The Paradox of Plenty: Oil Booms and Petro-States

"[A]fter benefiting from the largest transfer of wealth ever to occur without war, why have most oil-exporting developing countries suffered from economic deterioration and political decay?" In her long-awaited study, Karl offers a sophisticated cross-cultural reply to this question, focusing on the capital-deficit countries of Algeria, Indonesia, Iran, Nigeria, and Venezuela. Finding inadequate the existing explanations that focus almost exclusively on economic disruption (the "Dutch Disease"), she notes the deep social and political roots of the problems and adds these much-needed dimensions to the discussion.

Her complex argument boils down to this: oil booms (like all commodity booms) put enormous power in the hands of the state that suddenly has vast sums at its disposal. "How these states collect and distribute taxes, in turn, creates incentives that pervasively influence the organization of political and economic life and shapes government preferences to respect to public policies." In other words, "the origin of a state's revenues influences the full range of its political institutions." What appears to be a chance to do almost anything, it turns out, is in fact a very circumscribed choice.

Though a Latin American specialist, Karl understands the Algerian and Iranian encounters with oil and has insights to offer all those who study Middle Eastern oil states-as well as those who lead them.

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