What Our Dollars Fuel


Review of Blood Oil, by Leif Wenar

Oxford: Oxford University Press, 2015

Earlier this month, the Saudi deputy crown prince, Mohammed bin Salman, announced plans to restructure the country’s economy. In a phrase that made headlines worldwide, he declared that Saudi Arabia was “addicted to oil”. It pleases me to imagine that the prince might have been reading Blood Oil, the recent book by the philosopher Leif Wenar, which describes Saudi Arabia as a "balloon of trouble" that has yet to burst.

Addiction is the ruling metaphor of the book, and Wenar exploits it with evident zeal. Angola "drinks dollars and pays in petroleum"; Zimbabwe "snorts dollars and pays in platinum"; "resource-dependent states mainline cash", and "the resource money goes right to their heads." Yet in a way, the truth is more sinister still. Addiction may be the book's guiding trope, but much of its content demonstrates instead how the exploitation of resources by autocrats is a calculated means of achieving two goals: personal enrichment and the retention of power. It is an addiction autocrats are in no hurry to kick. Far from a practice leading to regret and time inconsistency, as addiction is expected to, it is a reliable means by the ruling class of perpetuating itself—this is why no oil economy has ever transitioned to democracy. 

From the rulers' position, a petro-economy becomes irrational only once it becomes unsustainable, as when the price of oil no longer allows rulers to perform the expensive exercise of keeping themselves in power by buying off the support of thousands of princes, and maintaining a vast secret police to repress opposition. It is no coincidence that it is with oil prices at historic lows that Saudi Arabia suddenly discovers itself in the grips of "addiction".

Much of the world's natural resources, according to Wenar, are being siphoned off by autocrats who use the revenues to impose misery on their people. Western economies become complicit in despotic regimes through their purchases of oil and its byproducts in clothes and cosmetics. And Western laws end up supporting the rule of "might makes right" abroad when they enforce the property rights of autocrats. Given this diagnosis, the remedy appears straightforward: cut off Western demand, and thus increase the odds of democratic transition and "popular resource sovereignty" in petro-economies. Wenar has written a polemical, but ultimately hopeful book. It is a call to arms on the part of a self-professed theorist.

The book begins with a rundown of the resource curse hypothesis, the belief according to which countries endowed with natural resources, especially those where discovery occurred prior to a democratic transition, remain mired in unstable, slow growing, autocratic regimes. Wenar is unsparing in the ills he attributes to natural resource economies: he connects oil wealth to civil war, patronage, recessions, corruption, inequality, HIV rates, illiteracy, patriarchal social structures, terrorism, Ebola, and the takeover of Crimea. Some of these amount to cherry-picking, and the resource curse literature is more split than suggested here. In the Cold War period, for instance, resources actually appear correlated with slight increases in democracy, leading some to talk of a "resource blessing". Wenar dismisses such empirical ambiguity from his status as theorist: "reaching judgments beyond the range of current empirical techniques is one role of the theorist". This may be so, but surely theorists who call for the boycott of half the world’s oil reserves lose their perch as theorists, and are bound to existing empirical knowledge. For the most part, however, Wenar does hew close to the facts, as the book deploys a wealth of evidence to press its case.

Ultimately, the disagreement in the empirical literature is over an average global effect. It does not mean that the resource curse cannot be unambiguously identified when it emerges in a given country—a country like Equatorial Guinea, which features Africa's longest-standing dictator, Teodoro Obiang. Obiang diverts oil money to buy private jets and luxury cars, while his population remains among the world's poorest. The US ambassador described him as a "kleptomaniac without a scintilla of social consciousness"; yet the US continues to import its oil. 

The kleptomania is relevant: Wenar's central claim is that Western economies back regimes like Obiang's by protecting their right to export resources that are not theirs to sell. In designating these goods as "stolen", the book relies on the International Covenant on Civil and Political Rights: "All peoples may, for their own ends, freely dispose of their natural wealth and resources". Yet once the minerals mined by a Congolese militia find their way into an American teenager's cell phone, that teenager has full title to the phone, in a manner enforceable in an American court. The laws of Western importing countries give domestic legal effect to the rule of autocrats.

The onus of responsibility is put squarely on Western importing countries: "all nations tell their own nationals that they must buy Equatorial Guinea’s oil only from Obiang’s regime". The argument at times appears forced. By the same logic, would it be fair to say that American property laws are complicit in the destructive habit of an alcoholic who also runs a factory, since the factory's profits feed his drinking? Property rights unavoidably feed some social ills. The question is, which of these ills are sufficiently inexcusable, and linked to economic transactions in sufficiently observable ways to warrant suspending those trades? Wenar vigorously argues that the purchase of oil from regimes like Obiang's meets both these criteria.

As a solution, Wenar proposes a Clean Trade Act, where (Western) states would choose which countries satisfy "popular resource sovereignty", and block oil imports from those that do not. International measures like Freedom House's "Not Free" indicator would serve to draw the line. By Wenar's count, some 27 countries fall in the category of resource-dependent exporters that deny popular resource sovereignty.

In pushing for such an ambitious global solution, the book presents analogous policy shifts of the past that were also driven by morals: the abandonment of territorial conquest, the disavowal of the slave trade. Most convincing of these is the history of the license to plunder, codified by Hugo Grotius in the 17th century, and transmuted into its opposite over the three centuries that followed: today, the victors are not only kept from plunder, but are actually required to care for the cultural treasures of the enemy.

Yet the main obstacle facing those wanting to act against the resource curse abroad is of a somewhat different nature. The challenge is one of information. In its extreme form, the information problem is irresolvable: we cannot make every transaction conditional on how our counterparty proposes to spend her gain, blocking those transactions which we perceive as feeding social ills. Wenar would respond, plausibly, that the inability to deliver fully on the principle is irrelevant to our duty to address its most egregious instances. There is little doubt that oil wealth allows Obiang to support his brutal regime, and that the oil is not his to sell. Obiang's oil constitutes 0.2% of US total oil imports. Regardless of whether we can fully deliver on the underlying principle, in those cases where we can, the claim is we should.

The problem is a familiar one to political economists. Stated in its general form, it asks whether trade is possible between countries of varying ethical standards. The challenge is knowing what constitutes a legitimate standard, and what action it calls for. One major difficulty, which Wenar is quick to dismiss, springs from the way the market has a strong incentive to exploit principled stances. This exacerbates the fundamental informational problem: in a marketplace, how do I know which standards are legitimate, and which are primarily protectionist devices?

For instance, the book applauds the US Lacey Act as a rare exception to the law of might makes right. The Lacey Act now bans the importation of the products of illegal logging abroad. But it is also a prime example of a Baptist-bootlegger coalition: it would never have emerged had it not been for self-interested actors—the US logging industry, with issues of its own—pushing for protection from foreign competition under the cloak of principled action. Wenar's answer is to embrace such protectionists as valuable allies.

What this risks bringing forth, however, is another form of the very phenomenon Wenar decries. "Might makes right" occurs at home when the most politically powerful private interests, those with the loudest voice, push principles to advance their self-interest. The result often supplants the very objective being pursued. Canadian green energy firms invoke environmental concerns to fight for "national content" subsidies, which distort global markets in a way that hurts green energy innovation. Western import-competing industries push for higher wages in developing countries in ways that deprive these countries of their main comparative advantage, and risk impeding development. Baptist-bootlegger coalitions appear desirable in any given instance, since bootleggers make for powerful partners, but they make it less likely that the correct principles are pursued in the first place. They allow "might" to determine what is considered "right".

One group that will support banning Saudi oil is made up of those who gain from oil extraction in the US and Canada. Cutting ourselves off from Saudi oil, which requires the least energy to exploit, means that we must rely on oil that is more energy-intensive to exploit. One consequence of a Clean Trade Act would be more dirty oil: it would increase demand for fracking and tar-sand oil extraction, with the attendant environmental consequences. The point is that in pushing forth some principles, we necessarily run up against others.

In this vein, imposing our standards on trade partners leads us to deal only with those countries that resemble us. Stolen natural resources, after all, are one concern among many. As a Canadian, I might say that the United States, which has a unionization rate a third of our own, does not extend sufficient rights to workers. A quick remedy would be to cease importing US-made goods that support a system which from my point of view tramples labor rights. And might Denmark, where union density is double our own in Canada, not say the same about us? If we want to extend the principles which we hold dear to the commercial sphere, the result is that we end up trading only with countries identical to us. This, in turn, risks forgoing many of the demonstrable benefits of economic exchange, precisely in terms of diffusing desirable standards.

As Wenar himself notes, 51 of 54 African countries are currently either producing or exploring for oil. Most of these would not clear Wenar's criteria for popular resource sovereignty. Would we wish to cut ourselves off from all these countries? In the book's list of "not free" resource-dependent exporters, which includes countries like Vietnam, more than half happen to be Muslim countries. It is worth asking whether cutting economic ties with these countries amounts to wise policy.

Wenar maintains that all that stands in the way of remedying the resource curse abroad is our "self-control" as consumers. Would that it were so easy. The world is full of well-intentioned people willing to pay more at the pump for the warm feeling of acting right. The proliferation of various consumer certifications is a testament to this. Yet we cannot make the world better merely by paying more. The tradeoff is a harder one, since it relies on reliable information, which the market has an incentive to distort, and because it comes up against other principles which we also value.

But this is where Blood Oil comes in. Its great achievement is writing convincingly—vehemently, unrestrainedly—about the social ills that really do follow from specific transactions that we are unwitting party to. Its considerable accomplishment is to make us a little less unwitting.

Posted on 13 June 2016

KRZYSZTOF J. PELC is Associate Professor and William Dawson Scholar in the Department of Political Science at McGill University. His forthcoming book is Making and Bending International Rules: The Design of Exceptions and Escape Clauses in Trade Law (Cambridge University Press).