The impressive growth, especially in the late 1970s, of popular revolutionary movements in Nicaragua, El Salvador, and Guatemala was predicated upon the violent closure of the infra structurally weak authoritarian regimes in those countries. Yet these regimes did not prove equally vulnerable to the movements that they unwittingly helped to construct. Only the movement in Nicaragua, which harnessed a vast popular insurrection that it only loosely controlled, actually seized state power, toppling the Somoza dictatorship and the National Guard in July 1979. The Sandinista revolution, moreover, occurred quite rapidly – less than two years after the Sandinistas reemerged publicly following a period of “accumulating forces in silence.”

Before explaining why resource booms lead to the breakdown of institutions, it is important to define my terms and map out the domain of the problem. This chapter describes some basic facts about states that rely heavily on the export of natural resources: it explains what commodity booms are, and how they can create rents; it describes the types of institutions that developing states use to manage their commodity sectors, and to cope with export booms; and it reviews earlier research on the performance of these institutions.

The chapter has three central points: many developing states face periodic booms in their natural resource exports; many of these states have institutions that include features designed to help manage these booms; and despite these institutions, states respond poorly to resource booms.

It may be helpful to mention some of the claims this chapter does not make. It does not claim that all developing states undergo natural resource booms. It does not claim that all booms are followed by institutional collapses. It does not suggest that resource booms are the only source, or even the principal source of failure in these institutions. Finally, it does not try to prove that resource booms cause institutional breakdowns: that is the task of the case studies in Chapters 4 through 7. This chapter lays out the scope of the problem. The rest of the book examines its source.

This book grew out of my dissertation, which in turn reflected my concern about tropical deforestation in Southeast Asia. In 1994 I visited the region's leading timber-exporting states – the Philippines, Indonesia, and Malaysia – to learn more about their forests and forestry policies. Unlike some observers, I believed that these governments were wise to authorize logging on at least a limited scale, and to convert a portion of their forests into agricultural land. The United States had done much the same thing in an earlier era, using its abundant forests to spur development; why should not developing states today make a similar choice?

I was initially impressed by the forest policies of these three states – or, rather, four states, since in Malaysia forest policies are made at the state level, and most of Malaysia's timber came from the autonomous states of Sabah and Sarawak on the island of Borneo. I was also struck by the dedication of many of their foresters. Yet I gradually realized that the policies of their forestry departments were systematically ignored by politicians, particularly when it came to distributing timber concessions. As a result, these governments had at times authorized logging at rates far above the sustained-yield level, even in forests that were ostensibly set aside for “sustainable” forestry.

Between 1950 and 1995, the Philippines, Indonesia, and Malaysia each enjoyed periods of booming timber exports. Each had forests that contained trees from the Dipterocarpaceae family – trees that grew tall and straight, resisted wood-boring pests, and could be milled into high-quality lumber and plywood. While Indonesia's forestry institutions were weak, the Philippines and Malaysia had relatively strong forestry institutions, at least initially. Both had forestry departments that were led by well-trained professionals, that enjoyed a high degree of political independence, and that restricted logging to sustained-yield levels.

Yet over time the forestry institutions of all three states broke down. After timber exports began to boom, the Philippine, Malaysian, and Indonesian forest departments lost their political independence; the quality of their forest policies dropped sharply; and each government began to authorize logging at ruinously high rates – as high as ten times the sustainable level. Why did the forestry institutions of these three states break down? And why did these governments become so eager to squander their forests?

The breakdown of forestry institutions in the Philippines, Malaysia, and Indonesia is the central puzzle of this book; in answering it, though, I seek to cast light on two larger puzzles. One is the puzzle of poor forest management in the developing world. Since the 1950s, virtually all developing states with commercially valuable forests – in Latin America, the Caribbean, West and Central Africa, and Southeast Asia – have logged them unsustainably.

In 1951, the Philippines became the world's leading exporter of hardwood logs. Though heavily damaged by the war, the Philippine forest sector was in an admirable position. Almost half the nation was forested, and the logging industry used some of the most advanced harvesting practices in the tropics. Most important, the timber industry was governed by a forestry bureau with a well-trained staff, a considerable degree of political independence, a policy of promoting sustained-yield forestry, and a reputation for avoiding the corruption and patronage that plagued many other government agencies. Yet, by the 1960s, the forestry bureau had lost its political independence; its policy of sustained-yield logging was all but abandoned; and the nation's forests were on their way to being badly overlogged.

This chapter shows how the timber windfall of the early 1950s led to rent seizing, which in turn led to the deterioration of the institutions and policies that protected the forests.

In 1963, the British colonies of North Borneo, Sarawak, and Singapore joined the Federation of Malaya to create a new state, the Federation of Malaysia. Yet the former colony of North Borneo – now called Sabah – retained many of the powers of a sovereign state, including special control over immigration, religion, language, and land use. It also kept control of its forests, which remained exempt from the federal government's national forestry laws and taxes.

The Sabah government had good reasons to retain authority over its forests: they were densely packed with trees from the Dipterocarpaceae family – the same type that the Philippines so profusely exported. In 1953, Sabah held 2.7 percent of world hardwood market; by 1973, it had captured 20.1 percent of a much larger international market. Sabah was the world's second largest supplier of hardwood logs from 1959 to 1990 – second to the Philippines, then to Indonesia, and finally to its East Malaysian neighbor, Sarawak. Sabah's tiny city of Sandakan became one of the world's leading timber ports. Locals claimed it had more millionaires per capita than any city in the world.

Sabah's spectacular growth as a timber exporter, however, went hand-in-hand with the deterioration of its forestry institutions.

In the late 1960s, Philippine log exports began to decline; at the same time, Indonesia's timber exports began to soar. By 1973 Indonesia had replaced the Philippines as the world's leading hardwood exporter. Timber also became Indonesia's largest source of foreign exchange, after oil.

The case of Indonesia differs from the others in three important ways. First, its forestry institutions were far weaker. In the Philippines, Sabah, and Sarawak, rent seizing damaged the institutions that fostered sustained-yield forestry. The Indonesian government had no such institutions in the 1960s and early 1970s; there was little to dismantle. But the Indonesian forests had been protected, in part, by nonstate institutions – the institutions of adat, or customary law. Of the four cases in this study, Indonesia and Sabah had made the greatest strides – before their timber booms – toward recognizing the customary land rights of forest dwellers. Shortly after the timber boom began, the Indonesian government rescinded those rights, to boost the size of the windfall.

Second, Indonesia's boom was not triggered by rising international timber prices; rather, it was caused by the government's efforts in 1966 and 1967 to lower the costs of cutting and exporting timber.

Sarawak is Malaysia's largest state, and has almost twice Sabah's forested area. Some 17 percent of Sarawak's forests lie along the coasts, and are classified as peat swamp and mangrove forests. The balance lies in the lowlands and uplands of the hilly interior.

The peat swamp forests hold valuable stands of ramin trees, which have been harvested commercially since the late 1940s. But the soils of the hill forests are relatively poor, compared with the rich volcanic soils of the Philippines, Sabah, and East Kalimantan (in Indonesia). Sarawak's hill forests yield less exportable timber per hectare than the other three regions, and was the last to undergo a major logging boom.

On joining the Malaysian Federation in 1963, Sarawak – like Sabah – retained autonomy over its forests. Yet when the timber industries of the Philippines, Sabah, and Indonesia boomed in the 1950s, 1960s, and early 1970s, Sarawak's timber industry remained small, since its less valuable forests could not yet be profitably logged.

But in the late 1970s, both Philippine and Indonesian log exports began to fall, producing a demand for Sarawak logs to feed the plymills of Japan, South Korea, and Taiwan. From 1975 to 1985, Sarawak's share of the international hardwood log market rose from 3.4 percent to 38 percent.

This book began with three puzzles: Why did the governments of the Philippines, Malaysia, and Indonesia squander their forests? Why do most governments in the developing world squander commercially valuable forests? And why do developing states generally mishandle resource windfalls? The book's research design – which emphasizes validity over generality – gives me a good deal of leverage over the first question, but less over the second and third questions. Here I summarize the book's findings, and discuss the implications for both policy analysts and social scientists.

POLICY FAILURES IN THE PHILIPPINES, SABAH, SARAWAK, AND INDONESIA

All four states in this study had exceptionally valuable forests. Three of them (the Philippines, Sabah, and Sarawak) initially had relatively strong forestry institutions, and nominal policies of sustained-yield harvesting. Yet all four governments wound up squandering their forests, by authorizing logging at unsustainable rates, by keeping royalties and taxes low, and by failing to enforce logging regulations.

There were undoubtedly many reasons for these policy failures. This book focuses on a single cause: the rents created by high timber prices. When timber prices rose high enough to generate rents, governments in three of the four states (the Philippines, Sabah, and Sarawak) stripped their forestry departments of much of their authority over the timber sector, and abandoned their policies of restricting logging to sustained-yield levels.

Why do windfalls lead to policy failures? Since the 1950s, scholars have offered two types of explanations: cognitive explanations, which suggest that windfalls induce either laziness or euphoria among policymakers; and societal explanations, which suggest that windfalls encourage nonstate actors – such as interest groups, political clients, and rent seekers – to demand a share of the windfall from the state.

This chapter begins by summarizing these two approaches. It then describes my own explanation, which is that resource booms lead to rent seizing by state actors. It explains some of the assumptions behind the concept of rent seizing, how it may hurt institutions, how it differs from other types of rent seeking, and how it is influenced by a state's regime type. The chapter concludes by explaining how and why I use the cases of the Philippine, Malaysian, and Indonesian timber sectors to illustrate my argument.

COGNITIVE EXPLANATIONS FOR WINDFALL POLICY FAILURES

Cognitive approaches suggest that windfalls produce a type of myopia among public or private actors, which in turn leads to institutional or policy failures. Some observers imply that windfalls lead to myopic sloth; others argue that windfalls produce myopic exuberance. Wallich (1960) and Levin (1960), for example, argued that periodic commodity booms in sugar-exporting states led to careless economic planning, which inhibited export diversification.

The Philippines has been the East Asian capitalist laggard. Its economic performance after the 1950s, and particularly after the early 1980s, was consistently less impressive than that of the other commodity-rich economies of Southeast Asia. The country squandered an early head-start in its industrialization and, beginning in the 1960s, steadily lost ground relative to other East Asian developing countries. Yet, neither in the late 1940s nor in the early 1970s did observers expect the Philippines to fare less well economically than other regional economies. Its inferior performance resulted in considerable part from public policies, including ones that limited the economy's openness, that were motivated largely by distributional concerns and had the effect of retarding economic efficiency. In no other case considered in this book was the disjuncture between the interests of the dominant few and the policy requirements of sustained economic growth so sharp.

From 1950 to 1965, the Philippine government, a fairly stable democracy with regular alteration of parties in office, had controlled the Huk rural insurgency while keeping military spending at modest levels. Until the late 1950s, the country had one of the highest rates of economic growth in East Asia. In 1965, President Ferdinand Marcos, a gifted politician and lawyer, came to office apparently determined to overcome those obstacles that had begun to hinder Philippine economic growth in the late 1950s and to launch an economic takeoff. He appeared to some to be Manila's Park Chung Hee (the South Korean president who helped to launch his country's rapid growth in the early 1980s).