The Coming Resource Wars

The Russian invasion of Ukraine has made it clear that what Boris Yeltsin in the 1990s called “the cold peace” has given way to Cold War II. The first Cold War was a struggle not only of nations and alliances but also of systems—capitalism versus communism. The second Cold War is already a struggle among systems as well, pitting countries that focus on manufacturing (China) and resources (Russia) in the physical world against an alliance led by the United States, which for the last generation has sacrificed much of its own manufacturing and mining to specialize in global leadership in finance, services, and entertainment. To put it another way, the contest of models in Cold War II is not about ownership of the means of production; it is about material production versus immaterial service provision.

The other side in the new Cold War is very good at making things, mining minerals, and growing food. In contrast, the U.S. economy, although it still manufactures many products and is highly productive in energy and agriculture, rewards and celebrates those who make apps and loans—after a generation in which American business and financial elites made fortunes by offshoring industrial jobs and facilities to China and Taiwan.

Beginning in the Clinton years, policymakers and economists of both parties celebrated the shift of the United States to a “post-industrial economy.” In a speech titled “The Challenges of Success” to tech executives and investors in San Francisco on April 28, 1998, the neoliberal economist Larry Summers, then deputy secretary of the treasury, celebrated the allegedly immaterial information economy: “The twin forces of information technology and modern competitive finance are moving us toward a post-industrial age,” he said. Silicon Valley and Wall Street, not manufacturing or agriculture or oil and gas, symbolized the “new economy.” Summers listed examples of this new economy—“AIG in insurance, McDonald’s in fast food, Walmart in retailing, Microsoft in software, Harvard University in education, CNN in television news.” Let backward, old-fashioned East Asians and Germans make cars and TV sets and telephones and computers; America will sell insurance and infotainment to the world.

In the post-industrial economy, large firms regulated and supported by government and negotiating with organized labor would give way to spunky startups founded by overnight tycoons, according to Summers in 1998: “Look right here in California, where millions are invested before revenues, let alone profits come, and anyone with a good idea can make their first million before buying their first tie.”

A quarter-century later, when it turned out during the COVID pandemic that the United States had ceased making many essential drugs and medical supplies and was dependent on autocratic, anti-American China for many of them, the same Larry Summers was apparently shocked to learn that many things are no longer made in America. On March 21, 2020, Summers tweeted: “Thoughts at the end of a long week: Why can’t the greatest economy in the history of the world produce swabs, face masks and ventilators in adequate supply?”

Following COVID-19, Cold War II may finally discredit the fallacies of the free market globalist economists like Summers, Paul Krugman, and Glenn Hubbard who shaped the consensus among both Democrats and Republicans for three decades. Appropriately enough, for a financial and online business services superpower, the United States responded to the brutal Russian invasion of Ukraine with more or less the arsenal described by Summers in 1998—“AIG in insurance, McDonald’s in fast food, Walmart in retailing, Microsoft in software, Harvard University in education, CNN in television news.” The United States waged financial warfare against Putin’s Russia, American credit card giants cut off Russian consumers, and, in a devastating blow, McDonald’s pulled out of the Russian Federation.

It may be that financial and economic sanctions are enough to force Russia to retreat or negotiate. But Germany, the major NATO economy after the United States, is dependent on Russian oil and gas, which Germans continue to buy, partly subsidizing Putin’s military. At the same time, the world’s largest nation and its biggest economy (in purchasing power parity terms), China, which has surpassed the United States in many areas of manufacturing if not yet software, is in a position to help Russia endure Western sanctions as part of a common crusade to drive the United States out of their regional spheres of influence.

Even the beneficiaries of U.S. dependence on China—Silicon Valley, universities, Wall Street, “green” technologies that need Chinese imports—are being forced to acknowledge that we still live in a material world in which countries can be great powers even if they do not dominate global banking and insurance markets, on the basis of mining energy and minerals, growing crops, and making physical things. Russia and Ukraine together are responsible for more than a quarter of global wheat exports. Russia and Belarus together produce nearly half of the global exports of potash, a critical nutrient used in fertilizers, while Russia produces more than a fifth of the ammonia exports used in global agriculture.

For its part, China dominates global production of many essential minerals, both directly—producing 63% of rare earths and 45% of molybdenum—and indirectly, by investing in lithium mines in Australia, platinum mines in South Africa, and cobalt mines in the Democratic Republic of Congo.

A few decades ago, the United States mined and refined many of the minerals it now imports. But thanks to cheap labor abroad, excessive environmental regulations at home, and the fantasy of the post-material “information economy,” the U.S. government allowed corporations to shut down many American mines even as other firms shuttered American factories. The energy analyst Mark P. Mills describes the result:

As recently as 1990, the U.S. was the world’s number-one producer of minerals. Today, it is in seventh place. …

More relevant, as the United States Geological Survey (USGS) notes, are strategic dependencies on specific critical minerals. In 1954, the U.S. was 100% dependent on imports for eight minerals. Today, the U.S. is 100% reliant on imports for 17 minerals and depends on imports for over 50% of 29 widely used minerals. China is a significant source for half of those 29 minerals.

Along with free market globalism, the environmental movement has crippled and endangered the economies of the United States and its allies. Rejecting the asceticism of the old Malthusian left that called for voluntary poverty, edgrowth, and population decline through anti-natalism, establishment environmentalist leaders like Al Gore and his European counterparts have optimistically claimed that existing technology permits a rapid “green transition” from fossil fuels and nuclear energy to solar, wind, and hydro power, with no need to lower Western living standards or cripple what remains of Western industry.

But according to experts on global mineral production who belong to SoS Minerals, in a letter delivered to the British Committee on Climate Change:

The metal resource needed to make all cars and vans electric by 2050 and all sales to be purely battery electric [in the UK] by 2035. To replace all UK-based vehicles today with electric vehicles (not including the LGV and HGV fleets), assuming they use the most resource-frugal next-generation NMC 811 batteries, would take 207,900 tonnes cobalt, 264,600 tonnes of lithium carbonate (LCE), at least 7,200 tonnes of neodymium and dysprosium, in addition to 2,362,500 tonnes copper. This represents, just under two times the total annual world cobalt production, nearly the entire world production of neodymium, three quarters the world’s lithium production and 12% of the world’s copper production during 2018. Even ensuring the annual supply of electric vehicles only, from 2035 as pledged, will require the UK to annually import the equivalent of the entire annual cobalt needs of European industry. …

Challenges of using ‘green energy’ to power electric cars: If wind farms are chosen to generate the power for the projected two billion cars at UK average usage, this requires the equivalent of a further years’ worth of total global copper supply and 10 years’ worth of global neodymium and dysprosium production to build the windfarms.

There is not enough cobalt, neodymium, or lithium being mined and refined in the entire world today for Britain to meet its green transition goals in the next generation. And Britain has only 67 million people. The United States has 330 million. The world has nearly 8 billion. Do the math.

“Clean” energy is not clean. No less than natural gas and oil extraction, extracting the minerals required for solar, wind, and hydro power equipment requires massive mines and destruction of local landscapes and ecosystems. For pointing out this obvious fact, the left-wing filmmaker Michael Moore’s documentary Planet of the Humans was denounced by the organized green lobby, and Moore himself has been canceled by the left.

While some democracies like Australia, Canada, and the United States have significant mineral resources, many of the countries with large mineral resources and reserves are autocracies or fragile postcolonial regimes: China (gold, tin, and bauxite, used to make aluminum), Indonesia (nickel, tin, gold), and Russia (oil, gas, nickel). Half of global cobalt reserves are found in one country—the Democratic Republic of Congo. Substitutes for some of these minerals may be discovered or synthesized. But in other cases, natural deposits of elements that are essential to an advanced industrial society may give particular countries enormous economic windfalls.

During and after the first Cold War, many Westerners assumed that capitalism was associated with democracy and liberalism, and communism with autocracy. But economies based on resource capitalism or a single commodity crop (“banana republics”) have so often been ruled by dictatorships or oligarchies that the phenomenon is known as the “resource curse.”

To excel in global manufacturing, a country has to have a well-educated workforce, while innovation requires a high degree of intellectual (if not political) freedom. But if a government or economic elite derives its income simply by selling other countries the products of its mines or farms or ranches, what Daron Acemoglu and James Robinson call an “extractive” regime, it has no incentive to educate most of the population or respect their rights and every incentive to enserf or enslave the miners or agricultural workers. And if the route to personal political power and wealth in a nation lies through control of the nation’s oil fields, mines, or agricultural estates, ambitious individuals will be tempted to dispense with cumbersome elections and to seize power and resources directly through assassination and coup d’etat.

We Americans should recognize this pattern in our own history. The “original sin” of the United States was not slavery or racism; it was plantation agriculture. The Southern planters—oligarchs who raised first tobacco and then cotton for export—did not care what race their unfree workers were, settling on African and African American slaves only after experiments with exploiting Native American labor and European indentured servants had failed. And as Barbara Fields and other scholars have observed, Southern racism was formulated and enforced to rationalize labor exploitation in the plantation system, both before and after the abolition of slavery.

Far from being “backward” or “premodern,” the 19th-century Southern planter oligarchy, like the theocratic monarchy in 21st-century Saudi Arabia, was a product of modernity. As Britain and the Northern United States industrialized, the demands of their factories for Southern cotton grew and enriched the lords of cotton, just as global industrial development has enriched the monarchs and military dictators of various contemporary petrostates. Southern planters and Saudi princes, like Russian oligarchs, recycled the wealth they gained from the industrial regions by importing manufactured goods and vacationing and buying luxury real estate abroad.

This kind of elite “co-dependency” is built into industrial capitalism. The more advanced the technology becomes, the richer become those who, through fair means or force and fraud, control the appropriate industrial inputs and energy supplies. The genius of the creative entrepreneur in the diversified industrial economy who improves the quality of life of working class people with innovative goods may indirectly create corresponding fortunes in poor countries with deposits of essential minerals ruled by hereditary cliques or military dictators.

A green transition, then, will not necessarily lead to a liberal democratic world. Rather, it may simply ensure that petrostate oligarchs will have to share Swiss banks and swank London and New York neighborhoods and New England prep schools with counts of cobalt and lords of lithium, whose yachts and mansions may be as impressive as those of Jeff Bezos or Putin’s fellow kleptocrats. Generations of politicians from liberal democracies who are yet unborn may find themselves forced to flatter the president-for-life who controls a large bauxite deposit or the junta whose country sits atop a lot of samarium.

Last but not least, great powers like the United States that have decided to forgo entire areas of manufacturing as well as resource mining and refining may find that cornering the global market in insurance, investment banking, and adolescent action movies may not help them in the global resource competition to come.