Tuesday, June 15, 2010

Why $1 Trillion in Minerals May Be Bad for Afghanistan

Now those tribes really have something to fight over. In case you haven’t heard the mind-blowing news, impoverished Afghanistan has increased its potential net worth by a factor of 83 overnight.

Afghan mining experts may view the discovery of $1 trillion in natural resources as a new “backbone” for their economy, as one labeled it. But Afghanistan already fights over resources such as poppy plants.

The new bounty might escalate the already troubling conflict there into a global conflagration involving every meaningful power.

It isn’t hard to imagine Afghanistan’s tribes, the Taliban and, say, US oil companies, Russian President Vladimir Putin and the cash-rich Chinese all jumping in.

The research about resource wealth in the post-World War II period seems to confirm the likelihood of an infelicitous outcome.

The same studies, though, also define both a principle and a country that offer hope for Afghanistan. The principle is property rights, and the country is Botswana.

But first, the gloomy record. In case after case, evidence suggests that the presence of natural-resource wealth in a country isn’t a blessing but a curse.

Russia’s revenue from oil gave Putin the power he needed to take the country halfway back to Stalinism. Zimbabwe’s resources enabled Robert Mugabe to tyrannize that land for decades.

In Nigeria, the impact of $1.6 trillion in oil cash over time has been pollution and poverty, along with the black-hooded MEND, the guerrilla group that patrols the Niger River delta, kidnapping and sabotaging.

Diamonds buried within its hills didn’t exactly bring peaceful prosperity to Sierra Leone in the 1990s.

Even in India, one of the globe’s significant success stories, a nasty battle involving iron ore is strengthening Maoist Naxalites and destabilizing the state of Chhattisgarh.

Oil wealth makes countries less friendly to entrepreneurs and less hospitable to the United States, my colleague Gaurav Tiwari and I found.

Groundbreaking analysis years ago by economist Jeffrey Sachs, now the director of Columbia University’s Earth Institute, represented the first non-Marxist characterization of natural resources as a curse.

Scholars earlier identified a narrower version of that curse, Dutch Disease, the phenomenon where sales of natural resources harden the national currency, worsening trade for other export sectors and thereby killing them off.

Some countries have escaped the resource curse. One example is where the rule of law generally, and property rights specifically, were already well established when large deposits of natural resources were discovered.

Britain survived, and benefitted, following discoveries of North Sea oil in the 1970s. Canada fared well after its discoveries of resource wealth.

The cause of a nation’s continued stability seems to be property rights. It matters less who owns the resources — governments, companies or a combination — than that those rights are clear and respected.

It helps too that citizens trust their government to share the wealth over time.

More like Afghanistan is Botswana, which also has tribes and was fragile when it gained independence. Over time, and with many twists and turns, Botswana resisted pure permanent nationalization.

Instead it created Debswana, a profit-share agreement with the diamond company De Beers SA.

At the same time, the government committed to fight corruption and enforce the rule of law. Both the people of Botswana and the company shareholders benefitted.

A nonprofit group, the Property Rights Alliance, ranks Botswana 44th in the world in property rights among nations, whereas Nigeria is 109th and Zimbabwe ranks 121st.

The takeaways for Afghanistan are controversial. The first is that a functioning and representative government is necessary. To skip town after overseeing the establishment of a loose federation of tribes, which is the US impulse, is to guarantee that any “backbone” becomes a bone of contention instead.

Rule of law and good leadership at the outset are also crucial. Property rights are primary, not secondary. It matters less who owns something than that the rights of ownership are clear.

Last, citizens must know that they can claim a share of some form in the mineral wealth.

Marketing such ideas is going to be next to impossible. Still, a positive alternative to the Botswana property-rights model is hard to imagine.

If Afghanistan and its neighbors made war over resources above the ground, why should resources below promise an outcome any different?

Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist.

1 comment:

  1. What we really need is to open up the space frontier (the recent launch by SpaceX is a good first step) so that entrepreneurs can mine asteroids (the resources of 1km diameter asteroid would dwarf this find in Afghanistan) so that we no longer have to depend on places like Saudi Arabia and Afghanistan for resources.