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NYT: Avoiding the Curse of the Oil-Rich Nations

Author: Tina Rosenberg
February 13, 2013

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"If a government can finance itself through the profits on oil, it needn't collect taxes. Let me suggest that this is not a good thing. Taxes create accountability — citizens want to know how the government is spending their money. Substituting oil revenues decouples government from the people. The list of the world's worst-governed countries today features many that are dependent on the production of oil: Nigeria, Angola, Chad, Venezuela, Libya, Equatorial Guinea."

Every nation wants to strike oil, and after it happens, nearly every nation is worse off for it. It may seem paradoxical, but finding a hole in the ground that spouts money can be one of the worst things that can happen to a country.

Oil-dependent countries, writes the Stanford professor Terry Karl, "eventually become among the most economically troubled, the most authoritarian, and the most conflict-ridden in the world." This phenomenon is called the resource curse.

Oil is the world's most capital-intensive industry, so it creates few jobs. Worse, it obliterates jobs all across the economy. The export of oil inflates the exchange rate, so whatever else a country manufactures is less competitive abroad.

Oil concentrates a nation's economy around the state. Instead of putting resources into making things and selling them, ambitious people spend their time currying favor or simply bribing the politicians and government officials who control oil money. That concentration of wealth, along with the opacity with which oil can be managed, creates corruption.

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