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Diversification essential to breaking ‘resource curse’

Author  :  Jing Puqiu     Source  :    Chinese Social Sciences Today     2016-08-23

The so-called resource curse is a paradoxical phenomenon in which the economies of countries with an abundance of non-renewable resources stagnate or shrink. It occurs when a country begins to focus all of its efforts on a single primary industry, such as mining or oil extraction, to the detriment of other vital sectors.

To break the resource curse, industrial reform is necessary. The experiences of other countries that have successfully avoided this problem tell us that the rational allocation, utilization and transfer of revenue generated by resources can lay the foundation for steady regional development, promote sustainability and stabilize the economy.

If we look at a region as a natural ecosystem, like a forest, then those areas rich in resources are like separate groves within the forest. To maintain the healthy development of the ecosystem, we need to control the trees in these enclaves so that they will not dominate the forest and squeeze out other areas that lack the same resources.

Only when those “resource trees” allow other plants to share the sunshine, rainfall and nutrients can the soil in the ecosystem be improved without damaging the system as a whole.

For a region to avoid instability, it must strengthen its primary industries to foster leading enterprises. But at the same time, other industries should reject irrational overexpansion in favor of quality through technological and institutional innovation.

One way to inject vitality into the economy is to foster new growth points by introducing new industries or improving existing ones. Meanwhile, resource industries should shed excess capacity, reducing the scale step by step according to plans, while increasing the technological content and efficiency. Therefore, more space and production factors can be released to develop other industries.

To promote industrial reforms and avoid major economic instability, one good opportunity is to implement related policies and measures when prices for resources are depressed. As when prices are low, resistance for policies is small.

The following concrete measures can achieve this goal.

First off, the productive capacity of primary industries must be controlled while industrial efficiency needs to be enhanced. This will allow enterprises to sustain themselves through increased efficiency even when prices are low.

Also, the developmental concepts need to change and governments should strive to attract a wider variety of industries by improving the environment. More investment should flow to areas like technology and talent as well as infrastructure, platform-building, streamlining administrative institutions and procedures, and developing industrial clusters.

The criteria used to assess the economic development of a region need to be changed as well. More weight should be placed on indicators like innovation and actual wealth growth to guide the effective allocation of production factors.

 

is from Shanxi University of Finance and Economics.

Editor: Yu Hui

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