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How Can West Virginia Avoid the "Resource Curse?"

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Monday, December 10, 2018   

CHARLESTON, W.Va. — Why do so many places rich in natural resources, like West Virginia, end up so poor?

Ted Boettner, executive director at the West Virginia Center on Budget and Policy, has been researching what's known as the "Resource Curse." He's found most states and countries focused on mining and drilling end up growing more slowly, and their residents experience higher levels of poverty than places with more diversified economies.

Boettner said part of the reason is that investment, political power, and the smartest people tend to be accumulate almost entirely in those resource industries. And he said studies have shown that relying too heavily on a single industry leads to slow growth.

"The crowding out effect; you might have a boom and have high employment for a while, and incomes go up, earnings,” Boettner said. “But then in the bust, things are way worse off - it's almost better that you never even did it in the first place."

The energy industries in West Virginia have long exercised political power to keep their taxes low and state regulation lighter. They argue that as keystones of the state's economy, they need to be allowed to act with a free hand.

Boettner pointed out some places with natural resources have handled it much better than others. He said Norway and Alberta, Canada have had strong enough political systems to keep their economies better balanced and to force the energy industries to protect the environment. He said there are other factors, as well.

"Transparency and accountability in government, adequate taxation of those resources; you need to mitigate the economic downturns, or the busts, with good wealth management,” he said. “That means creating a permanent trust fund, like Alaska. You also need to invest in infrastructure and education."

The Center on Budget and Policy backed a proposal for a future fund, where part of coal and gas severance taxes go into a state savings account. Lawmakers have enacted the proposal, but it's still largely unfunded.



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