The Natural Resources Wealth Myth

sowell_thomas_biophotoThomas Sowell is great at eradicating widely believed myths by providing facts which contradict the prevailing beliefs, which he does in regards to economics in his book Economic Facts and Fallacies. I hear some people speak as if it is a fact that the more natural resources a country has, the richer that country is. But a simple examination of the facts will prove this is not true, unless looking at one particular segment of any such population. It is true that Saudi Princes are ridiculously rich from their country’s oil, yet the vast majority of average Saudi’s live in poverty. So abundance of natural resources ensures no such abundant distribution among the population.

The world’s largest producer of natural gas (Russia) is not even among the top 70 nations of the world in real income per capita. Neither is the world’s largest producer of rubber (Thailand) or zinc (China). The world’s largest producers of gold (South Africa) and copper (Chile) are 69th and 70th , respectively, in real income per capita. The value of natural resources per capita in Uruguay and Venezuela is several times what it is in Japan or Switzerland but the real per capita income in Japan and Switzerland is about double that of Uruguay and several times that of Venezuela (Sowell, 212).

Some of the countries with the most and richest natural resources are the poorest. Venezuela can hardly acquire toilet paper, despite having several times the amount of natural resources per person when compared to Switzerland. Switzerland, in case you were wondering, has plenty of toilet paper—as well as electronics, guns, vacation homes, watches, chocolate etcetera.

So who could guess what the difference is between these countries who cannot translate their natural resources into societal wealth, and the countries who can build up national riches, without any such natural commodities? Well we don’t have to guess, we can figure it out, since knowledge and reason are some of the most precious resources of all.

Geographic accessibility to the advances of the rest of the world seems to have had more effect on economic development than the possession of rich natural resources. Knowledge is, after all, what makes something a natural resource. The cave man lived amid the same physical resources we have today—and had them in greater abundance—but they were not natural resources in any economically meaningful sense until human beings acquired the knowledge to use them and the cultures to organize their use (Sowell, 212).

But even so, while some countries have long been situated to reap the economic benefits of trade, they remained poor even into relatively modern history. Japan and Singapore were both backwards and poor economically only one hundred  or fewer years ago, yet are today two of the most prosperous places on earth. What allows people to use their resources, and to use their knowledge is protection from plunder of the fruits of their labor. Some governments protect their citizens from thieves, and some government do the thieving. The freest market possible while existing in a stable region is what creates the most wealth for a country, per capita.

In countries most restrictive in economics underground black markets form in order to better serve the needs of the population. These are to avoid red tape and regulatory costs of the government, but include their own costs which limit how much economic advancement can be achieved. In underground markets wealth cannot be transferred as easily to fund large and long term projects—and less collateral exists to retrieve value from a failed investment.

The bottom line is that people need to be able to take advantage of the knowledge and resources available—resources alone are not enough to create wealth. Confiscatory policies of currently third world governments (which have not always been third world countries) show this misunderstanding, and prove this dynamic, since some with the most oil also have the most poverty, and others with no resources have booming economies.

But law and order are necessary for economic development, which is why there is a bell curve when it comes to how conducive to economic prosperity powerful governments are. To the extent that the government is powerful enough to prevent major loss of life, loss of production, and destruction or pillaging of materials and goods, it promotes economic advancement. When that government uses its power to itself confiscate too much of the production and labor of a country, or to do so in a way that cannot be planned for in advance by individuals and businesses (Obamacare), economics will suffer, stalling or reversing advancements.

There is no question as to whether our government is powerful enough to keep this region stable enough for economics—if that power is properly directed. Our biggest problem right now is preventing that power from being used to plunder the wealth the people of our country have created.

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