An overview of alternative arguments: steps towards a learning centred perspective

A lthough some evidence shows a correlation between slower economic growth and intensive dependence on resource-based industries (Sachs and Warner, 1999), and although some of the factors described above may be correlated with natural resource abundance, there is no conclusive evidence that slower economic growth and resource-based industrial development are unavoidably linked. Indeed it can be argued that the evidence underpinning these arguments

that rich natural resource endowments lead to distortions in the domestic economy are taken from an unrepresentative period, namely the 1970s and 1980s. In contrast, in the period from 1913 to 1950, for example, it was the resource-rich countries that grew faster than the then-industrialised countries (Maddison, 1994). Moreover, in the case of Latin America, the period of the Sachs-Warner analysis includes the “lost decade” of the 1980s, which resulted from the over-borrowing of the 1970s, the traumatic demise of the protectionist model of development, and the transitions to more open economies (De Ferranti et al., 2002).

Also, as noted earlier, in contrast to the argument for the „curse‟ of natural- resource abundance, there are successful cases of development based on natural resources exploitation. For instance, a successful case of resource- based development emerges from the US mining industry before the 1920s. Indeed, North American industrialisation and its economic development were supported by natural resources based industries. It has been argued that, what mattered most in the US case was not the quality of the national resources, but the nature of the learning process through which the economic potential of these resources was achieved (Wright and Czelusta, 2002). Three main factors have been identified as conditions underpinning the development of the American minerals industry:

i. An accommodating legal environment, including open access for exploration, exclusive rights to mine specific sites upon proof of discovery, and the need to use the mine or lose it;

ii. Investment in publicly accessible knowledge; iii. Education in mining, minerals, and metallurgy.

The American case was essentially a form of collective learning, a return on large-scale investment in exploration, transportation, geological knowledge, and in the development of technologies of mineral extraction, refining, and utilisation. It was a process of continuous technological change and learning, embodied in intellectual networks linking world-class mining universities, government and private research. The US success resulted from a gradual

transition to resource-intensive manufacturing industries, and later to more knowledge-intensive industries (Wright and Czelusta, 2002).

The case of Australian mining development is another prominent example of development based on mining. Some of Australia‟s development was based on the discovery of new deposits and the generation and export of mining-related knowledge (mineral detection, environmentally sound mining practices, and processing). This process was based on a massive educational and research infrastructure (Maloney, 2007). In this case, clusters of universities and private and public think tanks were key factors to further productivity growth and development of new products.

In these successful cases, natural resource industries were the starting point for the development of many firms. Nevertheless, those successful strategies were not exclusively based on the extraction of natural resources. They were also complemented with investments in human capital, technological knowledge, and infrastructure. Only part of the rents of natural resources-based industry might refer to having access to an important endowment of natural resources. However that is not enough, and to sustain a successful development trajectory other sources of rents should emerge or grow.

Figure 3.2 below summarises these contrasting views between the negative perspective on resource-based development (the resource curse perspective) and more developmentally positive perspectives. Essentially, these two perspectives take different views about the role of knowledge, innovation, and learning and associated capability accumulation at the centre of the resources- based development process. In simple terms, the resource curse hypothesis (represented in the left side of Figure 3.2) argues that an abundance of resources leads to slower growth because it generates exogenous rent seeking behaviour that leads to corruption, which has a negative effect on sustainable growth. In addition, abundant resources lead to the destruction of technological capabilities and trade development, which further weaken a sustainable growth process.

On the other hand, the more positive resource-based development hypothesis (represented in the right side of Figure 3.2) argues that having abundant natural resource may support sustainable growth. First, the exploitation of natural resources may lead to the accumulation of higher level technological capabilities, which in turn increase natural resources endowment generating a mutually reinforcing process. Second, this perspective recognises the existence of exogenous rents, but over a natural resources-based development process, the balance between exogenous and endogenous rent is progressively changing so that the relative importance of exogenous rents gradually decreases. Over this process, exogenous rents may support the development of the capabilities that are the sources of endogenous rents, especially while the level of endogenous rents is not enough to sustain a competitive position. Third, natural resources also support trade development as commodity trade and production can create a direct link with the international economy. Additionally, mining technology and knowledge developed over time may achieve exportable standards, which may lead to an increase in international trade by exporting mining technologies and services to the world mining industry and to other industries where the same technology and knowledge may be applied, so widening learning possibilities.

Figure 3.2: Comparing the Rationale Behind „The Curse of Natural Resources‟ and „Natural Resources Based Development‟

The curse of natural resources Natural resource based development

Significant natural resources endowment (e.g. Minerals) Sustainable growth TRADE TECHNOLOGICAL CAPABILITIES ACCUMULATION (Endogenous rents) EXOGENOUS RENTS (Rent seeking behaviour ) Corruption Distortion at home

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(Deteriorating term of trade) + (Dutch disease)

The key difference between these two perspectives is that the resource curse hypothesis argues that abundant natural resources crowd-out activities that drive long-term growth, in particular technological capability accumulation or