MAC/20: Mines and Communities

The Mining Curse: The Role of Mining in "underdeveloping" countries

Published by MAC on 2001-05-01


Minewatch Asia Pacific/Nostromo Briefing Paper, February 1999

THE MINING CURSE

The role of mining in "underdeveloping" economies

"It is one of the strange economic paradoxes. Why is it that in many cases the economies of countries that have an abundance of natural resources actually perform less well than those of their counterparts that have few resources? What has benefited Korea and Japan for instance, so that their economies have far outstripped those of say, Mexico or Zambia?"

Comment in Mining Journal April 17 1998


There is now compelling evidence that mining severely limits a nation's ability to sustain economic growth (even within the narrow definitions usually adhered to by nation states) (1). This is a surprising "discovery" for those who think that "riches" in the ground are unfailingly translated into money in the bank. But for those who adopt an anti-colonialist analysis of capital accumulation, the fundamental reason for the discrepancy is not hard to find. Zaire, Bolivia and Sierra Leone are not merely "poor" - they have been ruthlessly impoverished over hundreds of years. Much of the crippling "foreign debt" carried by the world's "poorest" nations is actually interest supposedly owed on capital which has never been invested in people self-development at all. Instead it has gone to building mines, dams, mills, power and processing plants in order to transform "natural" capital - not only iron, copper, bauxite, diamonds, but water, land and air - into exportable value.

Instead of confronting this central anomaly - and questioning the very precepts on which multinational extractive companies have built their economic power - spokesmen for the mining industry have come up with new claims to legitimacy. Central to these is the proposal that mining is not just an aid to sustainability, but in itself a "sustainable industry". Modern large-scale mineral extraction is being presented, not simply as job and income generating but as an indispensable aid to a community's self-chosen development goals (2).

Some of this advocacy of income-generation - as opposed to asset preservation - is founded on ignorance about the wide-ranging and long-lasting disastrous impacts of many types of "natural resource" extraction. (This is true of some international development and human rights agencies who actually know very little about mining and over-rely on the industry for their information: a case of the fox telling the farmer that he isn't after the chickens!)

But more important, there is clear political motivation behind the re-definition of mining as "sustainable" (for example, on the part of the World Bank and the International Council on Metals and the Environment, the ICME). And there is obvious self-interest behind the apparent shift, among some companies, away from attacking small-scale miners in areas they covet, to incorporating them into their operations (3). Development geographer, Richard M Auty recently spelt out the challenges - and threats - which the industry has to face. Community organisations and their supporters (says Auty) have "widen[ed] the sustainability debate [offering] great scope for anti-market pressure group intervention". This has made social conflict "potentially more intractable than the environmental issues, because they are more overtly rooted in conflicts of values and also less amenable to scientific measurement and technical solutions".

However, Auty's solution to these growing conflicts is to implement - if not technical solutions - then certainly economic fixes: "social audits... that also evaluate the adequacy of compensation payments" along with the more transparent and equitable distribution of mineral rents. His third way to "ameliorate" the situation is by "institutionalising the targeting of welfare spending [derived from mineral revenues] at lagging regions, or poverty alleviation". If governments object to this, duty advocates that multinational miners should "reinforce the enclave character [sic] of their operations and pursue strategies (such as those of SPCC ** in Peru during the 1980s) which eke out investment in the expectation of political change bringing better prospects" (4). It is both ironic and instructive that Auty cites SPCC as a model to follow: this company's appallingly destructive activities in the Ilo region of Peru are a textbook example of extractive industry exporting value, while jeopardising the health of its workers and the local farming community. The company did this in connivance with the central government, while the regional government made some efforts to call SPCC to account (5).


HARDSELL

Of course, the mining industry and its proponents do not want to focus on these huge failings. Professor Mikesell's recent "revelations" about the "poor performance" of mineral-dependent states actually echo the misgivings of the United Nations Development Programme (UNDP) fifteen years ago. Now he both blames and exhorts the victims: "Although a country may not have used them to support economic growth, it is certainly better off for having the [mineral] resource than remaining at subsistence level in terms of economic development" he concludes. This is a classic non sequitur, like claiming that: "although a country may not have used its nuclear weapons, it is certainly better off for having them than had it remained a non-nuclear power". Mikesell fails to take account of huge industry-manipulated changes in mining, which have helped shifted decision-making - and therefore the loci of real economic power - away from states and to private sector enterprises (6).

To deal with this, the major public institutions which gain from promoting continued resource extraction (especially the World Bank and the regional Development Banks, but also state direct loan agencies, such as the Japanese Exim bank, Britain's CDC, Australia's EFIC and Canada's CDC) have had to change their tune. Now, it is no longer solely third world governments whose needs dictate the nature of "development" in the "extractive sector"; those of "local communities" are also stressed, along with the pretended consumer demands of an escalating global population. The first set of needs are presented as acceptance of an increasing rate of exploitation among land-based communities in return for the promise of greater "participation" (and amorphous "recognition" as "stakeholders") in private enterprises. And the alarming increase in absolute poverty is countered by a self-fulfilling prophecy: the more people born to this finite planet, the greater the need to offer them the white and grey goods which the rich have long identified as synonymous with quality of life (even if their production, and the pursuit of it, has helped impoverish and degrade the sustainability of entire regions).



A NEW ROLE FOR INDIGENOUS PEOPLES - OR NEW FORMS OF EXPLOITATION?

If Indigenous Peoples are now being defined as key actors in transactions between resource owners and exploiters (as for example in "The Way We Work" published in early 1998 by the Rio Tinto Corporation), this is not because their aims and needs are intrinsically understood, but in order to gain easier (and less conflict-ridden) access to Indigenous territory and what lies beneath it. If quality of life is measured primarily in terms of goods and services, then irreplaceable pools of minerals, timber, water and air must now be monetarised, so that these resources can be transformed more easily into profitable commodities. (Three years ago the Chicago stock exchange actually introduced "futures trading" in clean air! (7) And that transformation was presented as if it were inevitable.) Moreover, the despoliation and pollution caused by increased natural resource extraction is now also "commodified" - so that toxicity can be traded (for example, as carbon dioxide "permits"), rather than absolutely done away with.

Nonetheless, at the root of these assumptions is a significant contradiction with which extractive industries and their proponents cannot easily cope. On the one hand, the largest North-to-South transfers of funding continue to flow between states ("bilaterally"), and so long as the biggest segment of private investment is earmarked for national or regional infrastructure (often on a BOT* basis) then governments clearly remain the prime arbiters and determiners of "development" projects. On the other hand, private corporations have become the main beneficiaries of increased incomes from such projects - certainly in dividends and direct returns on investment, and increasingly through the provision of over- priced services. (Prominent critic of multinationals, David Korten, recently argued that it is banking's financial "services" which now offer the most outrageous returns on investment, rather than multinationals per se). Therefore it is certainly not in the medium term interests of private concerns to do away altogether with government, or decry too rapidly its failings and corruptibility (8). Yet, so long as governments purport to be democratically responsive, they will continue to be "over influenced" by what their electorates and their various national lobbies believe to be in national, or local, best interests. When peoples' movements for greater accountability from government become too formidable to ignore (as in the Philippines and Indonesia) it is not only the prospects of individual mining companies which become threatened, but the future of the industry itself.



THE CORPORATE NEED TO CONTROL GOVERNMENT - AND TERRITORY

Without bilateral or multilateral public funding directed at countries in order to improve energy availability and infrastructure (roads, railways, ports in particular) many new mines just won't be built. For the mining industry there are therefore numerous advantages to be gained in influencing - even controlling - rather than completely subverting governments: for example, in its need to find new markets within the South (and selling products such as cement directly to big state construction projects), to "add value" to downstream processing (by investing in domestic smelters, such as Gresik in Indonesia or Pasar in the Philippines), to exploit the discrepancies between goods and services bought in local currencies and sold in dollars (or vice versa) and to access cheap national labour pools (protected by lax laws or continued repression of free trade unions). Above all, mining companies need state support in their insatiable quest to access land and the minerals on or beneath them (see FOOTNOTE A). This is especially important where their objectives are challenged by competition (either from other companies or by units of the state itself) and threatened with civil conflicts and community resistance to mining.

Although surveys of corporate mining criteria, carried out in the past ten years, have varied appreciably in identifying some objectives (with differing emphases on the relative importance of royalty rates and withholding taxes, abundance of local labour, subsidised power, freedom to export product and profits, and other factors), the companies are virtually united in their demand for security of tenure and a clearly-defined state regulatory regime (9).

However, this is easier said than done - and it is becoming much harder to do, at any time since the rash of independences gained by third world political movements during the 1950s and 1960s - for three main reasons.

First, many state systems aren't working as they should - in Angola and Sierra Leone they aren't working at all, while the capital flight which helped create the recent "Asian economic crisis" has - at least in the short term - damaged their prospects for stability and protection of investments. This is not just due to the drying-up of money for new infrastructure, or the contraction of regional demand for mineral output. Even more critically, the Asian "crisis" has helped trigger reduction in prices and demand elsewhere (particularly in Brazil, by far the biggest mineral producer in South and Central America, but also in South Africa for example, where the Minerals and Energy minister last year spoke of more than a million people "facing poverty" as a result (10).

This in turn has squeezed the availability of new money for exploration (11) and stimulated an unprecedented upsurge in community debates in the Asia-Pacific region (in the Philippines, Burma, Indonesia, West Papua, Papua New Guinea, Fiji, the Solomons and elsewhere) over the degree to which big mining companies should be allowed to exploit Indigenous patrimony and exhaust mineral reserves (FOOTNOTE B).

The big mining companies - and their backers within the World Bank/IMF, Japan (which now hosts the biggest proportion of the world's major multinationals), North America, Australia and Europe - have so far averted the most obvious and equitable solution to state indebtedness in the South. This would be to increase, not reduce, taxes on the exploitation of resources. But a stable, global, tariff-free system is still some way off: even under such unrepresentative regimes as in Indonesia, Malaysia and the Philippines, there have been recent threats to resurrect, rather than break down, barriers to inward investment. The expected return of a semblance of democracy to Indonesia, by far the most mineral-prospective country the Asia- Pacific, increases that threat.

Second, privatisation of state mining assets - canvassed as a means of "freeing" both commodity and labour value for exploitation - has not lived up to the boast widely made just five years ago. This is not primarily because these assets were initially overvalued (on the contrary, Australians who grabbed shares in Orogen, in Papua New Guinea's privatised state mining company, seem to have had no gripes (12) while it is generally agreed that Venezuela's major bauxite/aluminium resources were being offered far too short (13). It is because the business of securing and operating former state-owned assets has involved costly delays and a revival of national debates about ownership. (14) Political lobbying to re-nationalise some of these hastily offloaded assets, may not be long in coming.


CODES OF MALPRACTICE

The industry's third fear is that truly sustainable, locally determined development, dependent on legally guaranteed rights to territory and control over subsoil resources will either be too easily succumbed to by states, or provoke resistance which the states cannot manage. The corporate responses to these twin "dangers" have been mixed and pragmatic. At one extreme there has been the outright use of corporate force to seize mineral-rich sites in southern Africa (15), at the other, an often hasty attempt to draw up codes of conduct or principles, which are designed to endear companies to their mainstream critics, marginalise those advocating "development self-determination" and secure deals which have a better security of tenure than in the recent past (FOOTNOTE C).

But such pragmatism cannot continue for long: it is not simply the largely external moves for "codes of conduct" (arguably it is not this at all) which will force the mining companies into a more united front vis-à-vis Indigenous claims and custodianship. Rather it is self-activity of Indigenous Peoples themselves.

Despite these three major areas of uncertainty, the industry continues to purvey a puzzling mixture of aggressive public advocacy, and more private doubts. Both are designed to ensure that investment doesn't dry up. At a period when the companies cannot be sure whether their rich backers will be more influenced by "ethical" campaigns (which, for example, forced Total Oil and Newmont Mining to withdraw from Burma) than by bullish feasibility studies, they must assure critics that the minerals industry is receptive to change, - while trying desperately not to change at all.

*BOT - Build - Operate - Transfer, the means by which a project is financed and initially run by a private concern or consortium then handed over to the state,

** Southern Peru Copper Corporation, majority owned and managed by Asarco of the USA.


References

1) Raymond F Mikesell "Explaining the resource curse with special reference to mineral-exporting countries" Resources Policy, Elsevier Science, UK, vol. 23, no. 4

2) See for example, Kathryn McPhail and Aiden Davy "Integrating Social Concerns into Private Sector Decision making: a Review of Corporate Practices in the Mining, Oil and Gas

Sectors" World Bank Discussion Paper no 384, Washington 1998.

3) As for example with Placer's joint venture with garimpeiros in Venezuela, mentioned as a case study in McPhail and Davy op cit. (footnote 2)

4) R M Auty "Mining as a generator of wealth: potential conflicts and solutions" Raw Materials Report vol. 12 no.2, Stockholm 1998

5) The case of SPCC heard before the Second International Water Tribunal is contained in The Mining Casebook, IWT 1922-1994, International Books, Utrecht 1994. See also Second IWT Background and Results, IWT op cit.

6) For a useful summary of this process, see Sarah Anderson and John Cavanagh "The rise of global corporate power" in Third World Resurgence no 1997, Penang, 1998].

7) Roger Moody Extractive Empires World Council of Churches - Mining and Indigenous Peoples Committee, Geneva 1996

8) Nicholas Hildyard The World Bank and the State: a Recipe for Change? Bretton Woods Project, London 1998 and The Myth of the Minimalist State The Corner House, Sturminster Newton, March 1998. It should be noted that one of the world's leading critics of multinational power, Noam Chomsky, regrettably seems to have become seduced by the dangerous argument that strengthening state power is now the prime way of combating multinational hegemony: see Red Pepper, London 1998]

9) Roger Moody summarises these surveys until 1996 in Extractive Empires WCC - MIP, Geneva 1996.

10) "Mineral prices go into reverse on the LME" Financial Times 16/1/98.

11) See Kenneth Gooding "Mining groups slash exploration outlays", quoting a report by the Metals Economics Group of Canada, in Financial Times, London, 5/11/98.

12) "Orogen sprints past forecast" Sydney Morning Herald 16/3/97

13) "Aluminium sale priced at low end, Caracas admits" Financial Times 10/7/98]

14) For an interesting insight into the pro's and cons - from a "national interest" point of view – of privatisation of Brazil's CVRD see Flavio Edmundo Novaes Hegenberg, "Brazilian mining industry in the age of liberalisation: privatising CVRD" Raw Materials Report, vol. 12 no. 3, Stockholm 1997, and Iran F Machado "The CVRD privatisation" a hard-won victory for government" Raw Materials Report, Stockholm, vol. 12 no.4 1997.

15) See Roger Moody "Diamond Dogs of War", New Internationalist, Oxford, March 1998]



Footnotes

A) This is of course a two-way street. In Northern states where multinational mining companies have some of their most profitable operations, they are just as much concerned that territory will be accessible to them as in the South, and they use the "security of tenure", income-generating, arguments, to gain access to huge expanses of land. Because the political (lobbying) influence of these companies at home can be considerably greater than overseas, there may be more profit to be accrued from (say) opening up the Century zinc mine in northern Queensland, than spending years trying to gain access to a similar deposit in Peru, only to find that a change of government may mean a change of the rules. This is undoubtedly why, in terms of investment in mineral exploration by Canadian and Australian companies - many of which are poorly spread in global terms - the major part still remains "at home". It is no wonder that, given the intimate, if not internecine links, between mining companies and government in Australia, there have been recent changes in Native Title - which, among other things, open up pastoral claims to mining and other companies. [See Indigenous Law Bulletin, Sydney, vol. 4, 1998 passim]. It is also no wonder that it was recently proposed in Canada that all public lands should be opened up to mineral exploration [Eric Reguly "Ontario Crown land up for grabs" Toronto Globe and Mail Canadian Business section 31/10/98].

An important question which seems not to have been adequately researched is whether, in the light of growing resistance (especially from Indigenous Peoples) to mining in "the third world" in contrast to the decreasing resistance among Indigenous communities in parts of the North (particularly Australia and Canada), the very big multinational mining companies may now be having second thoughts about the globalisation strategy which has characterised their expansions in the past fifteen years and be putting appreciably more effort into consolidating their relatively protected bases at home. (BHP comes to mind as a company which has had to withdraw from a number of Southern countries in recent years, partly because of resistance (as in the Dominican Republic), partly because of feelings of insecurity (in the Philippines).



B) The recent expansion of the biggest copper-gold mine in the region, Freeport-Rio Tinto's Grasberg operations in West Papua, was predicated on the expectation that, due to the partial collapse in metal prices, other copper companies would fall by the wayside and that - as one of the lowest-cost such miners in the world - Freeport-Rio Tinto could carve out for itself a pre-eminent niche. This however partly depends on economies of scale gained through even greater expansion – and it is this which is now focussing Indonesian public debate on the nature of Freeport's operations per se, as well as the highly favourable tax regime under which it has so far operated, with such obscene profits.



C) However, we must not presume that mining companies are implacably antagonistic to "liberation movements" - or vice versa. Even while SWAPO of Namibia was lambasting mining giant RTZ (now Rio Tinto) during the 1980s, for stealing the country's resources, it appears to have been holding secretive talks with the company, aimed at securing its continued presence after independence. The emerging "unholy alliances" between warlords in West Africa and private (including mineral) traders has been characterised, provocatively, by one recent commentator as partly a reaction to global "liberalisation", rather than simply of endemic "ethnic" conflict within "tribalised" states [see Internal Conflict: Adaptation and Reaction to Globalisation, The Corner House, Sturminster Newton, 1999]. Corporate opportunism of this kind is pervasive - with Anglo De Beers playing both sides against the middle in the Angolan civil war, as it tries to take control of the extremely lucrative diamond fields. What the corporations have become united in trying to counteract is strategies aimed - through the United Nations or by groupings of "ethical" investors and by "popular" movements - at tighter restrictions on access to land and self-determination for land-based Peoples, based on universal precepts. This is why the current debate on Codes of Conduct is one which the companies need to influence and control - by situating themselves (literally) within regional and international forums, as quasi advocates and implementers of "human rights principles". But this is also why the debate has so far been a largely false one: corporations want to restrict these codes to "development" issues, where development becomes a global package which companies can claim to be in a pre-eminent position to deliver.


Further copies of this paper are available from:

Minewatch Asia Pacific, Agpaoa Compound, 111 Upper General Luna Road, Baguio City, Philippines

Tel/fax: +63 74 443 9459, E-mail: bongcorpuz@phil.gn.apc.org or ccorpuz@skyinet.net

or Philippine Indigenous Peoples Links, 111 Faringdon Road, Stanford in the Vale, Oxfordshire SN7 8LD, England Tel: +44 1367 718889, Fax: +44 1367 718568, E-mail: tongtong@gn.apc.org

or Partizans/Nostromo Research, 41a Thornhill Square, London N1 1BE, England

Tel/fax: +44 20 7700 6189, E-mail: partizans@gn.apc.org

 

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