Review of "The Paradox of Plenty: Oil Booms and Petro-States"

Terry Lynn Karl’s book The Paradox of Plenty: Oil Booms and Petro-States , a part of University of California Press’s series in the Studies in International Political Economy, is a comparative study of Petro-states with a primary focus on the manner in which oil impacted Venezuela’s state development and political culture. Karl’s statement of theoretical principles is to operates in-between structuralism and rational choice theory – a program which she calls structured contingency. Such a viewpoint may appear as methodological individualism, however her subsequent analysis shows the effects of contingency are generally more compelling on actors than they would like to admit and thus the dominant of this binary. In the case study of Venezuela that follows, this is most evident in the recurrent inability for the state to formulate a decisive economic policy not wholly dependent on the oil revenues and then stick with it despite opposition. Instead, coalitions for changes become bought off and incorporated, thus bloating the state even more while discouraging domestic ingenuity.

Such a preview is meant to hint at 16th century Spain, a similarly formed mineral-extraction economy that which Karl does not just allude to but provides a brief case study. The Spainish political elite of the time pursued policies of rampant rent-seeking rather than state consolidation, bureaucracy professionalization and failed to construct a legitimize taxing authority with a wide structural base. They choose instead to rely upon extractive wealth futures to pay for outstanding debts, leading to a minimization of commodity circulation in the mainland, the potential division of labor, innovation in production and a general stagnation in agriculture. Slaves in the colonies and peasants in Spain were constant elements of surplus extraction that in the variable international market hamstrung their capacity to deal with balances of trade.

The combination of these factors leads to the economy suffering from “Dutch disease”, a condition indicating that the countries increasing debts starting to take over revenues, rising rates of inflation, a shrinking export sector, and increasing domestic consumption. The state is unable to balance it’s external payments as the elite, grown accustomed to not paying is averse to beginning to do so and can threaten, as a class, the stability of the state. The lower classes, who also don’t have the capacity to take up the slack, can also do say, as is seen in Venezuela. As Karl shows in her later comparison to other new states like Venezuela, the results of this is devastating to the economy and leads almost to the negation of the wealth that had previously entered the country.

The 1922 Petroleum law in Venezuela was a crucial moment for the construction of the state. It effectively limited private property to places which did not have access to oil deposits, causing the state to be the sole negotiator with the oil companies. Because of this the state itself meshed and in a very real way approximated itself to the structure of the then largest international capitalist corporations. This was compounded and expanded by the 1943 Hydro-carbons Law. With the passage of this bill all noting of a minimalist, diversified state was put aside and instead an intensification of policy that “sowed the petroleum” back into the country was pursued.

This focus on oil incomes had the effect of disincentivizing agrarian production. From 1928 to 1944 agricultural exports declined from by two-thirds.Oil companies and wealthy landowners bought or obtained rights to vast land holding, which disrupted subsistence and small capital agricultural production and led to mass migration to the cities. This imposition of the rentier logic robbed the state of “the opportunity to benefit from the skill and talents that arise from the penetration of public authority to the far corners of a territory in search of revenue” and made it wholly dependent on the international oil market (91).

While Venezuela has had relative political peace in comparison to it’s Latin American neighbors, the price from which this has come is high. Oil incentives the political classes to engage in a form of politics which is excessively focused on party factionalism and personalism rather than the manifestation of good policies, the purchasing of opponents groups allegiances with promises of a share in the spoils, and semi-corporatist networks directing the course of policy rather than limited democratic representation. As the contradictions between this policy and that propounded by the left turned into civil war, the moderates continued this policy. Venezuelan politics took the shape of pactismo and, once the contradictions inherent in it became more extreme, presidentialism. The attempts by the state to “change course” was limited to what it knew, nationalizations of other industries and raising the percentage of revenues from oil. Concomitant with these grand schemes was the proliferation of new government agencies and rules that hampered the state’s performance and with each boom made it likely that in a bust period extreme social unrest would develop as the borrowing during this period could only go on so long, disproportionately affected the lower class and, due to the general lack of professionalism, would also mean that corruption scandals came to light and divested the state of a hegemonic notion that it was legitimate. This is indeed what happened following the partial imposition of the FMI’s adjustment plan and was in large part the cause for the disintegration of the “democratic” institutions and ascendancy of anti-party candidate Hugo Chavez Frias.

The closing, comparative section of the book illustrates variations on the theme of the petro-state as it formed in Algeria, Indonesia and Norway. Karl’s assessment that new states unduly focus on the oil industry to compose the state’s budget is shown as true across the board. New, ex-colonial state lacking diverse administrators with some area of specialized knowledge and income to pay them look to their natural wealth as a the source of their trouble. The above framework is repeated with variations based upon the degree that states bureaucracy’s were older (Norwary) and to a lesser extent those which had some level of continuous technocratic control of the market (Indonesia) rather than political control (Algeria, Nigeria, etc.).