Living Up to Our Principles

Many proposals for reforming the global order ask us to accept new legal principles — for example, to accept that countries have the legal right to launch preventive wars when they believe their security is threatened. Other proposals ask us to build new international institutions — for example, to create a world court with compulsory jurisdiction over all states and persons.

The resource curse initiative is different. This initiative works on principles that are already widely accepted and deeply held, such as the principle that theft is illegal and wrong. To enforce such principles it proposes to utilize familiar institutions like national courts and trade regimes. If the resource curse proposal is surprising at all, this comes from seeing how world trade violates our principles in rather shocking ways and seeing that we can fix this with the institutions we have.

What sends stolen goods into our gas stations and shopping malls is an unmistakable flaw in global markets: the “might makes right” rule that makes a mockery of the rights of property. Once this flaw is pointed out, one can see that correcting the flaw is not really a question of whether we’ve found the right principles or the right institutions, but primarily a matter of whether we can summon the political will to do so. What’s going on now is clearly wrong; the question is whether we will stop it.

My experience has been that the more people hear about this initiative’s premises and proposals, the more compelling they seem. I’m grateful to the three Cato Unbound respondents for raising issues that will allow more of the initiative to be explained than was possible in the original article. Those looking for a full formal presentation of the initiative for ending the resource curse can find the more scholarly papers here.

Property Rights

The resource curse initiative is based entirely on property rights. Property rights are now being violated on a massive scale, and this must be stopped. As in neighborhoods where property rules are regularly breached by protection rackets and robbery, in resource cursed countries the failure to enforce property rights leads to a tremendous amount of misery. Yet the basis for the legal argument is not sympathy, but property. The first principle of capitalism is that property rights must be enforced. The initiative’s central demand is that we enforce property rights in the system of global trade, instead of allowing and in fact encouraging massive theft of natural resources.

To use existing institutions to enforce property rights we need not endow these rights with any new extraterritoriality, as John Ghazvinian worries. Property rights are already global. In your cell phone there is likely a highly conductive mineral called coltan. That coltan in your cell phone may well have been dug out of the Democratic Republic of Congo by villagers enslaved by extraordinarily brutal “private militiamen.” These militiamen trade coltan for cash, which they use to buy more machine guns and machetes to force more coltan mining. Despite the history of that mineral in your pocket, the police and courts of your country will now affirm and protect your property rights in your cell phone, including your property rights to that coltan.

This is an example of how national legal systems already recognize and enforce property rights in goods that cross international borders. This is how it must be — global capitalism could not work if property rights were not in this way global. The flaw in the trade system as it is now is at the first step — the step with the militiamen. The flaw is when the “might makes right” rule vests property rights in whichever local actors can be the most ruthless or terrifying. That first step is the flaw that any market system worthy of the name must correct. Once the “might makes right” rule is eliminated from the system of global trade, you will be able to buy a cell phone (and a laptop, and a video game console, etc.) with the confidence that what you are buying has not been taken illegitimately from resource cursed countries, and that your money will not be going back to fund the men with guns.

National Ownership

One major principle in the proposal to end the resource curse is that the citizens of each country own the resources of their country. As mentioned in the main article, this principle is regularly affirmed by world leaders from all parts on the political spectrum. It is also asserted in primary treaties of international law. The principle thus has the same kind of standing in international law as, for example, the human rights law prohibiting slavery, the Geneva Conventions, and the treaty that established the WTO. The primary international law affirming national ownership has been in effect for a long time, and has been ratified by the vast majority of the nations of the world (including the United States and all of the other G8 countries). This law is one of the central pillars of international law.

Although the principle of national ownership might sound surprising when stated outright, most people (except some anarchists and radical global egalitarians) find that when they hear what the principle means they believe it already — and in fact they believe it rather firmly. The principle of national ownership is a deep part of the framework we use every day to understand the politics of the world.

The principle entails that America’s resources belong to the American people, Canada’s resources belong to the Canadian people, Egypt’s resources belong to the Egyptian people, and so on. The oil, for example, off of the U.S. Gulf Coast belongs to the American people. If it were found that Cuba had drilled a long diagonal pipeline through the Gulf of Mexico and was now siphoning American oil from the Florida coast, the American people would immediately (and perhaps literally) be up in arms. The oil within the territory of the United States is American oil, and foreigners must not take it without permission.

Similarly, national ownership explains our rejection of unilateral private seizure of a country’s resources. In the years leading up to the Reagan administration companies such as Shell discovered large oil deposits off the coasts of Florida and Louisiana. One can imagine the response had President Reagan secretly sold this oil to Shell, then put the profits from these sales into his private bank account and ordered the FBI to detect and squash any dissent. America’s natural resources must not be disposed of in ways that wholly bypass the assent of the American people. Yet selling a country’s resources while bypassing the people is just what Obiang, the dictator of Equatorial Guinea, is doing today.

One key to understanding the national ownership principle is seeing how permissive it is. The principle does not, as Andrei Illarionov says, require that a country’s oil must be “nationalized, government-owned, and government-managed.” (Remember, the principle of national ownership is affirmed by George W. Bush.) In fact the principle is entirely compatible with most or even all of a country’s natural resources being privately owned. All that the principle requires is that any laws which regulate private acquisition of natural resources in a country be validly enacted when a minimally decent government is in place. Obiang’s government is not close to being minimally decent, so Obiang cannot enact laws that legitimately transfer Equatorial Guinea’s oil to him. Yet when the U.S. Congress initiates public auctions among corporations for oil-drilling leases in American coastal waters (as it has done for the past 25 years), it is starting a process whereby America’s oil legitimately passes into private ownership. This is how resource management works day-to-day in the United States right now. No one in American politics gives the underlying national ownership principle a second thought.

All of these conclusions about national ownership go almost without saying. The principle of national ownership is — as one would expect of a principle that had been endorsed by most nations — adaptable to many different economic systems, and widely morally attractive. It is a flexible standard that forbids only the most flagrant injustices in natural resource management. Unfortunately there is a great deal of flagrant injustice today that violates the principle of national ownership, which persists mostly because the world has not yet focused its attention on it.

Minimally Decent Governance

Ending the resource curse means stopping bad actors from controlling national resources by might instead of right. To do this we need to know from which countries resource sales are illegitimate — which countries are suffering political conditions that are so bad that the citizens could not possibly be authorizing their resources to be sold out from under them.

The property rights approach to the resource curse uses the Freedom House ratings. Freedom House is an NGO that publishes a highly respected index of the political conditions in every country in the world. The lowest Freedom House ratings describe political conditions in which the people of a country could not possibly be either aware of or in control of what’s happening to their country’s resources.

The Freedom House index assigns each country a rating from 1 (best) to 7 (worst) on civil liberties and on political rights. The index on civil liberties measures to what degree citizens are free from arbitrary political coercion, violence or manipulation. The report describes countries with the worst two scores on civil liberties in this way:

Rating of 6: People in countries and territories with a rating of 6 experience severely restricted rights of expression and association, and there are almost always political prisoners and other manifestations of political terror. These countries may be characterized by a few partial rights, such as some religious and social freedoms, some highly restricted private business activity, and relatively free private discussion.

Rating of 7: States and territories with a rating of 7 have virtually no freedom. An overwhelming and justified fear of repression characterizes these societies.

Among the countries rated 6 on civil liberties in the 2008 Freedom House report are Iran, Syria, and Zimbabwe. Among the countries with a rating of 7 are Burma, North Korea, Somalia, and Sudan.

The Freedom House index of political rights measures how much the people’s informed and unforced choices control what those with power in the country do. The descriptions of countries that receive the worst scores on political rights are as follows:

Rating of 6: Countries and territories with political rights rated 6 have systems ruled by military juntas, one-party dictatorships, religious hierarchies, or autocrats. These regimes may allow only a minimal manifestation of political rights, such as some degree of representation or autonomy for minorities. A few states are traditional monarchies that mitigate their relative lack of political rights through the use of consultation with their subjects, tolerance of political discussion, and acceptance of public petitions.

Rating of 7: For countries and territories with a rating of 7, political rights are absent or virtually nonexistent as a result of the extremely oppressive nature of the regime or severe oppression in combination with civil war. States and territories in this group may also be marked by extreme violence or warlord rule that dominates political power in the absence of an authoritative, functioning central government.

Among the countries rated 6 on political rights in the 2008 report are Angola, Iran, and Rwanda. Among the countries rated 7 are Burma, Equatorial Guinea, North Korea, Sudan, Syria, and Zimbabwe.

There are other respected rating scales that can also be drawn on (and that tend to rank countries in the same order as Freedom House). We use the Freedom House ratings because they are best for a feasible initiative for reform. The Freedom House ratings are used for official purposes by the U.S. government, and so have enough standing to be introduced into litigation and into trade policy. We also use them because unlike “bottom 10%” ratings they are absolute instead of relative — it is possible (and highly desirable) that the world will someday contain no 7s.

We can be certain that countries which rate a Freedom House 7 on either civil liberties or political rights are countries in which the people could not possibly be authorizing their resources to be sold off. This is evident from the characterization of 7s above. We should take action against the 7s, because we can be sure that resources coming out of these countries are being sold illegitimately.

Naturally the use of any such index will also raise questions. Illarionov asks: where should we draw the line? If we sanction the 7s, why not also the 6s too? Indeed, as his examples show even large countries like Russia experience the corruption that comes from the resource curse (Russia in 2008 is a Freedom House 5 on civil liberties and a 6 on political rights). How far up the scale should we go?

This answer to this question is analogous to the answer to the more general question about which human rights we should enforce. On human rights we say: some human rights are controversial, but this should not stop us from acting where we are sure a grave wrong is taking place. We should act where we are certain there are violations, while we continue to work out our responses to harder cases. If some regime is engaging in genocide or ethnic cleansing, then other governments should act. Governments need not — indeed they should not — wait to act against genocide until they have also reached consensus as to whether, for example, there is also a human right to democratic participation. We should stop the worst even if we haven’t already entirely agreed on what is the best.

In the case of the resource curse, stopping the worst will in fact stimulate positive action and greater consensus on how far up the scale to go. Resource sales from the 7s are clearly illegitimate. Stopping these will make those with power in countries rated 6 feel less secure about their right to transfer resources, and so will give them strong incentives to improve political conditions in their countries so as to climb up to higher, safer levels on the scale. And the enormous global pressure to stabilize a legally secure and predictable system of resource transfers will give strong incentives for all trading nations to reach an agreement concerning what level of ratings is sufficient for resources sales to be legitimate. Future agreement on a minimum rating (be it 6 or 5 or some other score) is certain to lead to a tremendous improvement over the current situation, since now there is no minimum rating for legitimate resource sales at all.

Yet with so much at stake, can we really trust the Freedom House ratings to be accurate? Ghazvinian worries that pressure would be put on Freedom House to alter its ratings so that resource sales from particular countries was either permitted or forbidden. This is certainly a serious concern, and any feasible proposal must face it. One solution would be to diversify the index used to include other rating scales, such as the Bertelsmann Transformations Index, the World Bank’s Worldwide Governance Indicators, Transparency International’s Corruption Perceptions Index, and so on. But let us stay just with the Freedom House standard for now, and see what can be said in response to Ghazvinain’s worry.

There are reasons to be optimistic that even Freedom House alone could resist pressure and live up to its self-image as an objective and independent evaluator of political conditions. One thing we know for certain is that the current (2008) Freedom House survey is not warped by political pressures of the type just mentioned. Neither the present U.S. administration nor large American corporations have realized that the Freedom House scores call the legitimacy of natural resource sales into question. This can be confirmed by the fact that several countries (e.g., Equatorial Guinea, Libya) with whom American companies have signed large contracts have ratings of 7. Given that the current ratings are not distorted by the pressures that concern Ghazvinian, and that everyone would know that pressure would be applied on Freedom House to revise its ratings upwards for certain countries, much of the organization’s reputational credibility would turn on its proving publicly that upward revisions of the ratings for those countries were justified. Moreover, academics and non-governmental organizations will scrutinize and criticize each new annual survey, increasing the pressures on the organization to resist surreptitious suasion from outside.

Moreover, the full implementation of the resource curse initiative should keep Freedom House from being captured by interest groups wanting to skew the ratings. To see why, consider again Sudan. Sudan is currently rated a 7 on both Freedom House scales, so the U.S. government should set up tariffs against China and a Clean Hands Trust for Sudan as the main article describes. The big oil companies will want to make contracts with the Khartoum regime, so may wish to pressure Freedom House to raise its scores for Sudan. However, the manufacturing interests who are protected by tariffs against China, as well as the banks that are holding the Sudanese funds in trust, will very much want the tariffs and the Trust to stay in place — and so these powerful interests will wish to exert counter-pressure to the oil companies so that the ratings stay low. The property rights approach to the resource curse generates incentives that balance power with power, which can empower Freedom House to resist capture by either side.

The Anti-Theft Tariffs and the Clean Hands Trust

Robert Nozick once claimed that taxation of earnings from labor is on a par with forced labor. Christopher Wellman uses similar imagery to describe the resource curse: “Dictators are morally tantamount to slave owners, and those who buy natural resources from them are morally tantamount to merchants who trade guns for cheap, slave-produced cotton.” Many readers will find Wellman’s framing of the issue compelling and his arguments sound. Certainly there is no reason to resist Wellman’s conclusion that a just market order requires more than the reforms that the property rights approach requires.

Wellman makes one suggestion, however, that may rest on a misunderstanding of one proposal. He characterizes the trust-and-tariff mechanism — which would, for example, subtract the value of stolen Sudanese oil from Chinese imports to the US and hold this money in trust for the Sudanese people — as a means for the American people to reimburse the Sudanese people for a wrong the Americans are doing to them. Handing over the funds in the trust would be, Wellman suggests, a kind of compensation — a way for Americans to clean the hands that they have soiled by buying Chinese goods made with stolen oil.

Yet the moral force of the trust-and-tariff mechanism is not to compensate, but rather to prevent complicity. The anti-theft tariffs stop at the border that portion of the Chinese imports that the Sudanese can claim as their own. The money from these tariffs goes straight into the trust, and will be given back to the citizens of Sudan once they can install a government better than the one now afflicts them. The value of the goods stolen from the Sudanese never reaches the American people — the point of the trust is to prevent American consumers’ hands from becoming dirty, not to wash the stains out thereafter. With the tariffs and trust in place consumers can buy with assurance that they are neither benefitting from nor incentivizing the theft of natural resources from poor countries.

Whether the trust-and-tariff mechanism would be effective in deterring states like China from buying resources from the worst regimes is of course a separate question. Illarionov notes that sanctions have often been ineffective in changing regimes’ behavior, and in this he is clearly correct. The problem with previous sanctions is that the sanctions have not been universally observed. Oppressive regimes have sold their countries’ resources to their traditional patrons and to other repressive regimes, thereby escaping some of the pressure that the sanctions attempted to apply.

The biggest difference between the property rights approach and previous international sanctions is that the trust-and-tariff mechanism creates a better alignment of incentives and so is more likely to work. The property-based approach gives all potential buyers incentives not to trade with an oppressive regime. Those who do trade (e.g., China with Sudan) will face exactly proportionate trade penalties. Unlike traditional sanctions, trade penalties here track the looted natural resources, so no one receiving these resources will remain unpenalized.

Of course, as Ghazvinian says, many lawmakers in countries like the United States are unlikely to embrace any proposal that uses tariffs to achieve political ends, and will be unlikely to “put noble ideas ahead of a free-trade agenda.” This is certainly true, yet this concern does not touch the resource curse proposals in the least. The trust-and-tariff mechanism is designed to further legal ends, not political ends — it is designed to enforce property rights within the global market system. Lawmakers can hardly be indifferent to the legal enforcement of property rights: property rights are the foundation of the market order that America has benefitted so much from, and has done so much to spread across the globe. The trust-and-tariff mechanism is not a political stratagem, it is a law enforcement mechanism. It is no more or less noble than a police officer stopping a thief from fencing his loot — it is no more or less noble than the market itself, and the rule of law that maintains it.

This cannot be overemphasized: the anti-theft tariffs and the Clean Hands Trust do not conflict with a free-trade agenda. They are a free trade agenda. Complaining that this mechanism would limit free trade in resources is like complaining that our stopping a Mexican-based forced prostitution ring would limit free trade in persons. It is not free trade that currently brings billions of dollars of stolen resources across American borders — indeed, it is not trade at all. These resources are being extracted from their countries through severe coercion and violence, and those who pass these resources to us have no valid title to them. These resources come to us not from free trade, but from theft. The trust-and-tariff mechanism will end our participation in the extraction, sale, and receipt of stolen goods, and will help to create a global commercial system in which all resource transfers become free trade.

An Invitation

These remarks have already gone to some length, and several of the respondents’ concerns are still on the table. The issues of WTO regulations and Chinese retaliation, for example, are still to be explored. Instead of going further now, let me again express appreciation for the respondents’ searching scrutiny of the premises and proposals of the resource curse initiative. Successful proposals for reform like this one need the critical attention of sharp experts of good will, which Mr. Ghazvanian, Dr. Illarionov, and Prof. Wellman certainly are. If others with expertise or just good ideas wish to offer more criticisms and constructive suggestions for the initiative of course these will be very welcome. I look forward to the continuing conversation at Cato Unbound, and can also be reached for personal communication at the email address on the webpage above.

Many of the great movements for moral progress in the past two centuries have been morally simple. All humans should be free: the hard work was forcing the end of slavery. All nations should be free: the hard work was dismantling European colonialism. The resource curse is also morally simple: it violates property rights on a massive scale, and it causes enormous suffering. Yet ending the resource curse should be — in comparison to these other movements — relatively easy. The destructive “might makes right” rule is obviously as corrupt as slavery and colonialism. And the levers we can pull to revoke it are already close at hand. We need merely to affirm our own principles, and then to pull those levers. It is only a matter of acting together to do what we already know is right.

Also from This Issue

Lead Essay

  • We All Own Stolen Goods — and How Defending Property Rights Can Help the World’s Most Oppressed People by Leif Wenar

    Developing countries with massive oil or mineral reserves are often wracked by corruption and strife as their would-be rulers jockey for control of the resources that can make them immensely wealthy. But these resources, argues political philosopher Leif Wenar in this month’s provocative lead essay, belong to the people of these countries – some of the poorest people in the world – not their rulers. So trade in these resources amounts to trade in stolen goods. Wenar argues that we must “enforce property rights directly” by taking “legal action in U.S. jurisdictions against the middlemen who trade Americans’ dollars to the worst regimes in exchange for stolen resources.” Because this cannot stop “resource cursed” countries from trading with less enlightened countries, such as China, Wenar additionally proposes a tariff on imports from China (or from whatever country is receiving “stolen” resources), the proceeds of which are to be held in trust for the rightful owners of the resources, and disbursed to those people in the event of their government’s reform. “The priority in reforming global trade,” Wenar argues, “must be to lock in the rights that define the market order. The first step in improving the prospects of poor people is to enforce the rights they already have.”

Response Essays

  • The Wenar Proposal vs. Realpolitik by John Ghazvinian

    While lauding the goal of Leif Wenar’s proposal for fighting the effects of the resource curse, John Ghazvinian, author of Untapped: The Scramble for Africa’s Oil, questions its practicability. When it comes to determining which governments meet the threshold of a “minimally decent and unified government,” Ghazvinian worries about the possibility that “this process will become deeply politicized” or “simply reduced to who has the best PR apparatus.” Ghazvinian suggests that requiring a government to be unified, though intended to stave off civil war, may “have the opposite effect” by providing “any aggrieved minority the power of an instant veto-risking destabilization in what are often already unstable countries.” Wenar’s “anti-theft” tariff, Ghazvinian argues, seems unlikely really to be seen as distinct from other tariffs and so will introduce just another complicating factor into the realpolitik of trade negotiation.

  • The Resource Curse and Leif Wenar’s “Clean Hands Trust” by Christopher Wellman

    Washington University political philosopher Christopher Wellman praises Wenar’s proposal for fighting the resource curse, but he criticizes the idea of a “Clean Hands Trust” on the ground that it “requires too LITTLE, not too much” of those of us involved in the market for natural resources “stolen” from their rightful owners. Wellman argues that the “Clean Hands Trust” is analogous to a slave-owner attempting to rectify his wrongdoing by offering the slave a large sum in compensation. “If the slave owner cannot clean her hands by paying the slave after the fact,” Wellman asks, “then why should we presume that the person who buys slave-produced cotton from a slave owner can clean her hands by paying the slave after the fact? And if the person who buys morally tainted cotton cannot clean her hands in this way, why think that those who buy inexpensive shirts constructed from slave-produced cotton can clean their hands by subsequently reimbursing the slaves?” Similarly, he argues a Clean Hands Trust would fail really to clean our hands.

  • To Punish the Guilty by Andrei Illarionov

    Cato senior fellow Andrei Illarionov, a former chief economic advisor to then-Russian President Vladimir Putin, argues that there is nothing special about the “resource curse,” which represents just one among many kinds of theft by corrupt political elites. According to Illarionov, Wenar fails to make a principled distinction between the actions of the political leaders of Equatorial Guinea and those of Russia that would motivate restricting trade in goods from the former but not the latter. Illarionov argues that the precedent of treating a country’s natural resources as belonging to its people is the problem, not the beginning of a solution. In practical political reality, the idea of collective national ownership of resources often translates directly into nationalization and control by political elites. Additionally, Illarionov argues that the trade sanctions Wenar proposes would punish innocent citizens who already suffer under corrupt rulers. The issue, he argues, is not a matter of what is stolen, but how we will treat those responsible for theft.

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