Do natural resources equal wealth?

When one thinks of wealthy nations, our minds immediately land on countries like the United States of America or of the island nation of England. Yet, what makes these nations so wealthy? Is it their natural resources? Some may say these nations are rich due to, “dependency theory,” which is a concept developed by Vladimir Lenin to explain why capitalist nations did not fall into turmoil, as Marx had predicted. Lenin’s concept would be expanded by German-born British economist Hans Singer and Argentine economist Raúl Prebisch. In this new expansion the two economists believed, “underdeveloped nations could buy progressively fewer manufactured products from developed nations in exchange for the exports of their raw materials.” But is this true? Do natural resources or raw materials equal wealth for a nation and do wealthy nations exploit national resources from poor nations?

Japan's GDP since 1960

Source: World Bank

The idea of dependency theory and natural resources creating wealth is an attractive one indeed. However, this idea is too simplistic and does not stand to empirical evidence. We are unable to create a perfect experiment in a lab and test these ideas but we need not to. The nation of Japan is one of the perfect experiments we can look too. Japan suffered a catastrophic loss after WWII. Japan’s loss cost the nation 2.6 to 3.1 million lives and 56 billion USD. Its industrial sector was devastated, so how did this nation become to be known as a “miracle.” Did they have oil or gold and silver to exchange? Did they export other natural resources like minerals? No, Japan has virtually no oil and the few minerals they have are of low quality. Japan instead invested new technologies, as a matter of fact between 1950-1962, “Japan signed almost two thousand contracts for technical cooperation with foreign nations, in rapid developing industries like iron, steel, petrochemical, engineering, electronics and motor manufacturing.” Japanese business men constantly visited foreign nation in order to attain new ideas. By 1963, “210,000 of abstracts of foreign papers were conducted by Japan’s center of science and technology.” Of course this was not the only factor, capital accumulation through savings and investment played a massive part in the adoptions of these technologies. In essence, the Japanese saved what little capital they hand, invested this capital into new technologies in emerging industries and developed their labor force to meet the demands of the new labor market. The Japanese invested in themselves and developed human capital.

Japan isn’t the only example we can use, Hong Kong is another clear example of a nation with zero natural resources and despite this, they gained massive wealth. Hong Kong became such a giant that it competed economically with the United States, just like Japan did in the 1980s and 1990s.

These lessons should be taken to heart by other nations, specifically African nation such as Nigeria. Nigeria has more resources than Japan or Hong Kong, therefore, it has a clear advantage. However, despite Nigeria being the largest producer of oil in Africa and the sixth largest exporter in the world they are, “dependent on their natural resource exports, these countries have on average, lower growth rates, lower levels of human development, and more inequality and poverty.“ Nations such as Nigeria should be careful not to fall in the trap of confusing natural resources with wealth. Just like the socialist nation of Venezuela, all the oil in the world is worthless without human capital. Nigeria needs to understand that true wealth is in its people and the development of skills among its youth. After all, without human capital/innovation, oil would only be a black nightmare that would render land worthless.