An examination of the rankings of oil-rich counties in the 2008 Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal, reveals that, for the most part, citizens of oil-producing countries are stuck in poverty. Many live under brutal and dictatorial regimes. These factors combine to create what economists have long termed the "curse of oil."
But that does not mean oil-rich countries are doomed to economic mediocrity. As the following statistics will demonstrate, it is a nation's policies, not its products, that determine its economic well-being.
Subsequently, oil-rich nations with opportunities to increase economic freedom, such as Iraq, should adopt policies capable of defeating the "curse of oil."
"Oil-Cursed" Countries Get Failing Grades
As illustrated by the table, the majority of countries from where most of the world's oil supply is lifted fall into either the "Mostly Unfree" or "Repressed" rankings in the 2008 Index. The high per capita income levels that would be expected in countries with great resource wealth are simply not present.
Many of these countries have low scores on most of the 10 freedoms that are reviewed in the Index, especially property rights, labor freedom, financial freedom and, above all, freedom from corruption, as described in the following excerpts from the 2008 Index:
Exceptions That Prove the Rule
The Best Solution: Get It Right from the
Iraq is one oil-cursed nation that has been given a chance to start over. Having recently traded a dictatorship for a fledgling federal constitutional form of government, officials in the oil-rich autonomous Iraqi region of Kurdistan want to capitalize on the stability fostered by the U.S. and Iraqi military forces. Under the newly established Iraqi federal system, the Kurds have gained the right to exploit their extraordinary oil reserves and are planning to mange these resources more like the Chileans or Norwegians and less like the Venezuelans or Nigerians.
The Kurds, too, believe that sharing the prosperity from the oil fairly (thereby raising per capita income) and planning for a brighter future requires economic diversification. Kurdish leaders have stated that they do not want an "oil economy" and will place equal emphasis on sectors such as agriculture and tourism. They are actively encouraging private investment and business formation.
The Sunni and Shiite Iraqis should take notice. There is no reason they or other oil-rich nations cannot follow suit.
James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for International Trade and Economics (CITE) at The Heritage Foundation. Daniel J. Leahy of Bend, Oregon, is a consultant on petroleum and natural resource issues and a graduate student in management at Concordia University in Portland, Oregon.CITE intern James Bezjian made valuable contributions to this memo.
"The Curse of Oil: The Paradox of Plenty," The Economist,
December 20, 2005, at http://www.economist.com/business/displaystory.cfm?
story_id=5323394 (July 7, 2008). See Also: Stephen P. A. Brown and Richard Alm, "Running on Empty? How Economic Freedom Affects Oil Supplies," Economic Letter-Insights from the Federal Reserve Bank of Dallas, Vol. 1, No. 4, April 2006, at http://www.dallasfed.org/research/eclett/2006/el0604.html (July 9, 2008).
 As illustrated by the table,*.
 All Index quotations in the 10 freedoms are from Kim R. Holmes, Edwin R. Feulner, and Mary Anastasia O'Grady, 2008 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2008), at http://www.heritage.org/index/countries.cfm.
 Fabiola Sanchez, "Venezuela's monthly inflation hits 3.2 percent, highest this year," Associated Press, June 9, 2008.
 Holmes, Feulner, and O'Grady, 2008 Index, pp. 137-138.
Chloe Hayward, "Sovereign wealth funds: Copper lifts Chile's
reserves," Euromoney, April 2008, at
-Copper-lifts-Chiles-reserves.html (July 7, 2008).
 Holmes, Feulner, and O'Grady, 2008 Index, pp. 301-302.
 Ben Lando, "Tourism, not terrorism: Resort rising in semi-autonomous northern Iraq," The Washington Times, June 18, 2008, p. A21.