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Natural Resource Wealth is Bad for Democracy

 

There is growing interest in the idea that bad governance often results when states are financed not from taxing their citizens, but from 'unearned income' derived either from large mineral resources or, less significantly, large aid inflows.

The arguments are summarized in Moore (2001). Oil revenues are especially important because they are the dominant source of 'unearned income' for states worldwide. There are some excellent country case studies supporting the notion that oil wealth is politically corrosive - for example, Karl (1997) on Venezuela, and Vanderwalle (1998) on Libya.

However, we have until recently lacked statistical evidence. Michael Ross has changed that. Using careful cross-national statistical evidence relating to 113 countries over the period 1971-97, he shows that, all else being equal:

  • Exporting oil is strongly associated with authoritarian rule.
  • This relationship is not limited to the Middle East, but worldwide.
  • Enjoyment of other types of 'concentrated' mineral exports has similar anti-democratic effects, while ('dispersed') agricultural exports do not.

These findings are consistent with most current theory. Ross also squeezes the data to test three different explanations for adverse effect of mineral wealth on democracy:

  • The 'rentier' effect: resource-rich governments use low taxes and patronage to dampen democratic pressures.
  • The 'repression' effect: resource wealth enables governments to rule via strengthened internal security forces.
  • The (failed) 'modernization' effect: economic growth based on mineral exports does not bring about the social and cultural changes that 'normally' follow from economic growth and, in other circumstances, tend to produce democracy.

Significance?

We are now fairly clear on the fact that, all else being equal, significant natural resource wealth tends to damage political institutions. We have some idea of the reasons why this happens, but cannot claim to understand them fully, or to weigh one cause against another. We have scarcely any idea of what to do about the problem! Natural resource wealth will not be left untouched for fear of adverse political consequences. What kinds of politically-feasible institutional arrangements might mitigate its worst effects?

Sources:
Michael L. Ross, 'Does Oil Hinder Democracy?' World Politics, Volume 53, Number 3, April 2001, pp.325-61.
World Politics is published quarterly by Johns Hopkins University Press (www.press.jhu.edu).

Terry L. Karl, The Paradox of Plenty. Oil Booms and Petro-States, University of California Press, 1997.

Mick Moore, 'Political Underdevelopment. What Causes 'Bad Governance'?', Public Management Review, Volume 3, Number 3, 2001, pp. 385-418.
Public Management Review is published by Taylor and Francis (www.tandf.co.uk/journals).

Dirk Vandewalle, Libya since Independence. Oil and State-Building, Cornell University Press, 1998.

Keywords: democracy, oil, natural resources.

Commentator: Mick Moore, IDS (November 2001).

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