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09/01/2011

Democracy and the Resource Curse

From an essay by Michael L. Ross, Professor of Political Science at the Univ. of California, Los Angeles, and the author of the forthcoming book The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, Foreign Affairs September/October 2011.

[Excerpts…written before the official end of Gaddafi.]

“Even before this year’s Arab uprisings, the Middle East was not an undifferentiated block of authoritarianism. The citizens of countries with little or no oil, such as Egypt, Jordan, Lebanon, Morocco, and Tunisia, generally had more freedom than those of countries with lots of it, such as Bahrain, Iraq, Kuwait, Libya, and Saudi Arabia. And once the tumult started, the oil-rich regimes were more effective at fending off attempts to unseat them. Indeed, the Arab Spring has seriously threatened just one oil-funded ruler – Libya’s Moammar al-Gaddafi – and only because NATO’s intervention prevented the rebels’ certain defeat.

“Worldwide, democracy has made impressive strides over the last three decades: just 30 percent of the world’s governments were democratic in the 1980; about 60 percent are today. Yet almost all the democratic governments that emerged during that period were in countries with little or no oil; in fact, countries that produced less than $100 per capita of oil per year (about what Ukraine and Vietnam produce) were three times as likely to democratize as countries that produced more than that. No country with more than a fraction of the per capita oil wealth of Bahrain, Iraq or Libya has ever successfully gone from dictatorship to democracy. Scholars have called this the oil curse, arguing that oil wealth leads to authoritarianism, economic instability, corruption, and violent conflict. Skeptics claim that the correlation between oil and repression is a coincidence. As Dick Cheney, then the CEO of Halliburton, remarked at a 1996 energy conference, ‘The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratic governments.’

“But divine intervention did not cause repression in the Middle East: hydrocarbons did. There is no getting around the fact that countries in the region are less free because they produce and sell oil.”

---

“(Control) over oil revenue has helped autocrats stay in power in three main ways. First, it has allowed them to buy off citizens by providing them with many benefits with virtually no taxation. The relationship between taxation and representation has always been close: when rulers want to raise taxes, citizens demand accountability. In colonial America, frustrated subjects revolted against Great Britain in part because they had to pay taxes even though they were unrepresented in the British parliament. In the Middle East today, oil-funded leaders typically respond to demands for greater accountability by offering new handouts, lowering taxes, or both – and this usually works. In 2011 alone, for example, Algeria announced plans to invest $156 billion in new infrastructure and cut taxes on sugar; Saudi Arabia directed $136 billion to increasing wages in the public sector; unemployment benefits, and housing subsidies; Kuwait offered each of its citizens a cash gift of 1,000 dinars (about $3,600) and free food staples for 14 months. Autocrats with little or no wealth – Zine el-Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt, and Ali Abdullah Saleh in Yemen – made similar gestures, but their pledges were much smaller and therefore less effective.

“Second, autocrats who get most of their funding from national oil industries find it easier to keep their countries’ finances secret. Secrecy helps give oil wealth its democracy-repelling powers: citizens are satisfied with low taxes and seemingly generous benefits only when they do not realize how much of their country’s wealth is being lost to theft, corruption, and government incompetence. Under Saddam, more than half of Iraq’s national budget was funneled through the Iraq National Oil Company, the finances of which were never disclosed. A 2010 survey by the International Budget Partnership found that autocracies in the Middle East that have little or no oil, including Egypt, Jordan, and Morocco, release at least some information about their finances; by contrast, oil-rich autocracies, such as Algeria and Saudi Arabia, disclose almost nothing. It is worth remembering that the revolts in Egypt and Tunisia were sparked by the people’s growing awareness of government corruption.

“Finally, oil wealth allows autocrats to lavishly fund – and buy the loyalty of – their armed forces. Iranian President Mahmoud Ahmadinejad, for example, has given billions of dollars in no-bid contracts to businesses associated with the elite paramilitary Revolutionary Guards. Globally, autocrats without oil wealth spend about two percent of their countries’ GDPs on their militaries, whereas their colleagues with oil wealth, who already have much larger budgets, typically spend about three percent. Oil-poor Tunisia, for example, spent $53 per capita on its armed forces in 2008; its oil-rich neighbor, Algeria, spent $141 per capita and had far fewer protests. Some of the world’s biggest oil producers, including Oman, Saudi Arabia, and the United Arab Emirates, are also some of its biggest military spenders. This spending has payoffs: when the citizens of Oman and Saudi Arabia took to the streets earlier this year, their armies proved relatively willingly and able to suppress them.”

---

“The oil curse will last only as long as the world buys huge quantities of oil. Aggressive reduction in oil consumption could help reduce prices and hence the flow of money to oil-backed autocrats. The United States alone can have an impact: it is the planet’s biggest consumer of petroleum, and in 2009 it burned more than twice as much oil as China, the second-largest market. By reducing its total oil consumption, the United States could help both reduce global oil prices and undermine petroleum-based dictators, even those who sell their oil to China and other autocracies.

“Without meaningful cuts in consumption, other measures, such as targeted sanctions, would be less effective. For example, the United States could boycott undemocratic oil producers, but as long as global demand is unchanged, these regimes could easily sell their supplies to less discerning buyers at more or less the same price. Moreover, sanctions against oil-exporting countries are notoriously ineffective. Between 1990 and 2003, the UN Security Council imposed severe restrictions on Iraq’s oil sales, but these failed to loosen Saddam’s grip on power.  More limited sanctions have also failed to dislodge oil-dependent regimes in Iran, Libya, and Myanmar (also called Burma). If global demand for oil grows, sanctions will be even less effective….

“Since the 1970s, the oil-producing states have remained far less democratic than other states. In the Middle East, oil wealth has made monarchs and politicians strong and kept citizens weak. So far, even the Arab uprisings this year have failed to change the situation. Meanwhile, thanks to high oil prices, rising global demand for oil, and improved drilling technology, between 15 and 20 low-income countries have recently begun, or are about to begin, exporting oil and natural gas. Most of them are in sub-Saharan Africa. If they mismanage their revenues, they may well fall prey to the oil curse, too. But geology need not be destiny: for both the new oil producers and the old ones, oil is a greater obstacle to democratic reforms when autocrats are able to keep their finances hidden. The money that U.S. consumers send to the oil states helps empower their governments. By reducing U.S. oil consumption and making oil payments more transparent, Americans can start to empower those states’ citizens instead.”

Hot Spots will return around Sept. 22.

Brian Trumbore


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-09/01/2011-      
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Hot Spots

09/01/2011

Democracy and the Resource Curse

From an essay by Michael L. Ross, Professor of Political Science at the Univ. of California, Los Angeles, and the author of the forthcoming book The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, Foreign Affairs September/October 2011.

[Excerpts…written before the official end of Gaddafi.]

“Even before this year’s Arab uprisings, the Middle East was not an undifferentiated block of authoritarianism. The citizens of countries with little or no oil, such as Egypt, Jordan, Lebanon, Morocco, and Tunisia, generally had more freedom than those of countries with lots of it, such as Bahrain, Iraq, Kuwait, Libya, and Saudi Arabia. And once the tumult started, the oil-rich regimes were more effective at fending off attempts to unseat them. Indeed, the Arab Spring has seriously threatened just one oil-funded ruler – Libya’s Moammar al-Gaddafi – and only because NATO’s intervention prevented the rebels’ certain defeat.

“Worldwide, democracy has made impressive strides over the last three decades: just 30 percent of the world’s governments were democratic in the 1980; about 60 percent are today. Yet almost all the democratic governments that emerged during that period were in countries with little or no oil; in fact, countries that produced less than $100 per capita of oil per year (about what Ukraine and Vietnam produce) were three times as likely to democratize as countries that produced more than that. No country with more than a fraction of the per capita oil wealth of Bahrain, Iraq or Libya has ever successfully gone from dictatorship to democracy. Scholars have called this the oil curse, arguing that oil wealth leads to authoritarianism, economic instability, corruption, and violent conflict. Skeptics claim that the correlation between oil and repression is a coincidence. As Dick Cheney, then the CEO of Halliburton, remarked at a 1996 energy conference, ‘The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratic governments.’

“But divine intervention did not cause repression in the Middle East: hydrocarbons did. There is no getting around the fact that countries in the region are less free because they produce and sell oil.”

---

“(Control) over oil revenue has helped autocrats stay in power in three main ways. First, it has allowed them to buy off citizens by providing them with many benefits with virtually no taxation. The relationship between taxation and representation has always been close: when rulers want to raise taxes, citizens demand accountability. In colonial America, frustrated subjects revolted against Great Britain in part because they had to pay taxes even though they were unrepresented in the British parliament. In the Middle East today, oil-funded leaders typically respond to demands for greater accountability by offering new handouts, lowering taxes, or both – and this usually works. In 2011 alone, for example, Algeria announced plans to invest $156 billion in new infrastructure and cut taxes on sugar; Saudi Arabia directed $136 billion to increasing wages in the public sector; unemployment benefits, and housing subsidies; Kuwait offered each of its citizens a cash gift of 1,000 dinars (about $3,600) and free food staples for 14 months. Autocrats with little or no wealth – Zine el-Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt, and Ali Abdullah Saleh in Yemen – made similar gestures, but their pledges were much smaller and therefore less effective.

“Second, autocrats who get most of their funding from national oil industries find it easier to keep their countries’ finances secret. Secrecy helps give oil wealth its democracy-repelling powers: citizens are satisfied with low taxes and seemingly generous benefits only when they do not realize how much of their country’s wealth is being lost to theft, corruption, and government incompetence. Under Saddam, more than half of Iraq’s national budget was funneled through the Iraq National Oil Company, the finances of which were never disclosed. A 2010 survey by the International Budget Partnership found that autocracies in the Middle East that have little or no oil, including Egypt, Jordan, and Morocco, release at least some information about their finances; by contrast, oil-rich autocracies, such as Algeria and Saudi Arabia, disclose almost nothing. It is worth remembering that the revolts in Egypt and Tunisia were sparked by the people’s growing awareness of government corruption.

“Finally, oil wealth allows autocrats to lavishly fund – and buy the loyalty of – their armed forces. Iranian President Mahmoud Ahmadinejad, for example, has given billions of dollars in no-bid contracts to businesses associated with the elite paramilitary Revolutionary Guards. Globally, autocrats without oil wealth spend about two percent of their countries’ GDPs on their militaries, whereas their colleagues with oil wealth, who already have much larger budgets, typically spend about three percent. Oil-poor Tunisia, for example, spent $53 per capita on its armed forces in 2008; its oil-rich neighbor, Algeria, spent $141 per capita and had far fewer protests. Some of the world’s biggest oil producers, including Oman, Saudi Arabia, and the United Arab Emirates, are also some of its biggest military spenders. This spending has payoffs: when the citizens of Oman and Saudi Arabia took to the streets earlier this year, their armies proved relatively willingly and able to suppress them.”

---

“The oil curse will last only as long as the world buys huge quantities of oil. Aggressive reduction in oil consumption could help reduce prices and hence the flow of money to oil-backed autocrats. The United States alone can have an impact: it is the planet’s biggest consumer of petroleum, and in 2009 it burned more than twice as much oil as China, the second-largest market. By reducing its total oil consumption, the United States could help both reduce global oil prices and undermine petroleum-based dictators, even those who sell their oil to China and other autocracies.

“Without meaningful cuts in consumption, other measures, such as targeted sanctions, would be less effective. For example, the United States could boycott undemocratic oil producers, but as long as global demand is unchanged, these regimes could easily sell their supplies to less discerning buyers at more or less the same price. Moreover, sanctions against oil-exporting countries are notoriously ineffective. Between 1990 and 2003, the UN Security Council imposed severe restrictions on Iraq’s oil sales, but these failed to loosen Saddam’s grip on power.  More limited sanctions have also failed to dislodge oil-dependent regimes in Iran, Libya, and Myanmar (also called Burma). If global demand for oil grows, sanctions will be even less effective….

“Since the 1970s, the oil-producing states have remained far less democratic than other states. In the Middle East, oil wealth has made monarchs and politicians strong and kept citizens weak. So far, even the Arab uprisings this year have failed to change the situation. Meanwhile, thanks to high oil prices, rising global demand for oil, and improved drilling technology, between 15 and 20 low-income countries have recently begun, or are about to begin, exporting oil and natural gas. Most of them are in sub-Saharan Africa. If they mismanage their revenues, they may well fall prey to the oil curse, too. But geology need not be destiny: for both the new oil producers and the old ones, oil is a greater obstacle to democratic reforms when autocrats are able to keep their finances hidden. The money that U.S. consumers send to the oil states helps empower their governments. By reducing U.S. oil consumption and making oil payments more transparent, Americans can start to empower those states’ citizens instead.”

Hot Spots will return around Sept. 22.

Brian Trumbore