Why $1 Trillion May Thwart Afghanistan Dreams

June 15 (Bloomberg) — Now those tribes really have something to fight over. In case you haven't heard the mind-blowing news, impoverished Afghanistan has increased its potential net worth by a factor of 83 overnight.

Afghan mining experts may view the discovery of $1 trillion in natural resources as a new "backbone" for their economy, as one labeled it. But Afghanistan already fights over resources such as poppy plants.

The new bounty might escalate the already troubling conflict there into a global conflagration involving every meaningful power. It isn't hard to imagine Afghanistan's tribes, the Taliban, and, say, U.S. oil companies, President Vladimir Putin and the cash-rich Chinese all jumping in.

The research about resource wealth in the post-World War II period seems to confirm likelihood of an infelicitous outcome. The same studies, though, also define both a principle and a country that offer hope for Afghanistan. The principle is property rights, and the country is Botswana.

But first, the gloomy record. In case after case, evidence suggests that the presence of natural resource wealth in a country isn't a blessing but a curse, fostering political instability and, paradoxically, slowing economic growth.

Russia's revenue from oil gave Putin the power he needed to take the country half way back to Stalinism. Zimbabwe's farmland, platinum, gold, coal and cotton enabled Robert Mugabe to tyrannize that land for decades. In Nigeria, the impact of $1.6 trillion in oil cash over time has been pollution and poverty along with the black-hooded MEND, the creepy guerrilla group that patrols the Niger River delta, kidnapping and sabotaging.

Iron and Maoists

Diamonds buried within its hills didn't exactly bring peaceful prosperity to Sierra Leone in the 1990s, as we saw in the 2006 film "Blood Diamond." Even in India, one of the globe's significant success stories, a nasty battle involving iron ore is strengthening Maoist Naxalites and destabilizing the state of Chhattisgarh.

Formal studies convey the same bleak story. Oil wealth makes countries less friendly to entrepreneurs and less hospitable to the U.S, my colleague Gaurav Tiwari and I found. Groundbreaking analysis years ago by economist Jeffrey Sachs, now the director of Columbia University's Earth Institute, represented the first non-Marxist characterization of natural resources as a curse.

Scholars earlier identified a narrower version of that curse, Dutch Disease. This is the phenomenon whereby sales of oil or another natural resource harden the national currency, worsening trade for other export sectors and thereby killing them off.

Avoiding the Curse

Some countries have escaped the resource curse. One example is where the rule of law generally, and property rights specifically, are already well established when large deposits of natural resources were discovered. The U.K. survived, and benefitted, following discoveries of North Sea oil in the 1970s. Canada fared well after its discoveries of resource wealth.

The cause of a nation's continued stability seems to be property rights. It mattered less who owned the resources — governments, companies or a combination — than that those rights were clear and respected. It helped too that citizens trusted their government to share the wealth over time.

Botswana Model

More like Afghanistan is Botswana, which also has tribes and was fragile when it gained dependence. Over time, and with many twists and turns, Botswana resisted pure permanent nationalization. Instead it created Debswana, a profit-share agreement with the diamond company De Beers SA.

At the same time, the government committed to fight corruption and enforce the rule of law. Both the people of Botswana and the company shareholders benefitted. A nonprofit group, the Property Rights Alliance, ranks Botswana 44th in the world in property rights among nations, whereas Nigeria is 109 and Zimbabwe ranks 121.

Infant mortality in Botswana has dropped to 26 per thousand in 2008 from 118 in 1960. That compares with less dramatic drops to 62 from 97 in neighboring Zimbabwe and to 96 from 157 in oil-rich Nigeria.

"Botswana's post-colonial leadership, particularly Seretse Khama and Quett Masire, and also its major economic elites were committed to democracy, economic development, secure property rights and fairly orthodox macroeconomic policies," says Daron Acemoglu, the economist at the Massachusetts Institute of Technology who first called attention to Botswana's achievement.

Implications for Afghanistan

The takeaways for Afghanistan are controversial. The first is that a functioning and representative government is necessary. To skip town after overseeing the establishment of a loose federation of tribes, which is the U.S. impulse, is to guarantee that any "backbone" becomes a bone of contention instead.

Rule of law and good leadership at the outset (right now) are likewise crucial. Property rights are primary, not secondary. It matters less who owns something than that the rights of ownership be clear. Last, citizens must know they may claim a share of some form in the mineral wealth, currently, or in the future.

Marketing such ideas is going to be next to impossible, especially after the BP Plc oil disaster. Still, a positive alternative to the Botswana property-rights model is hard to imagine. If Afghanistan and its neighbors made war over resources above the ground, why should resources below promise an outcome any different?

(Amity Shlaes, senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2010 Bloomberg

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