However Gunder-Frank would argue that as soon as the first industrialised nations became rich and began looking to exploit wealth from overseas natural resources became an economic liability, as their extraction through the colonial system prevented the growth of secondary industries, and therefore formed a multitude of over-dependent economies whose long-term growth was seriously threatened due to their dependence on the extremely changeable markets for primary materials. India had vast natural resources, but benefited little economically during their rule under British colonial power, preventing the Indians generating wealth by selling primary products such as tea internally through tariffs, but massively exploiting their farming resources by shipping most of the opium and tea that was produced to the British Isles, and concentrating any wealth generated into the British Raj.
When examined on a global scale, there is only a weak correlation between the relative abundance of natural resources and the economic development of nations. Western Europe and the USA are both economically and resource rich, and the power of their economies has stemmed from their initial exploitation of natural resources. However Angola is one of the most impoverished countries in the world, with an HDI Rank of 160, and appalling national statistics such as an adult literacy rate of 42.0%. However Angola has extremely rich in natural resources, producing 11% of the world’s diamonds and a large oil industry, with an estimated 5.4 billion barrels still in reserve. This would suggest that the assumption that the presence of natural resources gives economic development is extremely fallible.
So there are examples of countries that are resource rich being economically more developed (USA), and less developed (Angola). Rostow’s explanation of the situation of Angola would be that they are yet to embark on the journey to economic development; he has the future as his scapegoat. However Rostow does not provide reasoning for a scenario involving an economically developed country without any significant presence of natural resources. These exist in increasing numbers, and are best represented by Japan, the strongest economy in the world and has a Gross Domestic Product (GDP) of over $23,000, but has an almost non-existent resource base. Other examples are the ‘Asian Tigers’, such as South Korea or Taiwan, these Newly Industrialised Countries (NICs) have relied on and invested in human and capital resources to become more economically developed. Economic development without natural resources has been made more possible through modern technology. Iceland is an exporter of aluminium, despite having no bauxite reserves whatsoever; it buys bauxite from Australia, and modern transport has made this trade possible and efficient, and it is electrolysed into Aluminium using renewable hydroelectric and geothermal electricity, an otherwise extremely costly process for electricity. Iceland therefore has a successful secondary industry.
Perhaps the existence of a relationship between natural resources and economic development is outdated due to modern technology. There are obviously lots of less economically developed countries with few natural resources, so it seems as if all four combinations of these two factors are actually quite common. However a resource-curse theory regarding the effect of natural resources on an economy arose in the late 20th century and is a viable argument on the subject, and applies to more modern scenarios where the effects of the ‘technology revolution’ have in the most part, already occurred.
Since the 1960s the GDPs of resource-poor countries have grown significantly faster than those of resource-abundant countries. Since 1985 countries rich in natural resources have undergone an approx. 2.5% increase in their GDPs, whilst resource-poor countries have undergone an approx. 4.5% increase in their GDPs. The resource curse accounts for this phenomenon, and is a downward spiral that natural resource rich countries, such as Uruguay, have undergone and are undergoing.
The key element to the resource curse is lack of diversification from a primary-resource based economy. The end of the colonial world left many countries which were underdeveloped in all but primary industry, particularly in Latin America and Africa. Ex-colonial states, as well as other examples, typically have an economy where capital was concentrated into an elite ruling class, so little money was invested in the country itself, such as infrastructure and education (kinds of capital and human resource), and little in developing secondary industry to further economic development.
Saudi Arabia is the world’s largest oil exporter, and a very rich country with a GDP/annum of over $17,500. However the vast majority of the population will be earning under quarter of this, as oil revenues are going straight into the owning classes and is spent on their lifestyle rather than on a sustainable economy. Oil is a finite resource, and Saudi Arabia is a doomed country once oil reserves dry up (in an estimated 25 years) unless money is spent on diversification into more sustainable capital sources. Once revenues from oil are gone, Saudi will have no means of buying any secondary goods, and no means of producing them for themselves. In cases such as this it seems natural resources are disadvantageous for economic development. However it is not unavoidable, as is shown with Chile in the early 20th century, as they greatly reduced the impact of the great depression and developed their economy greatly through an industrialisation scheme that spent money gained from saltpetre and food exports on producing 25% of previously imported goods, improving and strengthening the economy through producing more jobs and increasing trade profits.
Another aspect of the resource curse is currency overvaluation. This is a process whereby the government of a primary exporting country artificially increases the value of their currency, making exports more expensive and imports less so, and therefore increasing trade revenues. This may seem an outright advantage, but it makes imports cheap, and therefore removes the incentive for ‘home-made’ secondary goods as there would be little or no profit in doing so. This gives vulnerable, import dependent economies, and the ability to develop is greatly reduced.
Part of the downfall of Uruguay from the 1950’s onwards was due to currency overvaluation. In 1950 Uruguay was 11th in world wealth statistics, and its wealth had been generated from its farming economy, exporting beef, wool and leather. Although the government did invest in a welfare system, health service and infrastructure, no economic diversification occurred as it was cheaper to import secondary goods rather than produce them, due to the overvaluation of the Uruguayan currency. Post-war technology advances led to the reduction of the wool market due to the production of artificial fibres, whilst improved refrigeration led to more competition from New Zealand and Australia for the meat markets. Uruguay’s markets disappeared, there was no industrial tradition due to the over-emphasis on farm exports, and there was only one urban centre to the country as the labour extensive farming economy had never required more than one. A crash industrialisation scheme failed, and preceded civil war and huge national debt. With hindsight, their natural resources were the source of their economic problems over the last 50 years.
The unpredictable nature of the market for natural resources has commonly caused governments to overestimate trade incomes. In the case of a country such as Brazil, money spent on the reliance of future income predictions has often proved to be too much, increasing government debt, and causing the removal of capital from other sectors, such as potential infrastructure and investment schemes, to make up the expenditure/income prediction deficit, and the economy develops more slowly as a result. Brazil has actually become less economically developed since 1985. This is another aspect of the presence of natural resources being a ‘curse; on a nation.
However it cannot be correct to conclude that the presence of natural resources cannot benefit an economy. If this was true, it would be better if primary exporting countries did not export at all. The resource-curse theory depends on errors from the ruling forces in a country, such as the neglect of investment, and therefore leaves the economy vulnerable to market changes, rather than flexible and durable, which it would be if money was spent on diversifying industry and improving other human/capital resources. There is increasingly little correlation between natural resources and the strength of an economy, as other factors and resources can be used to create economic wealth. However Countries such as Nigeria could take a similar route to economic development as the USA or UK if money from oil and other export revenues are spent on the development of other economy-contributing factors, such as improving capital and human resources, and the pitfalls of the resource-curse theory are avoided.