Tag Archives: resource curse

With Qaddafi Gone, Can Libya Overcome the “Resource Curse”?

Libyans in Tripoli's Martyrs' Square celebrate news of Qaddafi's demise.

The death of Libyan dictator Moammar Qaddafi is widely regarded as a positive development for the Libyan people as the Transitional National Council (TNC) seeks to usher in a more democratic and prosperous future. But it is unclear whether Libya’s new leaders can extricate the oil-rich country from the grasp of the “resource curse” and bring both democracy and economic development to the Libyan people.  The resource curse refers to the fact that countries endowed with abundant natural resources frequently end up with autocratic regimes and poor populations.  International relations professor Peter Fragiskatos explains the causal mechanism underlying the resource curse in a recent blog post:

“Islam’s supposed hostility to democracy is often cited as the cause of authoritarian persistence in the Middle East and North Africa, but oil
is a far more credible culprit. Oil has sustained the rule of tyrants in the
region, whether it was Gaddafi, the shah of Iran, Saddam Hussein or the princes of Saudi Arabia. In place of taxes – and the calls for democracy and representative government they usually give rise to – the Gaddafi regime used oil profits to maintain its power. Flush with cash, the only real requirement it needed to fulfill was to adequately fund a security and military force that could silence any signs of dissent.”

Some analysts suggest the resource curse is all but inevitable.  An NPR report observes that “If the resource curse is inevitable, then you might imagine that Libya has much worse odds than Egypt at becoming a real democracy. Some leader will eventually take over those oil wells, capture all that wealth and become yet another despot.”

But other observers are optimistic, and they focus on the power of transparency to overcome the government’s monopoly on information and wealth production.  In an op-ed piece at the Huffington Post, U.S. Senators Dick Lugar and Benjamin Cardin tout an International Governmental Organization that is dedicated to overcoming the resource curse:

“In recent years, a number of  international actors — including responsible oil and mining companies and  citizens groups — have begun to tackle the resource curse problem by calling  for greater disclosure and accountability of revenues through voluntary participation in the Extractive Industries Transparency Initiative.  An Oslo-based international organization, EITI requires member countries and the companies they host to publish payments and receipts, and to have the results audited and certified.  The voluntary EITI approach has  been enthusiastically endorsed by the World Bank, the IMF, and the G-20 group of major economies.”

What do you think?  Does the resource curse provide a convincing explanation for the persistence of autocratic regimes in the Middle East and North Africa?  Or is this an overly simplistic argument?  What is the likelihood that Libya’s new leaders can create a democratic and prosperous state, and why?


Addressing the Resource Curse

A fascinating proposal was advanced by Martin Sanbu and Nicholas Shaxson in on Financial Times last week. In an op-ed piece, they advocate that countries which rely extensively on extractive industries distribute the revenues from those industries directly to their citizens, then tax the citizens to secure state revenue for infrastructure development. The proposal is an attempt to address the resource curse often associated with resource-rich countries like Nigeria, Angola, and Saudi Arabia. Countries which rely on resource extraction (usually but not always oil) for the vast majority of government revenue tend to be undemocratic and often very poor. The paradox, according to many observers, is that despite having extensive resource wealth, there is little incentive for the government to be responsive to the people. Consequently, revenue from resource extraction tends to be captured through corruption. Mineral wealth, similarly, seems to correlate with civil war; countries with extensive mineral wealth (like the Democratic Republic of the Congo) tend to be more likely to experience civil war than less resource-rich neighbors.

The problem, according to Sanbu and Shaxson, is that when the state earns its wealth through resource sales rather than taxes, there is little incentive for them to respond to the demands of the people. And because they do not pay taxes, there is little reason for the ordinary citizen to believe their government should be accountable.

As Sanbu and Shaxson observe,

Today’s prosperous democracies became what they are because their rulers taxed the population to finance government, forcing them to grant the people a share in power. “No taxation without representation”, and vice versa: mutual dependence underpins a social contract. But resource-rich states tax extractive companies, not citizens. When citizens lack leverage, the social contract withers.

Our proposal is the only policy that directly addresses this power imbalance. It is automatically transparent: people can see what is in their hands.

An interesting—if potentially difficult to implement—solution.