Nauru, from hyperconsumption to subsistence economy

Ostentatious and delirious investments

Discovered in the early 19th century, the phosphate produced on the island is one of the purest in the world, and enjoyed an explosion in demand after the Second World War, due to the growing needs of agriculture. For several decades, Nauruans produced around a million tonnes a year. Phosphate revenues were collected by a state-owned company and partly transferred back to the island’s inhabitants, who became independent in 1968. As they no longer needed to work, the islanders fell into hyper-consumption, became obese and diabetic, travelled only in 4*4s that arrived by the boatload, and benefited from the services of state-paid domestic servants.

At the same time, the island’s leaders embarked on ostentatious and delirious investments: an oversized airline serving a megalomaniac political project to make Nauru the “hub of the Pacific”, real estate complexes in Australia or the United States… All these “investments” were failures for the island and its inhabitants, even if they did enrich a few people in the process.

Towards total bankruptcy

There was a rude awakening when phosphate reserves ran out in the 1990s. Production fell from 1.67 million tonnes in the mid-1980s to less than 200,000 tonnes in the early 2000s, and ceased altogether in 2003. Nauru went into debt to maintain a standard of living that it was unable to reduce, and sought every possible expedient. The microstate becomes a tax haven, blacklisted by the Financial Action Task Force (FATF). ¹ . It also sells passports at a high price: two terrorists linked to al-Qaeda were arrested in 2002 with Nauruan passports. It tries to monetize its international sovereignty, obtaining a loan from Japan in exchange for its vote on the International Whaling Commission (IWC). He established diplomatic relations with Taipei when it joined the United Nations in 1999. At Canberra’s request, he agreed to take in boat people trying to find refuge in Australia at a center that represents a major financial windfall. By the end of 2003, Nauru was totally bankrupt and its inhabitants were approaching the poverty line. In 2009, the island had one of the highest unemployment rates in the world, reaching 90%.

What can we learn from the links between the economy and natural resources?

The dramatic story of the island of Nauru illustrates what economists call the “curse of raw materials”. ² an abundance of natural resources is not a sufficient condition for development, as it creates conditions conducive to corruption and waste. Resource rents (in this case, from mining) can be captured by an oligarchy instead of being invested in the country’s economy.

It also shows the extent to which GDP, the totem of most of the world’s governments when it comes to economic objectives, is blind to natural resources and their depletion. For decades, Nauru’s GDP per capita was one of the highest in the world, before collapsing abruptly following the depletion of its phosphate mines.

Finally, it can be seen as an apology for what could happen to our societies as a whole: our way of life depends on natural resources, and their destruction is inevitably accompanied by our impoverishment.