The political economy of the natural resource paradox

“Countries that are more politically inclusive are likely to enjoy better natural resource management and developmental outcomes. Countries where a greater proportion of society has a voice in policy making and where decisions are made on the basis of public goods provision to the many, rather than private spoils to the few, are more likely to benefit from welfare-enhancing policies that share developmental riches across social, political, and economic groups in a sustainable fashion.” And so says the book titled “Rents to Riches” - The Political Economy of Natural Resource–Led Development. The book, authored by several experts in the subject matter, looks at the political economy of the “resource curse” prevalent in resource rich but poor countries, a pervasive phenomenon especially in Africa. It presents an analytical framework for evaluating a country’s political economy and institutional environment as it relates to natural resource management and offers some prescriptions across the natural resource value chain. The observations are that, in many developing countries, the extractive industries sector is inextricably linked to political, economic, societal, and institutional dynamics. Understanding the political economy surrounding resource rents is therefore essential to achieving sustainable development built on resource riches. The findings in the book prove that many resource-dependent developing countries tend to pursue short-sighted, suboptimal policies for extracting resources and capturing rents, and they subsequently allocate those rents in ways that often privilege elite private consumption rather than public investments which enhance growth and collective social welfare. A “paradox of plenty” exists in resource-rich poor countries, where extractive endowments are not invested to improve public welfare and infrastructure, but are syphoned off by predatory coalitions. In such countries, political power dynamics and not economics are at the centre of natural resource mismanagement at the expense of an inclusive national developmental agenda. Identified in the book, are national resource management value chains which encompass the institutional arrangements across ﬁve key dimensions these being; sector organization and the award of contracts and licenses; regulation and monitoring of operations; collection of taxes and royalties; revenue distribution and public investment management; and implementation of sustainable development policies. Any country which wishes to beneficially exploit its resource base to the full extent needs policy practitioners who understand and shape the appropriate transformative agenda around these resource management dimensions. An interesting phenomenon is that, the political economy of a country, shaped by years of political history and culture, plays a significant role in determining its extractive endowment development trajectory and it is important to understand the various typologies which are identified in the book. Understanding the underlying “political economy typologies” allows us to have a better appreciation of why things are the way they are, why we are somehow unable to transform our extractives sector and what we would need to do to achieve new results. It is therefore considered futile to try to change economic institutions, mineral policies or regulations without considering the underlying political forces through which they emerged and are sustained. Many a time, we tend to focus on economic or mining policy as key determinants of progress, but policies are driven by inherent institutional structures and the dynamics of the political economy. Economic or mineral policies can indeed be made sterile by the mere exercise of political power, influence or decree at the expense of inclusive, participative broad based development. The book identifies four political economy typologies which ultimately determine the development of the extractives industry. These are; Patrimonial rule: political economic settings characterized by individualized political authority, usually resting on a hierarchy of cronyism, where the exercise of power faces few constraints. These can be settings of persistent instability and a high degree of political contestation with frequent turnover among conﬂicting groups; or they can be characterized by dictators who avoid establishing organizational arrangements that constrain their actions (such as an institutionalized ruling party). These “roving bandits” are typically unlikely to make credible intertemporal commitments or protect property rights because they are unconstrained. In settings of patrimonial rule, extractive capacity is low, constant theft from society means economic production is low, time horizons are short, and the exploitation of public resources for private gain is common. Hegemonic government: an uncontested, institutionalized political force or one-party regime, or “stationary bandit,” that successfully monopolizes “theft” through regular taxation and in turn provides peaceful order and some degree of public goods for society. The degree to which the regime needs to pay off other social groups (usually with a mix of particularistic and developmental goods) can vary, and it relates to the predictability of succession and the potential of revolt. Hegemonic governments can appear either predatory or relatively benevolent. Time horizons are lengthened due to regime stability; combined with greater institutionalization, this enables credible long term commitment. Clientelist pluralism: political-economic settings where some degree of political competition takes place (mainly through electoral contests), usually on the basis of extensive patron-client networks. The need to reward supporters’ results in some public goods provision; but the reliance on clientelist distribution of particularist goods to mobilize support undermines vertical and horizontal accountability and has self-enforcing characteristics that lead to the under-provision of public goods that enhance collective welfare. Time horizons are short because politics are relatively unpredictable and the degree of institutionalization (and hence constraint on power) is low. Programmatic pluralism: electoral competition on the basis of programs that are geared toward collective welfare enhancement, with an emphasis on society wide public goods provision. A higher degree of institutionalization brings with it built-in democratic mechanisms of horizontal and vertical accountability, facilitates the articulation and protection of property rights, and enables credible intertemporal commitment. Transformation of the extractives sector is complex and fraught with political undertones which, at most times, lead to wrong policies being adopted for the seemingly “right” political motives which tend to be predominantly short term and parochial. Development initiatives need, therefore, to ﬁnd mechanisms to work within the constraints of the underlying political and institutional dynamics prevailing. Many developing economies are indeed faced with a challenge to transform and maximise the development of its extractives sector for the inclusive welfare of its citizens while stemming out serious leakages and ensuring that there is tangible socio economic impact from revenues generated. This transformation must start at the macro political economy architecture level for it to be sustainable. Understanding this, can indeed lead to new and effective approaches to the extractives sector which appreciate the historical conditions which put limits to growth and development of our prodigious resource base hitherto untapped and lying idle underground. The paradox of plenty. Vince Musewe is an economist and you can contact him on vtmusewe@gmail.com

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The political economy of the natural resource paradox