Question Set for Ch 6 of Hot, Flat and Crowded: Filler ‘er up with Dictators. P 126-

1. What is Friedman’s First Law of Petropolitics? What does it mean for Venezuela and Bahrain?

“In oil-rich petrolist states, the price of oil and the pace of freedom tend to move in opposite directions” (p. 129). When the price of oil is high, Chavez can be a leader in Latin America and a bold opponent of the US, because the US is addicted to Venezuela’s oil and will pay whatever price no matter how much Chavez antagonizes us. With high oil prices, Chavez can also provide necessary social services to his people and distribute real financial aid to other countries in Latin America. When the price of oil is low, Venezuela’s economy is paralyzed because the oil industry is by far is largest industry.

Bahrain has chosen to break the connection between its economy and the price of oil. It had to. It had to because in the 1990s it discovered that Bahrain soon would run out of oil. Bahrain’s king made the enlightened decision that he had to re-make Bahraini society and its economy.

This law applies to a certain extent in the US. My home state is like a Gulf State in the Middle East. For the past 80 years Louisiana’s economy has depended on the price of oil. When the price is high, everybody loves the governor, the state budget is good and roads get paved, universities get funded, K-12 teachers get raises, hospitals update their equipment…When the price of oil plummets, the governor is an idiot, tuition skyrockets, K-12 teachers get fired, schools close, what’s broken doesn’t get fixed.

Beyond these short-term fluctuations, our dependence on the oil economy has stunted our economic growth. Instead of promoting development in a broad range of economic sectors, the state has put most of its eggs in the petroleum industry basket.

2. Be sure that you understand his graph on p. 129.

3. Norway’s leading export is petroleum. Why doesn’t Friedman call it a “petrolist state”? Friedman doesn’t group Norway with Nigeria, Iran, Russia, Venezuela and the Gulf States because Norway had developed “sound and transparent institutions of governance” before it struck oil. These institutions allowed Norway and other non-petrolist oil-producing states to avoid most of the corruption, economic stagnation and dependence on oil price that is so common among the petrolist states. Having read this, I thinkn Louisiana is really closer to Venezuela than it is to Norway, and I’m not talking about mileage.

4. Note how Bahrain’s reform movement was slowed when the price of oil surged to $100/barrel.

5. How does “Dutch disease” differ from the “resource curse”?

Dutch disease occurs when a country gains a windfall from high prices for a natural resource that it possesses in abundance. That windfall elevates the value of the country’s currency, which makes goods produced in that country expensive and less-competitive. The decrease in competitiveness hurts manufacturing in the country. Also, when citizens are enriched by profits earned from the resource they purchase goods made in other countries instead of their own. The combination of highly valued currency and decreasing domestic demands for domestically produced goods can wipe out domestic industries and, thus, reduce the economy’s diversity.

The “resource curse” also occurs when a country gains a windfall from high prices for a natural resource that it possesses in abundance. However, the “resource curse” occurs in countries that never had a diversified economy. They have always been dependent on the resource. That dependence has stunted the countries’ development and economic diversification by creating the sense in society that wealth is generated by having connections with the powerful who control the resource and lack of development is a result of the powerful stealing the wealth generated by the resource. The result is societies that have a distorted understanding of how development occurs (education, initiative).

6. According to Ross, what are the mechanisms by which oil wealth undermines democracy in petrolist states?

1. The “taxation effect”. Because oil revenues allow petrolist countries to not tax their citizens, neither do they have to worry about representing their citizens’ wishes.

2. The “spending effect”. This could also be called the “pay off effect”. Oil revenues allow leaders to “pay off” citizens groups who want change. I guess you could also call it the “sell out effect”. Those citizens group accept oil money rather than pushing for changes.

3. The “group formation effect”. Democratic reforms usually require the formation of like-minded people committed to particular ideals. State leaders often use oil revenues to prevent the formation of these groups.

4. The “repression effect”. This one’s pretty easy to understand. Leaders of petrolist states use oil revenues to support security and intelligence agencies to repress groups seeking societal change.

5. The “anti-modernization effect”. Petrolist states tend to lock their societies in time by preventing the societal and economic development associated with modern societies. They choose not to support economic specialization, urbanization, higher education, each of which would likely create citizens who would push for change.

7. In a later paper Ross explained why women are repressed and marginalized in petrolist states. Summarize his explanation.

Ross found that petrolist states have low rates of women participating in the workforce and government. He traced this to those states’ stunted economies. The main economic sectors are the oil industry and the construction industry, sectors that traditionally do not provide employment opportunities for women. So, more women stay at home, have larger families and have less contact outside of their extended families.

I’m glad that Friedman included this section. So many of us in the US assume that Middle Eastern women have such restrictive existences because of Islam. Ross shows that the curse of oil is probably more important. In other Muslim states, Bangladesh, women participate in the workplace and politics. In Bangladesh’s most recent election for prime minister, the two main political parties were led by female candidates.

8. Be sure you understand how foreign aid during the Cold War undermined economic and democratic development in a manner similar to oil revenues.

9. Why do some residents of petrolist states choose to leave them?

Some residents leave because of the lack of an opportunity for them to apply their entrepreneurship in those states that import everything and make nothing. The blue-collar jobs are filled by imported laborers. There are no white-collar jobs. So they leave to participate in diversified economies where their skills, training and initiative are valued.

10. What does the Russian politician mean when he says, “The question for you Americans is: When will prices go down? It is the only hope for us Russian democrats”?

He means that oil prices will remain high as long as the US is addicted to the stuff. As long as our demand remains high, prices will remain high and, according to Friedman’s First Law of Petropolitics, that Russian’s efforts for greater democracy, transparency and economic development will be undermined the Petrodictators that rule Russia.