Resource curse

From Freepedia

The resource curse is a theory in political science, economics, and international relations positing that an abundance of easily obtainable natural resources may in fact encourage internal political corruption, underinvestment in domestic human capital, and a decline in the competitiveness of other economic sectors, thereby actually hurting prospects for growth and democratization. Countries who suffer from this condition may be classified as rentier states; a rentier (prounounced rän'tyā) is an individual who depends on income derived from rents, and a rentier state is a state that derives all or a substantial portion of their national revenues from the rent of indigenous resources to external clients.

Both terms are most frequently applied to states rich in highly valued natural resources such as petroleum, however it could be applied to nations who trade on their strategic resources (such as permitting the development of an important military base in their territory) as well. The concept of the resource curse is usually applied to natural-resource rich countries in Africa, Latin America and the Middle East which appear to have failed to realize their apparent economic potential. Dependent as they are on their external source of income, rentier states may generate rents by manipulating the global political and economic environment. Such manipulation may include monopolies, trading restrictions, and the solicitation of subsidies or aid in exchange for political influence.

While many states export resources or license their development by foreign parties, rentier states are characterized by the relative absence of revenue from domestic taxation, since revenues from natural resouces (commonly state-owned) are already substantial. According to Douglas Yates (cited here), the economic behavior of a rentier state

embodies a break in the work-reward causation ... [r]ewards of income and wealth for the rentier do not come as the result of work but rather are the result of chance or situation.

Economically, the revenues from natural resource exports may have adverse effects on the domestic economy because they lead to an appreciation of the domestic currency. This hurts other (non-resource) industries because their products become more expensive on the world market, and exports generally fall. A non-diversified rentier economy may also lead to exchange rate volatility, as the domestic currency exchange rate fluctuates whenever global demand for the natural resource being exported changes. This phenomenon is also known as the Dutch disease.

Economic diversification may be neglected by authorities or delayed in the light of the temporary high profitability of the limited natural resources. The attempts at diversification that do occur are often grand public works projects which may be misguided or mismanaged. The government essentially 'bribes' the citizenry with extensive social welfare programs, becoming an allocation or distributive state. Some have suggested that a more effective mechanism than state monopoly would be to simply distribute revenues from state-controlled natural resources evenly among the population, as is done in the oil-rich U.S. state of Alaska.

Another possible effect of the resource curse is the crowding out of human capital; countries that rely on natural resource exports may tend to neglect education because they see no immediate need for it. Resource-poor economies like Taiwan or South Korea, by contrast, spent enormous efforts on education, and this contributed in part to their economic success (see East Asian Tigers). Other researchers, however, dispute this conclusion; they argue that natural resources generate easily taxable rents that more often than not result in increased spending on education.

Reflecting on the political challenges presented by the resource curse, political scientist Fareed Zakaria has posited that afflicted states often fail to democratize because, in the absence of taxes, citizens have less incentive to place pressure on the government to become responsive to their needs, limiting the spread of active civil society. There is, in the words of Noah Feldman in his book After Jihad,

no fiscal connection between the government and the people. The government has only to keep its people in line so that they do not overthrow it and start collecting the oil rents themselves. (Feldman 139)
Control over the rent-producing resources is concentrated in the hands of the authorities, who may use it to alternately coerce or co-opt their populace, but who do not share the same bonds of accountability with their citizenry that other non-rentier states do.

See also

External links

Retrieved from "http://en.freepedia.org/Resource_curse.html"


Views
Personal tools
Similar Links