Beyond the Resource Curse

2. Sometimes the Grass is Indeed Greener: The Successful Use of Energy Revenues

2 Sometimes the Grass Is Indeed Greener: The Successful Use of Energy Revenues Patrick Clawson Juan Pablo Pérez Alfonzo, Venezuela’s oil minister in the early 1960s and a father of OPEC, referred to oil not as “black gold” but as the “devil’s excrement .” In recent decades, the natural resource curse argument has often been presented as either a universal or near-universal rule. The rule nature of the argument is not plausible, however, because the exceptions are so glaring. The most important countercase is historical. Edward Barbier convincingly demonstrated that “throughout history abundant natural resources and favorable conditions in the world economy have combined often to generate successful resource-based development in many economies,” particularly during the “Golden Era of resource-based development ” from 1870 to 1913. Indeed, over the millennia of recorded history, ample natural resource endowments have more often than not been associated with sustained development. Another important countercase to the natural resource curse argument is provided by the six oil-rich monarchies of the Persian Gulf: Bahrain, Kuwait , Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). As these six states constitute the members of the Gulf Cooperation Council (GCC), they are sometimes referred to collectively as the GCC. This chapter shows that without oil, the Gulf monarchies would be desperately poor, but with oil they have become spectacularly well-off. The chapter then asks what accounts for the success of oil-driven growth in the Gulf monarchies and Sometimes the Grass Is Indeed Greener 59 looks at three classes of possible explanations: favorable circumstances, good policies, and vast resources. Gulf Monarchies Without Oil Before the discovery of oil, the Gulf monarchies were weak and desperately poor. It is hard for Westerners to appreciate how underdeveloped Gulf societies were only a few short decades ago. Consider the following description of Saudi Arabia: In 1940 the wheel was not in general use in most areas of the nation. Saudi Arabia had a pastoral economy based on the raising of goats, sheep, and camels. The majority of the urban population lived in small villages built of mudbrick and earned a living from subsistence agriculture. The nomads drove their herds of animals across the desert in search of forage, carrying their meager belongings on camel back. Karl Twitchell used data from the UN Food and Agriculture Organization (FAO) to estimate that in 1956, 66 percent of Saudis were nomads and seminomads , 12 percent were settled peasants, and 22 percent were urban dwellers . The oil firm Aramco was already operating in Saudi Arabia by that time, and Twitchell notes, “Initially Aramco even employed slaves, whose masters took part of their salary. Some tribal shaikhs, merchants, and moneylenders acted as intermediaries in supplying the workers and received part of their salaries.” Thanks to oil income, the kingdom was able to buy slaves from their owners in 1963 and abolish slavery. After a series of strikes and unrest by workers in the 1950s, Aramco improved laborers’ conditions. Still, a 1962 survey found that among Aramco workers—the elite of ordinary Saudis—16 percent of homes had neither running water nor electricity, 48 percent had running water but no electricity, and 36 percent had both running water and electricity. Having both running water and electricity is what constituted well-to-do in Saudi Arabia fifty years ago—that is, when the current Saudi elite was young. Education and health conditions in Saudi Arabia were dreadful during this period. In 1954, when the kingdom’s Ministry of Education was 60 Patrick Clawson established, only 8 percent of school-age children attended school. The curriculum centered on religious education, which was 57 percent of the secondgrade school day, 53 percent of the third grade, and 35 percent of the fourth grade. In short, “education consisted primarily of the teaching of Moslem doctrine and memorization of the Koran to boys; education of girls was practically nonexistent.” In 1956, the literacy rate in the kingdom was slightly above 5 percent. As late as the 1971–72 school year, in a country with at least three million citizens, only 27,109 Saudis graduated from elementary school and 3,279 from secondary school. In 2009, these secondary-school graduates were fifty-six years old and at the height of their careers in business or politics , so the impact of this legacy of educational underdevelopment remains relevant. Saudi Arabia’s economic situation before the development...