Oil rents and underdevelopment: A permanent nexus?

For many countries which specialize in the production and export of raw materials raw material wealth can become a »curse« when, instead of helping to overcome underdevelopment it serves to consolidate it. However paradoxical this may seem there is clear evidence of a connection between raw material wealth, massive inflows of foreign currency, and poverty. The resource wealth of raw material export economies in the Third World is generally accompanied by a multiplicity of socio-economic pathologies, such as distortions in the structure of resource allocation, injustices of distribution, and concentration of wealth in a few hands. In addition, raw material economies are prone to crisis, do not have stable institutions, and have no solution to the spread of poverty. Their governments apply clientistic techniques to retain supporters, foster the expectation among the population that it will be taken care of by the state, and are frequently authoritarian. Raw material wealth is a curse particularly in oil-producing countries, and equally in Latin America and the oil exporting countries in the Persian Gulf. Saudi Arabia, Kuwait, and the United Arab Emirates are very rich countries, with a high per capita income, but nevertheless they are far from belonging among the developed countries. Also as regards economic growth the performance of raw material dependent economies is rather modest: the per capita growth rates of underdeveloped, raw material rich, and raw material exporting states - particularly those with non-renewable raw materials - have been clearlv behind those of raw material poor countries since the 1960s. Despite their raw material wealth and sometimes considerable financial inflows they have not been able to lay the foundations for development. Because raw material countries concentrate one-sidedly on the extraction of raw materials they neglect the form of wealth creation which relies on human efforts rather than nature's bounty. It doesn't always have to be this way. The success stories of various raw material rich countries which since the end of the nineteenth century have managed to escape the »curse of abundance« point in this direction. A number of measures are necessary to that end. For example, the destabilizing effects of the raw material sector on the rest of the economy must be cushioned and a transfer of resources set in train from the raw material sector to the economic sectors which meet the needs of the majority of the population. The conditions must be put in place for that through the reorganization and modernization of energy markets, among other things. The strategic goal is a well-balanced, integrated, and dynamic economy which has a developed domestic market and is internationally competitive.