What are the Dutch disease and the resource curse, and what do they have to do with Bee Movie and Latin America's industrial development? May 2016 Report.

This article deals with economic development, and – in particular – with the resource curse.

📄 Download the report (PDF)

Bee Movie is a film released in 2007, which tells the life story of Barry Benson, a bumblebee who recently graduated from Hexagon Honex Industries University and who, like any graduate, is highly qualified to have a career in the honey industry.

In the story, Barry discovers that in the world outside the hive, humans sell honey, making a business out of something that is not theirs; after which he decides to carry out an investigation.

This is how he arrives at the Melosa Farm, where beekeeping is practiced by stunning the bees with a humidifier to remove the product. After the discovery, he decides with the help of Vanessa, a new human friend, to sue the humans for the sale of the syrup. He wins the trial, and gets the humans to return all the honey stolen from the bees.

An old economic theory in the plot

Legal and economic conflicts are often used by screenwriters to develop the main plot of their stories. Although the main story rarely addresses only these types of topics, they are used as a fundamental part of the conflict. So much so that the idea of ​​an ancient economist can be appropriated by Barry to solve a dilemma that seemed complex.

What is presented as originality is nothing more than a remake of an old theory. As usual, this is often oversimplified and presents a biased view of the matter.

In this case, the central problem of the film lies in the fact that, with an excess of honey, the bees stop producing. The positive shock has disastrous consequences for the environment and people. But it also has consequences for the bees, who become fat, lazy, bored, and lead meaningless lives.

From when the boy calmed down by watching a movie; and how we stayed next to him, watching her

The reader may well ask: what does all of the above have to do with economics?

Well, for those children who are fortunate (or unfortunate) to have a relative and/or tutor who is an economist, the film presents a very clear nod to a problem that Latin American countries have in common, which is usually called the Resource Curse , or Dutch Disease.

Strictly speaking, they are two distinct concepts. But they share the common goal of explaining why countries that receive abundant resources, seemingly out of thin air, tend to progress less in the long run. Perhaps the most striking example of this phenomenon in history is the situation of Spain after the discovery of America.

While the crown benefited from silver mining in the colonies, the core of development of the second expansion of Western civilization radiated from England, from 1440 to 1690.

In the film something similar happens: when the bees are showered with wealth like never before in the life of the honeycomb, that is, they are provided out of nowhere with a significant stock of honey, their economy stagnates. There are many theories with different justifications that try to explain why this phenomenon happens.

The one that best fits the film's story relates to one of the many versions of the resource curse . This theory explains that societies blessed with abundant natural resources tend to work less because they don't need to.

This ultimately affects their culture and leads to technological backwardness. In the long run, the story ends in economic backwardness, since while others improve, they stagnate.

Dutch disease

But the most interesting theory is undoubtedly that of Dutch disease . A much less obvious concept with an impact that is not so long-term.

This concept takes its name from a curious fact observed in Holland, which the Argentine economist Marcelo Diamand had noticed prior to its widespread use under that name; but it went unnoticed for a while, given that writings in Spanish are not very accessible to the economic mainstream.

In the early 60s, significant gas reserves were discovered in the Netherlands. This quickly led to the exploitation of this resource and the subsequent inflow of foreign currency.

More foreign currency, less industry

However, what promised great potential for economic development ultimately led to reduced industrial activity. The increase in exports caused the exchange rate to appreciate, reducing the overall competitiveness of the economy.

Put another way, higher revenues from gas exports increased the demand for domestic services. Furthermore, they spurred greater demand for labor in the non-tradable sectors (and the hydrocarbon production sector, obviously). As a result, labor costs in the industry rose, making it more difficult for the industry to compete in the international market.

The effect is very interesting: the industry remains as productive as ever, but it can no longer compete. Why? Because an even more productive sector emerges, competing for its resources. Something similar is happening in Latin American economies.

The enormous productivity of the primary sector, thanks to the fertile land of our continent, generates large foreign exchange earnings. This appreciates the exchange rate and reduces the competitiveness of industry. Thus, it becomes very difficult for industries in countries with abundant natural resources to compete on cost.

Solutions and the Latin American case

Solutions to these types of problems have been explored in various ways. Implementing export duties on the most productive resources (or outright nationalizing them) is one of them.

However, as Bresser Pereira (2008) rightly points out, for these measures to be truly effective, the resources obtained by the State must not be spent immediately. If this were not the case, the government itself would end up driving currency appreciation.

Another option is to invest these windfall resources in some kind of stabilization fund . This is what Norway has been doing since the discovery of oil in the North Sea. However… it remains unclear what should be done with these accumulated funds afterward. (The Barry Benson story doesn't seem to offer any clues to finding a solution either.)

The Dutch disease phenomenon has attracted the attention of Latin American economists. This is because it offers a plausible explanation for the challenges the region has faced in promoting industrial development. In countries like Japan and South Korea, which lack significant natural resources, the exchange rate adjusts to the level of industrial productivity.

In contrast, in our agricultural export economies , the exchange rate that balances the inflow and outflow of foreign currency is relatively lower than in the rest of the economy, since primary exports provide a significant inflow of dollars. Thus, even if we had the same company, with the same size and the same number of employees as in Korea, it would not be able to compete. This is because costs valued in dollars would be too high.

Why solve the Dutch disease?

However, one point that is often absent from classroom discussions, or even from journalistic accounts, is this: why would we even try to solve the Dutch disease? After all, the problem arises because salaries in dollars are too high. But why would we want to fix that?

There are various answers, but they all rest on some argument explaining that what is good in the short term is not necessarily good in the long term. Most economists agree that some measure against the disease must be taken when the appreciation is temporary.

For example , if the price of a commodity suddenly rises to exorbitant levels, it might not be a great idea to allow wages to rise to the point of crippling the industry. If prices fall in the future, we'll lose both sources of income, and we all know that a company that goes bankrupt doesn't rebuild itself overnight.

This theory may be applicable to the economy of bees. They received a one-time capital income (honey), which - for the moment - is left over, but will not be repeated in the future.

What will happen after two generations of bees that do not go out to collect honey?

When appreciation is not temporary

Some economists go further and advocate attacking the problem, even when it is not temporary. This is because they believe that the remaining activities of the economy have some special condition that will cause them to have greater growth potential in the long term.

There are many ways to justify it, but anyone who wants to make an argument to remedy the Dutch disease should make it clear on what basis.

For example: Is it believed that commodity prices will show a negative trend over time? Or that the affected sectors present some kind of externality that will increase productivity?

Industry, employment and development

In this sense, the arguments in favor of the indispensable need for industrial development have been oversimplified. In the current context, any industry seeking to be competitive in terms of product quality is likely to be technology- and capital-intensive, rather than focused on mass employment.

On the other hand, an industry that seeks to be price-competitive and labor-intensive can hardly compete with low-cost labor economies. This is due to the lack of protection for foreign workers in terms of their rights. Given this general context, the argument should not be taken for granted.

In this regard, the work of Reinert (2002) sheds light on the implications of this dilemma. It explains why in the long term it may be better to opt for some activities than others.

On the other hand, it makes clear what the costs are in terms of productivity for a country when industries that have all the characteristics of any commodity and do not generate additional benefits in the long term are protected: if this is what is being promoted, current wages would be sacrificed... for nothing.

Of course, the dilemma remains: what to do about work, especially unskilled work? But understand this: it must be evaluated through analysis, not an oversimplified statement.

Abundant resources: a blessing or a curse?

As we have seen, both in economics and in the film, there are many reasons why a "blessing" of natural resources can actually end up harming the country.

On the surface, they appear as a paradox, like when we find it difficult to understand how a country with as many resources as Argentina can experience hunger or poverty. The concepts of resource curse and Dutch disease can shed some light on this issue.

Of course, understanding the causes of an economic phenomenon does not imply its justification, much less its normalization.

Quite the opposite: it allows for a diagnosis of a complex problem, much more difficult to solve than it seems, and where even the remedy – however well-intentioned – can end up being worse than the disease.

Open access, for use and citation

The report is available freely and without charge, under a Creative Commons license (CC BY-NC-SA 4.0):

• 📄 Full report (PDF): Download the report
• 🗄️ UNR Hypermedia Repository (RepHip): https://hdl.handle.net/2133/17519
• 📚 More reports from the Observatory: Index of Reports

Bee Movie. La maldición de los recursos naturales y una película para ver en familia. Informes del Observatorio UNR N.º 27 — Serie Puente Académico N.º 9, mayo de 2016. ISSN 2683-9067 / 2683-9091. Autor: Germán A. Tessmer.