Friday, November 24, 2006

A Tragedy of Riches

If I was a developing country, and this is a plausible entity to be as an individual, there is a steadfast rule that I would live by.

Avoid having natural resources.

At the beginning of the century, there were many poor countries in the world, but by the end, a large number had living standards on par with the trailblazers of Europe and North America.

Some of these countries include Japan, Singapore, South Korea, Hong Kong, Ireland and Iceland.

They share something in common. They're all islands (South Korea's only land border is closed), but more importantly, they have next to no mineral wealth.

By contrast, Papua New Guinea, Iraq, the best part of South America, the Congo and many more have an embarrassment of oil, diamonds, bauxite and other raw materials.

This is not counterintuitive.

To look at another case of two societies, both English speaking and only partially free. The South of the US and early colonial NSW. In both cases, the economies were reliant on institutions of forced labour. Forced labour is inefficient in aggregate (although profitable for those on top), and as argued by early Republicans, retards the development of the economy at large. A minority can retain a privileged position at the expense of the many.

In the southern US, the institutions were slavery, plantations and, most importantly, cotton. Cotton was a resource in need by the industrial heartlands in Manchester and Leeds, and there was always a buyer. The society could survive despite being suboptimal.

In NSW, there was a different prospect. The institutions were free settlers and convicts, but it was still agrarianism based on forced labour. Here, however, the land was dry, their crops were unsuitable, and exports would perish on the way back to the mother country.
Moreover, it could not support itself and was costing the crown a considerable amount. Macquarie was sent to the colony with a task to make it self sufficient. This required optimal, efficient institutions. Efficiency or death.
This required the exploitation of the human resources available, and as he famously discovered, some of the most able men in the colony were convicts. Thus began the emancipations of men like Greenaway, an architect, and others who took up positions in the public service. Commerce rather than slavery took hold and the colony began to prosper. The Exclusionist free settlers eventually rid themselves of Macquarie, but by that time it was too late. The barrier of the blue mountains was breached and the colony's first genuine export, wool, was exploited by free men. Transportation was diminished in importance and eventually ground to a halt as its status as punishment came under doubt.

Nearly two centuries later, NSW remains prosperous. Alabama, by contrast, conjures up notions of first world poverty. The rolling plains of dixie proved her downfall, the sunburnt country of NSW proved her blessing.

In a country with oil, or diamond mines, life on top is easy. The powers that be, drip fed by oil revenues and mining royalties, have no reason to attempt any other action. The Emir, the oligarch, they have their pudding and proceed to eat it. The rest of the society can remain in squalor.

But what are those powers in resource poor countries, like Japan or Singapore to do? The only resource is labour, and activities like manufacturing (and later services) take hold. When labour is utilized, in a post slavery world, it must be paid. Paid workers not only work better, which profits those on top, they spend what they are paid, on goods that are made by their peers in businesses by the powers that be.

The powers have lost relative position, but the society is better for the lack of natural resources.


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