Oil Curse

I support a gasoline tax for many reasons, but probably the biggest reason is to stop the oil curse in developing countries. This article in Financial Policy in Focus is a nice summary of the problems that go along with oil "wealth" in such countries.

The lived experience of oil-exporting countries over the past several decades tells a story which differs radically from the promise of petroleum. When taken as a group, all "rich" less developed countries dependent on oil exports have seen the living standards of their populations drop--and drop dramatically.

For most countries, including Algeria, Angola, Congo, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Peru, Qatar, Saudi Arabia, and Trinidad Tobago, this development failure has been very severe, plunging real per capita incomes back to the levels of the 1970s and 1980s. For a few, most notably Nigeria and Venezuela, the failure to develop has been catastrophic; in these cases, real per capita income has plummeted to levels not seen before 1960. In Nigeria, which has received more than $340 billion in oil revenues, more than 70% of its population lives on less than a dollar a day, 43% lack sanitation and clean water, and infant mortality is among the highest in the world.

Even more worrisome, the gap between the expectations created by oil riches and the reality produced is a dangerous formula for disorder and war. Countries that depend upon oil exports, over time, are among the most economically troubled, the most authoritarian, and the most conflict-ridden states in the world today.

What makes it even more insidious is that things might actually look better at first.

Initially, oil development seems to work--at least for some time. Especially at the beginning, petroleum exploitation provides positive outcomes; per capita income may soar and financial accounts look startlingly favorable. Initially, the record shows petrodollar spending in most oil-exporters led to increased employment opportunities (especially in construction), generous pension plans for some, better nutrition, health, and infrastructure development. Telecommunications, paved roads, railways, and power-generating capacity increased considerably. In the few cases where oil-exporting countries have very small populations and very large oil reserves, (e.g., Brunei or the United Arab Emirates), these gains have been sustainable for some time.

But greater and greater rent-seeking undermines these positive outcomes. As economies grow more dependent on a depleting resource, as these resources are mismanaged, and as growth declines while demographic pressures grow, oil exporters move from exhilarating booms to painful busts. The volatility of oil prices--the rapid fluctuation from $8 to $35 per barrel and back, further undercuts efforts to turn oil wealth into other more permanent forms of sustainable development.

Just another reason to cut back on gasoline usage and support electric cars.