Slick Politics

Is oil bad for democracy?

Looking at the circumstances, you’d be tempted to think so. From Saudi Arabia to Nigeria to Venezuela, the leaders of countries that have great oil wealth seem to be political strongmen with significant state power.

It’s known as the resource curse: the tendency of resource-rich countries to have poor economies. They’re tied to a single, volatile commodity and the money from the dominant resource tends to corrupt the political system and distorts the economy.

But the counterfactual is Norway: a liberal democracy that steadily invests its oil wealth into a diversified portfolio of assets. Norway is a case-study in the right way to handle newfound wealth.

But absolute wealth tends to corrupt absolutely. Many studies have shown the relationship of resource wealth with political hegemony. This depends, though, on what society was like before oil was discovered. If it was a democracy before striking oil, little changed; democracy endured. But if the country was a dictatorship, the strongman was strengthened.

So don’t go looking for North Dakota to become a one-party state any time soon. It’s still a cautionary tale, though. Because like oil and water, oil and politics don’t mix very well.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T17:22:55+00:00 December 23rd, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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