A Paradox of Plenty
Countries where natural resource extraction began before democracy are at much higher risk for civil war, authoritarian rule, corruption, poverty, hunger, and refugee flight. Syria, Libya, Sudan, and the DRC are examples of resource-cursed countries.
The resource curse strikes oil, metal and gem exporting states, and oil exporters most severely. In contrast to other emerging countries, the major oil states are no freer, no richer, and no more peaceful on average than they were even in 1980.
Investors can drive positive change by supporting one basic human right: the right of all peoples to their natural resources.
Resources Can Curse
Oil States (Oil is Primary Export)
Oil States: Authoritarian or Failed States
An Archaic Rule
The main driver of the resource curse is an anti-market rule in global trade left over from the days of the Atlantic slave trade, the rule of ‘Might Makes Right’. All countries today still make it legal to buy resources from whoever can control those resources, even if it’s by force.
For example, when Saddam Hussein’s junta took over Iraq in a coup, it became legal in all countries to buy Iraq’s oil from the junta. And then when ISIS took over some of the same wells in 2014, it became legal in all countries to buy Iraq’s oil from ISIS.
‘Might Makes Right’ is every state’s legal default for the resources of other states. Even if there are metals in your phone that were plundered at gunpoint by a militia in eastern Congo, you still own every molecule of your phone under the laws of your country.
Might Makes Right
If armed robbers seize a petrol station down the street, we don’t get the legal right to buy the petrol from them. Yet when an armed group takes over a resource-rich country or region, our laws make it legal to buy the resources from them. Coercion there creates property rights here, a violation of basic market principles.
Our Trade Rules Drive
the Resource Curse
‘Might Makes Right’ forces consumers into business with repressive and violent actors abroad. For example, the average American household sends around $200 to authoritarians and armed groups every year, just by filling up. The money that consumers spend on resources helps authoritarians to stay in power (Saudi Arabia, Iran, Angola) and incentivizes armed conflict over the extractive sites (Syria, Libya, DRC).
The resource curse strikes because our trade rules turn coercive control over resources into unaccountable power. Resources generate large revenues. This money comes with no strings attached, it never has to be paid back, and authoritarians and armed groups use it to increase their power and escape public accountability. Opaque resource deals also enable large-scale corruption. In many states, poverty, hunger and refugee flows follow.
Because coercive control over resources brings unaccountable power, resource-cursed countries have been major sources of political and economic instability worldwide, seriously degrading the investment environment.
A Better Rule
Instead of ‘Might Makes Right,’ our trade should affirm that a country’s resources belong to its people.
This is a human right proclaimed in major treaties that nearly every country has signed. Investors and firms can welcome this principle if they are committed to respecting human rights, for example through the UN Guiding Principles on Business and Human Rights.
On this principle, a government must be minimally accountable to its citizens when the country’s resources are sold to foreigners or when they are privatized.
The test is bare-minimum civil liberties and political rights. Can citizens learn about and effectively protest what’s happening with their country’s resources without fearing for their lives or freedom?