A New Version of the Resource Curse

Countries with abundant natural resources often experience weaker economic performance because power concentrates among resource owners rather than productive actors, reducing productivity over time and distorting politics through limited accountability to oligarchs. Oil is a common example, with governance patterns that do not align with thriving democracies. Avoiding this pattern typically requires strong democratic institutions established before resource discovery, as seen in Norway. Japan provides a counterexample by achieving rapid industrial advancement despite limited natural resources and maintaining a generally democratic political system. Separately, the U.S. dollar functions as the global reserve currency, making it widely held for international trade and allowing the U.S. to sustain large trade and budget deficits over decades with fewer immediate repercussions.

"The first idea is the resource curse, a well-established concept in political science that holds that countries with an abundant resource often lag economically behind countries that don't. In countries with those resources, power tends to concentrate among those who own the resource, rather than those who are the most productive. That has a downward effect on productivity over time. It also has a distorting effect on politics, as those who hold state power are accountable (at first) only to a few oligarchs. Oil is the textbook case; OPEC isn't exactly rife with thriving democracies."

"Countries that have managed to avoid the resource curse, such as Norway, typically developed strong democratic institutions before the resource was discovered. The counterexample to the resource curse is a country like Japan. Japan has very limited natural resources but developed into an advanced industrial power quickly. Its politics aren't perfect, but it's generally considered a democracy."

"The second is that the U.S. dollar is the global reserve currency. Again, this is well established. Because it's the currency most widely used for international trade, other countries find it useful to keep lots of dollars on hand. That enables the U.S. to run significant trade and budget deficits over decades without any major consequence. We can find buyers for dollars even when the dollars are used for transactions in which the U.S. plays no part. That's a massive privilege. It enables us to flood the economy with dollars without worrying overly much about system collapse."

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