In an analysis of Maine’s economic woes, a recent op-ed for the Bangor Daily News touched on an infamous problem in economic development: the natural resource curse. The piece supposed that Maine may be a victim of this curse, beholden to the whims of the timber industry. I think the author overstated the connection, but they may have had a point about the current state of Maine’s politics.
The natural resource curse is quite simple on its face. Countries that are very dependent on natural resource wealth almost always have poor economic performance in the long run and are rarely fully democratic. Think Venezuela or Sudan. But the inner workings of this curse are very uncertain. There are a number of competing theories as to how this curse would actually work, and many question whether it is even real. Are the countries problematic because they are so dependent on natural resources, or are they dependent on natural resources because they are so problematic? But assuming it is real, these are the primary mechanisms that could drive the economic problems in these types of countries:
- A country’s economy becomes beholden to swings in the product’s international price
- Other, more stable economic growth sectors like manufacturing are crowded out because of an overvalued currency (the essence of “Dutch Disease”)
- Investment in education is neglected because the easy availability of resource wealth makes it seem unnecessary
- The abundance of revenue flowing through typically state-controlled natural resource industries creates endemic corruption
- Entrepreneurial activity is crowded out by the presence of easily acquired, high-paying work in the natural resource sector
Therefore, a dependence on natural resources could theoretically sap both human and physical capital from an economy, severely undermining the prospects for stable, long-term growth.
But is this what’s happening in Maine? First off, it must be said that the scale of natural resource dependency in Maine is entirely different than in those countries that are said to have the curse. The North East State Foresters’ Association estimated in 2013 that the Maine forest products industry created $8 billion of economic output, which was about 15% of Maine’s GDP that year. That’s a lot, but it pales in comparison to the money generated in the kind of petroleum-centered economies the natural resource curse is talking about. There the oil rents—pure profit, in other words, not the total value of the country’s industry—reach into 40%, 50%, even 60% of a country’s GDP. That level of value has a very different impact on a society than that of Maine’s forest industry.
If Maine’s forest industry was a cash cow bringing in the majority of the state’s GDP, then it would be more believable that it would have the dramatic skewing effects that indicate a resource curse. But as is, it’s tough to make the claim that it fits the traditional definition. It is unlikely that the value of the industry is crowding out investment in education, disincentivizing entrepreneurship, or creating widespread corruption, and of course there aren’t currency effects since Maine doesn’t have its own currency. Being beholden to the international timber product market is a concern, but it is more an issue of long-term trends, namely the shrinking market for some paper products and the outsourcing of most remaining paper production. In the resource curse, on the other hand, the issue is more one of an economy reeling from the ups and downs of a particular commodity’s global price.
All that said, despite not fitting the traditional economic definitions of a natural resource curse, the author of the BDN editorial may be right that the intense focus on the timber industry is cursing the state in other ways. The crux of the editorial is that Maine’s leaders, particularly LePage, are spending too much time focused on the timber industry and not enough on figuring out ways to remake Maine’s economy. Whereas the natural resource curse typically refers to a direct crowding out of economic capital, the problem identified by the author is a crowding out of political capital. Forest product businesses certainly do receive many financial incentives from the government, but it is political attention that really gets soaked up. Maine politicians are so focused on trying to return the timber industry to its former glory that they have yet to figure out how the state economy as a whole can be remade to fit the times.
I think there is some merit to this; while the industry is large and by its nature requires some government attention, it does pull political weight beyond its current size. But I’m not sure this has a substantial negative impact, at least not on the level of a “curse.” It takes a lot of work to fight for trade adjustment assistance or tariffs on Canadian forest products, which is necessary to try and soften the blow of the ailing industry. And part of the problem is that there is not a solid consensus on what LePage and others should be doing with their time and resources instead. Nobody is totally sure what comes next for the Maine economy—we can just be confident that it will likely not be a resurgence of the timber industry. Maybe we need an expansion of the regular small business economy. Maybe a focus on innovative new businesses. Maybe we should be courting telecommuters. Maybe we should further expand the tourist economy. Or support research and development, as the BDN editorial says. Most likely, it will have to be all of those things.
These are all good ideas, but they are amorphous in ways helping the timber industry is not. Creating a spread of policies to effectively incentivize the creation of the dozens of small businesses it would take to create 200 jobs is a lot harder than throwing your weight behind an attempt to save a single paper mill that employs that many people. But as we know, the will of the state government is not enough to save these mills in the face of powerful market forces, so those other policies need to be made. And taken together, they can make a real difference in the state’s economic fortunes.
So is Maine’s economy cursed? Maybe, but it’s not exactly the natural resource curse that development economists are concerned about.
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