Does this sound at all like West Virginia?

August 7, 2012 by Ken Ward Jr.

Ted Boettner over at the West Virginia Center for Budget and Policy pointed out a commentary called “From Resource Curse to Blessing,” by Joseph E. Stiglitz, a Nobel laureate in economics. For those not familiar with the term “resource curse,” there’s actually a decent tutorial about it on Wikipedia.

I’m wondering if there aren’t some things in here that everyone — regardless of where they stand on mountaintop removal, or climate change, or the ongoing coal debate — might agree sound a bit like West Virginia. For example:

—  … Resource-rich countries often do not pursue sustainable growth strategies.

—   They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer.

—   Political dysfunction exacerbates the problem, as conflict over access to resource rents gives rise to corrupt and undemocratic governments.

If so, the commentary talks about some potential solutions that West Virginians could consider:

First, these countries must do more to ensure that their citizens get the full value of the resources. There is an unavoidable conflict of interest between (usually foreign) natural-resource companies and host countries: the former want to minimize what they pay, while the latter need to maximize it. Well designed, competitive, transparent auctions can generate much more revenue than sweetheart deals. Contracts, too, should be transparent, and should ensure that if prices soar – as they have repeatedly – the windfall gain does not go only to the company.

An example: The sort of  “future fund” that Ted Boettner and his group have been advocating.  Dr. Stiglitz concludes:

Resources should be a blessing, not a curse. They can be, but it will not happen on its own. And it will not happen easily.

16 Responses to “Does this sound at all like West Virginia?”

  1. whet says:

    One thing I’d be curious about–have looked into it a little bit, but not enough to draw any sort of conclusion–is how the value of natural resources have been retained by localities and states across coal country.

    For example: are there significant differences between how Virginia, Kentucky, WVa, and Illinois have dealt with resource extraction, and has that effected political and social outcomes? It’s always seemed to me that there are dramatic differences in poverty and other indicators between those states at their coal-country borders, and I think there’s a bit of research out there suggesting that Illinois was better at retaining the value of its coal extraction than, say, KY and WVa. But it’s not something I’ve seen much of, and I’d be curious whether there are significant differences at the regional level.

  2. Ken Ward Jr. says:


    Please do share whatever you’re aware of, including research you mention on Illinois. Ken.

  3. drh says:

    Along the lines of what whet is asking – we can say that some nations (i.e. Norway – rich with North Sea oil) have been especially good at avoiding the resource curse. Economists including Stiglitz have argued that this is in part because they have a diversified economy, and because they have the social and political structures in place that make dealing properly with the wealth generated by the resource easier.

    They argue some of the most important structures are the ones that come with a vibrant democracy – clean government, fair courts, transparent business practices, economic policies that invest the wealth and spread it around…

    I’ve heard this described as the ‘bigger boat’ phenomenon – if you have a wind pushing a small sailboat, it could tip over. But the same wind would only push a larger sailboat to go faster.

  4. drh says:

    Not to put too fine a point on it, but much of the difference seems to be how political power is distributed – if many people share power, the wealth is spread around, if not, it magnifies the disparity.

    Now, I don’t see how anyone could possible see that as applying to West Virginia.

  5. bluecanary says:

    Another facet of the resource curse that applies to coal country is the lack of emphasis on or investment in education. If you can get a high-paying job without a higher education, why spend the money? There has been some speculation that this undervaluing of education has been, in some areas, pushed by the resource extractors in order to keep the population dependent, but that is pretty hard to prove.

    I did quite a bit of research on the resource curse when I was in grad school, and it really depressed me to see how many similarities there were between Central Appalachia and third-world countries in that regard.

  6. Jim Sconyers says:

    I believe Stiglitz is primarily talking about the rest of the world, where many of the mineral resources – oil, gas – are national natural resources, owned by the nation, not by a corporation as here in the US of A.

  7. David Scott says:

    The UMWA should push for more professional develpment and educational benefits that are offered in so many other industries. So many thousands of miners have been laid off, and the fear of more layoffs has obviously driven them into a frenzy. Rather than forming a posse and assigning treehugger watch commitees guarding the coal fields from ‘environuts’ and ‘ecoterrorists’, they need to take a step in a direction that will provide financial security not only to themselves but the entire region. Union representatives are concerned about turnout at bail hearings instead of negotiating and planning for what is destined to be a diminshed role of coal in our world’s energy plan. If Manchin would follow the example that his predecessor planted in his own backyard up along 1-79, there could easily be transition for a post-coal southern WV.

  8. Steve says:

    West Virginia has had a future fund for years. It’s called the severance tax. Money placed into the coffers of the west Virginia treasury and spent by those placed into power by the electorate. The “trust” fund called for by Ted exists already. The issue is not the trust it’s the trustees.

  9. Todd Browning says:

    Yep the coal severance tax, rips the south and feeds the north. The tax is spent mostly on population as I recall. Thus the coal counties are left without most of the money. The tax is distributed based on population of counties, for the most part.

  10. Ken Ward Jr. says:

    Steve and Todd,

    It would be most helpful if you both would provide links or citations to support what you’re saying about coal severance tax issues.

    Thanks, Ken.

  11. drh says:

    In response to Todd and Steve – the difference between what you are talking about and the Future Fund is that the Future Fund would be set aside, with only the interest spent each year. It’s not a new tax, in fact as I understand the proposal before the last legislators, it might not even mean an increase in current taxes. It is simply a portion of current severance taxes protected from being spent in the normal budget process and saved to pay for future economic development.

    The genius part of it is that it takes advantage of the power of interest payments to be a permanent fund that could quickly total billions of dollars, and outlast the coal and gas industries.

  12. steve says:

    i need to cite a link to show west virginia collects severance taxes and that the funds go into west virginia’s general revenue fund and spent by elected officials? are you serious?

  13. Ken Ward Jr. says:


    Please read this blog’s comment section rules,, which specifically state:

    “Please provide links or citations to published material to back up your views, when appropriate.”

    You wrote, “The issue is not the trust it’s the trustees,” which suggests that the money is not being spent in the appropriate fashion. Todd was even more critical in how the money is being spent.

    So, yes, please provide us some evidence to support what you’re saying — it will help everyone understand and appreciate your point, and allow us to all see what you’re talking about. Simple.

    Thanks, Ken.

  14. Ken Ward Jr. says:

    I’ll help Steve out on this one … see this link:

    Page 13 starts a brief section that explains West Virginia’s coal severance tax structure:

    In 1987, West Virginia enacted a severance tax on coal. The tax
    amounts to 5% of the selling price of mined coal. Of this amount, the
    State retains 93%. The remaining 7% is apportioned among the State’s
    55 counties and it’s 228 incorporated municipalities.
    Three-fourths of the 7% share is divided among the coal producing
    counties. This money is distributed according to each county’s
    production level.
    The remaining quarter of the 7% is divided among all counties and
    municipalities, according to population..

    Each county receives an additional share, based on the
    population of the unincorporated areas of the county.
    The total severance tax collections for 2010 amounted to more
    than $400 million.
    A total of $30.2 million was distributed to all counties and
    municipalities. Of this amount, $26.7 represented coal production
    in the 29 coal producing counties.

    While all of this may seem routine to some … not all readers of this blog know much about how this tax works, so it’s helpful to review the facts.


  15. John says:

    If you want the numbers for coal severance tax they are made public by the state treasurer’s office. It looks like the counties that mine the coal get the largest %…

  16. Ken Ward Jr. says:


    I believe the 75-25 distribution talked about on the Treasurer’s site refers only to the distribution of the 7 percent of total severance taxes that don’t go directly to the state. As explained above:

    “… The State retains 93%. The remaining 7% is apportioned among the State’s 55 counties and it’s 228 incorporated municipalities.”

    That 7 percent is then split 75-25 as described by the Treasurer’s office.


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