The Resource Curse

Avoiding the Curse of the Oil-Rich Nations
by Tina Rosenberg
NY times
-great video midway through
http://opinionator.blogs.nytimes.com/2013/02/13/avoiding-the-curse-of-the-oil-rich-nations/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1

"The resource curse: countries that strike it rich often suffer from poverty, bad governance, and terrible corruption."-Todd Moss, Center for Global Development

Economies based on natural resources often suffer from an imbalanced economy and tend toward oligarchy. They invest in production of the natural resource(s) to the neglect of the rest of the economy. Natural resources are horded in the hands of the rulers and their cronies, who sell off the rights to foreign investors.

Example 1: Oil countriesNigeria and Venezuela are among the world's oil leaders yet in both countries the average person has seen very little benefit from oil profits. In both cases, oil revenue first goes to the government (which the video above calls the "black box") which is full of corruption, leaving only a fraction for the public.

Example 2: Banana Republics
The same could be said of the banana republics of Latin America -- many sold off huge chunks of their countries' land to Dole, Chiquita, and Del Monte, pushing the citizens of their own country off their land to do so (land alienation). Subsequently these same people were forced to take jobs on the plantations established on their own homeland.

Example 3: Russia's Billionaries
Many of Russia's billionaires made their fortunes off natural resources. When the USSR dissolved in 1991, they were the lucky ones who knew where the keys were kept to Russia's vast coal, mining, and forestry industries and horded it for themselves. Also among them are many bankers who offered loans to the heads of the these same industries, thus making billions off natural resources indirectly.

Does it have to be this way?
Does a country with one big advantage, a bountiful natural resource, have to become an oligarchy? No. Wise governments have found many ways to give money from resources directly to the people. Others have invested the funds from natural resources into efforts specifically to diversify the economy and bring new industries. Norway and the United Arab Emirates are both oil countries that have invested heavily in education including many new universities.