Environmental Engineering Reference
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island. It employs lots of capital (often foreign), relatively few local workers
and is often fairly isolated from the rest of the economy.
But can oil wealth actually make countries worse off? It can, argues Terry
Lyn Karl, a US academic whose topic The Paradox of Plenty is one of the
best-known works on this issue. For a start, oil wealth can be more cor-
rupting than other forms of wealth because it arrives more directly into
government coffers.
Oil revenue or royalties flow to the government in states everywhere -
even in the US, which is the only country to allow private ownership of the
subsoil (including oil resources). But in states that have never developed
any tradition of fiscal accountability towards their citizens - typically in
low-tax petro-states - government officials may tend to help themselves
to state oil-income. Oil wealth also appears to provide funding or incen-
tives for civil wars and military or political coups.
Oil-price bubbles can leave a country worse off once they burst. The oil
booms of the 1970s certainly left many oil producers worse off. Their
spending splurges and ballooning subsidies caused inflation, surging for-
eign debt and much higher debt-to-export ratios than non-oil producing
countries. More importantly according to Karl dependence on petroleum
- the one fate exporters wanted to escape - increased markedly after the
boom.
“Only one boom in history - that resulting from the discovery of gold and
silver in the Americas - rivals the 1973 and 1980 oil bonanza,” she writes,
and what happened to Spain in the 16th century is not a good precedent.
Imports of New World bullion drove up the value of Spain's currency,
encouraged inflation and imports, and depressed agriculture so that by
1570, Spain was having to use coin from the Americas to pay for imported
food. Spain's version of the paradox of plenty is summed up in the words
of one of its proto-economists of the time: “if Spain has no gold or silver
coin, it is because she has some; and what makes her poor is her wealth”.
Luckily, today's oil producers generally appear less profligate than
Spaniards of the 1570s - or indeed their counterparts of the 1970s. Taking
a leaf out of Norway's book, oil exporters such as Russia and Azerbaijan
have created oil stabilization funds.
to it a crisis, as other countries might intervene to divert the physical flow
of oil. This perception was reinforced by the US's political resistance to
the Chinese National Offshore Oil Corporation (CNOOC) buying the
American company Unocal in 2005.
To this end, Chinese companies have acquired stakes in Kazakhstan,
Russia, Venezuela, Canada, Sudan and West Africa. In particular, after
 
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