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Brief History: The Resource Curse

2 minute read
Alex Perry

The Resource Curse describes the phenomenon of how, when a poor country discovers vast natural wealth, economists around the world cry, “Aw, hell!” Such a moment arrived on June 14 following a New York Times report on an estimated $1 trillion worth of minerals–including iron, copper, cobalt and gold–underneath Afghanistan. Afghan presidential spokesman Waheed Omar claimed the discovery would “benefit all Afghans in the long run.”

Almost every development economist would beg to differ. Though the term was coined by British economist Richard M. Auty in 1993, the phenomenon he explored–of how countries with rich resources often develop more slowly, more corruptly, more violently and with more authoritarian governments than others–is as old as war itself. Think oil in Nigeria, blood diamonds in Sierra Leone and Angola, tin in Bolivia … There are as many examples as there are elements on earth. What should be a blessing turns out to be an incentive for conflict and corruption and, in the wrong hands, a source of ruin. A subset of the curse, Dutch disease, describes how, even if governments behave themselves, their countries can still suffer, as happened to the Netherlands when it developed North Sea gas in the 1970s. That pushed up wages and exchange rates, making other products more expensive to produce and sell abroad.

Only very good (and lucky) governments seem to avoid the curse. Norway used North Sea oil to transform itself from an economy based on fish, trees and boats into a diverse and equitable place by virtue of careful macroeconomic management, strong institutions and a commitment to fairly distributing the wealth. The curse began to bite in the 1990s, but by then Norway had other, bigger problems, like the worsening climate change its hydrocarbons had helped bring about. No one escapes the curse forever.

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