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Monday, April 25, 2005

The Democracy Trap

Sebastian Mallaby writes in The Washington Post about challenges to establishing democracies, especially in oil rich nations:

It's easy to want democracy for the Middle East. But what sort of democracy? Should American foreign policy focus on promoting elections, or on checks and balances? Is the crucial question how power is achieved? Or is it how power is exercised? Paul Collier and Anke Hoeffler, two economists at Oxford University, address these questions in a new paper on oil-rich democracies. Their answer, rooted in statistical analysis of oil states' performance since 1970 under various types of political systems, is that the tendency to focus on elections is correct in most societies but misguided in oil states. In a country such as Iraq, the United States and its allies should care at least as much about the quality of Iraq's judiciary and media as about the quality of its voting. Collier and Hoeffler are actually nicer about elections than most development economists are. Until the 1990s the research consensus held that voting was bad for economic growth, a finding that fitted with the idea that dictators are better at imposing necessary austerity. In the past decade or so, researchers have generally found that elections are more or less growth-neutral. But by taking countries with natural resources out of the sample, Collier and Hoeffler show that ordinary, resource-poor nations grow faster if they have elections. In oil states, however, the opposite holds true--at least if elections are held in the absence of checks and balances. In countries where natural-resource profits come to a fifth of GDP, the switch from autocracy to electoral competition lowers the annual growth rate by a hefty 2.1 percentage points. Unless there are checks and balances, elections cause oil-rich countries to invest less than they should -- and to invest badly. As a result they fail to create the public infrastructure that makes growth possible.
I have long argued that oil was a curse, not a blessing for the people of the Middle East. For example, if you look at Saudi Arabia and South Korea they had roughly similar size economies. Now South Korea dramatically eclipses Saudi Arabia in GDP. One idea, that I wish had been seriously pursued, and implemented, is the idea of privatising most of the oil profits from Iraq and sharing with all Iraqi citizens, similar in nature to the Alaska Oil Fund. This would take corrupting cash out of the Government's hands and most likely greatly facilitate entrepreneurial activity. I am not sure that this is a decision that should be imposed by the U.S. on Iraq, in the end it is their country and they should decide what to do with the oil money, but if we had strongly put that option on the table I think it would have been able to gain a lot of traction. It is still possible of course for the Iraqi Government to do that, but it is rare for Politicians to voluntarily give up Government revenue. Obviously we should pay a lot of attention to the Iraqi Judiciary and other checks and balances that are necessary for a true democracy. Democracy is a lot more than just voting.

3 Comments:

Blogger Andrew Watkins said...

The true test of intelligence, I will always maintain, is how much someone agrees with you.

I have long held the belief that success with oil means preservation of the status quo -- they are hard times that inspire, that necessitate change. Easy times are those in which people can forget their underlying problems, and focus on the baser success.

This applies, sadly, to America as much as the Middle East. I feel like the major problem of the War on Terror, even before people started freaking out about invading Iraq, was the lack of sacrifice being demanded of the American people. The fall of the WTC Towers was tragic, but America as a whole is still cushy and protected -- until life becomes hard(er, at least) for the average American, the root problems we face will probably still be there.

The privatization idea is a nice one, but would have to be handled the right way, and carefully guarded against conglomeration (like with Russian privatization 12, 13 years ago).

4/26/2005 08:46:00 AM  
Blogger Dave Justus said...

It doesn't necessarily have to be privatization, although I think that having private companies do the actual drilling, selling, etc. probably makes a lot of sense.

Basically though, a portion of the profits should go directly to each Iraqi citizen. In some ways, this is more socialist than a privatizing scheme, but I think it appropriate to the situation. It can easily be argued that Iraq's oil should be considered a common resource.


The romantic in me appeals to your idea of sacrifice to win the war on terror. What though would you have us do? A WWII style all production goes into the war machine economy was appropriate for a sharp, decisive conflict, but certainly wouldn't work for a long, drawn out confrontation like the Cold War or the War on Terror.

For that sort of conflict, we need to maintain economic growth. Indeed a powerful arguement for our ideas is the cushy life it enables us to maintain. IF, as I believe, a major componant of this conflict is purely in the realm of ideas American Secular Materialism vs. Islamist Austerity, than abandoning our very strengths seems foolish.

4/26/2005 09:23:00 AM  
Blogger Andrew Watkins said...

Bug me about this if I don't respond, in some form, in the next few days. Good call.

4/27/2005 07:57:00 AM  

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