Chapter 8 ‘Making Holes in the Ground’: The Extractive Industries

Review Concepts to Review Key Words GPNs, unequal distribution of resources, Kondratiev long waves, role of the state Key Words Natural resources, resource dependency, role of technology in globalization, nationalization versus privatization, product diversification

The Extractive Industries: Definition and Structure Natural resources An element or material occurring in nature Only a resource if defined as such by users The key ones at present are non-renewable, and locationally specific This affects the nature and development of the extractive industries Characteristics of the extractive industries A mix of private firms (TNCs) and state-owned enterprises (SOEs) Production circuits are capital- and technology- intensive Market for extractive industries is very volatile Are more sensitive to general state of the economy than many other sectors The extractive cycle Sequence of stages: exploration, development, extraction, processing, distribution, consumption Challenges for firms The time and investment needed to develop a new resource can be long Exploration, processing and distribution involve high sunk costs Transience of resource booms Rise in the influence of specialist services firms

Role of the State in Resource Development The state and resources State acts as a regulator and an operator (i.e. producer) of resources Outside investment means loss of control Usually initial development is outside investment dependent, then once it’s going strong it is nationalized. Varies by sector Power Relations Power relationships between states and firms are dynamic and contingent States have potentially enormous power over resource exploitation, though how much in practice depends on the state’s strength and political orientation Once private capital is sunk, advantage moves to the state which controls access to the resource State—firm rivalry exists, also state—state rivalry

Oil and Copper Copper Oil Crucial for electrical use and thus telecommunication. World copper production has increased more rapidly than oil in past 20 years Polarized between large established mining TNCs and small exploration companies with no production Oil Two countries account for 68 per cent of world total Emphasis is on supply diversity, security, and development of regional availabilities, leading to a more complex oil map today than before 1970 Nationalization enables oil producing countries to control production, prices OPEC — founded 1960s, to ‘defend’ oil prices Capital intensity of the industry also reinforces position of major companies

The End of the Extractive Industries? Two views of the future: Malthusian view Optimistic view However there are environmental and ecological issues which relate to continued resource exploitation Consider the impact in light of these two views