Thursday, July 29, 2010

Dutch Disease Stalks Oil Producing Nations

In today's excerpt - the curse of abundant oil resources in developing countries - in this example, Venezuela. Developing countries with oil grow only one-fourth as fast as those without, and are far more likely to be militarized and devolve into civil war. In fact, oil and mineral-exporting countries have a 23 percent likelihood of civil war within five years, compared to less than 1 percent for nondependent countries.:

"[With its oil wealth], Venezuela began to import more and more and produce less, a typical symptom of Dutch disease, where resource-rich countries see other parts of their economics wither. (Venezuela actually had Dutch disease before the Dutch, but that term wouldn't be invented until the natural gas boom in the Netherlands in the 1960s torpedoed the country's economy. The condition should be called the Caracas cramp.)

"[After the discovery of oil in Venezuela in 1921], nobody paid taxes. If you're an oil state, it's far more efficient to ask oil buyers for more money than to collect taxes from your population, which requires a vast network of tax collectors, a bureaucracy, laws that are fair, and a justice system to administer them. Collecting oil money, by contrast, requires a small cadre of intellectuals to set policy and diplomats to make it happen. ... The political, economic, and psychological ramifications of this ... are profound.

" 'Systematically the government went after oil money rather than raising taxes,' says economist Francisco Monaldi. 'There is no taxation and therefore no representation here. The state here is extremely autonomous.' Whether it's a dictatorship, a democracy, or something in between, the state's only patron is the oil industry, and all of its attention is focused outward. What's more, the state owes nothing more than promises to the people of Venezuela, because they have so little leverage on the state's income.

"When a state develops the ability to collect taxes, the bureaucracy and mechanisms it creates are expensive. They perpetuate their existence by diligently collecting as much money as possible and encouraging the growth of a private economy to collect taxes from. A strong private economy, so the thinking goes, creates a strong civil society, fostering other centers of power that keep the state in check. Like other intellectuals I talk with in other oil states, Monaldi finds taxes more interesting and more useful than abstract ideas about democracy and ballot boxes. Taxes aren't democracy, but they seem to connect taxpayers and government in a way that has democratizing effects. Studies by Michael L. Ross at UCLA found that taxes alone don't foster accountability, but the relationship of taxes to government services creates a struggle for value between the state and citizens, which is some kind of accountability. ...

"Abdoulaye Djonouma, president of Chad's Chamber of Commerce, says oil brought about economic and agricultural collapse in Nigeria and Gabon. For Chad, which has fewer resources, he fears worse: militarization. He ticks off all the former French colonies that have become militarized. Virtually all. (One study found that oil-exporting countries spend between two and ten times more on their militaries than other developing countries.) ...

"At Stanford, Terry Lynn Karl's analysis of Venezuela's economy during the 1970s and '80s shows that countries whose economy is dominated by oil exports tend to experience shrinking standards of living - something that Chad can hardly afford. Oil has opportunity costs: A study by Jeffrey Sachs and Andres Warner showed that of ninety-seven developing countries, those without oil grew four times as much as those with oil. At UCLA, Michael L. Ross did regression studies showing that governments that export oil tend to become less democratic over time. At Oxford, Paul Collier's regression studies show that oil, and

"At Stanford, Terry Lynn Karl's analysis of Venezuela's economy during the 1970s and '80s shows that countries whose economy is dominated by oil exports tend to experience shrinking standards of living - something that Chad can hardly afford. Oil has opportunity costs: A study by Jeffrey Sachs and Andres Warner showed that of ninety-seven developing countries, those without oil grew four times as much as those with oil. At UCLA, Michael L. Ross did regression studies showing that governments that export oil tend to become less democratic over time. At Oxford, Paul Collier's regression studies show that oil, and mineral-exporting countries have a 23 percent likelihood of civil war within five years, compared to less than 1 percent for nondependent countries."

Author: Lisa Margonelli
Title: Oil on the Brain
Publisher: Nan A. Talese/Doubleday
Date: Copyright 2007 by Lisa Margonelli
Pages: 146-147, 174-176


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