Hi, everyone!
Could anyone suggest some Austrian literature concerning “dutch disease” and “resource curse”?
It would be really interesting to see austrian perspective on this problem. I live in Russia and the real debate here between liberals and interventionists is whether we should keep the Stabilization fund which is being filled by petrodollars or whether the government should spend it all in order to develop russian economy.
I’d also like to see some commentary on this. It seems like the “resource curse” is just logic-twisting Keynesian carpet-baggery.
“Dutch disease” can be translated to “the most efficient use of resources available.” From what I understand, “Dutch disease” is simply when high prices for natural resources, like oil, drive away labor and other resources from the industrial sector to the natural resource extraction sector.
What is so wrong with this? It simply means that scarce resources like labor and capital goods are being moved from a less profitable sector to a more profitable one. In other words, it is the most efficient use of resources.
I think Russia’s problem is capital flight. Anyone who is earning big money and has any sense is moving the money out of the country now. If the money being earned in the energy sector stayed in the country there would be an increase in demand for other products causing wages in those sectors to rise. Instead of worrying about how the Russian government should spend its ill gotten gains it would be better to concentrate on strengthening property rights.The Yukos affair and subsequent government thefts have caused an underlying sense of unease about doing business in Russia that probably will not abate until Putin is out of the picture.
You think, or do you have evidence?
But Russian wages are rising.
Because Khodorokovsky`s ownership of Yukos was legal and legitimate. Yes, property rights were so much more respected under Jelcin when Khodorokovsky in no way connected to the state made “his” wealth overnight. That is why you saw so many foreign investments into Russia during the Jelcin years. Like Exxon and Shell being granted a monopoly on Sakhalin oil. Ah those monopolies, you just know property rights are being respected when somebody is being granted a monopoly. Preferably a foreign neo-colonial outfit.
No. Just the press. Are you saying capital is not leaving Russia?
The question misses the point. Foreign investment is wary of Russia because of the way Yukos and others were expropriated. I don’t remember Khodorkovsky being accused of committing any wrongdoing in the creation of Yukos. He was charged with tax evasion in what was clearly an attempt to silence a critic of Putin.
They may have obtained title to the oil from certain fields, but that is not any sort of monopoly. Any oil they got had to be sold on the world market.
The mighty press. Always there to inform. Esspecialy when it comes to Russia. The only sort of capital that has left because of Putin is the neo-colonial capital that was not doing Russia any good. Infact Russia went to some lengths to eject that sort of capital, as in example of Shell and Sakhalin II.
It wasnt a question. It was a statement to reveal you as a hypocrite. You cry crocodile tears for "property rights", but at the same time conveniantly gloss over the fact there was nothing legitimate about Khodorokovskys ownership of Yukos. Why dont you admit your problem arent “property rights”, but rather something entirely different.
No it actually very much is a monopoly, a drilling monopoly because the state obliged itself to keep the competitors away. That is against the homesteading principle. A state can no more sell you all the oil in a megafield than it can sell you all the fish in a sea.
OK so you do agree there is capital flight out of Russia then.
You were raising a question about the legitimacy of Yukos’ assets. But the question at hand was capital flight. You can raise doubts about Yukos’ property titles if you want. But one has to wonder why, if Yukos was built on theft, did not the Russian government charge them with that instead of tax evasion? And why is it only enemies of Putin are guilty of such things? These are the questions any potential investor is going to ponder before investing in Russia.
The faults I find with Russia are mostly concerned with property rights. There are also the matters of invading neighboring countries and murdering journalists which might cause a potential investor to reconsider investing there, but the lack of property rights is the most important issue.
Putting aside the question of whether a state can legitimately own or sell anything, of course one can sell an oilfield. It’s just a property right like any other. This was not a drilling monopoly since anyone else who owns land could drill on his own land. It wasn’t an oil monopoly since buyers of the Sakhalin oil could also buy oil from elsewhere. And homesteading applies to unowned land whereas the Sakhalin oilfield was owned by the state before the drilling rights were sold to western oil companies.
DBratton, you can spinn it all you want. You know and I know what is at the heart of this matter. The Western big buisiness was never interested in property rights and the free market. They were interested in cronyism and plundering of the Russian resources that rightfully belong to the Russian taxpayer. They fled Russia after Putin put an end to foreign-oligarch cronyism and instead instituted a milder less rampant version of domestic buerocratic-oligarch cronyism.
Yukos was seized because Khodorokovsky had allied himself with foreign cronies. Yukos was to be merged with Texas big oil interests. This is when the foreign cronyies started to leave Russia seeing Putin had closed the window for them. That is not capital flight. It is the flight of foreign cronies not interested in growth under conditions of competitions, but who seek to receive state protection and not even through offical state chanells, but through shady backroom deals and bribery.
Foreign capital interested in market development knows their assets are not at risk as long as they stay out of politics and never fled the country.
So you are not even a libertarian.
Why didn`t you say you are a neo-con right away?
Empire envy?
Who is not a libertarian? Nothing belongs to the people at large. Especially not oil and mineral rights that have already been sold to a private party.
How does that justify siezing Yukos? Businesses form relationships with foreign businesses all the time.Yukos was seized because Khodorokovsky opposed Putin.
Khodorokovsky was proposing to ship oil to an American refinery. And he planned to have his stock listed on the NY stock exchange. No merger was contemplated.
They started to leave when the Putin administration began to steal their assets.
Well that’s reassuring.
I remember Putin threatening to intervene in the stock market this year because valuations had risen too much. So I suppose he did cause some capital flight.
Sold by whom? The state can not no more sell you stolen goods than a common thief can.
And actually Soviet oil industry did rightfuly belong to the Soviet taxpayers.
Khodorkovsky understood that for Yukos to further boost its position, it would need to at the very least wrest control of the pipeline network away from the Kremlin. Khodorkovsky wanted to build up Yukos’ value quickly to sell a huge chunk of it to one of Cheney’s Texas oil buddies, reportedly either Exxon or Chevron. The reason this was so important for Khodorkovsky was that, since he essentially stole the company during the loans-for-shares privatization scheme in the 1990s, it meant that his hold on the asset was tenuous. The Kremlin could just steal it back any time, as it later did. But the Kremlin would be loathe to steal a massive asset from Exxon or Chevron.
http://www.truthout.org/article/mark-ames-cheney-starts-new-cold-war-over-oil
Stealing from thiefs. How ville.
I don’t think anyone has answered my question so far.
I want to see some Austrian literature concerning the problem of “resource curse” and “dutch disease” because I couldn’t find any on the web.
It’s interesting because this problem clearly seems to be a perfect example of market failure where the government should step in and create some stabilization fund or distribute high oil incomes across the economy.
The problems of the “dutch disease” are well-known. If the country is resource rich and the export resource prices are high, then 1) the inflow of petrodollars cause inflation 2) government becomes independent from the taxpayers and authoritarian because now it’s rich; 3) economy becomes resource-oriented, deindustrialization is happening because of the rising value of national currency; 4) the increase of imports leads to excessive dependence of the country, disappearance of economic sovereignty, very sick reaction to any slight negative shock;
Maybe the property rights is the real problem in Russia. But still the phenomen of “dutch disease” is known to be in other oil-rich countries, also Norway has cured this problem in 70-s by creating the Stabilization fund.
I don’t think anyone has answered my question so far.
I want to see some Austrian literature concerning the problem of “resource curse” and “dutch disease” because I couldn’t find any on the web.
It’s interesting because this problem clearly seems to be a perfect example of market failure where the government should step in and create some stabilization fund or distribute high oil incomes across the economy.
The problems of the “dutch disease” are well-known. If the country is resource rich and the export resource prices are high, then 1) the inflow of petrodollars cause inflation 2) government becomes independent from the taxpayers and authoritarian because now it’s rich; 3) economy becomes resource-oriented, deindustrialization is happening because of the rising value of national currency; 4) the increase of imports leads to excessive dependence of the country, disappearance of economic sovereignty, very sick reaction to any slight negative shock;
Maybe the property rights is the real problem in Russia. But still the phenomen of “dutch disease” is known to be in other oil-rich countries, also Norway has cured this problem in 70-s by creating the Stabilization fund.
The inflow of “petrodollars” might cause some inflation, but that would also mean that the extra money could be spent on foreign goods, meaning an increased purchasing power for the people of Russia.
That’s a problem with nationalization of natural resources, not with the free market. The two are complete opposites.
Two responses to this one:
What is so bad about a resource oriented economy? If it is more profitable to extract resources than to manufacture goods, then the most efficient use of resources is to further extract more resources.
This point contradicts your first point. In your first point you said that inflation results. In your second you say that the national currency rises in value (deflation). Which is it? Why is either bad if it comes through the market place?
Increase in imports? If your country is EXPORTING huge amount of natural resources, how can you say there is a problem with importation? Again, this is another contradiction.
In any case, free trade is key to economic growth. If Russia has key oil and natural gas reserves but China has a strong manufacturing sector, isn’t it beneficial for each country to specialize in its respective strengths? If Russia only produces oil and natural gas, the price for those would be cheap; and if China manufactures goods, the prices for those goods would be cheap. The Russians benefit from cheaper manufactured goods while the Chinese benefit from cheaper oil and natural gas.
But consider for a moment what would happen if Russia decided to keep its manufacturing sector operating. This would divert labor, capital goods, and other resources from the natural resource extraction sector to the industrial sector. This would make BOTH natural resources AND manufactured goods more expensive, hurting the average Russian!
First, the government should not even be in possession of any oil income. The best thing to do is to divest the government’s interest in oil assets and let the market decide where the income should go.
Second, the purpose of the free market is to channel resources to the most efficient uses. Redistribution accomplishes the opposite. Suppose the government were to deliver a few logs to your house, and a big pile of iron ore, and several tons of wheat. If that doesn’t make sense then why should the government take money that has been earned by efficient producers and sprinkle that around?
Maybe. But in a free market rising prices result in increases in production. Those petrodollars are not money printed by your government. They represent real wealth earned by the sale of goods. If property rights are respected the new money will stay in the economy and make it grow.
Right. So don’t let the government have any of the money. Privatize the assets.
The oil industry may bid up labor rates in an area causing other industries to relocate. But if this is a problem then why is it a problem only when industries move across national borders? Suppose gold and silver were the only form of money and suppose there were no borders. Then what difference would it make to you if a product were manufactured five miles from you or a thousand? What would matter to you would be the price and quality. So while “deindustrialization” may happen in Russia during an oil boom the real culprit is national fial currencies and varying customs and regulatory environments. And the real loser is not the consumer but the government which is competing for the tax base.
Alleged benefits like economic independence and economic sovereignty are just code words for government freedom of action. What would best benefit the consumer would be the division of labor enhancements that come with economic interdependence.
The stabilization funds are supposed to be used when the price of crude goes very low and are supposed to be held when the price of crude goes very high. Actual use different than the intended use because of corruption is unfortunately very hard to stop.
Wrong.
Growing up in a slum of Moscow does not confer some magic property right over oil thousands of miles away. If anything the Russian taxpayers use the state to steal oil revenue from the rightful owners.
Do you understand that this kind of response is unrealistic and absolutely useless?
Probably it does, because the neighboring countries are also plagued by corrupted governments which don’t let markets work. You see your argument is absolutely correct in theoretical terms, but is rather childish in real life. This whole setup of unhampered economy with gold money is a utopia, which might turn into a nightmare, if it is followed just by one country.
Baseless claims horray!