Breaking the First Law of Petropolitics

Printer Friendly

In May 2006, American columnist Thomas Friedman posited the First Law of Petropolitics: the price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. Friedman submitted the proposition after observing that, when oil prices are rising, the leadership of oil-exporting countries like Russia and Iran were more prone to 1) sustain authoritarian regimes and 2) defy foreign pressure for liberalization and cooperation. Fortunately for the citizens of advanced industrial states, Friedman exempted countries like the United Kingdom, the Netherlands, and the United States from its premises -- the law prevails only in poorer states. Or does it?
The Scholarship Behind the Proposition
Friedman acknowledged his observation was hardly unique in that many social scientists had previously noted a deleterious connection between a country’s political and economic development and having such a lucrative commodity in its soil.
Friedman based his proposition on the scholarship of American political scientist Michael L. Ross, who examined the phenomenon in a World Politics article entitled “Does Oil Hinder Democracy?

Ross analyzed data on 113 states between 1971 and 1997 to answer three questions: 1) was the proposition that oil hindered democracy true, 2) did the proposition apply to regions other than the Middle East and commodities other than oil, and 3) if oil did hinder democracy, then how.
Ross validated the claim via statistical testing and determined that oil did undermine democracy. Furthermore, Ross found the phenomenon was not limited to the Middle East or oil – liberalization in other regions has been impeded by oil as well as other critical resources.

Lastly, Ross found “at least tentative support” for three means by which oil harms democratization.

First, “a rentier effect, through which governments use low tax rates and high spending to dampen pressures for democracy.”

Second, “a modernization effect, in which the failure of the population to move into industrial and service sector jobs renders them less likely to push for democracy.”

Third, “a repression effect, by which governments build up their internal security forces to ward off democratic pressures.”
Finally, Ross’s statistical testing demonstrated that, indeed, large oil discoveries “may harm or destabilize democracy in poorer countries, [but] appear to have no discernible antidemocratic effects in advanced industrialized states.” (Emphasis added)
Of course, the United States did not experience a major oil discovery between 1971 and 1997 -- annual American field production of crude oil declined 32 percent during that period.
However, in the present day, the United States is amidst an enormous energy revolution, one of far-reaching economic and geopolitical impact.
Beware The Shale Oil Windfall
According to a presentation by Andrew Erdmann, an American consultant with McKinsey & Company at a June 2013 Center for New American Security conference, the North American energy boom is, without hyperbole, “really, really big. [And] it’s already here.”

Due to the advances in hydraulic fracturing (“fracking”), production of shale oil in the United States has increased eighteen times over in a very short period of time -- from 100,000 barrels a day in December 2005 to 1.8 million barrels a day in December 2012.  According to the International Energy Agency’s (IEA) 2012 World Energy Outlook, the United States will become a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms, by 2035.
In discussing shale energy’s potential, Erdmann previewed the findings of a now released McKinsey report on future economic prospects:
If the United States fully realizes the opportunity, shale energy could revitalize the oil and gas industry, have downstream benefits for energy-intensive manufacturing, and send ripple effects across the economy. We estimate that it could add 2 to 4 percent ($380 billion to $690 billion) to annual GDP and create up to 1.7 million permanent jobs by 2020. This could be an important source of high-wage employment for workers without college degrees, generating economic activity in parts of the country that have seen little investment in recent decades.
Erdmann asserted shale oil’s potential would have immense geopolitical consequences. Similarly, the IEA report claimed, “the extraordinary growth in oil and natural gas output in the United States will mean a sea-change in global energy flows.”

While re-imagining relationships with problematic suppliers in unstable regions is appealing, Ross and Friedman’s observations highlight the potential perils facing an already debilitated American political system, akin to the misfortune that befalls many an unprepared lottery winner.

Two of the three mechanisms Ross identified provide hints as to the risks.

The rentier effect:  Near the end of the 2008 presidential election, Democratic nominee Barack Obama acknowledged part of his vision entailed “spreading the wealth,” and, upon taking office, called for higher taxes on the wealthy.  During the 2012 election, Republican nominee Mitt Romney asserted “there are 47 percent who are with [Obama], who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them ... these are people who pay no income tax."

The two major political parties no longer believe the tax code is an instrument for generating revenues requisite to the funding of government operations, but instead a mechanism to implement ideological agendas.  This development is not new, but such polarization undermines the opportunity to rationalize the tax code at a time of unprecedented and potentially destabilizing debt levels.  If the economy rebounds as projected, the pressure for genuine tax reform would collapse.  At best, the perceptions of exploitation and inequality would persist with consequences for overall political debate and the tenuous cohesion of the body politic.  At worst, the dominant party could be free to pursue purposefully punitive tax changes.

The repression effect:  The United States is mercifully free of the repression individuals suffer in many authoritarian petro-states around the world.  However, the American experiment only succeeds because of the vigilance exercised in the face of proposed abridgments, both great and small.

Since the terrorist attacks of September 11, 2001, sustaining this vigil has become more difficult.  Elected leaders requested and received the authority to collect and share more information.  They elevated homeland security as a priority and allocated abundant resources accordingly.  They vowed the enemy would face justice, “dead or alive.”  However, new authorities were not intended to be the basis for unwarranted surveillance.  Homeland security and expanded funding were not meant to result in the “militarization of American policing.”  The rules of engagement did not justify the execution of an American citizen without due process.  Establishing security as a higher priority is merited in the face of contemporary threats, but the unilateral exercise of such interpretations without a debate is a threat to long-cherished freedoms.  At a time when allegations of scandal entail not persecution of opposing political figures, but common citizens themselves, the United States can hardly afford the indifference that sometimes accompanies prosperity.

Ultimately, Ross’s exploration illuminates the manner in which wealth can impact the relationship between the governed and their government.  Upon the sudden acquisition of wealth, the extant political leadership sometimes succumbs to temptation and attempts to exploit the population.  In the instance of America’s democracy, a massive windfall could further subvert an already polarized political arena and exacerbate an emerging disconnect between Americans and their elected representatives.  As American columnist Ross Douhat has noted, in the face of the public concern for stubbornly high unemployment and anemic growth rates, America’s elected decision-makers have focused not on the economy, but on narrower lower priority matters, such as gun control, immigration reform and climate change.  The only saving grace may be that American liberty is as robust as ever; any assertion otherwise would another example of blogosphere hyperbole...