Beyond the Resource Curse

13. Petroleum, Governance, and Fragility: The Micro-Politics of Petroleum in Postconflict States

13 Petroleum, Governance, and Fragility: The Micro-Politics of Petroleum in Postconflict States Naazneen H. Barma Contemporary political economy research suggests that whether a country falls prey to the resource curse depends on a number of structural and economic factors. The cumulative body of large-N analyses of resource-rich developing countries indicates that the quality of existing institutions is perhaps the key factor that mediates a resource-rich country’s economic outcomes. Yet there is a gap in the political economy literature in terms of the subsequent causal reasoning about why institutions play this crucial intervening role in the resource curse. In this chapter, I examine the micropolitics of petroleum in Cambodia and East Timor through a framework rooted in the natural resource value chain to develop a sense of the mechanisms underpinning the resource curse in fragile nations. Postconflict states offer fertile ground for generating hypotheses about the causal interplay between fragile political institutions, limited state capacity, and resource riches as they impact economic outcomes. Political Economy and the Resource Curse A wide and growing body of scholarship has emerged in the economics and political science disciplines that attempts to understand the mechanisms Petroleum, Governance, and Fragility 331 underlying the resource curse and illuminate policy fixes to help poor countries avoid it. Broad agreement exists on the appropriate macroeconomic, technical, and institutional mechanisms to put in place to manage the resource curse successfully. Even when the menu of policy options varies, the institutional prescriptions to ensure good governance of the national resource sector all emphasize clear organizational mandates, transparency of processes, and strong built-in accountability measures. The true puzzle is why governments are unable to implement such corrective policy measures to mitigate many of the patterns that cumulate into the resource curse. This, then, is where politics enters the picture, and a complementary political science literature emphasizes how different political economic systems deal with resource rents, focusing on the nature and role of state institutions and how dynamics such as state capture and patronage networks influence the management of natural resource rents. When a state has resources such as petroleum, the main political and economic impacts come via the effect that resource rents have on the state’s patterns of revenue collection and expenditure. Natural resource booms turn countries into “rentier states,” which live off unearned income; the state is resourced through rents rather than taxes and requires correspondingly little organizational effort from the state apparatus. Politically, natural resources generate significant windfall resources for the state and therefore a valuable prize for those who control political power. By limiting a government’s need for other forms of revenue generation , such as tax collection, natural resources can lead to the attenuation of state-administrative and institutional capacity building. A core logic of the political effects of the resource curse hence derives from what Mick Moore has dubbed the “fiscal sociology” paradigm. This has been crystallized recently by Robert Bates in his examination of state failure in Africa: if political elites calculate that their own best interests are served by collecting tax revenues and protecting producers with the rule of law to maximize the tax base, they will establish bureaucratic infrastructure to enable them to do so; if not, they will be prone to turning the state apparatus into a predatory instrument that extracts rent from society and dispenses that rent through patronage networks. Terry Karl articulates how this dynamic unfolds in her seminal book The Paradox of Plenty: Dependence on petroleum produces a distinctive type of setting, the petro-state, which encourages the political distribution of rents. Such 332 Naazneen H. Barma a state is characterized by fiscal reliance on petrodollars, which expands state jurisdiction and weakens authority as other extractive capabilities wither. As a result, when faced with competing pressures , state officials become habituated to relying on the progressive substitution of public spending for statecraft, thereby further weakening state capacity. Supporting hypotheses advanced in the contemporary political economy literature suggest that a resource curse is made more likely when: (1) natural resources constitute the “only game in town”; (2) the distribution of resource rents aligns with existing political-economic cleavages; (3) political power is concentrated in the executive; and (4) policy commitment is made more difficult by price volatility or political instability. The resource curse is particularly acute in the case of petroleum (compared to other natural resources such as hard-rock minerals) because...