Anders Aslund's take on this, predictably, is that resources are only a curse when not privatized. He put forward this thesis as the Khordokovsky affair got underway: the linkage transparent to all! A counter-example would be Chile, whose state sector possesses significant portions of its copper mining. Moreover, in the past has covered something like 15% of govt. budget, thus giving lie that Chile's economy is purely market driven....
Jeffrey Sommers, Assistant Professor Department of History North Georgia College & State University Dahlonega, GA 30597 Ph.: 706-864-1913 or 1903 Fax: 706-864-1873 Email: [EMAIL PROTECTED] Research Associate, World History Center Northeastern University, Boston Url: www.whc.neu.edu Research Associate Institute of Globalization Studies, Moscow http://www.iprog.ru/en/ -- on 2/19/04 21:46, Devine, James at [EMAIL PROTECTED] wrote: > an interesting article on "the curse" (and I don't mean the one that > haunts the Red Sox) -- > > February 19, 2004/New York TIMES > > ECONOMIC SCENE > Resources Form the Basis for Economic Growth > By JEFF MADRICK > > POPULAR notion in economics today is that an abundance of natural > resources is a "curse" for developing nations. Such an endowment, it is > argued, encourages corruption, undermines institutional development, > pushes the value of a currency uncompetitively high and cannot support > long-term growth because the reserves eventually run out. Small wonder, > then, that oil-rich nations like Iraq and Venezuela are poor or in > decline. > > Gavin Wright will have none of this. Mr. Wright, an economic historian > at Stanford and long a specialist in the role that natural resources > play in economic growth, agrees that overdependence on a single resource > can lead to poor policies, but it is by no means inevitable. To the > contrary, many developed and developing nations have used their mineral > resources as springboards to wealth and broader-based development - not > least the United States itself. > > Mr. Wright and a colleague, Jesse Czelusta, have written a fascinating > study (at www-econ.stanford.edu) on the subject that should be required > reading. The lessons to be drawn are especially pertinent for countries > like Iraq. > > The economists start their analysis by looking at the evidence compiled > by advocates of the resource curse. The seminal study was done by > Jeffrey D. Sachs and Andrew M. Warner in 1995 and showed a strong > statistical relationship between resource abundance and slow growth. > > Many follow-up studies using the same method draw remarkably sweeping > conclusions about the inevitable disadvantages of resource abundance. > One recent study explicitly concludes that poor institutional > development, including weak governance and property laws, is "intrinsic" > to nations with oil and other minerals. Mr. Sachs and Mr. Warner have > recently concluded that the curse is a "reasonably solid fact." > > But Mr. Wright and Mr. Czelusta point out that almost every one of these > studies uses the proportion of exports of the particular natural > resource as a proxy for a nation's mineral abundance. Among other > obvious problems with this measure, a high proportion of resource > exports may simply reflect a lack of other kinds of exports, which is > almost a definition of underdevelopment in the first place. > > A better measure of abundance would be resources per capita or per > worker. New studies using such measures, including one by the World Bank > economist William F. Maloney, published in Economia, can find no telling > relationship between abundance of reserves and slow growth. Some nations > do well with their endowments, others do not. > > Why is that? Historical and contemporary case studies provide some > guidance. America's own rise to economic supremacy in the late 1800's > occurred just as it was becoming the leading producer of almost every > major natural resource of the industrial age, including iron ore, lead, > coal, copper, zinc, timber, zinc and nickel. Such leadership did not > hold America back, nor did it hold back other nations like Australia and > Canada. Britain, where the industrial revolution started, was notably > rich in coal reserves, not to mention wool for its critical textile > industry. > > But what is most relevant to policy, America did not become a leader > simply because it had been endowed by nature with this bounty of > resources, as we are typically taught in our high school textbooks. Nor > was it because it enjoyed enlightened governance in the 1800's, like > open and free markets and clear-cut rules about property ownership. In > fact, millions of acres of coal mines in the 1800's were secretly bought > as farmland. Enormous tracts of iron-rich land were bought cheaply > through fraudulent claims under the Homestead Act. > > Rather, as Mr. Wright and another Stanford economic historian, Paul A. > David, convincingly summarize in a 1997 paper, the nation invested > heavily in mineral exploration, new techniques and mining education. > Other industries received spillover benefits from new technologies, the > low costs of natural resources and a technically trained labor force. > > Public investment was especially important. For example, the 1879 United > States Geological Survey, a detailed mapping of reserves and potential > reserves, was critical to development. Many state colleges offered > mining degrees by the 1890's, including the University of California at > Berkeley. > > But does such analysis apply to today's developing nations? > > Mr. Wright and Mr. Czelusta point out that some Latin American nations, > like Chile, Peru and Brazil, developed mineral resources through > concerted efforts at investment and development. > > As for cases like Venezuela, often cited as a leading example of the > resource curse, advocates of the curse thesis argue that oil contributed > to a debt-driven boom that was bound to deter growth eventually. But > over-borrowing was hardly unique to resource-dependent nations in the > 1970's and 1980's. Nations like the United States and Japan, for > example, also over-borrowed in this period. > > Natural resource reserves also do not necessarily provide only > short-term advantages. > > Mr. Wright and Mr. Czelusta contend that natural resource reserves are > rarely depleted as rapidly as expected. New mining methods are > discovered, as are processes that make more economical use of lesser > grades. Australia's reserve base has expanded, for example, even as its > production has increased sharply in a variety of minerals. > > Clearly, there are limits to exploration and development, but they are > not as severe as has often been thought. Environmental degradation also > limits such growth, but Mr. Wright argues that, again, new processes > have minimized and even reversed harmful effects. He contends that > reserves can consistently be expanded even while being attentive to > environmental concerns. > > An important lesson for Iraq is that American-led policies should > honestly follow American historical example. They should assure that > there is large and broad Iraqi ownership in oil development that will > encourage continuing and aggressive local investment in technology, > research and expanding education. Good governance, which these days too > often means only open markets, low taxes and direct foreign investment, > is not a guarantor of success. > > One interesting proposal along these lines, by the economist Thomas > Palley, formerly of the Open Society Institute, is to siphon off Iraq's > oil revenues and distribute them to individual citizens as well as to > local governments. [Tom switched jobs again!!?!] > > If exploited wisely, resource abundance can be turned into a growth > industry that provides a solid and even long-term foundation for > economic growth. This is hardly a curse. > > Jeff Madrick is the editor of Challenge Magazine, and he teaches at > Cooper Union and New School University. His new book is "Why Economies > Grow,'' from Basic Books and the Century Foundation. E-mail: > [EMAIL PROTECTED] > > ------------------------ > Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
