“So what do you think of this plot?
Think you could make a country here?”
“Eh, I’m not sure, it definitely has a lot of arable land, but it feels a bit out
of the way.
Also I’m not really in the market for landlocked territories.”
“Totally understand, let me see what else we have…
Okay, how’s this?
It’s a nice set of two islands, but it is down in the South Pacific, so I’m not sure
if that will be a problem for you or not.”
“Okay, I do really like that one, but yeah it does seem a bit far from most of the rest
of the world.
Don’t know how that’ll do on maps.
I’ll put a bookmark on it, but just so I know my options, do you think you could show
me one more?”
“Yeah sure.
What do you think of this one?
It only has a narrow point of entry into the sea, but it is incredibly expansive and comes
packed with natural resources.”
“Packed with resources, eh?
How much, and of what kind?”
“There’s easily trillions in here, mostly in metals and especially in diamonds.”
“Oh… okay…
I think I’ll go for the second one then.”
“Okay, is there anything wrong with the third?”
“Well, while huge stores of natural resources might be easily seen as a blessing for a country,
many resource-rich countries often end up less developed, less democratic, and even
poorer than other countries, at least on a per capita basis.
This is something often known as the ‘resource curse’ and it is a very weird phenomenon
that still isn’t fully understood in the worlds of economics and geopolitics.”
“Do you want to just build your own custom island instead?”
So what do I mean by all this?
How could having vastly abundant natural resources not be a godsend to your nation’s economy?
Well, when you look at the list of the countries with the most oil reserves, we see countries
including Libya, Iraq, and Venezuela, none of which are exactly known for their wealth
and prosperity.
These countries drill and export millions of barrels of oil every year, but their economies
are still much poorer than resource poor countries like South Korea, Singapore, and Malta, which
all have highly developed economies, some of the highest in the world in fact.
In addition, the EIU Democracy Index rates Libya, Iraq, and Venezuela as respectively
the 154th, 114th, and 134th most democratic countries in the world, classifying them as
“authoritarian” or a “hybrid regime”.
Meanwhile, South Korea, Singapore, and Malta are ranked 21st, 66th, and 18th respectively,
classifying them as either “full” or “flawed democracies”.
So the correlation is clearly there, but what’s the causation?
Well, the resource curse doesn’t affect every oil-rich nation the same way.
Some of the other countries on this top 10 list include Canada, the US, Saudi Arabia,
and the UAE, all much richer and more stable countries still with huge stores of oil.
Why is this?
One word: diversification and future planning… wait damn it that four words!
Norway can also be put into this grouping, although they don’t exactly make this list,
their economy is incredibly strong despite still being largely reliant on petroleum exports.
For Norway, this is because they’ve invested most of their oil money into a special trust
that the nation can use as a financial safety net in case oil prices start to do the old
wibbly-wobbly.
Another more relevant example for diversification might be the UAE and Saudi Arabia, which both
got immensely rich off of oil exports, but are now investing in other sectors, notably
things like tourism.
Dubai didn’t become the Afro-Eurasian transport hub for nothing, you know!
This highlights one of the problems with having massive resource deposits, which is that many
countries focus solely on their said resources, which is a problem because natural resources
run out.
If a country has a lot of oil but not all that much else, oil will likely dominate their
economy to the point where the smallest changes in oil prices could devastate their economies.
How does that happen?
Well when a resource industry of a country starts to boom, wages often start going up
for their employees, which makes working in the industry more lucrative than many other
ventures, like starting one‘s own business.
This is exactly what happened with Nauru, which went from having some of the richest
citizens in the world to some of the poorest, despite having previously been blessed with
huge reserves of phosphate; they let their reserves run out and didn’t exactly plan
well for what happened.
In addition, if the wealth of your nation is all under the surface, your nation may
be laying on top of trillions of dollars of natural resources, but it doesn‘t take an
entire nation to drill those out of the ground, really it just takes a small task force to
mine all the resources and sell them on the international market.
This itself also has to do with why some countries aren’t affected by the resource curse, corruption
and the quality of their institutions.
Basically, countries with strong institutions and less corruption stand to benefit from
their natural resources, while more corrupt countries with weaker institutions stand to
lose, at least as a country.
Many countries actually circumvent the effects of the “resource curse” by using their
resource wealth to fund public infrastructure, education, healthcare, and other sectors that
will help the population live off of the resources.
In short, it really depends on whether the country is spending that oil wealth on schools
and roads or new palaces.
So the problem isn’t whether a country has lots of resources, but whether a country can
build strong institutions and diversify its economy off that one singular resource.
Petroleum products make up 90% of Angola’s exports, whereas in Canada it only makes up
closer to 20% of their exports, so it’s not all too surprising that Angola’s capital
Luanda is one of the most expensive cities in the world to live in, since the country
doesn’t produce much else and thus nearly everything needs to be imported from overseas
(to be fair, their would-be farmland is littered with landmines from the civil war they had
in the 70’s, but still).
In short, having huge resource reserves to jumpstart your nation‘s economy is like
trying to jumpstart your YouTube channel by making a viral video or getting rich by winning
the lottery, it might seem like an easy shortcut, but it‘s not going to work… like at all.
The key isn’t how you get rich, it’s how you stay rich and develop.
To truly build a country, one needs to realize that that resource wealth is incredibly limited
and spend it on the public sector if they want any hope of continuing to thrive once
the mines run dry.
Thanks for watching.
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