The Myth of Natural Resources

Nature creates raw materials, not resources. It is human ingenuity and effort that transforms raw materials into resources

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It’s not natural resources but human wit which leads countries to success. (Photo: Flickr)

 

When I studied international economics in the 1960s, one of the explanations offered for the wealth of a nation was its endowment of natural resources. Then, countries were perceived to be rich or poor based on their natural resources. Nations with abundant natural resources were deemed to be rich, or potentially rich, nations poor in resources were destined to be poor.

Today, we understand that other factors are at play. For example, in their book Why Nations Fail, Daron Acemoglu, and James A. Robinson argue that a nation’s economic problems are caused by a lack of inclusive political rights. Poor nations are poor because they are ruled by narrow elites that organize society for their own benefit. Nations are rich because they have succeeded in creating inclusive political and economic institutions that allow participation by all.

Similarly, economist Gregory Clark in his book A Farewell to Alms offers a cultural explanation as to why some countries enjoy unprecedented wealth while others languish behind. After all, the key technological, organizational, and political innovations are well known, and all societies can employ them. So, why isn’t the whole world economically developed? Dr. Clark reasons that some societies “cannot instantly adopt the institutions and technologies of the more advance economies, because they have not yet culturally adapted to the demands of productive capitalism.”

These theses offer new economic insights, and yet, a nation’s endowment of natural resources is still viewed by many as deterministic of its wealth. The evidence shows differently. Below is a list of eight countries with practically no natural resources that are among the world largest exporters, and most successful economies. (Data sourced from the World Fact Book of the Central Intelligence Agency; GDP rankings are per capita.)

Japan, a volcanic island country with a large population, ranks number 4 in the world as an exporter, and number 42 in GDP. South Korea went from abject poverty to being a leading industrial powerhouse. It ranks number 5 in exports, and number 46 in GDP. Italy must import most raw materials needed for manufacturing. Yet, it ranks number 9 in exports, and number 50 in GDP. Hong Kong has little arable land and imports most of its food and raw materials. It ranks number 8 in exports, and number 18 in GDP. Singapore shows how a small island can become one of the world’s most prosperous economies. It ranks number 13 in exports, and number 7 in GDP. Belgium is heavily reliant on foreign raw materials. It ranks number 20 in exports, and number 35 in GDP. Switzerland proves that being landlocked is not an impediment to becoming a leading exporter. It ranks number17 in exports, and number 16 in GDP. Taiwan was left devoid of natural resources after Japanese colonial rule. Today, it ranks number 15 in exports, and number 28 in GDP.

The myth of natural resources was first exposed by Julian Simon (1932-1998) by demonstrating that the human mind is the ultimate resource. It is the human mind that creates what we call resources. Or, as Donald Boudreaux, of the American Institute for Economic Research, puts it “there are no natural resources.” Yes, nature created materials such as oil, but it was the creativity of the human mind that transformed oil into a resource. Nature creates raw materials, not resources. It is human ingenuity and effort that transforms raw materials into resources.

Raw materials become resources only when human creativity discovers how to employ those raw materials to satisfy our needs. Oil, has existed for millennia, but it was useless, say to the American Indian. Oil did not become a resource until we figured out how to extract it, and how to use it. Land was not a resource until we learned to cultivate it for agricultural purposes.

Environmentalists ignore one implication of Professor’s Simon’s work; economic growth does not promote resource depletion. Ultimately, economic growth prevents resource depletion by allowing more creative minds to survive, to interact, and to innovate. Prosperity allows for a greater quantity of the ultimate resource: human minds.

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