web analytics

The golden curse

Written By: - Date published: 10:05 am, June 17th, 2010 - 15 comments
Categories: afghanistan, Economy, Mining - Tags: , ,

You know, if we don’t give those mining companies some more free seismic data, rent-free access to our most precious natural environments, and only demand low royalties when they dig up our minerals, we’ll lose them to the lucky country. That’s right, Afghanistan. It’s sitting, quite literally, on a gold mine and it makes ours look like small change.

Under Afghanistan is a one and a half trillion dollars worth of previous undiscovered iron, cobalt, copper and gold deposits, even some of those rare earth minerals, according to the  US Geological Survey (wait, what were they doing surveying Afghanistan….). See the Daily Show’s take:

Anyhoo, before we get too jealous, great windfalls of wealth are actually a bad thing. The WTO has just released a paper on how becoming a ‘rentier state’ (where the economy is dominated by the extraction of resources for export, effectively an economy based on clipping the ticket) can seriously screw a country up:

Volatility in world commodity prices resulting in wild economic swings, permanent crowding out of manufacturing, poor institutions, unsustainably rapid depletion, civil war , and cyclical Dutch Disease.

Look at the countries based on extractive industry, especially those with a rare and high desired resource, and you see a pattern of authoritarian government, extremes of wealth and poverty, and social unrest and conflict – the Middle East and its oil, Congo and it cobalt…

Dutch Disease is named after what happened to the Netherlands when it started producing natural gas. All the exports of the expensive commodity send the currency up, making other exporters uncompetitive and domestic production uncompetitive against imports. The result of big exports of a highly demanded commodity often turns out to be a large current account deficit. Governments tend to spend up the windfall gains, easing the pain for those who have suffered from the high currency but making people more dependent on the State and the State dependent on continued exports and high prices. When the gas ran out, or whenever the price dropped, the Dutch were screwed.

Actually, you have to wonder if we already have a touch of Dutch Disease from the way dairy’s upward pressure on the currency is making it harder for other industries to compete against foreign producers (another 174 freezing work jobs gone this week).

Our institutions are strong enough to avoid the worst of the rentier state trap but if we start extracting a lot more oil and minerals like the government wants, we’re going to need to take steps to avoid Dutch Disease.

How? By copying the Norwegians. They didn’t just use their oil royalties and the dividends from Statoil to replace tax and fund government spending. Instead, they’ve put most of the money into a huge fund that has invested in assets all over the world. By not importing all that revenue into their domestic economy and consuming it now, they’ve stopped their currency getting so high that it destroys other industries. As the oil runs out, they will slowly use the fund to ease the transition of the economy. Basically, rather than going on a consumption spree funded by extraction, followed by a massive hangover, the Norwegians are spreading it out over generations (kind of like what Labour did for the cost of superannuation with the Cullen Fund).

Will we handle our wealth smartly like Norway or will we fail to learn the lessons the Dutch taught us 40 years ago? Either way, at least we’re not Afghanistan, where a natural endowment looks set to be yet another curse.

15 comments on “The golden curse ”

  1. Will we handle our wealth smartly like Norway or will we fail to learn the lessons the Dutch taught us 40 years ago?

    Whatever the moneymen who fund the National Party deem to be in their best intersts.

  2. Jim Nald 2

    I hope our Prime Minister is not for sale.

  3. Lindsey 3

    Great comment on this on Tumeke – “First we bombed them into the stone age, now we want their stones”.

  4. Perish the thought we’d have a GDp as high as the Netherlands or a high tech industry, or the art and architecture standards. Nope. Don’t want that disease here, no way, no how

    • Marty G 4.1

      grow up insider.

      the issue is the economic negative economic effects of Dutch Disease that can be easily avoided by doing what Norway has done. Yup, the Netherlands are richer than us, so is Norway. Doesn’t mean we should repeat the Netherland’s mistakes.

      • insider 4.1.1

        MAybe they are only as rich as they are because of those ‘mistakes’? From what I understand it’s qquite difficult to make a direct causal link. Can we prove they would have been even wealthier if they didn’t catch this disease?

        • Bright Red

          Dutch Disease doesn’t make you rich. That’s why its called Dutch Disease. That’s why the WTO is recommending simple steps to avoid it.

          Managing your resources properly makes you rich, not spending it all in an orgy..

      • Bored 4.1.2

        What you have said makes logical sense, so does the feedback from parties pointing out that the financial interests of this country as represented by the Nacts don’t have a long term enough viewpoint, only short term gain for private (and normally international) capital.

        How this plays out is the interesting bit. If you consider that he ‘clever’ Norwegians have invested wisely offshore in a whole heap of countries they will have done so on the prudent basis of repatriating profits and a safe spread against defaults etc. Let’s examine both with regard to the world as it is today and as it will be in the future.

        Repatriating profits is based upon the well tested idea that people outside of Norway do the work adding value to the capital input. The implication is that the world of mobile capital flows and supportable growth rates will continue. The basic premise here is indefinite “growth’ based upon cheap abundant energy supply and a willingness of the taxed populace to allow their financial institutions to stack up future debt (with interest paid from current profit). A highly likely scenario will face Norway (and the rest of us per se) energy crisis blocking growth, and the follow on effect of inability to maintain payment of interest / dividends on invested capital (and more importantly debt). Bankruptcy and national insolvency happens next, Norway loses all it invested.

        A safe spread against defaults in the above scenario every nation is going to be hit with zero / negative growth scenarios. Hidden in your article is the statement “as the oil runs out’. You refer to I think Norwegian oil, as opposed to the effects of “Peak Oil’ which will not be locally uniform but will follow a predictable trend globally. There are no safe havens to mitigate this event as the world is now far too interlinked and uniform in its capital / financial / energy structures. Expect extreme currency volatility, conflict, protectionism, hyper inflation, extreme deflation, currency collapses etc etc. The only “safe’ investment the Norwegians can now make is a local one based upon local sustainability. Investment in local institutions that can carry polities through a serious financial and energy crisis are the only realistic options for any country. This is also the risk faced here in funds (such as the Cullen fund), if a Citibank or similar hits the wall, there goes the fund.

        My point is that any NZ “capital’ generated by oil or other means needs to be used locally to assist the transition to a sustainable low energy future. We need to be investing in local technology and infrastructure rather than allowing what little surplus capital we generate in the near future to be siphoned off to “global capital’. I dont see the Nacts thinking broadly enough to even conceive the real issues, the left too are far to blinded by the current “growth’ based models of economy.

        • Draco T Bastard

          The only “safe’ investment the Norwegians can now make is a local one based upon local sustainability.

          That’s pretty much true for every nation.

  5. Name 5

    Up until last week the US and other nation’s troops who were fighting and dying in Afghanistan could at least console themselves they were going through that special hell to protect the Afghan people from the barbarism of the Taliban and denying terrorist groups the territory for training camps from which to assault the west.

    Now they know better.

  6. Mac1 6

    Coalition of the Shilling?

    Similar reasons for fighting in Vietnam. Holyoake talked about ‘guns for butter’.

Recent Comments

Recent Posts

  • Worsening housing crisis must prompt action
    A growing public housing waiting list and continued increase of house prices must be urgently addressed by Government, Green Party Co-leader Marama Davidson said today. ...
    4 hours ago
  • Twenty highlights of 2020
    As we welcome in the new year, our focus is on continuing to keep New Zealanders safe and moving forward with our economic recovery. There’s a lot to get on with, but before we say a final goodbye to 2020, here’s a quick look back at some of the milestones ...
    3 weeks ago

  • Jobs for Nature funding will create training and employment opportunities
    A major investment to tackle wilding pines in Mt Richmond will create jobs and help protect the area’s unique ecosystems, Biosecurity Minister Damien O’Connor says. The Mt Richmond Forest Park has unique ecosystems developed on mineral-rich geology, including taonga plant species found nowhere else in the country. “These special plant ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Pre-departure testing extended to all passengers to New Zealand
    To further protect New Zealand from COVID-19, the Government is extending pre-departure testing to all passengers to New Zealand except from Australia, Antarctica and most Pacific Islands, COVID-19 Response Minister Chris Hipkins said today. “The change will come into force for all flights arriving in New Zealand after 11:59pm (NZT) on Monday ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Bay Cadets learn skills to protect environment
    Bay Conservation Cadets launched with first intake Supported with $3.5 million grant Part of $1.245b Jobs for Nature programme to accelerate recover from Covid Cadets will learn skills to protect and enhance environment Environment Minister David Parker today welcomed the first intake of cadets at the launch of the Bay ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Cook Islanders to resume travel to New Zealand
    The Prime Minister of New Zealand Jacinda Ardern and the Prime Minister of the Cook Islands Mark Brown have announced passengers from the Cook Islands can resume quarantine-free travel into New Zealand from 21 January, enabling access to essential services such as health. “Following confirmation of the Cook Islands’ COVID ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Supporting communities and landowners to grow employment opportunities
    Jobs for Nature funding is being made available to conservation groups and landowners to employ staff and contractors in a move aimed at boosting local biodiversity-focused projects, Conservation Minister Kiritapu Allan has announced. It is estimated some 400-plus jobs will be created with employment opportunities in ecology, restoration, trapping, ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Border exception for some returning international tertiary students
    The Government has approved an exception class for 1000 international tertiary students, degree level and above, who began their study in New Zealand but were caught offshore when border restrictions began. The exception will allow students to return to New Zealand in stages from April 2021. “Our top priority continues ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Tiwai deal gives time for managed transition
    Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • New member for APEC Business Advisory Council
    Prime Minister Jacinda Ardern has appointed Anna Curzon to the APEC Business Advisory Council (ABAC). The leader of each APEC economy appoints three private sector representatives to ABAC. ABAC provides advice to leaders annually on business priorities. “ABAC helps ensure that APEC’s work programme is informed by business community perspectives ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Govt’s careful economic management recognised
    The Government’s prudent fiscal management and strong policy programme in the face of the COVID-19 global pandemic have been acknowledged by the credit rating agency Fitch. Fitch has today affirmed New Zealand’s local currency rating at AA+ with a stable outlook and foreign currency rating at AA with a positive ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Additional actions to keep COVID-19 out of NZ
    The Government is putting in place a suite of additional actions to protect New Zealand from COVID-19, including new emerging variants, COVID-19 Response Minister Chris Hipkins said today. “Given the high rates of infection in many countries and evidence of the global spread of more transmissible variants, it’s clear that ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • 19 projects will clean up and protect waterways
    $36 million of Government funding alongside councils and others for 19 projects Investment will clean up and protect waterways and create local jobs Boots on the ground expected in Q2 of 2021 Funding part of the Jobs for Nature policy package A package of 19 projects will help clean up ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Zealand Government acknowledges 175th anniversary of Battle of Ruapekapeka
    The commemoration of the 175th anniversary of the Battle of Ruapekapeka represents an opportunity for all New Zealanders to reflect on the role these conflicts have had in creating our modern nation, says Associate Minister for Arts, Culture and Heritage Kiri Allan. “The Battle at Te Ruapekapeka Pā, which took ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Better care for babies with tongue-tie
    Babies born with tongue-tie will be assessed and treated consistently under new guidelines released by the Ministry of Health, Associate Minister of Health Dr Ayesha Verrall announced today. Around 5% to 10% of babies are born with a tongue-tie, or ankyloglossia, in New Zealand each year. At least half can ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Prisoner disorder event at Waikeria Prison over
    The prisoner disorder event at Waikeria Prison is over, with all remaining prisoners now safely and securely detained, Corrections Minister Kelvin Davis says. The majority of those involved in the event are members of the Mongols and Comancheros. Five of the men are deportees from Australia, with three subject to ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Pre-departure COVID-19 test for travellers from the UK and the US from 15 January
    Travellers from the United Kingdom or the United States bound for New Zealand will be required to get a negative test result for COVID-19 before departing, and work is underway to extend the requirement to other long haul flights to New Zealand, COVID-19 Response Minister Chris Hipkins confirmed today. “The new PCR test requirement, foreshadowed last ...
    BeehiveBy beehive.govt.nz
    2 weeks ago