Skip to main content Accessibility help
×
Home

Sharing the Riches of the Earth: Democratizing Natural Resource-Led Development

  • Keith Slack

Abstract

Many developing countries are attempting to use their natural resource endowments – notably oil, natural gas, and minerals such as gold – as the basis for economic growth and development. Recent history, however, indicates that countries that depend heavily on resource extraction do more poorly on a variety of economic indicators, including growth rates, education levels, and income inequality. This is due in significant part to the way in which wealth derived from resource extraction is concentrated in the hands of a small elite, which often misuses these revenues through corruption, poorly planned investments, and other means. This contrasts with other kinds of economic activity, such as agriculture, in which benefits are distributed more widely. Thus, a key to increasing the development and poverty reduction benefit value of resource extraction is breaking elite control of these revenues and increasing public involvement in decision-making related to their use. Doing so would enhance the likelihood that these funds would be employed with greater concern for the needs of the populace. The experiences of Ecuador, Peru, and Bolivia highlight the importance of increasing distributive justice and public participation in resource revenue distribution and provide insights into how this could be implemented in resource-dependent economies.

Copyright

References

Hide All

1 Two mining-dependent countries, Chile and Botswana, have achieved strong economic growth over the past decade, but their successes may not be replicable due to limited global demand for copper and the cartel pricing of diamonds (Chile and Botswana's main exports, respectively). No developing countries have been able successfully to convert oil or natural gas into sustained growth and poverty reduction. On the contrary, some of the most spectacular development failures, such as Nigeria, Ecuador, and Venezuela, have oil-dependent economies.

2 For each of these problems see, respectively, Carlos Leite and Jens Weidmann, “Does Mother Nature Corrupt? Natural Resources, Corruption and Economic Growth” (IMF Working Paper WP/99/85, July 1999); Thorvaldur, Gylfason, Natural Resources, Education and Economic Development, European Economic Review 45: (2001) pp. 847–59.; Sachs, Jeffrey and Warner, Andrew, “Natural Resource Abundance and Economic Growth” (Development Discussion Paper no. 517a, Harvard Institute for International Development, 1995); Auty, Richard, “Conclusions: Resource Abundance, Growth Collapse, and Policy,” in Auty, Richard, ed., Resource Abundance and Economic Development (Oxford: Oxford University Press, 2001), pp. 122; Birdsall, Nancy, Pinckney, Thomas, and Sabot, Richard, “Natural Resources, Human Capital and Growth,” in Auty, , ed., Resource Abundance and Economic Development, pp. 132; Isham, Jonathan, Woolcock, Michael, Pritchett, Lant, and Busby, Gwen, “The Varieties of Rentier Experience: How Natural Resource Export Structures Affect the Political Economy of Economic Growth” (World Bank, 2002); Ross, Michael, “Does Oil Hinder Democracy?World Politics 53 (April 2001), pp. 325–61; and Ross, Michael, “Extractive Sectors and the Poor” (Washington, D.C.: Oxfam America, 2001), p. 8.

3 Ross, , “Extractive Sectors and the Poor ,” p. 7.

4 See, e.g., Power, Thomas, “Digging to Development? A Historical Look at Mining and Economic Development” (Washington, D.C.: Oxfam America, 2002).

5 Surowiecki, James, “The Real Price of Oil ,” New Yorker, December 3, 2001, p. 41.

6 Eifert, Benn, Gelb, Alan, and Borge Tallroth, Nils, “The Political Economy of Fiscal Policy and Economic Management in Oil Exporting Countries ” ( World Bank Policy Research Working Paper 2899, October 2002), p. 19.

7 Ross, , “Extractive Sectors and the Poor ,” p. 9.

8 Ibid., p. 10.

9 Gelb, Alan, ed., Oil Windfalls: Blessing or Curse? (New York: Oxford University Press, 1988), p.134–44.

10 Ross, , “Extractive Sectors and the Poor,” p. 10.

11 Eifert, , Gelb, , and Tallroth, , “Political Economy in Oil Exporting Countries ,” p. 5.

12 See, generally, Ascher, William, Why Governments Waste Natural Resources: Policy Failures in Developing Countries (Baltimore, Md.: Johns Hopkins University Press, 1999).

13 The effectiveness of this distribution may also be a key factor in other issues affecting the state, including conflict. Herbst postulates that conflict around natural resources is largely determined by the predictability and equity of resource revenue distribution. See Jeffrey Herbst, “The Politics of Revenue Sharing in Resource-Dependent States” (United Nations University/World Institute for Development Economics Research Discussion Paper 2001/43, July 2001), p. 5.

14 Power, “Digging to Development?” p. 21.

15 Ascher, , Why Governments Waste Natural Resources , p. 22.

16 Isham et al., “The Varieties of Rentier Experience,” p. 11; and Xavier Sala-i-Martin and Arvind Subramanian, “Addressing the Natural Resource Curse: An Illustration from Nigeria” (IMF Working Paper WP/03/139, July 2003).

17 Isham et al., “The Varieties of Rentier Experience,” p. 19.

18 See Auty, “Resource Abundance, Growth Collapse, and Policy,” p. 18.

19 Ibid.

20 Ascher, , Why Governments Waste Natural Resources , p. 21.

21 Ibid.

22 Birdsall, , Pinckney, and Sabot, , “Natural Resources, Human Capital and Growth ,” p. 22.

23 Birdsall, Nancy and Hamoudi, Amar, “Commodity Dependence, Trade, and Growth: When ‘Openness’ Is Not Enough” (Washington, D.C.: Center for Global Development, May 2002), p. 21.

24 Nancy, Birdsall, “Why Inequality Matters”, Ethics & International Affairs 15, no. 2 (2001), p. 18 ..

25 It should be noted that in some extractive projects, because of incentives such as tax breaks offered to attract investment, revenues accruing to governments can actually be quite small.

27 As will be discussed below in the context of Ecuador, Peru, and Bolivia, this situation may be changing as social protest over unfair resource extraction practices has reached a point in some countries where it may be jeopardizing future foreign investment in these sectors.

28 The mid-1990s protests in the United States and Europe against Royal Dutch Shell over the execution of Nigerian human rights activist Ken Saro-Wiwa are perhaps one exception to this general rule.

29 Auty, Richard and Mikesell, Raymond, Sustainable Development in Mineral Economies (Oxford: Clarendon Press, 1998), p. 45.

30 Eifert, , Gelb, , and Tallroth, , “Political Economy in Oil Exporting Countries ,” p. 13.

31 See Eifert, Gelb, and Tallroth, “Political Economy in Oil Exporting Countries”; and Aidan Davy, Kathryn McPhail, and Favian Sandoval Moreno, “BPXC's Operations in Casanare, Colombia: Factoring Social Concerns into Development Decisionmaking” (Social Development Papers, World Bank, Paper no. 31, July 1999), p. 30.

32 Sala-i-Martin and Subramanian, “Addressing the Natural Resource Curse”; and Thomas I. Palley, “Combating the Natural Resource Curse with Citizen Revenue Distribution Funds: Oil and the Case of Iraq” (Open Society Institute, July 2003, unpublished).

33 Sala-i-Martin and Subramanian, “Addressing the Natural Resource Curse,” p. 20.

34 Auty, “Resource Abundance, Growth Collapse, and Policy.”

35 Quoted in Maria Aycrigg, “Participation and the World Bank: Success, Constraints, and Responses” (draft for discussion, Social Development Papers, World Bank, November 1998), p. 1.

36 Forero, Juan and Rohter, Larry, “Native Latins Are Astir and Thirsty for Power ,” New York Times, March 22, 2003, p. A3; Lucas, Kintto, “Indigenous Peoples Decry War and Oil,” Inter Press Service, January 21, 2002; and Tobar, Hector, “Across the Americas, Indigenous Peoples Make Themselves Heard,” Los Angeles Times, October 19, 2003, p. 1.

37 Luis Lopez Follegatti, Jose, Silva Preciado, Alfredo, and Kuramoto, Juana, “Informe Final: Canon Minero y Descentralizacion ” ( Lima: LABOR, 2002).

38 World Bank and Inter-American Development Bank, Peru: Restoring Fiscal Discipline for Poverty Reduction: A Public Expenditure Review (Washington, D.C.: World Bank, October 24, 2002), p.14.

39 José de Echave, Cooperaccion (Lima, Peru), interview, October 15, 2002.

40 World Bank and Inter-American Development Bank, Peru: Restoring Fiscal Discipline , p. 2.

41 In the case of the newly constructed Antamina project, the world's largest copper and zinc mine, the Peruvian government has granted the operating company an eight-year exemption on profit taxes.

42 World Bank and Inter-American Development Bank, Peru: Restoring Fiscal Discipline , p. 3, emphasis added.

43 Wray, Natalia, Pueblos Indigenas Amazonicos y Actividad Petrolera en el Ecuador: Conflictos, Estrategias e Impactos (Quito: IBIS, 2000).

44 Ricardo Pazmiño (ECORAE), personal communication, March 12, 2003.

45 Mario Melo, Centre de Derechos Economicosy Sociales, personal communication, January 17, 2003.

46 World Bank official, personal communication, March 5, 2003.

47 Gutierrez, Lucio, “Address,” Center for Strategic and International Studies, Washington, D.C., February 10, 2003.

48 Carlos Enriquez, Juan, “Mineria y minerales de Bolivia en la transicion hace el desarrollo sustentable ” ( La Paz: Servicios Ambientales S.A., 2001).

49 McMahon, Gary and Remy, Felix, eds., Large Mines and the Community: Socioeconomic and Environmental Effects in Latin America, Canada, and Spain (IDRC and World Bank, 2001), p. 76.

50 Ibid., p. 53.

51 Enriquez, , “Mineria y minerales de Bolivia ,” p. 63.

52 Lykke Andersen and Robert Farris, “Natural Gas and Income Distribution in Bolivia” (Andean Competitiveness Project, Harvard Institute for International Development and Corporacion Andino de Fomento, February 2002), p. 10.

53 Jorge Cortes, Colectivo de Estudios Aplicados al Desarollo Social (Santa Cruz, Bolivia), personal communication, June 19, 2002.

54 Eleodoro Mayorga Alba, “Oil Industry Training for Indigenous People: The Bolivian Experience” (United Nations Development Program/World Bank Energy Sector Management Assistance Programme Report 244/01, September 2001), p. 14.

55 Altaian, David and Lalander, Rickard, “Bolivia's Popular Participation Law: An Undemocratic Democ-ratisation Process?” in Hadenious, Alex, ed., Decentralisation and Local Governance (Stockholm: Almqvist & Wiksell International, 2003), p. 2.

56 Kohl, Benjamin, “Stabilizing Neoliberalism in Bolivia: Popular Participation and Privatization ,” Political Geography 21, no. 4 (2002), p. 465.

57 Mate, Kwabena, “Communities, Civil Society Organisations and the Management of Mineral Wealth ” ( paper prepared for the Mining, Minerals and Sustainable Development project, April 2002), p. 5; available at http://www.iied.org/mmsd.

58 Barton, Barry, “Underlying Concepts and Theoretical Issues in Public Participation in Resources Development,” in Zillman, Donald, Lucas, Alastair, and Pring, George (Rock), eds., Human Rights in Natural Resource Development: Public Participation in the Sustainable Development of Mining and Energy Resources (Oxford: Oxford University Press, 2002), p. 88.

59 Environmental News Service , “Peru Swaps Debt for Tropical Rainforest,” June 26, 2002.

* I am grateful to the Carnegie Council for supporting research for this article during my Council fellowship in 2002–2003. I am especially grateful to Christian Barry for his insight and encouragement throughout the fellowship and in the development of this essay. I would also like to thank Oxfam America for allowing me the opportunity to pursue this research. The views expressed here are my own and not necessarily those of that organization.

Related content

Powered by UNSILO

Sharing the Riches of the Earth: Democratizing Natural Resource-Led Development

  • Keith Slack

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed.