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Combating the Resource Curse

A recent short academic paper by Ana Elizabeth Bastida and Paul Segal addresses the problem of the resource curse and Dutch Disease, prompting some interesting questions about how the Russian government is handling its considerable influx of dollars from the oil-and-gas trade. Excerpt:

In 1978, in the context of the discovery of British North Sea oil, the Financial Times journalists Samuel Brittan and Barry Riley commented: “The simplest and also the wisest answer to the question ‘What should we do with the state’s oil revenues?’ is ‘Give them to the people’.” In this article I explore the potential benefits of a version of this idea that I call the people’s share proposal: instead of resource revenues accruing to governments, whether from a national oil company or from taxes and royalties on private companies, they would pass directly to all adult citizens on an equal per capita basis, in the form of an unconditional basic income. A full discussion of this proposal is most pressing for developing countries suffering from the resource curse. The first potential benefit is the direct impact on poverty and the distribution of income. An important part of the resource curse is the economic problem known as the Dutch Disease: a natural resource export sector renders tradable goods other than the natural resource, such as manufacturing, uncompetitive. Since development and growth are typically driven by manufacturing, this makes development over time very difficult. But it also has short term costs in terms of unemployment and the distribution of income. Why? One of the core characteristics of natural resource sectors is that they employ very few people. This implies that the direct benefits of the resource go to whoever owns it, which in most cases will be the government. Unlike in manufacturing, very little of the resource revenues go to workers. There is no automatic economic mechanism, no ‘trickle down effect’, for distributing the income from the resource throughout the population. Most citizens enjoy too little of the benefits of resource wealth, and suffer too much of the burden.