22 August 2012

The Politics of Oil and Budgets #nlpoli

When any country or province depends heavily on the money that comes from resource extraction, it affects politics there.

Political scientist Michael Ross is probably the most recent author on the subject. Terry Karl has also written extensively on the resource curse.  She wrote of the best known books on the subject:  The paradox of plenty:  oil booms and petro-states.  You can also find some of Karl’s further thoughts on the issue in an article she wrote in 2007  and revised in 2009.

These studies focus on the developing world, for the most part, but what academics observe about those countries can cause you to think again about politics in other places.

Like say, Newfoundland and Labrador.

In her 2007 paper on the effects of oil development, Karl wrote (p.21):

Oil wealth produces greater spending on patronage that, in turn, weakens existing pressures for representation and accountability. In effect, popular acquiescence is achieved through the political distribution of rents. Oil states can buy political consensus, and their access to rents facilitates the cooptation of potential opponents or dissident voices. With basic needs met by an often generous welfare state, with the absence of taxation, and with little more than demands for quiescence and loyalty in return, populations tend to be politically inactive, relatively obedient and loyal and levels of protest remain low -- at least as long as the oil state can deliver.

“Buying political consensus”.  That sounds a lot like massive increases in public spending, huge increases in the number of provincial public sector employees all coupled with an unrelenting political communications machine that trumpeted how much money the provincial government was spending everywhere and anywhere in the province.

“Demands for quiescence and loyalty in return”.  That sounds familiar too.  Stop your more for me please rantsEveryone must stand together behind the leader.

Arguably that fits.

And what might happen when the state can’t deliver?

“Can’t deliver” would be  - for example - when oil prices drop and the government doesn’t have the income to pay for its overspending.  Now think about this observation about the provincial government’s spending habits offered by the Dominion Bond Rating Service:

“In order to meet this target, spending restraint will be necessary as program expenditure growth averaging more than 8% over the last five years is incompatible with declining revenue.”

Spending restraint - laying off all those voters - would certainly be an unpopular reform.

Well, to “avoid unpopular reforms,” writes Karl, “governments use their oil as collateral for borrowing abroad or intensify the squeeze on the export sector. Petrodollars simply permit more scope for cumulative policy errors.” [2007: p. 18]

If the country or province happens to have billions in oil windfalls, they might continue to overspend knowing that they can dip into the savings.  In effect, they could choose to “borrow”  their cash reserves than borrow from the bank.  That sounds very, very familiar.

Now none of this means that Newfoundland and Labrador is more like Nigeria or Venezuela than Norway.  After all, we wouldn’t want to send the shrinking violets who make up the chattering classes in this province into a hissy fit.  They tend to get flustered if anyone uses strong words like “jackboots.”  Accusing some of being a quisling is another matter.

Rather what we have are some observations that are worth thinking about.  SRBP is tossing this out for people to roll around in their minds and see if any of it makes sense.  There’s always much more going on than meets the eye.  And at the very least , we should think about whether we are or whether we should be more like Nigeria than Norway.