The Extractive Industries

Chapter 8
‘Making Holes in the Ground’:
The Extractive Industries
• 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
The Extractive Industries:
Definition and Structure
Natural resources
Characteristics of the extractive industries
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
Sequence of stages: exploration, development, extraction, processing, distribution,
Challenges for firms
The time and investment needed to develop a new resource can be long
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
• 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
– 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
– Nationalization enables oil producing countries to control production,
– OPEC — founded 1960s, to ‘defend’ oil prices
– Capital intensity of the industry also reinforces position of major
The End of the Extractive
• 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