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Natural riches are blessing and curse

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Scott Jagow: So Egypt wants to start a new gold rush. But commentator Robert Reich says there’s a cost to striking it rich.

Robert Reich: Whether it’s gold under Egypt or what’s commonly called “black gold” — that is, oil — under some of the rest of the Middle East, these countries are both blessed and cursed. Blessed because such natural deposits are in huge demand around the world. Once out of the ground, they’re worth piles of money on world markets.

But there’s also a curse. You see, countries that earn their money mainly from resources buried under them tend to be wildly unequal societies, with a small group of very rich and powerful at the top and large numbers of very poor at the bottom. And this degree of inequality often gives rise to social unrest and repression.

Why do countries whose primary exports are resources that come from underneath them tend to be so unequal? Because such resources can so easily be owned by a relatively small number of people, who grow extraordinarily wealthy off them — royal families, dictatorships, or small ruling classes.

Meanwhile, the global demand for these resources pushes up the value of these nations’ currencies. This cuts off a wide range of other potential exports, including new businesses, and thereby discourages the development of a broad-based middle class.

By the same token, countries that aren’t blessed and cursed with riches under the ground tend to be more equal and more democratic, because things of value are more widely owned, and their currencies allow a wider range of exports and industries, and therefore a broader middle class.

Now, it’s not an iron-clad rule. Countries of the Middle East or Russia or Africa or any place else with valuable deposits under their soils won’t necessarily become oligarchies. But in such places, democracy and equal rights will be harder to achieve.

Jagow: Robert Reich was Labor Secretary under President Clinton. He now teaches public policy at the University of California Berkeley.

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