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Why Is the Economist Chortling Over the Prospect of Oil Pollution in Ecuador?

The Economist has increasingly been copying the descent of the Wall Street Journal into dogma.  One of it perennial hates is President Rafael Correa of Ecuador. Correa, an economist, has committed the unforgivable offense of succeeding through economic policies that The Economist despises.  This is passing strange because Correa’s four foundational policies are expanded health care, expanded education, improved infrastructure, and encouraging entrepreneurs by reducing the time and cost of starting a business in Ecuador.  The Economists’ pages are littered with praise for right-wing governmental leaders and candidates who promise that they will implement those same four policies (but rarely do in practice).  Correa has actually delivered on his promises – quickly – and the improvements in the economy of Ecuador and the lives of ordinary citizens have been huge.  The result is that Correa is the second most popular head of state in the Americas.

 

“Danilo Medina of the Dominican Republic and Ecuador’s Rafael Correa of Ecuador are the two most popular leaders in the western hemisphere, according to a survey by the Mexican polling firm ofConsulta Mitofsky. The two posted approval ratings of 88% and 84% respectively in a survey of American leaders.”

(And, as the link shows, Ecuador has qualified for the World Cup despite the tragic death of a star player.)

Correa’s popularity is over twice as high as the heads of state in the Americas such as Canadian Prime Minister Harper and Chilean President Sebastián Piñera Echenique that the Economist praises.  The Economist has lost the discipline to contain its hate and play it straight when it comes to Correa.  Its September 28, 2013 article tries to pervert the approval of the people of Ecuador for their elected leader into an attack on Correa.  Even weirder, it portrays policies it claims to champion (Correa’s four foundational policies), as akin to bribing the populace.

“Mr Correa is popular, thanks to an economic boom engineered by higher public spending, paid for by raising oil royalties and Chinese loans.”

So much bile and misleading innuendo in a single sentence!  Note that when The Economist praises Texas and other states with Republican governors that have benefited from surging energy prices it has never dismissed their accomplishments as the products of increased oil prices.  Does The Economist deny that Correa should be praised for raising oil royalties?  No, this is simply innuendo designed to imply that something virtually everyone believes was desirable and successful is somehow suspect.  Is The Economist claiming that nations should not borrow from China?  No.  Is it claiming that Ecuador is paying an excessive rate of interest to China?  No.  Is it claiming that Ecuador’s foreign debt under Correa has grown to dangerous levels?  No.  The CIA states that Ecuador has one of the lowest pubic debt ratios in the world.  Of the 155 total nations for which the CIA reports data on public debt, 125 nations have higher ratios of debt than Ecuador.  In fact, The Economist is not making any substantive attack on Correa’s actions in raising oil royalties or on Ecuador borrowing from China.  Instead, it has deliberately engaged in clumsy innuendo because it has no substantive argument.

But The Economist was simply doing a warm-up exercise to get in fighting trim to dispense its vitriol at Correa.  Its main attack on him has to do with an important environmental and economic issue.  The Economist tries to slide the knife into Correa in the second sentence of the description of that issue.  Here are the key excerpts.

“THE Yasuní National Park in Ecuador’s slice of the Amazon contains countless endangered species of animals and birds. For that reason Rafael Correa, the country’s president, hatched a scheme under which he would forebear from extracting the oil that lies beneath the park’s northeastern corner, if the rest of the world put up $3.6 billion, or half its estimated value. The world spurned this offer and last month Mr Correa cancelled it, saying that the estimated 840m barrels of oil in the area, which he now values at $18 billion, would help him to continue to cut poverty.

The area in the Yasuní park where the oil lies, known as Ishpingo-Tambococha-Tiputini (ITT), contains such endangered species as the giant otter and the freshwater manatee.

In a bid to deflect the anger of environmentalists at his U-turn, Mr Correa this month turned his rhetorical fire on Chevron.”

“Hatched a scheme?”  When did The Economist fire its editors?  Correa proposed an innovative plan that provided the ideal solution to the Yasuni dilemma.  The Yasuni’s oil should not be developed because the world does not need its oil and because developing the oil will be harmful in at least three ways.  The potential environmental, social, and climate damage is severe.  It is not fair for a far poorer nation like Ecuador to bear the dramatic reduction in wealth inherent in not producing the Yasuni oil.  Citizens in wealthier nations would be significant beneficiaries of Ecuador’s willingness not to produce the Yasuni oil – and Ecuador was offering a deal under which it would share the “opportunity cost” of not producing the oil.  In short, Correa’s plan was a win-win that The Economist would have praised had it come from a conservative.

Unfortunately, the wealthy nations spurned the proposed deal.  When one proposes a deal, and the other parties reject the proposal it is not a “U-turn” to follow another strategy.  Correa made clear that he did not want to develop the Yasuni oil and that Ecuador was willing to bear much of the opportunity cost of that decision if the wealthier nations would bear their share, but that if the wealthier nations refused to do so Ecuador would likely develop the oil.

Correa made a courageous and generous offer to wealthier nations on behalf of a nation that is much poorer than the developed world.  Once the wealthier nations declined Correa’s offer there was no good answer for Ecuador or the world.  Ecuador needs the money that producing the Yasuni oil can provide.  Developing the Yasuni oil poses a serious risk of inflicting the three forms of damage I identified.  The dilemma is a recipe for tragedy whatever choice is made.

The question The Economist’s staff needs to ask is why they are mocking the effort to provide a better solution and why they are so plainly bemused by the prospect that developing the Yasuni oil will harm the environment, indigenous people, and add to global climate change.  Schadenfreude at the expense of endangered species and native people is disgusting.

Consider this sentence in the same article:  “The other [alternative] would be to redouble efforts to develop Pungarayacu, a big field of heavy oil. But that would also annoy greens.”  The phrase “heavy oil” refers to highly viscous oil that will not flow naturally through a pipeline and often has higher sulfur content (a pollutant that is particularly lethal).  Heavy oil spills can sink to the bottom of rivers, lakes, and aquifers and cause much greater damage than light oil spills.  Heavy oil sells at a substantial discount relative to light oil, greatly reducing its economic value to Ecuador.  Why would Ecuador producing heavy oil only “annoy greens?”  Why doesn’t the prospect of the wealthy nations following policies that push Ecuador to produce heavy oil disturb The Economist?  The sneering indifference to the environment displays how far The Economist has fallen.

This piece is cross-posted from New Economic Perspectives with permission.

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