A poverty of riches

What is it about resource wealth that impoverishes and corrupts nations? Less than two decades after the fall of the Soviet Union, Russia has reverted to the crony dictatorship of Vladimir Putin. Federico Varese explores the social and political decay that has spread in the wake of the opening of Russia's energy markets:

Russia is one of the few countries in the world where life expectancy is declining; young people between the ages of fifteen and twenty-eight have the highest mortality rate in Europe. In the 1980s, citizens of the Soviet Union had the same life expectancy as citizens of the United States. Today, the Russian male lives on average to an age of fifty-nine, sixteen years less than his U.S. counterpart. About ten million Russians are sterile as a result of bad health or abortions that went wrong. According to the Academy of Medical Sciences, 45 percent of newborns have a disease or a congenital birth defect.
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Indeed, the majority of the ideologues from the Yeltsin era, such as the consultant Anders Åslund, considered the fall in the birth rate to be a contingent phenomenon due to the adjustments that followed the transition to a market economy and democracy. The graph for the birth rate does in fact show a fall in 1991 and a further fall in 1998, the year of the financial crisis. Yet the economy has grown uninterruptedly and at a staggering rate over the last seven years, while the population continues to die. What could be the cause?

The Russian conundrum consists, first, of a growing economy with a gross domestic product that has increased by 50 percent since 1998, a solid and reliable financial system, companies listed on the London and New York stock exchanges, thirty-three billionaires on the Forbes List in 2006, and a responsible monetary and fiscal policy that has produced a fiscal surplus since 2000. Then there are the dramatic social indicators: the suicide rate has increased by about 50 percent since the nineties; alcohol and drug consumption have soared; the AIDS epidemic is the worst in Europe; there are 120,000 new cases of tuberculosis every year; and access to hospitals under the corrupt and inadequate health system depends on bribing doctors and nurses. The political indicators are no less dismaying. The system is increasingly authoritarian: all the television channels are under direct or indirect government control; the nonaligned daily and weekly newspapers can be counted on the fingers of one hand and, in any case, have an extremely limited circulation; the president has abolished the elections for regional governors; a few politicians close to Putin have recently suggested the abolition of mayoral elections as well; and pro-government parties, which win with majorities of 70 percent, control sixty-three of the eighty-eight regional parliaments. Trade union activity is almost nonexistent because, as the American journalist David Satter has made clear, trade unionists are intimidated, beaten up, and even eliminated. The climate of fear extends to the ethnic minorities that live in the country: the most recent victims have been the Georgians, who are guilty of having been born in a country that does not accept Russian political interference. During his recent anti-Georgian campaign, President Putin added a new expression to his vocabulary: korennoi narod (“the rooted population”), obviously a reference to the Russians. He insists that the interests of this latter group must be protected against ill-defined dangers. In the meantime, the police arrest and beat up the local “blacks” (non-Russians from the South).

THE GRAPH THAT provides the best explanation of the Russian conundrum consists of three lines: the world oil price, the degree of democracy in Russia (political and civil rights) as measured by Freedom House, and the rate of corruption as measured by Transparency International. Once this graph has been drawn, the reader immediately sees illuminating correlations: every time the oil price goes up, the level of democracy in Russia goes down and the level of corruption goes up. For decades, political scientists have studied the so-called “wealth paradox” (most recently, Michael Ross, Steve Fish, and Peter Rutland); namely, the fact that countries that are rich in natural resources do not appear to be able to prosper economically over the long term. The classic example is that of Spanish colonization in the New World, which brought fabulous riches to the crown treasury but in the end produced economic decline. In the Spanish case, the American gold only produced powerful inflationary pressures.

The connection seems real enough at first glance, but it ignores the fact that those nations exemplifying the trend have never enjoyed democratic success prior to the realization of their oil wealth. The Middle East were backwards tribal fiefdoms, and Russia has had a long tradition of autocratic and dictatorial governments going back to the days of the Czars. It ignores the social and economic success of democracies like the US and Canada that have always enjoyed natural resource wealth. The more you try to explain the fate of nations through material factors, the more you realize that culture trumps all other considerations.

Update: Oil megalomaniac Hugh Chavez furthers the argument that oil riches and responsible government do not mix. This is a laugher, though:

But he also boasted of Venezuela's Russian Sukhoi jets: "When they appeared in the sky over Caracas during a parade on independence day two years ago, then we broke the fetters of dependence on the US."

Russia is all too happy to sell obsolete military hardware to this fool with money. One of our F-22 Raptors could plink his Sukhois out of the sky and be back in the US in time for lunch, and they wouldn't know what hit them.