2. Chapter 8
‘Making Holes in the Ground’: The Extractive Industries

3. Review Concepts to Review Key Words
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

4. The Extractive Industries: Definition and Structure
Natural resources
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
Characteristics 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, consumption
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

5. 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

6. Oil and Copper Copper Oil
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

7. 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