and foresight does better than one with easy year round access to food and shelter.

I believe this statement succinctly captures a key aspect of the difference between governmental types.

They brought the culture and institutions of their developed home country to places that they settled, but more or less raped and plundered the lands that they were unsuited to live in. This left a legacy of corruption in places where Europeans were poorly aclimated.

And we are still seeing that to a degree, especially with resource exploitation, with a large asian country now taking the lead in some countries.

I'd be interested in hearing a bit about how the rules and policies of the Three Trolls (WTO, WB, IMF) force the "resource curse" on vulnerable nations. From what little I understand they make it impossible for such nations to develop indigenous industrial capacity by denying their fledgling industries the market protection of tariff walls. Free trade is king, doncha know...

As a result, all they have left of economic value that they're permitted to sell on the "free" market is their resource base. Then the Three Trolls and their Transnational Corporate owners make it impossible for them not to sell their resources by offering their governments nice generous open-handed "development loans" - a la "Confessions of an Economic Hitman".

It's not a resource curse, it looks more like a planned bleeding by the Vampire Squid.

...how the rules and policies of the Three Trolls (WTO, WB, IMF) force the "resource curse" on vulnerable nations.

The oil-rich countries don't have much to do with the WTO, WB, and IMF because they generate enough oil revenue that they can ignore them.

This is not necessarily a good thing, because the rules of these organizations are oriented to rationalizing and streamlining the economies of the countries they have to bail out. As a result, oil-rich countries can continue on with irrational and dysfunctional policies as long as the oil holds out. Unfortunately for them, it can't hold out forever and the crisis, when it comes, will be nasty.

Some countries have gone straight from having 3rd-world to 1st-world economies in 1 generation by bringing the full pressure of international competition to bear on their people. Singapore and Hong Kong leap to mind. However, they don't have any oil, which means they have to live by their wits.

That is probably the biggest disadvantage of having large oil resources - you don't have to live by your wits and hence can scrape by doing any stupid thing you feel like doing, blaming your problems on other countries.

I wonder. The way nations have traditionally built up their internal industrial capacity when faced with international competition has been to erect protective tariff walls. This has been done by Britain, Germany, the USA, China, India etc., and was the chief measure by which Japan created their fledgling automobile industry. Under the "benevolent guidance" of the WTO, protective tariffs are virtually a thing of the past, meaning that a country can't keep out low-priced foreign goods even if it wants to.

In this situation local manufacturing can't get off the ground, and the nation in question has to find money any way it can in order to purchase those cheap free-trade goods. For most this means selling their natural resources like oil to the already-industrialized nations.

It's hard to believe that non-industrial oil exporters wouldn't prefer to have a mixed economy like Canada or Norway. Yes, they're making a good buck off their oil right now, but I also find it hard to believe they don't understand that the gravy train is going to coast to a halt at some point (soon).

Even without the collusion of the money-lenders at the IMF and WB, the international trade rules enforced by the WTO are punitive and abusive from the point of view of a developing oil-exporting nation. From their perspective (and maybe soon to the USA as well, at least to an extent) the fanatical free-trade ideology of the Three Trolls enforces a race to the bottom in which the have-nots lose. Again.