Economists Diagnosis Libya With 'Resource Curse'

Libya's economy is entirely based on exporting oil to other countries. It has what's known as the resource curse, according to economists. That is, countries with vast natural resource wealth and no homegrown industries are often corrupt and repressive.

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We have, of course, been witnessing protests throughout the Arab world, where in most cases, security forces have not launched major crackdowns on demonstrators. That was true in Egypt, but now in Libya the government has responded with violence. The different reactions may be at least partly linked with to the economic structures in the two countries. Adam Davidson, with NPR's Planet Money team, explains.

ADAM DAVIDSON: In Egypt, the military is big business. The Egyptian army owns hotels and washing machine factories and bakeries. The Egyptian army looks at protestors and they see customers. You don't shoot your customers. But in Libya, the armed forces and the government, they don't make money by selling things to Libyans. They make money one way: they sell oil to the rest of the world. Geoff Porter has been studying Libya's economy for years.

Mr. GEOFF PORTER (Former Director, Middle East and North Africa, Eurasia Group): Eighty-one percent of Libyan industrial activity is attributable to oil and gas. Another 17 percent is the services sector. Most of that 17 percent is oil and gas services, so the pipeline construction or the port construction...

DAVIDSON: Ninety-eight percent is related to oil and gas.

Mr. PORTER: Exactly right, exactly.

DAVIDSON: Wow.

Libya has what economists call the resource curse. Countries with lots of natural resources, like oil and gas, tend to be extremely corrupt with repressive leaders. Why? Because those leaders make tons of money simply by controlling the natural resources, and they use some of that money to buy guns and mercenaries, and the loyalty of some of the citizens. And all that gives them even more power and even more control.

Moammar Gadhafi is fairly typical. He doesn't want other Libyans to start successful businesses and build their own sources of wealth. They might use that money to buy their own guns and mercenaries and to challenge him. So Gadhafi has nationalized most business. He's made it all but impossible for Libyans to become entrepreneurs.

Mansour al-Kikhia is a Libyan who now teaches at University of Texas at San Antonio.

Professor MANSOUR AL-KIKHIA (Political Science, University of Texas, San Antonio): There is no work in Libya. This is a society that does not produce. Listen to me. It's over close to between 40 percent unemployment. People don't work. And people who do work don't work. They go to offices, they don't work.

DAVIDSON: Kikhia told me that people who do have government jobs often take two jackets to the office. They show up in the morning, hang one jacket on a hook. And then - since there's nothing to actually do - they just leave for the day, wearing the other jacket.

Prof. AL-KIKHIA: And you, as a citizen, come to get something done in the governmental department or wherever it is. You say, what, is this person here? Oh yes, he's here - his coat is right there. You see, he's somewhere in the building.

(Soundbite of laughter)

Prof. AL-KIKHIA: And so you wait for five hours, never shows up.

DAVIDSON: In most countries, the ones without a resource curse, the citizens earn money by being productive and then pay the government through taxes. This doesn't always work out great, of course, but generally it means the citizens have at least some say over how the government functions. The leaders have to care, at least a little bit, about how the people are feeling.

But Middle East analyst Geoff Porter says, Gadhafi is like Saddam Hussein in the past, or leaders in Nigeria or Myanmar. He lives in a bubble, buffered on all sides by that huge oil wealth. This becomes an important issue when you start wondering what comes after Gadhafi.

If the resource curse is inevitable, then you might imagine that Libya has much worse odds than Egypt at becoming a real democracy. Some leader will eventually take over those oil wells, capture all that wealth and become yet another despot.

But Porter says you can look at that wealth with optimism. After all, Egypt is a lot poorer than Libya. It's going to be really hard for the new leaders to make Egyptians feel materially better off. But in Libya

Mr. PORTER: The hydrocarbon revenue will give a new state some economic leeway, some fiscal leeway, to explore new forms of government.

DAVIDSON: Because, Porter says, if all that oil wealth is shared with the people, Libya could be a really great place to live.

Adam Davidson, NPR News.

MONTAGNE: This is MORNING EDITION from NPR News.

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