Sunday Book Review: The Plundered Planet

This is the sixth installment of an eight part series on the Patterson School’s Summer Reading List.

1. Hide and Seek, Charles Duelfer
2. The Accidental Guerrilla, David Kilcullen
3. The Limits of Power, Andrew Bacevich
4. Huang Yasheng, Capitalism with Chinese Characteristics
5. Walter Laqueur, The Last Days of Europe
6. Greg Mortenson, Stones into Schools
7. Paul Collier, The Plundered Planet

Although Paul Collier’s The Plundered Planet purports to be about environmentalism and economic growth, it really has very little to say about the concerns of environmentalists.  Invoked only as part of some ritualistic denunciations of anti-capitalist traditionalists, environmentalists really exist as a foil for Collier’s extractive resources case.  His first chapters involve a set of philosophical meanderings that are embarrassing, tendentious, and altogether boring.  Collier’s main interest is in the resource curse, and he argues that while the resource curse creates substantial problems, it can be tamed by sensible state policy.

The resource curse is not, I should hasten to note, a theory about how brown people can’t manage their natural resources.  Rather, it’s about how the exploitation of resource wealth can have negative economic and political implications, especially in states without diverse economies and with weak governance.  Resource bonanzas create lots of problems.  First, the export of high value extracted resources causes currency appreciation, making agriculture and other industries less competitive on the international market.  Because of the influx of foreign currency, local industries also face greater competition from imports.  The best paying jobs tend to center around resource extraction, meaning that human capital gets allocated in an inefficient manner; people who could become doctors or educators become miners or oil workers.  The state, suddenly flush, is tempted to borrow against future earnings and spend heavily on a variety of programs that it may not be able to support.  Moreover, resource bonanzas produce high levels of corruption, in addition to drastic income inequities across class and region.  Added up, the “resource curse” often means that resource rich states grow poorer in the long run because of their “good luck”.

Like the Bottom Billion, Plundered Planet attempts to set forth a template for how states can manage their natural resource wealth without either completely plundering resource stocks in a short period of time, or yielding to destructive political effects.  He gives advice for how to deal with extractive corporations that provide the capital, equipment, and expertise necessary for most such extraction.  The nature of interactions with these corporations is complex, because the corporations have the best sense of the value of the resource bonanza.  This creates obvious problems for states negotiation extraction contracts.  On the other hand, the corporations do take on considerable risk, both in terms of the uncertainty of commodity price and local resource size (the bonanza may be quickly exhausted), and because states can renege on their obligations more easily than companies.  On the financial question, long story short states need to be very careful about how they spend and save the money generated by a resource bonanza.  Now, this should be read in the context of Collier’s skepticism of health and education programs, and his general disdain for human capital.  Poverty alleviation can pay off in growth terms (in addition to moral terms) if it generates healthier, smarter, more economically capable individuals.  However, Collier is correct to caution that such programs must be designed with an eye towards sustainability and metrics of effectiveness, and that the influx of cash following a resource bonanza makes this difficult.

I’ll confess that I find Collier tremendously annoying for a variety of reasons.  He’s an arrogant writer and researcher, less interested in making contributions to the development literature than in inventing his own literature.  Nevertheless, just as Bottom Billion set forth a few sensible thoughts on how states, NGOs, and IOs ought to approach development in poverty-stricken states, Plundered Planet includes some reasonable suggestions about how poor states facing a resource bonanza should approach managing their fiscal futures.  Those who focus on development and resource extraction will find this book useful, if hardly the last word on the issue.