CHRIS FREMANTLE

What am I reading?

Posted in Texts by chrisfremantle on September 1, 2007

The Paradox of Plenty, T L Karl University of California Press, 1997

As I understand it so far, the resource curse is an articulation of the problems faced by those parts of the developing world apparently blessed by an abundance of raw materials – in particular oil. In these parts of the world, the Niger Delta being a good example, the population consistently suffers.

Terry Lynn Karl’s The Paradox of Plenty articulates a chain of consequences taking the oil boom of 1973-74 as a starting point. This runs (very roughly) as follows:

1.  Context – Oil is property of State – results in lack of distinction between State political role and State economic role.

2.  Context – Oil sector is unpredictable – prices fluctuate.

3.  Price of petroleum quadruples and then doubles again in 1979-80.

4.  Action – This results in a massive increase in government expenditure attempting to make a ‘great leap forward’ – ambitious and expensive, state financed and focused on industrial development.

5.  Thinking – Reserves are understood to be limited and its necessary to move quickly.

6.  Thinking – Assumption that value of oil would appreciate if left in ground.

7.  Action – Increased foreign borrowing to facilitate the ‘great leap forward’.(by 1980 key capital deficient oil exporters combined debt $100 billion, rising to $275 billion in 1994).

8.  Consequences – Expands jurisdiction of State including into industrial production.

9.  Consequences – Increases private sector investment funded by increased credit and money supply.

10.  Consequences – Wage levels increase beyond increase in productivity

11.   Consequences – Influx of foreign workers and other demographic changes including urbanisation.

12.  Consequences – Massive imports of luxury goods – domestic production cannot keep up with demand.

13.  Consequences – Improved public welfare – middle class grows quickly.

14.  Context – Skewed relationship between the regulatory, extractive and distributive functions of the State. Spending has become the primary mechanism of Stateness, as money increasingly us substituted for authority. There is a consistent lack of development of a tax regime and fiscal relationship with the public.

15.  Consequences – economy overheats, State expenditure surpasses oil revenues (example the combined current accounts of the cluster of ‘capital deficient oil exporters’ went from 1974 $24 billion surplus to 1978 $14 billion deficit).

16.  Consequences – Budget deficits.

17.  Consequences – Exchange rates appreciate – currencies are overvalued on the basis of the oil sector. Cheapens imports, undermines local production, leads to dependency.

18.  Consequences – Public sector becomes inefficient through overloaded infrastructure. Macro industrial projects overrun, are postponed and cancelled.

19.  Consequences – Inflation although high is not as high as other developing countries.

20.  Action – To counteract increased reliance on imported food, price controls and import restrictions on, in particular, the agricultural sector.

21.  Action – Increased subsidy for low income groups and unprofitable firms.

22.  Thinking – Politically impossible to reduce subsidy on economic downturn.

Corruption, one of the persistent issues, occurs because of the tendency to use the buy support using the resource rather than winning it through the achievement of programmes benefiting the population.

What is interesting about the ‘resource curse’ is that it is clearly created by the developed world’s massive demand for, in particular, oil, and other specific raw materials. This has one obvious and one more discrete consequence.

The obvious consequence is that it directly links our actions in the UK and other developed countries with the state of affairs in, for instance the Niger Delta. They would not be ‘cursed’ if we did not have an unlimited appetite for their raw materials.

The second and slightly more discrete aspect of the linkage is that the exploitation of resources in places like the Niger Delta by international corporations is wholly directed towards the efficient extraction and transportation of those resources away. The resource curse basically means that corporations in the developed world only operate in places like the Niger Delta in order to extract oil and ship it to customers in the ‘West’. They have no customers, and therefore no concern with the populations in places like the Delta. All the skilled staff, all the shareholders – all their key publics – are elsewhere. Inevitably therefore anyone who isn’t a customer doesn’t exist.

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