Monday, March 1, 2010

Will The Resource Curse Strike The Falklands?

Great Britain and Argentina are fighting an escalating war of worlds over the Falkland Islands – that windswept collection of rocky isles that the two countries briefly warred over in 1982, and at least part of the motivation is the British decision to prospect for oil in the seabed surrounding the territory that Argentina still believes is rightfully theirs.

The theory is that there could be up to 60 billion barrels of oil under the sea around the Falklands. With license fees and royalties, extracting that much oil could give the 3,100 Falklanders one of the highest per capita incomes anywhere in the world. But some of the Falklanders are wondering if suddenly becoming one of the richest places on Earth would in fact be a good thing. The Times of London in this report on the ongoing tension over the Falklands included some of the discussions taking place via the Falkland’s only newspaper, the Penguin Times. In the pages of the Penguin Times some islanders are talking about what in international development theory is called the Resource Curse – in brief it is the paradox that while having a valuable natural resource should lead to prosperity, in practice around the world it has instead often resulted in lower economic growth, oppressive governments and a host of other societal ills. One islander remarked: “by dabbling in oil we may have tapped into the nervous system of one of the world’s most dangerous industries. One wonders if it has brought happiness and grassroots benefits anywhere.”

It is an interesting question. While other Falklanders note that they don’t want to return to the days when the Falklands were a largely forgotten outpost of the British Empire populated by sheep farmers eeking out a living (sheep still outnumber people on the islands by about 200-to-1), they are also concerned about how life would change if the Falklands were suddenly flooded with oil revenues. The Times of London notes that it will be difficult to get the Falkland’s young people to accept the tough life of a sheep farmer when there would be much more money to be made working on one of the offshore oil platforms, something that would fundamentally change the culture of the islands.

Of course they first have to find oil and then find a way to extract it while still making a profit, something that could be difficult in the stormy waters of the South Atlantic. Still, it will be interesting to see how the Falklanders deal with an oil-fueled windfall.
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