The Oil Curse: Forty Years of Arab Economic and Social Failure

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Oil only blesses the corrupt

Oil is a curse. Especially for poor countries with backward political and social institutions. Oil-rich Arab countries are near perfect exemplars of the "resource curse" in which countries with abundant natural resources are actually likely to be worse off than countries where such resources are scarce. Cursed with vast revenues from exploiting oil, governments can simply buy what they need from abroad without bothering to invest in their people or encourage the development of wealth-creating activities. The consequence is an economic hollowing out. As the Arab Human Development Report for 2009 declared:

Overall, the Arab countries were less industrialized in 2007 than in 1970, almost four decades previously.

Yesterday, the Washington Post published data showing that per capita GDP (oddly the chart is not available online) has actually fallen in many Arab countries since 1981, e.g., Saudi Arabia's per capita GDP is 6 per cent lower than it was in 1981.

Meanwhile since 1981 many other developing countries not blessed with resource abundance have dramatically boosted their per capita incomes: China by neary 2,000 percent; South Korea by 1,000 percent; Indonesia by 360 percent; India by 350 percent; Brazil by 660 percent, and even Mexico which also suffers from the oil curse boosted its GDP per capita by 180 percent.

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  1. I want crayon here to provide his deep insight into this issue.

      1. Yeah, pretty much.

  2. TSA is searching people on Amtrak now:
    http://www.youtube.com/watch?v=V1B3AubsTBo
    And after they are getting off the train, too.
    Fuck you, Choad.

    1. Wow – that would really place the “HIGH SPEED” on high-speed rail, wouldn’t it???

      Their beloved State, at work.

  3. The US has plenty of resources, yet is not “cursed”. So does China. And what about the Scandinavian countries with oil? Perhaps being ruled by a corrupt bunch of thieving “princes” is more of the problem.

    1. I think the post suggests both. It suggests that if you have a corrupt bunch of thieving princes running your government, and you find vast oil reserves, there becomes little incentive to throw the oligarchy out because the structurally corrupt government can keep buying its way out of trouble.

    2. Right. In fact, the U.S. has huge amounts of oil–we just use more of it than we produce.

      1. Unfortunately, you are wrong.

        The US has vast amounts of resources that private energy cannot access because of asinine energy policy.

        On the article above, the problem is not resources, many of the other nations listed above are abundant in natural resources.

        The difference is in the level of statism vs the level of individual liberty and drive. Most of the middle eastern countries have heavy handed Islamic statist leadership, coupled with a very low level of individual freedom and drive.

        1. I’m not sure how I’m wrong about us being a major oil producer. We are. And, as you note, we have reserves that we aren’t touching for political reasons.

          I agree 100% that the advantage the U.S. has is mostly private property rights and a more-or-less-not-quite-as-corrupt government.

          1. Property rights are only a part of the problem.

            The issue is largely endemic to developing countries suddenly flushed with foreign currency. This increases the value of the domestic currency making people feel wealthier. Those people, given new economic power tend to spend it on foreign products rather than the local equivalents they were previously buying.

            The effect is pretty well on display in Nigeria. Petrodollars flooded the economy, and people started buying things like Wheaties for breakfast rather than corn powder from local producers. This caused a collapse in revenue for Nigerian farmers, who then flooded into urban areas attempting to find new revenue sources (i.e. a job). The end result is Nigeria goes from a food exporter to a nation that can no longer fees itslf.

            This also applies to other Nigerian industries, but the point is that too much wealth too quickly can be devastating to an economy.

    3. I think you are right to a large extent. The curse is not so much the resource as the corruption combined with the fact that before oil, most of these countries had nothing but camels and a few date trees. The problem happens when oil is the only significant source of money. Mexico is plenty corrupt, but they have lots of other things going on economically besides oil. Libya or Saudi Arabia, not so much.

      1. We must also consider diversity of resources, including culture. Many other countries are just “purpose”- countries (a farm system) without any realistic economies of their own.

    4. And big, industrial countries like the US or China have tons of resources, but they use them rather than just selling them. The fact that a lot of major oil producers import and subsidize fuel for domestic use illustrates this sort of problem nicely. For them oil is just money and not a tool to be used to develop and industrialize.

    5. I was about to post this.

      Do you know what the critical difference is?

      Outside of Alaska, in the US we have never pretended that “the people” own the resources.

      Whoever owned the mineral rights got the proceeds of the “natural resources”, and everyone else was SOL.

      In countries where the poetry of “the people own natural resources in common” type rhetoric was believed and implemented, you get a few decidedly negative results:

      1. Continual fratricidal infighting about the distribution of the proceeds of “the people’s” wealth.

      2. Corruption of the state and of the people by distribution of unearned wealth on a wide scale. Why figure out how to start a business in Saudi Arabia? Why not just cash the checks you get sent?

    6. True, Episiarch.

    7. You forgot to mention Canada.

  4. Oil is a curse. Especially for poor countries with backward political and social institutions

    Take Alaska…

  5. …so is the article hedging around saying that the Arabs are just inferior?

    1. No, that their governments are. And it’s not just them — Venezuela has the same problem.

  6. So your solution is to “spread the wealth” in Arab countries?

  7. Episiarch: You did notice that I wrote “poor countries with backward political and social institutions,” right?

    If a country has the rule of law, strong property rights, free speech, etc., they can usually avoid the curse.

    On the other hand, think oil and Louisiana and coal and West Virginia [PDF].

    1. You don’t expect me to RTFA, do you, Ron? I have work to do, damn it! I’m a doctor*, not a proofreader!

      * I am not a doctor.

      1. Yes you are. All Hit & Run commenters are honorary doctors.

        1. Technically I’m ABD in slappin’ hos.

        2. Then why can’t I write prescriptions?

          1. Dude. All you need is one of those pads. It’s a myth that only doctors can write on those pads.

            1. I’d write myself a prescription for 20 X-rays. Ra-di-a-tion. Yes, indeed. You hear the most outrageous lies about it. Half-baked goggle-box do-gooders telling everybody it’s bad for you. Pernicious nonsense. Everybody could stand a hundred chest X-rays a year. They ought to have them, too.

    2. On the other hand, think oil and Louisiana

      What are you implying, mister?

      1. Cayenne pepper curse

        1. Ya got your onion, your paprika…

          1. Sounds like my recipe for chicken wings. mmmmmm

  8. Ha ha.

    Number of times dictator-propping military aid from US mentioned in article: 0

    Number of times IMF or World Bank mentioned in article: 0

    Central role of IMF, World Bank and US foreign policy: Resource extraction from third world nations.

    Theme of article: Gee, where did these countries’ resources go? Dumb countries, always losing all their stuff.

    Ha ha.

    1. Is it just me or does Oral Hazzard make shrike seem cool and reasonable?

      1. Different versions of spastic crazy. There are many flavors, you know.

        1. Ha ha.

          Ha ha ha ha ha ha ha ha ha.
          Ha ha ha ha. Ha ha. Ha ha ha ha ha ha ha ha ha.

          Ha ha.

    2. HA HA! STOP STEALING MY MEME ASSHOLE HA HA!

    3. HAW HAW HAW!!!

  9. The US is very resource rich. the genius of our system is private ownership of minerals. In every other nation, except a limited part of Canada, coal ,oil and gas is all owned by the state. Here it is owned by the landowner unless other contract have been made.

    1. Ding ding ding!

    2. Oops, you beat me to it.

      I guess I need to stop patting myself on the back.

    3. You rich people and your “property rights.” How droll.

      Except that you’re exactly right. Strange how property rights and free(er) markets mysteriously seem to work.

      1. “Fetishism of liberty and property rights is creepy”

        1. eh, wealth is creepy. news at 11

  10. Norway is plenty cursed with oil, they just aren’t run by Islamists.

    1. This. If the Arab nations are indeed “cursed”, it’s by their own stubborn backwardness and stupidity.

      If they would only become a little more enlightened, open up, and ditch these retarded eighth century notions that everyone in the world has to be converted, dhimmitized, or killed, they could easily compete with just about anyone in the world.

    2. Norway has plenty of oil, they just aren’t cursed by Islamists.

    3. Venezuela isn’t run by Islamists either.

      And Norway has used its oil largesse to make itself fat and happy enough that it has no qualms instituting all sorts of nonsense legislation, like genital quotas for corporation boards, and perhaps the highest nanny-state taxes on booze.

    4. Yes. But Norway was a renaissance country when the arabs were still living in tents.

      Even though tents are cool, Norwegians were building multi-purpose cities, literature, infrastructure, and governance, while Arabs were roaming the Nejd.

  11. Overall, the Arab countries were less industrialized in 2007 than in 1970, almost four decades previously.
    […]

    […]and even Mexico[,] which also suffers from the oil curse[,] boosted its GDP per capita by 180 percent.

    It’s just a question, but could it be the fact that those countries are Muslim whereas the others are not?

    1. …whereas the others are not?

      Indonesia isn’t (primarily) Muslim?

      1. Re: EJM,

        Indonesia isn’t (primarily) Muslim?

        That’s why I am asking. Maybe Indonesia’s rich and old culture serves as counterweight, whereas Arabs have pretty much stayed assholes.

        1. Zeb (and maybe others) hinted at this above, but a big difference between a country like Indonesia or Malaysia and a lot of the oil-producing states of the Arab world is how economically dependent the nation is on oil production and exporting. The former tend to be a lot less dependent than the latter.

          In fact, a better way to look at the issue may involve comparing OPEC members’ economic development to that of non-members. (Indonesia actually withdrew from OPEC a few years ago, after becoming a net importer.)

          Also, I pretty much agree with Kant (below) that maybe the best example of the “oil curse” is Nigeria.

      2. Indonesia has the largest Muslim population of any country in the world and 86% of Indonesians practice Islam.

        There aren’t many Arabs in Indonesia, if that’s what you meant.

        1. Nevermind. Misunderstood your comment the first time around. Consider it support of your point, instead.

    2. I don’t really think so. The oil producing muslim countries have a special type of economic problems that other fucked up Muslim countries don’t have. Then there are countries like Indonesia, Turkey, Pakistan that have plenty of their own problems, but are doing OK in industrial development.
      And don’t forget Venezuela.

    3. You guys are missing the most glaring counterexample and also the most F’d up of all the petro states, Nigeria. Also Norway will be pretty screwed in about 20-30 yrs when production decline accelerates, too bloated.

      Best example outside of US/Canada of success is probably Malaysia or the Netherlands.

  12. So what, they’re the national equivalent of trust fund babies?

    1. More like white trash lottery winners who are back living in the trailer park inside of 5 years.

      1. “The charge is bank robbery. Now, my caddy’s chauffeur informs me that a bank is a place where people put money that isn’t properly invested. Therefore, robbing a bank is tantamount to that most heinous of crimes, theft of money.”

  13. Dude – the problem ain’t the oil.

    Oil is the only thing keeping the place semi-afloat.

    1. The “oil curse” is a convenient excuse for an already profoundly fucked up culture.

      1. If you apply property rights and free markets to these states, they would improve despite their Muslim culture.

        There really is no feature of Muslim societies today that wasn’t also present in the US in 1850. But we managed to develop OK.

        No rights for women – check.
        Limited rights to free expression – check.
        Anti-science religious hysteria – check.
        Patriarchal family structures – check.
        Slavery – check. Oops they don’t openly have slavery in Muslim states any more, so I guess I shouldn’t check that one.

        1. While all of those things are true in a broad, non-contextual sense, each one presents itself differently in their respective culture.

          Eg, the anti-science religious hysteria that took place in 1850s America is arguably quite different than what takes place in Islamic-law countries today.

    2. If “afloat” means “listing into an iceberg” well you sir are correct!

      1 party rule + state ownership of resources + vast resources to sell gives said party the wealth and power to amass more wealth and power at the expense of the people. Way to completely miss the point.

  14. Are our $100-billion casino monopolies going to do the same thing to our reservations?

    1. Even with that, life for avg NA on the res is miserable. This is mainly do to lack of any ownership. No one can get a mortgage on the res…

  15. Based off of my experience living and working in non-oil producing countries in the Middle East, I would largely put the blame on corruption and a social system that does not want to change at all.

    Part of this is religious, Semites, whether Arab or Jew, tend to be paranoid and blame all of their societies problems on outsiders. Conspiracy theories and other outlandish theories of why things happen are common. They are not big on self-reflection. Additionally, they tend to have a fairly negative view of things, even when things are going well.

    They are fractious and often look for arguments even with friends and family. Finally, a very common view is that every man is free to do whatever he wants. This has several negative consequences. For example, if someone wants to go fight or kill someone else outside of their group, even if the group thinks it is a bad idea, they won’t stop them. If someone gives you an order and you just don’t want to follow it, you don’t. All of this results in a lot of generic chaos and creates real difficulty in getting things done. Due to all of this, respect for the law and properly funding law enforcement are all low priorities. Add in a bunch of semi-independent tribes that may, or may not, consider themselves a part of the country to which they nominally belong and you have one hell of a formula for instability.

  16. “[Oil-rich] governments can simply buy what they need from abroad without bothering to invest in their people”

    Not in the least way similar to a country that just borrows what they need from abroad without bothering to invest in their people…

  17. The resource curse has a hard time explaining why basically oil-free Egypt and Yemen are so fucked up, but oil-rich Mexico (which hardly has advanced political and social institutions) has been making progress.

  18. There is a lot of truth to the “resource curse” argument, here is a parallel that does not relate to oil or Arabs.
    I remember reading a Chilean politician re. their relative prosperity compared to Argentina?s, and he put it down to the following: in school Chilean children are taught that their country is poor and they need to prosper by working hard, whereas Argentinian children are taught that their country is so resource-full and wonderful that they take it for granted that the country will provide for them.

  19. I’m very skeptical of the resource curse argument, which the evidence doesn’t support as strongly as Ron thinks it does.
    http://pileusblog.wordpress.co…..ed-by-oil/

  20. “resource curse”
    Old story: Dutch Disease.
    http://www.investopedia.com/te…..isease.asp

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