The Paradox of Plenty: Oil Booms and Petro-States

The Paradox of Plenty provides great detail and explanation into the world of Petro-States and the amazing similarities that oil-producing countries share (obviously with some exceptions). Terry Lynn Karl does an excellent job at explaining what are the most relevant factors that determine the successes and failures of Petro-States in their ability to "sow petroleum". The King Midas Effect and the Dutch Disease are used as descriptions and comparisons of the sickness that the majority of the countries blessed with oil suffer. The Paradox of Plenty, in my opinion, does an excellent job at narrowing and analyzing the political, economical and social decisions from the past 100-or-so years which led the Oil-producing Countries either into the developed world or on a straight path to under-development and corruption. I agree with some of the reviews in the sense that the book is written for academic purposes and it can be a little dense at the beginning. Nevertheless, once you get past the first 30+ pages, you become used to the writing and the book becomes interesting and enriching. The book bases most of its analysis and theses using Venezuela as an example. An oil-rich Country with one of the largest reserves in the world that has failed to make the jump into the developed world. This was another plus for me since, as a Venezuelan Citizen, the book taught me a great deal of history. It is definitely a must read. More specially for every politician who wishes to engage with the oil industry and must understand the mistakes from the past to avoid them in the present.

After spending 3 months in Venezuela studying the oil industry and the political economy of the country, I finally picked up Karl's 1997 book. It was as if it had been written in in 2007. It gives any watcher of Venezuela a contextual fabric to understand today's Venezuela. For Venezuela, the western consumption-led, oil-development model has cursed it to high urbanization, hyperinflation, inefficient heavy industries, an elitist and clientelistic labour movement, executive centralization, fiscal black holes and dependency on foreign capital and technology. These trends continue today under the Chavez government. To break the cycle, Venezuela must invest the oil money outside the country, spur the development of agriculture, and broaden the tax base with increased income tax. These three factors would have a cascading effect to diversify the economy, increase accountability, broaden the labour movement, reduce urbanization, decrease inflation and ultimately make Venezuela more than an oil jockey filling up its rich neighbour's Hummer. With all the oil left in the country, maybe they will get it right the next time, but based on Karl's analysis probably not.

This book is a good contribution to the scholarship of one-good exporters, such as oil for many Middle Eastern countries and Venezuela. The author focuses on Venezuela, with occasional reference to other countries. The main thesis is that aside from the traditional Dutch disease of such intense exporters, there is an organizational component in the downfall of such plenty. For example, she argues that a large self-serving infrastructure and bureaucracy is built around the "pot of gold". She argues this may be one of the main causes that coutnries squander such valuable resources without ever refocusing them on the development of people (health and education) or the country's economy (such as through the extension of value-added activities). Overall, an interesting proposition, though I am not sure this is a phenomenon unique to countries faced with the plenty of oil or other products. It is a strong case that inefficiencies are added through bureaucracies, but I still believe much of the damage is caused by the traditional Dutch disease.

Basically, this book is a very strong and appealing summary of the consequences of over-reliance on oil production for developing countries. Not only results, but also underlying causes are considered: most attention is given to institutional and political aspects of what Lynn calls "petrolization" of the state. He argues that petroleum is the only product, which creates strong long-lasting ties among politicians and institutions involving them into constant seeking of oil revenues (for their own as well as for state benefit). Future decisions in this environment are determined by actions taken in the past, which makes it very hard to break away from this circle. The case of Venezuela is especially well considered; much of the information is taken from Lynn's conversations with Venezuelans top governmental officials and, hence, is of a great value. Carefully chosen data are well presented on a passionate manner which conveys the dramatic nature of changes brought by petroleum in this country. The future of new oil-producers becomes less shinning as we look at the data provided by the author. Only Norway, who managed to overcome most of the negative aftermaths of its oil windfalls, deemed as a winner within the group of oil producers. Lynn ascribes this success to a well-prepared and robust bureaucracy and stable democracy existing in Norway. The only problem I see in this book is its superficial treatment of economic factors related to "petrolization" of the state. In this context, Oil Windfalls: Blessing or Curse? by Alan Gelb and Associates (1988) or Sustainable Development In Mineral Economies by R. Auty and Mikesell (1998) or would be a great supplement.

Basically, this book is a very strong and appealing summary of the consequences of over-reliance on oil production for developing countries. Not only results, but also underlying causes are considered: most attention is given to institutional and political aspects of what Karl calls "petrolization" of the state. He argues that petroleum is the only product, which creates strong long-lasting ties among politicians and institutions involving them into constant seeking of oil revenues (for their own as well as for state benefit). Future decisions in this environment are determined by actions taken in the past, which makes it very hard to break away from this circle. The case of Venezuela is especially well considered; much of the information is taken from Karl's conversations with Venezuelans top governmental officials and, hence, is of a great value. Carefully chosen data are well presented on a passionate manner which conveys the dramatic nature of changes brought by petroleum in this country. The future of new oil-producers becomes less shinning as we look at the data provided by the author. Only Norway, who managed to overcome most of the negative aftermaths of its oil windfalls, deemed as a winner within the group of oil producers. Karl ascribes this success to a well-prepared and robust bureaucracy and stable democracy existing in Norway. The only problem I see in this book is its superficial treatment of economic factors related to "petrolization" of the state. In this context, Oil Windfalls: Blessing or Curse? by Alan Gelb and Associates (1988) or Sustainable Development In Mineral Economies by R. Auty and Mikesell (1998) or would be the best supplement.