Venezuela is a troubled and troublesome place today. I was in Cartagena, Columbia recently, and a taxi driver volunteered without my inquiring, that the late Venezuelan leader Hugo Chavez was “crazy,” and that Cartagena now houses many people from Caracas fleeing from Chavez’s followers. Venezuela has a raging inflation rate probably exceeding 100%, terrible joblessness, and a murder and kidnapping epidemic that makes Afghanistan seem calm. It has one other thing, too: oil. Even with oil prices bouncing around in record ranges since 2007, Venezuela’s economy is a shambles. It’s not just because Chavez was an authoritarian, utopian Marxist. It’s because the “blessing” of oil has distracted and distorted the country’s economy for fifty years.
Venezuela’s per capita income has gone nowhere since the early 1960s. It suffers the boom and bust of oil prices. Compare this to South Korea, which lacks gooey black gold, or even the shiny 14-carat kind. It is the world’s fifth biggest oil importer and mines less gold than Serbia. In the early 1960s South Korea was poorer than Venezuela, on par with Haiti! Now, it challenges parts of western Europe in the ranking of living standards. Because South Korea has little oil; it must rely on brainpower and hard work. South Korea pours its resources into educating its children; Venezuela watches the oil pour and squanders the money.
Back in the 1970s, Venezuela’s own Oil Minister called oil “the devil’s excrement” and predicted that “oil will bring us ruin.” When countries discover vast natural resources, it seems to dampen their competitive urges and turns the mind away from creating wealth. This is crucial for anyone trying to understand competition, greed and happiness. The danger for mental health does not come from competition, which is so frequently and wrongly condemned as greed. The danger comes when governments try to fulfill the needs of the people, relieving people of the need to work, and draining their desire to move forward. There are few combinations more lethal to the mental health of the people than vast resources and an authoritarian, paternalistic government. In those cases, a land of plenty turns into a land of scarcity. It would have been far better to start with scarcity, and provide the incentives to weave scarcity into plenty.
There are a number ways that vast resources can hobble an economy and a people, some of them more technical. First, countries with rich resources usually enjoy a stronger currency exchange rate, which the elites in the cities particularly relish because it gives them access to Dolce & Gabanna suits and ski vacations in Chamonix. Second, when there are pots of gold or oil wells just sitting there, warlords will think about trying to capture them, feeding fear and instability. Remember in the summer of 1990 Saddam Hussein of Iraq invaded Kuwait to take over oil wells. Third, when a country depends on a resource like oil, it becomes like the “family business,” so that the smartest people go into that field, and the leading universities tend to cater to it, ignoring all else.
Rich resources are not always a curse, of course, but they require vigilance. Norway stands out because the country has been investing its oil proceeds into other businesses and other countries, creating one of the world’s largest nest eggs. As for Venezuela, Iran and others, there is no nest egg, just a deadly trap.