False Economy - Alan Beattie [54]
The only capital equipment required for a garment factory is a building and some sewing machines. Most of the rest is down to the skill, time, and effort of the workers. But in extractive industries the process tends to be very capital-intensive, employing many more machines than people. Oil extraction and gas extraction generally require giant, high-technology drills, offshore platforms, and vast systems of pipelines operated by a relatively small number of employees.
For countries sufficiently advanced to manufacture their own extractive machinery, this may not matter too much to the economy as a whole. The jobs can be created at one remove, in the factories that make the drills, even if the drills themselves require few workers to operate them. But for countries that import much of their machinery, a significant part of the returns from mining disappear abroad with the purchase of capital goods. In countries like these, the benefits accrue to the owners of the equipment and the business—and to a relatively small number of workers.
Not only that, but the operation of a big commodity-exporting industry can actually prevent jobs from being created in the rest of the economy, a phenomenon known as the "Dutch disease." Though it sounds like a blight on elm trees, the malady in question affected the fate of the Netherlands in the mid-1970s. The soaring price of oil and gas made the country's natural gas deposits—unusually easy to get at, being onshore—into a valuable export. Money to buy the gas flooded into the country from all over, and as the dollars, francs, deutsche marks, and yen were changed into guilders, the Dutch national currency, the exchange rate rose. This made other Dutch exports uncompetitive. A thousand guilders' worth of tulips would have cost a London wholesaler £665 in January 1970, but by December 1979 she would have had to shell out £1,168.
Essentially, resources devoted to growing tulips, or whatever the rest of the Dutch economy produced, shifted toward gas extraction. And because the gas industry employed far fewer people than tulip growing, overall unemployment in the Netherlands actually rose. The effect of higher economic output on employment was more than offset by a shift from labor-intensive to capital-intensive industries.
Finding natural resources is rather like winning a big cash prize in a lottery. Thereafter it hardly seems worth working, given how much you have earned by sitting there. But in the long run, you may in fact be better off by continuing to work, particularly if it means that income and skills continue to rise. And almost certainly you would be happier than sitting around in a cloud of cannabis smoke and self-loathing like the disaffected unemployed youth of the late 1970s Netherlands, gripped by the ennui of those for whom, in this case quite literally, nothing they can do is worth doing. (Or, at any rate, no one will pay them for it.)
The pattern repeated itself with much direr effects in developing countries, as in Zambia. In country after country, the discovery of minerals (or a surge in their price) led to a collapse in agriculture, as farm products—which compete on tough international markets—became unprofitable, for the same reason natural gas hurt the rest of the Dutch economy. Farmers moved to the cities to look for manufacturing jobs. But since industry was also displaced or discouraged by a high exchange rate and inflated costs, those jobs did not exist.
Moreover, the effect of a job-light development model has worrying implications in some countries for reasons beyond the purely economic. The oil-rich Middle East, for example, is full of young men whose economies appear fairly successful. Saudi Arabia has a per capita annual income of nearly $15,000, in the top third of global rankings. Yet its true unemployment rate is estimated at up to 25 percent and is concentrated among the young. And since its demographic profile is weighted toward youth—half of Saudi males are age twenty-two or under