Oil Rich Nations

Introduction

Evidently, countries that boast of large oil deposits suffer from a phenomenon known as “poverty of policy.” Oil rich nations show some of the utmost inequalities one may ever imagine. More often than not, the countries are characterized by lack of transparency, accountability, and press freedom. Moreover, they show stratified social classes, where a few individuals or a tiny minority earn millions, while the remaining large population flounder in utter poverty. Some economists refer to them as rich nations, but with poor citizens. Lots of evidence from the World Bank show that countries with rich natural resources usually grow slower than those without resources. Oil producing nations such as Angola, Algeria, Trinidad Tobago, Venezuela, Saudi Arabia, as well as, Iran have gone through substantial declines in regards to per capita incomes during the last few decades. Approximately, seventy percent of Nigerians are poor, living on less than a dollar per day in a nation that has earned more than 340 billion US dollars in oil revenue from the beginning of 1970. Why are such trends happening? How can one be that rich, yet so poor? Does oil truly hold back democracy or economic growth?

Methodology

Having established the foundation of the hypothetical outlook of this paper, which is also relevant to the view to which the evidence gathered will be reviewed, it is now essential to look into how evidence will be gathered to support all the questions and arguments adopted in this study paper. There are various approaches to carrying out a social research. Nonetheless, in striving to assess the impact of oil in a resource-rich country, in regards to the economy and democracy, historical and economic analysis via other researches is vital to this study. The data employed in this paper are from economic articles, written by economists who have looked into this issue. Other economic institutions like the World Bank have enough information in their database in regards to the economy of numerous countries. The main purpose of this paper was to look into the relationship between oil, democracy, and economy of a country. For the classification and depiction of probable relationship between the three variables, numerical data was gathered through reliable questionnaires. Therefore, this paper fits the description of quantitative research, which is known to employ the uses of numerical data, as well as, statistical analysis to gain information about global happenings, thereby availing the opportunity to describe and look into probable relationship among various variables.  

Literature Review

Oil is not necessarily evil, which causes misery to the countries that mine it; countries like Norway and Indonesia exemplify how oil can be useful in the economic advancement of the whole country. Nonetheless, empirical evidence points out otherwise. The first theory in discussion herein is that oil is a curse. For instance, Terry Lynn Karl describes “oil curse” or “resource” as an inverse association between high oil (or other natural resources) overdependence and rates of economic growth (pg 35-42). Nonetheless, critics of this theory think that the standards used to compute economic growth are erroneous. In their argument, they ask whether the economic conditions of such countries would be any different if they did not produce oil. It is interesting to note that their findings show no relation between oil and the country being cursed. As Birdsall and Subramanian pointed out, Indonesia had witnessed twenty years of sustained economic growth before they were affected by the financial crisis in 1997, despite the massive corruption and cronyism evident in Suharto’s rule (pg 77-89). Further evidence also points out that long-term economic growth of states dependable on oil is somehow positive. According to them, oil producing nations appear to grow slowly over a long time because of the natural slow growth characteristic of oil output. In their conclusion, oil has a constructive impact on per capita GDP.

Nonetheless, despite these studies, consensus among political economists, development economists, and political scientists point out that oil slows down definite country development process. As Karl and Garry showed, countries that depend on oil as their main form of export perform worse than the rest of the developing economies in regards to several economic indicators (9-10). They argue that such countries should be way ahead, given their vast wealth in oil or other resources. Countries such as Nigeria, Mexico, Argentina, Spain, and Venezuela are rich in oil but have repeatedly undergone bankruptcy or political upheavals. On the other hand, countries like Switzerland, South Korea, and Japan have always been ahead, despite having no significant oil deposits in the landscape. While the arguments against oil, being a cruse, appear reasonable enough, the picture that comes to the mind of anyone looking at countries dependent on oil; however is one full of political and economic instability, militarization, poor governance, conflict, corruption, and dramatic inequalities. These dramatic inequalities appear to occur at every level of the political economy of such oil-dependent nations. Despite all these, one thing clearly stands out: nations with rule-of-law, strong institutions and strong tax system before they discovered oil are better placed to outgrow the oil curse. This is evident in three countries; Canada, Norway and the UK. They were well established democracies before oil was struck.

Therefore, the main issue here is not oil, but the economic and political system that predate it. Nonetheless, according to Transparency International, observations in countries like Saudi Arabia and Kuwait show that oil may impede democracy, or at least promote the lack of it. As it appears, oil is not a blessing if a nation seeks rapid development to break away from poverty. In recent years, oil dependent nations are 1.7 percent worse in regards to economic growth when compared to non-oil nations. Oil exports do not seem to foster rapid development. The common infusion between bad politics and oil wealth appears to inhibit economic, political and social development. The oil industry itself appears to be complicated. Mining oil requires a lot of capital and minimal highly skilled experts. For nations without these, the only source will be found outside the country. The introduction of foreign multinational and international loans appear to create a rent-seeking environment, which quickly permeates itself in every level of the political economy of any nation, thereby creating a venue for political patronage, corruption and inequality.

Furthermore, leaders who are used to oil wealth never need taxation. Therefore, they do not need the population and do not care about their property, civil or political rights. Public expenditure appears to be a matter of necessity, which comes down to demobilizing the opposition instead of being based on accountability. In most of the oil dependent states, there is lack of accountability, bribery, kickbacks, and patronage. As a result, weak institutions are put in place. These inequalities end in uprisings, insurrections and civil wars. Democracy is usually the first causality when it comes to all these. While prospering nations may sustain their democracies, those that lack democracies may never get one. 

Results and Discussion

First, research results indicate that most oil rich nations are doomed to aristocracy and inequality because increased dependence on oil leads to the skewing of political forces within the country. It is vital to note that oil deposits are always concentrated in certain parts of the country and the political elite would always take advantage to gain power by controlling such regions (Mansbach and Rafferty 67). This is boosted by their financial lucidity and the influence they have within the country. Furthermore, the political elite colludes with other rich individuals within the country to ensure that the ownership of such oil resources remains in the hands of a few individuals within the country. This leads to the balkanization of the country, which translates to high levels of inequality, as some regions develop and others stagnate in economic problems. Political elites also tend to earn firm support from other wealthier individuals from the country and tend to remain in power forever, as they deem fit. For instance, most presidents and kings and oil rich nations, such as Yemen would not relinquish power to other leaders because of the fear that the control of oil would be lost (Humphreys, Sachs and Stiglitz 56). Wealthier individuals with high interests in the oil of the country also tend to perpetuate aristocracy by encouraging dictators to hold on to power. They do this by providing financial support to such regimes with an assurance of benefitting from the large oil deposits in the country. Additionally, such countries are always divided along religious lines, hence perpetuating inequality and aristocracy. A clear example of religious divisions has happened in Nigeria, where frequent fights between Muslims and Christians have been witnessed at the Niger Oil Delta. Therefore, it is significant to note that oil rich nations are doomed to aristocracy and inequalities because of the skewed political forces and increased levels of balkanization.

Second, results also indicate that oil rich nations are doomed to aristocracy and inequality because of the lack of transparency, accountability, and the lack of press freedom. Economists indicate that the lack of these vital aspects leads to gross levels of inequalities within oil rich countries, as they reflect poverty of policy. Most oil producing countries such as Algeria, Iran, Saudi Arabia, and Nigeria have experienced enormous levels of lack of transparency, as revenues derived from oil resources are mismanaged and handled by a few individuals within the country. Those in charge of running oil resources and revenues derived from such resources end up driving the money to their personal accounts and those of political elites within the country. The lack of transparency leads to inequalities, as the revenue is not utilized in the development of the entire country, but remains in the hands of a few individuals within the country. More so, poor individuals are left poor, as richer individuals controlling oil resources drive these funds into their personal accounts. More so, some countries such as Iran have suffered cases of lack of press freedom because of the rich oil resources. The press is always muzzled and cannot disclose any relevant information that would assist citizens within such countries to understand their oil resources and the way in which they are managed. The press is always restricted against releasing information, concerning revenues earned from oil resources. This in itself is a reflection of autocracy, as the freedom of speech within the country is limited. Additionally, it perpetuates high levels of inequality within the country, as poor regions and individuals remain poor and do not get information about their oil resources. High levels of inequalities could be drawn from Nigerian statistics, where 70% of the citizens live on less than $1 per day even when the country produces high amounts of oil (Watts 89). The presence of oil also limits accountability in such countries. All systems starting from the government cannot account for the utilization of oil revenues, as most of them go to waste, hence increasing levels of poverty.

Third, results also indicate that oil stifles chances of diversification and innovation within countries, hence leading to inequalities in regional development and development among citizens. It is vital to note that oil stifles diversification of the economy as most people tend to look up to the rich oil resources. Countries with rich oil resources do not always have in place strategic plans that would improve diversification within their economies (Ross 77). This ensures that all citizens are left to depend on oil resources with the assurance that they would benefit from such resources. Other significant sectors such as agriculture, infrastructure, and industries do not get the opportunity to develop, as citizens only depend on working in oil mines and other places related to oil. The complacent attitude created by the availability of oil resources is a curse and retards development as levels of inequalities widen. Wealthier individuals within the country take advantage of this excessive dependence to create their empires. They utilize the poor as laborers and pay them lower wages with the aim of making excessive profits that would not be used for the development of the country. This is a reflection of the view that oil is a curse to most countries.

Last, research results indicate that oil is not always a curse at all instances. Some oil rich countries, such as Norway have been able to develop significantly and establish strong economies, using their oil resources. Mexico is also a superb example of oil rich countries that have been able to develop significantly in line with enormous oil resources. Mexico and Norway are ideal examples of oil blessed countries, which overcame the curse associated with the possession of large deposits of oil. Norway and Mexico have significant levels of democracy and development even with the large amounts of oil possession. Oil has boosted the levels of diversification in such countries and they have been able to develop their economies effectively because of the support received from oil resources. More so, oil has not influenced the political systems of such countries toward a negative trend. Democracy still upholds and has ensured that these countries develop effectively, hence improving the living standards of everyone. Dubai has also grown immensely and levels of poverty among citizens have declined effectively. It is asserted that the economy of Dubai has tripled over the last ten years even with enormous oil resources. Oil contributes to about 6% of Dubai’s GDP, hence ensuring that there is effective progress and equal development in the country (Inkpen and Moffett 109). Oil has opened up avenues of diversification in such countries, hence ensuring balanced growth and an effective economy. In this sense, oil could be a blessing and not a curse to a country.

Conclusion

In conclusion, the immense debate surrounds oil resources within different countries. Oil is mostly deemed a curse to most countries, as it leads to aristocracy and perpetuates levels of inequality within countries such as Nigeria and Iran. Oil has been deemed as a curse, as it enhances aristocracy by balkanizing oil producing countries into production regions controlled by a few rich individuals and the political elite and poor regions that do not have access to oil resources. Most presidents and kings, such as those in the Iranian regime have declined to relinquish leadership positions because of the fear of losing their selfish control of oil resources and gaining overall influence within the country. Additionally, oil is a curse and increases levels of inequality as it limits accountability, media freedom, and transparency within countries. The political elite does not care about disclosing revenues earned from oil to all individuals within the country. This makes it difficult for balanced regional growth to be achieved. Gross inequality is experienced in countries, such as Nigeria where an estimated 70% of individuals live on less than $1 per day even as the country posses large oil resources. However, countries such as Norway, Mexico, and Dubai have managed to overcome the curse and have turned the possession of oil into a blessing, as their economies develop significantly. Overall, the possession of vast oil resources remains an enormous curse to most countries such as Nigeria and Venezuela, as aristocracy and inequalities increase.