The Myth of the Resource Curse

Abstract

The resource curse is a reasonably solid fact. – Jeffrey Sachs 2001 The link between mineral resource extraction and child development is a paradoxical one. This ‘resource curse’ is both unjust and unnecessary. – Save the Children 2003 The first Law of Petropolitics posits the following: The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. – Thomas Friedman 2006 This book provides compelling evidence that one of the core assumptions of the conventional literature on the resource curse – namely that ownership structure does not vary and thus cannot hold any explanatory power – is not only unfounded but also has impeded our understanding of the relationship between mineral wealth and institutions. More specifically, we utilize the experience of the Soviet successor states to demonstrate first, that ownership structure can vary even across countries that share the same institutional legacy; and second, that this variation helps explain the divergence in their fiscal regimes, and hence developmental trajectories, from the early 1990s through the mid-2000s. By documenting the variation in ownership structure over the course of the twentieth century, moreover, we show conclusively that treating ownership structure as a constant not only deprives us of a key explanatory variable but also cannot be substantiated empirically. Our findings thus also make a strong case for broadening our historical perspective. As we describe in Chapter 1, both the assumption that mineral wealth is always and necessarily state-owned and the conflation of state ownership with control have gone unquestioned for so long precisely because they reflected the empirical reality of the narrow time period under study – that is, from roughly the late 1960s to early 1990s. During this period, there was a clear convergence toward state ownership due to the nationalization wave that swept across mineral-rich states in the developing world beginning in the early 1960s. Less than a decade later, more than three-quarters of petroleum sectors in the developing world were state-owned. (See Appendix B for details). It is also during this period that the locus of bargaining power shifted from foreign investors to host governments via the onset of the obsolescing bargain. As a result, the fiscal regimes fostered under state ownership with control (S 1 ) and state ownership without control (S 2 ) were virtually indistinguishable – as were their negative social, political, and economic consequences (see Chapter 6 for details).