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The Paradox of Plenty

July 23, 2012

Anatole Kaletsky in The Liberal:

IN 1962, when the World Bank extended its first development loan to South Korea, the bank’s directors famously asked their researcher whether there was any chance of this impoverished and war-torn country ever catching up with the living standards of such wealthy African countries as the newly liberated republics of Ghana, Nigeria and Senegal, with their huge endowments of gold, oil, diamonds and forest products. Today, South Korea’s national income per head is 35 times higher than Ghana’s and three times that of Africa’s richest country, Botswana. Meanwhile, China, which as recently as 25 years ago was less prosperous than even the poorest African nations, now has an economy five times larger than the entire African continent.

Why have almost no African countries managed to achieve the sustained economic development which has lifted billions of people out of extreme poverty in east Asia? There are three inter-connected explanations: war, corruption, and the curse of natural resources. The first two are self-explanatory, the last one slightly less so. The ‘natural resource curse’ has been well-documented by economic historians since the collapse of the Spanish empire following the plunder of South American gold and silver. This phrase refers to the tendency of countries whose wealth is based on gold, oil or other valuable resources to ossify into unproductive and uncreative economies, with low levels of entrepreneurship, and industrial and commercial stagnation. This paradoxical phenomenon has many economic explanations, mostly related to currency valuations, investment levels and income distributions. In Africa’s case, however, it is politics more than economics that is to blame. [More]

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