August 23, 2006

RICH LAND/POOR LAND: THE NATURAL RESOURCES PARADOX



Caption: This man is digging, but he probably won't get rich.

The paradox of vast natural wealth and human poverty has often been noted in discussions of West Virginia and other resource-rich areas.

The state motto of West Virginia is Montani Semper Liberi or Mountaineers are Always Free. But as historian John Alexander Williams wrote in his landmark book, West Virginia: A History, "Whether or not mountaineers were always free, they were almost always poor."

Many students of West Virginia have traced this poverty to the state's essentially colonial economy, the traits of which Williams described as:

...a high degree of absentee ownership, which took on a new and increasingly controversial form as large corporations displaced the smaller firms and individuals who pioneered in industrial development; heavy dependence upon extractive industries oriented to distant markets; and a relative lack of those manufacturing industries that provided the greatest stimuli to material growth and welfare in the nation at large.


If it's any consolation, West Virginians aren't the lone rangers. Many places rich in natural resources are also poor. As Uruguayan writer Eduardo Galeano put it in Open Veins of Latin America, "The division of labor among nations is that some specialize in winning and others in losing."

Thanks to the work of Jeffrey D. Sachs and Andrew M. Warner, there's some pretty hard science to back up the claim that resource-poor countries often have stronger economies than those "gifted" with natural wealth. Their study, first published in 1995 and subsequently updated, is called Natural Resource Abundance and Economic Growth.

Sachs is director of The Earth Institute at Columbia University and is a Special Advisor to UN Secretary-General Kofi Annan on the millennium Development Goals of global poverty reduction. He has practiced what he calls "clinical economics" in countries experiencing economic crises around the world and may be best known today as author of the 2005 book The End of Poverty: economic Possibilities for Our Time.

(All of which is to say: he's no slouch.)

In the resource study, Sachs and Warner compared economic growth rates in 95 countries between 1970 and 1990. The opening words of the study lay it out:

One of the surprising features of economic life is that resource-poor economies often vastly outperform resource-rich economies in economic growth...On average, countries which started the period with a high value of resource-based exports to GDP tended to experience slower growth during the following twenty years.


The negative relationship between resource abundance and growth "is present after controlling for a number of other variables introduced in previous growth studies."

Sachs and Warner explore a number of theories to account for this, but much of the report is about hard data, statistical regressions and other terms El Cabrero only vaguely remembers from his statistics classes.

For the numerically challenged, maybe Williams summed it up best:

In its repetitive cycle of boom and bust, its savage exploitation of men and nature, in its seemingly endless series of disasters, the coal industry has brought grief and hardship to all but a small proportion of the people whose lives it touched.


And let's not forget the legacy of political corruption and control that usually accompanies a colonial economy and the opportunity cost of a focus on this aspect of the economy at the expense of others.

There's no way at this point to unring the bell of 100+ years of coal colonialism. As a union member and a supporter of the United Mine Workers of America, I don't oppose coal mining as such but want it carried out responsibly and with minimal damage to the environment by companies that pay their fair share of taxes, clean up the messes they make, and employ workers who enjoy good wages, safe working conditions, good benefits, health care, retirement security, and a voice on the job.

But sucking up never gained anybody anything in the long run. Let's stop kidding ourselves by pretending that everything will be great if we level the last mountaintop, fill in the last stream, fill up the last coal truck or train, and give in to the latest blackmail scheme.

Hitching our proverbial wagon to the same dark star we've been chained to for more than 100 years will only give us more of the same. The way up and out will have to involve a high road diversified economy fueled by investments in people, education, and infrastructure.

GOAT ROPE ADVISORY LEVEL: ELEVATED

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