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Nauru: The Decline and Fall of the Phosphate Empire
May 5, 2008
Its people had the highest income, per capita, of any nation in the world. Families who had never before left their hometown would charter planes for shopping expeditions to Hawaii and Singapore. Citizens bought sports cars with their royalty checks. Less than thirty years later, eighty percent of their nation is a barren, strip-mined wasteland. Per-capita GDP is less than Namibia’s, Nicaragua’s or Sudan’s. Phosphates made Nauru rich, but also contained the seeds of its destruction.
Discovery… of the Island, and of Phosphates
Nauru (pronounced NAH-oo-roo) was discovered (by the Europeans at least) in 1798 by John Fearn, who named it Pleasant Island. For almost a century, its people mingled with European whalers, traders, and the occasional deserter. In 1878, as more firearms were introduced into Nauruan culture, tensions between the twelve clans of Nauru reached a boiling point. A fierce civil war erupted, and lasted for ten years, until the Germans annexed the island and helped unify the tribes.
Nauru may have endured as so many other Pacific islands have, by not being worth too much to anybody and having colonial rulers adopt a laissez-faire attitude towards them. Unfortunately, they had a different destiny. In 1900, a British prospector discovered that almost the entire island of Nauru consisted of high quality phosphate rock, created mostly from years of bird droppings. Although many people have never heard of them, phosphates are essential to a modern standard of living. They are a key ingredient in fertilizers, even today, and several wars have been fought solely over phosphate supplies, especially in the 19th century.
Within a decade, phosphate mining commenced, and continued as nations battled for control of the all-important phosphate rock (more information about the current phosphate shortage). Between discovery of the phosphate in 1900 and the independence of Nauru in 1968, five nations had control of Nauru at one time or another: Germany, Australia, the UK, New Zealand, and Japan. Nauru was invaded during both World Wars (in WWI by the Australians, in WWII by the Japanese) to ensure that the phosphate would flow. During all of this time, although their island was a cornerstone in the global economy, ordinary Nauruans did not benefit much from the phosphate mining in their country. The various companies extracting the phosphate rock tended to keep the profits for themselves.
The Golden Age
In 1968, the Australian government, then-trustee of Nauru, declared that the island was “uninhabitable” and offered to resettle the Nauruans. The people of Nauru decided instead to declare independence from Australia, and shortly afterwards, bought the rights to phosphate mining away from all foreign owners. They were going to go it alone, and they were going to do it on the back of phosphate rock. They started bringing in companies to mine the phosphate for them, and set up the Nauru Phosphate Royalties Trust to invest and manage the money from the mining (an early example of a sovereign wealth fund). The NPRT was founded to ensure that there would continue to be money to run Nauru even after phosphate reserves were depleted, and to provide royalties from the phosphate mining to the people of Nauru.
The money was shot out from the NPRT onto the citizens of Nauru like a fire hose. Within a few years, Nauru had the highest per-capita GDP in the world. Forget about oil wealth; in the 1970s, in Nauru, all the talk was of phosphate wealth. Nauru acquired a collection of foreign real estate, invested in musical productions, and showered its citizens in free money. There was no real need to work; government checks bought everything a person could desire. The streets were lined with new German, Italian, and American sports cars. People moved away from the traditional diet of their ancestors and gorged on chocolates, red meat, and other processed, high-fat and high-sugar foods.
Phosphate mining continued unabated, and people thought the party would go on forever. Below the surface, though, were several forces forcing an end to the festivities.
The Decline and Fall
As phosphate reserves started to decline in the 1990s, Nauruans began asking questions about how much money was being managed by the Nauru Phosphate Royalties Trust. Although the managers had always been secretive, it was assumed that there would still be plenty of money to maintain a decent standard of living, if not living up to the heyday of phosphate mining a few years earlier. However, it was soon found out that through mismanagement, corruption, and some old-fashioned busted investment, the NPRT had lost a great deal of money. More than a billion dollars - almost the entirety of the NPRT’s assets. Nauru was broke, and their one reliable export was almost extinguished.
Unemployment now reaches about 90%… and 95% of the jobs that do exist are government jobs. Private enterprise is almost obliterated. A facility to house refugees denied admission to Australia provided 20% of the GDP of Nauru last year, and is shutting down this year.
The life expectancy of the islanders has plummeted to 58 for males (65 for females), as bad dietary habits have taken a toll. With 90% of its population obese, renal failure and heart problems are epidemic. Anywhere from 40% to 50% of the population has type 2 diabetes.
Over eighty percent of the country is a desolate moonscape, as all of the phosphate-containing topsoil was stripped down to the bare rock. Droughts have become an epidemic - the bare rock in the interior of the island reflects the heat, driving away virtually all clouds. The only remaining human habitations are in a small strip around the edge of the island.
Finally, in 2007, the country’s phosphate reserves ran out. There have been some plans floated to start mining “secondary phosphate” - phosphate that is stored underneath the worthless limestone of the interior. Extracting it entails crushing and removing the limestone, then strip mining more phosphate from below the ground. Let us hope that the Nauruans have learned some lessons in sustainability from their first brush with mineral wealth.
What If Tibet Was Free?
April 29, 2008
Although there have been many calls for a free Tibet recently, I have not seen any analysis on what a free and independent Tibet would look like. The consensus seems to be that as soon as the Tibetans throw off the yolk of the Chinese oppressors, Tibet will be pretty much the same as today, but better. However, Tibet as an independent nation would be a vastly different place than the Tibetan Autonomous Region of the People’s Republic of China (TAR). By looking at the state of Tibet today, and the results of recent “breakaway” countries, it is possible to determine what Tibet might look like if all of the Olympic Torch protesters got their way. Since this site is called “A Geek Talks About Money,” and not “A Geek Talks About Buddhism” nor “A Geek Talks About Politics,” I will mostly cover the economic effects of a free Tibet. I’m also going to make the (rather large) assumptions that Tibet separates from China peacefully, with no bloodshed on either side, and that the independent Tibet will have the same borders as the TAR.
How is Tibet Doing Now?
Currently, Tibet is the Cuba to the People’s Republic of China’s Soviet Union. With only 2.7 million people spread out over 1.2 million square kilometers, Tibet is one of the poorest regions in China. The Chinese government pumps billions of dollars into the Tibetan region, from highways to dams to railroads. Tibetans are exempt from government taxation, and the Beijing government provides 90% of the Tibetan regional government’s operating expenditures. Mostly due to government intervention and tourism, the Tibetan economy has grown at an annualized rate of 12% since 2000, more than doubling annual GDP from 12 billion RMB (US$ 1.7 billion) to 29 billion RMB (US$ 4.1 billion) in 2006. Tourism has given a major boost to the Tibetan economy, with more than 2.5 million people visiting the Tibetan Autonomous Region in 2006 alone. Thanks mostly to the new Qinghai-Tibet railroad, foreign trade has increased to US$ 393 million, but the Tibetan economy still largely consists of subsistence agriculture.
Early Effects of a Split
Although the precise effects would be quite variable, depending on the policies adapted by the new leaders and the method of separation, it’s probably safe to say that there would be strained relations with the People’s Republic of China in the years after separation. There may be hard feelings against the Han minority in Tibet (around 6% of the population), leading them many of them to return to China. This would be a disaster, because when a business-owning minority is exiled from a country, from the Jews in England to whites in Zimbabwe, the economy is consistently dragged down.
As Tibet’s economic growth has been sustained by massive infusions of cash and economic aid from the People’s Republic of China, the new leaders of Tibet would have a difficult choice ahead of them. They would have to either rapidly reduce government spending or drastically cut back on government programs. There is not nearly enough money to maintain current expenditures without massive foreign aid. This would likely not come from the United States, as it has too much to lose with trade in China and little to gain. In fact, it is a good bet that many nations will refuse to recognize Tibet, just as no countries recognized Tibet during its period of de facto independence from 1912 to 1950. The situation would be similar to the current situation with the Republic of China (Taiwan) as all but 23 countries have refused to recognize it . As Taiwan is an active exporter and has a GDP approximately 165 times the size of Tibet’s, it is likely that even fewer nations will recognize Tibet.
Although more more tourists may want to visit Tibet in the years following independence, tourism numbers will probably decrease. Currently, the only airline offering international flights to Tibet is Air China, although there are plans for Royal Nepal Airlines to operate a Nepal-Tibet link. With the Maoists in charge of Nepal, providing a link to a former Chinese province may not be a top priority. Creating new air routes will take time and effort, especially to a place with as many challenges (location, altitude, environment, and topography) as Tibet.
Land routes from India, Pakistan, and Nepal exist, but are very dangerous, often closed, and cannot handle large amounts of traffic. Tourism, which provides a large amount of foreign capital to Tibet, would slow to a trickle, further reducing the amount of money available to Tibet’s new government.
The first few years of independence for Tibet would likely be marked by little to no economic growth, if not economic contraction. Even if there are no problems with the weather (as occurred in the ‘97-’98 season, when three million head of livestock died due to harsher than normal winter conditions), humanitarian assistance may be needed as industry declines and is replaced by people returning to nomadic pastoralism (as occurred in Mongolia following the removal of massive Soviet aid). This may lead of overgrazing and environmental problems later.
Long-Term Effects
If Tibet split from China today, it would have the 147th largest economy in the world, right above Suriname and right below Togo. In other words, it would have a lower GDP than any one of the fifty states in the United States. It would have very little clout in world trade circles.
China may eventually come to the conclusion that having a stable border state between itself and India is a good thing, and return to providing aid to Tibet as a foreign country, as well as normalizing diplomatic relationships with an independent Tibet. Unfortunately, there will not be nearly as much of an impetus to help as when Tibet was part of their country.
Without Chinese intervention, the economy would probably shift away from industry and more towards subsistence agriculture (as this was the “traditional” economic platform before the Chinese came in 1951). Again, this is the same situation that occurred in Mongolia after the collapse of the Soviet Union. An economy consisting of subsistence agriculture is much more volatile, more likely to be in need of humanitarian assistance, and definitely not likely to grow at the current 12% annual rate.
As a landlocked and difficult to reach country, trade will be vastly reduced unless a deal is struck with China. The routes into the Sichuan and Qinghai provinces would have to be re-opened, but if China levies any import or transport duties, it is difficult to see how physical Tibetan exports would be economical.
There remains the possibility of Tibet trying to become a “cyber-power,” providing services through the Internet as parts of India and Mongolia have done. However, with more than half of its citizens illiterate and only 16% owning a computer, this may be more difficult than it seems at first blush. Tibet’s new government would need to maintain and upgrade a country-wide system of education in order to provide workers for a knowledge-based economy. This will be difficult to set up immediately post-independence, due to the number of competing demands for government money and the drying up of Chinese aid, and so would only be possible as a long-term goal.
On the plus side, Tibet has large deposits of gold, salt, and copper. If the current commodities boom continues, these could provide an economic boost to an independent Tibet. Tibetan authorities may be able to manage the extraction of these materials better than the Chinese government. Due to the difficult climate and remoteness of the region, though, commodities prices may have to remain high to make extracting these materials economical. Again, routes through either Nepal/India would have to be improved, or the Tibetans would have to be economically dependent on Chinese routes.
Conclusion
Economically, an independent Tibet would be a greatly reduced Tibet. It would be very difficult to maintain the current standard of living for ordinary people. The GDP of Tibet would most likely contract in the years post-independence, and not grow nearly as quickly as it has as a part of China. Although there may be other benefits to an independent Tibet, from an economic standpoint, it would most likely be a disaster.
A Sweet Yet Forgotten Commodity Surge
April 23, 2008
If you’re living in the United States or Europe, you’ve probably had some today… or within the last few days. Forget achieving independence in producing it, though; your country does not cultivate any of it. In fact, the “Saudi Arabia” of this commodity is West Africa, which produces almost half of the world’s supply. Prices have risen 42% in the last two years, leading to record prices, and futures prices have jumped 25% in two weeks. Yes, the world is facing a major shortage… of cocoa.
The Forgotten Commodity Shortage
April 18, 2008
Its price has quadrupled in the last year. It is essential to our way of life. The lack of it has almost directly caused food riots. China just overtook the US in the last few years in mining it. Leading industry researchers say the shortage will not be over until 2011 or 2012, at a minimum. Yet for some reason, nobody talks about the worldwide phosphate shortage.
Snus: A New Stimulus for America’s Tobacco Industry?
April 15, 2008
I was at the local Sheetz gas station when I noticed a new form of tobacco near the counter: snus. If you’re not familiar with snus, it’s a Scandinavian version of dipping tobacco, only without the need to spit, and is steam-cured instead of fire-cured, which greatly reduces the number of carcinogens in the tobacco. In other words, it’s like dipping tobacco, minus all the bad parts. Could this signal a turnaround for America’s ailing domestic tobacco sales?
