The dangers of exalting GDP and its associated economic paradigm

Extracted from “The World After GDP” by Lorenzo Fioramonti (2017) – Elinor Hurst

The following passage that I have extracted from Prof Fioramonti’s book on post-GDP societies is reproduced with his permission. I recommend this piece as a cautionary tale on the dangers of exalting GDP and its associated economic paradigm. There are cogent lessons therein for all nations.

Nauru is a tiny island in Micronesia, the smallest nation in the Pacific. With 21 square kilometres of surface, it is the third-tiniest state in the world, behind only the Vatican and Monaco. It is completely surrounded by coral reefs, which emerge out of the ocean to seamlessly erect steep cliffs reaching over 70 metres above sea level. The island is immersed in a hot and humid climate, due to its proximity to the equator. Its name derives from the Nauruan word anáoero, which means ‘Let’s go to the beach’[1].When Captain John Fearn of the British whaling ship Hunter reported the presence of Nauru to the outside world in 1798, the place was so pretty that he called it ‘Pleasant Island’.

Until the mid-twentieth century, Nauru was a remote outpost of colonial empires, first German and then British, with a short period of Japanese control during the Second World War, and later it became a protectorate of Australia and New Zealand. Unknown till then, what eventually catapulted Nauru onto the global scene was its unparalleled development trajectory. Why? Because this island nation boasted the highest gross domestic product per capita in the world between the 1970s and the mid-1980s, overtaking financial paradises like Luxembourg and Lichtenstein and oil-rich Arab states [2]. Its economic ‘boom’ was due to the exploitation of one of the world’s purest and most extensive reserves of phosphate, a key ingredient for the industrial production of fertilisers. When the country acquired independence in 1968, the New Nauru Phosphate Corporation intensified extraction and introduced innovative chemical treatments, with the support of foreign experts. With an unprecedented 91 per cent of purity, Nauru’s phosphate exports travelled beyond the conventional Australian and New Zealand markets to reach several Asian economies, from Indonesia, to Japan, the Philippines, South Korea and Taiwan. As of the early 1980s, the peak of extraction was around two million tonnes a year, at a market price of about US$60 per tonne. Unable to construct a deep-water harbour because of its coral reef surroundings, the government built gigantic cantilevers sticking out of the mines, transporting the brown powder for hundreds of metres through conveyor belts connected to ships stationed offshore. Out of the overall proceeds, less than US$3 per tonne would go to the landowners’ fund, with another US$12 destined for long-term investments, including purchasing a fleet of Boeing aeroplanes and commercial ships, a chain of international hotels and a 52-storey skyscraper in central Melbourne, the tallest building in that city. After some spending on a host of social programs, the remaining profits would stay with the local council, which controlled the phosphate industry. Landowners shared in about US$1.4 million every three months, with the sums paid to each individual owner reaching as much as US$360,000. This meant an astonishingly high income by the standards of the Pacific atolls ‘where most people exist on subsistence agriculture and fishing, seldom seeing more than a few hundred dollars in cash in a year’s time’.[3]

Then things began to fall apart. In its rush to ‘development’, the Nauruan government over-exploited the phosphate mines, destroying the natural habitat supporting indigenous flora and fauna. Revenues plummeted in the late 1980s when most mines became unusable, and the government defaulted repeatedly on international payments.[4] In a scramble to keep generating revenues, Nauru turned into a tax haven in the 1990s and was included in the list of ‘non-cooperative’ nations by the Financial Action Task Force on Money Laundering. For some time, the government adopted a number of questionable policies, including issuing passports to foreign nationals in exchange for a fee. With no arable land left and no other source of income, the country eventually accepted aid from Australia in 2001 in exchange for hosting the Nauru Regional Processing Centre, a de facto detention camp for asylum seekers, widely deplored for harsh conditions and ill-treatment of residents.[5]

As reported by Nauru’s former president Hammer DeRoburt, the strategy of digging into debt to fund the extractive infrastructure was ‘advised by economists’, despite some locals raising objections about the extravagant expenditures.[6] When the president reached out to the Asian Development Bank in the 1980s to seek support for his industrial project, the request was turned down, ‘declaring that Nauru’s high per capita income made the government ineligible for assistance’.[7] In a report to the United Nations (UN), Nauru’s leaders recognised that phosphate mining resulted in ‘drastic land degradation’, ‘removal of natural vegetation’ and ‘the almost total modification of the landscape of the topside’ of the island. The report concluded: ‘This is by far the most widespread and visible environmental concern in the country – an impact that has had a direct and/or indirect influence on all other environmental impacts and cultural change over the past 90 or so years.’[8]

Even the weather pattern has drastically deteriorated, so much so that present-day Nauru suffers from continuous heat rising from the mined-out plateau, which drives away rain clouds and leaves the sun-baked island plagued by constant drought. Water is so scarce that the island runs dry for most of the day, with households relying on a desalinisation plant to satisfy their needs. When, in the late 1980s, the government won a case before the International Court of Justice against Australia’s mining operations, it invested some of the US$75 million of the settlement to restore some of the lost ecosystems ‘in hopes of coaxing pandanus, mango and breadfruit trees to grow again’.[9] But to no avail.

With no viable economic opportunities, broken infrastructure, ecological mayhem and a dishevelled education system, mass emigration is the only long-term option for Nauruans, most of whom have sought better economic opportunities in New Zealand and Australia. As a traditional culture of fishing and garden plots was replaced by imports of western-processed foodstuffs, the dietary profile of Nauruans has also worsened to unparalleled levels worldwide, leading to a widespread health-care crisis. According to body mass index statistics published by the World Health Organisation, Nauruans are the most overweight people in the world, with 97 per cent of men and 93 per cent of women being obese as of mid-2000 data.[10] From ‘Pleasant Island’, Nauru has become one of the world’s capitals of cardiovascular diseases, kidney failure and type-2 diabetes, a diet-related chronic illness that has affected 40 per cent of inhabitants since the 1990s and has also claimed the life of former President DeRoburt.[11]

A 1995 report about the island published in the New York Times reads: ‘While Nauruans may be among the world’s most affluent people, they are also amongst the most sickly, racked by diabetes, high blood pressure and obesity brought on by a diet of fatty, imported food. Few Nauruans live much past the age of 60.’[12] Nauru’s vicissitude is arguably an extreme case, yet it is coherent with the rules and underlying contemporary approaches to economic prosperity as a function of the Gross Domestic Product (GDP).

References

[1] West, B. A. (2010), Encyclopedia of the Peoples of Asia and Oceania, pp. 578-80.

[2] Trumbull, R. (1982) ‘World’s Richest Little Isle’. The New York Times, 7 March.

[3] Ibid.

[4] Smith, J. (2014) ‘Nauru’s Road from Bird Droppings to Bust’. Financial Times, 30 September.

[5] Cavill, A. (2015) ‘Report Condemns Nauru Detention Centre Conditions’. SBS News, 23 March.

[6] Trumbull (1982) ‘World’s Richest Little Isle’. The New York Times, 7 March.

[7] Ibid.

[8] Department of Economic Development and Environment (2003) First National Report to the United Nations Convention to Combat Desertification (Nauru: Republic of Nauru).

[9] Shenon, P. (1995) ‘A Pacific Island Nation Is Stripped of Everything’. The New York Times, 10 December.

[10] Streib, L. (2007) ‘World’s Fattest Countries’. Forbes, 2 August. Also Laurance, J. (2011) ‘How Tiny Nauru Became the World’s Fattest Nation’. The Independent, 4 February.

[11] King, H. and Rewers, M. (1993) ‘Diabetes in Adults Is Now a Third World Problem: The WHO Ad-Hoc Diabetes Reporting Group’. Bulletin of the World Health Organization 69(6): 643-8.

[12] Shenon, P. (1995) ‘A Pacific Island Nation Is Stripped of Everything’. The New York Times, 10 December.

 Source:   Fioramonti. L., The World After GDP; Politics, Business and Society in the Post Growth Era (Publ Wiley, 2017)

Lorenzo Fioramonti is a political scientist and professor of political economy at the University of Pretoria, South Africa, and is associate fellow of the Centre for the Study of Governance Innovation.