In January 2005, we published a piece by guest contributor and University of Montana economist Thomas Michael Power that took issue with a report by BC research center Urban Futures on the importance of natural resource exports to the province’s economy. Power disagreed with Urban Futures’ position, arguing that true economic development has little to do with exports and everything to do with creating a web of local economic relationships.
A lively debate over the role of natural resource exports has ensued. In May, Urban Futures responded to Power’s piece with a report titled "An Introduction to Regional Economic Analysis" (pdf). Power then clarified his position with this most-recent piece, "Thinking About the Regional Economy" (pdf).
Here are a few excerpts from Power’s rebuttal:
There are two alternative paths open to us to protect our access for the full range of goods and services we desire. We can expand exports so that we can increase our imports or we can develop locally-oriented activities that efficiently displace some of those imports. If we are successful at the latter, our dependence on exports declines.
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For a half-century economists have been puzzling over the fact that some of the most successful and dynamic economies are found in nations with very limited natural resource endowments while some of the economies that have very rich natural resource endowments are mired in persistent poverty. Empirical analysis of worldwide economic development patterns repeatedly has revealed that substantial natural resource endowments are associated with depressed economic development. . . .
The function of exports is to fund imports, not to fund internal economic activities. Schools and health clinics can be operated through the very normal specialization and division of labor that takes place within communities. The baker, butcher, and carpenter indirectly support the teacher, doctor, and preacher. Currency that does not enter into foreign trade can facilitate that complex specialization and exchange. It does not rely on exports. . . .
In making the case for the importance of exports in supporting the American economy, Urban Futures points to the apparently insatiable appetite of Americans for fossil fuels imported from other countries, an appetite that has to be paid for with American exports. But, again, the wrong lesson is drawn. There is no economic law that dictates the extent of America’s addiction to oil and natural gas. . . . Public policy could dramatically reduce our dependence on energy imports and reduce their export cost. That would simultaneously reduce the environmental and military cost too. To the extent that only efficiency measures and renewable resources that were cost effective (when all costs were taken into account) were pursued, Americans would enjoy the same standard of living with dramatically reduced dependence on imports and exports. The point is that the degree of dependence on imports is partially a matter of public policy choice, partly a matter of how the local economy develops, and partly a matter of what our buying habits are. All of these are malleable, not things dictated by economic law.