The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World

by Ruchir Sharma

The discovery of oil has stunted development, which is why it has come to be seen as a curse. The way the curse works is that the production of oil sets off a scramble among elites to secure shares of the profits rather than invest to build roads, power plants and factories. In oil-exporting countries, the leadership becomes decreasingly reliant on revenue from taxpayers, then less inclined to listen to them as voters; instead it quiets their rumblings by spending a part of its oil revenue on subsidized gas, cheap food, and other unproductive freebies. Meanwhile other industries suffer. Foreigners pump in money to buy the oil, which drives up the value of the currency, in turn making it difficult for local factories—what few exist—to export their goods. The oil windfall tends to undermine every local industry other than oil.