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Comment by pydry | Hacker News Reader

It's not strictly a "wrong leaders" problem. It's much more systemic than that. Elect a good leader and the oil will provide the impetus to tear that leader down.

Industry also won't form because of Dutch disease. Who wants to build a factory in Saudi Arabia even if it weren't unstable? Everything just costs too much because of the oil - land, materials, labor.

Sovereign wealth funds also don't really solve the problem because 1) they attract corruption like flies on shit and 2) they're vulnerable to confiscation from foreign governments if they decide they don't like your face (e.g. Venezuelan gold in London).

I suspect it could be that there is no simple solution to this. Potentially you are just fucked if you're a poor unstable country with oil and theres nothing you can really do about it. No leader will save you and no policy will help.

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> It's not strictly a "wrong leaders" problem. It's much more systemic than that. Elect a good leader and the oil will provide the impetus to tear that leader down.

See also, The Dictator's Handbook, summarized well by CGP Grey's video "The Rules for Rulers" (https://www.youtube.com/watch?v=rStL7niR7gs).

It's an unstable equilibrium to run a country on a wide power base, if it has centralized resource-extraction economy; as any dictator who just plans on staging a coup to take the oil and then reward their few revolutionaries with it, will be able to win over pretty much anyone from the previous wide-base government, who was previously getting a much-smaller slice of the pie.

Norway kind of proves it is possible to make it work without the corruption. But Norway also proves that you need to lay the groundwork for that, before you lay any actual groundwork. I am not sure if these other oil producing states could reach a level of stability as Norway.

Norway used to be a relatively poor country by Western European standards but had a functional economy before oil. Homogeneity, a staunchly hard-working and independent population, being surrounded by lutheran economies, and "bondevett", is why Norway turned out well.

That's not really true, Norway was one of the richest countries in the world long before the oil boom. In Europe it was only behind Luxembourg, Switzerland and Sweden by GDP per capita in 1960.

You're right. I've lived in Norway and was repeatedly told by Norwegians the country used to be poor, something I believed (there isn't much in Norway that reminds of a wealthy past). Apparently it's just a myth [1][2].

[1] https://www.dnva.no/detskjer/2019/11/en-feiloppfatning-norge...

[2] https://www.aftenposten.no/meninger/kronikk/i/LM1L1/Hvorfor-...

> Norway kind of proves it is possible to make it work without the corruption

The Norwegian state and identity were formed before oil.

I am not sure Francisco de Miranda and Simón Bolivar had oil on their minds when they effectively established Venezuela as an independent state from Spain.

Norway proves it's possible. However, without a second clear example it's difficult to prove exactly what it is about Norway that makes it possible. Is it culture? Wealth? The timing? Sheer good luck in governance? A combination? It's hard to tell.

The far right frequently claim it's something to do with a lack of colored immigrants, for instance.

Your racist characterization of the far right detracts from your point.

Norway does not prove that at all.

Norway has almost no industry other than oil. If oil shut down tomorrow their sovereign fund could keep the country running for about 10 years.

10 years isn't really long enough to transition to other industries. It's barely long enough to educate the next generation in new technology.

(Source: Norway's imports per capita were $16.9k, and its fund is $195K per capita.)

Norway is hoping that oil will shut down slowly, giving them time to transition, using the fund as a cushion. But historically industries tend to shut down "slowly, then all at once".

Edit: I didn't see you wrote "work without the corruption". My reply is misdirected, my reply is about the economy. In regards to corruption I agree with you.

> vulnerable to confiscation from foreign governments if they decide they don't like your face

This should be a sign that the rule of law is in decline all over the world. What UK did and the US is doing is completely absurd, even when dealing with an authoritarian regime. Not only UK is holding gold that is not owned by them, but it is giving that gold to a pirate designated by the US.

And this is bad not just for the particular case, but it may also be used as precedent for similar illegal actions against other governments that don't subscribe to the US gospel.

"the rule of law" is different from "one world government".

"Foreign government" means "different laws".

https://www.bbc.com/news/world-latin-america-53262767

Interestingly, the first thoughts that come to mind on how to mitigate this problem fit Saudi Arabia very well (as far as I know, I am no expert). Invest in a considerable security force, try really hard to ingratiate yourself with a few powerful foreign allies that have a vested interest in your stability, and then fund education like mad, especially sending children to foreign universities, to try to raise the capability level of the country before the wheels fall off.

Investing money into raising the capability level of these rich states usually has a very low success ratio mostly because their societies do not value labor but authority, power and money of which they have plenty.

This is what China's elite have been doing...

Their "hundred year plan" is fn' formidible and they really will be the super-power based on, not only, their implementation of it - but the lack of forethought from literally any other nation on the planet, save Norway.

Vancouver real estates begs to disagree!

Those mitigations will help, but one of the fundamental problems the Gulf countries will have to address is the cultural expectation that their citizens won't do hard work. When it starts becoming infeasible to import the entire construction industry from India, Saudi citizens are going to have to start taking those jobs, and they're not going to be happy about it no matter how smooth the transition is.

> Who wants to build a factory in Saudi Arabia even if it weren't unstable? Everything just costs too much because of the oil - land, materials, labor.

So, import all the inputs you can and sell the output on the local market where everything is expensive.

Dutch disease is way more complicated than just "there's too much money coming from this source, the economy is fucked-up". I would really like to see any non-simplified study for a change.

Imported Inputs into a GDP will always be SPOF...

Wont they?

Like you need to have serious incentives to import all your inputs.

Else, you are a leeching economy regardless of the value of your goods (Apple)

My comment was about a single factory. In theory all the factories could import all their inputs, because the commodity that is causing the Dutch disease will offset it, but on the micro-level, a company can take advantage of a low average salary yet high costs market that is characteristic of the disease.

So an upstart smartphone manufacturer could take advantage of the high local salaries to manufacture a local brand of overpriced smartphones solely for the local market?

I'm not sure that's viable nor helpful as an idea when you can just import iPhones from China.

The real cause of Dutch disease is not economical, but political. Political forces formed from the exploration of oil (and other resources, like banana-producing land in central America) will not allow for the formation of a diversified industry where they will have less ability to control the host country. These political forces are a combination of both external (developed nations) and small minorities that benefit from the maintenance of the status quo.

Dutch disease was named after the Netherlands where the phenomenon was first observed - with North Sea oil. It was a highly valued currency, not politics, that rendered Dutch exports noncompetitive and shrank foreign investment.

They should vertically integrate while they can. Produce exportable goods and materials with the oil.

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