Natural Resource Curse - Essay Example

Inserts His/her Inserts Inserts Grade (08, 03, Natural Resource Curse Introduction The natural resource curse refers to a phenomenon in which countries with plenty of natural resources tend to have less economic growth as compared to the countries which lack natural resources. This is very surprising but it is known that most of the countries that are large exporters of oil, minerals, and fuels have shown awful development results. For example, Nigeria is one of the OPEC (Organization of Petroleum Exporting Countries) countries and its Gross National Product (GNP) per capita has not improved significantly since the time of its independence in 1966. Likewise other OPEC countries like Iran, Saudi Arabia and Kuwait have also lower GNP figures. As a whole, OPEC countries have less GNP per capita from 1965 to 1998 compared to countries that do not have sufficient resources (Ross, 297-322). The reasons behind these surprising results could be many including the wrong management of resources by the government, non competitive business environment, and inefficiency of overall economy. A brief explanation about the conflicts of the Natural Resources and the policies to reduce these conflicts will be discussed in this paper. Natural Resource Curse The phenomenon of the natural resource curse came into existence after numerous studies stated that the resource oriented countries were constantly producing insignificant GNP per capita as compared to the countries that lacked resources. It was not only the economy that was lacking but the resources dependent countries were found to be malformed with more corruption, spontaneous conflicts between the people and the government, higher poverty rates, and inappropriate management of the government (Gibbs, 35-40). Oil, minerals, gold, cotton and other gemstones are the natural resources that mainly cause conflicts. Other resources like timber and drugs may also contribute to these problems. For example, Afghanistan and Angola are noticed to have faced most conflicts in the recent years and both countries have abundance of natural resources (oil, opium and gems) (Gelb, 224). These countries were facing such problems mainly because of the inappropriate use of the revenues that were generated from the resources by the government. Furthermore, such wealth always results in domestic grievances which are the major cause of civil wars. This is what the phenomenon of natural resource curse is all about – the greater the natural resource wealth, the lower will be the economic growth and development. Let’s now briefly discuss the effects and causes of the Natural Resource Curse Effects of the Natural Resource Curse The countries that are facing natural resource curse are mostly associated with the following problems that results in low economic growth and development. The internal conflicts of the country The natural resource curse has been a major reason for internal conflicts of the country. It has been studied by various researchers that the region of the country that is highly resource oriented consists of certain groups that are openly asking for their share every now and then. But such conflicts are minor as compared to the conflicts that are taking place within the government ministries. The people that are in power are unable to firm unity amongst each other and are more interested in having the authority over the allocations of the budget. This is where the collapse of the government takes place thereby resulting in insignificant progress. The outcomes of such conflicts could be very damaging for a nation as it can seriously affect the economic growth of the country. According to a research, the countries that have lower percentages of exports of gross national products are involved in less amount conflicts as compared to the countries with higher percentages of exports. Lack of Human rights and Resources One thing that has been a hot target of the natural resource curse is the education for people in resource rich countries. Among all the sectors in the economy natural resource industries play a dominant role in attracting labor. A major share of the population is attracted towards these industries, with all the talent going one way and leaving other sectors deprived. Also these industries do not require high qualifications and therefore people give less importance to education. They find it useless to acquire knowledge whereas the countries that lack natural resources like Singapore, Taiwan and Malaysia gives immense importance to education. This might be the reason for their success and self-dependence even though lacking far behind as far as resources are concerned (Sachs Jeffrey D., 20-35). It is a very common practice of the resource rich countries to dominate the middle class of the country. The reason behind this is the selection of elite class to the commanding positions by the government. This is actually done to keep the powerful people away from any sort political interference from the masses so that they could rule without any fear. The one that suffers from this situation is the middle class people. They are given no rights to express themselves and if by any means someone raises his voice against the government, a severe punishment is what the end result is. This makes the poor poorer and rich richer which is strictly against equality. For example, Congo is one of the resource rich countries and human right violations are very high in the country. The dominance of the elite class politicians has made the slave labor common in almost every part of the country. Causes of Natural Resource Curse Dutch Disease It is a term that refers to the relationship between abundance of natural resources and the decrease in the production sector of the country. The model of the Dutch disease basically consists of two sectors – the booming sector (produces non tradable goods) and the lagging sector (produces tradable goods). The booming sector is the one which mainly contains the extraction of natural resources such as oil and natural gas whereas the lagging sector refers to agriculture sector. Now if the country is resource oriented it would definitely increase the labor demand and the amount of production will certainly increase in the booming sector shifting the momentum away from the lagging sector. Therefore the more the demand the higher will be the prices. And as far as tradable goods are concerned their prices are set according to the international market and are more likely to remain unchanged (Herbertsson, 226). The basic phenomenon behind this is when a country is rich in resources it produces greater amount of revenues. This results in making the currency stronger as compared to other countries. Since the prices of the tradable goods are unchanged it would become more expensive for the countries to purchase. Hence the production market would become less competitive ending up being a resource curse for the nation. Elimination of Taxes In many countries that are not resource oriented, the government implements rigorous taxation to provide social services in return. This is one of the ways with which many countries fulfill their economic needs. But this is not the case with resource oriented countries. As all the economic needs are covered up with the revenues generated from the resources the government need not to implement the taxes over the citizens and the process of implementation of tax is eliminated (Mahdavy, 70-90). This makes the citizens care less about how the revenues are being compensated by the government. But there are certain citizens who depend upon the revenues from the resources. In this case, such people keep an eye on each of the government activities as it is their only source of income. And if they observe that the money is wasted in a wrong manner then they raise their voices against it (Alexeev, 123). This would result in poor behavior of the rulers with citizens and create an unhealthy environment. Therefore it has been noticed that the countries that are blessed with natural resource often found to have corrupt government and unhappy citizens. Fluctuations in Revenues The fluctuations in the revenues generated by the resources are hard to avoid. A research shows that, a decade ago the price of the crude oil rose from $14 per barrel to $145 per barrel (Aizenman, 25). Crude oil is not the only case but the prices of other resources like gold, hard-rock minerals and cotton had also been varying. Now, the countries that are dependent upon the abundance of resources for the revenues undergo severe problems. The fluctuation in revenues can almost destroy the government policies and planning that were designed for the welfare of the country. Furthermore, the spontaneous fluctuations will create a question mark in the minds of the investors whether to invest the money under such unpredictable conditions or not. This would certainly hurt the reputation of the nation and would lack popular support among investors. Possible explanations why some countries avoid it It has been mentioned earlier that there are some countries that were able to avoid the Natural Resource Curse. There are numerous ways by which the country can avoid resource curse some of them will be explained in the following. The countries that are able to resolve the problems in a diplomatic manner are found to avoid resource curse. It is very well known by the government of every country that once the resource curse comes into existence it is almost impossible to stop it. The smarter thing would be to prevent the issue with diplomacy (Mihov, 220-245). One of the historic events that took place in Sudan is one of the examples of not solving the issue with diplomacy. It was in 1983 when the war began in Sudan during which the president took some measures to locate the discovered oil place in south under the authority of the north and to build an oil refinery in north. The members of the Sudan People Liberation Army (SPLA) claimed that the people of the north were misusing the resources and at this point the conflict came into act. The president was however failed to resolve the issue with diplomacy and it was noted that around 2 million people were killed in this conflict (International Task Force on Commodity Risk Management in Developing Countries, 475). Corruption is what has been the biggest enemy of the economy of the country. It is therefore very necessary to avoid corrupt government that leads to corrupt businesses. Keeping this under consideration a Publish What You Pay campaign was introduced by philanthropist George Soros. Under this campaign the resource oriented companies were asked to disclose all the payments made to the government, including the tax payments, license fee payments and every mode of payment. As a result each and every thing would be clear regarding the payments which would satisfy the citizens that the taxes and other miscellaneous payments they were paying to the government are correctly utilized. The implementation of these measures in some countries has been beneficial and the natural resource curse could be avoided to an extent (Hausmann, 478). Possible Explanations why some countries don’t avoid it Surprisingly the countries that are blessed with rich resources are mostly found to have low economic growth, poverty and unhappy citizens. There are numerous reasons why countries face natural resource curse and are unable to avoid it. Firstly, it has been widely studied that the rich resource countries often fail to utilize the revenues in an appropriate way. The reason behind this is mainly the inefficient ruling government. The people that are in power are interested more in personal stability rather than working for the country (Reno, 338). This is where the conflicts basically arise and a tug of war between the people and the government commences. This is one of the most common problems found in rich resource countries which make the resource a curse for the nation. Secondly, the resource rich countries do not give importance to education at all. They mainly depend upon the revenues generated by the resources and are attracted towards resource oriented industries where education is not necessarily required. Now if the resources turn down even for a short period of time they are left with almost nothing to earn their living because of lack of education (Thorvaldur, 48-60). Therefore the countries that do not give importance to education are found to suffer through resource curse as they are totally dependent upon the resources and are not educated enough to find a new path of earning. Lastly, countries that are not able to reduce the gap between the rich and poor are often found to suffer from natural curse. This happens when all the profit from the resources goes only to the government and almost none is left for the middle class people (Galloy, 77-80). Therefore the gap between the rich and the poor is increased and the prosperity vanishes throughout the nation. A study shows that Venezuela suffer resource curse because of its extraction of oil in huge amounts. The profit generated by the extraction of oil is mostly distributed within the government and the ordinary citizens are left with nothing. Works Cited Page Aizenman, J. and N. Marion, Volatility and investment: interpreting evidence from developing countries, Economica, 1999. Print Alexeev, M. and R. Conrad, The elusive curse of oil: Working Paper SAN05-07, Terry Sandford Institute of Public Policy, Durham, 2005. Print Galloy, Martine-Renee, and Marc-Eric Gruenai. Fighting for Power in the Congo, mondediplo.com/1997/11/Africa, 1997. Gelb, Alan, and Associates, Oil Windfalls: Blessing or Curse? , Oxford University Press: New York, 1988. Print Gibbs, David N, The Political Economy of Third World Intervention: Mines, Money, and U.S. Policy in the Congo Crisis, University of Chicago Press: Chicago, 1991. Print Hausmann, R. and R. Ribogon, An alternative interpretation of the ‘resource curse’: theory and policy implications, Cambridge: MA, 2002. Print Herbertsson, T.T., M. Skuladottir and G. Zoega, Three symptoms and a cure: A contribution to the economics of the Dutch Disease, London, 2000. Print International Task Force on Commodity Risk Management in Developing Countries, Dealing with Commodity Price Volatility in Developing Countries: A Proposal for a Market-Based Approach, Washington DC, 1999.Print Mahdavy, Hussein, The Patterns and Problems of Economic Development in Rentier States: The Case of Iran, Oxford University Press: London, 1970. Print Reno, William, Corruption and State Politics in Sierra Leon, Cambridge University Press: New York, 1995. Print Ross, Michael, Natural Resources and Civil War: An Overview with Some Policy Options, Paris, 2002. Print Sachs Jeffrey D., and Andrew M. Warner, Natural Resource Intensity and Economic Growth, Edward Elgar: UK, 1999. Print Thorvaldur, Gylfason,. Natural Resources, Education, and Economic Development, European Economic Review, 2001. Print Read More