Karl - The Paradox of Plenty : Oil Booms and Petro-States

Karl. T.L., The Paradox of Plenty: Oil Booms and Petro-States, (Berkeley, University of California Press, 1997)

It has become a conundrum to various stakeholders and commentators as to why most oil-exporting developing countries continue to suffer from economic decline and political decay whereas their counterpart non-exporting countries follow opposite trends. Karl attempts to offer a comprehensive cross-cultural reply to this question by focusing on countries like Algeria, Indonesia, Iran, Nigeria, and Venezuela. Karl argues that the existing explanations are inadequate and too often focus almost exclusively on economic disruption, that is, the "Dutch Disease" phenomenon. She further notes the deep social and political underpinnings of the problem are necessary dimensions that need to be included in any discourse on the topic.

The majority of the book is allotted to the development of the Venezuelan economy from agrarian into a petro-state, heavily dependent on its petroleum industry for a majority of its government revenues. With examples and experiences from Nigeria, Algeria, Iran, Indonesia, and Norway coupled with statistical data, Karl posits that prolonged resource booms, not only create incentives for financial indiscipline, but also form the underpinnings of poorly developed state apparatus. This is because oil booms (as a result of excess oil revenues and high commodity prices) vest supranatural power in the hands of the state that rapidly has vast revenues at its disposal. How the State then organizes itself in terms of revenue management and allocation in turn, is negatively influenced, creating incentives that affect the organization of public policies. What appears then to be a chance for economic growth turns out to be a constrained political environment. The culture of rent-seeking, thus, is encouraged and State political systems avoid accountability as internal taxation is often times avoided or placed as secondary.

The paradox, thus, lies with the fact that oil wealth increases the fragility of State and government systems and weakens civic engagement, whereas States with less resource endowments are often characterized by strong State apparatus. Karl does, however conclude by suggesting that the paradox itself is not inevitable and that the developmental trajectories can be resolved given the right policy response.

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