"Franklin Delano Roosevelt, perhaps the greatest of all of America’s presidents, loved stories about himself. One of his favourites went like this. During the Great Depression of the 1930s, one Wall Street commuter had a daily morning ritual. He would buy the newspaper on the way into the train station. He would glance only at the front page and then, without taking another look, hand it back to the boy on the newspaper stand and board the train. Eventually, the newspaper boy got up the courage to ask him why he only ever read the front page. The commuter explained that he bought it solely for the obituaries. The newspaper boy pointed out that the obituaries were at the back. ‘Boy,’ the main said, ‘the son of a bitch I’m interested in will be on page one.’”
Thus goes the first paragraph from the book False Economy - A Surprising Economic History of the World written by Alan Beattie, the world trade editor of the Financial Times. The book is full of stories and insights on a host of issues including why countries with loads of oil and diamonds are also the ones where civil wars are on; why corrupt economies can prosper; the impact religion has on economic performance; and how countries are importing water, among other things.
DNA’s Vivek Kaul spoke with Beattie on these issues and more. Excerpts:
Why are oil and diamonds more trouble than they are worth?
Two main reasons. One, the influx of money that comes into a country to buy the minerals, whether oil, diamonds, or whatever, tends to push up the country’s exchange rate and make every other company in the country uncompetitive on international markets. This is known as the “Dutch disease” after what happened in the Netherlands in the 1970s, when a sudden surge in natural gas exports drove the guilder higher against other currencies and put a lot of other companies in the country out of business. Overall unemployment can actually rise as a result. This is one reason oil economies like Saudi Arabia tend to have very high unemployment. Given how uncompetitive domestic industry is, there just aren’t enough jobs.
The other reason is more political. The presence of natural resources often encourages people to fight to gain control of it, either through the political process or through civil war. Control of mineral wealth also enables warlords to continue running guerrilla armies for much longer than they normally would. Diamonds are a particularly useful way of keeping wars going - they are easy to carry, being light and small, and hold their value well.
Essentially, they act a bit like a global currency. You only have to look at the protracted civil wars in diamond-rich countries like Sierra Leone and Angola, or the way that the Democratic Republic of Congo attracts invasions of rogue groups of soldiers trying to seize minerals, to see how damaging it can be.
Know of any country, which has handled natural resources well and progressed?
There are several countries that did well with natural resources if they were already rich, such as Norway. There are fewer that had nothing but oil and diamonds and succeeded. The one I would point at is Botswana in southern Africa. When it became independent in the 1960s it had very little going for it —- it was landlocked, with terrible infrastructure, a poorly educated population and no industry to speak of. Yet, after diamonds were discovered, it managed to make a great success out of them by getting the basics right —- sharing out the diamond wealth in a transparent, non-corrupt fashion, using it sensibly to build roads and other infrastructure rather than just blowing it on consumption, and signing a binding agreement with the diamond company De Beers to ensure that De Beers would get paid but that Botswana would get its fair share. Lots of people have tried to argue there was something special about Botswana’s situation, which made it easier to take these decisions, but I don’t think that is really true. It is simply that Seretse Khama, the first president after independence, and his associates got it right while others got it wrong.
Why do governments tend to listen to only those “who shout the loudest or are the most threatening.” Can you explain the ill effects of this?
Whether rulers are democratic or not, they have to pay attention to the public —- and some of them are better organised than others. In democracies, it is often producers like farmers, who are relatively homogeneous and united behind a lobbying strategy, who get what they want. There are probably only around 10,000 cotton farmers in the US, for example, and yet cotton production gets up to $4 billion in federal subsidies each year because of their skill in political organisation. A similar phenomenon, if on a less dramatic scale, can be seen in India with the perennial issue of the free power and water handed out to farmers, from which the richer ones particularly benefit.
For undemocratic rulers, it has often literally been a question of how close the disgruntled are to the royal or presidential palace —- the discontents within rioting distance often count a lot more than those deep in the countryside. This is one of the reasons so many developing countries have imposed food price controls, which benefit the cities at the expense of the rural districts. If you don’t pay attention to this, you can get into serious trouble. The fact that the Bolsheviks managed to come to power in Russia, for example, despite the fact that they had little support in the countryside, was because they were highly organised in Petrograd, the seat of government, and seized control in an armed coup.
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