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August 26, 2005

The Book of The Century (So Far) Continued

Countries without natural resources are best positioned to compete in the new, flat world economy according to Thomas Friedman in The World is Flat: A Brief History of the Twenty-First Century.  Oil, particularly, is a curse rather than a blessing.

Look at the success of Taiwan, he says.  The island sort-of nation has no natural resource but its industrious citizens.  Yet it has worked its way into a crucial and prosperous position in the maze of international supply chains, especially for all things electronic.  Japan is an earlier resource-poor example.

Contrast their success with the failed state of Nigeria. Despite an abundance of oil, most of its citizens live in abject poverty.  Nigeria is what Andy Kessler, another of my favorite writers, characterizes as a kleptocracy.  The oil wealth flows to a powerful few and from them to Switzerland or wherever without stopping along the way to help anyone else local.  Bolivia is an obvious example in our hemisphere.

Friedman’s theory is that government and the oligarchy which owns it will always find some way to take care of themselves.  If there are easily exploitable natural resources, there is no need for the rulers to involve their subjects in the project.  Not needing help from their subjects, the rulers don’t have to give them anything in return.  So they don’t.  No share in the loot.  No democracy.  No effective government.  Nothing.

The rulers of Taiwan had no resources to exploit except the industriousness of their citizens.  In order to enlist the citizens in efforts which would provide a living for the ruling class, the rest of the citizens had to be given something as well. For purely practical reasons, they had to be educated.  They needed to be able to aspire to and earn a steadily increasing standard of living in order to create wealth through manufacturing and trade.  Because the work of the people was the source of wealth to the oligarchy, even democracy was established because the people wanted it.  The oligarchy shared its power because that sharing was the way to greater wealth for them.

So, Friedman, goes on to say, oil is a root of the failure of Arab nations.  The oligarchies there can exploit the oil for their own benefit without worrying much about what is happening to their people.  Certainly there are plenty of failures like Iraq which need explaining.  Further evidence of this thesis, say Friedman, is that oil-poor Jordan has become steadily more democratic since, during a patch of low oil prices, aid from the oil-rich pretty much disappeared.  Moreover, he says, Bahrain has become “the first Arab country in the Arab Gulf to hold an election for parliament where women could run and vote” as a consequence of the fact that Bahrain was the first Arab country to run out of oil.

I think Friedman is right that terribly corrupt rulers can flourish best when they have an easily extractable resource whose revenues they can expropriate.  However, many resource poor nations – Afghanistan, much of sub-Saharan Africa, Syria, Colombia – have found their own ways to fail.  Looked at another way, even if terrorists were to succeed in burning all the oil out of all of Iraq’s wells, they wouldn’t have set the stage for Iraqi success.

We still don’t know why some nations succeed and others don’t or why nations which have succeeded then fail or why basket cases such as India and China were suddenly get up and start not by walking but by running.  Willingness of rulers to leave some of the wealth in the hands of those who own (or live on top of it) it is certainly a key ingredient.  Meritocracy (a long Chinese tradition along with bureaucracy) is certainly important.  Theocracy doesn’t seem to be a good investment.  Corruption above a certain level is like eating your seed corn; it assures that there will be no hope.

To the extent that extractable wealth subsidizes any of the bad forms of government or non-government, Friedman is certainly right to say the resources are a curse.

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