The so-called “resource curse” is not as magical as it sounds; if control of a key resource is a function of military power, then resource-rich countries will simply tend to play the only game going. Military control of resources such as oil, iron ore, copper, or coltan (either through direct control of the state, or behind the scenes military elite control, backed up by state violence and death squads) is the only way to get a stake at the table—otherwise foreign powers will simply take resources and give little in return. And with military control (and dromocracy) there is little incentive to share the wealth with “the sovereign people,” even in a democracy. Resource extraction thrives in and reproduces non-democratic governance.
Mimi Sheller, Mobility Justice: The Politics of Movement in an Age of Extremes
I've been reading a bit about the petrol nations, and how discovering extensive oil reserves in a country often has a kind of "hollowing out" effect on the nation's economy unless they act to put certain safeguards in place, or are already a significantly developed economy at the time the oil reserves are found. I'm curious about whether there are any historical equivalents to the effect that oil reserve discoveries have on a nation-state, whether raw resources or otherwise.
Well, the resource curse doesn’t just have to do with oil…
And if you’re looking for a historical example, I would go with the Price Revolution that the Spanish Empire suffered after its conquest of the Americas, where a tidal wave of gold and silver did enormous, lasting damage to the Spanish economy.
PNG at 50: the resource curse the founding fathers tried to prevent
In August 1974, the Constitutional Planning Committee delivered its Final Report to the pre-independence House of Assembly, a document drafted after two years of village consultations across the country. Chaired by John Momis, the Committee was blunt about what independence should not become: a continuation of “the colonial approach to development,” which relied on foreign companies to “invest,…
Governments should ensure that expanded use of renewable technologies goes hand in hand with peacebuilding
“There is growing evidence that regions mining and exporting minerals that are essential for renewable technologies will face the same “resource curse” that many oil producers are used to.”
Breaking the Curse: Exploring the Impact of Resource Wealth on a Country's Economy and Political Development
The phenomenon known as the “resource curse” refers to the paradoxical situation where countries abundant in natural resources often face economic and political challenges instead of enjoying the expected prosperity. This curse has had a notable impact on countries in the Asia-Pacific region, including Papua New Guinea (PNG). This essay explores the concept of the resource curse, its effects on a…
Recently I wrote up a thing about how the right's elevation of property rights prevents them from ever being able to adjust issues of human rights. I think it's pretty good, you can find it here if you're interested.
One thought that came out of a discussion about it, though, was an interesting one and I need to do another LONG RANT (TM) to work through it.
INTRODUCTION
So a friend of mine took the concept of rent seeking and brought it up in the context of economies based on resource extraction. These are, in many ways, the ultimate example of rent seeking economies and the situation in which they dominate an economy is known as the "resource curse".
Here's the Wikipedia article on this concept if you're interested.
And that's when the thought hit me, are we living in a resource cursed economy? Is that resource capital and did we create this resource curse ourselves?
THE RESOURCE CURSE
Basically the resource curse goes like this:
You live in a place that has a resource. This resource is very easy to gather in proportion to its value, making it hugely profitable, much more profitable than just about anything else you can do. Every dollar you invest in that resource returns more money than a dollar invested in anything else.
Even worse, the export of that resource drives up the value of your currency, making all of your other exports less competitive in the international market. This further makes that resource a better investment by driving down the value of any other investment.
What this does to your economy is simple. Why would you invest in education when you can simply put more money into the resource and it'll give you higher profits? Why would you invest in health-care when you can simply put more money into the resource and it'll give you higher profits? Why would you invest in manufacturing or agriculture when you can simply put more money into the resource and it'll give you higher profits?
Meanwhile, your society stratifies. Those who own the resource get rich (for example, a Saudi who owns land with oil or a southern plantation owner who owns the rich land good for cotton) while everyone else gets poor. Eventually all you have left is a population in poverty and an otherwise stagnant economy that is entirely dependent on that one resource.
WHAT ABOUT US?
Well, we have a resource called capital. Effectively, this is stuff like land, buildings, machinery, and intellectual property like patents and trademarks. Even something like stock in a corporation basically boils down to the value of the things the corporation owns. Capital is property, whether physical or intellectual.
Because of the way our tax code is structured, there will literally never be a case where a dollar earned in labor will be worth more than a dollar earned from capital. Additionally, over the last two decades, wages have generally increased between 2% and 4% per year. Data on capital is a bit harder to find, but California real estate prices have increased an average of 4% per year and the DOW Jones Industrial Average (a measure of stock prices) has increased an average of more than 6% per year over that same time.
In other words, not only is a dollar earned from capital more advantageous in tax terms than a dollar earned from labor, a dollar invested in capital is likely to make a greater return than a dollar invested in labor.
THE RESOURCE CURSE
That's where I think we have a version of the resource curse. When ownership of resources like land, buildings, machinery, and intellectual property consistently returns a greater reward than any form of labor, then most of the resources of an economy will flow toward those resources. In the case of limited capital, such as land in a desirable area or stock in a hot company, this will push up the price of that asset, leading to an even greater return and pushing the cycle even further.
This type of capital in particular largely delivers rent seeking as opposed to productive returns. Owning a building in downtown Manhattan, provides a return whether or not you invest in something that increases the productivity of that building. In fact, there may be nothing you can do to improve its productivity and it will increase in value regardless.
The more this happens, the more it siphons resources that could otherwise increase the productivity of the economy, exactly like a resource curse.
UNCERTAINTY
This is something that just occurred to me, so I definitely haven't thought through the ramifications and possible issues with it. This is also something that occurred to me incidentally, so I haven't read anyone else's ideas on the topic for another perspective.
I'm curious how my conception of capital as a resource in the sense of a resource curse holds up. I also don't know that it maps to the failure of investment in productivity and labor in the way that natural resources do in a resource curse.
If anyone has any thoughts, even simple ones, I'd be very interested for another set of eyes on my little idea here.
CONCLUSION
I think there's a reasonable case to be made that we've artificially created a situation where our economy has become resource cursed with capital. It's still a fairly rough idea, but it seems to fit with what I know so far.
If this is true, the solution would be to somehow make capital investments less advantageous in relation to labor. This won't be easy because, of course, it sounds a bit perverse toward the goal of growing the economy, but also because it would require us to lower the level of respect we have given to property rights over the last several decades; a particular ideological point of the right-wing of American politics.
Anyways, I hope you enjoyed this or at least found it interesting. If you have any thoughts, I'd love to hear them.
