The ‘oil curse’ is the phenomenon associated with the declining economies of the developing countries which are rich in oil. There is the paradox that many countries which are characterized by the abundance of oil cannot succeed, and their economies cannot grow and develop in relation to the prospects which are discussed as guaranteed with references to natural resources.
From this point, those countries which produce more oil cannot develop intensively and take the higher positions in comparison with the countries which are not rich in natural resources. This ‘oil curse’ is typical for many African, Middle Eastern, and Latin American countries. To understand the nature of the problem, it is necessary to focus on the example of the Latin American countries with references to the experience of Norway ad Libya.
Although there is no obvious factor to explain the phenomenon of the ‘oil curse’ completely, it is possible to determine a range of such features as the lack of the effective management and stability, the focus only on the oil industry, corruption, and authoritarianism which are characteristic for the economic history of Latin America and contribute to the development of the ‘oil curse’.
The economic phenomenon of the ‘oil curse’ prevents the developing countries from the potential growth. The causes for the development of the ‘oil curse’ in many countries are discussed by the researchers during a long period of time (Lederman and Maloney; Wenar).
That is why, it is important to refer to the experience of the countries which overcome the possible difficulties successfully. Norway is such a country. The contributors of the strategy according to which Norway provides the policy in relation to the oil industry gave some advice to the leaders of Libya in order to cope with the possible ‘oil curse’.
The accents were made on the role of institutions, legislation, and transparency in the process (“Norway Has Advice for Libya”). In spite of the fact the emphasized points are rather appropriate to be implemented, there is the question about the effectiveness of strategy for different countries. Referring to the economic history of Latin America, it is possible to state that the problem is more complicated, and it requires the complex approach.
Those countries which suffer from the ‘oil curse’ are traditionally characterized by the lack of the effective management. As a result, there is no economic stability, and the main focus in the economic development is made only on the oil industry when the other fields are in decline.
Following the examples from the economic history of the Latin American countries, it is necessary to state that Venezuela and Mexico have chosen rather different approaches to coping with the ‘oil curse’ problem, but these countries are not successful in their attempts. Venezuela is the vivid example of the lack of management in economy based on the extreme focus on the oil industry and authoritarianism.
The Venezuela’s oil industry is nationally owned, the other industries and markets are not developed because of the focus on the oil industry revenues. Moreover, the corruption and the country’s debt in relation to the financial borrowings increase. The 1970s are discussed as the years of developing the oil industry in the Latin American region (Lederman and Maloney). The focus on such wealth as oil led to the shifts in the economic balances, and this balance is not achieved even today.
Mexico has chosen the more effective way in comparison with Venezuela to develop the oil industry. Reyes and Sawyer state that the Mexican economy “is highly diversified and oil is just another important industry. Mexican goods and services are sold all over the world and oil is just another important export. High oil prices are good for the Mexican economy, but not critical” (Reyes and Sawyer 140).
However, the Mexican economy also suffers from the consequences of the ‘oil curse’ typical for the recent years. The problem is in inability to manage the industry effectively with paying much attention to the development of the other industries.
The experts from Norway focus on the necessity to improve legislation in the countries with the ‘oil curse’ and on transparency in relation to the industry’s functioning and the government’s activities. In spite of the fact these approaches can contribute to the positive changes in the economic development of the Latin American countries, the current governmental approach, the legislation systems, and the aspects of the industry’s work operate according to rather opposite principles.
That is why, the realization of the approach requires significant reforms (Ross). Moreover, the economic history of the region supports the idea that these reforms cannot be realized immediately, and their effects can be unexpected. It is typical for the Latin American countries to share the profits received from the oil industry between the representatives of the higher classes, and the resource revenue corruption is observed. Furthermore, the increased oil prices provoke the growth of inflation rates.
Nevertheless, some researchers state that there is no direct connection between such aspects of the countries’ economic history as the role of authoritarianism in the economic development of the Latin American countries (Haber, Maurer, and Razo; Haber and Menaldo). According to Haber and Menaldo authoritarianism and corruption cannot produce the necessary effect on the oil industry in order to provoke the decline of the country’s economy in general (Haber and Menaldo).
However, the other researchers state that the whole economic history of the Latin American countries is the example of the ineffective government’s management in which much attention should be paid to authoritarianism and to associated corruption, economic repression, and catastrophic management along with the focus on the excessive borrowings and debts which are not paid for during decades while contributing to the economic decline (Manzano and Monaldi).
If the governments in the Latin American countries rely much on the development of the oil industry, the general economic decline is observed.
To follow recommendations provided by the experts from Norway for stabilizing the situation in Libya is a rather controversial issue for the countries in Latin America because the proposed solutions challenge the history of the economic development in this region. However, it is possible to state that the phenomenon of the ‘oil curse’ significantly depends on the ineffective strategies used by the authorities of the developing countries in order to manage the new economic sector and stabilize the economy.
The features which are characteristic for the development of the Latin American countries rich in oil are the lack of democracy and economic stability, the focus on the oil industry and lack of competitiveness within the other industries, the concentration on increasing the oil prices which lead to inflation, the ineffective management and developed corruption.
Works Cited
Haber, Stephen, Noel Maurer, and Armando Razo. “When the Law Does not Matter: The Rise and Decline of the Mexican Oil Industry”. Journal of Economic History 63.3 (2003): 1-31. Print.
Haber, Stephen, and Victor Menaldo. “Natural Resources in Latin America: Neither Curse Nor Blessing”. Oxford Handbook of Latin American Political Economy 10.11 (2012): 1-49. Print.
Lederman, Daniel, and William Maloney. “In Search of the Missing Resource Curse”. Economia 9.11 (2008): 1-39. Print.
Manzano, Osmel, and Francisco Monaldi. “The Political Economy of Oil Production in Latin America”. Economia 9.10 (2008): 59-98. Print.
Norway Has Advice for Libya. 2011. Web.
Reyes, Javier, and Charles Sawyer. Latin American Economic Development. USA: Taylor & Francis, 2011. Print.
Ross, Michael. The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. USA: Princeton University Press, 2012. Print.
Wenar, Leif. “Property Rights and the Resource Curse”. Philosophy & Public Affairs 36.1 (2008): 2–32.