Natural Resources and Manufacturing Case Studies

7/21/2019 Natural Resources and Manufacturing Case Studies

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NATURAL RESOURCES AND MANUFACTURING CASE STUDIES

Natural resources

Positive (pro-development government, economic diversifcation,

environmental sustainability)• Limited resource rents means that the government faces stronger incentives

to generate wealth by promoting efficient economic growth rather than by

abusing its power to capture natural resource rents.

• This encourages economic diversification into more skill intensive and capital

intensive industries that have higher value-addedness and can better afford topay an increasingly expensive, skilled and productive workforce. Countriesmake the jump to diversify towards products that can open the way toacuiring capabilities in other, more advanced, products that can supporthigher wages as the country moves up the technology ladder

• !"#

o USA, with the world’s largest endowment o coal, oil and

natural gas, has used and e!ported these resourcese"ciently and e#ectively to uel its development to thecountry with a $uman %evelopment &nde! o '*+egulatory agencies protect the public against variousmaret ailures, including monopolistic pricing,predation, and other abuses o maret power .hegovernment also uses natural resource rents to providecollective goods such as national deense or publiceducation that otherwise would be undersupplied by the

maret .hese leads to a higher /uality o lie andstandard o living or its people At the same time, USAis not overly reliant on ossil uels, diversiying intorenewable energy such as wind and nuclear sources,which provide or *01 o its energy consumption

o &n the *0's, the United States 2ongress enacted a

series o 2lean Air Acts which signifcantly strengthenedregulation o air pollution .he 2lean Air Act setsnumerical limits on the concentrations o a basic groupo air pollutants and provide reporting and enorcementmechanisms, and incorporate new P345 and 67one

standards &n the United States between *8' and 4''0,citi7ens en9oyed reductions in annual pollutionemissions

:egative (predatory government, no economic diversifcation);• $redatory governments have little concern or incentive to reinvest earnings

into the provision of public goods and services such as housing and

infrastructure to enhance welfare of the population at large.

• Competitive industrialisation is hence postponed, retarding urbanisation. The

manufacturing industry, for example, is more transactions-intensive than

subsistence agriculture or off-shore oil rigs. %t is more dependent on strongcontract enforcement, a rule of law, and a generally strong business



environment. %n extreme cases of institutional breakdown, economies are

likely to retreat back into subsistence farming and enclave mineral production.o &ene'uela(s national oil company, $etroleos de &ene'uela, provides

the country with more than )* percent of its export income. Therefore,

the economy is extremely vulnerable to market volatility. The

government+s short-term ability to provide subsidies in times of high oilprices allows it to put off the issues that need to be addressed

regarding the structure of the &ene'uelan economy and government.

#lso, large revenues from oil exports have provided &ene'uela(s

leaders with incentives to engage in corruption. The Corruption

$erception %ndex rates &ene'uela at out of countries.

&ene'uela came in at number /0 in the 1conomic 2reedom %ndex of

3**) only scoring better than countries such as Cuba and 4orth

5orea. Two thirds of the people in &ene'uela, the Latin #merican

country with the largest oil deposits, live in poverty.

Manufacturing

Positive (measures put in place to encourage <%&, economicdiversifcation);

• .he government can set up ree trade 7ones and specialeconomic 7ones or labour=intensive manuacturingprocesses .his allows frms to use the inrastructure andamenities that have been specially provided, such as

transport networs, and en9oy incentives such as ta!e!emption and low real estate prices .here have alsobeen trade agreements due to economic liberali7ationand the easing o government restrictions that can maecountries more attractive to investors

o &ndian &. services industry only developed in *',when the government opened the country to theorces o globalisation, ending local regulation andlowering barriers to oreign investment .hegovernment introduced policies such as allowing

oreign investors to have *''1 private ownership o businesses that manuactured products solely ore!port .he government also deliberately targetedthe e!port=oriented &. services sector or growth>est ?engal introduced a new &. Policy in 4''@,which subsidised companies or the training oemployees and also provided special concessionsand privileges or new start up companies 6therlabour intensive industries lie garments, toys andsports goods have seen the removal o domestic

restrictive policies as well• %iversifed economies perorm better over the long term



as the introduction o competitive manuacturing at a lowlevel o %P per capita brings high and e"cientinvestment 2ountries open the way to ac/uiringcapabilities in other, more advanced, products that cansupport higher wages as the country moves up thetechnology ladder .his strengthens the economy’sresilience in di"cult times

o Agriculture’s contribution to Bietnam’s %P hasdecreased rom +'1 to 4'1 in 9ust *5 years 6verthe past *' years, agriculture’s share o nationalemployment has dropped by *@ percentage points,while the share o worers employed in thesecondary industry has risen by 01 and inservices by @+1 .his shit o worers rom

agriculture to industry and services has made apowerul contribution to Bietnam’s economice!pansion because o the large di#erences inproductivity between these sectors Bietnam $%&grew rom '+0@ in *' to '0+ in 4'*@

:egative (sweatshops due to lac o law enorcement andcorruption in government);

• eneral e!ploitation o labour orce S>CA.S$6PS; .he

proft motive has caused blatant disregard or basic

human welareo %ue to ferce competition or multinational

investment, governments place the minimum wagee!tremely low A survey o special economic 7onesin 2hina showed that manuacturers or companieslie alph Dauren, Adidas and :ie were paying aslittle as *@ cents per hour &n the United Statesworers doing similar 9obs might e!pect USE*' perhour

o &n order to maintain low production costs, 3:2s

oten disregard the woring conditions in actoriesat their outsourcing destination &n 4'*@, a actoryin ?angladesh housing brands lie 3ango collapseddue to poor wormanship and materials, resulting inover @'' deaths Ater investigations it was oundthat the building was holding @ times its weightcapacity as worers were paced together ininhumane conditions &n 4'*', Apple’s supply frm in2hina, <o!conn, saw *F worers attempting suicide,and a large number o in9uries rom worplace

ha7ards Dabour rights groups then ound thatworers held *' hour shits without even washroom



breas >orers were also prohibited rom taling toeach other, and rised paying a hety fne shouldthey have breached the rules

Natural Resources and Manufacturing Case Studies

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