There is a theory regarding wealth, held by some who see the current state of Africa as simple as the Europeans despoiled the land and took its wealth from the natives, that natural resources are inherently valuable, that a nation’s wealth is those resources and that removing them from a nation impoverishes that nation. I’ve read some commentary that President Obama holds such a view, at least to some degree. In contemplating the implications of such a viewpoint, it’s not hard to conclude that those who hold it probably offer less respect to the people who extract the resources than the rest of us do – that, if the resources themselves have value before they’re dug up, the state can lay claim to that wealth and so take it from those who do the work of extracting it. More importantly, those who see the wealth of a nation as rooted in its natural resources may falsely presume that the wealth, and wealth in general, is finite and bounded, and that when it moves from A to B, A becomes wealthier by making B poorer. This zero-sum attitude towards wealth lies at the heart of redistributionist politics and is a justification for heavy intervention in matters economic.
Yet, of what value is oil in the ground, unless it’s drilled for and pumped out? What is a diamond worth, if it’s still in the ground? Of course there’s potential value, and of course the land that it’s in has more value than land that’s known to be barren, but those values are predicated on the ability and willingness of someone to retrieve those resources. Furthermore, those resources are often more valuable after someone, perhaps the same person who extracted them, perhaps someone else, has done something with them. Crude oil is of no use to most of us, yet gasoline, kerosene, and other petroleum products are. A rough diamond, still covered in dirt, isn’t going to make a fiancee’s eyes sparkle the way one expertly cut and polished will. It cannot be disputed that value is added, and thus wealth is created, by people who process natural resources. It shouldn’t be in dispute, then, that the extraction of resources from the ground is a form of wealth creation as well. In fact, without that extraction, the in-ground wealth is merely potential, and if extraction isn’t feasible or practical, that in-ground wealth isn’t wealth at all.
Consider the effect of hydraulic fracturing, or “fracking” as it’s known colloquially, on the wealth of many landowners in places like Pennsylvania. 20 years ago, people knew there was gas and petroleum trapped in shale in many places, but getting it out wasn’t economical, so the value of the land didn’t reflect the bounty of resources underneath. Sure, there was speculation and expectation that market conditions and technological prowess would some day tip the scales, but that wasn’t of much benefit to the property owners back before the fracking boom. A landowner couldn’t command a premium for parcels that sat atop the Marcellus shale until getting the resources out of it became viable. Now there are many landowners in Pennsylvania and elsewhere whose property values have skyrocketed. Resources are only as valuable as the ability to extract them permits. Human ingenuity, in effect, creates that wealth.
Now consider how many nations, including so much of Africa, are awash in natural resources, yet they are dirt-poor in terms of GDP, per-capita income and relative living standards. Consider some nations that are barren of natural resources, yet incredibly wealthy by comparison. There is a well-studied phenomenon called the Resource Curse or the Paradox of Plenty, which notes how resource-rich nations are often poorer than resource-poor nations. There are obviously surmised “external” reasons i.e. exploitation by wealthy nations, but these pale in comparison with purely internal factors, notably the relative lack of impetus for the people of these nations to develop human capital and infrastructure. Why work hard if the government can pump oil out of the ground and spread the wealth around?
Resource extraction can keep a nation afloat for years or decades, but at risk of longer-term peril. Russia, Mexico and Venezuela are examples of that – the first awash in natural gas, the latter two rich in petroleum. Yet consider the state of these nations. Venezuela is imploding. The leadership there is cannibalizing the nation in a failing effort to stay ahead of the collapse. Russia is in a state of social and demographic decline, Putin’s roaring and aggressiveness notwithstanding. Mexico finally changed its constitution, after many years of bungling by the national petroleum company (think about how much incompetence it would take for a monopoly casino to lose money and you get the idea), to allow private companies to participate in oil extraction. Plus, Mexico has a diverse and diversifying economy and reaps (mutual) benefit via trade with other nations, in agriculture, electronics et al. There is also the lesson from Dubai, a nation that recognized it would run out of oil far enough in advance to diversify into finance, shipping, tourism and other areas, and now derives only a couple percent of its GDP from oil.
Yet many people look at the natural resources that a nation sits atop and and consider that the wealth of the nation. The lesson to be derived from both history and empirical evidence is that the real wealth of a nation is in the skill and motivation of its citizens, and that this wealth is neither finite nor depletable. The wealth of a nation grows as its citizens become better at doing things of value. Wealth is not finite quantity or zero-sum. The economic pie is not fixed in size, nor is it shrinking. That is, unless government “help” causes it to be so or do so.
Loading ...
Active Comment Threads
Most Commented Posts
Universal Background Checks – A Back Door to Universal Registration
COVID Mask Follies
When Everything Is Illegal…
An Anti-Vax Inflection Point?
“Not In My Name”
The Great Social Media Crackup
War Comes Through The Overton Window
The First Rule of Italian Driving
Most Active Commenters