Due, John F.

English

University of New Mexico

Volume 11 
Issue 4 Fall 1971 
Fall 1971 
Mikesell, Foreign Investment in the Petroleum and Mineral 
Industries. Case Studies of Investor-Host Country Relations 
John F. Due 
Recommended Citation 
John F. Due, Mikesell, Foreign Investment in the Petroleum and Mineral Industries. Case Studies of 
Investor-Host Country Relations, 11 Nat. Resources J. 732 (1971). 
Available at: https://digitalrepository.unm.edu/nrj/vol11/iss4/11 
This Book Review is brought to you for free and open access by the Law Journals at UNM Digital Repository. It has 
been accepted for inclusion in Natural Resources Journal by an authorized editor of UNM Digital Repository. For 
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BOOK REVIEWS
bring to the reader,.., the challenge of the 1970's," even though
they contain a wealth of general information on natural resources.
DANIEL HENNINGt
Foreign Investment in the Petroleum and Mineral
Industries. Case Studies of Investor-Host Country
Relations
By
RAYMOND MIKESELL, et al.
Baltimore: Johns Hopkins Press for Resources for
the Future, Inc., 1971.
Pp. 459, $15.00.
A substantial portion of the world's deposits of petroleum and
minerals are located in the less developed countries (LDC) of the
world. These deposits can be of tremendous importance to the eco-
nomic development of these countries, but at best they create certain
problems. LDCs require foreign capital, management, and technical
skills to get production underway. Too often the foreign companies
were able to exploit the resources in such a way as to maximize their
own short term gains without regard to development of the country.
In recent decades, however, the LDCs have become much more
sophisticated in the matter; even the least developed countries re-
ceive technical advice from international agencies or other expert
sources. Where there is even a semblance of democracy, politicians
quickly seize upon "foreign domination and exploitation" as vote
getting techniques. The result has been a sharp reduction in exploita-
tion. But it has brought the LDCs up against the dilemma of how to
obtain necessary foreign capital, management skills, and markets and
at the same time maximize the gains for the country.
Theoretically it is not difficult to define the returns that should be
allowed the foreign firms for attainment of the desired goals, but in
practice it is often very difficult to ascertain precisely what the
amounts are. Especially in countries somewhat above the lowest
levels of development, there is great danger that the demands for
ending foreign exploitation will force the government, even if well
intentioned, to squeeze the foreign firms too much. Some govern-
ments have blindly sought to back the foreign firms to the wall in
retribution for past ills, to the detriment of development; others have
sought intelligently and scientifically to get the maximum gain for
tAssociate Professor, Dept. of Political Science, Eastern Montana College.
October 1971]
NATURAL RESOURCES JOURNAL
the country without cutting off such foreign activity as is still neces-
sary. Ultimately, of course, the LDCs, with local private or govern-
mental ownership, can operate the mines and petroleum resources
themselves. Most are not yet able to do so without at least foreign
technical help and access to marketing channels. One of the most
encouraging developments in the field has been the increased im-
portance of the joint government-foreign private enterprise, which
gives the government final control over policy and access to market-
ing outlets but gives assurance of some reasonable return and
stability to the foreign firms.
This Resources for the Future study is by far the most thorough
and competent volume to appear on the subject. The first two
chapters, outlining the contributions of the petroleum and mineral
industries to economic development and the conflicts between host
country and foreign investor, plus the final chapter summarizing the
volume and stressing major problem areas and alternative approaches,
were written by Professor Mikesell. These are very well done, and are
required reading for a person seeking to become acquainted with the
field. There are two other general chapters: a rather disappointing
one by Jack N. Behrman on taxation of extractive industries con-
centrating to too great an extent on details in a few countries with
inadequate attention to the broader questions and a chapter by
Philip E. Church on labor relations on resource development ex-
ploring some of the problems that arise in this field and their sig-
nificance for economic development. This is a major issue in many
LDCs with mineral resources-for example, Zambia-quite apart
from, although complicated by, foreign investment.
The remaining twelve chapters present case studies of petroleum
or mineral development by foreign firms in five countries, with stress
on the foreign firm-host country relationship, the contributions to
development, and the evolution of new solutions to reconciliation of
conflicting interests. The Venezuelan experience demonstrates that
petroleum exploitation does not contribute a great deal to economic
development unless the government's revenues from the industry are
used to promote general development. A chapter on iron ore de-
velopment in Venezuela reaches much the same conclusion.
The experience in Saudi Arabia shows how petroleum develop-
ments may contribute little or nothing to a country, serving to make
the rich richer without aiding development. In recent years the
government has commenced to use the revenues in a more demo-
cratic fashion and to seek greater concessions from the oil industry,
but the situation is still one of limited contribution to development.
The picture in Iran is somewhat similar, although with much greater
[Vol. 11
BOOK REVIEWS
governmental participation in the industry and somewhat better use
of revenues.
The chapter on sulphur development in Mexico is of particular
interest because the Mexican government, more than any other Latin
American country and perhaps any LDC, has pursued with much
success for a long period (50 years or so) a relatively consistent policy
of seeking to promote economic development with substantial par-
ticipation of government and minimization of foreign domination.
The chapter on Brazil's iron industry shows how foreign firms can
get into serious difficulty in an LDC by unfortunate policies not
directly related to the profits of the enterprise, particularly where
there is a strong underlying hostility toward "yankee imperialism."
The chapter on Chile stresses the attempts of the Frei government
(one of the most competent in Latin America) to find a logical
solution for treatment of the copper industry. It illustrates the
political obstacles to solutions and the need for foreign firms to
recognize that there is no such thing as a permanent agreement on
taxes or any other element in an LDC; political pressures undo the
most binding agreements, a fact that investors must recognize.
These case studies are on the whole very detailed. Most of them do
have the great merit of relating the mineral development and policies
to the underlying social, economic and political conditions of the
country. While they are case studies, they offer significant general
lessons to the LDCs, to firms considering investment in LDCs, and to
students of the questions.
JOHN F. DUEt
f Professor of Economics, University of Illinois, Urbana.
October 19711


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