Building Markets

Back to all blogs
2

Cursed Resources

This past week I tweeted about Charles Kenny’s recent online article in Foreign Policy, What Resource Curse? While the title is perfectly benign and caused me no great alarm, it was the subtitle that immediately caused my hairs to stand on end:  “Is it really true that underground riches lead to aboveground woes? No, not really.” No, not really?! Surely you jest. As a subscriber to the idea of a “resource curse,” I found this final statement hard to swallow. But upon reading further (amazingly I was able to set aside my competitive loyalties and hear-out his entire argument), I found Mr Kenny’s article both interesting and persuasive. In the end, I might go so far as to say that ideologically, Mr Kenny and I do not stand so far apart.

My favorite line of the entire article is his last, “Blaming oil wealth for poverty, though, is like blaming treasure for the existence of pirates”- what a great line! But, while it is pithy and rolls of the tongue, it is not totally accurate or fair. The reality is, most serious scholars who write about the resource curse (Sachs and Warner, 1995; Collier and Hoeffler, 2005; Boschini et al., 2007 -to name a few) do not “blame” resources for causing economic stagnation or civil conflict. In fact, social science rarely blames so much as it paints predictive pictures. “Blame” would necessitate causation, and social science does not prove causation, but correlation. Those who support the resource curse speak of it as one of many ingredients (variables), when added to other ingredients, can be associated with economic stagnation and conflict. Thus, while treasure does not cause pirates, the presence of easily lootable treasure, water, oh and economic stagnation, will increase the likelihood of pirate activities.

Tin Mine Worker, Democratic Republic of Congo

But, more than refuting the resource curse, Kenny’s article is important as it shifts the conversation away from the inanimate (resources) and to the animate (people) and their actions (policies):  oil does not cause poverty, people and policies cause poverty. It is kleptocratic regimes, who exploit both weak institutional structures and abundant “point source” natural resources, who pursue poor economic policy (i.e. overreliance on one sector, say oil, to the detriment of others, say manufacturing); de-prioritize necessary reform and accountability measures, including tax bureaucracies; institutionalize systems of cronyism and corruption; and further promote/incentivize competition, oftentimes violent, over these scarce resources.

The linchpin in all of this is more effective and robust institutional structures: transparent and effective governments that do not permit rent seeking behavior and promote diverse economic plans (not solely reliant on one export); and a strong institutional environment and civil society that can hold the government accountable and defend the rule of law.

The Democratic Republic of Congo, Nigeria and Venezuela are just a few examples of how poor economic policies, corruption and ineffective public institutions can thwart a country’s economic prospects, despite –or in light of– the prevalence of easily exploitable natural resources. As Kenny states, “That’s why the most important talisman against the resource curse –improving institutions through greater transparency and oversight –makes sense regardless.” And who knows, maybe this talisman will, as Kenny suggests, help countries like Mozambique, Papua New Guinea and Afghanistan turn their resource curse into an economic gold mine.

2 Comments

  1. Simon says:

    Foreign Policy does this a lot:

    1. Reader arrives on website
    2. Sees misleading, but usually enraging, title
    3. Page views!!
    4. Article is much more reasonable and thorough than eye-grabbing title suggests.

    All the good points made in the article, which you pointed out, don’t follow from the title.

    “Is it really true that underground riches lead to aboveground woes? No, not really.” Actually, yes, really. Saying a bunch of diamonds under the ground doesn’t “lead to” conflict because the diamonds don’t have fingers to fire machine guns is a semantic argument. I’m sure the author was aware of this too.

  2. [...] 17, 2010 I wanted to write a short follow-up to my last blog about the “resource curse.” In it, I discuss Charles Kenny’s recent article in which he [...]


Rss Feed Tweeter button Facebook button Youtube button