Matthew Genasci & Sarah Pray, extracting accountability: implications of the resource curse for CSR theory and practice.

• Author: Kardon, Alex
• Position: Corporate social responsibility - Reply to article in this issue, p. 37

Matthew Genasci and Sarah Pray argue that the best cure for the "resource curse" in developing nations is increased transparency through compliance with the Extractive Industries Transparency Initiative (EITI). (1) This argument is composed of two distinct claims. First, Genasci and Pray claim that the root cause of the resource curse is the lack of government accountability that results from reliance on resource rents rather than popular taxation for most government revenue. (2) Second, they contend that increased transparency in the flow of funds to governments of resource-rich developing nations from corporations involved in the extraction of resources is the best way to increase government accountability. (3)

While there is persuasive evidence that low government accountability is at the heart of the resource curse, the link between this claim and identifying transparency as the best solution is tenuous. Achieving transparency may not cure the curse where civil society is not strong enough to convert information into accountability. Since a relative lack of taxation is behind the accountability deficit, (4) a solution involving increased taxation might be best. I propose such a solution: taxed distributions of funds directly from extracting corporations to citizens of resource-cursed nations.

1. TAXATION, ACCOUNTABILITY, AND THE RESOURCE CURSE

   There is ample support in the theoretical literature for the claim that low government accountability is a central feature of the resource curse. (5) This theoretical support is corroborated empirically. Evidence shows that only the combination of resource abundance and poor government institutions, not abundance alone, correlates with slowed economic growth. (6) Countries with better institutions when resources are extracted will not suffer economically, (7) while countries with poorer institutions will suffer because resource abundance will result in even worse institutions, (8) Specifically, since democratic accountability correlates with the share of government revenue arising from taxation, (9) poorer governments degrade when presented with newfound resources because the decreased role of taxation undermines accountability. Genasci and Pray's first claim is thus seemingly on solid ground.

   There are, however, arguments against the importance of accountability or government institutions generally in explaining the resource curse. In a seminal paper, Jeffrey D. Sachs and Andrew M. Warner found any institutional changes wrought by resource abundance to be insignificant factors in accounting for slowed growth. (10) The assertion that decreased accountability will necessarily result from increased resources has been disparagingly labeled as "economic determinism." (11) Even in countries with weak institutions, inappropriate handling of resource rents may foster dissent that demands accountability. (12) Caution must be taken in assuming a linkage between accountability and the source of government revenue. (13) In spite of these objections, the evidence in favor of Genasci and Pray's first claim is substantial. The second claim is more objectionable.

2. THE PROBLEMS WITH TRANSPARENCY

   Genasci and Pray are hardly alone in believing that transparency is key to curing the curse. EITI Chairman Peter Eigen expresses a common view when he suggests increased transparency would lead to greater budget accountability, improved rent allocation, poverty reduction, and eventually greater political and social stability. (14) The World Bank apparently agrees, as evidenced by the Bank conditioning support for the Chad-Cameroon Petroleum Development and Pipeline Project on transparency. (15) Scholars identify transparency as crucial to facilitating energy infrastructure construction in developing nations, (16) and argue that the developed world should make this transparency an objective. (17) Without transparency, many agree with Genasci and Pray that corruption, conflict, and poverty are almost certain to follow. (18)

   But there are two sides to this story. Even some transparency proponents fail to see EITI as the program to end the curse. (19) EITI focuses on the revenue side of the ledger, (20) but many feel that government expenditures require greater oversight. (21) It is also questionable whether EITI has the financial backing and leverage needed to achieve revenue transparency. (22) Finally, EITI relies on nations willingly participating, and only some nations have presented themselves as willing. (23) Even if transparency is the answer, EITI may not promote transparency in the right way or with the requisite collective force.

   Problems with transparency run deeper than EITI. First, voluntary transparency programs in general are fraught with incentive problems. Genasci and Pray argue that the public support of institutional investors worth U.S. $ 14 trillion for EITI and...