Prof Kasozi
11 November 2009
opinion
Kampala — IN a bid to stimulate the debate on Uganda's newly discovered oil and the sharing of the oil wealth, Business Vision runs a series of articles by Professor Kasozi, the director of the National Council for Higher Education. his week's article focuses on the possibility of presense of oil hindering democratic development.
A number of writers, including Ross and Tsui have concluded that oil hinders democracy. As I read their papers, I feared that the sudden prospect of oil revenue influx in the near future might undermine the ground upon which any economy is built. Peace is built on democracy.
Will Uganda's democratic gains be undermined when oil money begins to flow in?
To me, democracy is a system of government where the people have power to make decisions affecting their political and economic affairs or through their elected representatives.
Although there is no universally agreed form of democracy, there are three characteristics that are fundamental to democracy.
These are equality before the law, equality of access to power and human freedom and liberties as defined by the universal declaration of human rights or their constitutions.
Essential ingredients of modern democracy are competitive elections that are free and fair, freedom to participate in elections, freedom of speech and association.
Although government by the majority is accepted as the most practical way to democratic governments, it could turn out to be a tyranny of the majority where minority interests are suffocated.
A democratic society is where the government and those who are in power are accountable to the population. Arguments employed to assert that oil hinders democracy use cross-national statistical correlations, numerous and single nation studies to make their point.
Kevin Tsui is of the view that discovering oil decreases a country's 30-year change or progression to democracy. Using a polity index, he concluded that discovering 100 billion barrels of oil pushes a country's democracy level 30% below trend.
The polity index is used as a measure of democracy normalised to 0 - 1 scale where 1 is the most democratic. In most of the cases studied, rulers in countries that discovered oil increased barricading of political entry in order to monopolise oil revenues.
Michael Ross believes that the interplay of the rentier effect, the repression of oil states and the lack of modernisation inhibit the development of democracy. Of 25 oil-reliant and exporting countries, only five (Venezuela, Ecuador, Trinidad and Tobago, Indonesia and Malaysia) can be referred to as democracies. The rest (Brunei, Kuwait, Nigeria, Congo [Brazzaville], Yemen, Oman, Saudi Arabia, Libya, Iraq, Algeria, Syria, Iran, Equatorial Guinea, Angola, Cameroon, Colombia and Kyrgyz Republic) cannot be described as democratic.
To Ross, the rentier effect divorces fiscal relationships between the government and the people. Since the government gets oil royalties and taxes from oil buyers, it has no need to tax the population. In turn, the people have no strong urge to demand representation in government structures. In such situation, democratic representative institutions cannot develop. Absence of representative institutions makes governments less accountable.
Official transactions need not be transparent as there are few institutions to demand them to be so.
Secondly, as money comes directly from oil firms to the government, patronage and ethnic or group favouritism increases. Increased cash is used to reward supporters and punish enemies. This is common in most of the undemocratic oil exporting states mentioned above.
Thirdly, the formation of social groups that can stand up to the government is undermined by the ability of the state to use acquired money as it wishes. In France and England, the development of independent property owning classes with a stake in the economy (the bourgeoisie), helped to create social groups that stood up to those in power.
However, in many oil exporting countries mentioned above, the formation of independent social groups or classes with ambition to take power is suppressed and compliant group formation is encouraged and funded by the state using unaccounted for oil money.
Fourthly, the formation of independent civic institutions that are above the family and below the state are not permitted. In turn, this prevents the gathering of people of like opinions to freely discuss and pursue crucial ideas.
Fifthly, because oil money flows in large amounts, it encourages leaders to spend excessively for their own and on national defenses. Much of the pre-1979 Iranian expenditure was spent on the security of the Shah and the survival of his regime. The presence of elite defense "national guards" (the Mukhabarats) in Middle East countries has the effect of suppressing opposition. Oil wealth, therefore, increases expenditure on arms.
Sixth, in Africa where primordial loyalties and attachment are still very strong, oil wealth exacerbates ethnic conflicts.
An ethnic group in power tends to want to stick with it and those denied entry tend to "ethnicise" the struggle for access to resources in order to increase support for their struggle.
In this way, conflict for resources is interpreted as a "tribal war"! This has happened in Nigeria, Congo (Brazzaville), Equatorial Guinea and Sudan. These ethnic conflicts have undermined the development of democracy.
However, Ross's argument that oil hinders democracy is strongest in reference to the choking of modernisation. Modernisation is a preriquisite for democracy and oil money, in many cases, hinders the modernisation process.
Modernisation theory states that a collection of social and cultural changes cause democracy. Democracy cannot, therefore, be imported or imposed from outside. It emerges as a result of changes in domestic social systems. Economic empowerment accompanied by high levels of higher education, professional differentiation, strong civil society and a vibrant indigenous property owning class with a stake in the economy are necessary conditions for the emergence and development of democracy.
For Preworski, once a nationally well distributed per capita income level of $6,000 is reached, democracy becomes rooted. It can withstand authoritarian reversals and setbacks.
Oil money has a negative impact on the development of the above scenarios. Oil exporting economies cannot develop local professional differentiation because exporting crude requires very few workers, many of whom are foreigners. Such economy cannot generate the necessary vertical and horizontal linkages needed to create a professionally differentiated class.
Further, though a lot of money flows into the oil exporting economy and the per capita income looks big, most of the money stays in the hands of few people - often less than 25% of the population. The rest remain dependant on government oil-induced welfare systems.
Thus, although the income per capita is, apparently, high in many underdeveloped oil exporting countries, societies in those countries have remained backward and their government systems autocratic.
Their literacy rates, higher education enrolment ratios, levels of professional differentiation, civil society, class consciousness of the bourgeoisie and workers as well as political ambitions have lagged far behind the rate at which cash flows into their countries. As oil money is distributed to few beneficiaries, it does not reach the lower classes in sufficient amounts to be independent from the state.
Democracy emerges only when the lower classes attain a level of social awareness and organisational power that can match that of the beneficiaries and can make alliances with some sections in the upper classes for both to stand up to the power of the state. Petrol states tend to buy the support of both the lower and middle classes or to suppress them using oil money. This kills any voice trying to establish democratic ideas in that society.
However, there are contrary views on the role of oil in the democratisation of states. Joseph Kraus is of the view that it is not oil per se, but the influx of massive cash into undeveloped social systems that hinders the development of democracy.
This money could be from other natural resources such as diamonds or gold. At the individual or family level, it could be a lottery. In this case, the recipients would be overwhelmed with the cash. However, if the recipients were rich, educated and an expert in cash management, such a person would not be overwhelmed. He would put the lottery money to proper use.
Using examples of Ecuador, Venezuela and Trinidad and Tobago, Kraus insists that oil cash can be used to strengthen democratic institutions through the development of the state. In these three countries, electoral democracy was strengthened by the encouragement of industrial development, which led to professional and social differentiation.
In Trinidad and Tobago, oil money strengthened industrialisation as many downstream industries were set up.
Prof Kasozi is the Executive Director of the National Council for Higher Education
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Money competes with money. If it is evenly distributed, the competition simply reduces its value in an inflationary way. Unevenly distributed, it can employ people(money's only real use) and produce wealth, but fosters inequality. If you add money to an economy in large quantities, it renders all previous financial arrangements inadequate. Properly planned and budgeted efforts are suddenly underfunded, and either fail altogether or cut corners. When that added money comes from the outside through export, those involved in the export industry get that money, and the rest of the economy has to center on the exporting industry. The worker cannot ignore it, and neither can the employer. The money that isn't consumed in consuming local production will be used to import things that you should produce locally. Imports and exports boost each other in a vicious circle that leaves your economy oriented toward the needs of other nations rather than your own. A small amount of foreign money can be beneficial as an economic stimulus, but economic stimulants are like other stimulants: addictive and injurious with prolonged or heavy use.