Walid Khadduri is editor-in-chief of the Middle East Economic Survey.
Managing the Oil Wealth: OPEC’s Windfalls and Pitfalls
(Second and Enlarged Edition)
by jahangir amuzegar
London, I. B. Tauris, 2001. 282 pages
Paperback: UK £14.95
In the first edition of his Managing the Oil Wealth: OPEC’s Windfalls and Pitfalls (1999), the noted Iranian economist, Jahangir Amuzegar, described and evaluated the experiences of the OPEC member states from 1974 to 1994. Principally, he considered how the members allocated their oil revenue among competing needs; what strategies they pursued in optimising returns; how they managed their wealth during the oil boom-and-bust periods; and to what extent their economic strategies impacted on the political and sociological changes in these countries.
In this second edition, the author adds a supplement updating the book by showing how the oil‑exporting countries coped with the same challenges through the 1990s.
Professor Amuzegar’s work provides a major insight into the efforts by OPEC member states to deal with the oil windfall of the last few years of the twentieth century. He theorises, analyses conditions and chronicles events—all related to the oil scene and its impact on the welfare of the exporting countries. His economic acuity, penetrating analysis and the wealth of data and information he supplies places this book along the classics on OPEC published in the past two decades: Ian Seymour, OPEC: Instrument of Change (1980); Pierre Terizian, OPEC: The Inside Story (1985); and Ian Skeet, OPEC: 25 Years of Prices and Politics (1988).
The original edition addressed the question of how OPEC governments managed to manoeuvre themselves along three strategic fronts they set for themselves: to improve the welfare of their peoples, to undertake popular infrastructure projects, and to reduce future dependence on oil. Professor Amuzegar also dealt with the perhaps more difficult question of how the governments attempted to do all of these things while simultaneously upholding the traditional social and cultural aspects of the local societies—shunning as much as possible “rapid modernization” and “Westernization”.
This second edition describes how, despite all odds and the many premature obituaries published about OPEC, the organisation was able to rise again, adopt a unified strategy and re‑establish itself on the world economic scene. What distinguishes this work is that it not only reflects the wide knowledge and experience of the author, but also his ability and readiness to identify the numerous policy pitfalls and failings of the oil-exporting countries. Take, for example, his summation of how oil wealth was used to enhance power among the elite rather than dispersed among the populace, and how it also led to the rise of a massive and largely ineffective bureaucracy:
Since the state was the sole recipient of petroleum revenues and a major source of wealth accumulation, it felt no need for domestic taxation to finance its favoured projects. For this reason, national socio-economic agenda were set by the ruling elite without being initiated, participated in or scrutinised by the citizenry. As a result, oil windfalls were allocated to priority regions, sectors and projects in a centralised, force-fed and often ad hoc manner. This fiscal independence, in turn, not only resulted in increased monopolisation of decision-making by a select few at the top but also led to recurring cost-benefit miscalculations, much waste, a host of rent-seeking activities and widespread corruption. The magnitude and focus of windfalls allocation thus served as the initiator, prime mover and, occasionally, spoiler of domestic development efforts. (Pp. 48–9)
He includes among the shortcomings of the oil countries their lack of integration in the world economy, their continued reliance on energy for a total share of exports, their lack of global competitiveness and their “half-hearted and perfunctory” commitment to privatisation.
Of special interest is the way Professor Amuzegar draws together the many common features of the oil-exporting countries despite their very different backgrounds and experiences. Among these features are:
(1) growing power and influence of the state (2) a propensity toward maximum domestic utilisation of oil windfalls (3) a tendency toward hasty spending (particularly investment) decisions (4) a preference for investment in resource-based industries (5) a lack of policy coordination and supportive measures for return maximisation (6) increased annual expenditure on defence and security, even in non-military-led regimes and (7) the emergence of a “petro-culture” inimical to growth. (P. 206)
However, he also highlights how the “disingenuous belief in the magical power of money to solve all developmental problems” (p. 208), while it unified the politicians and planners in the oil-exporting countries, resulted in a huge loss of economic resources.
In the supplement that deals with the status and experience of OPEC members during the second half of the 1990s, the author draws a painful picture of where things stand now in each country after decades of unprecedented, and perhaps not-to-be repeated, opportunities provided by the oil windfall. The following three accounts indicate the generally gloomy nature of his analysis:
Algeria
“[T]he Algerian economy in 2000 still faced the twin challenges of slow growth and high unemployment, causing stagnant standards of living. Further, success in correcting existing imbalances required considerably less dependence on oil and gas exports, and a faster implementation of remaining structural reforms” (p. 227).
Iran
“[T]he Islamic Republic … continued to suffer from a number of structural deficiencies in various aspects of the economy. A large, dominant and inefficient government, mismanaged public enterprises, extensive growth-impeding regulations, judicial inadequacies, maldistribution of wealth and income, and such other woes as nepotism, cronyism and corruption continued to lie at the root of slow growth, high inflation, double-digit unemployment, fiscal deficits and external payments imbalances” (p. 230).
Venezuela
“[A]rguably the worst record in domestic income distribution, as the bottom 70 percent of the population in 1998 received just over 10 percent of the national income, while the top 10 percent received 70 percent. The share of the population falling below the poverty line exceeded 60 percent. Social indicators in education and health also worsened during the period” (p. 239).
Professor Amuzegar draws the conclusion that for the foreseeable future most of the challenges faced by OPEC members remain profound and continue to defy quick, easy or popular solutions.
