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Why does resource curse exist and how did Australia escape the curse?

Discussion in 'Business, Investment and Economics' started by helpme, Jun 6, 2017.

  1. helpme

    helpme

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    The resource curse refers to the paradox that countries with an abundance of natural resources (like fossil fuels and certain minerals), tend to have less economic growth.

    I am puzzled why the resource curse exists in the first place. If you are born into a rich family, shouldn't that give you a head-start in life? Hasn't it been said the rich gets richer while the poor gets poorer? Why doesn't the same apply to countries?

    Another thing that fascinates me is Australia. Australia is a prime candidate to suffer from the resource curse. Yet, Australia is rich! 20 years without recession. Australia is an economic miracle. If the resource curse exists, why isn't Australia hit by the curse? What makes Australia tick?

    Can someone wiser help explain?
     
  2. galumay

    galumay learner

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    Its a myth?
     
  3. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    it refers to the fact that when resources prices rise it tends to gut the manufacturing industry due to the high currency.
    When the resource rice falls or runs out the country has little to fall back on.
    One of the reasons we shut down the car industry was that the $A was in parity with the $US and the cars needed too many subsidies to survive.
    Australia has a very poor manufacturing industry now (it was once quite strong) and in my view a poor industry policy also. We have even managed to get rid of some of our advantages we used to have including cheap electricity and gas.
     
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  4. wayneL

    wayneL Rotaredom

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    yeah lets see in 5-10 years whether our economy is a miracle
     
  5. galumay

    galumay learner

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    I suspect the so called resource curse grew out of time when the economic powers of the world were in England and Europe - and the resources needed were in Africa and Asia. Nowdays its obviously nonsense, Australia, US and Canada are just 3 of the countries with lots of resources and strong growth economies. You could add most of the Middle East, Russia and China to that list as well.

    The world has changed and now its an irrelevant saying.
     
  6. Quant

    Quant

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    I think Knobby is on to it , the massive fluctuations in currencies of the resource economies literally screw other industry . 08 to 2011 AUD close to doubled against USD , its no wonder there is basically no manufacturing left in Australia , how can they compete against an imported product that basically halved in price . A chart of manufacturing as % of GDP tells the story . Resource economies are either full good or full sh!t . The strong part of the resource cycle kills the industry that should be the backstop for aussie economy when resource values slump , double edged sword .. just an opinion , don't bust a gasket :D


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  7. galumay

    galumay learner

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    Not saying that the issues you raise about mining having an impact on manufacturing are wrong, Quant, but I dont see how any of that is related to the old saying, as I said I think it came about long before Australia or anywhere else in the new world was an economic power. Obviously despite the currency moves, which may or may not be caused by resource exports, Australia has had a very strong economy for a very long time, so the idea that resource rich countries have poor economies is just plain wrong. As I said it doesnt hold up for most resource rich countries in the world nowadays, even the African countries that are rich in resources do better economically than the ones without - and thats the region that inspired the idea of the resouce curse.
     
  8. luutzu

    luutzu

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    You ever walk down any street with piles of cash, gold and diamond and other blings... without any body guard, any guns?

    Resource-rich countries are poor because their spears and disorganised military were no match for the more civilised liberators in the rush to free people :D

    Countries like Australia, Canada are resource-rich but are also rich because the current rich guys on its soil weren't native to the land. i.e. they kinda, somewhat, don't see anyone owning the place so they take it.

    If Japan had won WW2; if the USA managed to win that war of 1812 against Canada... Australia and Canada too would become the Middle East or the Mexico of the world. Instead, they get to become vassal states needing to buy certain hardware, sending certain numbers of their young to foreign wars, inviting certain multinationals to hand over the national wealth. It's not as bad as it sound, but it is what it sound like.

    Take Iran in the 1950s... its democratically elected president thought to nationalise the oil resources, give more of its wealth to the Iranians, less for BP and American oil companies. BP call Eisenhower, who call the CIA, who AJAX operated the country and put the Shah in to rule the country more properly. That last some 2 decades before the revolution threw out the Shah and Iran became an independent Islamic Republic.

    Not to let such assault on the love for Monarchical rule, the US then set up Saddam as the strong man next door, selling him arms, pointing him where to shoot and who to gas. Saddam thought the Iranian army was weakened from the decimation the new Ayatollah did to the military, but he was wrong and some 1 million plus Kurds, Iranians and Iraqis die.

    Not to be put off by that, sanctions were imposed on Iran until about a year ago.

    Well, we all know what happen to Saddam when he overstep his authority... his people got liberated.

    Or more recently, look at Venezuela. Chavez thought to nationalise the country's oil, use its riches for schools, hospitals and rubbish like that. He was overthrown, about to be executed by certain "general" who have nothing to do with the CIA... lucky for him the people like him too much they rush to the prison to free him. He die of cancer, his successor is about to be screwed again.

    Or closer to home... Rudd and Gillard thought to put a super-profit tax on mining and mineral. Where are they now?

    Turnbull is learning somewhat slowly, but he knows to call for a proper commission into Chinese influence on Aussie politicians. I guess American influence are quite too obvious to even bother.
     
  9. No Trust

    No Trust JUSTICE IS COMING...

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    Pure and simple its laziness, countries with vast resources tend to mismanage them.

    The next revolution which is underway is energy. It wasn't long ago that we were using Nokia's, now smartphones have disrupted industry worldwide. That same technological leap is now occurring in energy via electric vehicles, energy efficiency and alternative fuels.

    When this technology filters into the main stream over the next 5 to 10 years economies reliant on old world resources for their GDP will crumble.
     
  10. galumay

    galumay learner

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    I cant follow your logic here, on your first point, the question the OP asks, if the resource curse exists, why are resource rich countries like Australia performing well economically? You seem to be implying you believe the resource curse exists - and that Australia's economy is doing poorly (relative to resource hungry countries).

    Your next paragragh I understand your point that you believe another technological revolution is occuring, although I would call it an evolution or continuince, but OK.

    Can you enlighten me on the logic that connects the claim in the final paragraph with what you have said in the second one? I would have thought that the changes in energy technology will require more old world resources to construct these things? Combined with growing population and increasing living standards they appear to be drivers for resource demand.
     
  11. PZ99

    PZ99 ( ͡° ͜ʖ ͡°)

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    One word. Services. It represents around 70% of GDP.
    Manufacturing and mining are only around 20% (rough figures).

    Over that 20 year recession free period Australia still suffered negative growth at times. It just never happened twice consecutively. This is partly because the Govt spent a lot of money for stimulus which adds to GDP. It is also paying a billion dollars a month interest on a loan it didn't have 10 years ago. A $300b debt curse doesn't necessarily mean that it's rich :)
     
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