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Trivia Tidbit Of The Day: Part 19 -- Oil Wealth and Third World Development.

THE CURSE OF OIL-

Oil is a boom and bust industry. But it has largely been a curse in the Middle East, simultaneously stimulating and prohibiting modernization, while stifling democracy.

From 1950-1990:

...80% of all countries with a per capita income over $8,000 and exporting no oil were democracies. The proportion is roughly reversed among high per capita income countries whose export revenues from oil amounted to 50 percent or more of total trade revenues.

Source:

Pages 42-43, Democracy and Redistribution, by Carles Boix of The University of Chicago.

There's nothing mystical about oil itself. The explanation for the "oil curse" goes like this, from Boix:

...wealthy dictatorships are the direct consequence of a strong concentration of fixed natural resources.

...a high per capita income is related to democracy only to the extent that the former originates in relatively mobile, or, more generally, hard-to-tax, kind of capital, such as money or most types of human capital.

...high-income countries that base their prosperity on fixed natural resources, such as oil, should remain authoritarian in spite of their wealth. To avoid expropriation of their fixed assets, the owners will systematically crush any democratic movement.

The theory of a relation between wealth and democracy holds that the source of such wealth must be mobile, fluid, easily redeployed abroad, and not extremely concentrated. Oil is just one example of an asset that is none of those things. Because the owners of the immobile asset cannot readily "take the money and run" (you can't exactly move an oil well to another country) if and when high taxes are imposed on them, or when confiscation/nationalization begins, the lack of options creates an incentive to protect their immobile assets at all cost. Where wealth is less fixed in a concentrated resource, such as oil, democracy is a bargain compared to repression.

Previous trivia tidbits:

Part 1; Part 2; Part 3; Part 4; Part 5; Part 6; Part 7; Part 8; Part 9; Part 10; Part 11; Part 12; Part 13; Part 14; Part 15; Part 16; Part 17; Part 18.

Daily Trivia Tidbits cover a wide range of topics; you never know what you might find. Stay tuned to WILLisms.com for more.

Posted by Will Franklin · 17 April 2005 10:40 AM

Comments

Posted by: Zsa Zsa at April 17, 2005 02:50 PM