I've been reading chapters from Edward Barbier's Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation, a newly published history of the role resources have played in economic development from the dawn of recorded time to the present. It's a book that truly deserves the adjective 'magisterial', and I think it's going to prove an important text for both economic historians and development economists.
The central question Barbier poses is deceptively simple. If natural resources were such a blessing at different times and places in the past – think of the American Frontier, for example, or the Britain of the Industrial Revolution – why are they so often a 'curse' now? Economies which have already developed on the whole manage their resources to the benefit of growth, but amongst the developing and poor economies only the BRICs (Brazil, Russia, India and China) seem to benefit from their endowments of resources. In other cases the resources are a source of macroeconomic instability at best and violent conflict at worst.
Prof Barbier answers the paradox with a 'frontier expansion hypothesis'. A frontier can be horizontal – adding land – or 'vertical' – for example mining a new discovery. Natural resources are a blessing when their exploitation creates substantial economic rents which are captured and reinvested into productive activities in other sectors of the economy. The large-scale rents have stemmed from a number of phenomena at different times. For example, serfdom or slavery – Evsey Domar's 'free labour' – is one way. Windfalls from price booms or new discoveries, as in the gold rush, is another. Thirdly, technological developments can achieve the same result.
The resource curses of contemporary times thus stem from either benefits from resource exploitation which are too low, relative to the economy, and/or from a failure to reinvest the benefits into other dynamic sectors.
The final chapter of the book looks in detail at the complex reasons for this failure. It starts with the stylized facts of modern resource-dependent economies in the developing world. For one thing, they remain resource-dependent and do not diversify, and the more resource-dependent, the greater their poverty. There is often pressure on land and water, and a high proportion of the population is concentrated in fragile land. The context of the global economy differs markedly from that in earlier eras of resource development, particularly in the much smaller share of world output accounted for by primary products: technology and human capital are far more important resources now. Finally, the poorest countries have weak institutions – as often noted – so the benefits of natural resources are not invested wisely. It is probably clear from this that Barbier incorporates a number of other suggested explanations, such as the 'Dutch disease' impact on exchange rates, or hypotheses about corruption, into his overarching 'frontier expansion hypothesis'.
The book concludes: “The problem of underdevelopment, and particularly the persistence of poverty and lack of economic opportunities among the world's poorest people, may be inextricably linked to the poor management of land and natural resources.” (p633) And Barbier ends with a discussion of the way ecological pressures are exacerbating these problems as well as presenting new challenges everywhere. He takes comfort from the fact that modern growth does not depend as heavily as economies did in the past on the exploitation of natural resources. Resources that were abundant up to the 20th century will be scarce now. However, “a critical driving force behind global economic development has been the response of society to the scarcity of key natural resources.” The challenges are different, but the conditions for a successful response are the same as they have always been.
I should add that this is not a light read, but a large and scholarly book – I picked out the chapters which looked most interesting. There are 3 or 4 chapters of particular interest for the modern issues. Barbier's over-arching hypothesis seems sufficiently capacious to include a number of more specific hypotheses about economic development. This isn't intended as a criticism; indeed, the point about the need for productive investment into other parts of the economy seems absolutely spot on, looking at the absence of diversification in so many developing countries.
Scarcity and Frontiers is an important addition to the research looking at the crucial role nature plays in our economic well-being, joining books like Jared Diamond's Collapse and Thomas Homer-Dixon's Environment, Scarcity and Violence (also interesting for his interest in the dynamics of complexity – see the article at the top of this page) and older texts such as Joseph Tainter's The Collapse of Complex Societies.
This is a key and expanding literature for our dawning Era of Scarcity.
