AP Comp Gov - The Resource Curse
Summary
TLDRThe video introduces the concept of the 'resource curse,' a phenomenon where countries with abundant natural resources like oil face political and economic challenges instead of benefits. The speaker explains how resource-rich countries, such as Russia, Nigeria, and Iran, can become 'rentier states,' heavily reliant on oil revenues. While access to natural resources may provide immediate wealth, it can lead to economic over-dependence, inequality, corruption, and reduced democratic accountability. The discussion highlights potential pitfalls and policy approaches to mitigate the negative effects of resource dependence.
Takeaways
- 💡 The 'resource curse' is the phenomenon where natural resources like oil and gas, instead of benefiting a country, can lead to economic and political problems.
- 🛢️ A rentier state is a country that earns a significant portion of its revenue from leasing or exporting natural resources like oil and gas.
- 💰 Natural resources can provide a government with substantial funds, enabling large-scale investments in infrastructure, education, or other sectors.
- 🚨 However, over-reliance on a single resource, such as oil, can make a country vulnerable to price fluctuations and discourage economic diversification.
- 📉 The government may focus heavily on oil and gas sectors, neglecting other industries, making it difficult to sustain economic growth if resource prices drop.
- 📈 Oil-rich countries often experience currency appreciation, which can harm other export industries by making their products more expensive for foreign buyers, a problem known as Dutch Disease.
- ⚖️ Oil wealth can increase economic inequality if the government fails to distribute the revenue equitably, leading to social and political instability.
- 👥 Countries dependent on oil may have less democratic accountability because governments don't rely on taxes from citizens and thus feel less pressure to act in their interests.
- 💼 Resource-rich states are prone to corruption, as the wealth from oil creates opportunities for politicians to misuse funds and build patronage networks.
- 🛠️ Some countries, like Nigeria, rely on partnerships with multinational corporations to extract and refine their oil due to lack of capital and expertise.
Q & A
What is the resource curse?
-The resource curse is a theory suggesting that countries rich in natural resources like oil and gas often struggle with economic development and democratization, leading to negative political and economic impacts.
What is a rentier state?
-A rentier state is a country that derives a substantial portion of its government revenue from the renting or exporting of natural resources, such as oil and gas.
What are the main advantages of a rentier state?
-The primary advantages include increased government revenue, which can be invested in infrastructure, education, or other public goods, and the potential for job creation both directly and indirectly related to the oil and gas industry.
What are the key disadvantages of relying on natural resources for revenue?
-Disadvantages include economic overdependence on one resource, lack of diversification, vulnerability to fluctuations in global oil prices, potential for increased inequality, and a higher risk of political corruption and authoritarianism.
What is 'Dutch disease,' and how does it affect resource-rich countries?
-'Dutch disease' occurs when a country's currency strengthens due to resource exports, making it harder for other sectors of the economy to compete internationally, thus discouraging economic diversification.
Why might the presence of oil and gas reduce the accountability of governments?
-Governments in resource-rich countries may rely on oil and gas revenues instead of taxes, which reduces their need to seek public approval for spending, thus weakening the link between government accountability and citizen input.
How can natural resource wealth contribute to political instability?
-Resource wealth can lead to corruption, patronage, and competition for control over the resources, as well as conflicts between regions or groups that feel disenfranchised from the benefits of the resources.
What are some examples of countries affected by the resource curse?
-Examples include Russia, Nigeria, and Iran, which rely heavily on oil and gas exports for government revenue and experience political and economic challenges as a result.
What are some policy approaches to mitigate the effects of the resource curse?
-Countries may nationalize their oil and gas industries, enter into partnerships with multinational corporations, or privatize their resources entirely, with varying impacts on sovereignty, political stability, and economic equality.
Why is economic diversification important for resource-rich countries?
-Diversification is important to reduce dependency on a single volatile resource, protect the economy from price crashes, and ensure sustainable long-term growth across multiple sectors.
Outlines
💡 The Resource Curse Introduction
This paragraph introduces the concept of the 'resource curse' in the context of a country unexpectedly discovering significant oil reserves. The speaker prompts the viewer to imagine being the leader of a poor country and suddenly learning about these reserves, encouraging them to consider the potential benefits. The paragraph explains how this can lead to a situation where the government becomes a 'rentier state,' heavily reliant on oil and gas revenues. The potential advantages include increased government revenue, which can be used for public investment or personal gain, and job creation in the oil and gas sector. However, it also sets the stage for discussing the potential downsides, known as the 'resource curse,' which will be elaborated in subsequent paragraphs.
📉 The Downside of Resource Abundance
The second paragraph delves into the potential negative consequences of a country becoming overly reliant on its natural resources, particularly oil. It outlines several key issues: the lack of incentive for economic diversification leading to an over-reliance on oil, the government's tendency to invest disproportionately in the oil sector at the expense of other industries, the volatility of oil prices which can lead to budget deficits or irresponsible spending, and the 'Dutch disease' effect where a strong currency can harm other export industries. The paragraph also touches on the potential for increased inequality and political instability due to the concentration of wealth and power in the oil sector, as well as the reduced accountability and increased corruption that can accompany resource-rich governments.
🛑 Policy Responses to the Resource Curse
The final paragraph discusses various policy approaches that countries might adopt to mitigate the negative effects of the resource curse. It mentions nationalization of oil and gas as a common strategy, where the state claims ownership and control over these resources. The paragraph also explores partnerships with multinational corporations as a means to leverage foreign expertise and capital, as seen in Nigeria's relationship with Shell. Additionally, it touches on the recent Mexican example of allowing state-owned companies to engage in joint ventures with private investors. The paragraph concludes by suggesting that privatization of natural resources is another policy option, with its own set of implications for sovereignty, political stability, and economic equality.
Mindmap
Keywords
💡Resource Curse
💡Rentier State
💡Economic Diversification
💡Dutch Disease
💡Nationalization
💡Corruption
💡Oil Price Volatility
💡Sovereignty
💡Political Accountability
💡Environmental Impact
Highlights
Introduction to the concept of the 'resource curse' in AP Comparative Government, focusing on how natural resources can negatively impact a country's economic development and democracy.
Leaders of resource-rich countries, like those with oil reserves, may initially think they have a huge economic advantage.
The concept of a 'rentier state' is introduced, where a government gets a significant portion of its revenue from natural resource exports.
Countries can either nationalize their resources or partner with foreign companies to extract and sell them, with both methods having pros and cons.
Countries like Russia, Nigeria, and Iran are examples of rentier states relying heavily on oil and gas exports.
The potential benefits of having natural resources include increased government revenue, job creation, and investment in public goods like infrastructure.
The disadvantages of resource dependence are highlighted, such as economic over-reliance on a single sector and vulnerability to fluctuating global oil prices.
The concept of 'Dutch disease' is discussed, where a country’s currency becomes stronger due to oil exports, making other industries less competitive.
Countries that rely heavily on oil often fail to diversify their economies, which can lead to long-term economic instability.
The political implications of the resource curse include reduced accountability, as governments rely less on taxes and more on oil revenues.
The potential for corruption in resource-rich states is significant, as politicians can use oil revenue for personal or political gain.
Oil wealth can exacerbate economic inequality, as the benefits often do not reach the broader population.
Resource-rich countries may face internal conflicts over control of oil resources, as seen in the Niger Delta and in diamond-rich regions of Africa.
Countries use different policy approaches to manage oil resources, such as nationalization, partnerships with foreign companies, and privatization.
Case studies like Nigeria, Iran, and Russia will be explored in the course to illustrate the varying impacts of the resource curse on political and economic systems.
Transcripts
hey there it's time to talk about
one of the concepts in ap comp gov that
most routinely makes people go
what i had no idea and that is the idea
of the resource
curse um and in order to set you up to
go what i had no idea what i would like
you to do
is briefly on your honor pause this
video
and think about this scenario imagine
that you are the leader doesn't matter
at the political system for these
purposes
of a relatively poor country and
somebody
has just come in and told you that you
are actually it turns out sitting on
really significant reserves of oil
pause please and just make a list of all
the exciting things that you can now do
of all the reasons that your country is
suddenly in better shape now that you
have this piece
of information
so probably one of the things that you
said
was that this means that you can extract
the oil you can export the oil you can
tax the oil you can give oil to your
people and the consequence will
be that your government will suddenly
have a lot more money to spend on cool
fun stuff
than it previously did what that makes
your state is a rent here state
a renter state is a state that gets a
considerable portion there isn't a
numerical threshold but a bunch of money
of government revenue from um either
exporting oil and gas
and or um leasing its oil and gas
revenues or resources to other countries
so if i've found oil deposits in my
state i might set up a national
petroleum corporation
i might drill the wells i might build
refineries myself and then sell it and
have all that money go directly to the
state
or if i lack the technology if i believe
in privatization
if i lack the capital uh up front to
invest i might
sign a contract with um shell or exxon
mobile or somebody uh saying
you can come in and drill our oil and
you have to give us 50
of revenues every year or something like
that the states that are in this
position in this course are going to be
russia nigeria and iran those are all
the states that get a pretty big chunk
of their government budget
from oil and gas exports or leases every
year
um and there's a couple of there's some
some really fundamental advantages that
could accrue to you as the results of
your ntr state status
um you could and they generally stem
from having
access to a bunch of money uh that your
government can dispose of however it
wants
in principle you could invest that money
in all kinds of cool stuff
you could buy schools you could buy
puppies for everybody you could build a
nice national railroad network you could
build a beautiful presidential palace
with
yourself a statue of yourself in solid
gold whatever you want
um and so in principle uh your
government has a bunch of money that it
can spend on doing cool stuff
for the public good or just for your own
personal ego whatever i'm not here to
judge
um the alternate in addition you could
also say um that this is potentially a
job creating industry right um
both directly from people who are
working in oil and gas extraction and
refinement
and indirectly from the people who you
know sell them lunch while they're at
work
um and even less directly from the
people who benefit from all that
government investment that you may or
may not be doing
so in principle having access to natural
resources can be an amazing thing for a
country
that will increase its overall standard
of living however
there's also some pretty considerable
possible disadvantages
and the pattern of countries thinking
that they have
a huge boon in the form of oil and gas
deposits that they nationalize
and then turning out to have massive
political and economic problems as a
result
of exploiting those resources that
pattern is so common
that there's a term in the political
science and economics literature
for when having oil and gas make things
go south in your country and that turn
is the resource curse a little over
dramatic but whatever
the resource curve sometimes you'll see
it uh described as the resource trap or
the oil curse or something like that
there's these equivalent terms bouncing
around
um the resource curse refers to the
theory that having natural resources
make it harder to achieve economic
development and democratization so again
negative economic impacts
and negative political impacts at least
if you subscribe to the theory
that democracy is better than
authoritarianism which your textbook
authors most certainly do
um and in general especially in
particular in this course the most this
most commonly happens with oil and gas
in principle i think you could probably
have it was if your country had massive
deposits of something like diamonds
but all the countries that we care about
in this class
have uh oil and gas as their major
natural resource
um so why might it be a bad thing to
have oil i have about 17 different
reasons for you and i'll run through
them relatively quickly
one possibility is that there's really
no reason
if it's easy to make money by exporting
or by renting or leasing oil and gas
there's really no incentive for economic
diversification or development in the
worst case scenario your economy starts
to become
completely dependent on that single
natural resource
and so if we move to that carbon free
future that everybody's talking about or
if the oil price crashes suddenly you
don't have a whole lot to fall back on
um related to that is that the
government you know tends to
invest in certain sectors of the economy
and there's a strong strong
temptation in a red-tier state uh to
spend
all of the government's investment
potential in the oil and gas industry
um and to neglect other industries and
other things that are going to make a
broader segment of the population's
lives
better a third is that um
no one country has control over the
price of oil they will sometimes band
together we'll talk a little bit later
in this course about opec
and how it can increase country's power
but no one country
has total control over the price of oil
because there's a bunch of different
countries
selling oil on the world market and
there's nothing particularly special
about nigerian or iranian oil that makes
it better than oil that's
drilled in texas and so when the
oil price falls a country doesn't have a
ton
of ways to to control that slide in oil
prices
and so you might project your uh you
know the people who plan your budget
might project having this much money um
coming in from sales of oil and gas
and if the price crashes then all of a
sudden you're left with a massive
deficit you're left with way less
revenue
conversely when the oil price goes way
higher than you're expecting
that can be a great thing if you spend
it wisely but it can be a bad thing
if you take that opportunity to borrow a
bunch more money because people are
willing to lend to you cheaply
or if you take that opportunity to just
spend all your oil revenues on some
irresponsible project
that you're not actually going to be
able to complete um once the oil price
goes back down again
so having uh being dependent on a
resource whose price is largely beyond
your control
can have some really obvious problems
there a fourth problem
um and my economi my macroeconomics
background is too fuzzy to explain this
super cogently to you
um but a fourth problem is known as
dutch disease because it happens to the
netherlands
which is that when you're exporting oil
um a bunch of other countries
currencies are chasing after your
currency and your currency is going to
become more valuable
on the world market relative to other
currencies this is great for your
citizens when they want to go
shopping somewhere else because they
have more buying power
but it's actually really bad for every
other industry in your country that's
trying to
export anything that's trying to sell
their goods to any other country
because given those exchange rates it's
relatively more expensive for
consumers in other countries to buy
stuff made in your country
um and so if you have a bunch of other
countries currencies chasing after your
currency because they need to buy your
oil in your currency
that can actually reinforce that pattern
of you know discouraging economic
diversification encouraging
over-reliance on the oil sector
and so it can actually be bad for other
sectors of your economy
um a fifth thing is that oil and gas
can lead to massive inequality if you
don't find a way of system out of both
diversifying your economy
and of redistributing the revenues that
come to your government
as a result of oil and gas you're going
to get
increasing economic inequality and we've
talked already in this course about how
economic inequality can be politically
destabilizing
um and then bleeding into the political
stuff
these arguments start to be a little
more controversial
but i think they're important to engage
with and to think about how they work in
our specific case study countries
one argument for the resource curse as a
political
um as a as a negative political
phenomenon
um is that countries and specifically
government
actors that have a steady stream of
revenue from oil and gas
have no incentive to modernize they have
no incentive to diversify their economy
as we've said
but they also have no incentive to
become more democratic in a big part of
the reason why
is that they're actually not necessarily
uh reliant they don't necessarily depend
on
citizens paying taxes and so they face
less of an incentive to occasionally go
back to the citizens and say hey
you pay us taxes how do you want this
money to be spent in other words there's
not really a link between whether the
government's getting money in its annual
revenues
and whether the government is doing
things that its citizenry wants it to do
so you can make an
argument um that there's a lot less
accountability
in a government that has all these
independent revenues from natural
resources
related to that problem is that there is
just a massive possibility for
corruption
and you'll see this particularly in
nigeria you'll see some of it in iran
and russia
as well just the amount of oil and the
amount of power that is kind of flowing
around
together in any country with really
significant natural resources
means that you often see just tremendous
amounts of corruption
partly because people are competing in
sort of non-meritocratic ways
to get access to control over the oil
partly because
oil revenues will give politicians a big
big source of money that they can use to
dispense patronage to their supporters
instead of actually doing things with
the power of the state that are good for
all citizens
um finally i think that's an argument i
articulated already when governments
rely less on taxes
citizens don't have as much voice in the
decisions of the government
finally you see this in countries with
oil we'll talk about it in nigeria some
of you will do a panel on it
alternatively if you're familiar with
the phenomenon of blood diamonds
and conflicts over diamond mines in west
africa and central africa over the last
couple of decades
this might be a familiar argument to you
already kanye west actually once
pretended to do a song about that
phenomenon
um but the uh if you have natural
resources
in a particular area of the country um
and the citizens of that area of the
country
say feel um disenfranchised uh one thing
that they might do
as is the case in nigeria sometimes is
to sabotage oil production
as a way of expressing their discontent
that they don't benefit from this fast
national patrimony
despite what's often the negative
environmental consequences of
living next to a massive oil and gas
extraction operation
sometimes you'll actually see more
direct uh you know physical conflict
over who gets to uh drill the oil or who
gets to mine the diamonds
um and so those you who are doing the
niger delta panel will address that
issue pretty directly
in a week or so um the last thing i want
to leave you with
is not an exhaustive discussion but just
a couple of policy approaches to
consider
um because we're going to look at you
know five of the six
case study countries every country
except the uk gets some amount of
revenue from oil extraction
and gas extraction in this course and
three of those countries
iran nigeria and russia are pretty
heavily reliant
our qualifiers run tier states so a
couple of different policy approaches
that countries will take in an attempt
to mitigate the negative effects of the
resource curse
um most basically uh many many countries
will nationalize
oil and gas the united kingdom which
does actually produce some oil off the
coast of scotland the united kingdom is
the only case study country in this
course
that hasn't nationalized its oil and gas
revenues the other five
all have provisions their constitution
or laws that say
oil and gas in this country are the
property of the state and they will be
extracted and used
or rented out for the benefit of the
people whether or not that's actually
true is a slightly different story
so many many many countries will
nationalize oil and gas at least to some
degree
some countries and nigeria is going to
be the foremost example here
won't necessarily have the capital or
the technology
or the expertise to extract and
particularly to refine that oil
themselves
and so they have to enter into
partnerships with multinational
corporations
so shell for instance is based in the
netherlands but does a huge amount of
business in nigeria
and you might make the argument that
shell's importance to the nigerian
economy and to the nigerian state's
budget
has given it an amount of political
power that's really out of all
proportion
um to what you know the amount of
political power it should actually have
in that country
another option here slightly overlapping
is that
in mexico within the last decade under
the pena nieto administration as you
know pimx
the state-owned oil company has just
recently been allowed
um to engage in joint ventures with
private investors from both inside and
outside of mexico
and so that's a slightly um you know you
you could in principle have less
dependence on foreign companies
but still allow private investors to get
involved in your oil industry in some
way even in the context of a
nationalized oil industry
and then of course there are countries
that will privatize their natural
resources all together
and you might want to be prepared to
think through the consequences of doing
that
in terms of sovereignty in terms of
political stability in terms of economic
equality etc etc etc
that's it we'll come back to the
resource course when i talk to you next
about nigeria and we'll revisit it in
russia and
in iran thank
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