Lifting the 'oil curse' for resource-rich nations

Venezuela's squandering of its oil wealth has left its economy in tatters while leaders merely blame the US. As more resource-rich nations learn to dodge the 'oil curse,' Venezuela can do the same.

|
Reuters
Women wait in line as they buy toilet paper at a supermarket in Caracas, Venezuela. Supplies of food and other basic products have been patchy, with long lines forming at stores when new stock arrives.

Among the few dozen nations blessed with abundant resources, Venezuela has become a pitiful paragon of what not to do with massive natural wealth. Despite sitting on the world’s largest oil reserves, its economy is falling apart fast. Basic goods are scarce, inflation is raging, and blackouts are common. The lines of people seeking visas to flee are long.

Rather than change and invest the nation’s petro-dollars for the day when the oil runs out, President Nicolás Maduro has resorted to an old trick of Hugo Chávez, his late predecessor. He has concocted an enemy to deflect public attention from government corruption and mismanagement. On Monday, he expelled three American diplomats, claiming they had plotted to sabotage the economy.

One reason more Venezuelans now see through such smoke screens is the fact that many other nations with natural wealth are finding ways to avoid what economists call the “resource curse.” This is the misuse of temporary windfalls from petroleum or other mineral bonanzas, similar to the common phenomenon of lottery winners who later go bankrupt.

The “curse,” it turns out, is only as real as a country chooses to make it. Places such as Norway, Botswana, Alaska, Chile, and Canada have adopted a few basic principles to stretch out and maximize the take on their resources.

First, they are transparent about where the money flows, which requires a certain commitment to democracy. Second, they distribute it fairly, especially to future generations, rather than squander it by secretly funneling it to a well-connected elite. And third, they create more wealth by investing the money in entrepreneurs, education, and infrastructure.

“Just as the oil curse had a beginning, it could also have an end,” says Michael Ross, author of “The Oil Curse: How Petroleum Wealth Shapes the Development of Nations.”

As more nations tap hard-to-reach oil and gas deposits, especially in shale formations, they are learning how best to recycle their resource profits The advice often comes from private activist groups and the International Monetary Fund. But Norway is one of the best models of how to elude the “curse.”

After the Scandinavian country began to export offshore oil in the 1970s, it set up a government fund – now $700 billion – and invested in foreign stocks, bonds, and real estate. The country spends only the returns on the investments, using the money to build up its private non-oil economy and boosting employment for women by providing generous maternity leave.

In Alaska, a portion of the oil wealth is given to residents in annual checks. This allows citizens to decide for themselves how best to boost the economy.

Most nations with outsized natural wealth, especially in the Middle East, are not democratic. Economists debate whether it is the resource wealth or each nation’s history which accounts for that. In Russia, oil wealth has helped erode democracy. In Mexico and Nigeria, leaders are trying to end the damaging effects of oil wealth on each nation’s democracy.

Wealth need not have a corrosive effect if more countries adopt basic practices such as openness, prudent saving, and political freedom. And Venezuela wouldn’t need to create a bogeyman out of the United States if it began to see that an oil curse is something of one’s own making.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Lifting the 'oil curse' for resource-rich nations
Read this article in
https://www.csmonitor.com/Commentary/the-monitors-view/2013/1002/Lifting-the-oil-curse-for-resource-rich-nations
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe