Oil and political freedom in third world petro states: do oil prices and dependence on petroleum exports foster authoritarianism?

Author:Tarzi, Shah M.
Position:OTHER PAPERS - Report
 
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INTRODUCTION

Why are so many oil-rich states so frequently undemocratic? Is there a link between an oil-rich state's reliance on natural resource exports as the primary source of government revenue and autocracy? Interest in this topic is in large measure due the persistence of despotism in the oil-rich Middle East. At first glance, there appears to be some degree of correlation. For instance, amongst all the oil-rich states that depend on oil exports for at least 25 percent of their total annual revenue, only Norway is a genuinely functioning democracy. Whereas Mexico and Indonesia have maintained an electoral democracy with some degree of success over the years, the vast majority of oil export-dependent countries have been unable to translate vast oil resources and revenue into either democratization or sustainable economic growth. Regarding economic development and growth in Gross Domestic Product, several authoritative studies have demonstrated an inverse relationship between natural resource export dependence and sustained economic growth. For instance, Jeffrey D. Sachs and Andrew M. Warner conducted a study of 97 countries over a 19-year period, and found that high ratios of natural resource exports to GDP effectively translated into markedly slower rates of economic growth. (1) Several other studies have arrived at similar conclusions. (2) To be sure, as the experiences of Botswana and Norway indicate, natural resource abundance does not drive down economic growth in a linear, deterministic fashion. (3) Rather, the booming oil section potentially discourages investment in ... agricultural and manufacturing exports by raising their prices on international markets". (4) To make matters worse, oil revenue funds monopolies, crowds out entrepreneurship, and increases corruption. The consensus is that in relatively large samples, "higher natural resource dependency is associated with lower economic growth." (5)

In contrast to the issue of economic growth, the empirical data concerning the linkages between natural resources' export dependence and authoritarianism, often referred to as the "resource curse," is not well-established and is subject to debate. (6) In particular, there is a void in the literature regarding the impact of natural resources' price changes, petroleum in particular, and the relative validity of the resource curse hypothesis. (7)

In this study, we will focus on democratic rights and civil liberties in oil-rich states whose economies are most reliant on petroleum exports. Accordingly, the study will address the following key questions: (1) Are governments highly dependent on revenue from the export of oil less likely to embrace political freedoms? If so, has this always been the case?; (2) To what extent do significant changes in oil prices translate into decreased levels of political freedom in such states? The second question is especially important because it points to a dynamic perspective on the relationship between natural resource prices over time and governments' degree of receptivity (or lack thereof) to political freedom. Indeed, most studies on the subject tend to take a snapshot of the resource curse at certain crucial periods. Yet, the prices of natural resources fluctuate dramatically over time. Unless we account for such fluctuations and their subsequent impact on the pace of democratization, a resource curse study of this kind is likely to be incomplete. Thus, a gap exists in the resource curse literature, and we hope to offer preliminary insights to help fill this void. (8) A study of this type is especially warranted because of the dramatic fluctuations in the price of oil and concomitant political changes and. in some instances, upheavals, in oil rich Third World countries, the Middle East in particular. As such this study will help fill a void in the literature.

Specifically, this study will track changes in the price of oil over a significant period of time, pinpoint major oil price swings, and relate these price swings to changes in the level of political freedoms, thereby shedding light on whether changes in oil prices affect political liberalization. However. before addressing the aforementioned key questions, a general overview of the literature is warranted to highlight the degree to which this study may contribute to addressing gaps in the existing literature. The next section offers such an overview. Section three details the methodology of the study. Section four contains data and analysis concerning the link between changes in the price of petroleum and political freedom. A concluding section highlights key findings and offers suggestions for future research.

RESOURCE CURSE AND POLITICAL FREEDOM IN THE THIRD WORLD: AN OVERVIEW

The dependent variable in our study is oil export-dependent countries, variously referred to as "petro-states," "petrolist' states," "oil-rich' states", and "rent-seeking" states. Naim favored the term 'petro-state'. According to him, these oil-rich countries are plagued by weak institutions, and high concentration of power and wealth in conjunction with a poorly functioning public sector, glaring economic inequalities and frustrated populations. Nigeria is a good example. (9) In contrast, Thomas Friedman preferred "petrolist state," or states which were "dependent on oil production for the bulk of their exports or gross domestic product and have weak state institutions or outright authoritarian governments." (10) Gwen Okruhlik adopted the term "rentier state," defined as a country that "depends on external sources for a large portion of its revenue". (11) According to this interpretation, revenue from the international sale of petroleum is a form of rent that accrues to the government.

Regardless of which definition one adopts, it is readily apparent that all these states are endowed with oil wealth, and international sales of petroleum constitute the bulk of government revenue. In addition, these countries usually share several other attributes: relatively weak political institutions, a wasteful public sector, and an extreme concentration of economic and political power.

Following Michael Ross' seminal work on the subject, in this study we adopt the term "oil-rich state." (12) This term appears most appropriate because it is less inflammatory, has common usage, and conveys the significance of international sale of petroleum as the predominant source of revenue with the caveat that the government acquires the revenue rather than citizens, private corporations, or other members of the civil society.

Several studies stress the linkage between natural resource export dependence and the lack of democratic freedoms. (13) One genre of literature posits that because revenue from the sale of petroleum displaces ordinary tax revenue, it makes it easier for governments to be less accountable to public demands. (14) Ross correlated a high ratio of oil and mineral exports to GDP with lower levels of governance. He observed that wealth generated from extracting natural resources does not increase the probability that a state will be a democracy. (15) In addition, Friedman maintained that "the price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states." (16) Korhonen holds that the resource curse applies to various extractive industries, in addition to petroleum, such as copper and bauxite. (17) Similarly, the Economist reports that in Africa, several resource-rich governments have used the considerably large revenue amassed from the recent commodity boom to maintain control and brutally silence domestic regime critics. (18)

On the other hand, a competing interpretation rejects the afore-stated resource curse interpretation and concludes that there is no significant causal linkage between reliance on revenue from the sale of natural resources abroad, democracy and the state of political and civil liberties in Third World countries. An influential study by Haber and Menaldo offers pivotal arguments. Employing time-series centric methods, they examine the long-term relationship between resource reliance and regime type "both on a country by-country basis and across several different panels." They find that "... increases in resource reliance are not associated with authoritarianism." (19) While these and other studies offer insights regarding the degree to which increases in resource rents affect political developments, the causal mechanism that links resource curse to regime types is ambiguous. (20) Further, these studies fall short of accounting for changes in the prices of petroleum over time and their contemporaneous impact on political development in resource-reliant regimes, a relationship that affects the causal linkages.

Yet another genre of literature holds that oil wealth neither hinders nor promotes democratization and political freedom. Still, a fourth strand of research holds that natural resources, oil in particular, improves political liberalization, provided that private ownership of petroleum industries prevails. (21) Regarding the relationship between changes in oil prices and political freedom, contributors tend to conflate improvements in economic well-being or level of modernization with improvement in political and civil liberties. This line of reasoning does not square with ample empirical evidence. Egypt, Iraq during Saddam's reign, Libya, Azerbaijan, and Kazakhstan, to mention a few, are glaring examples where authoritarianism is fully entrenched in spite of a modicum of economic development. Saudi Arabia has yet to experience socio-cultural modernization and political liberalization. Iran has made strides in electoral democracy without concomitant progress in civil liberties, individual rights, and cultural freedom for women. Finally, scholarship often fall short of disentangling changes in resource income due to fluctuations in the price of the...

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