Culture Matters – Oil Curse Edition

The concept of the so-called Oil Curse is that countries that have an abundance of oil tend to be basket cases – undemocratic, kleptocratic, and poorly developed.  The Oil Curse is a special case of of what is sometimes called the Resource Curse.

Of course, not every country rich in oil has suffered from the Oil Curse.  Norway is a prime example of a nation that has benefited greatly from finding oil, but it is almost the exception that proves the rule.

On the other hand, if you think about it more broadly, there are plenty of other exceptions.  The big one is England.  Historians seem to think one of the reasons that the Industrial Revolution began there is because England had plenty of easily accessible coal and iron.  Which is to say, England struck oil, or at least the 18th century version of it.  Similarly, the oil boom that began in Titusville, PA around 1860 did great things for the US economy.

So what causes oil to be a curse for some countries but a boon to others?  One explanation commonly brought up is exploitation, particularly by Western oil companies.  I am no historian, but I don’t think this is right.  Many of the Oil Curse countries chose to go it alone, though some did so after expropriating the initial investments made by foreigners.

I think countries that appear to fall prey to the Oil Curse or any other Resource Curse don’t actually do so.  Instead, they are basket cases before the discovery of whatever resource, and they remain basket cases after.  On the other hand, countries that have functional economies that encourage innovation tend to find stumbling upon a resource to be a blessing.

Put another way…  having a culture that is conducive toward positive outcomes matters a lot.  And it seems to me that England on the verge of the Industrial Revolution, the US before 1860, and Norway before it stumbled on oil have a lot, culturally in common.  And the cultural traits those three cases have in common don’t seem to be shared by Oil Curse countries.

As I keep pointing out, the data shows that culture is a strong determinant of economic outcomes..

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