Here’s a concept that I’ve not seen addressed before on Energy Central: “Is America Suffering from the "Resource Curse?”" The author of the article from which I am quoting is Dr. Paul Krugman, a Nobel Laureate in Economics, on his Substack. I will attempt to summarise it here (I hope fairly and adequately).
Apparently, “resource curse" is an old and controversial economics concept (term coined by Richard Auty in 1993) which says that “nations rich in natural resources, especially minerals including oil, tend to do worse in the long run than resource poor nations”. The theory says that countries whose economies are heavily dependent on natural resource extraction tend to "backwardness compared to countries less dependent on natural resource extraction."
The theory gets complicated because of the existence of both resource poor countries that are considered “successful” and resource rich countries that have failed and vice-versa. Further investigations have refined the theory by identifying ways in which resource rich counties may end up poor, including 1) the volatility of prices for commodities like oil and gas create "risks for economies that depend on them too much" 2) “Natural resource exports can crowd out manufacturing and other sectors that offer greater potential for future growth" 3) "Natural resource abundance can feed autocracy, corruption and oligarchy...anarchy, even promote civil war.”
Dr. Krugman uses the example of Korea and other Asian economies that have surged ahead, in terms of GDP, of other countries like Brazil and Argentina, between 1970 and now. "So, when modern globalization took off, export-oriented manufacturing located in resource-poor Asia…led to cumulative …high growth in Asia that bypassed the Western Hemisphere”.
Perhaps Dr. Krugman´s most relevant argument with respect to the US is what happens "when fossil fuel wealth crowds out renewable energy.”
He describes the concept of “rent” in economics as the value of the output, i.e. oil in the case of petrostates, in excess of production costs. In such states the oil “rents” are "Unearned income that accrues to some people or institutions without requiring that they make an effort or commit resources to production.” In low rent countries, e.g. “petrostates”, governments collect "rents, in the form of oil revenue"…and "freed them from the need for taxation of their peoples, and that this in turn freed them from the need for democracy.” Classic examples of such petrostates are Kuwait, Saudi Arabia and the United Arab Emirates, i.e. "nations whose economies are driven by oil and gas.” The ultimate down-side of the accrual of rents in the form of resource wealth such as oil is that they can "be appropriated by other actors with guns.”
Venezuela, I suggest, suffers from such a “resource curse” where oil and gas riches were appropriated by people with guns. Another is very probably Chile, resource rich with copper, and suffers still from the “resource curse."
The question is whether the US is subject to this “resource curse”.
Krugman argues that US oil and gas production, most recently because of fracking, has had the result of significantly reducing US manufacturing, most especially in the development and adoption of renewable energy technology over the last 20 years or so. After all, why participate in the renewable energy revolution when natural gas is cheap?
It is important to note that when fracking resulted in falling natural gas prices after 2010, the proponents of fracking predicted a manufacturing boom in the US because of low energy costs. But the opposite happened and, according to Dr. Krugman, the US lost about 1.3 million manufacturing jobs because of the fracking boom.
Between Trump’s personal problem with wind and the oil industries´ role in climate denial and in political funding suggests that the US is “suffering from its own version of the resource curse” with all of the consequences, not least in “promoting authoritarianism and oligarchy”, not unlike Putin´s Russia and Middle Eastern petrostates. Some even claim that the US is “aligning itself as the last big petrostate” while China is “aligning itself as the first electrostate."
Krugman emphasises that "the resources curse is not ineluctable” and can be fought by “promoting renewable energy and limiting the corruption of our democratic institutions by fossil fuel money”.
Of course, on Energy Central we’ve heard about the supposed corruption of government by renewable energy interests during the Biden administration. Personally, I think the corrupting influence of fossil fuel interests dwarfs anything the renewables lobby could possibly muster. But, we’re all free to choose our opinions. Krugman suggests that “maybe the current energy crisis will even serve as a wake-up call and get us to do the right thing.”
I interpret the “wakeup call” to be a plea to adopt a means to fairly judge the relative merits of fossil fuels, renewables and nuclear, and other sources of energy, based on their merits in both the short and long terms and considering relevant factors such as economics, best available technology and the environment. That’s a tall order, but a crucial one. We are far from that today. It must change.