How to beat the "Resource Curse"

by Roger Bourke White Jr., copyright November 2016


"The Resource Curse, also known as the Paradox of Plenty, refers to the paradox that countries with an abundance of natural resources, specifically non-renewable resources like minerals and fuels, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources." -- Wikipedia

The Resource Curse: A community discovers a plentiful windfall within its boundaries. The windfall is exploited and much wealth comes to the community. But in spite of the windfall much of the community is just as poor as it was before the windfall was discovered and exploited.

What happened? Why didn't the community and its people become permanently more prosperous? Why didn't they invest this wealth wisely -- in savings and in educating their people -- so they could engage in many other kinds of prosperous work themselves? This is the paradox.

As the article explains this happens sometimes but not all the time. I will give two examples of this not happening: The Los Angeles (LA) area, an obvious example, and South Korea, a surprise example. Why and how these two communities dodged this curse that many others succumbed to is the topic of this essay.

LA in the Good Old Days: The Oil Capital of California

In the really long ago Good Old Days, the 1800's, Los Angeles was a sparsely populated arid valley on the road between San Francisco and Mexico City. In the early 1900's oil was discovered, and, with oil producing, piping in water from the Sierras, and air conditioning becoming cheap and widely available, the region prospered and grew in population. Oil became King Oil. So far what is being described sounds like many, many other regions that have discovered and exploited a resource windfall.

Then, in the 1940's and 50's, something different happened. The Los Angeles area diversified widely in its productive activities. One example being that it got deeply involved in the aerospace industry, another its prominence in movie making. There were many others. The net result was that the LA area continued to prosper steadily and mightily. It outgrew oil -- these days oil is still produced there, but it is now a small part of the economy, not the center of it.

How did this happen? How did it avoid the curse and evolve steadily and dramatically away from just pumping oil?

Making expertise, and keeping it close

Growing the oil industry allowed the LA area to bring in lots of technically competent people. These people knew how to get things done in Industrial Age ways. (as versus Agricultural Age ways) And the ranges of tasks needed to accomplish this was diverse -- pumping oil was just the core activity, around it were many others such as providing equipment, refining and shipping.

Then, and this is where the difference comes in, these technically competent people diversified in their activities. They learned their ropes -- their ability to get Industrial Age jobs planned and completed -- in the oil industry, but then many moved on to creating wealth and jobs in many other activities. The important part here is they stayed in the LA area to do this. They diversified in activities, but stayed in LA. The LA community supported this diversifying, and because it did, the community continued to prosper.

This ability of the local government and community to support diversifying and prospering is what kept the resource curse away.

Making expertise, then moving it far away

The converse, what happens in resource cursed communities, is that expertise is brought in, but the expertise is not then spread around to those who will be staying in the community. The experts don't either teach the locals, or settle in and stay when they finish that first job they came in to work on. Instead, job completed, they leave. They move on, and the local community members have gained little in the knowledge of how to get things accomplished.

An anecdotal example of this is one I encountered when I was teaching in South Korea. I learned that in the 1960's and 1970's many South Koreans emigrated to the Gulf States to work on oil fields there. They did so, but when the Oil Crisis of the mid-1970's struck they were sent away -- "No more work here." they were told. They went home to South Korea. (When the industry began growing again, workers from new areas were brought in, the South Koreans did not return.) The unrecognized surprise result of this "move out" was those returning workers built up the South Korean economy, not the Gulf States economies. They did a wonderful job at that. South Korea is now a developed nation with a diverse economy and a GDP comparable to that of Italy's.

South Korea's experience is an example of resource state extracting expertise transforming into something that becomes much broader. But with this transforming happening in South Korea, not the Gulf States.

And, again, the Los Angeles area is an example of the transforming happening in the resource extracting area itself.

The Lesson

The lesson here is that resource extracting creates a lot of technical and business expertise as well as wealth, and it is expertise that matches what is needed to thrive modern industrialized conditions.

The Resource Curse happens when the community with the resource doesn't allow the diversifying to happen easily in the local area. Instead various social and procedural roadblocks are put up and the "grief level" (my term) to create other activities becomes so high that it is easier for the diversity to happen elsewhere, and it does -- South Korea being the example of this happening.

If the Resource Curse is to be avoided the community must learn tolerance -- and, yes, this is a learned skill. It must learn to tolerate new and different activities being conducted, and those new and different activities being conducted by both newly educated neighbors and strangers.



--The End--