Should Resource Rents Count as National Savings?

Femsecta is overlord of this newly-conquered world
photo credit: Torley

David Smiley

All countries save about 25 percent of what they produce, their Gross Domestic Product or GDP, for investment as capital in future production. In national accounts these “savings” include environmental damage and natural resource depletion incurred in the process of production. This does not seem a very good measure of sustainable development, and the World Bank has come up with a better one. The Bank subtracted from Gross Domestic Savings, the cost of carbon dioxide damage, and the values of energy depletion, mineral depletion, and net forest depletions. The result of these subtractions the Bank called Genuine Domestic Saving, or GDS, and they are astonishing.

World average GDS was about 13 percent. Both World Bank regional and country data were tabulated in World Bank World Development Indicators report of 2001, pages 180-183. For East Asia and Pacific, a region dominated by the land reform countries of China and South Korea, GDS was 25 percent. Moving to areas of political turbulence, GDS for Sub Saharan Africa was 3.9 and for Middle east and North Africa minus 1.3 percent.

For Saudi Arabia, Nigeria and Azerbaijan, GDSs were minus 13.3, minus 18 and minus 24 per-cent. For these and future trouble spots, short term outcomes are aggressive rent seeking and political instability, and long term outcomes are likely to include economic decline and rising levels of poverty, unemployment, and asymmetric warfare (terrorism), as well as global environmental degradation.

But there is an important implication here that the Bank seems to have overlooked. Why is it that countries rich in natural resources have comparatively low economic growth rates and attract political turbulence? The reason, as I explained in Progress, 1066, March-April 2005, is rent seeking. And the answer to rent seeking, as we all know, is rent taxation.

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https://prosper.org.au/2008/08/06/should-resource-rents-count-as-national-savings/