How the Petroleum Wealth Shapes the Development of Nations - Research Paper Example

Abstract It is vastly agreed that petroleum is vital for the day to day running of the modern world. Over the years, the world has experienced increase in consumption of petroleum and petroleum related products. This is subject to modernization and advancements in the transport and manufacturing industries. It is likely that petroleum consumption will continue to rise with the growth of developing nations. Based on these statements, this research paper purposes to look at the various effects that petroleum has on oil producing nations, effects on economies, democracy, development, and gender equality. The research paper begins with an introduction followed by well outlined heading based discussions. It provides evidences from studies, accepted books, and pearly reviewed journals to support its arguments. Its conclusion is based from these arguments. In some paragraphs, the word oil is used in place of petroleum. Keywords: Petroleum, wealth, oil revenues, democracy, economic growth and political institutions. The oil curse: how the Petroleum Wealth shapes the Development of Nations Introduction The battle has been going on for a long time. As European nations sought to outmuscle each other economically, a reality dawned. None of them would be an economic giant without the much sought after mineral resources. For one, through exploration, they discovered a source of minerals in the new world and what was originally known as the “dark continent.” This promoted the rush to lay claim on the new found territories using explorers. The rush was promoted by the vast amount of wealth in what would later be termed as oversea territories. The consequence of this mineral war was war, loss of lives and colonization. Fast forward, years later to this date, minerals are still being discovered all over the world. They are a source of wealth to these countries. However, not all of these minerals have resulted in wealth. In fact, an overview of many countries with vast amounts of minerals shows that citizens of these countries are faced with the shameful reality of poverty. The question is, “Where does the wealth generated from selling these minerals go to?” Whom does it help? This is the paradox in mineral wealth. It is supposed to develop these countries and be used to raise the economic standards of citizens globally. However, that is not the case. Due to industrialization and advancement of the transport industry, petroleum is the most sought after mineral commodity. It generates so much income to the producing countries. Not all countries are endowed with this precious mineral commonly referred to as “black gold.” As a result, petroleum producing countries have say, their international cartel like organization called Organization of Petroleum Producing Countries. This paper discusses the ways in which petroleum shapes the development of nations. To discuss this, it looks at the paradoxical wealth of nations, the trouble with oil revenues, how petroleum perpetuates patriarchy and oil, economic growth and political institutions. The Paradoxical Wealth of Nations The paradoxical wealth of nations discussed herein is all about petroleum wealth. Petroleum as a mineral forms the largest mineral industry. No other mineral has been traded as much as petroleum has. Think of a world without petroleum. It would be virtually untenable and many things that are would not be as they are. Petroleum drives nearly all areas of the economy in all countries today. What is most outstanding is that nearly all countries depend on petroleum resources. Why is this so? It is because petroleum is a driver of the economy. The only outstanding feature is only a few of the world’s nations are endowed with petroleum mineral resources. Petroleum resources can be associated with developed and developing nations. Global need for petroleum is growing day in day out. In the production of oil, its use and how the funds generated from its sale is the paradox in petroleum wealth. It would be expected that nations which produce petroleum are the most advanced nations, or are the only developed nations. However, this is not. Since the late nineties, it can be said that developing countries have grown wealthier, peaceful and matured in democratic principles. Nevertheless, now, this can only be said for countries that import petroleum products. Petroleum producing countries mainly in the Middle East, a few in Africa, and several in South America are virtually in a state of limbo, no development, no democratic principles and peace is hard to find in these countries. This is not what is expected of countries having as much wealth as they do obtain from petroleum. They are expected to have developed, been more democratically endowed and peaceful due to availability of funds to meet their needs. What is evident is that some of the petroleum producing countries are in a worse state than they were before they discovered petroleum in their territories. The main symbol of this paradox is the problems that have accrued due to petroleum mineral wealth. Some are faced with years of civil war, others years of dictatorship, ethnic related conflict in regions harboring petroleum reserves, poverty in some, high levels of corruption in others, infrastructural deficit, just to name but a few. This is a stark contrast to other mineral resources such as diamond and gold. Of all the minerals produced, petroleum is the most traded mineral and similarly is the mineral that accounts for many of the problems faced by oil producing nations. According to leonard, ed., (XXXV), petroleum is responsible for 90% of minerals’ trade. Countries in the Middle East depict this paradox quite well. For all the wealth they get from petroleum, they are way far off behind in terms of development and democratic principles. Petroleum wealth has been the recipe for war in countries such as Iraq, Kuwait, Iran and others in Africa such as Sudan and the recently created nation, South Sudan. For all the wealth obtained, rather than benefits, there are problems. The Trouble with Oil Revenues What is the relationship between what citizens consume and what the government consumes? It is the food that citizens consume and the revenue that governments consume. That aspect of consumption is the connection point. As human beings, we are faced with troubles when consumption is too much or the wrong thing is consumed. In the same way, governments are faced with trouble when the revenue generated from oil sale is wrongly consumed, misused or is not accounted for. All over the world, revenues collected by governments are used by governments for many reasons. The sources of revenues are many; some sources generate more revenue than others. An example is oil. According to a 2009 survey, oil and its products generated 2.3 million dollars of revenue to oil producing countries in that year. Such an amount is huge. This indicates that oil is the world’s source of revenue for oil producing countries. With all these revenues, the troubles arising from it are much compared to benefits. Research and studies done on oil revenues generated show that oil revenues are marked by various issues including secrecy surrounding them, instability in the international markets, the large sums of money the revenues are made of and the unlikely areas oil reserves are situated in. A learned population is a knowing population. It is hard to hide the real figures on oil revenues if the population in an oil producing state has well set up education structures. However, it is very common for governments of oil producing states to hide the true figure on oil revenues. Democracy and education go hand in hand. Democracy is all about transparency and accountability. Oil producing states ran by autocratic governments usually make the true figures of oil revenues a secret. Equitorial Guinea is ruled by an authoritarian leader, Teodoro Obiang Nguema. The country’s oil revenues are largely unknown. It was chosen as a part of the 2008 Extractive Industries Transparency Initiative but did not succeed to join the initiative. The initiative was supposed to enhance frankness on oil revenues. Ross (59) notes of a 2010 survey of national budgets of 94 nations globally. Results indicated that they were shrouded in secrecy. As a result, oil revenues are an issue when it comes to transparency. OPEC is an organization of oil producing countries. It has been regarded as a cartel. Why? Because its member countries are not bound by any legally bound laws but for their oil producing capabilities. These countries manipulate the international oil market to their advantage. Fluctuations in the oil produced in these countries results in market instability that is an issue for oil revenues for oil producers. At times, the revenue hikes, on other occasions, it spirals downwards. When they hike upwards, issues arise on how they shall be managed, on reduction; it creates budget problems for their economies which are largely supported by them. The large sums of money that oil revenues are made of makes governments reliant on oil revenues. This is dangerous because it makes governments virtually blind in terms of national planning. A look at Nigeria, it is Africa’s epitome in terms of oil production. Ross (28) notes that, between 1969 to 1977 oil productions in Nigeria raised by over 300 percent concurrently with an increase in oil prices. This raised oil revenues by around 16.6 billion dollars. As a result, government spending rose by fifteen percent of the economy. In fact, the government expanded faster than the Nigerian economy. As a result, corruption levels in the government rose which negatively affected the rest of the economy. This is an example of the issue with large sums of money generated by oil revenues. As for the oil reserves, their location determines their accessibility and technicality in terms of how the oil revenues are used. Kenya is a country that has recently struck gold. But problem is how the central government will share oil revenues with the county in which the oil reserves are located in. More Petroleum less Democracy More petroleum, less democracy? Is this statement true or false? Drawing evidence from countries funded by petroleum resources, then an answer can be found. The US has been at the forefront in promoting democratic principles in other countries. This was evident in the recent tour of Obama to several African countries to push for democratic principles. The US itself is an oil producer as well as an oil importer. It is the world’s largest consumer of petroleum related products. Democracy is the pinnacle of the constitution of the USA. However, studying the state of democracy in other countries that are oil producers seems to suggest otherwise. A study by Tsui (91) on the relation between democracy and the petroleum product oil shows that vast oil discoveries are usually connected to slow progress in democratic changes. Tsui (91), found that when autocratic governments discovered an estimated one hundred billion barrels barrel of petroleum, their democracy levels fell by nearly ten percent below that of the norm around the world thirty years after discovery. On democratic countries, Tsui (90) found that discovery of oil; in these countries has no effect on their democratic principles. Nevertheless, limiting the amount of exploration and summing up the quality of the oil and relations of the depth of oilfields, Tsui (90) found that petroleum had a negative impact on democracy. Actually, the negative impact on democracy was twofold. He also noted that negative impact of oil on democracy was greater if the oil was of high quality and the cost of exploration and mining was low. The study showed that demerits of petroleum on democracy were spread all over world and did not only affect countries in the Middle East. Tsui (90) notes that authoritarian leaders were against democratic principles as they had much to lose if they lost control and power to citizens or to competitors. These two issues regarding losing power to citizens or to competitors show that the source of the main driver of the economy has a great bearing on the direction these countries take. Is it a wonder that many OPEC member countries such as Equatorial Guinea and Venezuela are ruled by authoritarian governments? Is it a wonder that several OPEC member countries like Nigeria are riddled with high corruption rates? Dictatorship and corruption are against the ideals of democracy. Hence, the study by Tsui which indicated that oil discoveries affect democracy negatively as observation shows. Moreover, with the high revenues associated with oil discoveries, its leaders will tend to centralize power in such a manner that they are in control of the vast amounts of oil revenues generated by oil. This goes against democratic principles. Centralizing of power takes away the right of say by citizens in that said country. Abraham Lincoln defined a democratic government as a government of the people, by the people and for the people. Due to oil discoveries, leaders in power take away this meaning of democracy from the people and make it a one man rule with ideologies based on their own thinking rather than on the thinking of democratic ideologies. Venezuela was a democratic country rich in oil minerals. It still is. The PDVSA was a well run state corporation that controlled mining and production of oil products in Venezuela. However, when President Hugo Chavez ascended into power, he took it upon himself and replaced board members and directors with his trusted aides. This was the beginning of the violation of democratic rights and rules in Venezuela. Venezuela depicts the connection between democracy and oil quite well. However, it cannot be concluded that the more petroleum there is in a country, the less the democracy. But it can and has been shown that oil reduces democracy. Petroleum perpetuates Patriarchy Is it gender equity or gender equality? In recent years, gender equality has been a mainstay topic in the media all over the world. But what is the connection between petroleum and patriarchy? Patriarchy is a societal term that illustrates the superiority accorded to men at the expense of women. In short, men are favored. The issue of gender equality has been a thorny issue for almost all countries globally. However, there are countries in which the issue has persisted and is very much a part of day to day societal occurrences. What is conspicuous is that many of these countries are oil producing countries situated in the Middle East. Question is, “Is this patriarchy related to religion or is it related to petroleum? Norris (2) takes note of a 2006 report by United Nation Development which underlined the countries in the Middle East were behind in terms of gender equality as compared to other countries globally. The report indicated that only around one in ten members of Arab legislative bodies are women. Why would these societies be so patriarch based? Many would say it is their religion. The Islamic religion has long been associated with laws which seem to be biased towards men. It has been seen to advocate for superiority of men over women. However, that is not the case. Petroleum promotes patriarchy and lowers the status of women. Argument in support of this statement states that countries which produce oil rely so much on sectors which involve manual skills such as the construction industry and the real estate sector. They are not reliant sectors such as the agricultural sector. . As a result, women are not great participants in sectors involving manual skills. This isolates them and makes their roles less conspicuous, less contributive, and less appreciated. It is common belief that as an economy improves, so do the gender equality levels improve. If the revenues generated from petroleum are utilized properly, then the economy of that country shall improve. However, there are different kinds of economic growth. These different kinds of economic growth usually have different impacts on gender equality. Economic growth that permits women to take part in labor spurs on gender equality. However, when economic growth is spurred on by petroleum mining it results in less gender equality and increases gender discrimination. This means that patriarchs are enhanced at the expense of gender equality. Women joining the labor market do not mean that that country abides by gender equality. It may be the opposite. They may have been coerced to join. Petroleum, Economic Growth, and Political Institutions The relations between petroleum, economic growth and the political institutions of a country are intricate. It is a common conclusion that petroleum is crucial not only to a country’s economy but also to global economy. As for political institutions, oil is a vital determinant of a country’s political institution. Petroleum is one of earth’s most coveted natural resources. What is its role in economic growth? The answer to this question is subject to debate. What should be differentiated is the direct and indirect impacts of petroleum on the economy. Direct impacts are like recession after a huge discovery of petroleum while indirect impacts are impacts on rent – reliant activities and development of institutions (Leite & Weidmann, 8). Leite & Weidmann (8), argue that direct impacts of petroleum impact the non resource traded commodities segment. An increase in revenue from petroleum is selectively used on non - traded commodities that hike prices in these areas. As a result, the areas face reduced competition which negatively affects the economy. Also, due to discovery of petroleum resources in a country, workers will be enticed to move from other sectors to join the petroleum sector creating a deficit in the economy in terms of labor (Leite & Weidmann, 8). Petroleum and politics have a close relationship. After utilizing data from 107 developing countries between the years 1960 – 199, Smith (232) states that petroleum is connected with long lasting political institutions. He also finds that sudden petroleum booms did not have any notable effect on longevity of political institutions. Examples of Middle Eastern countries and their long ruling political leaders and institutions are noted. Conclusion The paradoxical wealth of nations is well illustrated by wealth resulting from petroleum. It answers the question that oil wealth is a paradox. Oil revenues have affected negatively on oil producing countries especially by how they are used. The reasons for negative effects are given in the paper. They illustrate the reasons why oil revenues do not have the desired impact. The association between petroleum and democracy illustrates that petroleum has a huge bearing on the democratic status of a country. Directly and indirectly, petroleum has over the years been a democratic factor. As for patriarchy, there is not enough evidence supporting effects of petroleum to patriarchy and gender equality status of countries globally. But as for the studied countries, it shows that oil production raises the levels of gender bias against women. Petroleum is connected to economic growth and political institutions. It is major influencing factor on economic growth and political institutions of a country. This research paper has proved that petroleum is a big factor on how a country is. Works Cited Leite, Carlos and Jens Weimann. “Does Mother Nature Corrupt? Natural Resources, Corruption, and Economic Growth.”International Monetary Fund; African and Research Departments, 1 – 34. Web. 29 April 2014. Leornard, Thomas. Encyclopedia of the Developing World, Volume 3. Taylor and Francis, 2006. Print. Norris, Pippa. Perhaps petroleum perpetuates partriarchy? A response and critique to Ross. Havard Kennedy School, 2010. PDF file. Ross, Michael. The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. Princeton University Press, 2012. Print. Smith, Benjamin. “Oil Wealth and Regime Survival in the Developing World, 1960 – 199.” American Journal of Political Science, 48.2, 2004: 232 – 246. Web. 29 April 2014. Tsui, Kevin. “More Oil, Less Democracy: Evidence from Worldwide Crude Oil Discoveries.” The Economic Journal, 121, (2010): 89 – 115. PDF file. Read More