Resource Curse Explanations, Proposed Solutions, Critical Appraisal

1. Resource Curse Explanations, Proposed Solutions, Critical Appraisal

2. In this session, I will examine two questions: • What causes the resource curse? • How should the resource curse be addressed?

3. What Causes the Resource Curse? • There has been considerable debate over what causes the resource curse. • Initially, scholars focused on the economic mechanisms linking NRW with bad development outcomes, e.g. • Dutch disease argument • NR boom  appreciation of exchange rate  negative impact on manufacturing and agriculture  bad economic outcomes

4. declining terms of trade • instability of international commodity markets • enclave nature of resource activities

5. More recently, however, a consensus has emerged that the resource curse is primarily a political product • Political explanations fall into six main categories:

6. Behaviouralist explanations emphasise emotional or irrational behaviour on the part of political elites • NR boom  myopia/over-exuberance on the part of policy elites  bad policy decisions  bad economic outcomes

7. Rational actor explanations emphasise self-interested behaviour on the part of political actors • NR boom  increased ‘rent-seeking’ and ‘rent-seizing’ (i.e. lobbying and corruption)  bad policy decisions  bad economic outcomes • NR boom  increased incentives for rebel groups to form to either capture the state or to directly control NRs civil war

8. State-centred explanations emphasise the way in which NRW affects the character of the state. • e.g. rentier state argument • NR boom  unearned income  greater state capacity in distributive and productive functions than in economic management and supervision functions  bad economic outcomes • Auty (2004): Bad economic outcomes  increased risk of civil war (although this also depends on the lootability of resources) • Ross (2001) and others: unearned income  greater state capacity for repression and cooptation of political opponents  authoritarianism

9. Historico-structuralist explanations emphasise the effects of NRW on the relative power of different social groups or classes, e.g. • Auty (1995) and Mahon (1992): In Latin America, NRWpolitical and social dominance of landed and business elites that favour ISIpreventing the transition to EOI. In East Asia, lack of NRW means this not a problem • Ross (2001): ‘failed modernisation’  authoritarianism

10. Social capital explanations suggest that the problem with NRW is that it undermines social cohesion and in turn makes it difficult for governments to manage the social tensions surrounding economic reform (Isham et al 2002). •  little reform  poor economic outcomes

11. Radical explanations suggest that NRW either: • makes developing countries potential targets for forced incorporation into the global capitalist system; or • means that elites in these countries get off lightly when they engage in corrupt or inept behaviour

12. Ross (2006) on oil and gender inequality: • uses a combination of the Dutch disease argument and rational actor analysis • He argues that: • oil diminishes female participation in the workforce by: • crowding out low-wage manufacturing activities that would otherwise employ women • by boosting womens’ unearned income • this, in turn, reduces the likelihood that women will organise politically, engage in lobbying etc.

13. My View • None of the above approaches adequately addresses the role of social forces in shaping development outcomes in resource abundant countries. • None of the above approaches adequately addresses the way in which the external environment shapes development outcomes in resource rich countries • radical explanations too negative

14. Explanations tend to overlook the fact that there is considerable variation in development performance among resource rich countries • They presume that resource poor stereotype constitutes only pathway from the resource curse/only model to be followed

15. Addressing the Resource Curse • Most scholars have argued that resource rich countries can overcome the resource curse by adopting neo-liberal economic policies, particularly in the macroeconomic and fiscal realms. • Most scholars have also argued that resource rich countries need to introduce institutional changes/state reforms to combat corruption and mismanagement. • e.g. measures to improve transparency and accountability, administrative capacity, etc.

16. Sala-i-Martin and Subramanian (1999): Bypass the state • Some scholars (e.g. Collier 2000) have also argued that measures need to be introduced at the international level to counteract economic incentives for rebellion • e.g. Kimberley process for conflict diamonds

17. My View • Two problems with these recommendations: • Generally silent on the question of how will these changes occur. • Sala-i-Martin and Subramanian a partial exception • Based on a comparison with resource-poor countries some recommendations try to rob resource rich countries of their resources

18. In the next two sessions, I will argue that the solution to the economic and civil war-related dimensions of the resource curse lies in broader political and social change, specifically: • political victory of pro-capitalist political and social forces • the emergence of a geo-political/geo-economic environment conducive to rapid economic development and peace

19. References • Auty R. (1995) ‘Industrial Policy, Sectoral Maturation and Postwar Economic Growth in Brazil: The Resource Curse Thesis’, Economic Geography, 71 (3), pp.257-272. • Auty R. (2004) ‘Natural Resources and Civil Strife: A Two Stage Process’, Geopolitics, 9 (1), pp.29-49. • Collier P. (2000) ‘Doing Well Out of War: An Economic Perspective’ in M. Berdal and D. Malone (eds.) Greed and Grievance: Economic Agendas in Civil War, Boulder: Lynne Reiner, pp.91-111. • Isham J. et al (2002) ‘The Varieties of Rentier Experience: How Natural Resource Export Structures Affect the Political Economy of Economic Growth’, http://are.berkeley.edu/courses/EEP131/fall2006/resourcecurse/Isham.pdf • Mahon Jr. J. (1992) ‘Was Latin America Too Rich to Prosper’, Journal of Development Studies, 28 (2), pp.241-263.

20. Ross M. (2001) ‘Does Oil Hinder Democracy,’ World Politics, 53 (April), pp325-361. • Ross M. (2006) ‘Does Oil Hurt the Status of Women?’, unpublished paper. • Rosser A. (2006) ‘The Political Economy of the Resource Curse: A Literature Survey’, IDS Working Paper, No. 268. • Sala-i-Martin X. and A. Subramanian (2004) ‘Tackling the Natural Resource Curse: An Illustration from Nigeria’ IMF Survey, 15 March, pp.78-80, WWW document, available at http://www.imf.org/External/Pubs/FT/SURVEY/2004/031504.pdf.