The Paradox of Plenty

The resource curse refers to the negative effects natural resources can have on the economy, governance, and levels of conflict, largely in the global south. There is a notable group of scholars who have demonstrated that natural resources such as petroleum can hinder economic performance. Jefferey Sachs and Andrew Warner showed natural wealth resource was negatively correlated with economic growth in a diverse set of extractive economies. The most prominent economic explanations for this paradoxical phenomenon is that oil causes a decline in the terms of trade for primary commodities, allows for poor economic linkages between resource and non-resource sectors, and creates vulnerability to unstable international commodity markets.

Essentially, Nigeria’s emphasis on its singular natural resource (non-trade) causes other less-valuable sectors, such as agriculture (trade), to atrophy because they are seen as less profitable. This trend indicates that having an oil economy leads to an overall shift away from the traded sector to the non-traded sector, and this becomes particularly problematic in times of fluctuation in commodity prices. Volatility in world oil prices and domestic inflation make long-term planning difficult, e.g. the boom of the 1970s left Nigerians with half-finished public projects int he 1980s. Benefits of a good year are short-lived while negative effects of a bad year endure.

States that survive based on natural resource revenue without actually engaging in economic production are rent-seeking. Economic rents create an economy of capital creation without labor or product creation, and foster far more consumptive than productive activities. They engender vicious cycles of patronage, corruption, and enrichment of elites at the expense of state institutions and the public. Oil revenues remove any incentive for meaningful political competition or democratic alliance building, as politicians or civil servants can simply be bought off. In environments of predatory rent-seeking, individuals and groups find begging the government for financial support easier than engaging in productive activity. By succumbing to the temptation to buy off such coalitions, the state creates a system of mutual dependence. Although the concept of this paradox has its detractors, few countries fit the bill like Nigeria does.

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One response to “The Paradox of Plenty

  1. Pingback: A very brief chronology of the Nigerian oil economy | Niger Delta Politics

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