Inequality in Economic Fates

As I was reading the article by RJC for their GP Prelims, I was struck by how Africa was rich in resources and yet have remained poor. The first article insinuated that Western powers of collusion were at work, exploiting the resources of Africa with very little in return.

Well, we can analyse this a bit furthur. Why is some countries, being resource rich, are still poor, while other countries are rich, even though they may or may not have the resources? First of all, having resources does not gurantee that a country will become rich. Factors of production have a tendency to fall into control in the few of the rich in the country. These minority of capitalists, then hire workers at cheap rates to extract whatever resources out of the ground. And the resources are being priced cheaply. There are lots of diamond mines in Africa, yet the African people do not seem to be getting any richer. Probably, raw materials, while they absolutely essential for production, are not exactly pretty. Crude oil is close to being unusable, diamond that is just mined looks just like another rock, gold veins hidden in rocks is muddy, and does not look that appreciable. It is only through value-adding, such as polishing and refinement, that these resources become really expensive.

Furthermore, if such resources have to be sold at higher prices, then, production of goods around the world would quickly ground to a halt. If crude oil is already expensive, then what about refined oil? If raw diamonds and metal are already like $70 per 100 grams, then what are the refined ores and diamonds? Close to a million dollars per 100 grams? It is the sad sad truth that the global wealth is built upon the cheap resources. If raw resources was already expensive to begin with, than the final products would be really really expensive. And then there would be hyper inflation, because the food is so expensive, due to the expensiveness of cooking oil, electricity would come at astronomical costs, and alot of people would be spending in millions of dollars in one go.

Prices of these resources are cheap, because of their abundance, and because the few who control the vast tracts of land that contain the resources. Thats how they can gain a profit. Sell in bulk and sell it cheap. Here lies the paradox; we all know gold is expensive because it is scarce, we all know oil is expensive because it is going to run out soon, we all know diamonds are expensive also because of its scarcity. But that cannot be, because the raw resources are being sold cheaply. So what is going on? Well, value-added refining by labour is one. Probably, queens saw how brilliantly the diamonds shone and instantly fell in love with it. They become willing to pay a high price of it. Price after all, reflect consumers valuation of the good. If the queens are willing to pay for it, which smith would sell the diamonds at a cheaper price? After all, the smith did spend a real lot of time carefully polishing it. Cutting diamond is a real skill that can be difficult to master. Another possibility is the sheer abundance of the raw resource. If metal can be mined indefinitely from the many mines controlled by the capitalist, then to the capitalist, supply of that metal is quite big. Possibly close to infinite for him. To him, he is likely to make profit by selling the metal at a comparatively low price. Low price as in lower than the market price for the refined metal. Furthermore, production is big, because the capitalist has many mines, and many labourers. Large capacity for production, and the ability to pay lower wages to workers, is how this particular capitalist stay in business.

Resource rich countries do not naturally have the tendency to become wealthy. Factors such as a large human population, a strong government, and environmental factors also come into play. Naturally, Africa is hampered in becoming wealthy, because of its environmental factors. I have observed, that if human beings lived in countries of milder environment, then their tendency to become wealthy grows. This is because each person is not occupied the whole day on how to purely survive another day. Thus such people have more time to accumulate wealth and power, and this is how wealth creation and a wealthy society starts. The ability for Man to tame his environment is also essential. It is noted that fire is a relatively cheap technology to stay warm, but fans and motors are a relatively high end technology to stay cool. It may be an explanation how ancient powers of civilisation starts in Europe, in China, and Russia. And then a strong government counts, because that is how a society stay together. A government that thinks of only itself, with its rampant corruption, is not likely to help a country to grow.

Lastly, if the country possesses a large population of people that are determined to succeed, that we have a population that is likely to make itself more skilled, and this becomes a huge potential for growth, as is clearly evident in the meteoric rise of China and India. It may be pointed out that that was how the United States of America first became a power itself. Most of such Americans were Europeans that migrated there in search of resources. And then, they struck gold. Stuck in a far country with little to count on except the promise of gold, this is probably how America succeeded in the first place.