A critical study of the resource curse thesis and the experience of Papua New Guinea

According to the resource curse thesis (RCT) of the 1990s, a strand of development discourse informed by neoliberal development economics, natural resource-rich developing countries are cursed by their natural resources abundance, particularly minerals and petroleum. Based on comparative statistics collected from the 1970s to the 1990s, the resource curse theorists claim that natural resources-rich developing countries have performed very poorly in terms of economic growth leading to industrialisation and improvement in social welfare compared to resource-poor developing countries at similar stage of development such as Singapore, Taiwan and South Korea. The resource curse theorists argue that, contrary to the assumptions of modernisation theory of the 1940s and 1950s that natural resources abundance would lead to rapid capital accumulation that would then lead to rapid industrialisation and usher in a stage of sustained economic growth, resource-rich developing countries have experienced regressive economic growth trends, systemic corruption, civil wars, political instability, and general decline in the standard of living and social wellbeing. The resource curse theorists thus assume that resource-poor developing countries prospered because they pursued 'free market' and export-oriented policies such as open trade while resources-rich developing countries sought 'autarkic' (heavily regulated) policies that led to their regression. Therefore, these theorists conclude that the solution to the resource curse is 'free market' policies epitomised by the Washington Consensus.\ud \ud This thesis critically examines the RCT from a political economy standpoint and establishes that the resource curse effects are the same outcome described by political economists in the 1950s and 1960s as the underdevelopment of development. The difference in the choice of words to describe the same effects stems from the ideological standpoint from which Third World poverty and underdevelopment is discussed. To the resource curse theorists viewing from the standpoint of neoliberalism, internal factors such as political corruption, rent seeking, lack of transparency and good governance cause the resource curse. To the political economists on the other hand, external factors such as the volatility of world commodity prices, capital flight, tax evasion, colonialism, imperialism, neocolonialism and globalisation cause underdevelopment.\ud \ud This thesis establishes that both external and internal factors contribute to the poverty and underdevelopment of Third World countries. One of the external factors is the legal regime imposed through colonialism. Colonial laws have effectively divested indigenous peoples of their ownership and property rights in natural resources, which the neo-colonial nation-states retained upon independence, which are then transferred to transnational corporations in exchange for licence fees and non-controlling equity. Local ruling elites and foreign capitalists share the resources wealth, leaving the majority impoverished and their countries underdeveloped. Chapters 10 and 11 examine Papua New Guinea's legal regime to demonstrate this point.\ud \ud The thesis concludes that the solution to the resource curse or underdevelopment is for natural resources-rich developing countries to reform their laws to allow majority ownership and control in their citizens and adopt policies that the now developed countries adopted and followed when they were at similar stage of development. These policies are the 'autarkic' policies rejected by the resource curse theorists but recommended by the political economists of the underdevelopment discourse.\u