Opinion + Voices

UCLA faculty voice: The curse of abundant resources

What North Dakota could learn from Mongolia about depending too much on volatile commodities prices

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Ulaanbaatar Mongolia
Marco Fieber/Flickr

In Mongolia, the signs of more modern wealth have not spread much beyond the capital city of Ulaanbaatar.

Jerry Nickelsburg
UCLA
Jerry Nickelsburg

Jerry Nickelsburg is an adjunct professor of economics in the UCLA Anderson School of Management. This column appeared in Zócalo Public Square. It is the first his new series, the Pacific Economist.

Where does an economist who works in the Pacific Rim go on vacation? This summer, I chose Mongolia, and not only because it is remote, interesting, a bit exotic, and has beautiful glaciated mountains. I also chose it for having a reputation for economic potential.

I went with some preconceptions. For one thing, I had read that ayrag, home-fermented horse milk, was widely consumed and not for the faint of heart. For another, I had also read that investors were high on the Mongolian economy, an economy with a 10-fold increase in GDP since the fall of communism.

This trip was about climbing, but I could not help but look for clues about Mongolia’s purported success. The analysts are consistent; Mongolia is a great place to invest even though its GDP growth has slowed significantly since hitting double digits in 2014. Google “Mongolia” and you will find many articles to this effect. (You also will find a few contrary notices about how some foreigners spend time in jail for tax evasion without being afforded due process).

I arrived in the capital, Ulaanbaatar (UB), on the middle of a day in early August. As is my custom, the first thing I did was take a walk and get a sense of the place.

UB is a city of 1.4 million, half the population of the country, but it feels smaller. There are a few modern structures — like the famous blue taco, a high-rise hotel and office building that looks like its nickname. For the most part, however, this is a city of yurts (1/3 of the people live in them) and old socialist-style buildings. In the center is the Government Palace complete with a giant statue of Chingas Kahn (for Mongolians–no hard G) and a massive square reminiscent of Red and Tiananmen squares. All this left me wondering: where was the supposed economic dynamism hiding?

My search would continue but first it was time to go for some climbing. The trip to the Altai Tavan Bogd Mountains began with a three-hour flight to the town of Ölgii on Hunnu Airlines (pronounced “who knew”). UB’s modernity, such as it is, quickly gave way to the relatively unpopulated windswept steppes of Asia. Ölgii, with 30,000 inhabitants, is the seventh largest city in Mongolia.

From Ölgii we traveled seven hours by Russian four-wheel drive over a maze of dirt tracks to the National Park gate and then hiked into the mountains. Over the next nine days, thoughts on the Mongolian economy were drowned out by the majesty and primitive beauty of the mountains of Western Mongolia. Large glaciers, tundra, sweeping views, and snow fields spread out before us as we moved into base camp. This is what I came to Mongolia for and it definitely did not disappoint.

In the Altai you feel you are about as far away from California, where I live, as possible. The region is home to nomadic Kazaks, and while they have some trappings of the western world, they still work their herds on horseback, live in gers (Kazak yurts) and cut grass by hand with homemade scythes. It is a hard, perhaps idyllic, life for these nomads, who make up almost 40 percent of Mongolia’s population.

Back in Ölgii I noticed that the stores had mostly Russian products. The people were poor but not starving, and economic growth had eluded them. I did find ayrag, the highly touted horse milk, in a little out-of-the-way shop, and it lived up to its reputation — strong with a sour and long-lasting aftertaste.

I also saw more clearly why this country, despite its dynamic economy reputation, didn’t seem so promising on the ground. The problem lies in the engine of Mongolia’s growth: extractive industries.

In boom times the few — the very few who work removing riches from the ground — accumulate wealth and share some of it by spending in the domestic economy. But mines and oil fields employ lots of capital and not many people. If a country is largely rural, as Mongolia is, most of it may be untouched.

When commodity prices fall, as they did in 2015 (coal and copper were off by more than 30 percent), that growth turns on a dime (hence the fall in the rate of Mongolia’s GDP growth). While starkly clear in Mongolia and less so in Texas and Louisiana, the phenomenon is present in all three.

Much has been written on how countries can be cursed by an abundance of natural resources. What I saw in Mongolia confirmed that if the windfall gains from natural resources are not turned into the fundamental building blocks of a diversified economy, like education and infrastructure, the promise of mineral wealth will be squandered.

Mongolians I met didn’t complain about this much — I was treated warmly and generously, and I appreciated how absent modern stresses were from life there. But the lack of economic opportunity has a deep human cost; many Mongolian youth are working abroad.

As my departing flight to Beijing ascended over the glass buildings and sheepskin yurts of UB, it occurred to me that Mongolia can teach us much about economic miracles. A North Dakota or Texas miracle may be real, but it may also be ephemeral.

Also, now that I know how to ride a Mongolian horse bareback, if Chingas Kahn and the Golden Horde ever ride again, I have a fallback to working as an economist.

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