Russia and Africa are too similar for their own good.
The Extraordinary Myth of Natural Resources.
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This is the opening salvo of a three-part series with an indirect relationship to the current crisis in Ukraine. The geopolitical and military nature of Russia's invasion have been and are already being discussed elsewhere on several reputable blogs, newsletters, threads, and articles. In keeping up with this newsletter's emphasis instead on emerging economies, industries, and trends, our concerns are a bit more left field.
Dictator: A sociopath with a million barrels of oil.
If someone were to ask me what is the most dangerous lie of the 21st century, I would answer that it was the fact that people talk about natural resources with a straight face. There has never been and there never will be any such thing as a natural resource. It is a fundamental impossibility.
It is important for me to be clear. When I say natural resources do not exist, I do not mean there isn't any such thing as a barrel of oil or a mine of silver. To deny those things exist is to deny reality altogether, a stance you are only entitled to adopt if you are a naive first-year philosophy undergrad. Rather, what I mean is these things are, by and of themselves, not natural resources.
Let's take oil, the most famous and contentious of them all. Every year, someone at ‘Meaningless Theory Thinktank’ or ‘Lament The Unfortunate NGO’ comes up with a forecast of how the world will run out of renewable resources by year 2050 - they often pick a year close enough in the future to be relevant but far enough to give themselves some cover.
Depending on the political beliefs of the researchers, the scarcity can be given a positive spin as in “hurray, once we start running out, mankind will finally start paying attention to renewables.” Or, it can be given a negative spin as in “oh my, we give way too much power to OPEC and dictators.”
Natural resources are treated like scarce, precious things which must be conserved and protected. According to this philosophy, we are the custodians of the planet and so it is our duty to ensure that we create a 'sustainable' economy. If we don't take care of mother nature, we will all die.
These beliefs are hardly recent and are championed by more illustrious sources than think tanks. In Garrett Hardin's inexplicably famous book, Limits to Living, he cites the famous example of reindeer left on a deserted island without natural predators. The reindeer ended up having so many offspring that the island could no longer sustain the reindeer population. It declined from 6,000 reindeer at its peak to just 42 in two years.
Hardin doesn't even bother with specific natural resources per se. His conclusions are much more general: resources are finite and human population keeps expanding, so at some point, the finitude of resources will translate into the finitude of the human race.
For good measure and to make his pessimism as watertight as possible, Hardin runs some rather rudimentary calculations and reaches the unsurprising conclusion that current space technology of the time is insufficient within any realistic timeframe to get us to the nearest earth-like star. His heartwarming recommendations are starvation, rigid birth control, and eugenics.
Several critics have tried to counter Hardin and co. by arguing that humans, unlike animals, can consciously control their population. The eloquently charismatic Hans Rosling was the most prominent of this bunch of optimists. But as much as they have a limited argument, their counterpoint is utterly unnecessary. It is invalid to assume the validity of an invalid argument.
The Myth of Natural Resources
To understand why Hardin is so wrong, and what Russia and Africa dangerously have in common, let us do a bit of time travel to say the fifteenth century. You, strangely dressed with a mobile phone in hand, are mistaken for a god and worshipped. Because you are a benovelent deity, you want to help these people. You confidently announce to them that sooner or later, they will run out of oil and they should do best to conserve it..
You will be met with puzzlement. The few who understand what crude oil is will laugh at you for suggesting such a smelly, foul liquid should be of any legitimate concern. Your godlike status will immediately be questioned and depending on where you are, you might end up on the sacrifice altar.
The reason these people cannot appreciate your well meaning advice is because there's nothing in their civilization that required crude oil. Was this the fault of crude oil? Was it just not as useful then? Was it just learning how to become valuable? Of course not. Crude oil hasn't changed. What changed was human knowledge and technology.
The collective knowledge of fifteenth century humanity had not reached a state where oil could mean anything of significant value. They had no steam engines, no excellent techniques of fractional distillation, no turbines, and no plastics.
Knowledge, in the form of technology, is the real and only resource. It is knowledge which estaishes a relationship between coltan in the DRC and the latest iPhone model in the hands of an excited swedish teenager. It is not coltan itself.
It is technology that converts, creates, consumes, utilizes, and refines ' natural resources.' Every commodity petroleum is useful for is useful because someone found a way to refine and create that commodity, and also because someone found a way, generally through fractional distillation, to refine and convert petroleum. It wasn't about petroleum itself.
All malthusian arguments fail for precisely this reason. They fail because they are incredibly arrogant. Anytime someone predicts we will run out of a resource by a particular date, what he or she is simply saying is that the current state of human knowledge will stay fixed permanently. Every constraint, every problem, every lack has nothing to do with resources. It is simply incomplete knowledge.
A hunter-gatherer society cannot sustain 8 billion people, our current population estimate, because they had not developed agriculture among other things, agriculture itself being an amalgam of technology and knowledge from irrigation to machinery to the Haber-Bosch process that is integral for artificial fertilizers.
If people in these societies perished due to starvation, and anthropological evidence indicates a lot of them died this way, the problem to them would simply have been that they ran out of food.
And that is true in a literal sense.
But the real problem, with the benefit of our hindsight, is that they ran out of knowledge. They encountered a state of affairs, usually a drought, for which their current technology was inadequate.
So, it is grossly dumb it to draw an analogy from reindeer on an island to human beings. Reindeer cannot grow grass. Even more, they cannot synthesise grass. Nor can they develop alternatives to grass altogether. Humans can do all three.
Their population, like ours, is irrelevant. 8 billion people is simply 8 billion people. Whether it is over population or under population depends on the available technology. In an hunter gatherer society or even an industrial revolution society, that's massive overpopulation. In a society that has mastered cheap and efficient material transmutation, it is massive underpopulation.
This extends as well to the idea that the Earth is a nurturing mother which we must do well to respect. It is similar nonsense. The Earth did not give us fire or gas cookers or concrete. We gave ourselves these things.
If you eliminate everything you have which is human-made, e.g clothes, shelter, gps, fire, etc, and try to live on your own in the wild, you would die in a couple of days. It is a certainty.
Russia's Dilemma
The law of conservation of mass states that matter can neither be created nor destroyed. If you write a letter to a person you are having an affair with, and then burn it up to conceal your secret, you have not reduced the matter in the universe.
The ashes will weigh lighter than the original paper because some of that matter has dispersed into air. If you burn it in a fully closed environment, there will be zero differences.
However, you have reduced the amount of information in the world. Whoever comes across your ashes certainly cannot read all the wonderful things you want your lover to do to you. That's because information is observer-dependent.
Information and knowledge can decrease, as they did when humans entered the middle ages, or they can increase as they did when we began the Renaissance in Italy. They are never fixed because they are not properties of the world itself. They are properties of participating in the world.
Value is the same thing. There's nothing intrinsic about value. It is a function of perception and demand. So, there are no hard limits on economic growth in either direction.
After the global meltdown, we had roughly the same cars, people, machinery, resources, etc. And yet, the world was much poorer than it was a few weeks prior. That is because value is not an intrinsic, fundamental thing. It is the outcome of perception.
And as a general rule, the more distant a product is from its raw components, or the more knowledge which has gone into the finished product, the more valuable it is. So, most of the value isn't in possessing the commodity. It isn’t even in extracting and exporting the commodity. It is in converting and changing the commodity.
African countries never seem to grasp this, that most of the value of having the mine or the oil well isn't captured by having the mine and the oil well. And they are doubly worse off for it because their investments in research and development are pathetic.
Research and development accounts for a mere 0.42 % of Sub-saharan Africa's GDP. To make matters worse, Sub-saharan Africa has the smallest regional GDP in the world, so we are talking a tiny fraction of a tiny fraction.
Mining in Africa relies on extensive child labour. Every child working in a mine is a child that can’t go to school. So, the population is, for other reasons as well, largely illiterate. This unhealthy combination guarantees that the basic gains of Africa’s ' natural resources' end up captured by foreign organizations.
Nigeria, for instance, mostly exports the purest grade of petroleum called Cinderella grade. But since it has no native operational refineries, it imports most of its gasoline from Belgium and the Netherlands who 'return the favour’ by selling a grade of gasoline so toxic that Nigeria has some of the worst air pollution in the world. Indeed, more people die in Nigeria because of air pollution than in any other country in Africa.
It's like a world-class chef starving to death because he cannot afford cooking utensils with the low pay he gets for selling his own recipes.
Russia is in a similar condition. The Cold War was a technological and military arms race with the USA that for the Russian people, came at the expense of basic economic amenities.
Russia was building state-of-the-art weapons and gadgetry - the Soviet Union were the first civilization in history to put a man in space - but bread lines were frustratingly common. It was passing calculus and failing arithmetic.
When the Soviet Union fell apart, a combination of bad economic advice from Free-Trade sirens and a society battered by inefficient oligarchs transformed into a kind of Schrodinger's ‘cat in the box’ economy: not alive but not dead either.
When Putin took over in 1999, he fully turned his country's back on research and development. Unlike Africa, Russia still has an highly educated population.
But like Africa, research and development spending is equally low. It’s just over 1 percent of Russia's GDP, a GDP which even before the invasion was smaller than that of Texas alone.
Countries eventually reflect what they spend on. And Russia is no different. Here is a map of Russia’s exports. Notice how most of them are raw commodities:
Unfortunately or fortunately, depending on whether you live in Russia or not, economies which mostly export raw commodities have to be incredibly open.
If you operate an economy that cannot make most of what it needs on its own, then global trade takes on even more importance.
Ironically, Russia is far more dependent on the world than its enemies are. That sort of dependence comes with consequences.
The sanctions that have been levied against the Russian economy would hit any economy hard. But the damage is most extensive for natural resource economies that only produce a few things.
Since the Russian economy only does a few things right, it has to import nearly everything else from critical inputs like semiconductors to consumer goods like smartphones. That is a stunning amount of fragility to accept if you have dictatorial ambitions.
But the beat even goes on. Every monoproduct economy is fragile to fluctuations in demand. If an economy makes a majority of its exchange from selling cars, a significant drop in demand for cars will hurt. In the same way that if you make most of your money from commodities, a significant drop in demand will also hurt.
The difference is an economy that makes good cars is able to pivot. If you can make cars, you know how to make steel which goes into a variety of products. You know how to make glass. You can make electronics. And you can probably make other high-quality vehicles. Your expertise is transferable because it is based on the knowledge of your people.
But if your country makes most of its money from commodities, then its growth isn’t transferable. It is simply a geographical accident.
Renowned economist Ha-Joon Chang, in his book Economics: A User’s Guide illustrates this problem perfectly:
Guatemala used to earn quite a lot of money by being the main producer of cochineal (cochinilla), the crimson dye favoured by the Pope and European royalties for their robes, until the invention of the artificial dye alizarin crimson. The Chilean economy was plunged into years of crisis when the Haber-Bosch process was developed in the early twentieth century to manufacture chemical substitutes for saltpetre (nitrate), the country’s main export at the time.
What’s Oil Got To Do With It
Power corrupts. Natural Resources corrupt absolutely.
Here are the world's most politically repressed countries. Any country where the only place you can encounter any regard for human rights are in the pages of their constitutions:
Egypt.
Syria.
Yemen.
China.
Iran.
North Korea.
Central African Republic.
Burundi.
Democratic Republic of Congo.
Burma
Libya.
Venezuela.
Now, here is the list of the countries on that list which make most of their exchange from raw commodities or natural resources or who simply have a lot of natural resources in general:
Egypt.
China.
Iran.
Venezuela.
Democratic Republic of Congo.
Libya.
Burundi.
Central African Republic.
Notice a lot of difference? Didn't think so. Dictators and natural resource economies are a match made in perdition.
And there are two big reasons for this:
1.) Centralization: it's easier to control fifty mines than fifty million businesses. A flourishing economy is usually quite complicated with many industries and sectors at play.
Natural resource economies, on the other hand, tend to resemble Westerosi kingdoms: you can squeeze every important power player onto a small dining table. And there’s a despot or ruler at the top dispatching favours on personal whims. They are advanced feudalisms.
And that's because everything, all of the money and power and influence, flows from the mines and the wells. Whoever is in control of these strategic locations is now in control of the entire country.
Power needs rigidity. It needs rigid control of information from one or a few sources so that propaganda is easier to sell.
Equally as important, it needs rigid sources of wealth: knowledge and knowhow are way more fluid than mines and land. What is mobile is far harder to dictate over.
2.) Zerosum economic games: No one rules alone. There's always a coterie of important people. Indeed, autocracy is a slight misnomer. Every nation is a democracy. But some are accountable democracies of and for the many and others are unacceptable democracies of and for the few
Since natural resource economies operate economically by redistribution rather than by growth, competition for favours is fierce. If I only win when I get a larger slice of the pie, then I have to do everything to make sure your own slice is as small as possible.
In a zerosum game, selfishness is the only virtue you can afford.
So, there is an extreme incentive to be the friend/associate/boot licker of whoever is in charge ( usually, all three are the same job).
The autocrat returns the favour by selecting those he likes, those he's close to, those whose daughters are pretty, those from the same tribe, or whatever selection metric he cares to use.
Since few people are chosen by merit, the people running the economy are hardly ever the most competent candidates.
If the autocrat is very powerful, incompetence can even be entrenched. Aftet all, if your position is always assured, why bother to improve.
And because nothing is ever done efficiently, even corruption is inefficient. The ease it takes to uncover corruption in these countries is no accident since the people most responsible are rarely the most intelligent or strategic.
Standing On The Doorsteps Of Change.
Nothing lasts forever. Not even nothing itself. If that were the case, the universe would have never existed. So, eventually, this war will also end. I do not know how or why or when. Anyone who claims to is a charlatan.
The golden test is simple: if your analyst or critic didn't predict how and when the crisis would begin, he should not be allowed to predict how and when the crisis will be over.
Unlike African countries, Russia has an highly educated workforce and a far more glorious past. But like them, this crisis represents a massive upheaval.
African countries should not let themselves be fooled by the sudden uptick in commodity prices. They say the night is always darkest before the dawn. But just as often, the light is often brightest before the darkness.
The shift towards renewables like wind, water, and solar, has gone on sluggishly for decades. But it is now for the first time, cheaper to operate a business with solar energy than to operate with petroleum.
If you do not like Elon Musk, it is now for the first time, possible to buy a lovely electric vehicle that he or his company didn't build themselves.
And it is now for the first time, more politically beneficial to encourage the creation of more nuclear power plants than to discourage it.
In other words, the world is once again leaving behind another form of energy. Perhaps, for African countries and for Russia in particular, we will look back and say that this war was simply the act of an already dying man going out of his way to drink poison. All it did was to hasten the inevitable.