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is a concern
“The ideas of economists and political philosophers, ference on Trade and Development (UNCTAD) in 1964
both when they are right and when they are wrong, are more — greatly influenced public policy. In particular, by fos-
powerful than is commonly understood. Indeed, the world tering widespread belief that specializing in primary pro-
is ruled by little else. Practical men, who believe themselves duction leads to slow economic growth and low levels of
to be quite exempt from any intellectual influences, are development, it provided the intellectual rationale for the
usually the slaves of some defunct economist. Madmen autarkic policies that many developing countries pursued
in authority, who hear voices in the air, are distilling their in the 1960s and 1970s. These policies, the main pillar of
frenzy from some academic scribbler of a few years back. which was import substitution industrialization, fostered
I am sure that the power of vested interests is vastly exag- inefficient domestic manufacturing behind high tariff walls
gerated compared with the gradual encroachment of ideas. and discouraged foreign and domestic investment in the
. . . But, soon or late, it is ideas, not vested interests, which metal and other resource industries. The nationalization of
are dangerous for good or evil.” domestic mining operations accompanied many of these
efforts. Most of the state mining enterprises that emerged
John Maynard Keynes slowly withered as short-sighted governments siphoned
The General Theory (1936) off for other uses the income these companies earned and
needed to reinvest to remain viable.
P
olicy analysts, economists and others have tradition- Ironically, the policies adopted to accelerate economic
ally considered mining and mineral wealth a boon, growth actually produced stagnation and lower living
providing rich countries with the resources needed standards. For several decades, the developing countries
to sustain their modern industrial economies while help- that pursued them suffered slow or negative growth. The
ing poorer countries generate the foreign exchange, tax international mining community diverted new investment
revenues and other assets necessary for economic growth in exploration and mine development towards a few stable
and development. Nevertheless, this conventional view developed countries — mostly, the United States, Canada
has always had its critics. and Australia — while ignoring many geologically promis-
ing regions in Africa and Latin America. Disappointment
Prebisch-Singer Thesis in import substitution industrialization led to its abandon-
Raul Prebisch, an Argentinean economist, and Hans ment during the 1980s and 1990s, though only after it had
Singer, one of Keynes’ first Ph.D. students at Cambridge, inflicted considerable damage.
are perhaps the best known of the early critics of the
traditional view of mining. Working independently in Rise of the resource curse thesis
the years following World War II, they argued that the Just as the influence of the Prebisch-Singer thesis
demand for minerals and other resources grows less was fading, and many de-
rapidly than the demand for manufactured products. For veloping countries were
this and other reasons, they maintained that the terms of scrambling to revamp their Graham A. Davis and
trade of resource producing countries (that is, the prices laws to entice the interna-
they receive for their primary product exports compared tional mining companies John E. Tilton
with the prices they have to pay for the manufactured and to return, a new challenge
other products they import) tend to fall over time. As a — known as the resource Graham A. Davis, member SME, is
result, Prebisch and Singer recommended that developing curse — was germinating. professor in the Division of Economics
countries diversify away from mineral and other primary Starting in the late 1980s, and Business at the Colorado School of
product exports (Prebisch, 1950; Singer, 1950). Richard Auty (Auty, 1990,
Their research ignited the Great Terms of Trade De- 1993, 1994a, 1994b, 1994c), Mines, e-mail gdavis@mines.edu. John
bate, a controversy that has flared for more than 50 years. Alan Gelb (Gelb, 1988) E. Tilton, member SME, is chair in Mineral
To this day, disagreement persists about whether the terms and others carried out a Economics in the Mining Center of the
of trade of primary product producing countries have number of studies that
actually declined over the long run. Moreover, even if found mineral-exporting
Pontificia Universidad Católica de Chile,
they have, this simply raises other contentious issues and developing countries suf- a Research Professor in the Division of
questions. For example, what are the underlying determi- fered from poor economic Economics and Business at the Colorado
nants or causes of the decline? Is the decline necessarily performance. Building on School of Mines and a University Fellow at
bad for resource exporting countries? And, what are the these case studies of indi-
implications for public policy? In particular, are develop- vidual countries, Jeffrey Resources for the Future, e-mail jtilton@
ing countries better off eschewing mineral production? Sachs and Andrew Warner ing.puc.cl. This paper, an earlier version
Overviews of this literature can be found in Cuddington (Sachs and Warner, 1995a, that was presented at the 28th Mining
et al. (2007) and Hadass and Williamson (2002). 1995b, 1997a, 1997b, 1999a, Convention, Arequipa, Peru, Sept. 13, 2007,
Even though the findings and recommendations of 1999b, 2000 and 2001) con-
Prebisch and Singer have yet to be substantiated, their ducted more comprehen- draws on and extends Davis and Tilton
work — leveraged through Prebisch’s posting as the sive analyses that assessed (2005).
founding Secretary-General of the United Nations Con- how economic growth var-