Under Pressure

• Author: Paul Collier
• Position: Professor of Economics and Public Policy at the Blavatnik School of Government, Oxford University, and Director of the Centre for the Study of African Economies.

Many past resource booms in poor countries have failed to improve the lot of those countries substantially, leaving them almost as poor as before those resources were discovered.

During the past decade, there has been a new wave of resource, mainly oil, discoveries in low-income countries, and international organizations have undertaken three complementary campaigns to try to ensure that the new resource booms do not repeat history:

• The IMF and other economic agencies conduct training programs to help build technical understanding and capacity in governments.

• The Group of Eight industrial economies (G8), the Group of Twenty advanced and emerging market economies, and the Organisation for Economic Co-operation and Development have been tightening rules on international companies to curtail tax avoidance and bribery.

• Nongovernmental organizations, in a campaign now also taken up by the G8, are empowering citizens to scrutinize public revenues.

The responsibility for the failures is shared by the governments that controlled the rights to natural resources and the companies that extracted them, and these campaigns reflect a realistically critical view of the capacities and motivations of governments and companies. But they are incomplete.

The chain of economic decisions necessary for resources to be harnessed for development is long and complex. That, indeed, is why governments need so much specialized capacity building. But if governments need to strengthen their understanding, so do citizens—beyond just being able to scrutinize the numbers. In the absence of understanding, citizens can pressure governments to dissipate new resource wealth in populist gestures. A common populist response to resource discoveries is pressure for public sector wage increases. In 1974, Nigeria was one of the first poor countries to experience an oil boom. The following year, as a result of an explosion in citizen expectations, the government was pressured into raising public sector wages by 75 percent. In 2012, Kenyans reenacted these events.

Another form of resource populism is the provision of cheap gasoline to the middle classes. In 2012, when Nigeria’s economic reformers tried to end the fuel subsidies that had built up as concessions to popular sentiment, the country erupted. In 2013, the same thing happened in Sudan. Some commentators have so much confidence in ordinary people’s ability to make good decisions that they advocate distribution of resource revenues to citizens as handouts. This approach was adopted in Mongolia and triggered resource populism of dramatically damaging proportions. Voters pressured the political parties to compete in offering the largest handout, with the result that half of national income was distributed—far more than the government had received in resource revenues.

As these examples suggest, citizens do not automatically become informed about good management of a resource discovery. In countries that are small and poor, the media generally lack the specialized economic journalism that could help build such understanding. So governments have to build it themselves. Just as it is the responsibility of citizens to scrutinize how governments use resource revenues, so it is the responsibility of governments to build citizen understanding of the distinctive economic decisions required for the good management of those revenues.

After the discovery

Four decades of academic research have established what...