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Natural Resource Curse and Economic Growth

Contributing Factors to the Natural Resource Curse: Socialization, Poor Governance,  Rent Seeking and the Dutch Disease:

In African countries, monopoly is the most common example of rent seeking (Fischer 2006). Rent seekers try to lobby governors in order to reduce competition or win a tender. When they form monopolies, they sell production at a high price and make enormous profits. Since the market cannot provide people the most appropriate producer, the earned profit is not productively. The usage of the term politics is in this regard striking: it is precisely a governmental political practice that perpetuates such rent-seeking. In this regard, the political function of rent-seeking is to minimize the openness of the political process and essentially subvert the very pertinence of the public arena - government does not function for the public arena, but rather opposes the public arena. This may be a termed a privatized politics. Rent-seeking is "the pursuit of profits via the use of government coercion"

The complicity between rent-seeking and the poor governance of natural resources is evident in the prominence of such rent-seeking and its negative effects throughout Africa. Examinations of the literature provide numerous examples that demonstrate how rent-seeking operates in practice, with the result of the material gains of the de facto oligarch class that such governance decisions both engender and maintain. For example, in Angola, profiteers and insiders share income from oil revenues. After those rent seekers earned profit, they built their own beach clubs surrounded by ritzy harbors and bought Ferretti yachts and motorboats at a cost of almost $5.5 million dollars. If the rent seekers and governors can use this money to develop other industries or help provide social welfare to their citizens, those countries will not suffer from natural resource curse and poverty.

In Fischer's study of rent-seeking in Tanzania, the shift of the country's policy in the 1980s from a socialist approach towards one of a liberal market economy as found in the West was not realized, instead collapsing into a form of rent-seeking economy. Whereas profit drives both models, it is precisely the monopolic effects of the rent-seeking economy that prevented the realization of a free-market model. In the case of Tanzania, this approach "completely prevents incentives for productive activity and can cause major costs to society." In other words, the general ideology of productivity is reduced to a productivity generated from rent - when considering the typical African policy of land value over populace value, this means that the natural resources and the control of the latter become the explicit manifestation of rent-seeking in this context. The prominence of the National Milling Corporation, for example, "accounted for 88 of the subsidies allocated agricultural parastatals." In this sense, the NMC achieved a certain monopolic status complicit with the disproportionate allocation of subsidies, and thus hindered more diverse growth. Rent-seeking accordingly becomes a means by which to control wealth - insofar as the wealth of Africa lies in its natural resources, the rent-seeking approach to the latter obstructs growth diversification, primarily along civil and social boundaries. In this regard, the failures of countries are the result of the conscious policy enactment of rent-seeking.

The Dutch Disease is another crucial contributing factor to the natural resource curse in Africa. Many African countries only develop natural resource, even though there are plenty of other resources. Furthermore, the development of these same resources is largely export and trade related. The Dutch Disease is a phenomenon in which "the tradable goods sector contracts compared with the nontradable sector." The nontradable sector is thus precisely what is harmed in the Dutch Disease - these are the goods that are intended for the endemic populations of African countries. African countries are transformed through the Dutch Disease into producers of natural resources for the foreign market - accordingly, the overall state of the economy cannot be improved. The Dutch Disease phenomenon thus evokes a profit-seeking approach to natural resource policy, whereby resource supply defines the existence of the African nations. In a more radical sense, one could even consider this a form of new colonialism, whereby African countries are measured only in terms of use-value: this reflects a deeper philosophical theme of a certain de-humanization of the populace.

A particular case of the Dutch Disease is to be found in Gabon. The country is a rainforest region with large numbers of banana trees, but people rarely can buy bananas in the market. This situation occurs because the main labor force in Gabon focuses on oil exports, whereas the government hardly provides any other job opportunities besides the oil industry. Therefore, the unemployment rate is high, and 57% of Gabon's people earn less than $1 a day. Although government can earn revenue from oil, that is not enough to provide the entire national people with their needs and increase economic growth. In other words, the revenue is used to expand the existing oil industry, whereby it neglects other sectors and most importantly, its own citizens.

Furthermore, the oil boom in Nigeria is "held to be partially responsible for the catastrophic decline in the nation's agricultural production." The radical concentration on the economic viability of Nigerian oil "adversely affected output of non-oil tradeables", thus creating "structural changes in the economy", according to which the structure essentially lost its equilibrium, focusing almost entirely on the boom sector. Thus, agricultural exports in Nigeria moved from a 71.90 share in 1970 to a lowly 2.40 share in 1982. The radical neglect for the agricultural sector, seen as essentially unprofitable, obviously affected those working in this sector - their work is essentially not-valued by policy makers of governance, insofar as this sector does not provide economic gains in comparison to the oil sector. The adverse effects of such decision-making is lucidly recapitulated in the following statistic: "Nigeria accumulated oil revenues of US 350 billion at constant 1995 prices...the population living with less than one U.S. dollar per day increased from about 36 percent in 1970 to just under 70 percent in 2000." That the empirical data shows that the economic boom does not reach the general citizenry of Nigeria is a clear example of a radical profit-seeking policy, as opposed to an investment in Nigerian human resources and the general welfare of its populace.

In order to underscore the notion that poor governance drives these phenomena, it is important to briefly note that an abundance of natural resources does not necessarily lead to the general economic decline of citizenry. Norway has an abundance of oil and gas, but its  government uses the revenues from natural resources effectively: for example, the Norwegian Petroleum Fund provides foreign securities and pension plans to citizens so that it can ensure their lives. As a further example, the booming software, tourism, and semiconductor industries have provided Chinese government various revenues, even though China has plenty of natural resources. In 2010, the tourism industry of China was equivalent to 5% of total government revenue. In addition, in 2007, the revenue of semiconductor was $58 billion, equivalent to 8% of government revenue. Accordingly, the economic development of China is so fast because government develops different types of industries. Their approach is radically diverse, using natural resources to improve other sectors of the economy.

Possible Solution

The cases of Africa clearly show that the wealth of natural resources is not being properly appropriated. The lack of development in the aforementioned cases, despite various booms, suggests a general incompetence of governance. The over-reliance on natural resources takes the absurd form of attempting to maintain the strength of this singular sector, with clear detrimental effects to the people. From these conclusions it can be suggested that there is primarily a lack of ethical concern displayed by government towards its populace. As a counter-reaction to this approach, governments should endeavor to maintain a stable society through an increase in revenue diversification, using the positives of natural resources to minimize the importance of these same resources to the country. However, this primarily requires an ideological change, in which political and economics are radically re-thought and urged to move away from the profit-seeking model that emphasizes solely the wealth generated from particular natural resources. This would require various political interventions, such as asking governments to increase account transparency or form anti-corruption groups to reduce corruption. Such reforms entail a radical change in governance and decision-making, in order to promote a new form of socialization: essentially, the hegemonic and oligarchic approach would have to be disassembled to realize this aim. If governments can accomplish the latter and appropriately use natural resource wealth in order to diversify the greater social structure, the current situation in Africa will be improved so that its people can have better lives.

Conclusion

The social strife experienced by the African people in the form of civil war and poverty, despite an abundance of natural resources, suggests a general cause of poor governance. This poor governance can be further analyzed in terms of the respective concepts of rent-seeking and the Dutch Disease, which demonstrate a general emphasis in political and economic policy on a type of profit-seeking that does not encourage a diversification of investments, but rather seeks to maintain the strength of the natural resource sector for the benefit of the hegemonic, oligarchic and monopolic class that reap the benefits of such natural wealth. It is in this regard that natural resources become a curse, insofar as they worsen the social situation of African citizens, as opposed to ameliorating it. The means of breaking the curse requires efficient management and governance of these same natural resources, wherein their pertinence to a given economy essentially undermines itself, thereby allowing for a diversification of growth. This approach amounts to a combined political, economic and ethical synthesis of interests in order to reverse this disastrous course of events.

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