*Natural Resources on the Offensive

Siglitz’s chapter 5 discusses the challenges faced by resource-rich developing countries to maximize their natural resource revenues and use them efficiently to the betterment of society. The Dutch Disease phenomenon, named after Holland’s 1970s discovery of oil in the North Sea, occurs when resource-rich countries start earning large amounts of foreign money from their natural resource endowments. When they convert the foreign currency into local currency, the value of the local currency appreciates and their exchange rate rises. This often makes it difficult for national exporters to sell their products, eventually slowing growth and raising unemployment.

Stiglitz argues that the Dutch Disease can be partially avoided by keeping a stabilization fund whereby the money earned from natural resources is not converted into local currency, but is reinvested abroad. In order for the stabilization fund to serve its purpose, it is essential that countries be allowed to use the fund money where appropriate. More important is the need for developing countries to “view their natural resources as their endowment” (150).

Stiglitz focuses his chapter on countries that are more or less victimized by their natural resources and the macro-economic implications and corporate entanglements that accompany them. Nigeria, Sierra Leone, the Congo, Sudan—all (with a qualified exception of Nigeria) are cookie-cutter rogue African states that are struggling to establish a rule of law. Stiglitz gives less analysis to the states that are on offence with their resource endowments. What happens when the resource-rich country happens to be one of the world’s recent superpowers—one that may just feel a tinge of resentment toward the West and its American ringleader? This week’s economist discusses the advantages of resource wealth from a different perspective than Stiglitz—the viewpoint of the power-hungry developed nation, Russia.

Russia has tightened its grip on its oil reserves and has begun to cut deals with neighboring countries like Kazakhstan and Turkmenistan to route their gas exports to Europe via Russia—a situation that threatens Western energy security and independence. Ever the free-market enthusiast, the Economist praises the Kremlin’s superior maneuvering skills and argues that the new plan may not be so devastating for the West. Yes, Europe will grow even more dependent on Russia, but Russian dependence on the European market will simultaneously increase. The magazine calls for a counter-strategy that involves more liberal and liquid European energy markets and a united stance against Russian attempts to divide and conquer.

Russia certainly isn’t the first to play bully with expensive grease, and it won’t be the last. Globalization is upping the ante for stakes in the scarce resource pot, and unless more R&D is dedicated to finding alternative fuel sources, the power structure could tip even more to the whim of resource-rich states. In the meantime, more open diplomacy is needed to maintain favorable and open trade and relations between countries that are increasingly recognizing their place in one world.