False Economy - Alan Beattie [53]
There is, perhaps, a danger of excessive optimism giving way to unthinking pessimism. Oil and diamonds have indeed often proved to be worth less than nothing for most of the inhabitants of the countries in which they are mined. Yet some countries have successfully managed them, and not just those that were already rich, peaceful, and well-governed before the mineral wealth arrived. "Extractive industries," as oil, gas, and mining are rather prosaically called, have frequently been handled very badly. But they can be managed well.
It seems bizarre that discovering something that is greatly prized should impoverish its finder. But national economies, by and large, become rich because they can make and provide goods and services, not because they own a source of basic commodities. Nor does it take a gigantic degree of unearned wealth to imperil a country's desire to earn an income, even when that income would be greater than the inheritance. The layabout offspring of rich families often end up poorer than the industrious progeny of more modest parents.
Even at times of soaring oil prices, the amount of income generated by mineral resources in a modern, advanced economy remains low. Even in an oil producer like the UK, mineral extraction is only just over 2 percent of its national income. Norway is often held up as the example of an economy enriched by oil (and, as we shall see, one of the few that has managed it well). It is the world's tenth-biggest oil exporter (outranking Nigeria and Kuwait) and regularly ranks as one of the two or three richest economies on the planet per head of population. Yet Norwegian oil only became of great value as recently as the 1970s, at which point Norway's was already a rich economy. And though it is richer than its less fortunate Nordic counterparts, such as Sweden, Denmark, and Finland, the difference is not dramatic, in the range of 10 to 20 percent per capita.
Now, the contribution of natural resources is not measured purely in the jobs and income that come from extracting them. If they can provide the first link in an extensive economic supply chain, where more and more value is added as the initial product is processed or used as a single input in a larger process, their discovery can have an impact way beyond their apparent economic value. They may in fact do little more than kick-start a process in which they then play a relatively minor role. Peat, a solid, compacted moss that grows slowly in the bogs of Ireland and Scotland, has traditionally been used as a low-value fuel on smoky home fires. Cutting peat has made no one rich, and never will make anyone rich. But treating barley malt with peat fires and water that has filtered through peat bogs to make Scotch whiskey has created a multi-billion-pound industry out of a few dozen remote, soggy valleys on the Celtic fringe of Europe.
Conversely, diamonds exported from the mines of West Africa have for centuries been cut not in Africa but in Antwerp or Amsterdam, where the factors of technical skill and reliability outweighed the higher costs. India (specifically Mumbai) has more recently been taking over as center for cutting and polishing gems, but western Africa has yet to become a center of significant value-adding in the diamond industry. Too often in Africa, as a later chapter on supply chains demonstrates, the continent has struggled to capture anything but the most basic stages of production.
So why are minerals not more useful? First of all, it is in the nature of oil, gas, and mining to benefit only a few workers. Most of the countries that have very rapidly reduced poverty did so with labor-intensive mass-production industries providing a large number of low-paying or medium-paying jobs. The most obvious cases are the East Asian "tiger economies," starting with Hong Kong, Taiwan, and South Korea, and moving on to Malaysia and now China and Vietnam, and the