21 June 2004 00:00
All the world`s troubles in one word - oil AMITY SHLAES
ByLine: By AMITY SHLAES
Of all the statements made by politicians in the past week, the most
important came from Vladimir Putin. The Russian president's declaration
that he would not bankrupt Yukos, the oil group, mattered because, for better
or for worse, the fraud and tax-evasion trial of two big Russian investors
has become a kind of proxy trial for capitalism in Russia. And Russia's
progress, however flawed, has in turn become a proxy for the kind of halting
but real progress to which the broken nations of the Middle East or Africa -
including, of course Iraq - might aspire.
Regardless of which side you believed to be more corrupt - the overweening Mr
Putin and his prosecutors or the Yukos tycoons - it was disturbing to see
investors Mikhail Khodorkovsky and Platon Lebedev locked into a cage in their
courtroom. If our models cannot progress, we can expect more misery,
hostage-taking and war. Hence the intense interest in whether Mr Putin will
smash Yukos.
The crucial nature of such decisions emerges in a forthcoming article by
Nancy Birdsall and Arvind Subramanian in Foreign Affairs, the American
periodical. The authors - Ms Birdsall heads the Washington-based Center for
Global Development, Mr Subramanian is at the International Monetary Fund -
offer a one-word explanation for the globe's diverse troubles: oil. An
oil windfall may benefit a country with a developed legal culture - Britain,
Norway and the state of Alaska. But in places where civic accountability, the
rule of law and democratic process are not firm, windfall means wipe-out. The
very presence of oil turns law-abiders into thugs, and pushes nations
backwards into chaos, religious fundamentalism and despair.
The million Africans who died in the Biafran struggle in the late 1960s were
the most tragic casualties of this dynamic. Their story was not merely about
starvation or tribal conflict (as the press wrote at the time) but also the
attempt by Nigeria's eastern Igbo people to control oil reserves.
The oil curse argument is not traditional development economics, which views
such natural resources as blessings to developing countries - representing
the equivalent of money in the bank, available for, say, infrastructure
spending. Still, suddenly we are hearing about it - not only from Foreign
Affairs, but in books and periodicals across the political spectrum. Its
provenance is therefore worth review.
Economists on the left long ago began noting that imperial or colonial
control of natural resources - the oil of the Middle East, the poppy fields
in central Asia, the sugar cane in British Guyana, the tobacco in the
American south - enabled them to oppress the locals. This view was the
intellectual forerunner of the cartoon-like notion that the US wants to rule
the world through Halliburton petro-dollars.
The market-oriented right tends to bridle at the idea that any capital, even
petro-capital, is evil. Still in the last century free-market thinkers from
Mancur Olson to Peter Bauer began to point out that postcolonial experience
suggested that the natural resources, and not the colonisers, were the
problem. Indeed, the absence of natural resources constituted an advantage.
Japan, West Germany, Singapore all profited when they were forced to develop
industrial or intellectual capital.
What Ms Birdsall and Mr Subramanian add to this is their work on the problem
of civic institutions. They note that oil wealth relieves the state of
pressure to tax (Saudi Arabia). The state therefore has no stake in
private-sector creation of wealth or in citizens' day-to-day well-being.
There is no need for a civic relationship - on either side. Property rights,
contract law, reliable courts - to us, basics - seem dispensable. The state
is free to bully. Or to steal.
What is more, the oil curse can occur even when the state and those who
control oil resources are already distinct - for instance, in Russia. That is
because government, in the end, does not really like competing power. Battles
involving allegation of crime by individuals (such as at Yukos) may, in
reality, be about the desire of national governments to vanquish a competing
power centre (an oil company) or recapture control of it. This dynamic
functions even when the parties involved swear their actions represent reform
or justice (Mr Putin, perhaps).
Where does this leave Iraq? Ms Birdsall and Mr Subramanian reject
privatisation of the oil industry, which, they posit, would create a corrupt
Iraqi oligarchy. An international authority would control the oil fields and
distribute revenues. The people's oil money would be their right. But it
is hard to prove such an authority would be trustworthy (especially given the
allegations about how the United Nations fulfilled its fiduciary duties in
the oil-for-food programme).
Privatisation may still be the best path. After all, there are better ways to
distribute ownership than the Russian method, where the loans-for-shares
programme soured things.
Mr Putin may yet manage to create a trust-oriented economic culture in
Russia. Then companies such as Yukos will eventually become tame and
reliable. After all, a number of blue-chip US companies today have robber
baron ancestors. For the moment, the very interest in the debate is itself a
positive sign. If we can see how the Yukos affair, Iraq and the violence of
the Igbo are linked, then we can also see that our biggest economic task is
to lift the oil curse.
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RUSSIA IN FACTS
