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Updated: December 7, 2010 14:55 IST

Harness, not plunder, natural assets

  • N. R. Krishnan
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This absorbing book on natural resources economics by Paul Collier of Oxford University can be divided into three parts: the first, an utilitarian treatment of natural resources management; the second, a prescription of policy and strategy to govern such management in poor but resource-rich countries: and the third, application of these principles to shaping a response to the challenge posed by global environmental issues like global warming. Along the way, the reader gets an interesting insight into how resources are being plundered, by both insiders and outsiders, in countries that are poor economically but rich in natural resources. Collier draws on his vast, and often trying, experience of advising African countries in ethically sound management of natural assets.

Contrary to what its title may suggest, this is not a green activist tome arguing for a total ban on extraction of natural resources and letting them lie in their pristine state. Its central message is that natural assets need to be harnessed for the good of the people, with due care being taken to save and invest the revenues that accrue and living only on the interest earned. How refreshingly different from the cacophony of nosayers to development!

Perpetual poverty

The essence of natural resources management is beautifully summed up in Collier's identity “Nature+ Technology +Regulation = Prosperity”. What if technology is missing? Much of the natural assets in poor countries would remain undiscovered and unexploited condemning their people to perpetual poverty. Likewise, lack of regulation facilitates plunder, either because of colonial rule as in the past or because of local leaders seeking to enrich themselves at public cost. .

The experience of many an African country is replete with such instances in the last few decades. How to ensure a sound system of resources management? Collier's thesis is that resource-rich countries lacking technology and capital would do well to assign exploration and extraction rights to private players through a transparent system of auctions, making public the terms and conditions of the contracts and the revenues earned. The revenues should be invested partly in creating other forms of man-made capital and partly in international capital markets, the latter all the more necessary to guard against falls in global prices of the commodities exported from poor countries. Collier cites the example of Norway which, though not poor, invested wisely its oil revenues in a special public fund earmarked for future generations and invested in foreign capital markets. Contrast this with the experience of Africa where between 1970 and 2000, revenues from exports of natural assets were spent on consumption leading to a decline in comprehensive wealth per person by 50 per cent!

Utilitarianism

How do the principles of utilitarianism apply to a current issue like global warming due to release of greenhouse gases? Collier is forthright in his view that emissions should be controlled in the interests of both the present and future generations. In fact, since utilitarianism expects future generations to be better off than the present one, we must leave behind a world with much less concentrations of such gases than now. No one can disagree with this contention.

However, he firmly believes that there should be no free-loaders (read China, India and the other emerging economies) in the campaign against warming and hence does not subscribe to the view that the developed countries alone should bear the cross. He argues for transfer of resources from them to the developing world purely on grounds of “compassion and enlightened self-interest” rather than as “compensation for liability.” He goes on to suggest that governments should agree to a “common set of taxes-cum-regulation that curb global emissions to safe levels and do not induce activities to relocate to evade social costs.” In the chapter on “Nature and Hunger”, Collier trains his guns on three “Giants of Romanticism” which he would like to be “confronted and slain”. These are: “Peasants-in-Aspic”, “The GM Ban”, and “Grow Your Own Fuel.

He is against peasants cultivating uneconomic holdings and favours large-scale commercial farming, otherwise he feels the peasantry would never be able to rise above poverty. Similarly, to provide adequate food for the world of today and of tomorrow, he pleads for increasing farm productivity by introducing genetically modified crop varieties. He totally disfavours the policy of attaining fuel self-sufficiency by resorting to agro fuels like ethanol.

It is not for nothing that this book has received wide acclaim, from academics like Lord Nicholas Stern to hardnosed investment bankers like George Soros. Even the stiff upper lipped The Economist said the book was “set to become a classic”. And this reviewer would unhesitatingly join in the applause.

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