There are many schools of thought on how to manage natural resources. The idea that a non-renewable resource “gifted” by nature to a country is something that should be considered a once-off benefit shows how forward-thinking that nation is.
If your country happens to have a wealth of a mineral resource, should the current generation use it for their benefit alone or should future generations of the country also benefit?
This also raises prognosis into an important distinction is between wealth and income.
Defining wealth
A non-renewable resource is a good that can only be consumed once such as oil and gas.
They are distinct from renewable resources such as forests and fisheries in such a way that, if managed properly can give you a sustainable stream of income for all time.
Some non-renewable resources can, of course, be recycled, and most metals and some fossil fuels fall into this category.
A goldmine, for example, should be viewed as a source of wealth (and not just income and profits for the company mining the yellow stuff).
And while this sounds normative, no single generation has the mandate to spend that wealth in their lifetime.
The wealth must instead be preserved for future generations and only the income from that wealth be used by the current generation.
A shining example
Norway* (if not now one of a few) is the only country in the world that consistently applies the principle of intergenerational fairness.
The revenue that Norway contracts from oil and gas has since 1990 been collected in a fund that currently stands at over $1 trillion. This number is growing every second!
The wealth is converted into money and the value preserved. This (sovereign) fund is maintained for future generations, and only the interest earned from this wealth is used for the current generation.
In this way, all future generations will benefit from the ‘lucky situation’ of the country.
The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population – Norges Bank (The managers of the public fund)
In intergenerational economic terms, this is the only correct way of using the non-renewable assets of the country. It is encouraging that other countries are looking to the Norwegian model.
Other ways of re-investing
A different school of thought is that some of the wealth can be invested to create future growth that will provide better sustainable income for the country.
Many Middle Eastern countries are prime examples. They invest the revenue in construction projects to create a platform for economic prosperity.
This is seen in the vast projects in the UAE cities of Dubai and Abu-Dhabi. They aim to produce sustainable income for the region when the oil runs out.
It is an interesting illustration of Say’s law – in which supply creates its own demand.
Will the investment in infrastructure enable these countries to sustain their level of wealth for all future generations or will they 200 years from now be vast cities in the desert. A legacy to a time where opulence and abundance purveyed?
Read more about sustainabilty and human irrational behaviour here.
In most developing countries, like most of Africa, there is no consideration for future generations. The wealth of non-renewable resources such as gold, platinum, and diamonds are used in today’s budgets. This is with little thought that this wealth could one day not be there and should not be spent now.
The wealth inherited from previous generations is used to finance an unsustainable level of consumption.
Conclusion
The main lesson to take from this is that a non-renewable resource can only be used once. It is a precious endowment that is bestowed upon the country by luck or good fortune and it is therefore selfish to use it on the current population.
It is not income, but wealth. This distinction is alien to most but is very important. Wealth is something that should be preserved.
The three basic options facing a country are: spending it, preserving it, or you can simply invest it in future sustainable growth.
The choice is ours.