Wednesday, June 02, 2004

Another Source of the Resource Curse? 

Sometimes a windfall can be a bad thing. As I've discussed before, the discovery of a natural resource in a poor country can actually lead to Bad Things happening: oil, diamonds and other riches are linked to civil war (and particularly nasty civil war at that), and may possibly give autocratic leaders a way to avoid making reforms by throwing money at strategically-chosen groups or individuals.

A recent article by Thad Dunning in International Organization [I think you need a subscription to read it] suggests yet another means by which natural resources can serve to diminish the welfare of a state's citizenry. Dunning looks at the relationship between development assistance (i.e. foreign aid) to African countries and their development of democratic practices. He finds that in the Cold War era, there was no relationship at all between these two variables, but that since the end of that conflict, development assistance has had a statistically significant (though not too terribly large) positive effect on recipients' levels of democracy.

Why might this be the case? Dunning points out that lots of foreign aid, then and now, has had strings attached: recipients are warned to clean up their acts or face termination of benefits. But during the Cold War, such warnings from the West weren't very credible: since most African countries were viewed as having geostrategic, Cold War value, Western countries couldn't withdraw aid without expecting that their erstwhile client would defect to the Soviet sphere of influence. In other words, the benefits of tying aid to reform (hooray, democracy) might well be outweighed by the costs of losing a client to the bad guys. African leaders were well aware of this and felt free to ignore the demands made on them by their Western funding sources.

[Incidentally, there has been a lot of hue and cry lately about how new this type of "conditional" or "selective aid" actually is, and whether or not it's a good thing. Read more here and here.]

On the other hand, after the Cold War, the geopolitical concerns more or less vanished (as did the alternate source of foreign assistance for the African governments). All of a sudden, as Dunning documents, tying assistance to reform began to have results.

What does this have to do with oil? For one thing, obviously enough, having an alternate source of revenue (oil fields or diamond mines in place of aid) allows leaders to say "Thanks, but not thanks" to money that comes with conditions. To the extent that the carrot-and-stick, conditional aid approach has been effective in the post-Cold War era, disrupting the dynamic is probably not a good thing. Secondly, as many have noted of late, the US and other countries seem to be viewing the world through a geostrategic lens once more, particularly when it comes to securing stable sources of oil. To the extent that we are leaving the 1990s' Pax Americana (or states believe this is so), the credibility of conditional aid may be eroding once more.

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