April 23, 2009

Conservation Biology, finance and Nauru

John Gowdy and Lisi Krall draw the wrong lessons from the recent history of the small island nation of Nauru in The fate of Nauru and the global financial meltdown, published, as so much financial commentary these days, in the journal Conservation Biology.

Gowdy and Krall's story goes like this. The current economic system of the world, including Nauru, is market capitalism. Phosphate mining savaged the paradisiacal island of Nauru and deprived Nauruans of their traditional living means. While there was still some phospate on the island the government of Nauru decided to put part of the revenues in a trust fund. Neoclassical economists think this - transforming natural resources into investments - is good. But the fund, once worth one billion Australian dollars, is now gone due to the vagaries of financial markets. "The people of Nauru face a bleak future with no source of income other than foreign aid."

Gowdy and Krall draw three conclusions. First, market capitalism is no good. Second, neoclassical economists are evil or at least plain wrong. Third, because neoclassical economists are wrong, David W. Orr is right.

In contrast, I draw this conclusion: Don't trust your finances to your government.


  1. Finally someone has "said" it! But as a Nauruan what else is there but the Governments?! If we never rallied for independence the Australian, New Zealand and the U.K governments would have squandered us far worst than our own government had. I guess, in the end, this neo-what? monopoly? still got to our monies somehow. Thanks Fuente for making sense of Nauru's situation

  2. Could foreign investment on turism help out? Or is it impossible due to underdeveloped infrastructure and lack of govt. money to restructure it?