Can we break the Resource Curse?
Is Washington still able to call all the shots?
| Politics is not usually a fertile habitat for rational thought but Chinese leaders seem more rational than most. We trim, blend, and append two 2009 op-eds from (1) People's Daily Online, Jun 8, by Li Hongmei and (2) Financial Times, Jun 15, by Michael Hudson, professor of economics at the University of Missouri. |
by Li Hongmei and by Michael Hudson
- Can we break the 'Resource Curse'?
The abundant deposits of natural resources can be a curse instead of a blessing. In China, the uneven distribution of natural resources does result in the uneven development of the regional economy. The resource-reliant regions have lagged behind in economic growth and revenues.
The paradox of plenty began to emerge in the 1980s. The term 'Resource Curse Thesis' was first used by Richard Auty in 1993 to describe how countries with oil don’t develop while countries without resources do prosper.
During the years of 1970-1998, only four out of the total 65 resource-rich countries worldwide saw an annual economic jump of 4%, which was then the average growth level of the developed nations. On the other hand, the economies notoriously poor in natural resources, 'Asia's four little dragons', made much headway.
It’s the same within China. The vast territory of China's West covers approximately 71.4% of the country's land area and enjoys abundant reserves of natural resources, in particular, richly endowed with fossil fuels like coal, petroleum and natural gas. However, the per capita GDP in the West has been much lower than that of the seaboard regions such as the Yangtze River and Pearl River Deltas, where the natural resources are relatively few and scanty.
To shake off the 'Curse', we must:
- First and foremost, extract the underground treasures in a rational way and avoid overexploiting the natural resources.
Second, subsidize, educate, resettle, reinvest royalties, etc.
Last but not the least, deter corruption and misconduct like rent-seeking.
Curse as it is, there must be right antidotes to its poison.
JJS: Of course there is an antidote and it's not government management of the economy but geonomics. That is, do what places like Alaska and Norway do: share the "rent", the annual economic value of the resource in situ (untouched). Alaska pays its residents a dividend; Norway funds generous social services.
Another benefit is that taxing land and resources makes it possible to de-tax labor and capital. Thus, society receives both an efficient economy and an equitable distribution of the commonwealth. Hong Kong, existing on public land, leases its locations to building owners. If the city were to charge full market value, it could eliminate most other taxes -- thereby increasing land value and hence rent -- and still pay people a dividend. Geonomics has worked wherever tried.
Not only does it let places prosper and avoid curses, geonomics also lets developed places lift up their working poor at home, and abroad let go of empires and operate in the community of nations as a respected equal.
- Washington is unable to call all the shots
The Shanghai Co-operation Organization (China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, with observer status for Mongolia, India, Pakistan, and Iran), joined by Brazil for trade discussions, meets to discuss mutual aid with no role for the US or the dollar. US officials wanted to attend as observers but were told no.
While not effective managers of their own economies, these countries argue that the US makes too little and spends too much. In exchange for paper money of questionable worth, Russian President Dimitry Medvedev said, one big centre consumes imports, “financed by a growing deficit, growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks".
The US holds out a set of laws for others -- on war, debt repayment and the treatment of prisoners -- but ignores them itself. The world's largest debtor has avoided the pain of "structural adjustments" imposed on others. The "Washington consensus" via the International Monetary Fund and others has forced austerity programs, telling others to sell off their public utilities and natural resources, raise their interest rates, and increase taxes while gutting their social safety nets to squeeze out money to pay creditors.
The US financial system is backed by aircraft carriers and military bases encircling the globe. US military expenditure -- such as military aid to Georgia or the presence in the oil-rich Middle East and central Asia – uses money that foreign central banks recycle.
These convening countries are attempting to hasten the bankruptcy of the US financial-military world order. Without them, the US will no longer have money for unlimited military spending.
The six countries intend to trade in their own currencies so as to get the benefit of mutual credit, rather than give it to the US. In recent months China has struck bilateral deals with Brazil and Malaysia to trade in renminbi rather than the dollar, sterling, or euros.
JJS: Let’s hope that rather than fight to retain military dominance in an impoverished world, Americans will be happy to offer techno, social, and cultural leadership on a prosperous planet.
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Jeffery J. Smith runs the Forum on Geonomics.
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