voice for democracy

Authoritarianism and Nationalizing Natural Resources – War on the Rocks

Editor’s Note: This is an excerpt from “Book Review Roundtable: Nationalizing Natural Resources” from our sister publication, the Texas National Security Review. Be sure to check out the full roundtable.
 
Paasha Mahdavi, Power Grab: Political Survival through Extractive Resource Nationalization (Cambridge: Cambridge University Press, 2020)
 
For authoritarian rulers, revenue is the key to survival. With threats from below, as well as from allies and rivals, the foremost concern when it comes to remaining in office is securing sufficient funds to pay off potential challengers and giving oneself the requisite coercive power to repress opponents. In Power Grab, Paasha Mahdavi examines the role of natural resource rents, particularly via the nationalization of oil, in helping leaders to achieve those goals. The existing mechanisms underlying the “resource curse,” namely that natural resources reduce government accountability while also providing easily extractable rents for cooptation and coercion, are well known. Mahdavi’s contribution lies in explaining which types of leaders nationalize, the structure and process of that nationalization, and the role of timing and information in determining leader behavior. In particular, showing that leaders in more precarious situations are more likely to benefit from nationalization — which, despite a potential loss of efficiency, increases their odds of remaining in power — is an important corrective to the existing literature.
 
 
Aside from its theoretical contributions, the book also supports its argument with an impressive range of empirical approaches. The case studies — particularly of Iran — are masterful and present rich evidence based on deep archival research. The book also benefits from a multi-method approach that is rarely so well executed. The combination of thorough qualitative work and state-of-the-art statistical research leaves little doubt about the validity of Mahdavi’s argument. It also ties together diverse research strands in ways that yield new insights for a variety of different literatures. By crossing sub-disciplinary boundaries, Mahdavi has produced a theoretically innovative and empirically rigorous study that will leave a lasting impact on the discipline. Moreover, the book is highly readable and presents the argument and evidence in a logical way, anticipating potential criticism and offering responses in turn.
Which Resources Fit the Theory?
The main drawback of the book is that it relies too heavily on defining “natural resources” as oil. In fairness, this is the primary focus of the resource curse literature, and oil certainly provided the foundations for many of the most prominent authoritarian regimes of the 20th and early 21st centuries. Mahdavi discusses the limits of the applicability of his argument throughout the book, yet non-oil resources are not part of the core of his analysis, nor do they appear in the historical case studies. For example, natural gas and coal, like oil, have characteristics that make them highly profitable with little effort, which would make them fertile cases to compare with Mahdavi’s core oil cases. Reading the book, one wonders which resources would fit the theory, particularly since the universe of cases might be quite broad. If any extractive resource that creates these types of profits fit the scope of the theory — for example, gemstones, lumber, or even highly capital-intensive forms of foreign direct investment — then many of the nationalizations we see in authoritarian countries fit the same logic of ruler survival that we see behind the creation of national oil companies.
Perhaps more importantly, if the future is powered less by oil than by a distinct set of natural resources necessary for renewable energy and advanced energy storage, then the question of the flexibility of the theory becomes particularly important. Mahdavi alludes to the “minerals that will power the clean energy transition,” but it is unclear how distinct the rents from those minerals are from rents from oil or other fossil fuels. If the key natural resource characteristics underlying the argument in Power Grab are easily extractable rents in capital-intensive industries, then concentrated rents in lithium extraction should be no different from concentrated rents in oil production. This raises the question of whether leaders of countries with the minerals necessary for renewable energy technologies will take steps to nationalize those sectors as demand for their use grows, particularly if investment by foreign multinationals in those sectors increases. Would Muammar Qaddafi’s story in Libya have played out the same way if, instead of oil, he had had cobalt, as the rulers of the Congo currently possess? Given that the resources for the future energy transition are primarily minerals, would the causal mechanisms remain the same for them as for oil? Drawing clearer lines around the theory that Mahdavi offers will be useful for other scholars who attempt to adapt it to a wider range of cases. Moreover, it will clarify the predictive power of the theory and help to anticipate how authoritarian leaders in resource-rich countries will behave. That, in turn, will be crucial not only to the citizens of those countries, but also for understanding the future access that the rest of the world will have to the minerals that are essential for clean energy generation, as well as their availability and cost.
The Future of Resource-Fueled Authoritarianism
Beyond focusing on which resources fit Mahdavi’s theory, an additional concern is that of whether the theory is limited to a particular period of history. It is unclear whether the nationalizations of the past, which were often unilateral and carried out with little compensation from the host country, could be repeated in the future. Might not economic sanctions, deeper economic connectedness, and strengthened investment law (and enforcement) hamper such nationalizations? Hugo Chavez was certainly forceful in his efforts to consolidate Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (PDVSA), but he was met with substantial resistance from the United States (although he did receive support from China, Cuba, and other countries seeking to both bolster authoritarian rule in Latin America and gain access to Venezuela’s oil production). Nationalization would thus appear to be a historically bound process.
On the other hand, with the world in a period of democratic backsliding and emboldened authoritarianism, leaders will surely do whatever it takes to stay in power, and natural resources present a readily available source of necessary revenue. Oil will continue to fuel the global economy for decades to come, providing a steady source of revenue for leaders who seek rents for cooptation of allies and repression of enemies. Indeed, if Mahdavi’s theory is applicable to a wider range of resources, then authoritarian rulers have more opportunities to secure rents to stay in power. A broader range of natural resources, particularly minerals such as copper, coal, zinc, cobalt, and lithium, may provide the financial support for more authoritarian leaders as those minerals increase in value. Moreover, with natural resource nationalism on the rise, leaders will likely have the support of their populations in expropriating foreign companies in the resource sector. Given the rise of global populism and the increased willingness of leaders — both authoritarian and democratic — to pander to their constituents, effective statecraft appears to matter less than short-term access to rents, whether from oil or other natural resources.
The Emergence of Authoritarian Challengers
An additional critique has to do with the dynamics of authoritarian rule and the first stage of the process of seizing power that Mahdavi examines. His argument focuses primarily on efforts to stay in power once leaders gain office. It focuses much less on how these leaders emerge in the first place and how they take their first steps to secure their grip on office. No doubt, leaders such as Qaddafi (and the many challengers who attempted to displace him) were at least partially motivated by the resource rents that allowed them to secure power. Yet, as Qaddafi consolidated power, he did so in a way that closed the door to future opponents, and much more effectively than his competitors and predecessors. More broadly, how much of the difference between successful and failed leaders had to do with the leaders themselves, versus external factors such as oil prices, resource discoveries, actions by the United States or other international actors, or, as Mahdavi emphasizes, the diffusion of ideas and policy practices? And if such outside factors matter, can national governments or international organizations take any actions to prevent authoritarian consolidation and provide greater room for opposition parties, and perhaps even transitions to democracy? One also wonders about the degree to which these same effects help incumbents in democracies to stay in power, although these concerns fall outside of the limits of the theory and motivating cases of Mahdavi’s book.
Such phenomena are important to study to the degree that they are, in turn, affected by the potential flows of future resource rents. Although Mahdavi discusses existing research on preexisting institutional quality by Thad Dunning and Victor Menaldo, leader emergence and challenges to existing rule, particularly in the periods before successful rulers have consolidated their power, remain something of a black box. This “presource curse” literature, drawing on a term coined by James Cust and the related “booty futures” argument put forth by Michael Ross, highlights the importance of the emergence of rulers as an essential component of understanding how those leaders consolidate power. A two-stage model, while complicating the analysis, would explain not only the consolidation of authoritarian power, but also the emergence and success or failure of challengers. Future work combining the theories of Cust, Ross, and Mahdavi has the potential to yield additional insights.
Conclusion
Mahdavi has written a fascinating book that outlines an innovative theory of resource-fueled authoritarian survival, supported with ample empirical evidence and impressive qualitative work. While I find the argument persuasive, I have offered a number of critiques about the limits of that theory. In particular, questions remain as to whether the theory “travels” to different sets of natural resources, different time periods, and even different types of regimes.
These critiques should not detract from Power Grab’s contribution. Instead, they are a sign that the argument provides inspiration for future work that will build on its findings. Indeed, much research remains to be done in this area, particularly in testing the limits of the theory for other natural resources. In addition, I hope that other scholars will continue to examine the dynamics of authoritarian emergence, building on these findings about the consolidation of power and authoritarian survival. I look forward to seeing Mahdavi’s future work on these topics and I expect other scholars to join him in continuing to try to understand the relationship between natural resource rents and authoritarian rule.
His argument has crucial implications for the world that we will build in the coming decades. To the degree that we can further understand authoritarian regimes, I hope that we can use those insights to undermine autocratic rule and foster democracy. Moreover, ensuring access to the minerals that underlie the transition to clean energy is crucial for mitigating the worst effects of climate change and setting the global economy on a more sustainable path. Because they tie in so centrally to these two major global political challenges, the questions that Mahdavi engages with are not only theoretically important, but also of normative significance.
 
 
Alexander “Xander” Slaski is a postdoctoral fellow at Leiden University. His research focuses on the political economy of foreign direct investment, investment incentives, and currency flows in the developing world, particularly Latin America. His current book project examines how multinational firms shape regulatory policy in developing economies. His work has been published or is forthcoming in the Review of International Organizations, the Review of International Political Economy, and International Studies Quarterly
Image: U.S. Air Force (Photo by Senior Airman Jordan Castelan)
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