How the World's Richest Country Lost 90% of its GDP

this is the Republic of nehru with a landmass of just eight square miles and a little under 11 000 inhabitants it is the third smallest nation in the world behind only Monaco and Vatican City but what it lacks in size it more than makes up for in economic lessons because this small little island in the South Pacific was home to the most extreme downturn ever in the past we've talked a lot about how natural resources can have a huge impact on many countries economies think of the immense oil wealth enjoyed by many of the Persian

Gulf States but when not managed correctly natural resource wealth can sometimes do more harm than good in the long run which is why many economists even go so far as to speak of the natural resource curse this tiny Pacific island nation is perhaps the best single case study of what can go wrong the country went from Rags to Riches only to go back to somehow being worse than it started before it struck it rich the lesson of nehru is one that all economists can learn from because it is one of the rare times in history

that we have been able to clearly explore the economic mechanisms that draw Drive these booms and busts on such a clear scale so how did nehru become the richest country in the world what mistakes do they make that led to them squandering this wealth and finally how did this tiny country actually end up worse off in the long run nehru was first discovered by Europeans in 1789 when a British ship passed by a piece of land covered with a green Central Plateau overgrown with swaying palms and framed with white sand beaches the Island's natural beauty

led the British to call it Pleasant Islands a few decades later the first Outsiders settled on nehru which is just one-third the size of Manhattan initially the Island's resources were thought to just be coconuts and pigs until a British geologist discovered higher grade phosphate ore in simple words the country didn't get oil rich instead the scientists found dried up bird poop and algae which was somehow more valuable because it could be used mostly in fertilizers but authoring cosmetics and animal fodder around the turn of the 20th century when it was discovered eighty percent of the

pleasant Island was rich in this mineral a treasure of accumulated seabird excrement mixed with Marine microorganisms undiscovered up until that time it might sound disgusting but it was the key to feeding a growing global population so it was extremely valuable Mining rights were quickly sold to Germany who who was the colonizer of nehru at the time in the following Years Around 80 million metric tons of this valuable substance got exported from the tiny Island as shipping ports processing facilities and supporting Industries sprung up on a spit of land barely bigger than Central Park Germany became

busy fighting the first world war during which time Australia seized the opportunity and snatched nauru for itself the island had by this point just become an offshore mining site phosphate was mostly sold at a subsidized rate which we here in Australia call makes rates to Farmers in Australia New Zealand and Great Britain unfortunately by this time Decades of mining had already destroyed much of nehru's natural landscape the top side of the island was back then described in National Geographic as a ghastly tract of land quite a nosedive from Pleasant Island from here on it gets

even worse during World War II Japan invaded the island and spread Terror on nehru including forced labor camps and mass drownings at the end of World War II only 600 nerusians survived once the war was over in Japan surrendered the island was once again handed back to the Australians and their exploitation of the Island's stinky Treasures continued in the Years between 1945 and 1968 phosphate mining activities reach new record highs when the nehruians finally achieved their independence nobody was forcing them to mine phosphate anymore but by this point their entire economy already revolved around exporting

this natural resource independent nehru had lost one third of its Islands to the mines and the inhabitants lived around to by now even ghastly attractive land a Barren moonland all economies are limited by the factors of production land labor and capital it's just in the case of nehru these limitations were extreme this island has a tiny population that wasn't skilled in doing anything other than digging smelly rocks out of the ground the size of their nation and its isolated position in the world meant that many Industries just weren't feasible and while phosphorus mining had made

the island a lot of money most of it at this point had been claimed by the Nations that held the island as their colony they didn't have the infrastructure structure or expertise to develop any other Industries so phosphate experts were further increased to Milk The Cow while she was still alive they really had no way of competitively doing anything else it was already apparent that the supplier phosphate would run out within a lifespan or two but that did not stop the neurosians from rightfully demanding their share of the pie this initiated an Epoch of nehru's

History where some called it the wealthiest little island in the Pacific a little more than a decade after their independence nehru became internationally hailed as the single richest country in the world on a per capita basis in 1981 they had a GDP per capita of 27 000 which translates to 88 000 today for comparison the US GDP per capita was fourteen thousand dollars at the time this means the average nehruin was twice as rich as the average American of course GDP per capita is far from a perfect measure of how well the average citizen is

doing and if you want to learn more about GDP check out this video on our second Channel economics explained Essentials but GDP per capita is still the easiest measure to compare economies against each other and it gives us at least a crude approximation of living standards we with their abundant phosphate wealth and political Independence nehru was finally doing quite well for itself sport stars are told to retire at their peak of success and many people in nehru followed this advice after all they could easily rely on free education and Health Care by the government and

royalties from the phosphate earnings by landowners many inhabitants were able to be unemployed by choice at the at the same time all sorts of crazy stories happened in nehru sports cars were the accessory to possess despite the country's small size you can drive around the entire perimeter of the island at allegially PACE in one hour hardly the ideal place for drag racing one police chief decided to bring a Lamborghini to the island only to realize he did not fit behind the wheel the reason he was unable to drive his new toy was part of a

looming Health crisis on the island by 1980 an epidemiologist declared nehru to have an obesity epidemic the underlying factors were increased wealth and poor food choices junk food consumption skyrocketed and still in 2002 the country was ranked the worst of 170 Nations by the World Health Organization in terms of average body mass index and arusian's life expectancy is only slightly above 60. the healthy indigenous foods such as coconuts and fish got replaced by imported Foods another consequence of mining the poor health of the workforce can have severe Economic Consequences as well not fitting behind the

wheel of your new Lamborghini suddenly becomes a very small issue considering the overall implications of this obesity crisis let's dive a little bit deeper into the health situation of nehru back then and now most meals consist of instant noodles white rice anything out of a can and soda tobacco and binge drinking are also common Amy McLennan an anthropologist at the University of Oxford commented on her stay with the words I was lucky to find one vegetable a week interestingly enough nerusians are quite educated and aware of the risks associated with bad nutrition and obesity there

is no luck of school programs advocating proper nutrition rather the problem was a lack of access to high quality food the Decades of phosphate mining destroyed the natural environment to such a great extent that the agricultural industry became almost non-existent and spoiler alert but the economic downturn after the phosphate ran out meant that most nerusians could only afford cheap processed foods during the colonial days the Eurasian people only received a small fraction of the wealth generated by the phosphate mining given this background it was rather economic necessary city which prompted them to continue mining after

Independence rather than greed having to import all Goods including food and water is not a sustainable way of living since all the attention went to phosphate mining nobody bothered to waste time on manufacturing or agriculture for agriculture the land was too exploited anyway after all the topsoil got removed for mining activities this is just a classic case of Dutch disease but taken to an extreme degree given the otherwise limited resources of the neuron economy one strategy to avoid Dutch disease is diversification of the economy this approach could be seen amongst Middle Eastern Nations which try

to diversify their economies actively you can learn more about this in our recent video about the economies of the Gulf States bigdown Mega projects to an extent these projects will be successful is still a matter of serious debate but at least they are trying the necessity to diversify was no news to the country's leaders and they did try to venture into different Industries one was Offshore Banking resulting in licenses for roughly 400 foreign banks at the beginning of the 1990s these neuro and Bank branches were initially a huge success but the strategy behind the success

was let's say dubious at best customers did not need to visit the island to open a bank account with so-called economic citizenship one could easily get a nerusian passport through which the country becomes a paradise for money laundering and tax evasion the government earned Millions through fees but it was not the solution to fix nehru's economy after running out all of its phosphate treasure in 2005 nehru stopped the Offshore Banking business and it started requiring a physical presence to obtain a bank license this was not due to a change of heart but rather due to

immense International pressure the US even categorizing nehru as a rogue State under the 2001 Patriot Act Now another way to deal with Dutch disease is to take the Norwegian approach which is to set up a sovereign wealth fund designed to invest the natural resource wealth in a way that will generate dividends for generations to come a lot of earnings from the phosphate boom had been invested abroad meant for a time when their treasure would dwindle this is a great idea that was unfortunately not implemented well at all risky Investments and plain old fraud made the

country lose a lot of its Investments ultimately pushing nehru to the verge of bankruptcy not even the discovery of secondary phosphate deposits and the subsequent second phosphate Rush changed the imminent economic collapse the country went so broke even the central bank went bankrupt their overseas real estate assets were repossessed and their airplanes were seized oh yes planes nehru had launched a national airline in the 1970s there was however one more glorious attempt to secure Financial well-being nehru infamously became one of the biggest disasters in the history of London theater nehru had earlier invested in Leonardo

the musical a portrait of love the musical depicted a fictional love triangle between Da Vinci Mona Lisa and a soldier needless to say the musical became a huge flop at a time when nehru could not afford any kind of financial loss by 2001 they were completely out of phosphate and their foreign investments had almost all ended up in Failure by this point the country was completely broke and had a poultry GDP of 32 million dollars adjusted for inflation unemployment skyrocketed to 90 percent and the school system mostly collapsed just a reminder we're talking about the

richest country in the world just years earlier unfortunately this is only the beginning of one of the darker chapters as a result of the economic misery nehru faced at the turn of the century in 2001 the large Norwegian freitar MV Tampa wanted to dock in Australia earlier the crew rescued more than 400 mostly Afghan refugees from a sinking boat Australia refused the Envy Tampa to enter Australian Waters and instead found the so-called Pacific Solution an offshore detention camp on nehru Australia paid nehru for their efforts of keeping immigrants away from their Shores it also created

employment for the island and led to some bizarre situations nehru was still in no position to wave off millions of dollars in return for Corporation the client state was far too intertwined with their large neighbor to refuse the new proposal even the fierce hostility of many arizonans did not change this policy over the past two decades Australia has employed nehru's detention services on and off and may continue to house migrants to this day this along with foreign aid mostly from Australia has kept the island economy afloat barely James engineer an old minister of the nehru

Congregational Church was born in 1911 and practically saw it all even the musical Angel lamented to a New York Times Reporter saying I wish we'd never discovered that phosphate I wish neru could look like it was before when I was a boy it was so beautiful There Were Trees it was green everywhere and we could eat fresh coconuts and breadfruit now I see what's happened here and I want to cry now it's time to put nehru on the economics explained National leaderboard starting as always with size nehru has a GDP of 133 million dollars making

it the third smallest economy in the world head of Montserrat and tuvalu two other micronations based on its small size we can't give nehru anything better than a one out of ten the small GDP is spread out across a small population of a little over 10 000 citizens as of 2021 they had a GDP per capita of twelve thousand dollars putting it almost exactly in line with the global average so nehru gets a 5 out of 10. stability and confidence has been negatively impacted by the country's poor track record of handling its phosphate wealth their

brief Venture with unregulated Banking and their controversial policies of providing outsourced detention centers given this history we can only give nehru a 3 out of ten growth is perhaps the most interesting metric growth was obviously very strong in the 1970s and 80s as their phosphate exports allowed them to become the richest country in the world but after running out of phosphate in the 1990s their GDP fell by more than 90 percent however the economy has exhibited strong growth since then growing at an average annualized rate of seven percent per year the growth has been almost

entirely driven by the detention centers and foreign aid nevertheless seven percent per year is incredibly impressive no matter the circumstances so nehru gets a score of 9 out of ten and finally industry today nehru's main industry is outsourced Refugee detention centers while this remains a lucrative source of revenue for the country it does not build the technological capabilities needed to create more advanced Industries down the line should this singular Revenue stream ever dry up because of this nehru gets a 2 out of 10. altogether this gives nehru an average score of 4 out of 10

which puts it down here on the economics explained National leaderboard thanks for watching mate bye