Here's how the resource curse works: Fossil fuels (or other nonrenewable resources) are discovered or unlocked by new technology, often in poor rural areas; new people and investment flood into the region, bringing a burst of new wealth; fossil fuel companies capture local policymakers and regulators, allowing them to flout safety standards and pollute local air and water; locals, collectively and willfully, forget that the boom is temporary and take on debt investing in new civic infrastructure; the boom ends, the people and investment go elsewhere, and locals are left with no lasting benefit, only pollution and debt.
Obviously the details differ from place to place, in scale, severity, and timing. The curse manifests more harshly in, say, Sudan than in the coal fields of Appalachia. But what's striking is the consistency of the larger patterns.
I thought John Oliver might get into this when he covered North Dakota's oil boom on Last Week Tonight, but he mostly didn't — in fact, I thought it was the rare case when Oliver missed the bigger story (though of course he was still funny):
It is indeed outrageous that oil companies are skirting safety standards and polluting the land and water. It is making the current boom a mixed blessing for residents, to say the least.
But the real danger is what will happen when the oil companies leave.
What happens when the boom busts
Between 2005 and 2012, oil production in North Dakota rose by 600 percent.
The state quickly became the second largest oil producer among US states, behind only Texas:
This has brought tens of thousands of workers to the region and driven the unemployment rate in some of these oil counties as low as 1 percent.
This has had all the results you'd expect, which have been covered in several great pieces; see, in particular, Steven Mufson in the Washington Post and Jennifer Reingold in Fortune. Workers are living in temporary trailer camps ("man camps"). Social services, what little there are, are stressed. Semi-trucks have completely swamped the local roads, which are falling apart. Crime is up; jails are overcrowded.
Local jurisdictions are racing to invest in schools and infrastructure, taking on enormous debt:
Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding.
Investors are doing the same, building housing and new retail.
But now, of course, the price of oil has plunged, and no one knows long it will stay low, which is putting stress on debt-financed fracking operations. Old wells are tapping out, new ones aren't being drilled as fast, the man camps are half empty, and lo, there's a "real estate crisis," which means a bunch of ticky-tacky suburban developments half-built in anticipation of workers who didn't stay:
Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them.
Civic leaders desperately want workers to stay and form a community. Bloomberg Business reporter Jennifer Oldham dryly notes:
Housing experts say this goal may be illusory because oil roughnecks typically return to their home state when a boom is over.
Or will they stay, all of them, amid the new Walmarts and two-garage suburban homes, after the oil jobs are gone?
And even if oil prices go back up and another flood of temporary workers comes in, will they stay when the price inevitably goes back down?
Of course the oil workers eventually go home, or at least elsewhere. And if North Dakota isn't careful, they will leave behind local residents as poor as ever, surrounded by waste, polluted land, and decaying strip malls, abandoned by big-money investors off seeking the next boom.
It's just generally not healthy to tie an economy too closely to nonrenewable resource extraction. It plays out the same way every time.
North Dakota tries to make like Norway
Or almost every time. There are some places that have dodged the resource curse, like Norway. The key is what those places have in place before the resource is discovered: competent government and enough social solidarity to support smart long-term planning. That gives policymakers the tools to invest the surplus wisely, in a way that supports public welfare and future development.
Many places where fossil fuels are discovered do not match that description, including some US states (say, West Virginia).
North Dakota wants to be more like Norway than West Virginia. Vox's Libby Nelson wrote a great piece last year following the state government's efforts to wisely husband its burgeoning oil revenues:
So far, North Dakota has taken few steps to spend its tax revenue. It's a historically conservative state, and legislators typically are hesitant to spend money. The legislature meets only every other year. And just 8 percent of the oil tax revenue goes into the general fund for the legislature to spend; the rest goes into a series of trust funds.
Those trust funds are filling up. The state collected $2.9 billion in oil and gas extraction taxes last year, Sharp said. It's projected to have a $600 million budget surplus by the time the legislature meets next year. A trust fund for oil wealth is projected to reach $3 billion by 2017, when state lawmakers can start to spend it.
So there's a kind of race on. On one side, there's the oil boom, which could end at any time. (It may already be ending, though of course technology could improve and the price of oil could rise, so there's always a chance of the boom re-booming.)
On the other side are North Dakota's political leaders, sitting on a big pot of money.
What will the state do with that money? Will it invest in current infrastructure needs, helping towns like Williston and Watford City that have taken on so much debt in their rush to grow? Will it invest in the state's future, through economic diversification and higher education? (At least for now, higher ed in North Dakota is flourishing.) Will it, in short, construct a glide path for the state to escape the resource curse?
Or will it, as has already been proposed by some in the conservative legislature, use the revenue to reduce taxes, a strategy that is currently failing spectacularly in Kansas and other conservative states?
These are the real questions, the ones North Dakota legislators ought to be answering. I wish Oliver had asked them.