Thursday, 27 May 2010

The Resources Paradox

Richard Auty, in his 1993 publication Sustaining Development in Mineral Economies: The Resource Curse Thesis first used the term the Resource Curse to describe how countries rich in natural resources were unable to use that wealth to boost their economies and how, counter-intuitively, these countries had lower economic growth than countries without an abundance of natural resources.

The term "resource curse" refers to an economic phenomenon in which a dependence on natural resources can skew a country's political, investment, and education priorities, so that everything revolves around who controls those resources and who gets how much money from them and not on productivity and innovation that are essential for a country to maintain its competitive edge.

I have often found this phenomenon unexpectedly true. A great example is the one of Japan and Africa. Africa is the world’s most resource rich continent. It has a large quantity of natural resources including diamonds, gold, iron, cobalt, uranium, copper, bauxite, silver and most importantly oil and petroleum. On paper this looks like the dream scenario for wealth generation, yet Africa is the most underdeveloped and the poorest of all the continents in the world. In contrast Japan, a mountainous, volcanic island country, has very few  resources and is the world’s second largest economy.

This paradoxical phenomenon is true even in the case of India. The majority of our resources are in states like Jharkhand, Chattishgarh, Orissa, Bihar and MP. But these are the worst performing and most backward states in India – forming a part of BIMARU – (the term economic analyst Ashish Bose coined in the late 80’s to highlight the never ending ‘sickness’ of economic development in these states.) A state like Gujarat which has no resources to speak of is the biggest and fastest growing state in India while Maharashtra, Karnataka and Tamil Nadu are not far behind. This is a classic case where India’s resources are in the east and centre while her wealth is in the West and South.

So what gives rise to this seemingly contradictory phenomenon?

When a country is excessively rich in a certain resource and knows it can make money off it, it stops challenging itself to innovate new products and as such a staleness sets in. This staleness is fine as long as the resource exists, but once it runs out – and there are no alternatives in place - BAM! You have a crisis in your hands. What also happens is that the energy of the citizens is then spent in getting hold of the resources instead of building a knowledge base – and as a result the country’s educational, scientific and democratic systems falter.

Japan knew exactly that it had no oil wells to dig – so instead its people dug in their own brains – and came up with world beating companies such as Sony and Toyota. Likewise, Facebook was not created because a large mine of diamond was unearthed, but because Mark Zuckerberg unearthed a large mine of new ideas in his brain. On every such occasion, people came up with new ideas because they had to – that is, the market dictated that something new and innovative be found – whereas in the case of oil rich countries all you had to do was dig and sell.

This is also why it is no coincidence that the most petrol rich states are also the least democratic states. Oil-backed regimes that do not have to tax their people for revenue—because they can just drill an oil well and sell the oil abroad—also do not have to listen to their people or represent their wishes. Because the money is being pumped in from the oil exports, they do not feel the pressure to reform their systems and make themselves more accountable. Bahrain was the first Persian Gulf country to discover oil and also the first country to start running out of it. Consequently, Bahrain reformed its political system and was the first Gulf country to hold a free and fair parliamentary election, in which women could run and vote.

While the Resource Curse thesis has no proof, and there are definitely countries out there that are exceptions (most notably USA), it nonetheless offers food for thought to countries that do not have much resources as well as those that have plenty – for what truly are the pre-requisites for economic development.

Thursday, 6 May 2010

No the WMDs aren't in Iraq, they're on Twitter!

When George W Bush ransacked Iraq back in 2003, it was on the pretext that the country had acquired Weapons of Mass Destruction - otherwise known as WMDs. While the country was destroyed and America secured its oil supplies, no WMDs were eventually found.  So what became of those WMDs? Well thanks to Lalit Modi, we now know that you need not be in Iraq to find WMDs, you just have to be on twitter.

Twitter? What is that? For those that may be slightly challenged in this age of online social networking, twitter is an online community where you get to send and read tweets of different people. And what are tweets? Well in short, they are 140 characters 'long' messages that were originally started as a way of keeping one’s friends and family informed about ‘what you were upto’

Just how powerful can a 140 character long tweet be?

Consider this tweet that Lalit Modi posted in reply to a certain xxxDEVxxx on the 11th of April at 4:31 PM:

"I was told by him not to get into who owns rendezvous.Specially Sunanda Pushkar.Why?The same has been minuted in my records

What followed this seemingly harmless tweet was complete mayhem. This is how the events panned out:

The opposition, keen on picking up any issue that could hurt the government, publicly pillored Shashi Tharoor. Tharoor himself gave an invalid excuse saying Sunanda Pushkar got the sweat equity in the franchisee for her role as a marketing executive, forgetting that, as MJ Akbar puts, “You do not get sweat equity in perpetuity, which means free and forever, with a starting value of Rs 70 crore, for being an unknown executive of a Dubai company.” The opposition did not buy this argument and the government was forced to accept Tharoor’s resignation –  thereby this becoming the first instance where a minister in the government had to resign for alleged corruption ever since the UPA came into power in 2004.

Having cleaned its own house, the government then trained its guns on Lalit Modi, going through every financial transaction of his. Meanwhile, nationwide raids were carried out on the IPL franchisees to let the public know the government was acting tough. The IPL Commissioner was eventually suspended and the UPA’s ally partner the NCP was brought into the equation as well. Charges were levelled against Sharad Pawar and Praful Patel, and it was just a reminder from the Congress to the NCP as to just who was the boss.

But it did not end there. Somehow it was leaked to the media that Sharad Pawar's phone was tapped at the height of the IPL controversy, including his “conversation” with Lalit Modi. Further reports that followed suggested that this was just the tip of the iceberg and that there was a much wider phone tapping excercise that was going on. This got the opposition united and a cut motion was introduced in the parliament. But during the cut motion, the BJP’s ally in Jharkhand, the JMM voted for the government. This got the BJP worked up and it then decided to withdraw support to the Jharkhand government. The JMM realizing its mistake apologized to the BJP and begged for forgiveness, to which the BJP has said it will consider. And so, as things stand today, the fate of the Jharkhand government hangs in balance.

There is no doubt that had Lalit Modi foreseen what was to follow his tweet he would not have tweeted in the first place. But it’s too late for him now and nothing can be done. This is just the price you pay when you try to become bigger than the system. Lalit Modi thought he could get away by splashing mud on the Kochi franchisee's face, instead he ended up splashing mud on everyone's faces including his own. As for Mr. Tharoor, well it can be now said that he lived by the tweet and died by it.

No one has come out of this episode in shining light – not him, not the government, not the opposition, not the franchisees, not the BCCI, not the IPL and not even the game of cricket. It’s a gloomy episode and a sad state of affairs.

When a tweet from a BCCI vice president can topple a government in Jharkhand, you know the tweet can cause mass destruction. Now only if George Bush knew.

On a lighter note -

Question: If Mayawati owned an IPL team, who would it be led by?
Answer: Dalit Modi!