The Truth about the Resource Curse

Natural resources are traditionally considered a boon to any country. They’re pools of “free” value that can be dug up and sold, often under the promise of helping the entire population.

Yet we know that resources are not a golden ticket to prosperity: some of the world’s poorest, most miserable nations have been blessed with valuable stocks of recoverable minerals and fossil fuels.

Of the 19 nations that produced more than 1 million barrels of oil per day in 2013, only 3 could be considered to enjoy particularly “good” governance: the United States, Canada, and Norway.

The remainder, including Saudi Arabia, Venezuela, and Mexico, have endured decades of one-party or autocratic rule, weak development in other sectors of the economy, and general dependence on oil revenues for a major share of state spending.

The “Resource Curse” theory has long held that countries with natural resource endowments, such as oil or minerals, tend to have worse development outcomes than those without them. There are many reasons for this, from currency exchange rates (the so-called Dutch disease) to the fact that resource revenues are highly dependent on volatile world market prices.

While the issues of currency or volatility are very real, I would argue that there’s something more insidious that goes on in resource-dependent states.

Money for Nothing?

It comes back to the idea of treating resources as inherently “national” endowments. When resources are treated as though they should benefit everyone in a nation, government’s are encouraged to use them as a means to provide handouts to the population at large, and claim credit for the services provided.

By building a culture around the “rents” that the resource endowment provides, otherwise bad governments can look like they are succeeding by delivering public goods and services that they could never provide without the “free” money from mining or pumping oil.

Read the rest at the PanAm Post…

The Voting Reform We Need: Make It Voluntary

Australia’s voting system needs a shake-up. That’s the message that has been emanating from the political class, since a disparate group of micro-parties were elected in 2013.

Such calls have now spread to the state level, with The Age reporting on the pressure for reform within both of Victoria’s major parties.

The major parties are concerned by the election of minor and micro-party MPs, whose presence makes it harder for them to govern. This has led to a range of proposed reforms designed to reduce the presence of minor parties.

But there is one reform that’s not being discussed, the re-introduction of voluntary voting.

Voluntary voting existed in Australian until 1924 (on the federal level). Since then, voting in Australia has been compulsory, with non-compliance leading to a $20 fine (and ultimately much tougher court imposed sanctions).

Unlike proposals to toughen registration requirements, impose thresholds, or move to optional preferential voting (which does have its merits), voluntary voting would solve the problem at the heart of Australian politics: that major parties are failing to represent their constituents.

Forcing people to vote means that major parties are able to ignore their political base—who can be relied on to preference them above major competitors. As a result, elections are decided by an increasingly small number of swing voters in marginal seats.

Read the rest at FreedomWatch…

Walking the Tightrope: Turkey in the New Middle East

The Arab Spring and subsequent events have dramatically re-arranged the power dynamics of the Middle East. Formerly stable nations like Syria and Libya have descended into near-anarchy, while others, like Iraq and Jordan, have been significantly weakened by the rise of the Islamic State and the flood of refugees fleeing conflicts in the region.

Not all have been affected equally, however. While most of their regional neighbors are still reeling from the aftermath of war and revolution, the Turks have emerged almost entirely unscathed. This has left them in a position that is both enviable and vulnerable as they navigate the geopolitics of the new Middle East.

The upheavals of the last few years have diminished the ability of many of the leading nations in the region to project power outside their own borders. While Bashar al-Assad remains president of Syria, much of the country is either contested or under the control of various rebel and Islamist militias and the economy is utterly ruined after four years of war. Jordan, which has long been a bulwark of stability, is finding its resources stretched to the breaking point as it tries to absorb an estimated 1.4 million Syrian refugees, or 20% of Jordan’s population. Iraq’s fragile political framework has degraded considerably since the conquest of much of the north by ISIS, and Iran is still the subject of strict sanctions and international isolation. Meanwhile, Egypt is in the process of rebuilding its economy, confronting domestic Islamist insurgents, and promoting stability and investor confidence, leaving little capacity for regional engagement.

In this environment, Turkey enjoys a number of advantages. With one of the most powerful militaries in the world, membership in NATO, a strategic position between Europe and Asia, and a fast growing population of over 70 million, Turkey possesses a level of security that has escaped most of its neighbors.

Despite the conflict in neighboring Syria and Iraq, the violence has been almost entirely relegated to the other side of the border, and its contentious domestic politics aside, Turkey has been able to maintain a relatively high measure of internal stability. Much like Jordan, Turkey has absorbed an estimated 1.5 million refugees fleeing Syria, and although this has strained the nation’s resources, its much larger economy has so far been able to handle the refugees without large negative spillover effects.

Another key contributor to Turkey’s improved strategic position is the conflict between Russia and the E.U., which has left the Turks in the enviable role of being an essential partner to both sides. The South Stream pipeline, which Russia envisioned as a way to deliver gas to the European market while bypassing Ukraine, was cancelled after the E.U. pressured Bulgaria to block passage through its territory. It has been replaced by the proposed Turkish Stream, which would run a pipeline underneath the Black Sea and through Turkish territory. Although negotiations are still ongoing, Russia has already taken steps to signal its commitment to the new plan, and the continuing hostility between Russia and the E.U. makes it highly likely that any alternative gas route to Europe will run through Turkey.

This leaves Turkey in an ideal negotiating position. It will likely be able to secure a significant discount for its own considerable energy needs from Russia (and in fact is already aggressively negotiating for one), which is seeking access to the large and growing Turkish gas market as well as an economically and politically viable alternative to the aborted South Stream route.

Read the rest at the Project for Study of the 21st Century…