Wednesday, September 30, 2009

About Extractive Industries: Peter Maass' Book "Crude World"

Last Wednesday's Wall Street Journal had a fascinating review of "Crude World," a book about the oil industry by Peter Maass.

Robert D. Kaplan, the reviewer, provides a very clear sense of what is newly observed in Maass' book. That is, as Kaplan writes,

"Oil, corrupts, Mr. Maass says, because it is an "extractive" industry. The computer business and other industries actually design and produce something, but oil is simply taken out of the ground. Thus power lies in the hands of the king, dictator or prime minister who controls the real estate and with whom all sorts of unsavory deals can be struck. Extractive industries "do most of their business in compromise-inducing countries," Mr. Maass explains. "The problem is not that extractive industries have lower principles than other industries. The problem is that they must have better principles"- something that shareholders do not necessarily encourage. Because the number of oil fields on the planet is finite, and the oil in many of them is difficult to extract, the industry is governed by a zero-sum and aggressive realism of the bleakest sort." "

For me, it's a very illuminating statement of fact that I confess to not having understood prior to reading Mr. Kaplan's review.

Elsewhere in his review, Kaplan relates Maass' observations that "Oil, he seems to say, exaggerates the worst human tendencies." By that, he means the rulers of oil-rich countries confiscate the wealth for themselves, leaving most of their countries' citizens to starve. As an example, Kaplan notes that Nigeria has earned $400 billion from oil, but 9 out of 10 Nigerians live on "less than $2 a day, and one out of five children dies before his fifth birthday."

It certainly explains why oil multi-nationals come under such heavy fire for ethics issues and producing wealth that somehow never benefits the entire countries from which they extract the oil. The same, of course, seems to go for basic mining companies, as well.

This is a fascinating aspect of the structure for extractive industries that I hadn't really grasped before. No matter what the scale of competitors, and it usually evolves to few and massive, the behaviors always seem to end up the same. And now Mr. Maass has explained why.

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