Resource Governance and Developmental States in the Global South

Critical International Political Economy Perspectives

Kenneth A. Loparo, F. Bourgouin, Kenneth A. Loparo, F. Bourgouin, Jewellord Nem Singh

• Publisher: Palgrave Macmillan
• Year: 2017
• Print ISBN: 9781349999972, 9781137286789
• eBook ISBN: 9781137286796
• Topic: Politics & International Relations
• Subtopic: Economic Policy
• Index: Politics & International Relations

The political economy landscape has shifted as multinational corporations increase their investment efforts, changing the geographies of extraction. The contributors make the argument for the need of new theoretical perspectives anchored in critical political economy to address structural dynamics in the global industry.

Part 1

Theoretical Debates in Natural Resource Politics

1

States and Markets in the Context of a Resource Boom: Engaging with Critical IPE

Jewellord Nem Singh and France Bourgouin

The study of natural resources and economic development – and the lack of adequate analytical tools devised to explore its ever-changing complexity – reflects the broader crisis in development theory. Crucially, development theory around resource exploitation in poor countries has never fully analysed the constraints of the global political economy. While neoliberalism is considered as a critical juncture in the reorganisation of states and markets in the developing world, the decline of political economy considerations in development studies has been nevertheless documented (Leys, 1996; Manzo, 1991; Nederveen Pieterse, 2010).¹ As a result, development politics is ill adapted for explaining – and understanding – the opportunities and challenges for resource-led development associated with the current resource boom.

In this chapter, we highlight the relevance of political economy perspectives in the analysis of contemporary resource politics in the Global South. We put forward an argument in favour of a political economy perspective in exploring the resource politics-development nexus in the context of neoliberalism. To this end, we map out in historical terms and discuss the different ways in which scholars have intellectually theorised the relationship between natural resources and economic development, following Robert Cox’s (1981) argument that theory and praxis are inseparable. Critical theory, one that reveals the intricate relationship between theory building and social reality, is necessary to understand the depoliticised nature of resource governance literature. In contrast to ‘problem-solving’ tendency of social theories (Cox, 1981), which is also dominant in the resource management literature, the chapter seeks to open up new approaches by exploring how tools from the critical IPE approach can elucidate the complexity of a globalising resource sector.

We begin the chapter with a discussion of the strengths and limitations of early systemic approaches applied to the natural resources-economic growth nexus developed between 1950s and 1980s, namely world systems and global commodity chains theories, wherein we highlight their key insights to understandings of resource politics. This is followed by a discussion of the current resource governance literature that responds to the increased attention to political development in the Global South and thus this chapter broadly seeks to provide a policy-relevant analysis of resource wealth and economic development. However, after demonstrating the limitations of these literatures in capturing the complexity of resource politics in the Global South, we draw in the third section, from political economy traditions to explore the global resource governance and state strategies of managing the globalisation of extractive resources. We show how political economy understandings shed light on the global-national dynamics of political authority and the fluidity of the public-private and national-international divides contextualised within the international resource industry. Finally, we close the chapter by analysing the implications of a political economy perspective to development theories.

Resource exploitation from systemic perspectives

The role of natural resources in development has been a central preoccupation of political economy both from dependency and non-Marxist perspectives (Cardoso and Faletto, 1979; Furtado, 1970; Prebisch, 1950; Singer, 1950); natural wealth was perceived as part of depletable capital that forms concrete social relations between states, markets, and labour. Prior to the dependency and world systems theories (WSTs) in the 1960s, natural resource exploitation was seen as a plausible route to economic development. Indeed, the consolidation of export-led growth models principally applied in Latin America between 1880s and 1920s was inspired by the belief on the potential of creating linkages between the resource sector and frontier activities on the one hand, and the productive sectors of the economy, especially manufacturing, on the other hand. As Edward Barbier (2011: 18) notes, the rise of the United States as the leading mineral economy and world leader in manufacturing between 1879 and 1940 established more firmly the idea that resources could lead to economic development. Meanwhile, other major economies such as Canada, Western Europe, and Japan also expanded their industrial capacity mainly through the exploitation of non-renewable mineral and energy resources. At the time, there was an assumption that resource endowment and national industrial development came hand in hand (see Barbier, 2011, chapter 7).

The dramatic disruptions to the global economy that occurred during the intra-war period and early ante-bellum years resulted in profound changes to the international economic order. By the early 1950s the world economy was radically changed from what it had previously looked like. The major Western European Empires were replaced by a rivalry between the United States and the Soviet Union, whose spheres of influence extended in the Global South through a stark division of the world between capitalist and socialist camps. As the final vestiges of colonialism were shed off and new states rose in the post-war years, the challenge of nationally defined, autonomous development became evident. It is against this backdrop that dependency theories, seeking to resolve the conditions of unequal development between industrialised core economies and primary-product-exporting underdeveloped peripheral economies, emerged.

As the structure of the world trading system evolved and proved to have uneven consequences between the early industrialisers in Western Europe and the United States, on the one hand, and the large number of resource-rich, poor post-colonial states, on the other, the idea of economic growth via primary commodities was radically challenged (Prebisch, 1950; Singer, 1950; Wallerstein, 1979). In contrast to the highly prescriptive advocates of modernisation theory, political economy perspectives challenged the agnostic view regarding the constraints of the world economy to national industrial development. While countries specialised according to their comparative advantage, markets simply had no mechanism in place to allow for technology transfer from the developed core towards the periphery. The terms of trade of primary commodities were invariably declining, during which the only solution for the then-called third world countries was to develop the manufacturing sector via an import-substitution industrialisation model.

As a rejoinder to modernisation theory which maintained a sort of Darwinian understanding of underdevelopment, where poor countries were considered to be a more primitive form of wealthy ones, social scientists began to address underdevelopment by considering the interaction of weaker states in an integrated ‘world system’. The views were predicated on the structural understanding that resource flows from a ‘periphery’ of less developed states to a ‘core’ of industrialised wealthy states created path dependency. The principles behind it concern observations in terms of trade for underdeveloped countries relative to industrialised countries and how these had deteriorated during the ante-bellum period. Its policy implications were clear: trade protectionism and import-substitution industrialisation aimed at export diversification and development of manufacturing sectors. Resource dependency was considered an obstacle to development that needed to be overcome.

As a paradigm, WSTs offered critical insights on the structure of global inequality and power relations between the core and periphery. Indeed, until the current commodity boom, the principal argument of Raul Prebisch and Hans Singer on declining terms of trade in primary commodities and the volatility of international prices have remained uncontested in development economics. While import substitution has been discredited as a policy prescription in the era of neoliberal globalisation, the Prebisch–Singer hypothesis on the vulnerabilities of natural resources – especially primary raw materials – to external shocks as the main challenge for resource-based growth undoubtedly holds true for many developing countries. More broadly, the intellectual appeal of systemic theories rests on their capacity to explain disproportionate wealth distribution and skewed relations of power as embedded in the global political economy. This approach has the benefit of broaching processes of capital accumulation by competing agents, and viewing the capitalist world system in heterogeneous cultural, political, and economic terms with fundamental differences in accumulation of political power and capital. Its level of analysis is systemic, and, therefore, its strength is the focus on the interplay of economic and political variables within a global logic of capitalist accumulation. What is, therefore, evident in the core-periphery divide is the apparently stable division of labour between resource-seeking and resource-producing economies, in which the supply of raw materials is assumed by the periphery for the expanding agents of the core. In other words, economic exchange takes place on unequal terms that are perpetuated by quasi-deterministic constraints. This was, of course, reinforced by the successful trade strategies of core states to achieve industrial development through secured access to non-renewable resources in the developing world. While traditional dependency may not have been replicated today, for some, the structures of global inequalities as well as the race for resources between the early twentieth century and contemporary globalisation are not necessarily different from each other (Bunker, 1985; Bunker and Ciccantell, 2005).

In specific reference to extractive industries, systemic perspectives were applied to a context where mineral extraction was still largely a state enterprise affair. Policy reforms in the post-war years reflected the goal of gaining sovereign control over resource rents and focused on bringing extractives industry under the control of national governments to achieve fiscal revenue generation, employment, technology transfer, and regional and local development. While the post-colonial movement was influential in shaping the nationalisation of resources in Africa, it was the failure of the exports-led growth model during the liberal era that drove Latin American states to restrict foreign ownership of natural resources. Nevertheless, the vulnerability of Latin America, Africa, and Asia was all the more pronounced with their resource-based economies. By the 1950s the underdeveloped periphery had already become an important supplier of extractive natural resources including crude oil and important industrial minerals and ores (Bunker and Ciccantell, 2005).

Between 1930 and 1970s, the world witnessed a wave of nationalisation of strategic commodities deemed crucial for enhancing national income. The international policy agenda cohered around a stronger role for the state as the primary driver of economic development. Unlike Keynesianism in the core economies, national protectionism and self-sufficiency were seen as the ideological underpinning of an alternative policy to address the inherent structural inequalities in the world system. A common denominator of resource management between 1930s and 1970s across Asia, Africa, and Latin America was the creation of state enterprises to operate in the mines. While some had opted for 100 per cent state ownership, such as CODELCO in Chile, YPF in Argentina or Zambia Consolidated Copper Mines (ZCCM) in Zambia, others introduced private shareholders alongside indirect state control within the structure of corporate governance, such as PETROBRAS in Brazil. The extent to which states managed to achieve industrial development and reduce commodity dependence was, however, highly questionable. The relative capacity of the bureaucracy, state positions in the international system, and state-business alliances were fundamental elements in transforming resource wealth into productive capital. National governments, through their differentiated capacities to negotiate with foreign capital, had forged different relationship, whereby the state sought to have an upper hand in the extractive sector without alienating private capital participation.

Like most accounts of development theory, WSTs reached its nadir when it could neither explain the rise of resource-poor East Asian countries as a result of rapid industrialisation nor provide answers regarding the increasingly problematic import-substitution growth model. As neoliberal ideologies began to emerge as an alternative model of managing debt and economic crises, so did the establishment of private enterprises in the resource sector and concomitant patterns of FDI flows to exploit untapped reserves throughout the world, largely those located in the Global South. In turn, WSTs lost their intellectual and political appeal. Indeed, political economists themselves have admitted the crisis of development theory par excellence in the 1980s (Leys, 1996; Manzo, 1991). However, we recognise that the Prebisch-Singer hypothesis seems to hold true until the present context, although the current resource boom has thus far not produced declining terms of trade, in addition to the sustained high commodity prices since 2003. In some ways, the WSTs are out of date because resource-rich states have maintained wider policy latitude in the medium term to channel extractive capital towards productive investments in the national economy.

Global commodity chains research

As mentioned above, the relative move away from world-systemic approaches coincided with the global shift away from state control of extractive industries towards the establishment of the conditions for private sector-led resource exploitation. The privatisation of mining and oil extraction began as early as late 1970s with the developed countries privatising first, and policy change gained momentum in the 1980s and culminated in the 1990s with the liberalisation of resource-rich African countries at the tail end of the neoliberal wave.² This worldwide trend in mining law reforms was triggered by the apparent failure of state monopoly in the extractive sector. Traditional mineral-exporting countries found state-led extraction unsustainable due to low profitability, shortage of capital, and deficient environmental practices. The wave of market opening and privatisation cresting between 1980s and 1990s was thus based on a belief that mineral resource development was an industrial activity more efficiently carried out by private enterprises than the state. The elevation of neoliberalism as a global hegemonic ideology not only reflected the lack of faith on states and state-led models of development, but also underpinned the expansion of multinational capital from traditional mining countries – BP, Shell, AngloAmerica, BHP Billiton to name a few – in their scope and reach of operations in the wider developing world. As Gavin Bridge (2004) points out, the worldwide reform to open resource markets for mineral exploration and development instigated the sudden explosion of investment opportunities for multinational corporations (MNCs) to take advantage of ‘stable, low tax regimes’ being created in developing regions for the express purpose of attracting FDI.

In this context, the globalisation of finance and resource extraction has led to the rescaling of commodity production. There appears to be no single private entity operating within the mining industry. Even in vertically integrated energy firms, other private actors from related industries conduct businesses with extractive companies, which constitute an increasingly complex web of economic activities. Not only do states need to consider production-specific factors in devising growth policies, elites must also take into account factors affecting consumption, marketing, transportation, and processing. A truly global chain of production has taken place at a scale unimaginable in the past. Concerned with identifying access to profit from the commercial exploitation of natural resources, global commodity chain (GCC) analysis became an important theoretical approach in explaining the conditions upon which production and consumption are done by public and private actors.

Drawing from economic geography, the GCC approach had sought to develop an understanding of the new geographies of resource extraction. While not completely discarding its intellectual roots from structuralist development economics, GCC analyses of production and trade of primary commodities were applied to the resource extraction-development nexus. At its core, its goal was to unmask questions about who controls global trade and industry and how agents locked into lower-value segments attempt to break from a cycle of dependent development (Bair, 2009; for its empirical application, see Gellert, 2003; 2007). But in contrast to WSTs, GCC approach offered a highly complex view of public and private modes of production and did not see the world economy as a compo...

Table of contents

• Cover
• Title
• Introduction: Resource Governance at a Time of Plenty
• Part I  Theoretical Debates in Natural Resource Politics
• Part II  Interrogating ‘Good Governance’ in Resource Management
• Part III  Neoliberalism, Resource Management and the Diversity of National Experiences in the Global South
• Part IV  Moving the Debate Forward: The Role of Critical IPE Studies
• Bibliography
• Index