Why natural resources should help end poverty

The BP crisis in the Gulf of Mexico has laid bare the harm caused by the plunder of natural resource

Natural assets can be hugely valuable for the poorest countries. In Afghanistan, the Americans have used new aerial prospecting technology to scour the country for natural resources. So far they have found $1trn's worth. Properly used, this would be enough money to transform Afghanistan into a land of prosperity. It could finance the security, schools and infrastructure that are the foundations from which ordinary people can earn a decent living.

But natural resources can also generate huge liabilities. The distinctive feature of BP's catastrophe in the Gulf of Mexico is not its physical scale - over the years, the Niger Delta has been similarly wrecked - but that, for the first time, the environmental costs of extraction have occurred within a jurisdiction where the perpetrator has legal liability for them. And environmental costs are a pinprick compared to the social costs that the struggle for control of natural assets can run up if it turns violent. Instead of attaining prosperity, Afghanistan could find itself repeating the history of Sierra Leone. Its $1trn of natural assets could merely morph the violence, turning it from being driven by a warped ideology into the probably more secure motivation of raw greed.

In the coming decade, the poorest societies in the world - home to the bottom billion - will need to manage the huge opportunities and risks posed by natural resources. Central Asia and Africa are the last frontiers for resource extraction, and with high global commodity prices and new prospecting technologies, the natural assets hidden beneath their territories will be discovered. Whether this leads to environmental degradation and violent plunder or a meteoric ascent out of poverty depends on the choices that these societies make. Not only are the stakes high, but the choices involved are complex. Harnessing natural assets for environmentally responsible prosperity is not just a matter of "good governance": the decision-makers need to know the underlying economics along a whole chain of decisions.

The chain starts with how resource extraction rights are sold. Past and present practices of secretly negotiated deals expose societies to the acute technical problems of agency, information asymmetry and time inconsistency. The agency problem is the simplest: ordinary citizens cannot readily control what their representatives, politicians and officials get up to. Information asymmetry is about the huge advantages that companies have in knowing the true value of prospecting rights and the many ways in which they can conceal true profits.

Time inconsistency is the most complex: it is about the difficulty that governments have in making credible commitments, and the consequences from companies not trusting the deals that governments offer. Or, as an industry insider recently put it to me, given the reputation of the government of the Democratic Republic of Congo, the Chinese offer $6bn of infrastructure in return for $60bn of resource extraction rights was "quite reasonable".

Share and share alike

The next link in the chain is avoiding disasters such as that of the Niger Delta, in which neglect has generated a violent response. Risks must
be kept to a minimum by a combination of regulation and legal liability - whichever is the more effective and credible option in practice. Unavoidable environmental damage, which will often be extensive, should be compensated for generously. Extraction companies are tempted to give local communities a share in ownership of natural assets. This can be dangerous; a fairer use of natural assets should be for the benefit of an entire society, not just lucky local people. A commitment by a local popu­lation to participate fully in national sharing of the benefits is essential, but privileged local ownership can be a slippery slope.

For all citizens to benefit from resource extraction, a government must be able to collect rents through taxation. At present, national tax systems are often so poorly designed that this does not happen. Zambia is exporting some $3bn of copper, yet tax revenues from these exports are a mere $100m. The global copper boom has benefited the Chinese who own the copper company far more than it has benefited ordinary Zambians.

Effective taxation is difficult, more often than not because the extraction companies hire first-rate accountants, part of whose job is to conceal true profits. Such information asymmetry can be countered either by governments hiring the accountancy expertise they lack, or by redesigning the tax system to target things that are more easily possible to observe than profits - such as gross revenues.

Once a government succeeds in taxing resource rents, its next decision is what to do with the income. Because revenues are unsustainable, generated by depleting a natural asset over which the current generation has only limited rights, the ethical imperative is that they should not all be used up in the present day. This is the legitimate ethical insight from environmentalism - future generations have rights over natural assets that the present generation must not infringe.

The plunder of nature takes two distinct forms: the few expropriating what should belong to the many, and the present expropriating what should belong to the future. Both matter. But where romantic environmentalism goes awry is in insisting that respecting the rights of the future must take the form of preserving nature as it is. We are not, ultimately, curators of natural artefacts. Defining ethical behaviour in that way would be to put environmentalism in conflict with the struggle to end global poverty.

Natural assets are special, but that is because the future has rights over their value. When a poor society can rise out of poverty by using some of its natural assets, it is ethical to do so. The important political struggle is not to preserve nature, but to harness it for the benefit of future generations in the poorest societies. That takes us back to the decision chain.

The final link in the chain is what to do with revenues that are not used up. They should be invested in the domestic economy, not used to build up foreign exchange in a future generations fund - but the issue is how to do it. Too often in the past, attempts to have a big investment push have foundered on corruption and inefficiency in public projects. During the oil boom of 1974-85 the Nigerian government spent heavily on infrastructure, but it did not get much infrastructure for its money. The capacity to invest large amounts of money productively has to be built, within both the public and the private sector. I call this "investing in investing". Although it is the final link in the decision chain, it needs to be done early,
because without it revenues cannot be spent sustainably.

So, how is this complex decision chain to hold fast, not just once, but repeatedly for two or three decades (the minimum time needed for a poor society to achieve modest prosperity)? There is no substitute for the hard task of building a critical mass of informed citizens, society by society.By that, I mean a group sufficient in size to get these decisions right. Sometimes it may require a voting majority, but more usually in poor societies it will involve the few thousand people who directly or indirectly influence how senior officials and politicians think.

Taking on the tiger

Modern communication technology has vastly lowered the costs of knowledge and also enhanced the ability of citizens, once informed, to organise themselves collectively into pressure groups. The Extractive Industries Transparency Initiative (EITI) shows what is possible. Less than a decade old, it has already shifted practice on transparency and is sure to achieve much more: for example, the new finance minister of Afghanistan was previously the EITI representative for the country. I realised the scope for reaching people when my 2007 book, The Bottom Billion, was translated into 15 languages and a related talk was posted on a website that had 35 million hits.

That is why I have written The Plundered Planet. The EITI, which focused on transpar­ency of revenues, was the right place to start - without such transparency, there is little hope that decisions will be got right. But it would be the wrong place to stop: citizens need to understand the entire decision chain, not just scrutinise revenues. The Natural Resource Charter, described in the book, is a civil society initiative that builds on the EITI and complements it. It is a website being built by a wide group of stakeholders, designed for citizens and governments of resource-rich countries.

In trying to break out of the history of plunder, initiatives that create specialist international organisations, books and websites may be peashooters aimed at a tiger. Or they may prove to be the stone that slew Goliath. Rather than mock our efforts, help to strengthen them.

“The Plundered Planet: How to Reconcile Prosperity with Nature" by Paul Collier is published by Allen Lane (£20)

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The Conservatives have failed on home ownership. Here's how Labour can do better

Far from helping first-time buyers, the government is robbing Peter to pay Paul

Making it easier for people to own their own first home is something to be celebrated. Most families would love to have the financial stability and permanency of home ownership. But the plans announced today to build 200,000 ‘starter homes’ are too little, too late.

The dire housing situation of our Greater London constituency of Mitcham & Morden is an indicator of the crisis across the country. In our area, house prices have increased by a staggering 42 per cent over the last three years alone, while the cost of private rent has increased by 22 per cent. Meanwhile, over 8200 residents are on the housing register, families on low incomes bidding for the small number of affordable housing in the area. In sum, these issues are making our area increasingly unaffordable for buyers, private renters and those in need of social and council housing.

But under these new plans, which sweep away planning rules that require property developers to build affordable homes for rent in order to increase the building homes for first-time buyers, a game of political smoke and mirrors is being conducted. Both renters and first-time buyers are desperately in need of government help, and a policy that pits the two against one another is robbing Peter to pay Paul. We need homes both to rent and to buy.

The fact is, removing the compulsion to provide properties for affordable rent will be disastrous for the many who cannot afford to buy. Presently, over half of the UK’s affordable homes are now built as part of private sector housing developments. Now this is going to be rolled back, and local government funds are increasingly being cut while housing associations are losing incentives to build, we have to ask ourselves, who will build the affordable properties we need to rent?

On top of this, these new houses are anything but ‘affordable’. The starter homes would be sold at a discount of 20 per cent, which is not insignificant. However, the policy is a non-starter for families on typical wages across most of the country, not just in London where the situation is even worse. Analysis by Shelter has demonstrated that families working for average local earnings will be priced out of these ‘affordable’ properties in 58 per cent of local authorities by 2020. On top of this, families earning George Osborne’s new ‘National Living Wage’ will still be priced out of 98 per cent of the country.

So who is this scheme for? Clearly not typical earners. A couple in London will need to earn £76,957 in London and £50,266 in the rest of the country to benefit from this new policy, indicating that ‘starter homes’ are for the benefit of wealthy, young professionals only.

Meanwhile, the home-owning prospects of working families on middle and low incomes will be squeezed further as the ‘Starter Homes’ discounts are funded by eliminating the affordable housing obligations of private property developers, who are presently generating homes for social housing tenants and shared ownership. These more affordable rental properties will now be replaced in essence with properties that most people will never be able to afford. It is great to help high earners own their own first homes, but it is not acceptable to do so at the expense of the prospects of middle and low earners.

We desperately want to see more first-time home owners, so that working people can work towards something solid and as financially stable as possible, rather than being at the mercy of private landlords.

But this policy should be a welcome addition to the existing range of affordable housing, rather than seeking to replace them.

As the New Statesman has already noted, the announcement is bad policy, but great politics for the Conservatives. Cameron sounds as if he is radically redressing housing crisis, while actually only really making the crisis better for high earners and large property developers who will ultimately be making a larger profit.

The Conservatives are also redefining what the priorities of “affordable housing” are, for obviously political reasons, as they are convinced that homeowners are more likely to vote for them - and that renters are not. In total, we believe this is indicative of crude political manoeuvring, meaning ordinary, working people lose out, again and again.

Labour needs to be careful in its criticism of the plans. We must absolutely fight the flawed logic of a policy that strengthens the situation of those lucky enough to already have the upper hand, at the literal expense of everyone else. But we need to do so while demonstrating that we understand and intrinsically share the universal aspiration of home security and permanency.

We need to fight for our own alternative that will broaden housing aspirations, rather than limit them, and demonstrate in Labour councils nationwide how we will fight for them. We can do this by fighting for shared ownership, ‘flexi-rent’ products, and rent-to-buy models that will make home ownership a reality for people on average incomes, alongside those earning most.

For instance, Merton council have worked in partnership with the Y:Cube development, which has just completed thirty-six factory-built, pre-fabricated, affordable apartments. The development was relatively low cost, constructed off-site, and the apartments are rented out at 65 per cent of the area’s market rent, while also being compact and energy efficient, with low maintenance costs for the tenant. Excellent developments like this also offer a real social investment for investors, while providing a solid return too: in short, profitability with a strong social conscience, fulfilling the housing needs of young renters.

First-time ownership is rapidly becoming a luxury that fewer and fewer of us will ever afford. But all hard-working people deserve a shot at it, something that the new Conservative government struggle to understand. 

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What Jeremy Corbyn can learn from Orwell

Corbyn’s ideas may echo George Orwell’s – but they’d need Orwell’s Britain to work. It’s time Corbyn accepted the British as they are today.

All Labour Party leaderships since 1900 have offered themselves as “new”, but Tony Blair’s succession in 1994 triggered a break with the past so ruthless that the Labour leadership virtually declared war on the party. Now it is party members’ turn and they, for now at any rate, think that real Labour is Jeremy.

To Keir Hardie, real Labour had been a trade union lobby expounding Fellowship. To the Webbs, real Labour was “common ownership” by the best means available. Sidney’s Clause Four (adopted 1918) left open what that might be. In the 1920s, the Christian Socialist R H Tawney stitched Equality into the banner, but during the Depression young intellectuals such as Evan Durbin and Hugh Gaitskell designated Planning as Labour’s modern mission. After the Second World War, Clement Attlee followed the miners (and the London Passenger Transport Board) into Nationalisation. Harold Wilson tried to inject Science and Technology into the mix but everything after that was an attempt to move Labour away from state-regulated markets and in the direction of market-regulated states.

What made the recent leadership contest so alarming was how broken was the intellectual tradition. None of the candidates made anything of a long history of thinking about the relationship between socialism and what the people want. Yvette Cooper wanted to go over the numbers; only they were the wrong numbers. Andy Burnham twisted and turned. Liz Kendall based her bid on two words: “Have me.” Only Jeremy Corbyn seemed to have any kind of Labour narrative to tell and, of course, ever the ­rebel, he was not responsible for any of it. His conference address in Brighton was little more than the notes of a street-corner campaigner to a small crowd.

Given the paucity of thinking, and this being an English party for now, it is only a matter of time before George Orwell is brought in to see how Jeremy measures up. In fact, it’s happened already. Rafael Behr in the Guardian and Nick Cohen in the Spectator both see him as the kind of hard-left intellectual Orwell dreaded, while Charles Cooke in the National Review and Jason Cowley in the New Statesman joined unlikely fashion forces to take a side-look at Jeremy’s dreadful dress sense – to Orwell, a sure sign of a socialist. Cooke thought he looked like a “burned-out geography teacher at a third-rate comprehensive”. Cowley thought he looked like a red-brick university sociology lecturer circa 1978. Fair enough. He does. But there is more. Being a middle-class teetotal vegetarian bicycling socialistic feministic atheistic metropolitan anti-racist republican nice guy, with allotment and “squashily pacifist” leanings to match, clearly puts him in the land of the cranks as described by Orwell in The Road to Wigan Pier (1937) – one of “that dreary tribe of high-minded women and sandal-wearers and bearded fruit-juice drinkers who come flocking towards the smell of ‘progress’ like bluebottles to a dead cat”. And though Corbyn, as “a fully fledged, fully bearded, unabashed socialist” (Huffington Post), might make all true Orwellians twitch, he really made their day when he refused to sing the National Anthem. Orwell cited precisely that (see “The Lion and the Unicorn”, 1941) as an example of the distance between left-wing intellectuals and the people. It seemed that, by standing there, mouth shut, Comrade Corbyn didn’t just cut his wrists, he lay down full length in the coffin and pulled the lid shut.


Trouble is, this line of attack not only misrepresents the Labour leader, it misrepresents Orwell. For the great man was not as unflinchingly straight and true as some people think. It is impossible, for instance, to think of Orwell singing “God Save the King”, because he, too, was one of that “dreary tribe” of London lefties, and even when he joined Labour he remained ever the rebel. As for Corbyn, for a start, he is not badly dressed. He just doesn’t look like Chuka or Tristram. He may look like a threadbare schoolteacher, but Orwell was one twice over. Orwell was never a vegetarian or a teetotaller, but, like Corbyn, neither was he interested in fancy food (or drink), he kept an allotment, drove a motorbike, bicycled, cared about the poor, cared about the environment, loathed the empire, came close to pacifism at one point, and opposed war with Germany well past the time when it was reasonable to do so.

In Orwell’s thinking about socialism, for too long his main reference point was the London Marxist left. Not only did he make speeches in favour of revolutions, he took part in one with a gun in his hand. Orwell was far more interested, as Corbyn has been far more interested, in speaking truth to power than in holding office. His loyalty was to the movement, or at least the idea of the movement, not to MPs or the front bench, which he rarely mentioned. There is nothing in Corbyn’s position that would have shocked Orwell and, should they have met, there’d have been much to talk about: belief in public ownership and non-economic values, confidence in the state’s ability to make life better, progressive taxation, national health, state education, social care, anti-socially useless banking, anti-colonialism and a whole lot of other anti-isms besides. It’s hard to be sure what Orwell’s position would have been on Trident and immigration. Not Corbyn’s, I suspect. He was not as alert to feminism as he might have been but equally, few men try to write novels from a woman’s point of view and all Orwellians recognise that Julia is the dark hero of Nineteen Eighty-Four. In truth they are both austere types, not in it for themselves and not on anyone else’s expense account either. Corbyn won the leadership because this shone through from the very beginning. He came across as unaffected and straightforward – much as Orwell tried to be in his writing.

Except, as powerfully expressed in these pages by John Gray, Corbyn’s politics were made for another world. What sort of world would he need? First off, he’d need a regulated labour market: regulated by the state in partnership with a labour movement sensitive to what people wanted and experienced in trying to provide it. He would also need capital controls, a manufacturing base capable of building the new investment with Keynesian payback, an efficient and motivated Inland Revenue, a widespread public-service ethos that sees the country as an asset, not a market, and an overwhelming democratic mandate to get things done. In other words, Corbyn needs Orwell’s Britain – not this one – and at the very least, if he can’t have that, he needs the freedom to act that the European Commission forbids.

There’s another problem. Orwell did not trust left-wing intellectuals and spent half his life trying to work out their motivations as a class who spoke for the people, went in search of the people, and praised the people, but did not know them or believe in them. True, Corbyn says he wants to be open and inclusive, but we know he can’t possibly mean it when he says it will be the party, not him or the PLP, that will decide policy, just as we knew it couldn’t possibly be true when he said he’d turn PMQs into the People’s Question Time. Jeremy hasn’t changed his mind in forty years, appears to have great difficulty (unlike Tony Benn) in fusing socialism to national identity or experience (Hardie, Ben Okri and Maya Angelou were bolted on to his Brighton speech) and seems to think that not being happy with what you are given somehow captures the historic essence of socialism (rather than its opposite).

Granted, not thinking outside the ­circle is an inherent fault of the sectarian left but some of our most prominent left-wing journalists have it, too. Working-class support for nationalisation? Good. Right answer! Working-class opposition to benefit scroungers and further mass immigration? Bad. Wrong answer! Would you like to try again? In his essay “In Defence of Comrade Zilliacus” (1947) Orwell reckoned that left-wing intellectuals saw only what they wanted to see. For all their talk of representing the people, they hated the masses. “What they are frightened of is the prevailing opinion within their own group . . . there is always an orthodoxy, a parrot-cry . . .”

The game is hard and he may go down in a welter of knives, yet Corbyn still has time. He may go on making the same speech – on the benefits of apple pie to apple growers – but at some point he will have to drop the wish-list and get on the side of the British people as they are, and live with that, and build into it. Only the nation state can even begin to do the things he wants to do. The quicker he gets that, the quicker we can see if the latest incarnation of new Labour has a future.

Robert Colls is the author of “George Orwell: English Rebel” (Oxford University Press)

This article first appeared in the 08 October 2015 issue of the New Statesman, Putin vs Isis