TRADE VERSUS THEFT
Because of a major flaw in the system of international trade, consumers in
rich countries unknowingly buy stolen goods every day—gasoline and laptops,
drugs and jewelry, cars and magazines. The raw materials used to make these goods are
taken from the poorest people
in the world—by stealth and by force.
The plainest criticism of global commerce today is that it flouts the first
premise of capitalism. Firms currently transport huge quantities of stolen
goods to consumers, violating property rights on an enormous scale. The first
priority in reforming global commerce must be to replace theft with trade.
Ending the global traffic in stolen resources will require no novel theories
or new international agencies. The principles of ownership and sale are well
understood, and global commerce has already created institutions with the power
to enforce rights of property and contract. What is required is to use these
institutions to bring all resource sales into the system of enforced market
rules.
THE RESOURCE CURSE
To understand why stolen goods currently flood the market, we can trace these
goods back to their countries of origin. Economists have noticed that many
countries with a wealth of natural resources are also full of very poor people. Resource wealth has often been an obstacle to prosperity and not its
foundation. This phenomenon is known as the resource curse.
Countries that derive a large portion of their national income from high-value
extractive resources—such as oil, diamonds, and gold—are
especially susceptible to three overlapping curses. First, they are more prone
to authoritarian governments. Second, they are at a higher risk for civil war
and coup attempts. Third, they exhibit lower rates of growth.
Oil, gas, and minerals fetch high bounties, and the strongman or junta that
seizes this revenue stream can buy the weapons, spies, and
influence that strengthen authoritarian regimes. The money also frees authoritarians
from having to collect tax revenue, making the regime even less accountable to the
citizenry.
Resources also provide an incentive for civil conflict. Many rebel groups have
sustained expensive armies by capturing territory and selling off the
resources. Other military leaders have sold the rights to future exploitation
of territory they hope to control. And coup attempts become more likely in
countries with one major resource revenue source (like offshore oil) that will
enrich whoever controls the national government.
Authoritarian repression and civil conflict reinforce the third aspect of the
resource curse: lower rates of growth. It is estimated that the total economic
cost of a typical civil war in a less developed country is 250 percent of that
country's GDP at the start of the conflict. Even without such strife, the
volatility of commodity prices leaves resource-dependent countries more
vulnerable to economic shocks and official corruption, and instability
discourages investment and development.
The resource curse casts a pall over whole societies. Resource dependence is
correlated with lower
life expectancy and higher rates of poverty, illiteracy, and child malnutrition. Resource abundance also exacerbates income inequality between
the populace and the political elite. Because the resources can be extracted
either by small groups of foreign experts (oil) or unskilled domestic laborers
(alluvial diamonds), regimes that control the revenues have little incentive to
invest in the education, training, or health of the people.
Approximately 3.5 billion people live in countries where extractive commodities
play an important role in the economy. Of course, abundant resources are neither
necessary nor sufficient for authoritarian repression, civil conflict, or low
growth. For example, Eritrea has a repressive government but few easily
saleable resources; and Norway has both large oil reserves and decent,
representative politics.
Social scientists are still debating how to predict
exactly where and how hard the curse will strike. What is so dramatic about the
resource curse is how—when it hits—the wealth of a country bypasses its
citizens and in fact contributes to their suffering.
ON THE GROUND IN AFRICA
Nigeria, Africa's largest oil exporter, has a population of 140 million
(larger than Britain and France combined). Between 1965 and 2000, Nigeria
received a very substantial percentage of its GDP from oil revenues that
totaled
about $350 billion. However, in the 30 years after 1970, the percentage of
Nigerians living in extreme poverty ($1/day) increased from 36 percent to
almost
70 percent—from 19 million to 90 million people. The oil revenue contributed
nothing to the average standard of living, and indeed the period of oil
exploitation
saw a decline in living standards. Moreover, inequality in Nigeria
simultaneously
skyrocketed. In 1970, the total income of those in the top 2 percent of the
distribution was equal the total income of those in the bottom 17 percent. By
2000, the top 2 percent made as much as the bottom 55 percent. Meanwhile,
corruption was everywhere evident in the Nigerian government, and most
strikingly at the top. For instance, in just four years in power, General Sani
Abacha and his family embezzled around $3 billion.
In the 1980s, the corrupt government of Sierra Leone embarked on
disastrous economic policies and lost control over the armed gangs that were
overseeing the exploitation of the country's rich diamond fields. In 1991, a
small
group of insurgents launched a brutal campaign of terror to gain control of these regions, including random
shootings, rape, and chopping off people's hands. They recruited child soldiers and enslaved locals to work the diamond pits. With
the money they received from selling these diamonds abroad, the insurgents nearly bought enough weapons to topple the
government. The government was only able to defeat the rebels by trading
diamond mining futures for the services of a South African mercenary force. The
decade-long civil war in Sierra Leone cost about 50,000 lives, and displaced
one
third of the population. Sierra Leone now ranks 176 out of 177 countries on the
UN Human Development Index.
Equatorial Guinea deserves special attention, as it is such a pure case of
a country currently stricken by the resource curse. Equatorial Guinea is in
central
Africa, bordered by Gabon and Cameroon. Since 1979, it has been ruled by
President Theodoro Obiang. Obiang is the kind of ruler that doesn't shy away
from jailing, torturing, and killing the political opposition. He has even had
himself
officially proclaimed as a god who is "in permanent contact with the Almighty."
In the 1990s, quite large deposits of oil were discovered in the Bay of Guinea.
This discovery brought the country from obscurity to the
attention
of international markets at a time when Western countries were searching for sources of
oil outside the Middle East. Equatorial Guinea has become
the
third-largest oil exporter in Africa.
Because of this huge influx of oil money, Equatorial Guinea now has the
third-highest per-capita income in the world—20 percent higher than the
per-capita income of the United States—yet the people have yet to partake in
this
prosperity. As the U.S. Department of Energy reports:
Since 1995, oil
exports (currently 97 percent of total export earnings) have caused the
Equatoguinean economy to grow rapidly... Despite the rapid growth in real GDP,
allegations abound over how the Equatoguinean government has misappropriated
its oil revenues. While the government has made some infrastructure
improvements to bolster the oil industry, the average Equatoguinean has yet to
experience a higher standard of living from the oil revenues.
Forbes recently listed President Obiang as one of the richest
leaders in the world, with an estimated personal wealth of $600 million. The
prospect of capturing this kind of wealth from offshore oil sales has attracted
coup attempts, which have so far failed. And there is little doubt that the oil
money has fueled significant corruption. Transparency International's latest
Corruptions Perceptions Index ranks the country 152 out of the
159 countries surveyed.
Instead of using his country's remarkable oil windfall to benefit the people,
Obiang has captured the new wealth and used it to consolidate his personal
power. A Freedom House report paints a fuller picture of what political life is like
in Equatorial Guinea at present: no credible elections, restricted press
freedom, restricted rights of association and assembly, no independent
judiciary, life-threatening prisons, and violence against and repression of
women.
President Obiang's reign will end soon, as he is dying of prostate cancer.
His tempestuous playboy son and likely heir, Teodorín, is by all accounts at
least
as determined as his father to control the country's oil revenues for his
personal
use. Given their situation, the people of Equatorial Guinea may well feel
cursed
by their country's new-found resource wealth.
Continue to Part 2
In Part 2, Leif Wenar analyzes the causes of the resource curse, showing how laws left over from the era of absolute state sovereignty still give property rights to whoever can exert coercive control over a population. This might-makes-right rule contradicts the principle of modern international law that the resources of a country belong to its people.
