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Natural Resource Curse and Economic Growth

The Causes of Natural Resource Curse in Africa

The Natural Resource Curse, also known as the “Paradox of Plenty,” (Karl, 1997) implies that although some countries, such as those of sub-Saharan Africa, possess an abundance of natural resources, their economic performance is nonetheless poorer than those countries with fewer resources. The nature of the paradox is lucid: natural resources should be a means by which developing countries become viable, as opposed to being a detriment or impediment to such development. The specific problems that arise from this paradox can take various forms, such as “poverty, corruption, dictatorship and war” (Basedau and Lay, 2005, p. 9), which obviously possess devastating social effects on the citizenry of these countries.

Clearly, in cases such as sub-Saharan Africa not enough is being done to use natural resources efficiently in order to increase economic growth. That some countries with abundant natural resources do not suffer from the natural resource curse, for instance, Norway, Canada, and China, suggests that the most important reason for this difference is good governance. For example, during the1990s, the GDP of African countries dropped 1.15 percent a year, meaning that GDP declined 11% over the decade (Ross 2001, p, 20). Accordingly, the discrepancy in growth between countries that possess natural resources indicates that the crucial problem lies with the managing of such resources. In the following essay, I will discuss the key factors behind the so-called natural resource curse.

There are two phenomena that are related to the natural resource curse which I will seek to explain, examining them with more detail later in the text. The first is that of rent seeking. Rent seeking implies that some individuals or government sectors seek to maximize their own profit without making productive activities or producing output (Fischer, 2006). For example, particular companies and individuals produce foods made from the resources of a given country, selling them on the market in order to earn profit, whereas the populace of this same country concomitantly lacks food. This is clearly the case of an improper management of resources that is harmful to growth, as the profit of the few is given priority over the well-being of the many: therefore, some theorists also refer to rent seeking as profit seeking. (Fischer, 2006) The presence of rent seeking in some African countries demarcates the utilization of natural resources without making simultaneous commitments and contributions to the economy and society, essentially exploiting endemic resources for individual and private gains. When considering how such rent-seeking informs the natural resource curse, we need to understand how rent seeking takes place and more specifically what can be done to prevent it. As we have intimated above, the crucial preventative measure is that of good governance.

The other phenomenon I intend to introduce is the so-called Dutch Disease, a term first presented in the academic literature by W.M. Corden and J. Peter Neary in 1982. In the 1970s, the Netherlands discovered North Sea gas and rapidly developed its gas industry by exporting gas in order to increase economic growth and appreciate the nation’s currency. Nevertheless, since the Netherlands concentrated their attention on the gas industry, agriculture and other industries were more or less neglected, thus decaying over time and becoming less competitive. Such a policy possessed the specific negative consequences of an increase in inflation, a rise in the national unemployment rate, a decrease in the income growth rate, and the continued exportation of manufactured goods. In short, the Dutch Disease occurs when the price of natural resource industry inflates at the cost of the deterioration of other industries during a period of natural resource economic boom. Such a phenomenon can also be seen as present in some African countries – the abundance of natural resources, such as diamonds, leads to an emphasis on investment in the diamond industry exclusively, to the detriment of a more balanced policy which intends to make sure that various segments of the society are not left behind.
Essentially, both phenomena are symptomatic of various political and economic forms of decision-making that emphasize profit, without a simultaneous vision concerning how the countries of Sub-Saharan Africa may develop in a healthy manner within the context of the world economy. This denotes a failure in governance, insofar as those making such decisions are not properly managing the wealth of natural resources, and thereby negatively impacting the native populations of these same countries. In another sense, this could be considered a problem of socialization. Whereas, as Wolfgang Brezinka notes, the term socialization is a “a vague concept” (1994, p. 8) that possesses a “pervasive conceptual ambiguity” (1994, p. 8) when used in the academic literature - although nevertheless generally referring to the broad context of how people live their social live - within the specific context of political-economic theory, the term tends to “mean actions that transfer the ownership of resources from private to community ownership or the introduction of limitations…imposed on owners.” (1994, p. 8) The precise problematic regarding socialization in the case of the natural resource curse is precisely a question of how natural resources should be handled in order to diminish bad governance: acute problems concerning socialization must be analyzed in order to determine where this process is prohibitive to or encouraging such growth. Whereas this can obviously be considered relative to the particular countries being considered, socialization becomes a crucial means to both think through existing problems in governance with the intent of resolving them.

Comprehending these aspects of the natural resource curse and finding solutions can increase the economic growth and development of African countries. Accordingly, the topic bears a crucial ethical importance, insofar as political and economic analysis of the issue is essentially an ethical intervention that attempts to ameliorate the lives of those inhabiting these countries. To the extent that the lives of the populace are dependent on the decisions of government, the latter obviously should carry out useful policies in order to change the current social environment in Africa. The very problem of the natural resource curse demonstrates that governments’ policies are the crucial causes of development – insofar as countries may remain unable to grow despite rich natural resources, this underscores the pivotal role the management of these same resources plays in every aspect of social existence. The development of effective management solutions that arise from a thorough understanding of the problem entails such countries’ utilization of natural resources in order, for example, to eliminate a phenomenon such as poverty, thereby providing human beings and their offspring better lives. In this regard, the significance of the topic is that it is a theoretical and practical problematic that is crucially constituted by a synthesis of politics, economics and ethics. Without an ethical element, there becomes no concern with lack of development; concomitantly, without an understanding of the politics and economic factors that produce the phenomenon of the natural resource curse, it is impossible to formulate the latter’s resolution.

My approach is informed by relevant academic literature that addresses questions of governance and socialization in relation to the natural resource curse, with particular emphasis on the problems of rent-seeking and the Dutch Disease. Ross (2003) and Collier (2008) focus on the impact of civil war and the effects of unstable policies in southern Africa, giving examples to show how civil wars affect natural resources, whereas Mbaku (2007) and Gupta et al. (2006) demonstrate the omnipresence of corruption and poor governance in African social life. Fischer (2006), Reed (2001) and Collier (2008) show that another cause of the natural resource curse is rent seeking. Furthermore, Reed (2001) studied the effects of poor governance and mismanagement in southern Africa and gives some examples to show importance of good governance. Gupta et al. (2006), Oyejide (1986) and Oomes and Kalcheva (2007) evince the complicity of the Dutch Disease to African social and economic problems, whereas Gylfason(1999) demonstrates that some countries with many natural resources do not suffer from the natural resource curse. Accordingly, there are four crucial interrelated factors contributing to the natural resource curse in southern Africa—socialization, poor governance, rent seeking, and the Dutch Disease. In this paper I will talk about, in order, how socialization, poor governance, rent seeking, and the Dutch Disease are factors in the vicious circle of the natural resource curse in Africa. Finally, I will present some possible solutions of overcoming natural resource curse.


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