The Perils of Petrocracy
By TINA ROSENBERG
New York Times Magazine
I.
Who holds the world’s oil? You might assume it’s in the hands of big private oil companies like ExxonMobil. But in fact, 77 percent of the world’s oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest multinational oil company. The popular perception in the United States is that if leaders of oil countries nationalize their oil, they are bucking a global trend toward privatization. In reality, nationalized oil is the trend. And the percentage of oil controlled by state-owned companies is likely to continue rising, mainly because of the demographics of oil. Deposits are being exhausted in wealthy countries — the ones that exploited their oil first and generally have the most private oil — and are being found largely in developing countries, where oil tends to belong to the state.
Nationalization is also a political trend in some regions, mainly Latin America, where the populist presidents of Bolivia and Ecuador have made it part of their discourse. They are led, of course, by Hugo Chávez of Venezuela. He has made private producers accept state control of their operations. When they wouldn’t, as in the case of ExxonMobil and ConocoPhillips, he simply nationalized their holdings. Chávez has also asserted his control over Venezuela’s state oil company, which before him operated very much like a private, profit-driven enterprise.
Chávez is a prophet in search of disciples. He seeks to present Venezuela as a more moral world power, uniting Latin America and poor countries everywhere in a socialist alliance. He has invented a new kind of socialism, which he calls Bolivarian socialism, named for the independence hero Simón Bolívar: a little Marx, a little Jesus, a little anti-imperialism and a lot of the whim of Hugo Chávez, dedicated to the “comprehensive, humanist, endogenous and socialist development of the nation.” His is a gospel greased by oil, which is financing his transformation of Venezuela. Chávez is a genius of a politician: charming, folksy, flirtatious. I first met him in New York in 1999, the year he became president. I sat next to him at an interview, very pregnant. He embraced me — “But you should come have the baby in Venezuela!” he enthused.
...
Historically, almost every country dependent on the export of oil has answered this question in the same way: badly. It may seem paradoxical, but finding a hole in the ground that spouts money can be one of the worst things to happen to a nation. With one or two exceptions, oil-dependent countries are poorer, more conflict-ridden and despotic. OPEC’s own studies show the perils of relying on oil. Between 1965 and 1998, the economies of OPEC members contracted by 1.3 percent a year. Oil-dependent nations do especially badly by their poor: infant survival, nutrition, life expectancy, literacy, schooling — all are worse in oil-producing countries. The history of oil-dependent countries has produced what Terry Lynn Karl, a Stanford University professor, calls the paradox of plenty.
Oil not only creates very few jobs, it also destroys jobs in other sectors. By pushing up a country’s exchange rate, the export of oil distorts the economy. “Oil rents drive out any other productive activity,” Karl says. “Why would you bother to produce your own food if you could buy it? Why would you bother to develop any kind of export industry if oil makes your money worth more and that hurts all your other exports?” The most successful societies develop a middle class through manufacturing; oil makes this extremely difficult.
Oil concentrates a country’s wealth in the state, creating a culture where money is made by soliciting politicians and bureaucrats rather than by making things and selling them. Oil states also ask their citizens for little in taxes, and where citizens pay little in taxes, they demand little in accountability. Those in power distribute oil money to stay in power. Thus oil states tend to be highly corrupt.
(Continued here.)
New York Times Magazine
I.
Who holds the world’s oil? You might assume it’s in the hands of big private oil companies like ExxonMobil. But in fact, 77 percent of the world’s oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest multinational oil company. The popular perception in the United States is that if leaders of oil countries nationalize their oil, they are bucking a global trend toward privatization. In reality, nationalized oil is the trend. And the percentage of oil controlled by state-owned companies is likely to continue rising, mainly because of the demographics of oil. Deposits are being exhausted in wealthy countries — the ones that exploited their oil first and generally have the most private oil — and are being found largely in developing countries, where oil tends to belong to the state.
Nationalization is also a political trend in some regions, mainly Latin America, where the populist presidents of Bolivia and Ecuador have made it part of their discourse. They are led, of course, by Hugo Chávez of Venezuela. He has made private producers accept state control of their operations. When they wouldn’t, as in the case of ExxonMobil and ConocoPhillips, he simply nationalized their holdings. Chávez has also asserted his control over Venezuela’s state oil company, which before him operated very much like a private, profit-driven enterprise.
Chávez is a prophet in search of disciples. He seeks to present Venezuela as a more moral world power, uniting Latin America and poor countries everywhere in a socialist alliance. He has invented a new kind of socialism, which he calls Bolivarian socialism, named for the independence hero Simón Bolívar: a little Marx, a little Jesus, a little anti-imperialism and a lot of the whim of Hugo Chávez, dedicated to the “comprehensive, humanist, endogenous and socialist development of the nation.” His is a gospel greased by oil, which is financing his transformation of Venezuela. Chávez is a genius of a politician: charming, folksy, flirtatious. I first met him in New York in 1999, the year he became president. I sat next to him at an interview, very pregnant. He embraced me — “But you should come have the baby in Venezuela!” he enthused.
...
Historically, almost every country dependent on the export of oil has answered this question in the same way: badly. It may seem paradoxical, but finding a hole in the ground that spouts money can be one of the worst things to happen to a nation. With one or two exceptions, oil-dependent countries are poorer, more conflict-ridden and despotic. OPEC’s own studies show the perils of relying on oil. Between 1965 and 1998, the economies of OPEC members contracted by 1.3 percent a year. Oil-dependent nations do especially badly by their poor: infant survival, nutrition, life expectancy, literacy, schooling — all are worse in oil-producing countries. The history of oil-dependent countries has produced what Terry Lynn Karl, a Stanford University professor, calls the paradox of plenty.
Oil not only creates very few jobs, it also destroys jobs in other sectors. By pushing up a country’s exchange rate, the export of oil distorts the economy. “Oil rents drive out any other productive activity,” Karl says. “Why would you bother to produce your own food if you could buy it? Why would you bother to develop any kind of export industry if oil makes your money worth more and that hurts all your other exports?” The most successful societies develop a middle class through manufacturing; oil makes this extremely difficult.
Oil concentrates a country’s wealth in the state, creating a culture where money is made by soliciting politicians and bureaucrats rather than by making things and selling them. Oil states also ask their citizens for little in taxes, and where citizens pay little in taxes, they demand little in accountability. Those in power distribute oil money to stay in power. Thus oil states tend to be highly corrupt.
(Continued here.)
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