By Fernando Teson

International lawyers often invoke a rule dubbed “Permanent Sovereignty over Natural Resources [hereinafter PSNR]. The rule reads :

“The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the State concerned.” (UNGA resolution 1803, 1962)

PSNR is rooted in the process of decolonization, and it makes sense in that context as a rejection of the European powers’ appropriation of the colonies’ resources.

However, with the end of colonization, PSNR has morphed into the principle that collective entities (people, nations) own the resources in their territory. And that idea in turn has morphed into the notion that governments have the ultimate imperium over those resources, since governments are supposed to act on behalf of the people.

In an influential paper, Leif Wenar has denounced the theft that dictators perpetrate by appropriating resources for themselves, instead of managing them in the interests of the people, as PSNR commands. Wenar’ is concerned with trade: these are stolen goods, and so buyers (which, he hastily assumes, are mostly rich nations) owe compensation to the peoples that have been robbed by the dictator with whom the buyers trade. He concludes that governments can dispose of those resources only if the “people” have transferred the ownership democratically.

naturalresources580_1Wenar deserves credit for having flagged the problem of widespread kleptocracy in the developing world. However, he does not go far enough. PSNR itself is objectionable. Why would nations or peoples own natural resources? Why wouldn’t individuals be the rightful owners?  If someone finds gold in her backyard, why would that resource belong to the “people” and not to her?

Of course, some philosophers think that all resources are own collectively by society (why a national society and not the whole world?) so they have no problem endorsing PSNR. These authors think that private property rights are merely conventional. A state may establish them for convenience, but it is not bound to do so, since all resources belong to the “people.” This dovetails with international law’s agnostic attitude toward property regimes. The state might decide to eschew private property and run the whole economy on behalf of the “people.”

But a closer analysis of PSNR discloses the nature of this resource grab by the state. For starters, what are natural resources for the purposes of PSNR? Oil and minerals? Agricultural products? Industrial products? Bank accounts? Many fans of PSNR enthusiastically endorse the state’s nationalization of oil, but (maybe) would balk at the state’s nationalization of, say, broccoli and tomatoes. In Argentina, the government expropriated individual retirement accounts worth $30 billion. Is this a natural resource covered by PSNR? How can supporters of PSNR tell, in a principled way, what resources the state is entitled to expropriate? Or is their view that the state can nationalize anything, since it owns everything? The truth is that states have mostly expropriated oil and minerals because, unlike broccoli, they are very valuable. The state wants to grab these resources in order to fatten its coffers. But, of course, bad governments will expropriate virtually anything.

More fundamentally, PSNR is designed to unprotect private property rights. It is a blank check that allows governments access to vast amounts of wealth. Yet the right to private property is essential both to respect individual autonomy and to generate prosperity (I cannot argue for this here, although it seems pretty obvious to me.) The better governments manage these resources in the interest of the people; the worse governments (the majority) enrich themselves. But all, ultimately, are thieves of one stripe or another. Wenar misses this because he accepts PSNR’s premise that natural resources are owned collectively.

A just international order should reject PSNR. Natural resources belong to persons, not to “nations or peoples.” This should be the starting point. Only then should we start thinking about when and under what conditions individuals can validly transfer resources to the state.

This article was originally published on Bleeding Heart Libertarians.

Posted by The Indian Economist