Review by Kevin Baldeosingh
This is basically a book on how to minimise the official corruption that is a consequence of having energy resources.
The collection of 11 articles, on topics ranging from the role of the State to how to negotiate an oil contract to reducing inequality, are edited by leading economists Sachs and Stiglitz and political scientist Humphreys. The editors also contribute the introductory and concluding essays, which summarise the main elements of the resource curse.
This is the curse wherein countries endowed with natural resources are frequently worse off economically and socially than less lucky societies. The editors explain that this is the consequence of three different processes: currency appreciation, commodity price fluctuations, and undermining of democracy. While the first two have been extensively studied for decades, it is only in recent times that the political effects have gotten attention of academics and policy analysts. The editors define the political consequences as follows: “Foreign oil and mining companies need to obtain concessions to exploit natural resources. They can obtain them only from the rulers of the countries, but the rulers are not the principals. They are agents of the people. The rulers get their rewards from the companies, not from the people whose interests they are supposed to safeguard.”
The revenues taken by government from natural resources are described as “rents”, which is the monetary difference between the value of the resource and the cost of extracting it. In other words, once the cost of extraction is significantly lower than the value of the resource, companies are willing to pay an agent—in this case, the government—for the rights to extract the resource. Thus, national revenues in a resource-rich country bear no relation to productivity. And this often leads to corruption since, the editors write, “individuals, be they private sector actors or politicians, have incentives to use political mechanisms to capture these rents.”
Each article is prescriptive, offering possible policy solutions to minimise the most negative effects of the resource curse. For example, Stiglitz in the one article he contributes argues that “requiring multiple approvals might increase the number of people who have to be bribed to get resources at below-market prices. The more people involved, the greater the probability that at least one is incorruptible...”
Other recommendations focus on economic policy directed by government—eg, investing earnings rather than spending as current income; governments making specific assessments of expected revenues from oil and gas and make this information public; and, of course, setting up a natural resource fund.
Unfortunately, the editors have a left-wing bias, so they reject privatisation as an option, stating only that persons who recommend this policy have to prove their case. They, on the other hand, fail to show how governments can be persuaded to implement any of the solutions they suggest, apparently relying on politicians’ good conscience.
Despite this major drawback, the book offers useful insights into the how and why of socio-economic challenges facing T&T today.
BOOK INFO
Escaping the Resource Curse
Macartan Humphreys, Jeffrey D Sachs, Joseph E Stiglitz (editors)
Columbia University Press, 2007.
ISBN-13:978-0-231-51210-7; 408 pages.
