False Economy - Alan Beattie [61]
The highest increases were in those areas most closely connected with being in power and thus being able to gain control of the oil and secure future economic rent.
Like Zambia, Sao Tome and Principe also received only a small fraction of the value of its find. In this case it was not because the government had tried to pump the oil itself, since it was only discovered by American oil companies prospecting off its coast, but because it naively signed generous deals with those companies without realizing its own bargaining power.
The possession of natural resources sounds like an unremitting tale of woe. But some countries have successfully overcome the paradox of plenty and remained immune to both the political and the economic Dutch disease. For them to do this, two things need to happen. One, the revenue deriving from the resource needs to be managed in a way that does not distort the rest of the economy. Two, the revenue needs to be sufficiently fenced off from acquisitive interests and the threat of political expropriation.
Neither of these is easy. Countries that achieve them tend to be already rich from other means, so the revenue is not the only prize on offer and other industries are sufficiently profitable and flexible to adapt. In Norway, oil revenue above a certain level is kept in a national oil stabilization fund, a giant state savings account. The money is held in dollars to prevent sudden surges of upward pressure on the Norwegian krone and released for spending according to projections of Norway's future wealth and future needs. Chile, which is the world's largest copper producer, has a similar system.
These funds need be treated like endowments, not windfalls. Spending should flow at a rate that can be maintained into the long term. To return to the lottery analogy, this would be a bit like putting a big win in the bank and spending only the interest.
And the money should, where possible, be spent on making the rest of the economy more competitive. Rather than handing out permanent subsidies to offset the effect on the exchange rate from the mineral exports, a more sensible route is to improve infrastructure, education, and overall productive capacity. In developing countries, where such things tend to be in short supply and are often a severe constraint on more economic development, such spending could mean that, by helping other markets to work better, the mineral resource would actually be a positive for the rest of the economy. Higher value-added industries, because they compete on quality as well as price, are also less susceptible to movements in the exchange rate, at least in the short term.
Some middle-income countries, such as Malaysia and Indonesia, both of which have substantial oil and gas deposits, have managed to limit the distortion of national politics and the economy by natural resources. In their cases, autocratic but relatively stable governments saw their personal interests as vaguely coterminous with the wealth of their citizens. They therefore didn't make the mistake of regarding their economies as zero-sum games. Malaysia has managed to spend its oil revenue according to a national development plan rather than spraying it around at random or buying political favors—a policy that a more desperate or unstable government might be prepared to renege on. Both Malaysia and Indonesia were also relatively successful economies before oil arrived.
Far more remarkable are the few countries that started off with little but a single natural resource and made a success out of it. The most dramatic is Botswana, whose purpose in life appears to be to serve as an exception to most rules in Africa, and indeed elsewhere. Its remarkable achievement is to have used diamond wealth in a sensible, constructive fashion, allowing it neither to stop the economy growing nor to poison national politics.