Caitlyn McBride

8/22/2016
Global Justice Summer II 2016
Final Research Paper
Professor Parekh

How Ought We Fix the Resource Curse?

Natural resources like oil, minerals, and lumber have long been the biggest bargaining

chips of sovereign states. However, as we face a globalized world with an increased focus on

inequality and poverty, it is imperative that we determine to what extent the international

community and states within it are responsible for promoting sustainable development.

I will focus the following paper on the exploitation of developing states for natural

resources and the effects within including corruption, undifferentiated and volatile economic

growth, as well as inequality. The price for many developing nations to compete in the global

economy has been valued natural resources that many developed nations would never dream of

surrendering in such a disorganized manner, creating a dangerous trend of strong current cash

flow into economies being lost within domestic infrastructures not equipped to extract true value.

This is commonly referred to as the resource curse.

As an issue that is inherently at the intersection of politics and economics, it will be

important to evaluate the structures through those lenses. However, it is also important to delve

into philosophical thought as a strong foundation for action must be established to create an

agent for change within political and economic spheres. I argue that the through the improper

usage of revenue derived from resource wealth many nations are violating citizens human

rights, creating an obligation for the international community and developed nations to conduct

trade in a more transparent manner through mechanisms that will ultimately prevent the

continued abuse of resource wealth by authoritarian governments.

 Extractive industries primarily refer to oil, gas, minerals, and other materials that come

from the earth. According to the World Bank, about 3.5 billion people reside in countries with an

abundance of these types of materials. This represents 81 different countries, about 25% of the

global GDP, 50% of the worlds population, and 70% of the people considered to be in extreme

poverty. (World Bank 2016) Using conventional logic, it is easy to deduce that many of these

nations should be exhibiting different outcomes.

We traditionally relate wealth to success however, in many cases, resource wealth is

having the opposite effect and leaving many developing nations with increased inequality,

poverty, and corruption. This resource curse phenomenon is clearly of great scale and directly

affects not only a great number of people, but notably those in dire need as they suffer from

extreme poverty.

In order to better examine the causes, effects, and possible reversal or prevention of the

resource curse there needs to be more than an abstract understanding as a guiding definition.

States exhibiting the effects of a resource curse have objective levels of resource wealth, much

like the US, Norway, and other Global North economies. However, there exists some sort of

dysfunction, which this paper will explore both politically and economically, that leaves affected

states in a cycle of stunted development. This outline is similar to the definition of a cursed state

provided by Eli Burton, writing that abundant natural resources lie withinthe states, yet

despite their mineral wealth, these same states exhibit low levels of development and a poor

standard of living. (Burton 2014, 425)

There remains some contestation as to the actual correlation between a nations

dependence on extractive industry and low development, challenging a core tenet of the resource

curse. Most recently, research conducted by Alexander James seems to conclude that the low

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growth is tied to the fact that the resource sector in total is low growth, therefore an economy

cannot be expected to grow at a higher pace. (James 2015) This argument is furthered by his

supposition that there is little evidence that resource dependence impedes growth in non-

resource sectors. (James 2015, 56)

However, in the discussion of countries with a reliance on extractive industries, the

World Bank statistics above clearly indicate that an issue persists in sparking development.

While these states may not be able to achieve high growth due to a limiting by the resource

sector, the people residing within these states still clearly are disproportionally benefiting from

what growth does exist. Instead, poverty is rampant and this, for the purposes of this paper, still

should be considered a type of resource curse. In a normally functioning economy, a government

will drive diversification of the economy. However, in a cursed nation governments do not seem

enticed to shift away from reliance on resource revenues that continue to not be distributed to

citizens.

Human rights should serve as a moral compass for obliged international actors to attempt

to correct the developmental paths of these cursed states. One argument, made by Wenar, relies

on a right to property and to what extent you consent to cede this right to your sovereign. This

particular framing can be effective as the right to property is already codified in international law

(Wenar 2008) and therefore creates a compelling point for violation. His argument relies mainly

on the idea that natural resources rightfully belong to a nations citizens. While Wenar admits

that Pogges international resource privilege is a true phenomenon, he disagrees that we must

accept it as the static state of operation within the international community. (Wenar 2008)

Instead, it is possible to challenge it as the privilege does not fit into the market and contract

driven structure of the international stage today.

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 This challenge is possible because even if citizens cede resource rights to their respective

governments, they do so with the expectation that the sovereign will act in their best interests.

Therefore, if consent is not present or if the government is acting to the detriment of its citizens

through the sale of the lands natural wealth, a human rights violation exists. (Wenar 2008) This

clear violation of citizens rights to property establishes a moral ground and responsibility for

action to rectify the wrong. Extending Wenars argument to responsibility of the international

community, Schaber highlights how a states failure to protect its citizens rights to property by

stealing their resources places the responsibility for action on the international community.

(Schaber 2011)

While Wenar reopened the modern discussion of the immorality of the resource curse, his

position has not existed without critique. In particular, Wenars view is very black and white in

its interpretation of property rights and in what cases citizens do and do not cede their rights

properly. This leads to his three-part recommendation to effectively end all immoral trade

activity through a Clean Trade Litigation mechanism prescribing legal punishments for guilty

parties, the Clean Trade Act that prohibits importation from cursed nations, and finally the Clean

Trade Tariff and Trust policy that punishes countries importing cursed goods monetarily then

sets the proceeds aside as international aid for those suffering within cursed nations. (Wenar

2008 and Wisor 2012)

Wisors critique of this black and white set of propositions is one that can possibly help

lead to more tangible implementation as it reframes Wenars position slightly away from the

focus on theft and property rights. Wisors approach is much more utilitarian. He opines that

participation in an immoral trade, which he agrees is a trade where property rights are violated, is

where the moral obligation for international action is created. Therefore, it is the responsibility of

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international actors to consider the harm imposed and react accordingly to right the wrong.

(Wisor 2012) This position is slightly different from Wenar by viewing world trade through

more of a spectrum. Rather than fixing ourselves to a rigid idea of theft, if we look towards the

actual harm imposed by the cessation of property rights we can better address problem areas.

Placing this qualification in more real terms, using Wenars framework trade with a state

like Saudi Arabia would be disallowed as its Freedom House rating places it into the cursed

category. (Wisor 2012) However, under Wisors thinking the trade could be permissible because

while Saudi Arabia is certainly authoritarian, much government effort is actually expended to the

improvement of its citizens quality of life unlike in countries like the Democratic Republic of

Congo or Zambia.

Another argument, outlined by Burton, focuses on more tangible human rights violations

at the mines. This includes working conditions, access to healthcare, and coercive practices at

these physical point of extraction. Burton opines that the raw materials these countries offer are

the backbone of the technology and structures that shape our own lives. Therefore, we are all part

of the violation of these peoples human rights since we enable their exploitation. (Burton 2014)

Any solution to the resource curse must not just consider the economic path of these nations, but

also the realities of these citizens lives. There are millions suffering tangible harm due as states

fail to protect citizens employed in these extractive industries, indicating a larger issue than

disproportion of revenues. Without changing the working conditions of these victims, additional

government revenue and programs will not put an end to the human rights violations.

From the economic and political perspectives, the resource curse can seem like nothing

more than an unintended disjointing of market forces. In this depiction, an authoritarian

sovereign meets free market forces, resulting in submission to almost irresistible incentives to act

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in the personal interest of a few authoritarian elites and multinational corporations rather than in

the interests of the nations citizens. However, the state of economic and political forces proves

to be much more complex in reality. In seeking to better understand causation and consequence,

we must delve into this complexity. Doing so will help to better prescribe action moving

forward.

Independent of the discussion concerning how resource revenues are spent by

authoritarian and often corrupt governments in cursed states, it is apparent that market forces are

not just unintentionally disjointed. Instead, there are real failures in capital markets that directly

result in significant lost revenue for these nations from the outset, meaning the opportunity to

misspend does not even exist.

One major culprit of this lost revenue is the practice of misinvoicing, which is the

practice of reporting differing values for products within the importing and exporting countries

ledgers. Motivations include tax evasion, foreign exchange manipulation, and even smuggling as

the final destination of the product is often obscured by opaque market forces. A report recently

released by the UN names misinvoicing as the cause for over $78 billion of South African gold

exports, approximately 67% of total gold exports, never actually hitting the books. (Aglionby

2016) While the issues warrant additional investigation to determine fault and criminality, the

stark magnitude of these misgivings clearly indicate that the rules of the global marketplace are

not being followed.

The Financial Times also mentions that experts believe transparency is the key to

preventing illicit trading. (Aglionby 2016) This would help to drive clarity into an incredibly

opaque market and ensure that each party upholds the rules of global trade, all of which are

established already. Securing additional revenue from the proper taxation of these exports will

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make a meaningful impact on resource dependent economies government income, making

additional funds available for programs and poverty relief efforts assuming the proper

institutional channels are functioning as well.

Shifting towards the more common understanding of how the resource curse manifests is

the discussion of economic and political markers within a nation that contribute to its apparent

inability to effectively support its citizens with revenues derived from resources. Ayta presents

a useful economic lens through which a comparison can be made between countries that

successfully leverage resource wealth towards sustained development and those that fall into the

depths of the resource curse. He and his co-authors highlight two differing foundations for

economic norms: contract-intensive and clientelist.

In a contract-intensive economy individuals normally obtain their incomes from

strangers located in a market in the form of contracts dependent on third-party enforcement.

(Ayta et al 2014, 74) In contrast, in clientelist economies individuals rely on patronage

networks, which often take the form of authoritarian governments, which yield leaders [to

whom] a loyal following of clientsare economically dependent... (Ayta et al 2014, 75). This

places the role of the state as a main differing characteristic between the two structures.

Within the framework, a state with clientelist economic norms will be predisposed to

resist democratic tendencies as resource wealth grows because the incentives are so strong to

reward supporters and loyalty within the existing regime. (Ayta et al, 75) The implication for

evaluating states currently faced with the resource curse is that a solution must address clientelist

norms in an attempt to shift the economy towards more contract-intensive tendencies. A shift

towards relying on the state as enforcer of contracts as opposed to source of economic

dependency will encourage the furthering of market forces within the economy. In turn, the

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without continued dependence on the state, individuals will no longer need specific rewards in a

quid pro quo type scheme. Instead, the government can begin to act in the interest of keeping the

marketplace fair, an act that will benefit all citizens in establishing a less corrupt and more

democratic regime.

While economic norms are important, it is ultimately the suite of political institutions that

is actually responsible for delivering services to citizens. Therefore, these entities are responsible

for the distribution, or lack thereof, of resource wealth within a country. Well-designed

institutions have the ability to counteract misguided singular actors, as demonstrated by the

strong system of institutional checks and balances within democracies like the US. Under many

circumstances, the international prerogative is to reform existing institutions in an attempt to root

out corruption and alleviate the effects of the resource curse. However, Weins traces the issue

deeper and attributes institutional weakness that is established well before resource wealth enters

the equation as the causal factor for failed reforms in cursed states. He points towards existing

institutions ability to limit the policy discretion of a rule as the primary factor in combating the

resource curse. (Weins 2014, 197) This position directs the international community away from

voluntary reforms within the state since the ruler is unlikely to yield power.

Another complicating factor highlighted by Weins is that resource wealth decreases

reliance on domestic taxing for the government budget. The impact of this is less accountability

of the government to its people as a citizens stake is somewhat diluted. Therefore, an important

conclusion is that good institutional design can only prevail if it has the effect of increasing a

rulers reliance on citizen support. (Weins 2014, 199) This political condition for progress in

reversing the resource curse amounts to an incentivizing of state governments to prioritize

citizens. While this is supposed to already be the main priority of any state, resource wealth has

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the power to distort this fundamental function to the detriment of citizens due to the lack of

preexisting institutional protections.

Therefore, as Wiens and Ayta describe, it is important we consider the underlying

political and economic foundations of these cursed nations in order to properly prescribe action.

Importantly, we must consider how markets were constructed prior to resource extraction as well

as how governments and institutions are designed. These foundations set the stage for how a

state can respond to resource wealth and also can guide efforts to democratize and spread wealth

more sustainably. Importantly, the international community must consider the economic and

political states of these nations as it comes together in an effort to right the wrongs of the

resource curse.

The current approach by the international community in combating the resource curse is

the Extractive Industry Transparency Initiative (EITI), implemented in 2002. This initiative is a

tripartite and voluntary approach combining efforts from government, community groups, and

private enterprise. The goal is governance by disclosure and focuses on the increasing the

transparency of interactions between government and industry to increase public awareness and

drive accountability. (Sovacool et al 2016) Recent research seems to point towards transparency

as a major aspect, yet the EITI has not made great strides in reversing the resource curse on its

own. (Sovacool et al 2016) I feel as though there needs to be a mechanism to drive action,

otherwise added transparency like with the EITI will only result in information overload as

people struggle to interpret and affect change merely armed with data.

Politically, a strong institutional base is the best defense against the resource curse.

Economically, we must look towards a well-implemented global push towards transparency in

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order to recover and direct economic flows to the people of the nations, not exclusively corrupt

leaders and large corporations.

While I am unsure as to the specific mechanisms, they will definitely need to be

compulsory and multilateral. Wenars summary should serve as a guiding idea for the solution in

order to ground and properly frame efforts. He opines that the priority in reforming global

commerce is not to replace free trade with fair trade. The priority is to create trade where now

there is theft. (Wenar 2008, 2)

Progress against the resource curse, as with many international issues, remains hampered

by the threat of nonparticipation by individual nations as the trade represented presents a

valuable opportunity if a state is willing to ignore ethics as they all currently do. It seems like too

many issues are written off as too complex, difficult, or unlikely to be solved. However, it is

important that we instead leverage the complexity, difficulty, and odds to rise to the occasion

both as individuals and as an international community.

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 Works Cited

Aglionby, J. (2016, July 18). Misinvoicing of Commodities Costs Billions to Developing World.
Financial Times. Retrieved from http://www.ft.com/cms/s/0/6d38e0b8-4a98-11e6-8d68-
72e9211e86ab.html
Ayta, S. E., Mousseau, M., & rsn, . F. (2014). Why Some Countries are Immune from the
Resource Curse: The Role of Economic Norms. Democratization, 21(1), 71-92.
doi:10.1080/13510347.2014.964216
Burton, E. G. (2014). Reverse the Curse: Creating a Framework to Mitigate the Resource Curse
and Promote Human Rights in Mineral Extraction Industries in Africa. Emory
International Law Review, 28(1), 425-471. Retrieved from
http://law.emory.edu/eilr/_documents/volumes/28/1/comments/burton.pdf
James, A. (2015). The Resource Curse: A Statistical Mirage? Journal of Development
Economics, 114, 55-63. doi:10.1016/j.jdeveco.2014.10.006
Schaber, P. (2011). Property Rights and the Resource Curse. Global Governance: A Review of
Multilateralism and International Organizations, 17(2), 185-196. doi:10.5555/1075-
2846-17.2.185
Sovacool, B. K., Walter, G., Van de Graaf, T., & Andrews, N. (2016). Energy Governance,
Transnational Rules, and the Resource Curse: Exploring the Effectiveness of the
Extractive Industries Transparency Initiative (EITI). World Development, 83, 179-192.
doi:10.1016/j.worlddev.2016.01.021
The World Bank. (2016, April 4). Extractive Industries. Retrieved August 2016, from
http://www.worldbank.org/en/topic/extractiveindustries
Wenar, L. (2008). Property Rights and the Resource Curse. Philosophy & Public Affairs, 36(1),
2-32. doi:10.1111/j.1088-4963.2008.00122.x
Wiens, D. (2014). Natural Resources and Institutional Development. Journal of Theoretical
Politics, 26(2), 197-221. doi:10.1177/0951629813493835
Wisor, S. (2012). Property Rights and the Resource Curse: A Reply to Wenar. Journal of
Philosophical Research, 37, 185-204. doi:10.5840/jpr2012378

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