John Christensen, an economist who runs Tax Justice Network, which campaigns against tax havens, equates the dominance of finance in the UK economy to the \”resource curse\” that exacerbates inequality in the developing world. Finance in the UK, like oil and gas or mining in the developing world, has crowded out other sectors and therefore narrowed opportunity for the working age population. \”The Finance Curse is every bit as corrupting as the Resource Curse which hits mineral rich countries,\” he says.
You would hope that an economist would actually be able to articulate what the resource curse is.
If you\’ve got some natural resource within your borders, one that lots of people want to buy, then you end up getting lots of foreign money being changed into your local currency as people buy that resource. That drives your exchange rate up and thus strangles everything except that natural resource.
The solution to this, if you have such a natural resource, is to make damn sure that the money from selling it is not allowed to come onshore. You know, like Norway? That oil money cannot be spent in the Norwegian economy. That\’s why there is a Norwegian economy.
By the way, John Christensen campaigns against anyone being allowed to put income from natural resources offshore, he insists that it must all be repatriated and spent domestically.
A slightly strange thing for an economist concerned about the resource curse to advocate but then no one said that he had to be consistent or even logical, did they?
Many Third World dictators would beg to differ…Oh! Wait, they spend it all off shore on Kalshnikovs, Mercedes and blondes don’t they. That’s why their economies work.
No, I think currency appreciation is a significantly smaller part of the resource curse than is the fact that the presence of valuable resources make it more profitable for elites of one shade or another to seize political and economic control of a country’s institutions. You know, Acemoglu and Robinson stuff.
Having an overvalued currency might depress output a bit, having competing meglomaniacs try to take over your country will crush economic activity everywhere.
I was going to say what Left Outside said, just not that well.
Hasn’t it been pointed out under this very roof that “finance” does not dominate the UK economy, and under no stretch of the imagination does it do so to the extent of a 3rd world petro-state.
The ‘currency appreciation following the discovery of natural resources’ problem is known as “Dutch Disease” (after the appreciation of NLG following the nat gas discoveries in the 1970s). I have never heard of it referred to as the “natural resource curse”.
I am beaten to it, with Left Outside having said it so eloquently and MMJ making a vital contribution.
Interestingly he misses the point of why there is a resource curse. Its down to easy money, which furnishes wannabe dictators with protection money, insulating them from the great mass of the unwashed. Besides if you want Oil / Gas / Minerals, you have to go where they are. So those controlling the taps, can get away with murder, literally.
Finance however is a labour intensive industry, it is footloose and easy to scare away. Its almost the direct opposite of natural resources. It needs careful nurturing.
The City of London can hardly be accused of germinating Dutch disease either. Its the world’s piggy bank, taking money from Russian oligarchs and Swedish pension funds and investing it in South America beef and Australian natural gas.
I can however think of another sector of the economy that crowds out the competition, that uses up resources that could be more productively utilised elsewhere. Yet somehow John Christensen and his ilk never complain about the parasitic state sector.
Finance is clearly not labour-intensive, relative to the creation of value that results/vast amount of rent that can be skimmed from muppet clients (delete according to political leanings). If it were labour-intensive, financiers would be paid more like coal miners than footballers.
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