Resources and Global Integration: The Worst of Both Worlds

Spices, minerals, oil, human bodies: The very blessings that have underpinned the global system of economics and trade for centuries are, for the countries that have them in abundance, a curse. In fact, those countries’ existence as a source of exploitable resources has been, and continues to be, the greatest constraint on the progress of developing countries incorporated into the global economy. For too many resource-rich countries, the result of that incorporation and exploitation has been forced dependence, extracted wealth, twisted institutions, slavery and servitude, and finally, enduring underdevelopment and poverty.

Colonialism to Dual Economies

According to Theotonio Dos Santos, national dependence and exploitation has come in three varieties: 1) a colonial dependence where “commercial and financial capital in an alliance with the colonialist state dominated the economic relations of the Europeans and the colonies by means of a trade monopoly complemented by a colonial monopoly of land, mines, and manpower,” 2) financial-industrial dependence “which consolidated itself at the end of the 19th century, characterized by the domination of big capital in the hegemonic centers, and its expansion abroad through investment in the production of raw materials and agricultural products for consumption in the hegemonic centers,” and 3) a new dependence that “has been consolidated based on multinational corporations which began to invest in industries geared to the internal market of underdeveloped countries.”[1] Each of these varieties of exploitation has allowed rich, developed nations to grow richer by taking advantage of less developed countries while subsequently limiting those countries’ longer-term prospects.

Dos Santos’s systems of exploitation find their roots in the 17th century, as Europe’s empires spread out across the world, groping for new markets to dominate. The colonial system forms Dos Santos’s first variety of dependence and laid much of the foundation for the ongoing underdevelopment and exploitation that continues to this day.

Beginning in 1602, the Dutch in Southeast Asia began establishing a monopoly over the spices grown throughout the region.[2] To achieve their goals, they cajoled, threatened, and even massacred native populations to gain control of their spice wealth for export back to Europe.[3] The Dutch cleared whole islands of native peoples and set up their own enduring extractive political and economic institutions to exploit the spices trade via a plantation system.[4] It was hugely successful. “By the end of the 17th century,” write Daron Acemoglu and James Robinson, “the Dutch had reduced the world supply of these spices by about 60 percent and the price of nutmeg had doubled.”[5] But the Dutch exploitation of Southeast Asia had an even more long-lasting, pernicious effect: To protect themselves, the kingdoms of the region chose to turn inward, cutting their thriving regional economic and cultural networks and becoming more absolutist in their governance. [6] It crushed budding economic and political development. “Dutch colonialism fundamentally changed their economic and political development … In the next two centuries they would be in no position to take advantage of the innovations that would spring up in the industrial revolution.”[7]

A similar story unfolded in the Caribbean, where Europeans hoping to profit off sugar cane set up a plantation system requiring mass exploitation of labor.[8] That labor being unavailable locally, the Europeans turned instead to Africa. The trans-Atlantic slave trade grew from about 300,000 slaves in the 16th century to 1,350,000 in the 17th and 6,000,000 in the 18th.[9] In all, some 10,000,000 slaves where shipped out of Africa, extracting the human resources of one place to fuel the agricultural resource extraction of another place and having lasting consequences for each.[10]  Laws and institutions were distorted to serve the slave trade, and warfare invigorated by the slaving industry disrupted the family structure, changed local customs, and decimated the population. [11] The would reverberate into the late 20th century.

The abolition of slavery – which in any case lingered well into the 20th century – did not bring an end to the resource-based exploitation, and after slavery came “legitimate commerce” including palm oil, ivory, rubber, and gum arabic.[12] With the demand for slaves forcibly diminished, Africans were instead put to work on African plantations so that “the abolition of the slave trade, rather than making slavery wither away, simply led to the redeployment of slaves, who were now used in Africa rather than the Americas.”[13]

One key example of this is South Africa, a haven for freed slaves who had begun to develop their own institutions and agricultural industry.[14] This budding development, however, did not appeal to the Europeans. To begin with, competition with African farmers drove down the price of crops for European farmers.[15] But more importantly, it deprived South Africa’s lucrative diamond and gold mines of the cheap labor necessary to maximize their profitability. The colonial government had an answer: In 1913, South Africa passed the Native Lands Act, giving Europeans, which made up 20 percent of South Africa’s population, 87 percent of the land.[16] Africans were forced off their farms onto lands too small to be productive, diminishing their ability to compete on the agricultural market and forcing them instead to enter  the labor market en masse, driving down the price of labor for the foreign owned mines.[17] Africans abandoned the institutions and technologies they’d adopted, reversing 50 years of development, all while providing the Europeans with the labor needed to extract South Africa’s resource wealth for foreign profit.[18] “The dispossession of African farmers led to their mass impoverishment. It created not only the institutional foundations of a backward economy, but the poor people to stock it.”[19] This system would mutate into South Africa’s apartheid regime, as opportunities for African property ownership and labor specialization were further legally curtailed. The result was an example of a durable dual economy, both domestic and international, represented by Dos Santos’s second variety of dependence, where poor, traditional peripheries produced the raw materials and agricultural products for consumption in the finance-rich hegemonic centers.[20]

So, from the beginning of the 17th century to the beginning of the 20th, the natural resources of places like Southeast Asia, the Americas, and Africa cursed the peoples and nations in those places to suffer from exploitation due to their incorporation in the global economy. It halted or reversed development and created the intuitions, integration, and circumstances that would enable future exploitation. As Acemoglu and Robinson summarize, “the profitability of European colonial empires was often built on the destruction of independent polities and indigenous economies around the world, or on the creation of extractive institutions from the ground up.”[21]

Modern Exploitation

The collapse of colonial empires did not mean an end to resource-based extraction to feed the global economy. According to Giovanni Arrighi, after the processes of decolonization in the 1950s and 1960s, the GDP of sub-Saharan Africa stood at 17.6 percent of world GDP; by 1995 it had dropped to 10.5 percent.[22] Up until 1975, Africa had not performed much worse than the world as a whole and better than some parts of the developing and developed world.[23] Through the early 1970s, an excess of global liquidity meant that loan capital flowed into developing regions, including sub-Saharan Africa.[24] But that growth collapsed in the late 1970s.[25] And regardless, even in the best-performing developing countries growth had fallen short of expectations and did little or nothing to alleviate poverty or improve the general welfare for much of the population.[26] The reasons for these failures are manifold.

First, per Dos Santos’s third variety of dependence, in the post-war period the export-based economies of the developing world became dependent on foreign capital and commodity markets.[27] On the international market, raw materials tend to be cheap, while industrial inputs required for production are expensive, so developing countries had rely on foreign capital debt and aid to “[fill] up the holes they themselves created”.[28] Foreign capital, then, built the industrial structure of developing economies in the mid-20th century, while either reinvesting or remitting its profits out of the country. It “[created] very few jobs in comparison to population growth and [limited] new sources of income,” retarding the growth of a domestic consumer market.[29]

Second, this bad situation grew worse in the 1970s when the United States reversed its polices of the 1950s and 60s that made America a major source for global liquidity and direct investment, becoming instead the world’s main debtor nation and largest recipient of foreign capital.[30] That redirection of capital flows back into America “reflated demand and investment in North America, while deflating it in the rest of the world … Since competitive pressures had become particularly intense in manufacturing industries, these imported goods tended to be industrial rather than agricultural products.”[31] For Asian countries with a large labor pool able to manufacture cheap industrial products for export to America, this reversal sparked the Asian economic miracle.[32] Africa, however, had its historical legacy to contend with: the depopulation of the continent caused by the slave trade left most areas with low population density and small local markets able to produce mainly agricultural products.[33] In this new economic reality, sub-Saharan Africans, with their historical legacy of extraction-based institutions, could no longer realistically compete on the integrated global market.

The natural resource mirage seemed to offer a way out of this trap. It has been only another curse. The discovery of oil in sub-Saharan Africa seemed to portend an economic boom for the region as foreign investment has flowed into these countries to exploit their oil reserves.[34] Rather than improving the economic situation of general populations, however, the wealth promised by oil often redirects capital investment toward oil-related industries, crowding out other sectors that might grow into more sustainable, consumer-based industries, in addition to causing currency appreciation, which undercuts exports.[35] Rents from oil displace taxation as the primary source of government revenue, so for the profits that are not remitted abroad or reinvested, political elites have the incentives to focus on private accumulation of wealth and limit its distribution to their personal political networks.[36] “The result is that oil states generate not public goods for development but private and political goods instead … [The elites] have little reason to use this public treasure to deliver roads, schools, fertilizers, clinics, medicine, and so on.”[37]

This has been the case in Angola, Nigeria, and Sudan,[38] but the case in point is Equatorial Guinea: “Home to over one billion barrels of oil reserves, Equatorial Guinea has exported as many as 400,000 barrels of oil a day since 1995, a bonanza that has made the country wealthier, in terms of GDP per capita, than France, Japan, and the United Kingdom. Little of this wealth, however, has helped the vast majority of Equatorial Guinea’s 700,000 people: today, three out of every four Equatorial Guineans live on less than $2 a day, and infant mortality rates in the country have barely budged since oil was first discovered there.”[39]

From colonialism to the modern capitalist global market, the extraction of resources for the integrated global market has left developing countries stunted and poor. The exploitation of those resources, from spice to labor to oil, has been the primary constraint on developing countries from history to the modern day.

[1] Theotonio Dos Santos (1970). The Structure of Dependence. In Mitchell Seligson and John Passé-Smith (eds.). Development and Underdevelopment: The Political Economy of Global Inequality, 3rd ed. Boulder, Colo: Lynne Rienner Publishers, 2003, pp. 232.
[2] Daron Acemoglu and James Robinson (2012). “Reversing Development” (Chapter 9) in Why Nations Fail: Origins of Power, Poverty and Prosperity (New York: Crown Business), 247.
[3] Ibid, 248
[4] Ibid, 248-249.
[5] Ibid, 249.
[6] Ibid, 249.
[7] Ibid, 250.
[8] Ibid, 251.
[9] Ibid, 251.
[10] Ibid, 251.
[11] Ibid, 253-255.
[12] Ibid, 256.
[13] Ibid, 257.
[14] Ibid, 262-264.
[15] Ibid, 265.
[16] Ibid, 265.
[17] Ibid, 267.
[18] Acemoglu and James Robinson, 267.
[19] Ibid, 268.
[20] Dos Santos, 232.
[21] Acemoglu and Robinson, 271.
[22] Giovanni Arrighi (2002). The African Crisis: World Systemic and Regional Aspects. New Left Review 15 (May-June), 1.
[23] Ibid, 16.
[24] Ibid, 18.
[25] Ibid, 16.
[26] Ibid, 20.
[27] Dos Santos, 233.
[28] Ibid, 233.
[29] Ibid, 234-235.
[30] Arrighi, 21-22.
[31] Ibid, 23.
[32] Ibid, 24.
[33] Ibid, 25.
[34] Larry Diamond and Jack Mosbacher (2013). Petroleum to the People: Africa’s Coming Resource Curse – and How to Avoid It. Foreign Affairs 92: 87.
[35] Katrina Burgess (2019). Natural Resources. Lecture, at the Fletcher School of Law and Diplomacy. February 11, 2019.
[36] Diamond and Mosbacher, 90.
[37] Ibid, 90.
[38] Ibid, 88.
[39] Ibid, 86-87.

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