Resource Nationalism?

By Julian Dierkes

One of the dominant foreign views of Mongolian politics is that they’re rife with “resource nationalism”. This perspective is reproduced in many conversations with people in the mining or financial industry and is often repeated by visiting journalists who parachute into Ulaanbaatar for a couple of days.

Just recently, this meme has come up again in reports, probably inspired/organized by “Jenko” Battulga, of protests in Ulaanbaatar in March 2015. Note that this definitely falls within the context of Spring being a season for demonstrations in Mongolia, as I discussed with CoverMongolia’s Mogi just some weeks ago.

I have argued for some years against the portrayals of anything in Mongolia as suggesting “resource nationalism”. Our standard riposte has been: there’s no coherent ideology, there’s no movement, there are no leaders. In fact, it continues to be surprising that there are no organized, vocal pro- or anti-mining movements that are recognizable as such, nor are there pro- or anti-foreign investment movements. That is not to say, of course, that individual Mongolians or even individual Mongolian politicians and policy-makers do not hold views that might be “resource nationalist”, but simply that there is no movement and that the impact of such views is thus limited. But maybe, we’ve just misunderstood this perspective on Mongolia all along and have been to imprecise in our understanding? So, let’s try to be more specific.

Defining Resource Nationalism

The term itself is somwhat common in the economics, political economy and general political science literature. It is applied in areas that I am not overly focused on, so let’s pick some workable definition to apply to Mongolia.

Let’s go with a very recent scholarly publication in a high quality political science journal:

Jeffrey D. Wilson (Asia Research Centre, Murdoch University) “Understanding resource nationalism: economic dynamics and political institutions” Contemporary Politics, 2015, DOI: 10.1080/13569775.2015.1013293

Not only is this recent, but it applies the concepts developed in the article to a number of resource economies, something that we are hoping to do here with the case of contemporary Mongolia.

Wilson writes that,

“Resource nationalism is a strategy where governments use economic nationalist policies to improve local returns from resource industries. […] It involves governments exercising control over resource industries through selective and discretionary resource policies, which are designed to achieve some set of political and/or economic benefits that would otherwise not obtain (Wilson, 2011).”

Hm… it seems to me that this applies to a wide variety of contexts outside of the mining industry. Isn’t all industrial policy pursued by OECD countries, for example, nationalist in this way? The Canadian government certainly tries to structure policies in such a way as to support the Canadian auto industry?

Let’s see if more specific descriptions of policies associated with resource nationalism can clarify matters.

Again, Wilson (2015):

[Resource nationalism] is typically characterised by a core set of policies:

• Policies targeting the ownership of resource industries, which mandate some form of local or state ownership, or in exceptional cases, the nationalisation of mining and energy enterprises (Mares, 2010).
• Policies constraining the operations of resource firms – through industrial policy requirements and distortionary trade regimes – that encourage certain behaviours such as minerals processing or the provision of subsidised energy to local consumers (Ward, 2009).
• Policies designed to capture economic rents for public purposes, through changes to resource taxation and fiscal collection systems that increase the share of the profits from resource production accruing to the state (Walde, 2008).

It seems that the most common example that people have in mind with references to resource nationalism is Hugo Chavez and the “re-nationalization” of the Venezuelan oil industry. This is largely the first of the types of policies described by Wilson in the above, i.e. the threat that a national government might nationalize or confiscate private and/or foreign-invested mining projects. Clearly, this is the ultimate political risk for all foreign investment, including Rio Tinto’s participation in the Oyu Tolgoi project, for example.

“Policies targeting the ownership of resource industries”

Let’s look at the first type of policy in the Mongolian context then. It seems quite clear that the definition of strategic deposits and the mandatory state participation in the development of such deposits is clearly a policy that targets the ownership of mining projects. This applies to such mega-projects as Oyu Tologi and Tavan Tolgoi as much as to smaller, as-of-yet-undeveloped projects like various rare earth projects.

The regulations around strategic deposits thus seem to qualify under this definition of resource nationalism, but again, most developed resource jurisdictions also pursue restrictions on foreign ownership (certainly true of Canada), and no one labels these as “resource nationalist”, reinforcing the sense that this label is more generally applied to developing “investment destinations”, and by investors and observes who adopt the standpoint of investors.

This perception of a largely foreign-applied label is consistent with the analysis present by Orhon Maydar (Univ of Arizona) at the recent Berkeley conference on “Deadly Modernity”.

“Policies constraining the operations of resource firms”

Criteria here make it sound like this is a concern with trade distortion primarily. I don’t think that this concern has been raised in the Mongolian context very much, though there are significant worries (and many foreign warnings) about the need to diversify the Mongolian economy which spark discussions of smelters and other processing facilities that would be included among industrial policies.

But again, short of full trade liberalization, these are certainly policies of a nature that are very common in most developed countries.

“Policies designed to capture economic rents for public purposes”

Clearly a very tricky business. The fundamental fact holds that resources are owned by “the people” in almost all national contexts, and the Mongolian constitution also specifies such ownership.

The difficulty (and the accusations of “resource nationalism”) arises when that ownership right is translated into licenses, concessions, etc. for industrial exploitation. From my perspective, there is no magic formula by which to balance royalties, taxes, ownership stakes or all the other forms that have been used to ensure benefits accrue to the nation and people that hold resources.

Obviously, “rent-seeking behaviour” is identified as one of the great risks to resource-rich developing countries and a prime potential cause for the “resource curse” especially when coupled with corruption.

Yet, it is also clear that unless significant net benefits accrue to the population (net of financial, social, environmental, etc. costs), no government should decide to develop mineral resources given their responsibility for the well-being of the population. That is especially the case in a democracy where the pressure on governments to act in the interest of the people should be even greater.

Next to the remote (in the case of Mongolia) threat of complete nationalization, trepidation about finding a fair level of revenue that accrues to the public from mega-projects like OT has been the main struggle in Mongolia. This is also the issue where no answer exists, and that is most easily exploited by politicians (especially in times of lead-up to elections, like right now) by making claims about excessive (whatever that means) shares of revenue being claimed by “foreigners”.

Conclusion

I don’t think the “resource nationalism” label or concept is useful in understanding Mongolia even though investors and financial journalists (and their headline editors) like to trot it out every time someone dares to question the nature of arrangements with foreign investors. Note that the label is rarely applied to developed economies, reinforcing the view that it is primarily used as a pressure tactic against developing countries like Mongolia.

I will continue to refer to “resource nationalism” in quotes, and make my case against this concept.

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