The Devil's Excrement: The Negative Effect of Natural Resources on Development

Article excerpt

The discovery of new non-renewable natural resources, such as oil, natural gas, and minerals, has often been viewed as a sure-fire foundation for national development--those countries lucky enough to strike black gold, or gold itself, see themselves as having taken the first important step on the road to prosperity. Therefore, it is not surprising that many have placed their hopes in resource exploitation as the means for lifting out of poverty a large proportion of the 2.7 billion people (nearly half of the world's population) who live on less than US$2 per day.

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Natural resource deposits have undeniably brought prosperity to countries such as Norway and Iceland. Unfortunately, most resource-rich countries do not see economic development follow their natural wealth. Rather, relatively resource-poor regions such as East Asia have grown much faster than countries in Latin America, Africa, and the Middle East that have considerable deposits of oil, natural gas, and minerals. Recent studies show that even after controlling for income and other factors, oil- and mineral-dependent countries generally have higher poverty rates, income inequality, child mortality, and child malnutrition than those that are not dependent on such income sources. These countries, identified by their high ratio of exports of a single commodity to total exports, also spend less on healthcare, have lower enrollment in primary and secondary schools, and have a higher incidence of political corruption. They are more likely to have authoritarian governments, large sovereign debts, high military spending, and civil wars than countries without significant natural resources. Finally, there is a growing consensus among economists that in all but the most transparent and industrialized nations, the discovery of natural resources has tended to have a negative impact on growth. Juan Pablo Perez Alfonso, a founder of the Organization of Petroleum Exporting Countries, summed up these trends when he said, "I call petroleum the devil's excrement. It brings trouble. Look around you. Look at this locura [madness]--waste, corruption, consumption, our public services falling apart. And debt, we shall have debt for years."

However, the achievement of high human development indicators in some countries, such as Norway, has been enabled by services funded in part through natural resource exploitation. Human development is defined by expanded capabilities of individuals to make choices about the life they wish to lead, and indicators of human development include not just gross domestic product (GDP) but also measures such as life expectancy, literacy rates, and political freedom. Access to education, healthcare, and discursive political processes raises these indicators. Nevertheless, most oil- and mineral-dependent countries have, in fact, not fared well by human development indices. As the accompanying figure shows, many of these countries have very low Human Development Index (HDI) rankings. The HDI, developed by the United Nations Development Programme, combines data on per capita income with data on healthcare and education and is available for 174 countries. In a recent study, even after controlling for per capita income, a five-point gain in mineral dependence resulted in a 3.1-point decrease in the HDI rank.

Abundance in oil and mineral resources is associated, to a substantial degree, with low human development indicators, high income inequality and poverty rates, and depressed rates of economic growth, because the discovery of oil and mineral resources often fuels internal corruption and conflict, encourages unethical corporate behavior, leads to the violation of human rights, and results in environmental degradation. These trends do not mean that oil and mineral wealth necessarily lowers human welfare. The opposite can be true if the following requirements are met: first, those who are affected by resource exploitation must be consulted; second, successful resource exploitation must tangibly benefit citizens; third, a pre-determined set of environmental criteria must be met; fourth, all transactions must be transparent; and fifth, efforts must be made to promote democracy if the previous four criteria are to be consistently achieved. …