Imagine for a moment that you are a country in the developing world. Except for your cheap labor, you have no resources to speak of. What fertile land you have is mostly given over to the wealthy, while the rest of the population is squeezed into sprawling, squalid shantytowns or spread out across a vast landscape trying to scratch a living from the earth through subsistence farming.
You get by most of the time on financial aid from the West in the form of development or military assistance — especially the former if you are in an area deemed of strategic interest to the Pentagon. You lack infrastructure, are isolated from global markets, and, in short, have nothing to offer the rest of the world in terms of trade besides the sweat of your brow and low-priced agricultural commodities.
All seems hopeless, but then a miracle occurs: geologists working for a major international oil company set out across your land and reported back that your country and people are sitting atop an ocean of oil. It’s worth hundreds of billions of dollars, they say, and if only you would allow them they could get at it, they could send it to market and shower your country in riches.
Suddenly, your problems seem solved. Oil will transform your society from a backward charity case to a country worth living in, maybe even one worth listening to. Where, you ask as the oil executives put paper in front of you, do you sign?
In one form or another, this story has played out in many a desperately poor country since the beginning of the last century. Inevitably, as if some occult hand were at work, the story ends in tears, as the flow of riches that comes from extracting oil, gold or some other precious commodity leads always and everywhere to corruption, dictatorship, civil war, political extremism and — quite often — foreign intervention.
Why is this so often the case? Why should something so rich and valuable — something that creates so much seemingly inexhaustible wealth — nearly always lead to such terrible outcomes? Outcomes that in many places have led to arguably worse outcomes than if oil had never been discovered at all? These are no small questions because they cut to the heart of how we think about wealth and its effects on society.
Hardware, software and wealth
Back in the 20th century it was widely believed that as societies grew richer, people would inevitably demand more freedoms and political rights. Termed the modernization theory, it was widely adopted by Western scholars during the mid-20th century who were alarmed by Marxist theory — and Soviet power — that argued that all roads led to socialism. In many ways, it was a liberal-capitalist version of Marx’s historical dialectic, but instead of commissars being the handmaidens of history, it was the capitalists who were deemed the true revolutionaries.
Coupled with a naïve view of how economies worked that focused almost entirely on accumulating physical and financial capital that people could see, touch and spend, it assumed that all that was needed for countries to develop was a little bit of capital — e.g., infrastructure and money — to be added. Once added, one would have — almost by magic — a brand new capitalist, liberal democracy ready to be added to the ranks of the free world.
Of course, policies built on that assumption almost always led to disaster and ruin.
What creates development of the type most reading this would recognize as a good thing is not wealth, per se.
Building dams, roads, bridges and factories, and showering money on countries unacquainted with these structures and wealth does not create an instant paradise. In fact, it’s just the opposite. As development project after development project fell into waste and ruin by the seeming inability of many countries benefiting from them to put them to long-term good use, a different way of thinking about wealth and development emerged.
This latter approach was a very different kettle of fish, and it was and still is controversial and politically contentious. Whereas the prior theory had focused on the economic hardware an economy might use — roads, bridges, stacks of portable wealth and so on — the new approach began to focus on the software — rules, norms, laws, customs and traditions — that societies used to govern both themselves and the economy they created. When examined in this way, scholars began to form a deeper understanding of just why some countries grew and became successful and others did not.
To put it very bluntly, the major finding of this school of thought is that societal software is actually more critical than the hardware any given economy used. Specifically, those countries that successfully limited the ability of political and cultural authority to steal and monopolize wealth — no matter how it was formed — tended to be better off in the long run. While sometimes taken to an extreme to justify having very little government at all — a concept that creates its own problems — it is nonetheless a very important finding broadly backed up by much empirical and theoretical work conducted by a huge number of working scholars over the past decades.
Government and politics, it turns out, matter greatly, as do cultural practices and norms that govern how people interact in the marketplace. The great finding here is that the West, over the course of several centuries, was able to constrain its political robbers and cultural brigands just enough to allow capitalists to reinvest the fruits of their labor back into productive enterprises. The causal arrow is thus reversed, with the story now being that the West became democratic not because it was rich and capitalist, but that it became rich and capitalist precisely because it first developed a nascent form of republican democracy that allowed its first capitalists to emerge and grow rich.
Egalitarian energy?
So what does this have to do with oil and, more importantly, renewables? As it turns out, if one looks at the history of the West, it was not just the introduction of republican government that was so crucial, but also its attachment to and coevolution with an economic way of life that could be considered broadly egalitarian. Examples of such economic cultures include smallholder agriculture and commerce such as that found amongst the yeomanry of old England, the Dutch traders of that country’s first republic, the Yankee capitalists of colonial New England or the startup culture of today’s Silicon Valley.
Republicanism of this type — known as Jeffersonian Democracy today — makes both democracy and capitalism work well because no one in such systems is ever powerful enough to rig the game in their own favor. Out of this balance of power came the economic, political and social space needed for growth to emerge, take hold, and thrive, while turning society in a more liberal direction in the process. In these societies — which always require an active balancing act to maintain — all good things really do go together.
In contrast, where economic resources could be easily monopolized by force — think of the American South’s vast slave plantations or the company mining towns of the Old West — republicanism tended to be captured by a wealthy oligarchy who made their money the old-fashioned way — by stealing it and then using force to rig the game so no one could replace them or their heirs. This, in turn, made republican government fragile as the state became a cudgel to be captured and used by conservative reactionaries or populist rabble rousers aiming to use it against the other.
No resource or economic sector in the modern era best typifies easily monopolized wealth than that created by oil. Like land in the old days, oil is extremely limited and not distributed equally. It can be easily controlled through the use of force and requires relatively little in the way of labor to produce. All it takes is an alliance between those who own or control access to the oil and those with the expertise and capital needed to get it out. Finally, once unleashed, the flow of wealth from oil can be easily channeled into just a few select hands.
What’s worse, oil doesn’t even really make a country wealthy in the way economists define the term. Sure, the Gulf monarchies are rich, but aside from oil, there is absolutely nothing they produce that anyone wants to buy. With all the focus and investment going into oil, very little gets put into other productive parts of the economy and, as a result, other sectors often wither and die.
What one gets with oil riches on par with that seen in Saudi Arabia or Nigeria is a hugely important oil sector and domestic consumption associated with the riches that come with it. These countries don’t get vibrant manufacturing, R&D or information technology sectors because these economies never invest in them — sometimes out of fear that doing so will create political opposition to the powers that be. Indeed, so long as oil-empowered consumption is spread widely, there isn’t even any real pressure to democratize or revolt. Life is good, so long as the oil never runs out.
Oil is thus a sort of black hole that sucks the life out of other parts of the economy and creates a political trap from which it is difficult to escape. With oil wealth, every political encounter becomes a zero-sum conflict over its distribution. Since it can be easily monopolized, it makes an easy target for takeover by one armed group or another. This guarantees horrible outcomes in poor countries where being shut out from oil revenue means penury and death, and groups will readily turn to violence in order to stop that from happening.
Renewables, on the other hand, are the exact opposite of oil. No one can monopolize the sun or the wind, and the expertise, technology and infrastructure necessary to produce and distribute renewable energy are quite useful in a high-tech, export-orientated manufacturing economy. What’s more, a vibrant and growing renewables sector won’t overwhelm other parts of the economy, meaning the relationship between renewables and other economic sectors will be one of symbiosis and cooperation, not parasitical domination. With this in balance, society can also find stability, which, in turn, makes achieving a republican democracy, as in Yankee New England, much easier.
One can imagine a country embarking on tapping its renewables potential going down a very different path than one using the get-rich-quick scheme that is oil-based development. Wealth from renewables might not be instantaneous, but the economy will grow more organically and in a more balanced way than one powered by oil wealth. What’s more, with economic resources more fairly distributed, politics becomes easier, conflict less likely, and democracy more likely to be established and thrive. Such countries become supporters of a peaceful, democratic world order, rather than development sinkholes that produce violence, instability, extremism and authoritarianism alongside oil.
So, consider again the plight of that developing country. A wise leader will lift his or her eyes up from the ground and away from the easy, but destructive, wealth that comes from oil and toward a better, but more difficult, way to wealth offered by green, renewable power. Like anything worth achieving, it won’t be easy, but with enough foresight, perseverance and hard work, a country may just be able to bypass the oil curse by taking the highroad to renewables.
Too bad we here in America are doing everything we can to block that road.