Oil, Transparency, and the Causes of War

by Erik Voeten on August 28, 2012

in Blogs

We are delighted to welcome a guest post from Jeff Colgan, an Assistant Professor at the School of International Service at American University, on how a new SEC rule may just help to prevent war.

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The concept of the resource curse is gradually moving from academia to the policy world.  The U.S. Securities and Exchange Commission (SEC) just took the latest step, by enacting rules that could reduce corruption, promote political accountability, and maybe even reduce the probability of war.  The SEC decision is worth celebrating.  But it also points to the need for better evidence on the conditions under which transparency actually helps.

First the facts: last week, the SEC finally enacted long-overdue regulations stemming from the Dodd-Frank Act which will require any oil company that is publicly listed on a U.S. stock exchange to report its tax, royalty, and other payments to foreign governments. Until now, companies have been able to conceal this information, making it difficult for civil society in developing countries to hold their leaders accountable.

The hope is that increased financial transparency reduces the worst effects of the resource curse (the symptoms of which include weak economic development, political authoritarianism, and frequent domestic conflict).  Support for transparency on oil revenues is not just some World Bank mantra – policymakers in developing countries are demanding it, as a recent NY Times op-ed by a Libyan official shows.

As I argued in Foreign Policy’s blog this week, the rule change is not just beneficial to developing countries, but potentially to the United States and its allies too. If oil money is not managed well, it tends to get used to fund civil and international wars in the future.  Those wars will almost inevitably draw in the United States, making them costly in both blood and treasure.

Research shows that oil-producing states led by revolutionary governments are more than three times as likely to instigate militarized interstate disputes as a typical state.  Oil income can make petrostates aggressive, which leads to wars like Iraq’s invasion of Kuwait and Libya’s various battles with Chad and other neighbors.  Such wars are likely to happen again, especially as sixteen developing countries become new oil exporters in the near future. [My book on this subject, Petro-Aggression: When Oil Causes War, is forthcoming (2013).]

Along with many others, I believe that transparency can help mitigate the resource curse.  But I also think transparency is a “probably necessary, and certainly not sufficient” condition for promoting good governance in the extractive industries.  The “probably necessary” introduces one caveat – we lack really solid evidence on this point – but there is a bigger issue here.

My principal concern is about the “not sufficient” part of transparency.  We’d like to know what else a country needs to do to avoid the resource curse, because nobody thinks transparency is a panacea.  I think there’s an opening here to study the extent that transparency actually enables the kind of political accountability and good governance that advocates hope it does.  (Some work on this issue is already underway: see Gillies and Dykstra in Cheng and Zaum, 2011)

Part of what makes this challenging is that ideally we would like to study countries that have had a significant change in transparency even as oil income (or possibly other resource income flows) remains constant.  Such cases are hard to find: the resource curse being what it is, oil money and lack of transparency typically go hand in hand.

So, fellow political scientists, how about it?  How can we advance understanding of the conditions under which transparency leads to greater political accountability, lower corruption, and/or less frequent violent conflict?

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