Oct 9 2012

THE OIL CURSE by Michael Ross

Reviewed by Saleem Ali, University of Queensland

Michael L. Ross looks at how developing nations are shaped by their mineral wealth.

The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, by Michael Ross, Princeton University Press, 296pp

The distortions in economic development that  natural resource wealth can cause have been well-studied for many years by social scientists. UCLA political scientist Michael Ross’s new book, The Oil Curse is premised on his view that hydrocarbon wealth has four key attributes that lead to its potential for being “cursed”: scale, source, stability, and secrecy. Hydrocarbon projects have massive capital investment (scale), are not funded by citizen taxation or innovation incentives and are hence less connected to democratic parameters (source),  are beholden to volatile commodity markets (stability) and have easily concealed revenues from oil, due to the contract norms between companies and governments (secrecy).

Ross further contends that the curse started to gain traction when state-run oil companies became more common. Such companies have much less accountability than privately held firms, and Ross considers their structure a major cause for perpetuating the “oil curse.” Therefore, although corporate executives may find Ross’s negative revelations about the essential lubricant of modern capitalism to be troubling, they can gain some solace that he strongly blames this outcome on government control of industry.

However, Ross remains nuanced about assigning culpability by also noting that private-sector management still needs some government oversight to be constructive. Ross’s key prescription to grapple with the oil curse is developing mutual accountability between the private and public sectors. Though he tends to make some broad causal statements and relies far too much on regression for his insights, Ross’s work is an important contribution to the literature on the consequential role of oil in development planning.

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