A Nation’s Most Valuable Resource – March 15, 2012

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New York Times columnist Thomas Friedman has recently cited the example of Taiwan, as a country which is virtually bereft of natural resources and yet has developed into one of the world’s foremost economic powerhouses.  It has achieved this by exploiting the talent, energy and intelligence of its 23 million people.  Today Taiwan has the world’s fourth largest financial reserves.

A team from the European Organization for Economic Cooperation and Development (OECD) in a recent study has mapped the correlation between performance on the Program for International Student Assessment (PISA)-which every two years tests math, science and reading comprehension skills of 15 years olds in 65 countries-and the total earnings on natural resources as a percentage of GDP for each participating country.  “In short how well do your high school kids do on math compared with how much oil you pump or how many diamonds you dig?” The results indicate a significant negative relationship between the money countries extract from natural resources and the knowledge and skills of their high school population.   According to the PISA results, students in Singapore, Finland, South Korea, Hong Kong and Japan had high PISA scores and few natural resources while Qatar and Kazakhstan, with the highest oil rents had the lowest scores.  In a similar test administered in 2007, Saudi Arabia, Kuwait, Oman, Algeria, Bahrain, Iran and Syria had similar low scores compared to resource-deprived countries from Lebanon, Jordan and Turkey.  Also falling behind in such scores were students in many of the resource-rich countries of Latin America like Brazil, Mexico and Argentina.  Canada, Australia and Norway, also countries with high levels of natural resources still scored well on the PISA study.  However, the study argued that all 3 countries have promulgated deliberate policies of saving and investing their resource rents and not just consuming them.  The study concludes that if we want to know how a country is going to perform in the 21stcentury, do not count its oil reserves or gold mines; rather examine its highly effective teachers, involved parents and committed students.  To put it another way, “who is going to win in the 21st century?”   The answer, “the nations invested in education”.

There is an important message in the above analysis according to Friedman,for the industrialized world.  According to the PISA study, “knowledge and skills have become the global currency of 21st century economies, but there is no central bank that prints this currency.  Everyone has to decide on their own how much they will print”.

Finally, it’s great to have oil, gas and diamonds; they can buy jobs.  But in the long run, this rentier infrastructure will weaken the country in question unless these resources are used to build schools and a culture of lifelong learning.  This is a crucial lesson that governments and public and private sector leaders have to remember and implement as their top most priority.

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