Oil May Not Grease Friendship

Oil May Not Grease Friendship

A paper testing the idea that a strong entrepreneurial spirit can indicate a prospective US ally, while oil wealth indicates a divergence of interest.
Photo Credit: Itay Banner/Flickr
McDonald's Restaurants, which have become a symbol of globalization (and sometimes "Americanization" are very popular in Russia. Photo Credit: Itay Banner/Flickr Corps


In the post-Cold War period, researchers have long wondered why some countries befriend the US. They have noted some common characteristics of US friends - cultural affinity, urban dominance, level of entrepreneurship and so on. They also noticed that oil wealth can correlate with hostility towards the US. Much of this work, while evocative, is anecdotal.

We decided to examine statistical patterns involving three factors - entrepreneurship, oil wealth and a country's friendship towards the US. After all, perhaps these three factors create a golden triangle, three points in a relation that could be of use to international organizations and national governments. US diplomats like to deal with big partners - the national oil company, the captains of the industry - and tend to be less aware of the smaller businesses that are typically entrepreneurial. If data show that entrepreneurial countries are indeed friendly and oil countries less friendly, then the US Treasury and the US State Department have a concrete reason to spend more time than they have done to date fostering or at least being aware of small enterprise in foreign countries.

We selected proxies for three characteristics - the extent to which a country is friendly to entrepreneurship, the extent to which oil dominates its economy and the extent of its friendship to the US.

We decided to examine statistical patterns involving three factors - entrepreneurship, oil wealth and a country's friendship towards the US. After all, perhaps these three factors...could be of use to international organizations and national governments.


To measure the entrepreneurial impulse, we examined data collected by the World Bank. To measure the influence of oil on an economy, we looked at oil as a share of exports. To rate a country's political friendliness toward the US, we look at voting patterns in the UN General Assembly. The UN has two kinds of votes, votes on nonconsensus issues, or new issues on which there was no agreement, and votes on consensus issues, or those areas where there is already agreement. We used nonconsensus votes as our primary measure, since they indicate the direction in which a country is heading.

Our first finding involved enterprise and friendliness to the US. We found that there is indeed a significant positive relationship between the pro-US votes and the level of enterprise in a country. The level of entrepreneurial activity is measured by a direct index, the World Bank's entry index in 2003 and UN votes. The entry index measures entrepreneurship activity in developing and industrial countries with data on the number of total and newly registered businesses.

For instance, the United Kingdom, with 19 percent of firms being new ones, frequently voted with the US on nonconsensus issues, or 55 percent. New Zealand and Australia, with business-entry rates of 18 and 11 percent, respectively, had votes aligning with those of the US at rates of 41 and 58 percent. Conversely the votes by Nigeria, with a business-entry rate of 8 percent, demonstrated less support, or 20 percent alignment.

Often it's assumed that poor countries will vote against the US - because of the wealth divide. Interestingly, poor countries that are entrepreneurial vote with the US. Examples include Albania, Estonia, Georgia, Slovakia, Serbia, Argentina, India, Mexico and Turkey. This suggests that the old explanation, that poor countries are aligned against the rich US and its allies, does not tell the whole story.

The enterprise-friendliness correlation also holds when a second index, the World Bank "Doing Business" rankings for 2005, are studied. This index measures business environment, rating ease of processes such as starting a business, obtaining credit, registering property, and hiring and firing of workers.

Often it's assumed that poor countries will vote against the US - because of the wealth divide. Interestingly, poor countries that are entrepreneurial vote with the US.


Countries with higher rankings on this indirect index exhibit greater support for the US in the UN. For instance, Australia, which ranked ninth on the "Doing Business" scale, also has one of the highest non-consensus UN General Assembly vote correlations, at 58 percent.

For oil exports, we found that the "oilier" a country was, the less likely it was to support the US. For example, Venezuela, Iran and Nigeria have voted at only 10 percent, 9 percent and 20 percent in support of the US, respectively, in the nonconsensus category. We found some exceptions: Britain and Norway are oil rich and friendly; a third exception is Saudi Arabia, which was among the largest supporters of the US compared to other nations in the Arab group.

Finally, we examined all three factors - the oil, the entrepreneurship and the UN votes. We found that countries with oil tend to be less entrepreneurial as well as less friendly to the US.

We can hazard a few reasons as to why the triangle exists. Some are the obvious, like the old observation that resource-less countries need friends. Marxists argue that oil wealth makes men evil, as suggested by the recent Academy Award-winning film "There Will Be Blood." Public-choice theory offers another intriguing explanation, that governments are no more or less immoral than private actors. When they get control of a resource such as oil, they seek to keep that resource and suppress competition.



The problem may indeed be that commodity wealth tends to crowd out other forms of capital, both intellectual and human. One thinks of another 2007 film, "Blood Diamond," about the conflicts in Sierra Leone and a ruthless diamond-hunting colonel who literally deprives villagers of a chance to create by chopping off their hands.

Is it possible for a country to lose its entrepreneurial spirit? This may be happening currently in Russia, where the combination of energy discoveries over the years and price increases has coincided with a decrease in democracy.


Public-choice theory also provides an explanation for state support of populism and fundamentalist religions. The culture of populism is a culture of adoration; in Venezuela people think less than they did before because President Hugo Chavez promises to think for them. Religious extremism likewise serves the status quo by distracting the man and disenfranchising the woman. Banishing a population to a lifestyle from a millennium ago ensures that the people won't derive much wealth from new technology - hence, the interest in keeping entire groups, women, for example, illiterate.

Of course, some countries have both large oil deposits and healthy entrepreneurial spirits - Norway, Canada, Britain, Holland and the US. The explanation here, we posit, is that the rule of law and property rights were already firmly in place when the oil discoveries were made. A country with such a structure can therefore absorb the gush of oil more easily, or turn the oil wealth into an advantage. In the case of Saudi Arabia, we posit that the US may be buying friendship in arms trade, military support and aid.

Many countries know that it's in their interest to move away from dependence on oil or other commodities: Qatar's Education City in Doha, Dubai's DuBiotech venture and Bahrain's technology park all are efforts in that direction.

Is it possible for a country to lose its entrepreneurial spirit? This may be happening currently in Russia, where the combination of energy discoveries over the years and price increases has coincided with a decrease in democracy. The emigration of Russia's leadership and intellectuals reflects a tragic loss.

The data suggest that the economic character of countries, especially the ability of their citizens to innovate, can affect policy toward the US. Even from our rough math, it seems clear that the US would benefit not only from helping countries strengthen education, the rule of law and free trade, but also from supporting the entrepreneurial culture of any country where the US has an interest.






Contributed by Amity Shlaes and Gaurav Tiwari. Shales is a senior fellow in economic history at the Council on Foreign Relations, and Gaurav Tiwari is a research associate at the Council. This paper is part of a larger project on enterprise funded by the Kauffman Foundation at the Council on Foreign Relations. Reprinted with permission from Yale Global.

To read another Global Envision article about entrepreneurship, see How to Open the World through Entrepreneurship.



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