Susan Aaronson examines prospects for trade and accountable government in light of a new initiative to increase transparency around extractive resources. Might the Resource Curse be exorcised?
The promise of free trade to elevate living standards in poor countries has driven international development policy since WWII. Countries rich in oil, gas or minerals sell them to rich countries, and the money goes to desperately needed infrastructure, like safe drinking water. If only it had worked out that way. Instead, the concentration of wealth in oil rich states has often produced profoundly undemocratic nations, a phenomenon known as the Resource Curse.
But is this inevitable? Nearly 200 years after the theory of comparative advantage called for realigning economies around trade, the background institutions assumed to exist by the theory, such as basic transparency and reliable contracts, are — perhaps — starting to arrive.
Dr. Susan Aaronson (a Global Integrity Report: 2006 contributor) examines a new initiative to increase transparency in states dependent on extractive resources. Aaronson writes:
In 2003, the British government proposed a new strategy – the Extractive Industry Transparency Initiative (EITI), to address these problems. This initiative created a voluntary system to which governments rich with oil or minerals agree to adhere. These states entrust an independent administrator to compare extractive sales and revenues as declared by oil companies and recorded by governments. In addition, “all companies operating in the relevant sectors in countries implementing EITI have to disclose material payments to the government” and then make this information public. Such reporting reduces the ability of policymakers to demand bribes of companies, while increasing the ability of citizens to monitor government.
UPDATE: Susan has kindly provided Commons readers with the source data (with academic citations) for the article cited above.