Enforce Rights, Progress Will Follow

All of us writing for Cato Unbound this month agree that the political and economic conditions in resource-exporting countries like Equatorial Guinea are intolerable, and that the activities of dictators like Teodoro Obiang in perpetuating these conditions are criminal. It will be worthwhile to remind ourselves of the realities of life in a country like Equatorial Guinea right now, so that these names do not become just abstractions and placeholders.

Because of the huge recent influx of oil money, Equatorial Guinea now has one of the highest average incomes in the world: higher than that of Switzerland, Sweden, and Canada. Yet almost all the income is at the top — the people have yet to partake in prosperity. The U.S. Department of Energy reports:

Since 1995, oil exports (currently 97 percent of total export earnings) have caused the Equatoguinean economy to grow rapidly… Despite the rapid growth in real GDP, allegations abound over how the Equatoguinean government has misappropriated its oil revenues. While the government has made some infrastructure improvements to bolster the oil industry, the average Equatoguinean has yet to experience a higher standard of living from the oil revenues.

The head of Global Witness U.S. states:

Equatorial Guinea is the dictatorship that no one talks about. The government earns over $2.7 billion from oil annually, but the majority of its citizens live on less than $1 a day.

Instead of allowing the people to control the country’s remarkable oil windfall, Obiang has used this new wealth to consolidate his personal power. The Freedom House report gives a fuller idea of what life is like in Equatorial Guinea at present:

Despite the country’s oil wealth, there have been few improvements in the standard of living. Equatorial Guinea’s economy is now 20 times larger than it was in the mid 1990s, but school enrollment and literacy rates continue to be very low. Over 50 percent of the population lacks access to clean water. According to the World Bank, life expectancy decreased between 2000 and 2004. The majority of the country’s impoverished citizens depend on subsistence agriculture… .

Equatorial Guinea is not an electoral democracy, and the country has never held a credible election. [Obiang] holds broad powers and limits public participation in the policymaking process. The 100 members of the unicameral House of People’s Representatives are elected to five-year terms but wield little power… .

Equatorial Guinea is considered one of the most corrupt countries in the world. Obiang and members of his inner circle and ethnic group have reaped huge personal profits from the growing oil industry. Equatorial Guinea ranked 151 out of 163 countries surveyed in Transparency International’s 2006 Corruption Perceptions Index.

Press freedom is constitutionally guaranteed, but the government restricts this right in practice. The 1992 press law authorizes government censorship of all publications, and nearly all print and broadcast media are state run and tightly controlled. A few private newspapers and underground pamphlets are published irregularly. Criticism of the country’s leadership is not tolerated, and self-censorship is widespread. Publications that irk the government are banned from the newsstands without explanation… . Equatorial Guinea has one internet provider affiliated with the government telephone monopoly, and there have been unconfirmed reports that the government monitors citizens using the internet.

Freedom of association and assembly is restricted. Authorization must be obtained for any gathering of 10 or more people for purposes deemed political. There are no effective domestic human rights organizations, and the few international nongovernmental organizations operating in Equatorial Guinea are prohibited from promoting or defending human rights. Dozens of opposition activists remain in prison… .

All citizens are required to obtain permission to travel abroad from the local police commissioner, and some members of opposition parties have been denied this permission. Those who do travel abroad are sometimes subjected to interrogation on their return.

The judiciary is not independent, and laws on search and seizure — as well as detention — are routinely ignored. Amnesty International and the International Bar Association allege that the trials for two separate groups of alleged coup plotters were marked by flagrant human rights abuses, including torture and forced confessions. Civil cases rarely go to trial. A military tribunal handles cases tied to national security. Prison conditions, especially in the notorious Black Beach prison, are often life-threatening for inmates… .

Anyone looking for more details about Obiang’s despotic reign and lavish lifestyle can easily find these on the web. Our questions are: What could possibly give this man the legal right to sell off that country’s oil? Can this man actually be passing good title to the country’s oil to outsiders, while keeping the profits for himself? The answers of all four of us writing in Cato Unbound are: Nothing, and no. Obiang is in a real sense a criminal. He is literally stealing and selling this country’s oil.

The natural reaction of anyone who appreciates Obiang’s ongoing crimes is to demand that the crimes be stopped and the perpetrator punished. Both John Ghazvinian and Andre Illarionov demand this, and I and (I believe) Christopher Wellman would without hesitation support efforts to achieve this. The difficulty with this demand is not is justice, but its realism. Justice demands that Obiang be stopped and punished, yet the legal institutions needed to satisfy this demand directly do not exist.

This is a frustration familiar to those committed to fighting the most serious international crimes, and committed also to the rule of law. The crimes are glaring, but it is difficult to locate a legal agent powerful enough to enforce the laws against the criminals. Obiang’s actions fall outside the domain of the International Criminal Court; the International Court of Justice is too weak to affect him; attempts to use national courts against him by invoking the principle of universal jurisdiction are unlikely to touch him. (The Open Society Institute is pursuing an action against Obiang under Article 21 of the African Charter with the African Commission on Human and People’s Rights; the outcome is at this time uncertain.) In our world as it is, international lawbreakers have a decided edge over international law enforcers.

Frustration at this state of affairs leads us to contemplate whether Obiang could be sanctioned through political instead of strictly judicial institutions. One might consider, for example, whether the U.S. Congress or executive branch, or perhaps even the UN Security Council, could take action against Obiang. Again, people of good will might harbor such hopes, but the prospects also look dim.

Obiang has likely made some efforts to corrupt U.S. legislators (it may well be that the $90,000 found in the freezer of William Jefferson — the Louisiana Congressman currently under federal indictment on bribery charges — includes payments from Obiang). Yet the real danger of Obiang’s influence over the U.S. political process is not covert, but overt. As Ghazvinian points out, the United States is the largest consumer of Equatorial Guinea’s oil, and the corporations taking the oil out of Equatorial Guinea are very powerful American companies such as ExxonMobil, Hess, and Marathon. So it should not be a surprise that when one searches for an image of Obiang on the web, what one finds is a 2006 photo of him shaking hands with Condoleezza Rice at a press conference in Washington. In the accompanying text Rice says to Obiang, “Thank you very much for your presence here. You are a good friend and we welcome you.”

Perhaps the political situation might shift with a new U.S. administration; we can hope that it will. However, there is a great deal more that can be done right now. For very powerful institutions, with global reach and largely insulated from money politics, are standing by waiting to rule against the transport of Equatorial Guinea’s stolen oil. These are the courts in affluent countries such as the United States. These courts have the power to sanction those involved in the movement of stolen resources across borders: not to sanction Obiang directly for passing stolen oil, but to sanction the international oil corporations for receiving this stolen oil.

The courts have unquestioned authority over corporations like ExxonMobil, Hess, and Marathon that operate in U.S. jurisdictions. These courts have as a primary purpose ruling on cases involving international commerce. And the laws needed for these courts to rule against these corporations are already on the books. To stop these corporations from trafficking stolen goods requires much less than a change in American oil politics; it requires only the energy of some talented legal minds.

The cases the courts will rule against here are real and serious violations of property rights. These international corporations are now receiving and selling Equatorial Guinea’s oil without good title to it, taking oil from Obiang knowing how he wrenches it from the country by force. Moreover these corporations are handing back to Obiang money that American consumers pay at the gas pump. Think of the dollars you last spent at an Exxon, a Hess, or a Marathon station. Those very dollars may by now have been spent on bullets for Obiang’s security forces, or on gold fixtures for the lavatory of his next private jet, or even on bribes to U.S. lawmakers. Enforcing property rules against the companies that deal with Obiang is the quickest and most feasible way to ensure that this is not how your dollars end up being used when you fill up your tank this time next year.

Ghazvinian is certainly correct that no country that receives oil from Equatorial Guinea can legitimately set up a Clean Hands Trust to sanction other countries for their illicit oil purchases. And Wellman is correct that the United States is currently as vulnerable for its dealings with Obiang as China is for its dealings with the Sudanese regime in Khartoum. However once the legal actions just described stop U.S. corporations from receiving Obiang’s stolen oil, the United States can then set up a Clean Hands Trust for the people of Equatorial Guinea free from the charge of hypocrisy. Indeed, once the legal cases go through, the United States will have strong competitive incentives to use the trust-and-tariff mechanism against any country that continues to trade with Obiang. First U.S. law ends U.S. imports of stolen oil. Thereafter all the pressure from the United States will be directed towards other countries to stop their importation of stolen oil as well.

This brings us to the issue of the compatibility of the Clean Hands Trust with the laws of international trade, and to Ghazvinian’s concerns about cycles of tit-for-tat tariffs. On these questions, as with the others, we start first with the issues of market principles. Just by looking at the facts, and at the primary international law, one can see that the transport of Equatorial Guinea’s oil across international borders is not trade. The transport of stolen goods across borders is not trade, any more than would be the fencing of your stolen car to a chop shop. And the same can be said about goods manufactured with this stolen oil (say, in China) and then sold abroad (the analogy here is to goods made by melting down the steel in your stolen car).

On the issue of principle, countries such as the United States have no choice. They must stop receiving stolen oil, and they must hold aside the value of the stolen oil embedded in the goods they import. Trade is the legitimate transfer of title to goods; the most fundamental principle of U.S. trade policy must be, simply, to support trade and stop theft. Again, the Clean Hands Trusts do not conflict with a free trade agenda. They are a free trade agenda. (In the next post I will address Wellman’s reinforcement of his argument that market principles require more than the imposition of a Clean Hands Trust.)

The trust-and-tariff mechanism is a plausible means for the United States (or any country not importing stolen oil directly) to live up to the most basic market principles by enforcing property rights. Skeptics might object that this mechanism would violate WTO rules, but this objection is wrong both in principle and in detail. The World Trade Organization is committed to the principles of global trade. This commitment can be seen in those WTO rules (e.g., GATT Article XX) that allow for trade policies aimed at stopping the illicit transfer of goods.

Indeed it is not merely a theoretical possibility that the WTO will support action against the transfer of stolen resources, for in fact it has already done so. In 2003 the WTO Council for Trade in Goods approved trade policy discrimination against “conflict diamonds” taken by force by ruthless militias from countries such as Sierra Leone, Liberia, and the Democratic Republic of Congo. (In its decision the Council said: “The trade in conflict diamonds is a matter of serious international concern, which can be directly linked to the fuelling of armed conflict, the activities of rebel movements aimed at undermining or overthrowing legitimate governments, and the illicit traffic in, and proliferation of, armaments… .”) The WTO has already has acted against “blood diamonds.” It can live up to its own precedents and principles by acting against “blood oil” as well.

These property-rights based arguments of principle are decisive. Yet, inevitably, we must look to real consequences as well. What would in fact happen if the United States, supported by the WTO, lived up to its market principles and initiated a trust-and-tariff mechanism against any country that deals with the Sudanese regime for Sudanese oil (or, for that matter, against any country that deals with the Burmese regime for Burmese natural gas)? The WTO would not allow retaliatory sanctions, but some might worry that China, for example, would impose such sanctions nonetheless. Would we not, as Ghazvinian says, “create a world trade environment burdened by a host of new tariffs”?

This seems quite unlikely. And here we return to the possibility of weakening the hold on power of dictators like Obiang and the inhuman Sudanese regime. For consider China’s choice once the United States is using legitimate trade policy to sanction China for its dealing with the regime in Khartoum. Either the Chinese leaders can begin an illegitimate retaliatory cycle that will damage the global trading system that is making their country rich. Or they can make certain that they are not paying a genocidal regime that is terrorizing an African country. The incentives these leaders will face are clear. With the U.S. Clean Hands Trust in place, China must join the United States and the other major powers in insisting that the current Sudanese regime has to go.

And this generalizes. Imagine the world with the legal cases won and the Clean Hands Trusts in place. Here the resource corporations, the governments of states such as the United States and China, and the citizens of the oil-rich countries themselves will all have very strong reasons to want there to be minimally decent governments in place in the resource-exporting countries. The property-based approach aligns the incentives all of the main actors — the corporations, the most powerful states, and the citizens-so that they point toward ensuring that there is a minimally decent, unified government in each resource-rich country.

Stopping the flow of foreign money into these countries is the key to an otherwise intractable situation. The resource curse is only half about resources. The dictator Obiang could not after all subdue his political opponents by dousing them in crude oil. The other half of the equation is the foreign money that flows into the dictator’s bank accounts when he transfers the country’s oil abroad. It is this money that increases Obiang’s ability to buy weapons and pay security forces, to control the channels of patronage, and to disrupt possible challenges to his rule. The money that outsiders pay for the resources of Equatorial Guinea funds the subjection of its people.

Sudan is similar. The most impoverished Sudanese used to have a hard enough time resisting the Khartoum regime’s military offensives. After oil money began to flow into the country, these poorest Sudanese became much worse off, as the regime began to use its new millions to pay for more soldiers and the latest weaponry to kill them and chase them off their traditional lands.

The property-based approach here will stop this harmful foreign money from coming into the country. It will deprive authoritarian rulers and civil warriors of funds that they would use to inflict further misery on the country’s people. The Clean Hands Trusts will give the citizens of those countries extra reasons to replace their tyrants and warlords with minimally decent, unified governments. Moreover, implementing the property-based approach will reduce the incentives for aspiring dictators, coup-plotters, and civil warriors to attempt to gain power by stealing resources and selling them abroad.

In fighting the flow of stolen resources we need not sacrifice market principles to get good outcomes. Both principles and prudence in this case advise the same course. Here, as with other enlightened causes, results come from resolve. Enforce rights, and progress will follow.

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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