Could Afghanistan’s Riches Destabilize the U.S. Economy?
by David Deutsch
Yes, I know this is a loaded question. But if it’s true that past is prologue, the discovery in Afghanistan of one trillion dollars in mineral deposits—including iron, copper, cobalt, gold and lithium—could potentially destabilize the US economy in the long run.
Let’s first examine some possible short-term ramifications of this discovery. Almost certainly, multinational mining corporations such as Rio Tinto will try to lay claim to the riches. They’ll talk about using these natural resources to support the Afghan people, and how this will benefit everyone and blahbitty blibitty blah and have a happy shiny press conference showing off their corporate social responsibility.
Before long, the firms contracted to extract the minerals will likely exploit the local population by paying pittance wages for slave labor, and pollute their water supply while encroaching on their cultures. This would empower Afghanistan’s warlords, thus ramping up the insurgency currently underway. This mineral-driven revolt would be framed as anti-foreigner by Afghani forces and thus enjoy popular support and further solidify the warlords’ grasp on the country’s citizens.
The multinationals may try to solve this by purchasing legitimacy by quietly collaborating with Afghanistan’s central government and the warlords. Before long, Afghanistan’s corrupt government comrades will become fabulously wealthy and use their money to fuel additional wars that make the current insurgency look like child’s play. All the while, Afghanistan’s leaders will explain that they cannot build roads or schools or provide fresh water to their citizens because they are fighting the occupiers—who are the same companies which are funding them in the first place— on multiple fronts.
That is just one of an infinite number of scenarios that could take place. While hardly attractive, an increased domestic insurgency in Afghanistan by itself would not destabilize the U.S. economy. Rather, it’s the riches themselves that could have the greatest long-term impact on us. To illustrate, we need to look at 15th century economic history to see what happens when imperialistic countries (let’s face it, we’re an imperial nation whether we admit it or not) seek wealth through conquest.
In the 15th and 16th centuries, Spain, er, discovered the New World, along with its deposits of gold, silver and other precious metals. After quickly dispatching the Mayan and Aztec governments, the conquistadors brought their ill-gotten riches back to Spain, triumphant, fabulously wealthy, and bathed in the glory of conquest.
Or so they thought.
Many economic historians agree that Spain’s conquests inevitably led to their downfall. After the Spaniards shipped their newfound riches back to Spain, the massive increase in domestic gold supply decreased the value of their currency so much that they eventually lost their superpower status.
This and other failed conquests inspired an 18th century Scottish social philosopher named Adam Smith to write “An Inquiry into the Nature and Causes of the Wealth of Nations.” This book was not a treatise on the wonders of free markets as some may want to believe. In fact, part of the reason he wrote the book was to convince leaders that they should acquire wealth through specialization and international trade, not conquest.
Granted, the analogy between 15th century Spain and the current situation in Afghanistan is far from perfect. From what I understand, Spain (and most currencies in the world) were mostly based on the gold standard, whereas most modern economies base their currencies on a complex monetary system. So a dramatic increase in the supply of gold will likely do little to directly destabilize our currency the way it did in Spain.
And, given how violent and war-torn Afghanistan is today, it’s not entirely clear that any firm would be able to retrieve the minerals. In contrast, the conquistadors had a relatively easy time in dominating what is now Latin America due to the natives’ lack of sophisticated weaponry, a governmental structure that was relatively easy to overthrow, and malaria.
Western powers need to be aware of potential long-term consequences of extracting these minerals. (See my previous article on Green IT for details.) A significant increase in the supply of raw materials such as cobalt could reduce their value on global markets, with potentially disastrous, albeit unintended, consequences. And from a PR perspective, it doesn’t exactly help that the timing of the report coincided almost perfectly with the announcement that the Afghanistan conflict is officially the longest military conflict in U.S. history. Apparently the U.S. military knew about these deposits for at least a couple of years, leaving conspiracy theorists to assert that the information was released to ensure that we maintain our military presence there indefinitely under the guise of keeping the precious metals out of terrorists’ hands.
It is important that we look at history for clues on extracting Afghanistan newfound wealth, as the discovery belongs to the people of Afghanistan and not multinational mining companies. Naturally, I do not want the U.S. to suffer, and I do not wish war on any nation. But if we do not approach this find in a cautious and wise way, we could end up with a situation even worse than the one I described above. Let’s all hope that past is not prologue to avoid this outcome.
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