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10 Questions: Michael Ross on the curse of being oil-rich

10 Questions: Michael Ross on the curse of being oil-rich

Given his involvement with Greenpeace and other environmental groups, it’s not surprising that Michael Ross gravitated as a graduate student toward research on natural resources. But in the early 1990s, it was unusual for a political scientist to invade what was considered the sole province of economics. Nevertheless, Ross’s approach has paid off. By studying forest management across Southeast Asian countries, he was able to identify ways in which governments were promoting or thwarting unsustainable logging practices.

As a result, Ross became known as one of the world’s foremost authorities in the burgeoning field of natural resource politics. Now a UCLA professor of political science, Ross has shifted his focus from forestry to oil wealth. In a new book, he looks at the surprisingly negative effects that oil wealth can have on developing countries, especially regarding democracy, violent conflict and economic growth. "The Oil Curse: How Petroleum Wealth Shapes the Development of Nations" (Princeton University Press) also discusses how political reforms can take the edge off the so-called "oil curse."

He recently spoke with writer Meg Sullivan about the problem.

How did you get involved in looking at oil and its ramifications for countries, economies and politics?
 

About 15 years ago, I started to notice studies that described the effects of the oil boom of the 1970s on the oil-rich countries in the Middle East, Latin America and Africa. Oddly, they showed that these countries had done much worse than anyone expected. I grew up in the 1970s and remember the oil shocks and the widespread belief that the oil-rich countries had ascended to the top of the international system and were destined to enjoy great prosperity and power. Yet 30 years later, it turned out that their oil wealth had become a curse, which seemed like a powerful and interesting puzzle.

What were other scholars saying at the time about this puzzle?
 
That oil-rich countries were suffering from certain economic problems, notably something called "the Dutch Disease." The Dutch Disease is an economic problem that countries get when they suddenly have lots of oil wealth. They find that, while their oil industry grows, other industries suffer because it becomes a lot cheaper to import things than to produce them domestically. Consequently, nobody wants to buy locally made products. Some scholars noticed that the oil-funded governments were managing their revenues badly, but this was often seen as the result of politicians who were either ill-informed or myopic.
 
So how is your view different?
 
First, that the Dutch Disease is only a small part of real problem, which is political, not economic. Second, political leaders were neither stupid nor shortsighted, but responding to political incentives. Third, these political problems are fairly recent and began in the 1970s when these countries nationalized their oil industries. Up to that time, the international oil industry was controlled by the Seven Sisters, the seven major international oil-producing corporations — a terribly unjust system. Oil-producing countries took over from these companies and nationalized their industries, which was seen as a great triumph at the time. But the irony is that nationalization was not the solution to their problems but the beginning of a whole new set of problems.
 
Why are countries with nationalized oil resources particularly susceptible to the curse?

Often the unjust power and wealth that was once held by the international oil companies passed into the hands of governments, not citizens. Political leaders often use their national oil companies as giant slush funds, to hide corruption and waste, and to disguise payoffs to the police and military forces that help keep them in power. Nationalized oil assets are often treated as symbols of national pride, but in countries from Azerbaijan to Venezuela, they cloak massive abuses of power. Fortunately there are exceptions: Brazil and Norway have national oil companies that are transparent and professionally run. The United States has never had a national oil company and has avoided most of the symptoms of the resource curse.


What are the biggest problems faced by oil-rich countries?

First, their governments become less accountable to citizens: If oil is found under an authoritarian government, it becomes far less likely to democratize. Second, in many countries, oil wealth can spark civil wars and struggles for control of the revenues — something we’ve seen in Sudan, Nigeria, Colombia, Iraq, Indonesia and many other places. And third, under some conditions — like in much of the Middle East — oil can cut off an important avenue for female empowerment.
 
What is the connection between a lack of female empowerment and oil riches?

When a country discovers oil, some parts of the economy grow quickly, but others shrink. Unfortunately, the economic sectors that boom — like construction and mining services — typically hire men; the economic sectors that often shrivel — like export-oriented manufacturing — are more likely to hire women. As a result, women often have few job opportunities in oil-based economies. When fewer women join the labor force, women are less likely to get equal political rights — to get elected to office, to have the kinds of legal reforms that create greater equity. There’s also a significant cost to a country when women aren’t working: Half of the workforce, knowledge and skills in the economy are unable to make a contribution. These countries are not taking advantage of a tremendous resource.
 
Is there also a cost in terms of population growth?
 
Well, that is another effect, and I discuss that in the book. Because fewer women are working, fertility rates are higher, leading to a boom in population. So, the oil wealth gets diluted by a rising population, and incomes rise more slowly than they should.

What are the stakes for oil-producing countries?

Oil and other mineral wealth are non-renewable assets. Countries with oil wealth are taking advantage of a one-time opportunity to sell off their natural resources. If they don’t use these revenues to their best advantage, the next generation will see few benefits. So, it’s very important to use this resource well. Many low-income countries are blowing this opportunity.

What are the ramifications for the Arab Spring? Is there the potential that oil wealth may bring down the Arab Spring?"

For me, the Arab Spring holds two lessons. One is that we see the exact same desire for freedom and democracy in the Arab world that we do in the rest of the world. But, second, in those countries where the governments have extraordinary oil wealth, people are much less likely to succeed — at least under the conditions that prevail today. Because of oil wealth, pro-democracy movements face an uphill climb in Saudi Arabia and the other Persian Gulf states, plus Iran, Iraq, Algeria and Libya. People everywhere want greater accountability. But in the oil-rich countries, they’re not getting it.

What can the West do about the problems of countries that are most affected by the oil curse?

We can learn a lot from the international campaign against blood diamonds. Ten years ago, countries like Angola, Sierra Leone and Liberia had civil wars that were funded by blood diamonds. But thanks to an international initiative, every diamond traded internationally must be accompanied by a certificate showing its country of origin. This innovation has led to a huge drop in the trade of blood diamonds and a big drop in violence in the diamond-producing countries in Africa.

Imagine the same kind of labeling at your neighborhood gas station. You, as a consumer, could shun gas from countries that you knew to be abusive or repressive. Over time, such economic pressure could help bring political change.
 

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