Resource curse or resource trap?

This is an expansion of a comment I made here.


The notion of a “resource curse” was largely kicked off by a 1997 paper (pdf) co-authored by Jeffrey Sachs. It has become a fairly established part of the literature, appearing in papers and books from a variety of perspectives including property rights analysis (pdf). It has informed my own thinking and commenting on matters.

The notion of a resource curse is now being challenged. Including on the grounds that:

… it uses dependence (the share of GDP from that resource) and calls it abundance (the stock of a resource in the ground). But dependence in turn depends on institutional quality—if you have sound institutions, natural resources take their place along other industries. If not, natural resources will by default constitute a large share of GDP because poor institutions stifle an advanced division of labor. When you look at cross-sectional data using dependence as a proxy for abundance, it will look like natural resources compromise institutional quality.

In the discussion on the post quoted above, a comment was made positing the idea of a resource trap that countries could fall into, rather than a curse as such.

I like the idea of a resource trap, because there does seem to be something going on. Australia was, for example, a significantly richer (per capita) country than the US throughout the C19th and early C20th. We adopted a “Deakinite” policy model aimed at (rural) exploiting resource-exporters for urban (union and manufacturing) interests via protection and wage arbitration. The long-term economic results were not good (though not disastrous either, due to the strength of Australia’s basic institutional structure). Australian economic performance (particularly Australia’s comparative economic performance) has improved markedly as that policy system has been largely dismantled.

Comparing the oil-rich theocracies (Saudi Arabia, Iran) of the Middle East to the effect of silver on Iberia, particularly Spain, from the C16th-C18th, there are some strikingly similar patterns: autocracy, de-commercialisation, aggressive religious obscurantism. We forget that medieval Spain was a pioneer of parliamentarism (giving merchants representation via elected delegates was a Spanish, not an English, innovation: the English copied it later). The flood of silver from the Americas undermined both parliamentarism and what had been a highly commercial society by giving the Crown the financial power to buy off/ignore commercial and other interests that the Dutch and English were forced to incorporate into their political processes. The Spanish Crown could also be as religiously obscurantist as it liked: which turned out to be quite a lot–after all, it provided a way of sorting who was “in” and who was “out” (how to be “in”) when it came to handing out the goodies.

A comment by an Iranian intellectual shows just how live an issue such patterns are today:

Oil is the greatest hindrance to democracy in all oil-producing countries. Instead of promoting the development of these societies, oil, this gift from God, has held them back. Because we don't work. We just devour the money. If the state had to live off my money, it would have to consider my demands. But when money just falls into the lap of a state, that state doesn't need its people. We need the state but it doesn't need us. We are beggars of the state, we devour its bread. So no class can develop that's independent of the state. Civil society and democracy require the separation of state and society. To create a civil society that has influence and can hold its own against the state, we need free enterprise. But we don't have that. Instead, 85 percent of the economy is controlled by the state. That's our weak spot. And not just ours. We share it with all oil-producing countries.