Chapter 8
‘Making Holes in the Ground’:
The Extractive Industries
Review
• Concepts to Review
– GPNs, unequal distribution of resources,
Kondratiev long waves, role of the state
• Key Words
– Natural resources, resource dependency,
role of technology in globalization,
nationalization versus privatization, product
diversification
The Extractive Industries:
Definition and Structure
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Natural resources
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Characteristics of the extractive industries
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An element or material occurring in nature
Only a resource if defined as such by users
The key ones at present are non-renewable, and locationally specific
This affects the nature and development of the extractive industries
A mix of private firms (TNCs) and state-owned enterprises (SOEs)
Production circuits are capital- and technology- intensive
Market for extractive industries is very volatile
Are more sensitive to general state of the economy than many other sectors
The extractive cycle
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Sequence of stages: exploration, development, extraction, processing, distribution,
consumption
Challenges for firms
The time and investment needed to develop a new resource can be long
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Exploration, processing and distribution involve high sunk costs
Transience of resource booms
Rise in the influence of specialist services firms
Role of the State in Resource
Development
• The state and resources
– State acts as a regulator and an operator (i.e. producer) of resources
– Outside investment means loss of control
– Usually initial development is outside investment dependent, then
once it’s going strong it is nationalized.
– Varies by sector
• Power Relations
– Power relationships between states and firms are dynamic and
contingent
– States have potentially enormous power over resource exploitation,
though how much in practice depends on the state’s strength and
political orientation
– Once private capital is sunk, advantage moves to the state which
controls access to the resource
– State—firm rivalry exists, also state—state rivalry
Oil and Copper
• Copper
– Crucial for electrical use and thus telecommunication.
– World copper production has increased more rapidly than
oil in past 20 years
– Polarized between large established mining TNCs and small
exploration companies with no production
• Oil
– Two countries account for 68 per cent of world total
– Emphasis is on supply diversity, security, and development of regional
availabilities, leading to a more complex oil map today than before
1970
– Nationalization enables oil producing countries to control production,
prices
– OPEC — founded 1960s, to ‘defend’ oil prices
– Capital intensity of the industry also reinforces position of major
companies
The End of the Extractive
Industries?
• Two views of the future:
– Malthusian view
– Optimistic view
• However there are environmental and
ecological issues which relate to
continued resource exploitation
– Consider the impact in light of these two
views