January 28, 2020

KROLL | Our Hand in the Resource Curse

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The resource curse is as tragic as it is predictable. Blinded by the allure of exorbitant wealth, nations rich in nonrenewable resources like bronze, oil and uranium mismanage their economies, winding up with stagnant growth or financial collapse.

Much of this pattern can be attributed to two behaviors. First, governments overemphasize the production of their most valuable resources, often creating economies that rely entirely on global demand for a small bundle of goods. If demand falls, the economy suffers. Second, resource-rich countries with weak or developing democracies typically see rampant corruption among political elites. When a weakly-democratic regime stumbles upon billions in oil revenue, it’s safe to assume they’ll protect and abuse their power. Resource curse case-studies include Nigeria, Venezuela and Zambia.

Though we might be tempted to think of these raucous “boom and bust” stories as abstract cautionary tales, irrelevant to American politics, it’s important that we don’t. These are stories in which American firms often lurk in the background. Of course, there are many cases also involving foreign firms. But regardless of the specifics, none of these stories unfold in a vacuum.

Wealthy firms journey far and wide to make large up-front investments in resource extraction. In the early 2000s, for example, ExxonMobil set up oil rigs in Equatorial Guinea, as vast oil fields had recently been discovered beneath their land. It’s important to note that these investments are extremely costly. Once they’re made, firms are strongly incentivized to make the investments worthwhile. Of many factors affecting the investments’ worth, political stability is among the most salient. Under a democratic regime, for example, it’s conceivable that a newly elected leader could levy stronger taxes on oil, making extraction significantly less profitable.

Perhaps with this eventuality in mind, ExxonMobil partnered with Equatorial Guinea’s autocratic leader, President Toedoro Obiang, to reinforce his authority. Although Obiang imprisoned dissenters, tortured political opponents and left citizens to live on dollars a day by keeping billions of dollars in national oil revenue for himself, Exxon was unfazed. In fact, they hired him a Public Relations firm and sent personal bribes (see: Rachel Maddow’s book Blowout), for which they were eventually punished in U.S. Court. So long as Equatorial Guinea’s violent autocrat kept taxes low, Exxon was more than happy to sit somewhere between complicity and accessory.

Nigeria is home to a similar iteration of the resource curse. Although oil and gas monies currently account for roughly 65 percent of Nigeria’s gross government revenue, the World Bank has reported that 80 percent of these earnings are held by 1 percent of the nation’s population. Perhaps unsurprisingly, the story of Nigeria’s economic and political misdoings features Royal Dutch Shell, the British-Dutch oil and gas company, rather prominently.

Shell first took hold of Nigerian assets in the early 20th century, and sent its first Nigerian oil shipment in 1958. Expanding their Nigerian holdings over the coming years, Shell eventually came to share stakes alongside France, Italy and the Nigerian National Petroleum Corporation by the 1970s.

In the nineties, Shell’s activity came under international scrutiny. Responding to a non-violent 1990 protest at one of their Ogoniland facilities in the Niger Delta, Nigerian nationalized military forces killed at least 80 people and set fire to a nearby village.

Despite this clear demonstration of the Nigerian military’s preferred tactics, Shell doubled down on their partnership. The coming decade saw their continued cooperation with the Nigerian dictatorship and state military, which enabled the murder of hundreds of Nigerian citizens. Shell got its political control, and made good on their initial investments. Though they can’t be blamed for all Nigerian corruption, they should certainly be held accountable for the murders that they facilitated, and the corrupt behavior that they enabled.

This is the side of the resource curse of which we need to be more cognizant. No nation is mismanaged in a vacuum. Especially when it comes to the corruption supposedly endemic to resource-rich developing countries, we should note that powerful firms often have the chance to step in — but fail to. In fact, they sometimes exacerbate the problem. The examples in Equatorial Guinea and Nigeria are not aberrations — they are the consequences of an investment model that puts a premium on political control. Democracy has plenty of perks; stability isn’t always one of them.

At this point, you might be wondering how this has anything to do with us. Firstly, it’s important to understand the global repercussions of our consumption. Plenty of these cursed resources end up in our living rooms, cell phones, and gas tanks. Secondly, these industrial relationships are implicitly colonial. Firms based in global metropoles exploiting developing countries for nonrenewable resources is no novel concept. It’s critical that we appreciate that colonialism is not only a history, but a reality for many as well.

Thirdly, on a more tangible note, we should all know that Cornell funds many of these companies. Though the details of our endowment’s investment are not disclosed, 4-6 percent of most university endowments are invested in the fossil fuel (oil and gas) industries. Our endowment clocks in at roughly $7.2 billion. If we’re in the 4-6 percent range, we would have between roughly $300 million and $400 million invested in companies like Exxon, BP and Royal Dutch Shell. In fact, Cornell Engineering and Royal Dutch Shell have a long-standing corporate partnership.

Aside from the obviously problematic nature of these firms’ contribution to climate change, oil and gas companies’ nefarious political acts abroad shouldn’t be ignored. As calls for fossil fuel divestment likely proliferate in the coming months, we should be clear-eyed about the fossil fuel industry’s coercive and even violent nature.

Julian Kroll is a senior in the College of Arts and Sciences. He can be reached at [email protected]Losing My Edge runs every other Wednesday this semester.