Mongol Disease?
Amazing what's under there
Can you have too much of a good thing? Mae West said no, but Mongolia’s leaders aren’t sure about that. A friend in Ulan Bator sent me a link to a Bloomberg article about Mongolia’s riches and the dangers of “Dutch Disease“, the idea that a sudden surge of wealth can make future growth more difficult.
Dutch disease is an old concept in economics, though it acquired the current name only in the 1960s. The thought is that a sudden influx of wealth, whether to an economy or to an individual, can lead to bad decisions as to how to use it properly. It’s like blowing your new earnings as a pro football player and having nothing left when a knee injury kills your job. The name came from the impact of enormous quantities of North Sea natural gas raising the value of the Dutch guilder, which then killed Dutch exports, crippling the economy of the Netherlands. Similar things happened in Spain with the influx of New World gold and silver, and the discovery of gold in Australia in the mid-19th century. And Nigeria has done an abysmal job of harnessing revenues from its immense oil and gas industries.
Mongolia is seeing a rush for significant resources of gold, uranium, coal and copper. In fact, Mongolian leaders compare it to the influx of riches during the great Mongolian conquests of Central Asia, China and beyond. Canada’s Ivanhoe Mines and Rio Tinto of the United Kingdom invested in a joint venture last year with the Mongolian government to develop copper and gold deposits worth perhaps $30 billion. Peabody Energy of the United States is among potential partners for a $2 billion coal deposit. Ivanhoe is in another big coal mine. Considering that Mongolia’s GDP is a little over $5 billion, you can see the potential impact just these projects can have. And there are more to be developed.
The problem is Mongolia’s lopsided distribution of income. Like many developing countries, there is an elite that reaps most of the benefits – and a large underclass that does not. Mongolia’s leaders, many of them Harvard educated (the point of the Bloomberg article) appear to see the issue, but it remains to be seen what they will do about it. It is encouraging that they are at least talking to experts from Chile and elsewhere, whose countries have managed to avoid an infestation of Dutch Disease.
A mine is a terrible thing to waste.
