Impacts of Natural-Resource Prices on Local Communities

Most natural resources are unevenly distributed. Localized resources are available only in certain places and absent elsewhere. Petroleum, coal, gold, silver, timber, and fish are examples of localized resources.

The production of many artifacts in the contemporary world requires the availability of resources that are available only in distant places. Over the past several hundred years, large-scale international trade in resources has developed, with resource-deficient places purchasing supplies from areas of abundance (Figure 2-10).

Figure 2-10. International Trade in Resources. Resources once consumed locally are now traded around the world on global markets. Iron, coal, petroleum, and many other minerals are shipped thousands of miles from supply sources. Many international conflicts result from actual or potential efforts to disrupt international trade in resources

Regions adjacent to resource supplies have become economically dependent on the extraction and production of resources. In such places, changes in the prices of natural resources can have significant impacts on local economies. Frequently, communities in the vicinity of a localized natural resource become dependent on the world market for that resource. While resource prices remain high, the community prospers; when prices decline, the local economy suffers (Box 2-1 ).

How the economies of places are affected by changes in resource prices is illustrated by the history of Manaus, Brazil. Manaus is located at the center of the Amazon River basin, nearly one thousand miles upstream from the Atlantic Ocean. Despite its remote location, Manaus was the world's leading center for rubber collection and export during the late nineteenth and early twentieth centuries. The invention and rapid diffusion of automobiles, airplanes, bicycles, and other vehicles with tires created considerable demand for rubber. At that time, however, these demands could only be satisfied by wild rubber, which grew naturally in the Amazon Basin.

Because of high transportation costs and increasing demands, the price of Brazilian rubber continued to increase during the early twentieth century. In response to these price increases, American and European companies began to examine alternatives that would free them from dependence on expensive Brazilian rubber. Rubber plants were smuggled out of the Amazon Basin and cultivated on plantations in Southeast Asia and other less remote areas, thus creating a cheaper alternative source of supply was developed. Meanwhile, chemists perfected methods of producing synthetic rubber.

This less expensive substitute for Brazilian natural rubber could be used more effectively in the production of automobile tires and other products. As buyers began to purchase cultivated and. later, synthetic rubber, the market for Brazilian rubber collapsed. The collapse of the world natural rubber market forced the economy of Manaus into a tailspin. Not until the Brazilian government encouraged large-scale settlement of the Amazon region in the 1960s did the Manaus region again begin to prosper.

Boom and Bust in the Oil Patch. Elk City. Oklahoma is a dusty, quiet community of some nine thousand people located along Interstate Highway 40 halfway between Amarillo. Texas, and Oklahoma City. Oklahoma. Despite its remote location, there is plenty of motel space—the traveler seldom has to worry about No Vacancy signs.

Why does Elk City maintain the dubious boast of more motel rooms than people? The answer lies in the recent history of the American petroleum industry, for Elk City lies near the center of the Anadarko Basin—one of the largest oil- and natural-gas-producing areas in the United States.

The motels of Elk City may be empty today, but in the late 1970s they were jammed with oil-field workers and other petroleum-industry employees. Housing was scarce, and motel operators charged as much as $100 per night for lodging. In the early 1980s, however, Oklahoma's oil boom collapsed as the world market price for petroleum products declined. Motels, as well as the hastily built mobile homes and houses, were suddenly empty.

Elk City is but one of dozens of small American communities whose economies are tied to petroleum production and other resource-extraction activities. The economic fortunes of such places are intimately affected by world market conditions for their resources. Small, mineral-resource dependent communities face a unique set of problems associated with the boom-bust cycles characteristic of resource production industries.

In the long run. rapid resource development can hinder the economic prospects of a community. When an initially stable community experiences an energy-related boom, a substantial number of new jobs are generated, which in turn bring large numbers of new employees into town. The new employees in turn increase demands for housing, education, consumer goods, and other services. These are referred to as nonbasic services. Satisfying demands for nonbasic services requires increased investment, and the level of taxes and services provided increases in accordance with the now-greater population.

When the boom ends, employment declines and many of those people who arrived during the boom period move away. The oil boom is over, but the expanded level of services remains, with financial hardships placed on the community and its remaining population. Hence houses, shops, and schoolrooms stand empty—and motels with unlit No Vacancy signs dominate the landscape.