Natural Resources: The Curse of Developing Countries?

Published in http://www.upiasia.com/Economics/2010/03/04/natural_resources_the_curse_of_developing_countries/1243/

Jakarta, Indonesia —
People are dying while sitting in a land full of riches. Perhaps this is the horrid yet true picture of reality in most developing countries in the world; certainly it is true in Indonesia.

Covering approximately 1.9 million square kilometers, Indonesia is extremely rich in natural resources. Due to active volcanic activity, its soil is fertile and resources are abundant. Salt, for instance, is believed to have originated in Indonesia. The term “salary” originates from salt because it was once used as a form of payment. In old times, the person sitting closest to the salt at a table held the highest rank.

Many Indonesians are proud of their motherland. Every elementary school student is taught that the country is rich in natural resources. The citizens’ pride is rooted in the fact that the country is geopolitically important and can survive on its own – unlike Singapore, for example, which basically lives from its neighbors’ resources.

Ironically, these same children have to grow up witnessing or experiencing extreme poverty. This is more painful given the dreams they hold after being taught about the tishness of their land.

There is a long list of cases in which corporations – local and foreign – exploited and polluted the land, leaving toxic waste behind for the local people. From the human rights violations and destruction of peoples’ livelihoods caused by mining companies Freeport and Newmont, to the environmental damage by the pulp industry in Sumatra, to a plethora of cases of mercuric materials in drinking reservoirs, corporations have brought evil consequences to Indonesian people.

This excrutiating picture is replicated the world over. John Perkins, in his “Confessions of an Economic Hitman,” described foreign corporations’ agressive pursuit of oil and natural resources in Ecuador, Indonesia and Panama, where extraction plants are built for the benefit of elite groups of foreigners and their mercurial domestic counterparts while wastes and hazards are left behind for the locals.

Joseph Stiglitz, the 2001 Nobel Prize recipient for economic sciences, famously remarked, “Most countries with large (production) of natural resources do more poorly than those without, which is an irony.” The film “Blood Diamond” depicts a related situation in Africa, where exploration for diamonds institutes a civil war, disrupts a nation’s political stability and subjects its people to torment and anguish. One character vividly remarks, “I hope they do not find any more diamonds, otherwise we will start killing each other again.”

Though it may sound treacherous, at some points I almost wish this land were poor – and that may indeed be the wish of many Africans in Sierra Leone. The very inception of economic principles stems from resource scarcity; that is why their core mantra is one advocating efficiency in modes of production.

Imagine if the world provided sufficient natural resources that people could simply pick basic necessities – food, water, housing materials and clothes – from their immediate surroundings. In that scenario, economic principles may not even be needed. There are several caveats to ponder.

First, is it even true that our world does not provide sufficient resources to make this a reality? Is it even the case that resources are scarce, or is it human activity – greed, pure and simple – that makes it so? Humans always want to have what others have, even if they have more. Is it axiomatic that nature cannot naturally reproduce resources that humans have consumed?

Second, assuming that natural resources are scarce by nature, not by human greed, is it morally acceptable to suggest that those who are the most efficient at production get the biggest share of natural resources, while others who are less eficient should live at their mercy?

This is not to suggest that there is no place for economic principles, but they are not without flaws and not without vested interests. I would argue that those deficiencies manifest as the root cause of the torment many developing countries are suffering.

The very idea of insufficiency, or “resource scarcity,” pushes those with so-called “technology and capacity” to take over the management of the world’s resources; the idea of not having enough makes them look elsewhere. Natural resources become the prima donna, and everyone fights over her.

Without the technology and capacity developed countries command, developing countries will always lose in a game of resource management and accumulation. That is why in the fields of oil, gas and mineral exctraction, developing countries rabidly engage in joint venture agreements with foreign corporations from developed countries. The popular myth is that without foreign corporations, developing countries would not be able to extract these resources.

According to economic schemas imported by developed countries, developing countries would not be able to extract those things “efficiently.” In reality, the uneven playing field is exploited by huge corporations that wield mighty bargaining power in their domestic econo-political arrangements – which in Indonesia are called “corruption” and dictate the share division of natural resources and the procedural rules for their extraction.

The practical implications are not only frowned upon, but also suffered by many people in Indonesia. That is the cancer of the irony: people die sitting atop the riches of their lands, not because nature does not provide enough, but purely because of unrestrained human greed.