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 Africa’s 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 world’s mineral
reserves, 10% of the world’s oil, and 8% of the
world’s 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

• Wisor’s 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 Scott Wisor
“Because of a major flaw in “It is the duty of states to “Wenar believes that the
global markets, consumers make sure that the property current trade in natural
today send their money to rights of their citizens are resources is best evaluated,
tyrants and brutal rebels protected. But if the state and thus reformed, from the
when they make their daily does not live up to its perspective of property
purchases.” duty…then the rights. I believe…[it is best]
international community from the perspective of
has to step in.” 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?
• Aytaç – 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
Switzerland’s 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

• Wenar’s 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 won’t 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: There’s 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?