When natural resources are a curse

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It is in human, rather than natural resources, that the origins of material prosperity are to be found. John describes why natural resources may be a burden rather than a blessing for some developing countries.

Saudi Arabia has more natural resource wealth per head than any large nation in the world. But it is a troubled country, whose potential instability is held in check by an increasingly fragile autocracy. It is as much a target for terrorism as the US, and more vulnerable.

For centuries, natural resources were believed to be the bedrock of national prosperity. Expeditions were launched and wars fought to obtain silver, gold and diamonds, to find Lebensraum and to secure oil supplies.

Yet prosperity today is not based on natural resources. The World Bank has prepared estimates of the value of such endowments – oil and other minerals, forests, agricultural land – for most big economies. Only a few rich countries such as New Zealand and Canada have resources in or on the ground whose value exceeds a year’s industrial production. European countries such as Germany and Belgium generate income every two or three months greater than the entire value of their resource endowments.

Jeffrey Sachs, the economist, has found that among poor countries ownership of resources depresses growth rather than stimulates it.* Abundant resources are a problem, not a benefit. Resource discoveries attract gamblers, crooks and opportunists, from Francisco Pizarro and Robert Clive to Cecil Rhodes, and it is not by such people that great businesses and disinterested governments are built.

Joseph Conrad’s Heart of Darkness was the result of his discovery of the horror unleashed in the Congo by the plundering of its assets. The curse of Mr Kurtz lingered in the Congo even after the Belgians pulled out. The country was immersed in a civil war that ended only when one of the nastiest kleptocracies in recent history seized power. When Joseph Mobutu’s regime collapsed, the country’s infrastructure was in ruins, its mines were idle and the money that commercial lenders and the World Bank had disgracefully continued to provide for 20 years had been dissipated through foreign bank accounts.

The once-poor countries that have grown explosively in post-colonial decades – such as South Korea, Taiwan, Hong Kong and Singapore – are exceptionally poor in natural resources, as is Japan.

Those countries where stable if undemocratic political structures have maintained control of resources, as in Saudi Arabia, have been better off. But they have still enjoyed little economic growth. In an economy distorted by oil wealth it is impossible for the basic manufacturing industries that represent the first stages of economic development to come into being. Wages and exchange, boosted by resource exports, are too high. In the most prosperous oil states, even jobs in service industries are filled by immigrants.

Imperialism was largely motivated by the search for resources. Colonialism ended, and territorial expansions petered out, because the cost of these adventures exceeded their benefits. It is no accident that one of the world’s richest countries – Switzerland – is also one of its most inward-looking. Few resources. No empire, no wars, just ever-increasing wealth.

The distribution of natural resources remains a source of international instability, but for different reasons. Resources have been discovered in countries that have neither the political nor the economic institutions to handle them. Lucky are those countries – such as Canada, Australia and New Zealand – where the discovery of resources coincided with the import of cultures and political systems to cope with them. Lucky is Botswana, almost the only poor country in which good government and diamond mines have brought prosperity to many. But the luckiest of all are those countries such as Norway and Iceland that made large resource discoveries when they already enjoyed developed economic and political institutions. It is in human, rather than natural, resources that the origins of material prosperity are to be found.

* J. Sachs and A. Warner, Natural Resource Abundance and Economic Growth www.cid.harvard.edu/hiid/517.pdf

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