Dutch Disease, Nauru and Diabetes

“The author points to the impact of what he called Dutch disease, where the discovery of found wealth from a particular commodity causes a culture to atrophy with respect to work ethic and broader development. Continuing wealth from the single commodity is taken for granted. The government, flush with wealth, is expected to be generous. When the price of that commodity drops, a government which would remain in power dare not cut back on this generosity.”

 ― Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power

In 60’s vast natural gas deposits were found in North Sea, this discovery of natural resource helped in increasing wealth of Netherlands, and should have resulted in making Netherlands richer than before, but in long term in did not happen.

Increase in wealth due to discovery of natural resource also resulted in other things like rise in currency rate, with rise in currency rate non-oil exports become costlier and hence non-competitive, this retards growth of non-oil industries and in addition they also lose manpower to oil industry.

But once the natural resource gets exhausted, the economy is worse than it was before discovery of resource, because boom period has either retarded or killed non-oil industries, plus exhaustion of resource results in unemployed manpower. In economics it is called as Dutch disease.

One country infected by this disease is small island nation in Central Pacific called Nauru. It has population of less than 10000. Decades ago the residents of island earned their livelihood by fishing and farming.

One day it was discovered that island had rich deposits of phosphates, so Germans and British made millions by mining of phosphates (while residents were paid peanuts as royalty). The labour that did actual back breaking work of mining was from China.

phospate mining

Post mining the land became rocky and barren. Soon most of island was stripped of phosphates making it a barren land. The residents benefitted from this in monetary terms. The amount they earned as royalty was enough to make them one of the richest nations in the world. But unfortunately the political leaders lacked prudence and foresight, they wasted money on uneconomic ventures like Air Nauru, national airline with hardly any passengers but aircrafts flew with just one or two passengers. There were no taxes and social welfare expenditure was huge.

Former presidents used to commandeer Air Nauru’s planes for holidays, leaving paying customers stranded on the tarmac


Soon money and phosphate deposits got exhausted. Meantime people had grown lazy; they had no interest in fishing or farming. Infact they hardly worked, so they started importing processed food from Australia and continue to survive on it. Unemployment rate is 90% and of those employed 95% are in government sector, whose work ethics will put even our sarkari babus to shame.


Then Nauru government started looking for some interesting avenues for earning revenue, it allowed banks with shady deals to operate from their country, it also allowed mafia to get citizenship of Nauru for certain fee. But due to international pressure they had to stop these activities.

Finally, they came up with new source of income. Many wish to seek citizenship of Australia, but process takes time, so to prevent them from landing in Australia before that, Australia was looking for some place to dump them. Nauru offered solution in form of opening a detention camp in Nauru.


So running detention camp is now a new business for Nauru.

It is darkly joked on Nauru that refugees are the new phosphate, meaning the industry is very important to the economic survival of the country.

detention centre

After closing of phosphate mines the Chinese labour has started running Chinese restaurants in Nauru. So residents now have option of eating Chinese food in addition to processed food. They are just not interested in growing or eating fruits and vegetables.


Eating only processed food and no physical activity has resulted in health problems for residents. 90% of residents are obese and 50% of residents suffer from diabetes.



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