Oil — Easy to Produce, But Not Easy to Buy
Robert Rapier had an interesting post on his R-Squared column. He claimed that Tom Friedman was mistaken in his most recent column (Pass the Books. Hold the Oil) in saying that Taiwan has succeeded because they have no natural resources; therefore they can be a model for how other countries can become successful by investing in their people. Robert says that’s not the whole story: even though they don’t produce oil, they are still dependent upon it. Again, I find myself defending Friedman, and that’s really not my default.
Robert does a good job of showing how much oil Taiwan actually uses, and his numbers here are great – and important. I had no idea that Israel consumes more oil per capita than the EU. The common thread, unfortunately, is that growing economies require growing amounts of oil.
However – I think Robert overlooks a big difference here. Friedman is talking about production, while Robert is talking about consumption. Because the Saudis can produce oil by sticking a drill into the ground, they don’t have to learn how to get hard currency in another way. Essentially, because they can sell oil to the world, they don’t have to learn how to build factories. They sell the oil, then they get cash, which they use to buy Mercedes and extra-tall skyscrapers.
The Taiwanese on the other hand have to buy all the oil they use. And – where do they get the money to pay for the oil? By building factories and selling things that the world needs.
I have noticed a difference in writing about energy depending on whether you come from an engineering background or an economics background. International trade economics (my MSc) says that countries will trade that area that they have a competitive advantage in. An engineer only looks at total inputs.
The Saudis produce more oil at a cheaper price than anyone else. Selling that oil allows them to import lots of other stuff that they want. Taiwan has to export other things, like manufactured electronics, in order to get hard currency with which it can import the oil it needs.
The Saudi way requires heavy investment, but very little mass education. The Taiwanese way requires investments of a different sort: an educated population and the infrastructure to support a strong manufacturing base.