Price of oil linked to pace of freedom

0 Comments | Deseret News (Salt Lake City), Jul 9, 2006 | by Thomas Friedman Foreign Policy

When I heard the president of Iran, Mahmoud Ahmadinejad, declare that the Holocaust was a "myth," I couldn't help asking myself: "I wonder if the president of Iran would be talking this way if the price of oil were $20 a barrel today rather than $60 a barrel."

When I heard Venezuela's President Hugo Chavez telling British Prime Minister Tony Blair to "go right to hell" and telling his supporters that the U.S.-sponsored Free Trade Area of the Americas "can go to hell," too, I couldn't help saying to myself, "I wonder if the president of Venezuela would be saying all these things if the price of oil today were $20 a barrel rather than $60 a barrel, and his country had to make a living by empowering its own entrepreneurs, not just drilling wells."

As I followed events in the Persian Gulf during the past few years, I noticed that the first Arab Gulf state to hold a free and fair election, in which women could run and vote, and the first Arab Gulf state to undertake a total overhaul of its labor laws to make its own people more employable and less dependent on imported labor, was Bahrain. Bahrain happened to be the first Arab Gulf state expected to run out of oil. I couldn't help asking myself: "Could that all just be a coincidence?

The more I pondered these questions, the more it seemed obvious to me that there must be a correlation -- a literal correlation that could be measured and graphed -- between the price of oil and the pace, scope and sustainability of political freedoms and economic reforms in certain countries.

I would be the first to acknowledge that this is not a scientific lab experiment, because the rise and fall of economic and political freedom in a society can never be perfectly quantifiable or interchangeable. But I think there is value in trying to demonstrate this very real correlation between the price of oil and the pace of freedom, even with its imperfections.

The First Law of Petropolitics posits the following: The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them.

I would define petrolist states as states that are both dependent on oil production for the bulk of their exports or gross domestic product and have weak state institutions or outright authoritarian governments. High on my list of petrolist states would be Azerbaijan, Angola, Chad, Egypt, Equatorial Guinea, Iran, Kazakhstan, Nigeria, Russia, Saudi Arabia, Sudan, Uzbekistan and Venezuela.

To be sure, professional economists have, for a long time, pointed out in general the negative economic and political impacts that an abundance of natural resources can have on a country. This phenomenon has been variously diagnosed as "Dutch Disease" or the "resource curse." Dutch Disease refers to the process of deindustrialization that can result from a sudden natural resource windfall. The term was coined in the Netherlands in the 1960s, after it discovered huge deposits of natural gas.

What happens in countries with Dutch Disease is that the value of their currency rises, thanks to the sudden influx of cash from oil, gold, gas, diamonds or some other natural resource discovery. That then makes the country's manufactured exports uncompetitive and its imports very cheap. The citizens, flush with cash, start importing like crazy, the domestic industrial sector gets wiped out and, presto, you have deindustrialization.

Beyond these general theories, some political scientists have explored how an abundance of oil wealth, in particular, can reverse or erode democratizing trends. One of the most trenchant analyses that I have come across is the work of UCLA political scientist Michael L. Ross.

Using a statistical analysis from 113 states between 1971 and 1997, Ross concluded that a state's "reliance on either oil or mineral exports tends to make it less democratic; that this effect is not caused by other types of primary exports; that it is not limited to the Arabian Peninsula, to the Middle East, or sub- Saharan Africa; and that it is not limited to small states."

First, Ross argues, there is the "taxation effect." Oil-rich governments tend to use their revenues to "relieve social pressures that might otherwise lead to demands for greater accountability" from, or representation in, the governing authority. Oil-backed regimes that do not have to tax their people in order to survive also do not have to listen to their people or represent their wishes.

The second mechanism, argues Ross, is the "spending effect." Oil wealth leads to greater patronage spending, which in turn dampens pressures for democratization. The third mechanism he cites is the "group formation effect." When oil revenues provide an authoritarian state with a cash windfall, the government can use its newfound wealth to prevent independent social groups -- precisely those most inclined to demand political rights -- from forming. In addition, he argues, an overabundance of oil revenues can create a "repression effect," because it allows governments to spend excessively on police, internal security and intelligence forces that can be used to choke democratic movements.