Extractive Industries and the

Resource Curse
Caitlyn McBride
What is the Resource Curse?
The continent of Africa is one of economic paradox:
Abundant natural resources lie within many of the states, yet despite their mineral
wealth, these same states exhibit low levels of development and a poor standard of
living. Resources that seemingly should benefit African states have instead been the
impetus for their stagnant development. Historically, the beneficiaries of these vast
mineral deposits have not been the African populations but rather foreigners such as the
colonial powers in the nineteenth and twentieth centuries, exploitative corporations
during the post-WWII neocolonial era, and opportunistic military strongmen involved
in Africas civil and crossborder wars. The revenue that these resource caches produce is
more often than not funneled to external entities, such as an
international corporation or a few elites within a state.
Burton, Reverse the Curse

Objective Wealth Dysfunction Stunted Development

Global Scope of Extractive Industries
3.5 billion people live in countries rich in oil, gas,
and minerals
Non-renewable mineral resources play a dominant
role within:
81 countries, accounting for 25% of global GDP, in
nations home to 50% of the global population, and
representing 70% of the people designated as
suffering from extreme poverty
Africa alone accounts for 30% of the worlds mineral
reserves, 10% of the worlds oil, and 8% of the
worlds natural gas
In South Africa, 1 million jobs are linked to
mining, almost 2% of the population (500K direct
and 500K indirect)

Source World Bank and South African Chamber of Mines

United States Nigeria South Africa

Angola Sudan Ghana

Source Observatory of Economic Complexity, as of 2014

A Philosophical Foundation
The plainest criticism of global commerce today is not that it violates some
abstract distributive standard, but that it violates property rights. Wenar
Immorality of the Curse: Violation of Property Rights
Right to property is codified in UN Human Rights Doctrine and international law
Natural resources belong to the people of the nation, without their consent a
government is acting illegally in transferring resources
Agreement with Pogge international borrowing and resource privileges contribute to issue
of determining legitimacy of ruler

Systemic Human Rights abuses call for international action

With powerful corporations and governments reaping benefits, a strong moral case is needed

Wisors critique: it is not so black and white, but the obligation is what matters
Namely, immoral trading is not always entirely avoidable
Regardless, a moral obligation to rectify a wrong emerges when engaging in these trades
What Else are these Philosophers Saying?
Peter Schaber
Leif Wenar
Because of a major flaw in It is the duty of states to
global markets, consumers make sure that the property
today send their money to rights of their citizens are
tyrants and brutal rebels protected. But if the state
when they make their daily does not live up to its
purchases. dutythen the
international community
has to step in.
Scott Wisor
Wenar believes that the
current trade in natural
resources is best evaluated,
and thus reformed, from the
perspective of property
rights. I believe[it is best]
from the perspective of
harm and/or benefit.
Eli Burton and Working Conditions in Africa
Lack of development is not the worst outcome of the
resource curse
Often overlooked are the human rights abuses occurring during
the extraction process

Example of China in Africa

Using Chinese nationals for everything except manual labor
Rising complaints of conditions correlated to rise in Chinese
investment
Gross human rights violations at the hand of Chinese mines, not
the only actor but certainly the worst

We have overcome this sort of issue before: Blood Diamonds

Effective tripartite partnership between industry, governments,
and community
Economic and Political Complications
The priority in reforming global commerce is not to replace free trade with fair
trade. The priority is to create trade where now there is theft. Wenar
A Political Conundrum?
Ayta why do some countries seem immune from resource curse? (Norway, US, UK)
Economic norms at the heart of potential:
Contract-intensive economy income obtained in a marketplace
Clientelist economy income obtained in groups competing over state rents
Clientelist structures mean individuals are dependent on individuals for economic security
rather than reliant on the state for protection and enforcement

David Weins institutional vulnerability to the resource curse is established well

before resource wealth enters the equation
Voluntary reform therefore is hindered because ruler will be unlikely to yield power
Resource wealth decreases reliance on domestic taxing, lowering government accountability
In order for good institutions to prevail, it must increase rulers reliance on citizen support
Market Failure Complications: Misinvoicing
UN research has shown that misinvoicing alone results in
more lost revenue for governments than yearly FDI levels
Misinvoicing is the recording of different values in the
exporting and importing countries
Example: from 1995 and 2014, Zambia recorded exports of
$28.9B destined for Switzerland that never showed up in
Switzerlands books (>50% of all copper exports)
Most likely went to other countries

Contributing to the problem: opaque trading exchanges in

Switzerland and the Netherlands
Motives include avoiding tax, manipulating FX exposure,
and smuggling to avoid bureaucracy
Current Efforts and Proposed Solutions
EITI (Extractive Industries Transparency Initiative), World Bank, ONE, UN, G8, G20
Free, full, independent, and active assessments of the ways that extractive industries companies
interact with government and impact communities and society
Governance by disclosure, voluntary mechanism implemented in 2002

Wenars proposal using Freedom House rankings to determine if cursed

Clean Trade Litigation legal punishments for complicit corporations
Clean Trade Act national legislation prohibiting the importation from cursed countries
Clean Trade Tariffs and Trust trade policy that punishes countries that buy cursed resources by
taxing their exports, proceeds placed into a fund for citizens of cursed nations

Wisor solution is not so simple, simply refraining wont work and could be worse
Participation in the trade creates moral obligations, that is where we should focus
Must have multilateral collective action to establish a norm of responsible conduct
Should consider harm utilitarian approach

Schaber prosecution through the ICC to make authoritarian regimes accountable

My Thoughts: Theres Hope for Action
Transparency is an essential piece of the solution, but must not be merely voluntary
Clean Trade type mechanisms, like a tax imposed through a multilateral entity
where proceeds go towards the affected countries can help direct aid
Respect of rights at the worksites should be of equal priority
Framing the issue through the lens of theft will be most effective, highlighting the
illegitimacy of states in the only way to fight the resource privilege
Importantly, obligations not singularly on corporations or governments, but everyone
Should incentivize action at multilateral level, establishing global norms
Noncompliance must be punishable

Capitalism is not the issue, but instead a hole in the system preventing capitalism
from operating efficiently
Questions or Comments?