GENEVA – Resource nationalism, now on the rise from Mongolia to South Africa to Argentina, has long been positively correlated with commodity prices. In boom times, windfall revenues encourage governments to demand a bigger slice of the pie, and often press for greater control. When prices fall, governments back down and return equity and concessions to global companies in exchange for continued investment and employment. But today, resource nationalism is on the rise, even though commodity prices have begun to slip.
Consider South Africa, where the police recently killed 34 striking miners. While the recent labor unrest has complex origins, it boils down to South Africa’s reliance on the mining industry, which has underpinned its development into the continent’s richest economy and accounts for one-fifth of GDP. Although rising labor and energy costs have eroded the industry’s competitiveness, the government continues to demand more. That means offsetting lower prices by digging deeper to increase output – thus creating more dangerous working conditions.
Many mistakenly dismiss resource nationalism, and the populist rhetoric that accompanies it, as a fig leaf for rent-seeking by ruling elites, or the coincidental fallout of domestic political infighting. In fact, resource nationalism is more fundamental: it is state capitalism in economic thought.
For decades, neoliberal thinking had dominated economic policy. Now, thanks to the recent success of China and other emerging economies, national planning, industrial strategy, and state ownership of strategic industries are back in vogue. Indeed, while China’s infamous five-year planning cycle may prove unwieldy and ineffective in other countries, it undoubtedly signals the state’s return to the market – and poses a serious challenge to trade liberalization.
Two features of the global economic landscape have contributed to this growing interest in alternative economic-policy options. First, a new generation of politically sensitive corporations, often state-owned, has proven successful in today’s emerging economic powerhouses – particularly in the commodity sector. State-controlled energy companies, such as Saudi Aramco, Brazil’s Petrobras, and China National Petroleum, own or have concessions to extract three-quarters of the world’s oil reserves and two-thirds of its natural gas. And state-controlled firms’ share of global mining production is already roughly one-quarter – and rising.
Second, state-supported lending has put competing deals from the likes of JPMorgan and the World Bank in the shadows. Brazil’s state-owned development bank BNDES – the world’s largest policy-driven bank by a considerable margin – is crucial to ensuring Brazil’s future as a major global player. Likewise, China’s $20 billion line of credit to Africa, extended at the recently concluded triennial Forum on China-Africa Cooperation, will go a long way toward furthering its ambitions in Africa.
But the main factor underlying countries’ growing interest in a state-driven economic model are the apparent shortcomings of its private capital-driven, free-market contender. Intolerably high profits in unmanageably complex financial markets that failed to deliver the goods – investment, economic diversification, employment, and social stability – capsized yesterday’s conventional economic wisdom.
South Africa’s governing political party, the African National Congress, entered the post-apartheid era playing the neo-liberal game – joining the World Trade Organization, repaying odious debt to international investors, and safeguarding private assets by renouncing its commitment to nationalization. Yet, as highlighted at the recent conference “Mining Dialogue 360 Degrees,” youth unemployment has reached unprecedented levels, and real inward investment for mining is close to zero – while inflows in neighboring Zimbabwe are rising steadily.
In this environment, proponents of populist alternatives thrive. For example, youth leader Julius Malema, who accuses President Jacob Zuma’s government of complicity in the miners’ recent deaths, is gaining momentum in the political mainstream.
Waiting out resource nationalism on the assumption that it is a cyclical phenomenon could prove to be a mistake. And blaming bad politics, rather than poor economic policies, for populist rhetoric could be a far more serious error.
Past performance is not an accurate predictor of future outcomes. Rather, recent developments in commodity-driven economies represent the cyclical decline of free-market ideology and, for better or worse, the cyclical rise of state-centered alternatives.