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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What Britain needs to understand about the profound and ancient divisions in Germany

As Angela Merkel campaigns for re-election, the balance of power in Europe is changing.

On 24 September, Angela Merkel will be re-elected chancellor of Germany and that, we might think, will be that. With Merkel and France’s Emmanuel Macron in control of the European project, populism will surely be vanquished and the old Franco-German core of the EU restored. Yet things are changing, and if western Europe wants Germany to keep singing “Ode to Joy” as enthusiastically as “Deutschlandlied”, it will have some work to do. Our Brexit negotiators need to see how important this is to Macron, to other European leaders and, above all, to thinking Germans.

For we may all soon miss the old, self-effacing Germany. Despite having such economic power, it always seemed to have no greater wish than to exist as part of a larger whole. Konrad Adenauer, its first postwar chancellor and founding father, made Westbindung (“binding to the West”) the heart of West German politics. Adenauer came from the deeply Catholic Rhineland, “amid the vineyards” as he put it, “where Germany’s windows are open to the West”. His instinctive cultural sympathy was with France, but he knew that West Germany’s existence depended on keeping America in Europe. France he courted out of profound conviction, the US out of clear-eyed necessity, and he was worried that after him this twin course might be abandoned. His demands for reassurance during his final year in office led to John F Kennedy’s “Ich bin ein Berliner” speech of 1963. Every West German knew about that, and about the Berlin Airlift: these became locations of national memory from which West Germany triangulated its sense of self.

There were some Germans for whom this was too much. Anti-Americanism was ingrained among West Germany’s hard left, the early Green Party and the tiny hard right. But even Germans who were suspicious of America had no fear of tying themselves closer to Europe. On the contrary, that was exactly what they wanted. The standard explanation of this is guilt. West Germans, in this argument, felt so remorseful about the horrors of the Second World War that they wanted to make amends. This idea fitted with others’ belief that Germany did indeed have much to feel guilty about.

A nuanced version of this held that the western Germans thought they had somehow “got away with it”, compared with their brethren in the east, who had felt the weight of Soviet vengeance: rape, pillage, occupation. Accordingly, Germany’s willingness to subsume itself so thoroughly, even as it footed the bills for the European Economic Community and later the European Union, was accepted with little gratitude, almost as an ongoing war debt repayment.

This guilt thesis is based on a misunderstanding of German history, especially of the experience of western Germans. The most graphic illustration of this comes from Adenauer. In 1955, he privately informed the British that while he was obliged to act in public as though he wished for reunification, he intended to devote his remaining years to blocking it. In 1961, he secretly proposed to the Americans that they offer the Russians a swap: they and he should, he said, give up West Berlin in return for Thuringia (the region containing Leipzig and Weimar). He wanted, in effect, to make the River Elbe the eastern border of Germany.

Why did Adenauer dislike the eastern Germans, think Berlin was expendable and consider the River Elbe to be the natural frontier? Simple: he knew that the Elbe was Germany’s Mason-Dixon line. Beyond it lay the flat, grim Prussian heartlands, which until 1945 stretched into present-day Russia. This vast region was known to Germans as “Ostelbien” – East Elbia. Adenauer viewed the “unification” of Germany in 1871 as East Elbia’s annexation of the west. That’s why in 1919, as mayor of Cologne, and again in 1923, he tried to get Britain and France to back a breakaway western German state. Having failed, he is said to have muttered, “Here we go, Asia again,” and closed the blinds every time his train crossed east over the Elbe.

Prussia was a different country. The victorious Allies agreed. On 25 February 1947, they declared: “The Prussian state, which from early days has been a bearer of militarism and reaction in Germany… together with its central government and all its agencies are abolished.” The name Prussia was eradicated. The Prussian hegemony of 1871-1945, an anomaly in the two millennia of German history, was over.

If we understand this, we understand what West Germany really was and why it acted as it did; why the “reunification” of 1990 – or, at least, the way it was handled – was such a mistake; why we may all have to stop taking Germany quite so much for granted now that East Elbia is back; and why our Brexit negotiators are on a hiding to nothing if they believe that the Germans have no more urgent business to consider than their car exports to us. Far more important to liberal Germans is keeping safe the western soul of Germany.

***

West Germany was anything but an artificial construct. It was the historical Germany, being almost geographically identical to what was, for almost 1,200 years, the only Germany. Julius Caesar named the land, together with its people, in 58 BC; 49 years later, Drusus, the greatest commander of the infant Roman empire, is said to have been supernaturally advised that after defeating every tribe he met in Germania, he should halt at the River Elbe. By 100 AD, Roman rule was shown by a fortified border, the Limes Germanicus. You can still walk large stretches of it; it encompasses most of the richest land in modern Germany and all of the great cities except Hamburg, Berlin and the 19th-century industrial monocultures of the Ruhr. Even these last were born as trading posts or forward bases within what archaeologists call the “market region” of Germania – the lands beyond the limes where commerce with the Roman empire defined the whole culture. Southern and western Germany’s cultural roots are almost as Roman as France’s.

But what about 9 AD and the destruction of three Roman legions by the German tribes under Arminius? There is a popular myth that this kept all Germany free and different. We owe this idea to Martin Luther and his supporters: Luther claimed from 1520 onwards to be a German, anti-Roman hero and identified himself with the newly rediscovered tale of Arminius. More decisively, the events of 9 AD were an obsession of later Prussian historians, who had an interest in claiming that the real Germany was one that was pure and un-Romanised. Yet the reverse is true. Under the Romans, then the Merovingians, then the Franks, the Rhine/Danube super-region of Germany remained politically and culturally a part of western Europe. After Charlemagne, a Rhineland German, “restored the Roman empire” (as his seals put it) in 800 AD, western Germany was the very centre of things. It was never a nation state, but always the key part of a greater whole, the Holy Roman empire.

Along the Elbe, things were different. Charlemagne extracted tribute from the pagan Slavs across the river, and his successors tried to build on this, but the German conquest and settlement of East Elbia only really began with the Wendish Crusade of 1147, the northern arm of the Second Crusade. Three centuries later, the entire region was still hotly disputed by Balts and Slavs, with German supremacy threatened by major defeats at Tannenberg (1410) and in the Hussite Wars (1419-34).

Long-contested frontier lands breed a special kind of society. The German incomers cowed the natives, such as the pagan Pruscie from whom they ultimately borrowed their name, through brute force. Where they couldn’t, they had to make armed deals with local elites. In this new sort-of-Germany, the Junkers, an aggressive landowning caste, lorded it over the Slavs and Balts – as well as poorer Germans, who knew that the locals would cut their throats if the Junker castles fell, so were loyal and subservient to their masters. East Prussia remained like this within living memory.

In 1525, Prussia named itself and declared itself the first Protestant state. From then on, it had absolute rulers, the Hohenzollern dynasty, backed by a quiescent Lutheran state church. The Junkers swore loyalty in return for exclusive access to all officer-level jobs in the army and the administration. By the mid-18th century, Voltaire quipped that while other states had armies, the Prussian army had a state. The overriding strategic concern of Prussia was always with the east. In his 1758-59 campaigns, Frederick the Great was shocked to find the Russians extremely hard to beat. He bequeathed to his successors a policy of keeping the tsars onside. Partitioning Poland between them was the sticking plaster that masked this Russian-Prussian rivalry, right until 1941.

This thoroughly east-facing power was, by the normal standards of European statehood – history, social structures, religion, geography – a different country from the Rhineland, Swabia or Bavaria. It defeated them all in 1866, laying the ground for the “unification” of 1871. The Prussian empire (for that is what it was) could now enlist the wealth, industry and manpower of Germany in pursuit of its ancient goal: hegemony over north-eastern Europe. By 1887, the future imperial chancellor Bernhard von Bülow was already musing on how to destroy Russia “for a generation”, cleanse Prussia of its Poles, set up a puppet Ukrainian state and take the Prussian armies to the banks of the Volga. This is the bloody Prussian – not German – thread that leads directly to the Nazi onslaught of 1941. In 1945, that centuries-long struggle was settled, in almost inconceivable violence. Half of East Elbia was ruthlessly stripped of Germans and handed over to Poles or Russians; the rump became the German Democratic Republic (GDR), a mere satrap of the Red Army.

So while it is easy and comfortable to say that the otherness of eastern Germany today is the result of that 40-year Soviet occupation, history says otherwise. East Elbia has always been different. Take the voting patterns: from 1871 to 1933, East Elbia outside Berlin (always a left-liberal political island) was the main electoral reservoir for the authoritarian right. The Prussian Conservative Party under the empire, the Deutschnationale Volkspartei until 1928 and the Nazis from 1930 depended on rural and small-town East Elbian voters. It was they who (just) swung things in 1933, by going 50-60 per cent for the “Hitler coalition”. Had all Germany voted like the Rhineland or Bavaria, Hitler and his Junker allies would have got nowhere close to a majority. Small wonder that Adenauer didn’t want East Elbia back and was secretly delighted to have it safely fenced off behind the Iron Curtain.

***

West Germany (1949-90) – Germany shorn of Prussia – was, then, no historical fluke, and nor was the supra­national way it acted. This was the real Germany. But the hasty reunification of 1990 (there was no referendum or election on the issue) changed things. Why should the inhabitants of the former GDR, rather than Poles and Czechs, get immediate access to the wealth and benefits of the West? Because they were Germans. With that, the chancellor Helmut Kohl embraced the notion that being German overrode all considerations of social, economic or historical difference. He also subliminally revived the idea, common to the Second Empire and the Third Reich, that East Elbia was special and needed subsidising by the rich west of Germany. The director of the Bundesbank, Germany’s central bank, resigned in 1991 over this abandoning of economic sanity for political nationalism.

Since 1990, the former East Germany has received more than €2trn from the old West Germany, for a fast-ageing, shrinking and disproportionately male population of only 16 million, including Berlin. That’s the equivalent of a Greek bailout every year since 1990, and as a straight gift, not a loan. This represents a huge shift in financial priorities, overshadowing Germany’s annual net EU budget contribution (currently €15.5bn). In 1990, Kohl promised that western German aid would soon turn the new states into “blooming” areas, but they have become, instead, proof that age-old differences resist even the most gigantic subsidies.

Between 30 and 40 per cent of voters in East Elbia have declared over the past two years that at the general election, they intend to support either Alternative für Deutschland (Germany’s Ukip), Die Linke (heirs to the old East German Communist Party) or the all but openly neo-Nazi National Democratic Party (the NPD, currently represented in the Mecklenburg-Vorpommern state parliament). Though theoretical enemies, these three parties are united by cultural affinities: all despise economic liberalism, oppose Nato and the EU and want closer relations with Russia.

East Elbia no longer has the population to swing the entire German electorate of more than 61 million but many liberal western Germans are nervous. They recoil at the sight of anti-asylum-seeker attacks, which are proportionally far more common in East Elbia than in the west, or when they see Merkel heckled by right-wingers. They call East Elbia Dunkeldeutschland (“Dark Germany”) and joke bitterly that if Britain can have a Brexit, why can’t the old East Germans, whom they lump together under the name of Saxons, have a “Säxit”? But it’s no laughing matter. They know there are those only too aware of any anti-western drift in Germany and eager to give succour to it.

Alexander Saldostanov, the rabid leader of Russia’s “Night Wolves” bikers and a public friend of Vladimir Putin, recently told Germany’s bestselling daily, Bild, that he dreams of a grand union between Germany and Russia: “We have so much in common. You simply have to free yourself at last from America, that scourge of humanity. Together, we can, should and must take power.”

There’s no danger of that, but there is a sense in which eastern Europe is, to Germans, no longer “the other”. It’s the place whence natural gas flows from Russia, where labour is cheap but skilled and where the people are keen to work with Germany on setting up new sites of joint national memory. From Kaliningrad to Prague, museums and projects are springing up in which the horrors of the past are neither denied nor used as ammunition in today’s negotiations. In eastern Europe, perhaps because Russia is so close, the Germans are rarely made to feel guilty for their grandfathers’ sins. Meanwhile in the west, from Greece to Britain, people can’t resist mentioning the war whenever the Germans don’t act as desired.

***

Germany’s resources are not infinite. Nor is the patience of the 40 per cent of Germans who “have net worths of essentially zero”, as Die Welt reported last year – largely because German home ownership rates are the lowest in the EU. They are disproportionately concentrated in the old east, the region that never had supranational, western European connections. From them come ever-louder voices saying that Germany’s EU contribution is too high. And with Britain out, the maths will look even worse to such voters. If south-western Germany’s taxes have to keep bailing out the country’s east, while also helping out the old and new EU lands, what is left for, say, the post-industrial Ruhr, which has financial and social problems of its own? There are tough choices ahead, and it’s not hard to imagine a day when Germany decides to aim its subsidies and investments where they seem most welcome. The old idea of Mitteleuropa – a multi-ethnic, German-centred Middle Europe, neither of the West nor of the East – no longer seems so antiquarian. Nothing would gladden Putin’s heart more.

So, yes, Merkel will win the election and will have a chance to revive the EU’s Franco-­German core. Yet the relative strengths of France and Germany are different now. As for their leaders, while Adenauer was a devoted Catholic Rhinelander, Merkel is a Lutheran vicar’s daughter from the east. Bonn was physically close to Paris, Brussels, The Hague, even London; Berlin is closer to Prague and Warsaw.

With Donald Trump’s wavering on Nato and his noisy anti-German protectionism, along with Brexit, the West may no longer seem vital to Germany’s future. During Merkel’s election debate with her main challenger, Martin Schulz, on 3 September, Brexit was not even mentioned. The old EU core will have to work to keep Germany anchored, resisting any new call from the east. Macron and German liberals know that; that’s why there will be no Franco-German split over Brexit just to sell us a few more Audis. The sooner David Davis and Liam Fox realise that the Germans have far bigger issues to deal with, the better.

James Hawes is the author of “The Shortest History of Germany” (Old Street Publishing)