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Wednesday, October 19, 2011

Mongolia and Globalization

Here's an article I wrote a few years ago. I welcome comments:


Mongolia’s Oyu Tolgoi and Globalization

Scott Gillette

Mongolia’s open country and natural beauty is one of the country’s most important assets, and also served as a barrier between itself and the rest of the world for much of human history. Too often Mongolia is overlooked internationally, because of its relatively small population and isolation. But its strategic significance in Asia is obvious, and this insures that Mongolia will receive ever more attention from the global community in the decades to come.

Many Mongolians are justifiably wary of any kind of foreign presence in their homeland. Mongolia’s history has been marred by centuries of outsiders controlling their destiny, first with the Chinese occupation during the Manchu dynasty, and then the Soviet occupation that prevailed from 1925 until 1990. For the longest time, Mongolia could not control its own fate. Today, for the first time in centuries, it can and does.

Mongolia has played a disproportionate role in world history compared to its size, but it is still a small country. This has meant that it is forced to play larger powers, most notably China and Russia, off each other and play power politics shrewdly. However, times have changed, and a different approach is needed.

Mongolia has to forge its own identity for this new century. The return of Chinggis Khan as a cultural icon demonstrates and is a product of Mongolia’s newfound independence. However, most Mongolians with whom I have talked to want Mongolia to be less about a past historical, and more of a forward-looking place.

Mongolia must develop the economic clout, both materially and spiritually. Mongolia must embrace the outside world with confidence and optimism, while preventing outsiders from corrupting its greatest assets. These goals may seem incompatible at first. Yet Mongolia’s freedom to choose its own destiny is complicated by the same forces that are sweeping the entire globe. This is because Mongolia’s biggest promise is also its biggest threat to its sovereignty. This promise and threat is not a mighty state, but an abstract force known as globalization.

Globalization, for the sake of this article, means that the world is becoming more interconnected politically, financially and culturally. Quantum leaps in technology and telecommunications mean that Mongolia is no longer an island separated by vast stretches of grasslands and desert. Instead, its fate is intertwined with the rest of the world. No area of the planet is immune from the winds of globalization. There have been protests against it all around the world, but nothing is going to stop it. Every part of the world is becoming more connected to and dependent on each other every day, whether one likes it or not.

Some areas and some groups will benefit more than others. China will probably be the country that benefits from globalization the most in the new century, while large corporations around the world will prosper disproportionately compared to smaller-sized businesses. The winds of globalization do not blow fairly. But it is no longer viable for any person or state to shut out the rest of the world.

It is understandable that many Mongolians would recoil from any engagement with the outside world. Many Mongolians would prefer a militant nationalism that barricades the entire country from outside influences, but that is no longer a viable and worthy option.

Steve Saunders, President of the North America-Mongolia Business Council, points out that “Political parties in Mongolia are keenly sensitive to voters' views on globalization, as are political parties in the US and Canada and every other democracy. Economic nationalism in Mongolia came from the grassroots, from the voters, and their elected officials are trying to cope with it.” So it is up to those who recognize the value of economic openness to persuade the electorate in a democracy.

I wrote in a previous column about how the recently enacted flat tax will bring simplicity, transparency and growth to Mongolia. The establishment of an honorable agreement between the new government and Rio Tinto, which can make Oyu Tolgoi operations a reality, would also have just as enormous and positive an impact.

Recent elections have called this massive project into doubt. Bret Clayton, CEO of Rio Tinto’s copper division, recently said, “We hope and trust that despite internal changes within the Mongolian government that we will remain focused on our common target.” I hope the new Mongolian leadership agrees.

I do not advocate this view because I embrace or benefit from the interests of the Rio Tinto mining company. I come to this position because of a sincere concern for the people of Mongolia. The project would make a new public sector in Mongolia possible, one that would fund vital projects in health care, infrastructure and education.

Economic openness can enhance Mongolia’s security in the future. If Mongolia stagnates while China prospers, Mongolia will be unfortunately at the whim of Beijing in the future. However, a prospering Mongolia can maintain its independence, as nobody would want to tamper with the goose that lays the golden egg. It is instructive to note that the Chinese never leaned on Hong Kong too heavily.

Gulf states like Bahrain and The United Arab Emirates serve as examples of the kind of economic nation that Mongolia could become. These states are culturally distinct from the West, but possess material wealth and relative political harmony. There is no reason why Mongolia cannot achieve this status in 30 years.

However, the clock is ticking. Ivanhoe, the parent company of Rio Tinto, has indicated that it will not wait around forever for an agreement to be reached. Bill Clayton pointed out, “Mining is one of the few ways that a developing country can accelerate its economic growth. A nation's reluctance to invest in its mineral resources in a timely and equitable manner will delay, and in some cases destroy, its ability to capitalize on its mineral wealth.” If Mongolia is labeled a place where it is too difficult to get deals done, companies will stop trying. The only thing worse than the global economy exploiting you is the global economy ignoring you.

Steve Saunders points out that every day the Ikh Hural delays, it costs the Mongolian economy $1 million a day in GNP. On the positive side, “Prompt parliamentary approval of an investment contract for the Oyu Tolgoi project would produce a tidal wave of new investment in a variety of sectors.”

Saunders also points out that this investment is not based on helping one corporation alone. “One of the things not widely understood in Mongolia is that the capital behind foreign investment is democratic, not oligarchic; the money that foreign companies invest in Mongolia doesn't generally come from rich fat cats but rather from tens of thousands of individual citizen investors around the world who buy stock in those companies. If those stakeholders believe that Mongolia is unfriendly to foreign investment, those stakeholders sell their stock in companies that invest in Mongolia. In turn, those companies have to respond to shareholder concerns just as politicians must respond to voter concerns.”

Saunders’ observation is based upon extensive experience with Western markets and the Mongolian economy. He recognizes that Mongolian businesses like MCS Company, Newcom, Tavan Bogd, and the Khan Bank have opened up to the world. The government cannot ignore the concerns of its people about the outside world. Just as importantly, they cannot ignore the outside world altogether.

Now is not the time for Mongolia to turn away from globalization, but to find a way to embrace it. If Mongolia does not embrace globalization today, it may have to accept lesser deals tomorrow, as poverty leads to desperate measures. That is why the Oyu Tolgoi is so important; not only can it provide significant revenues to the government, but also it will serve as a blueprint for what may transpire in the future.

If Mongolia can open itself up to the world, its unique people, culture and landscapes will fuel another wave of sustainable development. Globalization is the central reality of the 21st century, and Mongolia has phenomenal opportunities by opening up to the outside world. If only Mongolia will take advantage of them…

3 comments:

freesocietymongolia said...

I believe Mongolia must embrace globalization in order to survive and thrive. As a smaller state next to China, it has no choice.

Chris said...

I'm not sure I understand your main point. The Oyu Tolgoi is signed, sealed and delivered, isn't it? The only question remains whether the parties will adhere to the contract, if I understand the situation correctly.

freesocietymongolia said...

I should have pointed out that the column was written in 2007. Yes, it is signed. But it took forever for the agreement to take effect. My concern is that Mongolia will choose isolationism, which would leave the country both poorer and more vulnerable in the future. Of course, I support the fact that Mongolia makes arrangements with companies so that the newly created wealth goes to those who need it.