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Comment by School-Cotton | Hacker News Reader

> Now, there's never been a country that should have been so rich been so poor as Venezuela. Indeed, it has the world's largest oil reserves, but has still managed to have the world's worst-performing economy.

Is there any actual evidence that natural resource wealth is strongly correlated with level of development?

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There is such a thing as the "resource curse". That is, if a country is rich with exploitable resources, the political economy will tend towards infighting over who controls the resources. This is akin to a zero sum game, instead of creating an inclusive system where innovators can profit from their creating.

"Why Nations Fail" is a great book that goes over this.

It's called dutch disease.

https://en.wikipedia.org/wiki/Dutch_disease

More specifically, it's called a "resource curse".

https://en.wikipedia.org/wiki/Resource_curse

Is there evidence that Venezuela collapsed due to infighting? Is there evidence that the us (which is resource rich) is going to collapse due to infighting over resources?

I believe that the resource curse mostly applies to economies that are very poorly diversified and have a GDP based largely on exports of relatively raw materials. The U.S. Has an extremely diverse economy with a large base in services and domestic consumption, even though we export lots of commodity materials and agricultural products.

Canada (and in a smaller scale, Alaska and Louisiana) are better examples of developed economies with relatively good governance but an overreliance on resources and under-developed services. Maybe Australia/NZ too?

Venezuela seems to have had major problems with price controls as well as resource production (the federal oil company became staffed with under qualified people due to political patronage and even before the oil crash, production and efficiency dropped dramatically compared to Colombia's which is similar in scale, culture and geology but better run). I don't know the contribution of infighting (in a Gang of Four sense, obviously there were contentious elections) but it's at least not the only factor.

There are plenty of exceptions to the "resource curse": Canada, Norway, Brunei. There is, however, a lot of infighting in Venezuela.

The existence of general infighting and there being a collapse does not mean that infighting (much less, infighting over resources) precipitated the collapse. I think if you examine the history of the collapse, it has almost nothing to do with political infighting.

The "should" here is more normative than descriptive.

That said, the consensus is actually the opposite - if the government controls large stocks of natural resources, they tend to focus on resource extraction rather than developing their economy or civil society. If you can get foreign engineers to run your mines / oil wells / etc (and you definitely can) you don't even need schools for indigenous engineers to keep things running. This is the "resources curse".

OTOH when you have a pre-existing, well-functioning government & society that happens upon a natural resource windfall, like Norway or North Dakota, it's pure gravy.

The US and much of Europe are extremely resource rich. Like, ridiculously so.

The problems only seem to happen when the entire economy is organized around exporting extracted natural resources. And a lot of those problems are as economic as they are political. Local economies dominated by a single sector tend to see smaller versions of the same problems, regardless of the sector.

Europe was resource rich, leading to the industrial revolution, but many of those resources are comparatively depleted now. Partly why steel mills are closing across Europe: they were built to exploit local resources which are no longer there.

No, this is mistaken. The large steel mills are closing across Europe because steel recycling has gotten much better - the old mills closing are generally blast furnaces, which are used for making new steel out of ore - while the mills that are now more common are arc furnances, used for recycling scrap steel, which is a more advanced process than it once was. And blast furnaces tend to be very polluting, which is a major reason why wealthy countries prefer not to have them and simply buy new steel from elsewhere.

"Is there any actual evidence that natural resource wealth is strongly correlated with level of development?"

Money can buy development of many kinds, so of course there is a link.

The question is - can the country organize itself in a manner such that it is able to extract the resource, make a profit, and spend it effectively?

That's the question.

Venezuela has problems:

A) A lot of it's oil is 'tar sands' - Canadians are the only people who can deal with this complexity right now. It's expensive and complex to extract.

B) Total disarray and corruption in governance and private sector.

C) Chavismo Socialism.

So, those things cause all sorts of other things to dysfunction as well, they're all interconnected.

Is there any actual evidence that natural resource wealth is strongly correlated with level of development?

Sure - consider that an abundance of coal, when discovered, kickstarted the Industrial Revolution in the UK, and hence, the entire world. Norway has managed its oil wealth very well. Australia exports minerals but is relatively well-developed.

But of course there are plenty of counterexamples, probably far more actually: Venezuela of course, Argentina ought to be and used to be stunningly wealthy, the oil-rich countries of the Middle East...

> Australia exports minerals but is relatively well-developed.

Have to say that's a significant understatement. Australia now has the world's #1 or #2 richest median household in regards to net wealth. Their economic boom the last 20 years was almost entirely due to commodities + China.

Canada is in the same boat as Australia. Highly developed, well off middle class, high wealth creation the last 20 years. Almost entirely due to the commodity boom over that time.

We won't know until we see what happens at the point that the minerals are mined out, or demand for them drops off e.g. an economic downturn in China. They could be more-or-less OK like the UK was when coal became uneconomic to extract, or they could implode like Cuba when the Soviets stopped buying sugar.

Uh...minerals and fossil fuels are around about 4.5% of Canada's GDP, and declining as a percentage of the total. To say that the economic growth over the last 20 years has been "almost entirely due to the commodity boom" is completely at odds with reality.

But the abundance of coal didn't kickstart the Industrial Revolution. Coal is abundant all over the world - especially in Eastern China, Northeastern India, the Carpathian Mountains, the Urals, and so forth. Industrialization is just what allows you to exploit coal on a large scale, because you can mine and move it in large quantities when you have steam engines, railroads and hydraulics. It wasn't "discovered" in England at that time, it had been known about since the Roman era. Likewise large coal deposits were known about, and used, in many other places in the world. I don't know why this myth of "Britain finds it has coal -> industrial revolution" persists.

It is correlated with having your natural resource wealth extracted by developed nations. Everything else can vary widely.

Nope. Think Russia. The question is about the development stage of the society when the resources are discovered.

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