What Could be Wrong with Extractive Industries Transparency Initiative?  
Thursday, September 12, 2013
Daron Acemoglu and James Robinson

In our previous post, we discussed several attempts to tackle the political problems raised by natural resources using greater transparency. Chief among these initiatives, as we mentioned there, is the Extractive Industries Transparency Initiative (EITI), and we have already noted that its effectiveness can be doubted, even if, at some level, it is taking the right perspective.

It can be asked whether such a voluntary program can do much good and whether or not civil society can really do much in most poor countries. Along these lines, Nicholas Shaxson has characterized Nigeria’s EITI involvement as “silence money” to mask the widespread crimes going on in the exploitation of the country’s resources. This would make the initiative not much more than window dressing.

But in fact, marginal reforms of the resource sectors such as EITI might even make things worse.

One issue worth considering is that a feasible path out of poverty for most countries with poor institutions is a messy one with a lot of compromise and bargains.

The recent literature on “developmental patrimonialism,” for example, as discussed by Tim Kelsall and David Booth and the supporting working papers all part of the interesting Africa Power and Politics project, has emphasized that patrimonial regimes with basically dysfunctional institutions can experience rapid growth in the right conditions, particularly when this can be made consistent with the interest of elites (of course, nothing but a form of extractive growth). The trick is to find a social contract or political settlement that will make elites secure in the face of institutional development or will give them a vested interest in such a process.

In poor resource rich countries, like the Democratic Republic of the Congo, Equatorial Guinea or Gabon, elite interests naturally focus on controlling resource wealth. In such circumstances, a feasible model of developmental patrimonialism may well involve tolerating some amount of extraction of resource rents and other aspects of patrimonialism by the elite in exchange for allowing institution building elsewhere in the state, for example, allowing the development of other fiscal bases such as a value-added tax and perhaps the building of the bureaucracy that can be a constraint on worse abuses in the future.

Perhaps in such a circumstance an obsession with the application of EITI might be counter-productive.

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (http://whynationsfail.com/).
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