From the Plundered Planet Book Group...
Plundered Planet Paul Collier
General message:
How to use natural assets: nature + technology + regulation = prosperity
- Without regulation, you get plunder
- Without technology, you get hunger
The book sets out to try to solve the dilemmas that arise from natural assets in low-income countries. He writes that economics and environmental studies need each other and can be compatible.
Part I: Resource curse
Studies have found that countries with higher amounts of natural resources have slower economic growth than countries that do not; similarly, the absence of resources in democratic societies increased economic growth, and democratic countries with an abundance of resources have more economic troubles. So, are resources a curse?
It seems that resources are a curse in countries that have deeper issues. Remember the difference between Sierra Leone and Botswana and Nigeria and Norway.
countries with a comparative advantage should specialize it should use it to trade with other countries; some countries specialize in resource extraction which hinders other developments
Basically, weak or corrupt governance and non-agricultural resources make the asset of natural resources into a curse because there is no proper regulation of the extraction and distribution of natural resources.
Part II: Discovering natural assets
Natural assets lack owners so they can be plundered more easily. Collier divides the world into four quadrants: OECD: Russia/China/satellite nations; Emerging economies; Countries of the bottom billion
What is surprising about the poorer countries is that they tend to be resource-rich countries at present. This isn’t because the land has a greater amount of natural resources (because Africa was not naturally endowed with as many subsoil resources). The difference is that richer countries have been extracting resources for a longer period of time.
Collier highlights that for the bottom billion it is important to think of assets are an opportunity
Problems with natural assets in these countries:
- Tend to be located disproportionately in “difficult” territories
- Only ¼ of natural assets have been discovered in the botton bill compared to rich countries which means something mustve gone wrong
- Discovering what’s underground = EXPENSIVE
Collier’s solution: think of searching for assets as a public good
- Best to allow one entity to make search, let foreign enterprise perform the search b/c it’s so expensive (or even donors like the World Bank or the IMF and these donors could help multiple countries but it’s hard to get them to do this b/c they want to do more “picturesque” jobs like schools)
- Make geological info available as a public good
- Info clarifies what the resources/geological territories are worth so the gov can know how to sell these plots of land
Part III: Capturing Natural Assets
The problems that arise in the phase of capturing natural assets are corruption and underdevelopment.
- Corruption: extraction/discovery relies on extraction companies and the government to get revenues from resources to the country/its people
- Underdevelopment: revenue isn’t used domestically so the country can’t be improved and there is no increase in money in their market
Collier’s solutions:
- Transparency is needed when discovering resources (publish what you pay/EITI)
- Auction off rights to the resources (4 companies competing, will get true value of the resources, eliminates asymmetric info problem)
Extra hindrance:
- Taxes create problems: inefficiency in government and economy; creates uncertainty for companies who want to extract resources; companies try to dodge funky taxes which hurts the country’s revenue
o Contingencies: try to solve inefficiency; agree on a system of taxes ahead of time
o Royalties: reduces asymmetric info; tax on revenue
Overall solution Government should use tax structure w/ contingencies; transparency of companies and government; use royalties b/c they are observable (should be in tax code); legally-binding tax code
Part IV: Selling the Family Silver
Problem: How do we make sure the revenues are being used within the country (benefit future and present generations)
- Governments must balance consumption and savings
- Try to sustain economy with sustainable infrastructure rather than depleting resources
Solution: yield rate of return while the asset is still in the ground
- At what rate should we spend, save, invest (domestically and abroad)
o Norway invest 100% into capital markets and consume less at the beginning of extraction of natural resources
o Ghana spent too early and too much once they discovered early
o Boom and bust cycles: use savings in bust cycles; save a lot during boom cycles
o Long-term infrastructure deals are good but they should be made public for rights to resource extraction
Part V: Investing in Investing
- Most difficult part, but also must important
- Invest in public goods
o Get rid of corruption/ improve management of investment
o Need to promote big-scale projects
- Encourage private investment
o Lessens risk on government
o Mobility in market
- Lower price of capital goods
o Suggests trying to reach trade agreements with other countries or partnering with neighboring countries
- Use examples like Botswana and Malaysia rather than Norway
Slides are on Sakai. For Friday, please read A Measured Rebuttal to China Over Solar Panels by Keith Bradsher and Matther Wald published in the March 20, 2012 edition of the New York Times.
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