Corrupt US states get more corrupt after gaining revenue from natural resources

 
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October 31, 2019

U.S. states that struggle with government corruption tend to become more corrupt after gaining revenue from natural resources, according to a new paper in Political Research Quarterly.

Conversely, states that are less corrupt and gain natural resource windfalls tend to resist becoming more corrupt.

“There is a ratcheting effect among these states, where, once in place, corruption is difficult to dislodge,” the authors write.

The finding is an American twist on the so-called “resource curse,” a concept that claims countries become less democratic and see less economic development when they gain natural resources.

“Natural resources are not this determinative thing that make states corrupt,” says Patrick Egan, an associate professor of political science at Tulane University and one of the authors of the new paper. “They’re just another source of easy money for states already experiencing corruption.”

How states extract revenue from companies that extract resources

States typically secure revenue through fees, royalties, licenses, rents and other charges levied on companies that extract natural resources. Many states have mineral deposits, particularly in the western two-thirds of the country, according to data from the U.S. Geological Survey. There are shale gas deposits in Montana, North Dakota, Colorado, Texas and throughout the Appalachian basin, according to data from the Energy Information Administration.

Natural resources can mean major revenue for states. Wyoming — tops in coal-mining — secured more than $2 billion in revenue from natural resource extraction in 2016, the most recent year of data available from the Department of the Interior. Natural resource revenue represented one-third of all revenue for Wyoming that year, according to data from the Census Bureau’s Annual Survey of State Government Finances.

The corrupt get corrupt-er

The authors analyze mining and taxation data from the U.S. Bureau of Economic Analysis from 1976 to 2012 for the 50 states. They also look at data on government officials convicted for corruption crimes that the Department of Justice’s Public Integrity Section pursued. Over this period, there were more than 25,000 federal convictions of elected or appointed officials across the states for “criminal abuses of public trust.” These include convictions for crimes like bribery, extortion and illegal campaign contributions.

The authors measure corruption by convictions per million residents for each state. They also use data on the competitiveness of elections, legislator compensation, duration of legislative sessions and the number of governments — state, county, municipal — in each state, as a proxy for what they call “corruptible constituencies.”

Because prosecutorial spending could affect conviction numbers — corruption convictions could be higher in states that get more resources from federal attorneys — the authors also account for the number of U.S. attorney hours spent in court per 10,000 residents.

The authors use 1981 to 1985 as their baseline period for comparing changes in corruption convictions related to new natural resource revenues. States with an average of roughly 5.5 corruption convictions per million people over this period tended to see more corruption as natural resource dollars poured in over subsequent years. The authors associate each standard deviation increase in mining tax revenue with 21% more corruption convictions per million. Put another way, as the amount of mining tax revenue in an already corrupt state ticks higher and higher above the nationwide average, yet more corruption is likely to follow.

Colorado is one example of a state that had low levels of corruption and gained new mining revenues around the turn of the century, but didn’t experience more corruption in the years afterward. The authors also run a statistical experiment with two high-corruption states: Tennessee, with 16 corruption convictions per million residents in 1990 and Louisiana, with 14 convictions per million that same year.

Tennessee gets a small portion of its tax revenue from natural resources, while Louisiana gets substantial revenues from mining and gas extraction. Based on mining and taxation data, the authors estimate that if Tennessee had the same natural resource revenue as Louisiana, it would have had 1.12 more corruption convictions per million people over subsequent years of the study period.

Resource blessings and curses

Academics have explored the resource curse across hundreds of studies over the past two decades. “There is now robust evidence” that oil wealth in particular can bolster authoritarian regimes, increase corruption and lead to violent conflict in less-developed nations, according to a 2015 paper by UCLA political science professor Michael Ross in the Annual Review of Political Science.

One reason for the resource curse? Having skin in the game matters.

“If governments get the majority of — or a significant chunk of — revenue from natural resources, that separates them from having to tax their citizens,” Egan says. “That might seem like a good thing until you realize those governments might not be subject to citizen oversight. Citizens pay more attention when they’re paying for their government.”

But there is active academic debate over whether the resource curse always holds true. Other research suggests that democratic governance and natural resources are not so tightly linked. Ohio State University political science professors Sarah Brooks and Marcus Kurtz find “oil in itself may not always be a curse, and the extent of democracy in one nation is predicted significantly by the democratic tendencies among regional peers, particularly those peers that are more highly developed,” they write in their 2016 paper in International Organization.

Political science researchers have upheld Norway, Canada and the U.S., as a whole, as examples of nations that have avoided the resource curse. Instead of being cursed, these countries have experienced what academics call resource blessings — they’re relatively transparent democracies that are also rich in valuable natural resources. Botswana, the oldest continuous democracy in Africa, is often pointed to in the literature as a counter to other resource-rich nations like Angola, Ghana, the Democratic Republic of Congo and Nigeria, which have struggled with government corruption.

“The resource curse is not an open-and-shut case,” Egan says. “A lot of people out there argue there isn’t a curse and there can be resource blessing outcomes, even among developing countries.”

 

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Citation: Michael Tyburski, Patrick Egan and Aaron Schneider. “Deep Determinants of Corruption? A Subnational Analysis of Resource Curse Dynamics in American States,” Political Research Quarterly, October 2019, doi:10.1177/1065912919878264.