Social Policy and State Revenues in Mineral-Rich Contexts

The expansion of extractive industries in developing countries, dominated by largeinvestments, has produced divided opinion and reaction among scholars, policy makers andcivil society with regard to its impact on host countries’ economic performance, governance andpeace. Facing that division, the expectation is that the inflow of resources produced by theindustry might create opportunities for mineral-rich developing countries to use social policy,both to mitigate the potential negative effects of mineral production, as well as to enhance theircitizens’ social welfare. This paper looks at the political economy features of mineral expansionand reviews the “resource curse” literature through a social welfare lens. The authors addressthe linkages between mineral expansion and social policy, examining three aspects thatunderpin the basis for the above expectation: first, the extent to which state revenue andmineral export dependence are connected; second, the likely effects of mineral wealth on socialexpenditure levels and composition, and on the promotion of new social policy initiatives; and,finally, the role that the quality of government plays in determining mineral revenue captureand expenditure.The approach followed for the examination combines correlation, regression and clusteranalysis applied to 74 countries in which the level of export dependence on minerals (fuel andmetals) has been superior to 10 per cent in the period 1995–2005. Results of that analysis suggestthat there is no conclusive evidence of a general pattern among mineral-rich countries withregard to the linkages between mineral wealth, state revenue and social welfare. However, thenegative association between state revenue and level of mineral export dependence, and thepositive association between state revenue and social policy found in that analysis—togetherwith insights from case-based literature—point to the necessity of analysing the relationshipbetween mineral wealth and social policy within an integrative approach.This paper concludes by outlining this approach and bringing together concepts developedaround welfare regimes and factors produced in a mineral-led development strategy. It alsosuggests that the inflow of mineral taxes could produce the basis for transformative socialpolicies and social development, which would overcome the underinvestment in social servicesand social protection so far seen in most mineral-rich countries. In order to achieve this in asustainable way, states need also to consider the use of these financial inflows in transformingtheir economic and institutional structures.