Saturday, April 21, 2007

Nigerian Elections, Property Rights, and the Resource Curse

Fears of violence and fraud again surround elections in Nigeria. A tanker truck attempted to destroy the Independent National Election Commission and an opposition party claimed that it captured a truckload of rigged ballots. Such unrest is symptomatic of the resource curse, wherein extreme wealth from natural resources often harms political stability, equitable prosperity, and economic growth in developing nations. As the New York Times reports:
By all accounts, petroleum profits have brought huge benefits to this country's rulers, but few to its people. Oil companies typically keep 7 percent of the profits from oil sales; the government gets 93 percent.

Nigeria ranks as one of the most corrupt countries in the world according to Transparency International, a Berlin-based anti-corruption group; 70 percent of the country’s population lives on $1 a day or less. Life expectancy is 47 years.

Between 1960 and 1999, more than $380 billion was stolen or wasted, according to Nuhu Ribadu, Nigeria's top anti-corruption official. In that period, the country produced over $400 billion worth of oil.

In an effort to redistribute wealth, the government now gives 13 percent of the proceeds from oil sales to the producing states but there is little accountability of how these funds are spent. Much of it simply disappears, wasted by inefficient or corrupt local officials, according to a recent Human Rights Watch report.

University of Sheffield philosopher Leif Wenar has been rethinking how property rights law can be used as an antidote to the resource curse. He starts with some basic assumptions from international and commercial law—resources belong to all people of a country not just the mightiest minority, the people must assent to the sale of those resources, and if they haven't assented then the resources can be considered stolen and therefore not valid for trade. Wenar then builds the case for new legal and trade practices to ensure that such stolen resources do not reach the market or that their value is delivered to the peoples who truly own them.

Wenar works through a number of interesting objections to his proposal. Primary among them is finding a means to circumvent the case where, for example, China continues to buy oil from Sudan and the United States continues to buy goods from China. He advocates opening a Clean Hands Trust for the people of Sudan, generated by tariffs on Chinese goods and delivered to the Sudanese once the country has obtained levels of governance that would allow it to validly sell its resources.

Fortunately, the United States already employs the Freedom House standards in its Millennium Challenge Account program, thus establishing bright lines for determining whether resources from a particular country are valid for trade. Countries falling below certain levels of political rights and civil liberties would be disqualified.

"According to the US government's own standards," writes Wenar, "American corporations are buying resources from regimes that could not possibly have the right to sell them. Any consistent pro-market government should prohibit these transactions explicitly."

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