Standard Oil, Consolidation Coal, and the Roots of the Resource Curse in West Virginia

Despite its natural resource wealth, West Virginia today ranks last among all states in its residents’ overall sense of well-being, a puzzle that economists call “the resource curse.” Much of West Virginia’s wealth, in the form of coal, oil, and gas, left the state in the late nineteenth and early twentieth centuries before the state could tax it. This discouraging story was not inevitable. In 1905, a Morgantown lawyer named George C. Baker led an effort to tax coal, oil, and gas leases as personal property that nearly succeeded. Baker and his allies, Governor William M.O. Dawson and Tax Commissioner Charles W. Dillon, won a high-profile court battle in 1905 against industries that had managed to defeat hot-button tax reform efforts in the legislature the year before. While powerful Standard Oil Company was resigned to comply as it focused on more threatening battles elsewhere, the coal industry resisted. Coal companies and their attorneys succeeded in diluting the new taxes nearly out of existence at the assessment stage under a theory that the West Virginia Supreme Court of Appeals would uphold in late 1906, changing course from its decision just a year earlier. Despite the efforts of Baker and his colleagues, the corporate reforms that prospered on the national level during the Progressive Era never took root in West Virginia. This history bears revisiting in the current debates over tax reform and the prospects for economic and social development of the state.