Basing a local economy on oil or coal does not help the people who live there.
Trent Nelson | The Salt Lake Tribune Equipment in the oil fields of the Uintah Basin Tuesday February 7, 2012, southeast of Vernal, Utah.
By Ken Jameson | Special on The Tribune
The Rural Matters section of Utah Governor Spencer Cox’s “One Utah Roadmap” has been criticized for overemphasizing resource depletion and environmental insensitivity. It seeks to prop up the coal, gas, and oil industries by creating reserves and proposes expensive investments to prop up the carbon industry, such as the Uintah Basin Railway and the inland port and its satellites.
These proposals simply perpetuate the existing flawed economic development strategy in rural Utah. They fail to address the “local resource curse” that has resulted in mediocre development in resource-rich Utah counties.
In 2017, over 80 percent of Utah’s oil production came from the counties of Duchesne and Uintah. Two thirds of natural gas production came from Uintah County. Sevier, Carbon and Emery counties accounted for 94% of coal production.
Since natural resource extraction is important to Utah’s economy, we should assume these resource-rich counties are pretty wealthy, right? Wrong, because they suffer from a local resource curse.
All of the above counties have median household incomes well below the 2019 Utah average of $ 75,705. Other indicators of human well-being are similar. For example, the under-17 poverty rate in all of these counties is much higher than the Utah average of 9.6%.
The daunting performance of their traditional resource extraction model resembles that of other case studies of local areas suffering from the resource curse.
There are several explanatory factors. The extraction of resources tends to prevent local economic diversification. This is certainly the case in Utah, where all of these counties are below the county’s median Hachman index of economic diversification.
Second, the benefits of extractive activity leave the local economy as the resource is owned or used externally. An obvious example is Sevier County, whose coal mines have been passed on from Robert Murray’s bankrupt corporations to other weak corporations outside of the state. Rocky Mountain Power’s coal operations are a guaranteed return on investment for Warren Buffets PacifiCorp. Much of the value added in oil and gas production comes from refining and transportation, not from production in the local economy.
After all, political power is often concentrated through access to resource extraction. So, instead of spreading the benefits widely, they flow to those most directly involved in the industry. The average person therefore has little influence even in so-called democratic political environments.
These negative results from the local resource curse mimick the results found at the national level where it is referred to as the “Dutch disease”. After the discovery of North Sea oil, the domestic and international economies of the Netherlands were so distorted that their economic performance was far worse than that of their less resource-rich neighbors. We could call what we see in Utah “The County Disease.”
The good news is that there are cases where resource extraction actually benefits the local economy. These are characterized by two main factors. First of all, a significant part of the proceeds is shared with the local economy. Second, they are distributed widely and creatively in the local economy rather than being captured by the small group in control of the resource.
This explains why the Cox Rural Matters program will replicate previous failures. The more than billion dollars spent on the Uintah Basin Railway will bring little benefit to local communities. We have already seen too many examples of Mineral Lease Act funds being used to aid the economically powerful rather than the local communities for which capital was destined.
An extreme current example is the $ 53 million allocated to build a coal export facility in California or Mexico. The direct benefit to the residents of the coal district will be minimal, especially as overall demand for coal declines. The population of the three main coal-producing counties is about 52,000; the local economy would be much better off simply giving $ 1,000 to everyone rather than sending them out of the state.
Or better yet, hire locals to start mitigating the environmental degradation that poor government oversight has made possible, such as the uncovered wells in Uintah County, the coal dust heaps in Carbon and Sevier, the waste coal being illegal used for road construction and the abandoned uranium sites in San Juan County.
In this case, local welfare improvements and environmental improvements could go hand in hand and these counties could escape the local resource curse.
Ken Jameson is a retired economics professor from the University of Utah. In addition to his work in the field of immigration to Utah, he has worked throughout Latin America, including in resource-rich countries such as Peru, Bolivia and Ecuador.
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