We Can Now Cure Dutch Disease
By Joseph Stiglitz
There is a curious phenomenon that economists call the
resource curse - so named because, on average, countries with large endowments
of natural resources perform worse than countries less well endowed. Yet some
countries with abundant natural resources do perform better than others, and
some have done well. Why is the spell of the resource curse cast so unequally?
Thirty years ago,
Economists put forward three reasons for the dismal performance of some richly endowed countries. First, the prospect of riches orients official efforts to seizing a larger share of the pie, rather than creating a larger pie. The result of this wealth grab is often war. At other times, simple rent-seeking behaviour by officials, aided and abetted by outsiders, is the outcome. It is cheaper to bribe a government to provide resources at below-market prices than to invest and develop an industry, so it is no surprise that some firms succumb to this temptation.
Second, natural resource prices are volatile, and managing this volatility is hard. Lenders provide money when times are good, but want their money back when, say, energy prices plummet. (As the old adage has it, banks only like to lend to those who do not need money.) Economic activity is thus even more volatile than commodity prices, and much of the gain made in a boom unravels in the bust that follows.
Third, oil and other natural resources, while perhaps a
source of wealth, do not create jobs by themselves, and often crowd out other
economic sectors. For example, an inflow of oil money often leads to currency
appreciation - a phenomenon called the Dutch disease. The
Fortunately, as we have become aware of these problems, we
have learned much about what can be done about them. Democratic, consensual and
transparent processes - such as those in
The Dutch disease, however, is one of the more intractable
consequences of oil and resource wealth, at least for poor countries. In
principle, it is easy to avoid currency appreciation: keep the foreign exchange
earned from, say, oil exports out of the country. Invest the money in the
Some countries, notably
Western governments can help with common-sense reforms. Secret bank accounts not only support terrorism, but also facilitate the corruption that undermines development. Similarly, transparency would be encouraged if only fully documented payments were tax deductible. Violent conflict is fed by western governments' massive sales of arms to developing countries. This should be stopped.
Abundant natural resources can and should be a blessing, not a curse. We know what must be done. What is missing is the political will to make it so.