The generalized resource curse

A useful way to understand the pickle we’re in, I think, is that we are suffering from the so-called “resource curse”. If you are unfamiliar with the phrase, “resource curse” refers to the regularity with which countries “blessed” with abundant natural resources end up as dystopian polities with dysfunctional economies. Nigeria has a lot of oil but no one wants to live there.

The resource curse is pretty easy to understand. It’s not associated with just any sort of natural resource. Switzerland has beautiful mountains and stuff that people would pay a lot of money for, but it is still well-governed. Accursed resources are of a very particular type. They are valuable tradable goods the extraction of which requires a small numbers of workers relative to the size of the economy as a whole. [*] Goods like this create a very strong tension between private property and social welfare. In the mythology of capitalist economics, “as if by an invisible hand”, the self-interested pursuit of private wealth promotes the general welfare precisely because we all require one another’s help. The butcher slaughters her beasts and the baker sugars his cakes, each with an eye to their own profit. But the butcher needs her carbs and the baker likes his meat, so the end result of their self-interested selling is mutual aid rather than mere accumulation.

This logic breaks down in an economy dominated by a valuable natural resource. Yes, the miners require meat and mead, but if they are small in number relative to the rest of the population, that won’t cost them very much. They are few mouths to feed, and the not-miners are many and lack bargaining power. What makes happy capitalism work, the silent tendon of the mythologized hand, is a kind of balance between individuals’ desire to accumulate and their need for the assistance of others. If there exists a very valuable natural resource, and if that resource can be privately controlled, there is no balance. Self-interested agents drop their butchering and bakering, and try to gain control of the resource. No magic force turns that into a positive sum game. Unless there are “very strong institutions” — whatever that might mean — the pursuit of wealth becomes a game with winners and losers. The invisible hand can manage no more than to lift a middle finger.

So far this is all very comfortable. Clucking about places like Nigeria is almost a reflex, a familiar tic among Western economists. But meanwhile, we’ve hardly noticed that technological and international supply-chain developments have snuck the resource curse in through our own back doors. In aggregate, the goods and services we require have grown ever more tradable, and production has grown ever more amenable to control by relatively small groups of people. There’s a sense in which we are all Nigerians now.

The result of a resource curse, even in Nigeria, is not a triumphant über-class gleefully enslaving those outside the circle of winners in the resource-control game. In human affairs, “legitimacy” matters, and the sources of legitimacy are time- and context-dependent. Nigeria has all the forms of modern government, a civil service many of whose members are no doubt idealistic and hard-working. What evolves is the situation we refer to as corruption, under which those who control the valuable resource create incentives within the institutions that confer legitimacy — government and finance, media and academia — in order to ensure continuation of their control. In doing so, lines are genuinely blurred and resources are genuinely shared. The work of mining and the work of governing cease to be distinct enterprises, they become a partnership in the common project of maintaining control over the special resources. And words with moral valence like “common” and “shared” are appropriate, because within the circle of insiders, that’s what it feels like. There is a “we” that includes all of those fortunate enough to be civilized, that includes “me” and “my family”, “my friends and my family and my coworkers”, “my school and my teachers”, everyone that most people in the civilized circle ever interact with. There are, at the edge of the circle, people who are genuinely brutal, the people who put down insurrections or directly manage low-bargaining-power chattel labor. But those are a small minority. Most people who work to perpetuate “corrupt, extractive” regimes are, in their own eyes, serving their communities. The more resource-curse logic binds, the more likely as a technological matter that control over economic value will be concentrated among a relatively small fraction of the society. This leads to a greater separation of circumstance, between winners who perceive themselves and their communities as “civilized”, and losers exhibiting social pathologies that may be more effect than cause of disadvantage, but are nevertheless real, and usefully assist in reinforcing the arrangement’s legitimacy. Corruption and idealism become impossibly fused. Did Timothy Geithner “save the world”, or did he perpetuate the stranglehold of a particular extractive elite? He did both. He saved his world.

There is a regularity here, an order. We find ourselves on the inside of social phenomena that we have seen before, that we can understand. The global economy is succumbing to a technologically-driven resource curse, coalescing into groups of insiders and outsiders and people fighting at the margins not to be left behind. Our governments are transforming themselves from mediators among widely dispersed and interdependent interests to organizations that maintain and police the boundaries between the civilized and the marginal, who put down the insurgencies and manage the pathologies of the latter so that they do not very much impinge upon the lives of the former. Our financial systems are mechanisms by which legitimacy is conferred upon facially absurd distributions of aggregate wealth, by virtue of processes that claim to be “voluntary”, “private-sector” and “market-disciplined”, but which are none of those things in any meaningful way.

There are lots of places to go with this analogy. “Resource curse” countries are traditionally small, open economies whose elites are less fettered in their neglect of domestic populations because they can trade resource wealth for most of what they want from foreigners. One might argue that the analogy is incoherent for large, mostly self-sufficient economies like the United States or the world as a whole, whose elites must rely on “domestic” production. But here the analogy between technology and trade, usually used to support the latter, comes in to condemn the former. The amenities for which Nigerian elites rely upon Europe, American elites may rely upon robots to produce, once the Chinese labor cycle runs its course. American, like Nigerian, elites will have their tailors and masseuses. But in a resource-curse economy, service providers at the boundary between inside and outside remain small in number relative to pathologized mass publics.

This analogy is not entirely hopeless. Alaska and Norway blunt the resource curse by proactively distributing the proceeds of resource extraction, limiting concentrated control and ensuing disorders. “Technology” is not a tangible thing that can be publicly owned and sold for proceeds. But like oil in the ground, it is a resource the scale of whose product far exceeds the reward required to incentivize its production. If we imagine technology as a source of value embedded in most goods and services, we can distribute claims upon it simply by distributing new purchasing power. A money-financed basic income would amount to a partial dispersion of technological bounty from those involved in concentrated production to “outsiders”. Like Norway’s Oil Fund, this might help preserve balance, economically and politically, in the face of our creeping resource curse.

[*] It’s probably more accurate, although depressing, to qualify this, and rewrite it as “a small numbers of workers capable of achieving bargaining power relative to the size of the economy as a whole.” Feudal economies, in which the majority of people work to produce agricultural goods, look a lot like resource-curse economies, even though numerical involvement in production is not concentrated. Bargaining power, defined as the ability to assert control over production, remains very unequal. If you define the resource curse this way, you end up with “cursedness” as the normal state of human affairs, and it becomes more sensible to talk about the “industrial age blessing”, a fleeting mix of social and technological conditions under which large numbers of workers contributed to production through processes that required scale and coordination. These circumstances allowed unusually broad segments of the population to organize and achieve bargaining power, increasing the scope of economic prosperity and the impetus to mass production that economists eventually label “growth”.

Update History:

  • 29-Apr-2013, 7:30 p.m. PST: “broadening increasing the scope of economic prosperity along with and the impetus to the mass production that economists eventually label as ‘growth’”

50 Responses to “The generalized resource curse”

  1. Vladimir writes:

    Doesn’t Baumol’s disease act as form income redistribution? Certainly that’s the case for people employed in higher education and civil servants.

  2. Bryan Willman writes:

    The end game is worse. When “the elite” manages to build resource sets that no longer require anything whatever from the unelite, the game is up. Don’t think of a “robot singularity” as “we all lie around and are waited on by robots” think of it as “whomever perfects robot control has all they want, everybody else scratches for survival in what amounts to a wasteland.”

    In the mean time “redistribution” will have only limited effects on the “resource curse” you describe – because status, power, and so on acrue to elites regardless of what you do with money.

    The Techno-Priests/Techno-Pirates/Techno-Overlords will hold advantages that matter in human society, so long as everybody else insists on consuming what they build.

  3. Nicholas Weininger writes:

    This is rhetorically effective but not sound. The thing about extractive-resource economies is that they rest on political monopolies over an inherently limited, uncreated resource. The government decides who gets the leases on the oil fields, it hands them out to cronies, and then everybody else is shut out of the oil wealth because all the oil is in those few hands and there is no way for enterprising outsiders to make their own.

    Technology is, for the most part, completely unlike that. Where it does behave like that, it does so because of intellectual property law, which creates artificial oil-field leases that limit what nature does not. If you want to specifically focus on broader access to the bounty of technological development, rather than just rationalizing the welfare-state egalitarianism you wanted anyway, why not focus on weakening (or in extremis, abolishing) IP monopolies?

  4. Anon writes:

    If you replace ‘technology’ with ‘means if production’, you’re making a classic Marxist argument.

    I point this out because most of the robot commentary has neglected the extent to which this is merely a newer, sexier version of a very old problem with capitalism.

  5. Steve Randy Waldman writes:

    vladimir — it’s a form of income redistribution for relatively small numbers of people. the wages of “insiders” all rise in concert while the number of insiders (as a share of population) declines.

    bryan — i hope not. if you haven’t already, read Peter Frase’s astonishing “four futures” (in the related links above), and compare “exterminism” with “socialism” in his labelings.

    nicholas — nope.

    limits on the resource are not an issue for most of the lifecycle of a “resource curse” state. eventually, yes, and you can argue that the fact of limits affects their behavior. but usually it seems like they’re extracting as much as they can while they can, and fighting over or managing who controls the proceeds.

    IP is not the issue with technology. we are talking about basic goods efficiently produced, not apps for the relatively affluent to whine about. the issue is the abundance of goods and services that can be produced via capital-intensive, large-scale processes renders it uneconomical for new entrants to come in and make more to serve populations that would already be served if they had very much to trade.

    in both cases, the difficulties derive from _plenty_ for the group to whom resources are distributed, without means or will to distribute resources to the rest. (see izabella kaminska on abundance.)

    absolute scarcity is not the problem at all. within the circle of insiders, there may or may not be perceived scarcity, as people compete for more of develop oversized obligations or tastes. but production capacity that is to a first approximation unlimited now requires the employment of relatively small populations of people skilled enough to have any bargaining power. the problem is not how to make more, it is what to do when the technological contours of efficient productive involve very few people taking on nontrivial roles.

    anon — indeed. the main difference is that Marx imagined that the technological trends of his time — the factory-style complementarity of efficient means of production and labor — would continue, pressing labor close together in ways that would simultaneously promote class consciousness and enhance bargaining power. instead the exact opposite happened. labor has been extricated from mass production and atomized, while capital has formed into a multicultural, international, but intellectually cohesive class of jetsetters who form real-life coalitions to shape the ideological arena. where Marx foresaw conditions whose contradictions would undo themselves, so far what we observe is a pernicious stability.

  6. These economies readily fall into the “non-inclusive” growth model. As real GDP grows, labor share of income must increase. If it doesn’t, the natural rate of unemployment rises due to the constraints of effective demand on the utilization of capital and labor.
    China is running into this problem too. They seem to be aware of this and are taking steps to raise labor share of income by raising their minimum 13%/year over the next 5 years.
    Most countries with the natural resource curse pay low wages domestically. The owners of the capital make their money from export markets. The money made is not shared among the people. The result is low domestic effective demand. According to the model, there comes a point where unemployment has to rise in order for capacity utilization to keep rising for the natural resource industry. It’s explained with graphs in the above link.

  7. Bryan Willman writes:

    A fifth future – a place of elites and unelites, hierarchies, and striving. Which looks basically like the rest of human history.

    Any bet that elite socities (the US as a whole for example) will give up *anything* to the poor part of the world, when push comes to shove, is naive.

    And, just as “capitalism must someday end”, any “communism”, “socialism”, or other “ism” that follows it must also end.

    Therefore, be not comforted by any utopian vision – they all shall end too.

  8. Alex writes:

    Hmm, I’ve thought for a while that the UK is transitioning from a high-trust to a low-trust society.

    I wonder what the resource is? Finance? Intellectual property?

  9. Nicholas Weininger writes:

    Steve, the point is not that the supply of the resource runs out, but that it is possible to control it completely, and forcibly exclude new entrants, by having legal monopolies on a few extraction points. That doesn’t happen with technology absent IP rights.

    Now, sure, you can tell an “End of Work” story where most people become unable to produce anything that anyone actually wants because a few people are so good at churning out everything people want with the aid of cornucopia robots. But then you have to ask, why don’t the others get their own cornucopia robots and just use them to produce stuff for themselves? If it’s because of exclusion from access to natural resources or IP, then the answer is Georgist taxation and rent-distribution (which is in some sense what Alaska and Norway do, but which is quite different from a general-tax-funded or money-funded income grant) or IP abolitionism respectively. If not, then what on earth have the ultra-productive few done that justifies stealing from them to maintain the relative status of their inferiors?

  10. Ben writes:

    Thought-provoking analogy. I like it but it’s a bit disorienting because I’m so used to thinking of resource curses in terms of trade. Without the external consumption engine trade provides to resource-course countries, it’s hard to imagine anything lasting.

    Unless you have massive domestic redistribution. Which I suppose is what has happened in the USA through borrowing on some scale.

    How can we figure out a more “natural” give and take, if we don’t want to rely on redistribution assumptions? It’s hard to see where more equitable value production [aka bargaining power] will come from in the future, with tradeable commodities and economies of scale reaping such enormous reward. Do we need to weaken IP laws? Or (surprise) weaken/break up the financial sector? Or just have more STEM education (meh…).

    Nicolas: I love the term “cornucopia robots”, but it oversimplifies things too much and missing things like network effects, first mover advantage, economies of scale, and consumer preferences. It’s actually pretty easy to tell an end of work story where the means of production are still expensive. And anyway capitalism is genius at creating scarcity from abundance (we HAVE cornucopia robots for creating clean drinking water but people are still getting rich off the stuff from Fiji).

  11. m112 writes:

    So you say that the problem is technologists control the most valuable resource (and as an aside, aren’t we talking about a massive and diverse assortment of things here? Can I really compare a basket of all commodities to a basket of all technologies? At what point does the grouping become too big to make sense?), and the things They themselves desire come from robots, not from the great unwashed. But the thing is, I’d bet it’s just the wealth distribution that’s doing the real heavy lifting here–there’s just not that much stuff the elites want to begin with. Seems to me that whether the little the elites do want (relative to the fraction of wealth they control) comes from robots or poor people is just a trivial rounding error on the Big Problem. Is it? Can we bring some data to bear here? I think we get confused about this because in the “good old days” when Poor People made Rich People’s Stuff, inequality was much less severe. And we assume that there’s causation there, but I don’t know what evidence shows that. Maybe we just became massively more unequal and also rich consumption now employs fewer poor people. I mean, if tomorrow we had the same wealth distribution as today but all of a sudden the elite’s consumption produces the same per $ employment of poor people as in the good old days, how much better do things get going forward? I say not much…

  12. Peter K. writes:

    Thought-provoking blog post!

    What’s the name of the authors who recently wrote a book on politics of nations suffering from the resource curse? Acelou or something.

    I recently heard on the radio an analyst say that Cananda is showing signs, with the energy sector’s legislators reversing Canada’s forward-thinking policies on global warming.

    And with the U.S., yes the financial sector has come to dominate. As Senator Durbin said, the bankers own the place.

  13. stone writes:

    To my mind the choice seems almost to be one of either having widely distributed wealth and a cornucopia of robots OR having increasing wealth disparities and not getting the robots and instead ending up like Easter Island without the technology to cope with dwindling natural resources. Technology needs a mass market to cover the massive up front development costs. If everyone can afford it, it gets developed. A few oligarchs would not provide a customer base to justify developing an ipad let alone futuristic robots.
    I think there is a case for saying it is pareto efficient to redistribute wealth such that we go down the high tech future rather than the crisis future.
    I’ve also had a go at writing a post about that too:

  14. Maynard Handley writes:

    “What makes happy capitalism work, the silent tendon of the mythologized hand, is a kind of balance between individuals’ desire to accumulate and their need for the assistance of others. If there exists a very valuable natural resource, and if that resource can be privately controlled, there is no balance. ”

    It would have been nice if the economists had admitted the valid place of unions BEFORE they were destroyed…


    @9 Nicholas Weininger:
    You are so insistent on viewing the world through your own hobbyhorse eyes that you are completely missing hie point.
    He’s not complaining that the price of iPhones is too high, or that I can’t download Game of Thrones when I want, where I want.

    The issue is that the basic logic of economics is predicated on an underlying political order (ie control of power) which is reasonably diffuse, and so the only way people can compel others to do as they wish (eg make and trade stuff they want) is to make and trade their own stuff in return. If your underlying political system is not of this form, then there is no reason “laissez faire economics” will work (ie allowing people to do whatever they like and assuming that the end result will all balance out as more or less optimal).

    This mismatch is especially obvious in oil or diamond countries; his point is that in a world of finance capitalism we are starting to see the same thing in countries where the resource that matters (and which is controlled by a few, easily taken chokepoints) is capital.

  15. Richard Treitel writes:

    Where I think the analogy breaks down is that anyone with an AK-47 can gain control of an oil well or diamond mine; the people who work there are replaceable, though not quite as replaceable as peasants, so they can be paid fairly cheaply, and occasionally shot. And anyone brighter than Hugo Chavez can keep the oil flowing; even the Nigerian army was that bright. Try taking over Apple or ATT with a squad of camouflage-clad mercenaries, and try running either of them profitably that way.

  16. chown -R me writes:

    enslaving those outside the circle of winners in the resource-control game. In human


    Does “resource curse”, AKA/Dutch-Disease seem like a *black hole* from who’s borne no traveler returns? No slave is freed? If, one needs to remember that a black hole can be de-fanged by dumping into it *lot and lot of anti-matter*. But what is the antithesis of slavery? What is the anti-slave? Ah! The negativity of slave is *birth control + attrition*. By controlling slavery-birthing *the trouble shooter* easily dissolves the black hole. Universal microscopic neonatal vasectomy!


  17. Alex Blaze writes:

    Interesting post. A few thoughts:

    1. How do Norway and Alaska escape this problem currently? You say they use policy to fight this, but previously you made policy endogenous (i.e., extraction economies are corrupt). So you can’t use policy to explain this discrepancy; Norway and Alaska should be corrupt (and Alaska is). All it takes is for one person to get a little more money/power than everyone else, and then use it to get a little more, then some more, and in a couple of generations the economy will look like Nigeria.

    And “culture” can’t explain it either – everything I’ve learned about Alaska since Palin got famous is that they’re really not into “sharing the wealth,” but for some reason they do it in a way more obvious than any other state (it’s state law too, so it’s entirely dependent on Alaska’s peculiar politics).

    2. How is this different from previous gains in productivity? Mill thought we were closing in on the “stationary state,” Keynes thought we were on the precipice of a capitalism without capitalists because capital would be so abundant that it’d be worthless, and Galbraith was writing in 1960 how we already had so much of everything that we should stop pushing full employment as a policy goal. While Galbraith was probably right in a platonic sense – we had enough that, if properly distributed, everyone could be safe and happy – that didn’t stop more from being produced.

    Marx thought the unemployed would increase monotonically (I’m sure he allowed for white noise) in percent of population as workers got more productive. That didn’t happen because new, labor-intense industries were created, and they were created because labor was freed up elsewhere. It won’t continue forever, but what’s to say that’s stopping now?

    Or: this seems to be a perpetual question in capitalist economies, since people are generally pretty bad at predicting the future, so they generally assume (per Keynes) that most things in the future will be like today, and then someone comes to the conclusion that productivity is increasing but we couldn’t possibly need more/better stuff that would require more people to produce it… and then we do.

    3. Is there a timeline on this? My layperson’s assessment of climate science is that humanity/civilization comes to an end in 50-100 years because of global warming, and the last couple decades won’t be pretty. This is nothing more than a thought exercise unless it’ll take less than a few decades to get to the point where robots do rich people’s bidding while the rest of us live in 1984.

    Even the most optimistic predictions lead directly to the creation of new, labor-intense industries: constructing dams, continuously rebuilding cities, developing agricultural practices in the former tundra, emergency care for hurricane victims, medical care as diseases spread more easily, etc.

  18. Maynard Handley writes:

    @15 Richard Treitel
    You are being too literal. You don’t take control of ATT with AK-47′s, no. You take control with a hostile takeover. If you have access to the powers of mass capital, this is a feasible operation. And then, once in control, like with the diamond mine, you have flexibility to do what you want, regardless of the greater welfare.

    But of course even better than a hostile takeover of ATT is simply being born into control of ATT (or its equivalent). Once kings were born into control, and no-one thought there was anything bizarre about that — it followed the “natural order” and “the will of god”. So it is today, where being born into great wealth, with all the power that confers, is again considered “the natural order” and “the will of the markets”. This is the point of the discussion of legitimization. Get everyone to accept that it’s perfectly reasonable for the warlord’s son to inherit the diamond mine, and most of the battle is won…e

  19. stone writes:

    anon@4 The massive difference between how things were when Marx was writing and a robot future; is that then every factory required thousands of workers, every cotton plantation required thousands of cotton pickers. So then it was impossible for everyone to live like a plantation owner or a mill owner. In a robot future labour is largely dispensable so in principle everyone COULD be tended by robots IF we get our heads around the idea that everyone benefits if no-one is economically excluded. We need to realize that a robot future does not just depend on the handful of technologists – it is just as dependent on a mass consumer base. The proceeds of selling to those consumers HAVE to go to those consumers or the technological development won’t be economically sustained even for the technological wizards not to mention everyone else.

  20. reason writes:

    Nicholas Weininger @9
    Your post read well until the last sentence that sounded like it came straight from Cato
    “If not, then what on earth have the ultra-productive few done that justifies stealing from them to maintain the relative status of their inferiors?”

    “Ultra-productive” – “inferiors” – oh come on, you don’t believe all that Randite superman crap do you? You sound more intelligent than that.

  21. reason writes:

    Alex Blaze @17

    “Even the most optimistic predictions lead directly to the creation of new, labor-intense industries: constructing dams, continuously rebuilding cities, developing agricultural practices in the former tundra, emergency care for hurricane victims, medical care as diseases spread more easily, etc.”

    How will this all be FINANCED? Isn’t that just another form of redistribution?

  22. reason writes:

    Nicholas Weininger @9

    Having reread it all, I’m even more puzzled where that crazy sounding last sentence comes from. You have just finished a discussion of how we might try to solve the problem at source by modifying PROPERTY laws (Georgian Taxation and IP reform) and then talk about STEALING – so recognising the social source of property laws and then moving to an absolutism about property rights. You seem to me to be suffering from cognitive dissonance.

    And I won’t even go into what exactly you think “superior” and “inferior” mean, and whether those terms are context free.

  23. b2020 writes:

    The globally generalized version: As we are more and more limited by resource shortage, fewer and fewer countries control the remaining “local” abundance, and extractors as well as exploited drift further into “dystopian polities with dysfunctional economies”. It is not the local abundance, it is “assertive” – even militarily so – external demand.

  24. Richard Treitel writes:

    To quote from the OP, “Self-interested agents drop their butchering and bakering, and try to gain control of the resource.” When all you need to gain control is an AK-47, which is cheap, this will happen, and in Nigeria it does. When you need a hundred billion dollars to take over ATT, it happens a lot less (no bank robbery I can commit with an AK-47 that will yield that kind of money). In the West, bread and meat are still being produced. There’s an imbalance, but that’s different from there being no balance.

  25. Maynard Handley writes:

    @24 Richard you are being willfully blind.

    In the first place taking over a country by force is not as cheap as you think. Whether it’s York fighting Lancaster or trying to invade Nigeria, serious money is required.
    The equivalent of “Self-interested agents drop their butchering and bakering, and try to gain control of the resource.” is not picking up an AK47 and trying to single-handedly conquer Nigeria, and never was. It is especially connected individuals who, one way or another have access to wealth, figuring out that that wealth is better used in depredation (ie the Bain business model) than in the creation of new enterprises. Along the way it manifests in the best and the brightest no longer learning the skills of creating new enterprises — engineering and various sciences — but rather the skills of Wall Street and K Street.

    In the second place the point, as we are trying to stress, is the abstract principle. Once you have control of ATT or Citibank, in the past, say fifty years ago, for various reasons your control was not absolute, and you were required to exercise that control in a way which resulted in the benefits being spread wide. Today that control is more absolute and comes with political power which allows it to ratchet up to even more absolute year after year, with ever less interest in spreading the benefits.
    And, as I have pointed out, that control can be inherited, just like royalty of old, and people like you don’t blink an eye, not even seeing how bizarre this should be.

    And while it is true that in the US (for now) bread and meat are being distributed, medical care, the next step up in essentials, is NOT. There was a time, fifty years ago, when the bargaining between labor and capital mean this medical care WAS provided as part of the deal; but their decreasing need for the co-operation of labor (the resource course analogy) has meant that this is benefit has largely been stripped away…

  26. Richard Treitel writes:

    Going back to Nigeria (though I’ve never been there), how much money did MEND have when it started?

    What you are describing is, until you explain the difference to me, a plutocracy pure and simple. Plutocracies have existed since long before the emergence of technologies “the scale of whose product far exceeds the reward required to incentivize its production,” as the OP says. If you don’t like plutocracies, then I agree with you on that, but what connection is there with the resource curse? The wealth that Wall Street and K Street grab can come from any productive business at all.

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  29. john c. halasz writes:

    A few years back a knowledgeable commenter at Thoma’s site compared what had happened to the U.S. economy in the wake of the financial crisis to the Dutch disease. I replied, yes, but natural resources are still a real, valuable and useful output, but fictitiously inflated housing lots are not.

    But let’s get to what the Dutch disease syndrome involves. The natural resource endowment raises the FX value of the currency due to high foreign export demand, which renders the tradeable manufacturing sector uncompetitive due to cheaper imports and thus leads to disinvestment in the tradeable sector, such that, when the resource boom runs out, the level of productivity of the country has been lowered and become uncompetitive, leaving the country poorer for it. (That’s why countries like Norway formed sovereign wealth funds, both to recycle excess inflows and to provide funding for post-boom re-development). That specific syndrome is not a very exact analogy to the general issue of technological development and unemployment, (which, by the way, implies a stymying of its own developmental dynamic, for lack of effective demand for its increasingly productive output, thus no longer “justifying” further investment due to lack of profitability to defray the cost).

    In the course of the 1990′s it increasingly occurred to me that those famous “contradictions of capitalism”, after a temporary taming, were re-emerging in a new high tech form.

    The “1%” and their 10% acolytes owe their wealth to the private ownership of the means of production, so obviously, technological development under capitalism will only occur if it is conducive to maintaining or expanding the profits accruing to such ownership and control. But the profit from such investment must be realized through the sale of output (and the prolongation of consumption), since they can’t actually consume their capital, which is “inedible”, (and, if all capitalists were to attempt to sell their capital at once for the sake of extravagance, the value of capital ownership would plunge, since there would be no one to sell it to).

    So the problem is not merely and neutrally technology in the abstract: the scientifically determined horizon of technical possibilities. But rather the selection mechanism for its development, which involves a consideration of ends and not just means. IOW it’s about the institutional criteria and procedures for investment and distribution.

    Add on to that, the fact that much of our public and productive infrastructure is scientifically unsustainable, and the scope of the problem with capitalism, as we’ve known it, becomes clear at least with respect to maintaining anything like a civilized form of life.

    A carbon tax and rebate scheme would be a first step. It would create a kind of anti-rent, in precisely the manner that natural resource rents are distributed in Alaska, Alberta, Norway and the like. But likely a stronger regulatory state and much more public investment and a publicly guided indicative industrial policy would be required to transform the industrial basis of our supposedly civilized society in accordance with the requirements of environmental and social sustainability. Since the state is sine qua non the risk-bearer and thus insurer of final resort. The exact institutional architecture might be up for debate, but, at any rate, it would be the very antithesis of currently prevailing neo-liberalism.

    But if you’d want to make the analogy with the Dutch disease stick, then focusing on the financialization of the global economy under the auspices of corporate “free trade” and the way it is basically underpinned by arbitraging FX rate differentials would be the place to start. The decreasing profitability of real investment and the increasing emphasis of rent-extraction strategies from older investment in the face of declining real investment amounts to a reaction to the declining rate of profit, when in fact much of the value of capital must be “destroyed” in order to make way for technological transformation toward a sustainable future.

  30. [...] Randy Waldman has a fantastic piece on the “resource curse” faced by resource-blessed and governance-challenged places like Nigeria.  He suggests that [...]

  31. [...] The generalized resource curse [...]

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  33. [...] The generalized resource curse Steve Waldman [...]

  34. stone writes:

    john c. halasz@29: Nigera though most definitely DIDN’T get appreciation of the Nigerian currency once it became a natural resource exporting kleptocracy. That was because the Nigerian elite immediately sent the proceeds of the exports out of Nigeria to Swiss bank accounts, London mansions and the US stock market. The Nigerian currency was in free fall for twenty years throughout the entire period of US and UK “great moderation” (aka “great asset price inflation”). That capital flight from Nigeria actually created a destructive vicious circle. The faster the Nigerian currency depreciated, the more desperate rich Nigerians were to put money into London, Wall street, Switzerland etc rather than investing in developing Nigerian. As the median wage in Nigeria plummeted relative to that in the developed world, Nigerian consumers became less and less attractive as a market and so capital flight from Nigeria became all the more imperative. Enticing such capital flight from the developing world was how Thatcherism “worked”; that is how the developed world was able to regain our ability to buy essentially all of the global supply of commodities.
    Norway can be a prosperous resource exporting country because in Norway the resource wealth gets spent by millions of Norwegian consumers; so the domestic market is attractive and capital flight does not gut the economy.

  35. reason writes:

    stone @34 & john. c. halasz @29
    Thanks for very thought provoking contributions.

  36. reason writes:

    Stone @34
    “Enticing such capital flight from the developing world was how Thatcherism “worked”; that is how the developed world was able to regain our ability to buy essentially all of the global supply of commodities.”

    An interesting thought, but how exactly sow you think that was that acchieved?

  37. reason writes:

    …. how exactly DO you think ….

    Not quite sure how a female pig found its way into that sentence.

  38. Doly Garcia writes:

    As usual, very interesting ideas from this blog. But while I agree that this post has identified the general nature of the phenomenon, it’s still very confused about the real cause of it. A high level of inequality is usually seen in an environment with high competition for some vital resources. High competition breeds inequality because every power struggle will have winners and losers, with winners often taking it all, or almost all, from the losers. This certainly fits “resource curse” countries, and it fits feudal economies since they have just about enough food to go by, and there is constantly competition on scarce land and access to food. It could be argued that the fact that we are seeing increasing inequality and all the attached symptoms of “resource curse” indicates quite clearly that there is high competition for some vital resources, and I doubt that high tech is it. High tech simply isn’t all that vital. I think it’s things such as energy, rare earth minerals, an the like, what we are actually competing for. But most of the struggles are hidden from our view, much in the way that the difficulties of growing sugarcane were hidden from the views of the ladies of the manor.

  39. stone writes:

    reason@36 “how exactly do you think that was that achieved?”

    Basically the financial environment was made perfect for asset price inflation. Money flows in to ride that.

    They raised interest rates above the (high) rate of CPI inflation. So inflation was 12% and interest rates were 18% or whatever. Then labor unions were crushed by legislation, bank lending was deregulated and tax breaks were provided for home buying etc. That all switched wage inflation to asset price inflation. Gradually decreasing interest rates from 18% down to what they are now caused a big increase in asset prices as to a certain extent halving interest rates is manifested as a doubling of price for a long term asset.

    SWR has done some great critiques of “the great moderation” on here as has Michael Hudson on his site. I had a go too in “Isn’t a financialized economy the goose that lays our golden eggs?” on page 10 of:

  40. stone writes:

    @39 I should have written “SRW has done some great critiques” (as in Steve Randy Waldman) and not written SWR (a typo) – sorry, sorry!

  41. Richard Treitel writes:

    I’ll go out on a limb in response to Doly@38. The resource is trust, or rather, trust in special abilities.

    Why were banks able to rake in huge fees for toxic MBS, when (with hindsight) far better investments were available? Institutional investors trusted them to manage the risk. Why does the Chinese gov’t invest its assets in US gov’t debt? Mostly because, odd though this may sound, it trusts the US — well, better the US than Russia or Greece — to keep colossal amounts of money more or less safe. Why do people buy iPhones and iPads rather than competing products that cost less? They trust Apple to design something easy to use.

  42. stone writes:

    Doly Garcia@38, I wonder whether it might be more about control of people rather than control of natural resources. North Korea has great poverty, South Korea doesn’t. IMO the difference isn’t natural resources, it is simply whether the system of government enables each person to make the most of the human ingenuity we all have. That human ingenuity is such a valuable resource. If allowed to flourish, it can enable people to make the most of whatever happens. Oligarchy is much like North Korea in that it economically excludes the human ingenuity of the vast bulk of the population. Ironically oligarchy ends up being like the worst kind of communism.

  43. stone writes:

    I suppose what I’m trying to say is that in the “short term” (perhaps a few decades) asset price bubble blowing can “game the system” so as to give a nation’s currency the purchasing power to get a big share of the global supply of minerals etc that Doly Garcia@38 pointed out were so vital. Over the longer term however, sustained prosperity requires an inclusive broad based economy where all of the population can fully make use of all of the human ingenuity they have, with optimal access to machines, equipment etc.

  44. [...] has a great post up proposing that technological advances are turning the entire global economy into a generalized [...]

  45. [...] | Ben McLannahan: BoJ maintains pace of monetary easing | explain xkcd | Steve Randy Waldman: The generalized resource curse | Adam Kotsko: From the generalized resource curse to communism | Buce: Underbelly: Where the [...]

  46. [...] How should we as a society deal with the “technological curse“?  (Interfluidity) [...]

  47. [...] other day, Steve Randy Waldman discussed techonolgy as a generalized resource curse. A resource curse is when an impoverished country discovers it has a commodity that everyone wants. [...]

  48. William Peterson writes:

    I think there are four possible ways in which a country can respond to a resource curse, and specifically to the way in which it redistributes from the general population to those owning the resource

    a) Norway/Alaska

  49. William Peterson writes:

    Apologies – earlier version submiited by mistake

    I think there are five possible ways in which a country can respond to a resource curse, and specifically to the way in which it redistributes from the general population to those owning the resource (which might be a very high-productivity industry, such as finance, as well as a natural resource)

    a) Norway/Alaska tax resource output, redistribute to citizens (either now, or via a sovereign wealth fund). This is easier to do with an oil windfall (few producers, seen as exploitation of public asset) than with other high-productivity industries.

    b) Switzerland allow the real exchange rate to rise through higher wages in the non-traded sector (this benefits domestic residents in non-resource industries, but reduces resource exporters’ real profits). This requires a sense of national solidarity, plus immigration controls.

    c) Sweden, etc tax the higher incomes earned in the resource sector, redistribute to citizens in general. This is hard to do if those in the high income sector are internationally mobile.

    d) Kuwait import migrants with no political rights to perform the low-productivity jobs for low wages. This only works if the resource sector is very large relative to the original population.

    e) the neo-liberal solution – accept (and even welcome) the inequality that the windfall creates, and use it as an opportunity to push down the relative (and possibly absolute) wages of those without access to the resource.

    It’s pretty clear that modern elites will opt for the last solution – the fact that the country now has higher aggregate output can (since it is less equally distributed) be used as a justification for withdrawing welfare benefits which were affordable previously. Feudalism, here we come.

  50. Luke Law writes:

    I would like to hear your thoughts on how distributed power generation via solar (or other forms of distributable power generation) and distributed manufacturing via 3d printers (limited in scope now, but quickly progressing) will effect the concentration of power and wealth. I see two paths, the one you argue, with increasing centralization of wealth and a second with no reliance on corporations. Where there is no need for middle men who connect the consumer and the idea generator -> electronic communication of the newest fashion from producer to consumer, manufactured at the consumers residence from cheap base materials. The tech isn’t here yet, but I think it will be.