Victor Menaldo

.........................................................

Assistant Professor

University of Washington Political Science Department

vmenaldo@u.washington.edu

I am an Assistant Professor of Political Science at the University of Washington (and, beginning in September of 2015, Associate Professor). At UW I am also an affiliated faculty with the Center for Statistics and the Social Sciences, as well as Near and Middle Eastern Studies. In the summers I help a very talented group of scholars teach courses on the microeconomics and politics of regulation and innovation at the IP2 Summer Institute at the Hoover Institution (Stanford University).

I have published on political economy and comparative politics in American Political Science Review, Journal of Politics, British Journal of Political Science, World Politics, Comparative Political Studies, Comparative Politics, Economics & Politics, International Studies Quarterly, and several other places.

I have also penned op-eds in the New York Times, Wall Street Journal, Washington Post, USA Today, Foreign Policy, and Seattle Times.

My work has been covered by the New York Times, Wall Street Journal, The Economist, and Bloomberg, among other media.

My forthcoming book, “From Institutions Curse to Resource Blessing,” will soon be published by Cambridge University Press.

I invite you to peruse summaries of my two books in progress. The first, mentioned above, is entitled “From Institutions Curse to Resource Blessing.” The second, which I am coauthoring with Michael Albertus (University of Chicago), is tentatively entitled “The Endemic Flaws of Democracy.”

 

FROM INSTITUTIONS CURSE TO RESOURCE BLESSING

“From Institutions Curse to Resource Blessing” draws on a bevy of recent articles that have already proven influential and chapters in edited volumes. Among other places, I have published these in the American Political Science Review, Journal of Politics, and Comparative Political Studies. These papers have received glowing media coverage, including profiles in the Wall Street Journal, The Economist, Bloomberg News, and Foreign Policy, among other places. I have also published an op-ed that has disseminated my results to the general public in the Wall Street Journal. More importantly, these articles have stimulated a debate about the impact of natural resources, the origins of political institutions, and the causes of the variation exhibited during the Arab Spring. My APSR article has already produced responses published in CPS, BJPS, and Economica.

Moreover, it is the most cited APSR article over the past five years.

From Institutions Curse to Resource Blessing makes several contributions to the political economy of development. The first is to challenge the belief that natural resources are an exogenous, randomly assigned variable. Second, to debunk the natural resource curse, the view that natural resources lead to a host of undesirable outcomes, including the weakening of state capacity, authoritarianism, fewer pubic goods, economic stagnation, and civil war. Third, to demonstrate that oil and minerals are a blessing. To be sure, resource reliance is indeed correlated with numerous pathologies. What has not been convincingly shown hitherto is if this relationship is in fact causal. This book demonstrates that it is not. Legacies endemic to the developing world have impelled many countries to develop natural resources as a default sector, in lieu of cultivating modern and diversified economies. And bad institutions have also condemned nations to suffer from authoritarianism, economic stagnation, state weakness, and other ills unduly attributed to minerals and oil. Yet, this book also argues that natural resources can play an integral role in stimulating state capacity, capitalism, industrialization, and democracy, even if resources are themselves often a symptom of underdevelopment. Oil rents do not displace ordinary government revenues, nor are they causally associated with fewer public goods, dictatorship, poor institutional quality, and barriers to capitalism. To the contrary, despite being cursed by their institutions, weak states are blessed by their resources.

While Chapter 1 provides a brief introduction to the book, outlining its chief contributions, Chapter 2 fleshes out a series of puzzles that challenge the resource curse. Although these puzzles have been documented elsewhere as well, in this chapter I use original datasets developed by myself and Stephen Haber, along with several new insights, to hammer home their contours and implications. There is strong, prima facie evidence that natural resources, especially oil, do not harm countries’ ability to generate revenues, grow their economies, or become and stay democratic.

The first puzzle is the salutary role that natural resources have played throughout European and North American history. Mineral wealth helped secure the consolidation of powerful empires and states with impressive territorial reach in both European countries and their colonial offshoots. The industrial revolutions that were unleashed during the 19th and 20th Centuries, and which lifted millions from penury into plentitude, were fueled by coal, hard rock minerals, and eventually oil. 

The second is that the first global oil shock, which occurred in 1973, provides a quasi-natural experiment that roundly rejects the resource curse thesis. After Arab oil producers imposed an embargo on the Western allies of Israel during the Yom Kippur War, this ushered in a huge increase in the oil price, amounting to an unprecedented structural break in the world oil market. Countries that were not significant oil exporting countries before 1973 became so after the shock; and on the back of their newfound bounty they improved their state capacity, level of democracy, and economic development. 

The third puzzle is about the Middle East and North Africa (MENA), a region of the world that is often held up as the poster child of the resource curse. There, countries were underdeveloped well before oil was discovered. Moreover, oil rich countries such as Iran and Saudi Arabia are not radically different today than oil poor Morocco and Jordan. 

In Chapter 3, I provide a broad review of the literature on the political economy of the resource curse. There, I begin by outlining and critiquing three main views about the consequences of oil. The first is the resource curse theory. The second is a more sophisticated vein of literature that argues that the negative effect of natural resources on a nation’s development is conditional on other factors. The third, a much smaller literature than the first two, maintains that resources are, quite simply, a blessing.

In the remainder of the chapter I then do three additional things. I review recent contributions that argue that natural resources are endogenous to institutions and politics. I outline a political economy literature called neo-mercantilism. I then outline a literature on institutional origins called the factor endowment approach. The latter two tasks are critical because I draw on these the insights provided by these literatures to construct the rest of the book.

In Chapter 4 I address why all societies don’t simply adopt good institutions. Why are the rule of law and liberal democracy not universal? Why are corruption, cronyism, and despotism— and thus chronic underdevelopment —still so rampant? The institutions curse theory attempts to address these pressing questions, which paves the way for an endogenous explanation of resource reliance and crony capitalism. I explore the critical role played by commitment problems and transaction costs in conditioning elites’ strategies of power acquisition and maintenance. In turn, these strategies deeply affect present investments that culminate in future fiscal transaction costs and levels of state capacity. When commitment problems are particularly thorny and fiscal transaction costs too high, incumbents turn to strategies that can generate rents in ways that procure political loyalty and generate easy-to-tax revenues. This comes at a steep, long-run cost, however; it further promotes the cartelization of property rights at the expense of the majority, enervates state capacity, and fuels underdevelopment.

In the latter part of the chapter I also tackle what explains the origin and stability of the world’s contemporary institutions by zeroing in on factor endowments. I evaluate the political history of Western Europe and the Middle East in particular.

In Chapter 5, I directly challenge the view that there is a causal relationship running from oil to political and economic underdevelopment. The chapter seeks to empirically identify what determines a hydrocarbons sector in the first place. I argue and find that revenue starved states with low capacity are more likely to launch oil exploration efforts, goose the production of extant wells, export oil to a higher degree, tax it more heavily, and attract higher levels of capital in hydrocarbons. While NOCs have increasingly shouldered more of the heavy lifting to make this happen, private investors also continue to play a prominent role. They exploit huge advantages in power, money, and information to protect their property rights in host countries across the developing world; IOCs increasingly engage in regulatory arbitrage to sidestep stringent environmental regulations in their home countries, as well as higher taxes.

As a first step in corroborating these claims, I undertake a case study of Azerbaijan. I highlight the state’s deliberate attempts to revive the country’s oil industry after its independence from the Soviet Union, primarily because it was bereft of regular tax sources. It therefore both looked for oil and drilled it at the highest rates in its history to generate easier-to-collect revenues. In the Azerbaijani case we can identify a strong shock to state capacity that occurred unexpectedly and swiftly, making it, for all intents and purposes, exogenous. Its independence from the Soviet Union threw a relatively strong state into a perilous situation. Finding itself in a fragile and desperate situation after a war against Armenia, a huge banking crisis, and an economic collapse, the government was left with no other option than to rev up oil exploration and hasten the depletion of extant wells, despite the fact that oil discoveries had peaked. These claims are corroborated by oil exploration and production contracts penned between the state run oil company (SOCAR) and IOCs under the auspices of PSAs; these contracts are particularly helpful because they reveal the pre-exploration fees and pre-drilling bonuses collected by the Azerbaijani state.

A series of statistical analyses then yield results that support the theoretical claims advanced in this chapter across countries. This is the case after controlling for geological endowments, oil prices, and production costs. Weak states are more likely to court capital in the oil sector, explore for oil, extract it at high rates, export it, and tax it, no matter how I operationalize oil, or state capacity, and across a host of specifications that address endogeneity bias.

In Chapter 6, I systematically explore if there is actually a resource blessing instead of a curse. The chapter reevaluates the relationship between oil and a host of political and economic outcomes across the globe since 1930 after isolating the exogenous variation in fuel income as instrumented by geological endowments, and after controlling for exploratory efforts. These outcomes include non-resource public revenues; regime type; the quality of a country’s institutions; the government’s ability to credibly commit to its promises; and the size and sophistication of the market economy. Across the board, I find evidence for a resource blessing. This is even after exploring the effects of oil on democracy in the post 1980 period, in the wake of a wave of oil firm nationalizations. I also adduce considerable evidence for the mechanisms that explain a positive association between resources and a country’s political economy in Latin America over the long run. Chapter 4 therefore shatters the consensus that oil is a curse, including recent claims that it is conditional on the time period.

In Chapter 7, I attempt to gain purchase on the political instability that buffeted the MENA during the Arab Spring. The region’s monarchies have largely elided turmoil and violence. The “republics” have not. I show that this has also been the case historically. The association between political stability and monarchy is not driven by oil wealth. Nor does oil explain why monarchies have better institutions, provide more public goods, and have higher levels of educational attainment and faster economic growth.

To help understand why there is a correlation between monarchy and these outcomes in the MENA, the chapter introduces a theory about how an invented, yet historically rooted, political culture can solve a ruler’s credible commitment problem. By securing elites’ rights and interests, it bolsters their support of the regime. This chapter also illustrates the evolution of monarchic political cultures over the history of the MENA. I document the geographic and biogeographic underpinnings of monarchy, arguing that extreme aridity and pastoral nomadism centered on camel herding sustained a tribal social structure. This unique equilibrium held despite millennia of imperialism, Islam, and European colonialism.

In Chapter 8, I conclude the book by raising and broaching two puzzles. First, do those countries cursed by their institutions, but subsequently blessed by the resources they elicit, eventually graduate beyond their reliance on an oil and mineral intensive economy? Second, how do we make sense of the fiscal contract view of the world—where democracy, the rule of law, and public goods are thought to be exchanged by rulers for tax revenues—in light of the institutions curse and resource blessing? 

THE ENDEMIC FLAWS OF DEMOCRACY

In this book Albertus and I document and address several pressing problems about the causes and consequences of democracy. Why is it that almost half of all democratic transitions since World War II have ended in failure? Why has what seemed like the inexorable march towards democracy across the world recently stalled in the way of reversions to authoritarianism in important countries in Eastern Europe, Latin America, and Asia? And why has the quality and breadth of democracy been so disappointing in many developing countries so that levels of inequality, poverty, and corruption remain alarmingly high, even decades after transitions from authoritarianism?

Albertus and I argue that almost all democracies are flawed by design. The majority of democracies throughout history have been the product of a devil’s pact between outgoing elites and political entrepreneurs seeking to pry the door open so that they can also have a say. The price of increased competition and pluralism, however, is often the booby-trapping of democratic institutions with laws and procedures that shield elites from the rule of law and that give them an unfair advantage. They are therefore able to avoid prosecution for crimes perpetrated under autocracy, able to continue to amass wealth and political power, and able to exercise disproportional influence over public policy.

The result is democracies that are often even less fiscally progressive than their autocratic predecessors, which contribute to the widening of inequality and a reduction in opportunities for the majority, and that produce bitter disappointment among citizens.

Our book also promises to make two additional contributions. We seek to explain how it is that elites are created in the first place under authoritarianism. To do so we take a historical approach and explore how markets for land and capital were initially created across countries in ways that tilted the playing field in favor of some groups over others; endowing them with advantages in resources, human capital and political power they would later be able to deploy to exercise undue influence after democratization. We also seek to explain why some fledgling democracies are able to escape the devil’s pact that led to their genesis whilst others remained trapped in patterns of elite dominance and underperformance. Why do some democracies grow out of their endemic imperfections while others indefinitely reproduce them?

This book will draw on a bevy of recent articles and chapters in edited volumes. Among other places, Albertus and I have published these in the British Journal of Political Science, Comparative Political Studies, Comparative Politics, and International Studies Quarterly. We have also published several op-eds that have disseminated our results to the general public in the New York Times, Foreign Policy, Washington Post (Monkey Cage), USA Today, and Seattle Times.

And, unbelievably, Mike and I have had our work covered by the French media (Canal+) through an animated cartoon.

Here is a summary of the book with some excerpts.


 

Supplementary (web) Appendices for Published Papers

Supplementary Appendices for Albertus, Michael and Victor Menaldo. 2012. "If You're Against Them You're With Us: The Effect Of Expropriation On Autocratic Survival." Comparative Political Studies.

Appendix 1: Dataset Codebook

Appendix 2: Dynamic Signaling Model of Large-scale Expropriation under Dictatorship

 

Supplementary Material for Victor Menaldo. 2012. "The Middle East and North Africa's Resilient Monarchies." Journal of Politics.

Replication Dataset

 

Supplementary Material for Mike Albertus and Victor Menaldo. Forthcoming. "Gaming Demoracy."British Journal of Political Science.

Replication Dataset

 

Odds & Ends

What Makes a Great Paper Great

Endogeneity Bias & Instrumental Variables

My Op-eds

There's Hope in the Longrun

The New York Times

The Aftermath of Revolution

The New York Times

Afghanistan and the 'Resource Curse'

The Wall Street Journal

Egypt's Constitution

Washington Post

How Democracies are Gamed for Power and Profit

Washington Post

A democracy's best bet: Revolution first

USA TODAY

Burma Can Bring it

Foreign Policy

South Africa, Unequal by Design

Foreign Policy

The Odds are Good for Egypt

Foreign Policy

Hope for Democracy in Egypt

Seattle Times

A Democratic Middle East?

Defining Ideas