The political economy of natural resource extraction: a new model or extractive imperialism?

Abstract

ABSTRACT  This paper explores the conditions that gave rise to the “new extractivism”, its policy dynamics and development implications in Latin America. It focuses on the global political economy of natural resource extraction and the emergence of post-neoliberal resource nationalist regimes seeking socially inclusive national development strategies in Latin America. It is argued that a coincidence of economic interests leads these post-neoliberal regimes, even those with a populist and resource nationalist orientation, to side with capital against the local communities.

Résumé  Cet article explore les facteurs qui encouragent la montée de « nouveau extrativisme », la dynamique de ses politiques et ainsi que ses implications sur le développement en Amérique Latine. Celui-ci ce concentre sur l'économie politique mondiale d'extraction de ressources naturelles et sur l'émergence des régimes post-néolibéraux et nationalistes qui visent un développement socialement inclusif en Amérique Latine. Il en ressort que ces régimes post-néolibéraux sont guidés par les intérêts économique, même ceux avec une orientation nationaliste et populistes qui se range du côté du capital et au dépend de leur propre communauté.

Keywords:

• extractive capital
• globalisation
• Latin America

Notes

The term “land grabbing” (large-scale investments in land) re-emerged on the international stage in the context of a spike in global food prices in 2007–2008. But since then the discourse has begun to merge with the literature on “water grabbing” and the “resource grabs” of extractive capital (Sosa and Zwarteveen 2012; White et al. 2012).

The idea of a “resource curse” is an expansion of the idea of the Dutch disease, first coined by The Economist magazine in 1977 to refer to how the Dutch discovery of oil in the North Sea precipitated its industrial decline. While the Dutch disease focuses attention on foreign exchange rate dynamics, the resource curse thesis, as first stated by Richard Auty (1993), emphasises the role of conflict, corruption, political instability and price volatility in explaining how countries rich in natural resources have failed to climb the ladder of development. While many of these factors help explain the resource curse, they are merely manifestations of the underlying dynamics of imperialism and capitalism.

Several authors have suggested that mining practices in Latin America typify what David Harvey (2003) calls “accumulation by dispossession”. On the contemporary dynamics of primitive accumulation and accumulation by dispossession, see Borras et al. (2012), Kay and Franco (2012) and Sosa and Zwarteveen (2012). In Marx's classical formulation, this process of capitalist development and social transformation concerned agriculture (that is, the conversion of peasants into a proletariat) and entailed the enclosures of the land, leading to a protracted land struggle. In more recent studies of this process, the enclosure of the commons is expanded to include both water and sub-soil resources, leading not only to land grabbing but water grabbing as well as a major resource grab (Kay and Franco 2012).

The Spanish acronym is CEPAL, for Comisión Económica para América Latina y el Caribe.

With the terms of trade rising by 22.8 per cent, real per capita income in Latin America rose by an average of 21 per cent in the 2003–2008 period (ECLAC 2009, Tables A-1 and A-12). From early 2008, commodity prices fell precipitously until early 2009. By April 2010, using the Commodity Research Bureau's Raw Industrials Sub-Index of 13 commodities, commodity prices had dramatically recovered; they were only 6 per cent below their peak in 2008, but more than double their 2003 levels (Cypher 2010, 566).

In several reports on Latin America released by ECLAC since 2007, the current growth period has been labelled extraordinary, shaping up to be the longest and strongest expansion for quite a long time, permitting per capita income in the region to rise by an average of 20 per cent from 2003 to 2008, and close to that in the following six years. However, ECLAC has been less enthusiastic about the likely outcome of this rapid growth, that is whether it might lead to the productive and social transformation that would be needed to sustain a process of economic and social development. The main obstacle here is the structural constraint represented by the excessive inequalities in access to productive resources, wealth and income and opportunities for self-advancement. In other words, what would be needed but not found (not even in the “progressive” post-neoliberal regimes on the centre-left) is a concerted attack on the structure of (excessive) inequality and a stepped-up investment of the revenues generated in the extractive sector on infrastructure, technological innovation and human resource development (ECLAC 2010).

As for the role of the state in this post-neoliberal strategy – dubbed “inclusionary state activism” by Arbix and Martin (2010) and a feature of the new developmentalism (Bresser-Pereira 2007, 2009) – it is based on the idea that rather than constituting a curse, the exploitation of resources such as minerals and hydrocarbons or fossil fuels generate easily taxable rents that can finance social development (Stijns 2006).

In the 1980s, Canadian outward-FDI stock grew from around 5 per cent to 10 per cent of GDP, but then in the next two decades, it climbed to around 35 per cent of GDP, eventually exceeding inward-FDI stocks. Today, Canada is in fact a net investor abroad, most of it related to what Arellano (2010, 2) terms “resource-seeking FDI” (as opposed to efficiency-seeking FDI).

Latin America is the most important destination for Canadian mining capital, surpassing Africa by a wide margin. More than half of Canadian mining companies' global assets are located in Latin America, at a value close to C$57 billion (Keenan 2010, 30, based on unpublished data, Natural Resources Canada).

As noted, in the case of Mexico, up to 23 per cent of the national territory is ceded to the mining companies for exploration, drilling and mining, but in Colombia and Peru, where the extractive industry dominates the economy, it is even higher; 40 per cent in the case of Colombia and as much as 72 per cent in the case of Peru.

According to Díaz (2012), Toronto is the world capital of mining investment capital, accounting for 60 per cent of mining companies registered on the different stock markets and 80 per cent of financial transactions.

The phrase is the subtitle of the book.

This support includes representations and diplomatic pressure placed on host governments on behalf of mining companies, credit extended by the Export Development Corporation to these companies, construction of public–private partnerships in the mining sector and international development assistance, deployment of international cooperation (CIDA) funding and support to assist Canadian companies in their dealings with local governments and communities (to obtain concessions to mine and a license to operate, for example). On these issues see Coumans (2012), Engler (2012) and Mining Watch (2012).

This partnering strategy has taken the form of the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IFMMSD), a UN-sponsored international organisation of 45 countries with an abundance of minerals and metals, including Canada, one of only two developed countries. Others include Russia, India and South Africa, nine Latin American countries and 23 from sub-Saharan Africa, and the Philippines (one of only two Asian countries).

Evidently, NGOs like Mining Watch, which are part of a growing international civil society that supports communities negatively affected by mining, are highly critical of the government's agenda for CIDA. “Aid money”, Coumans notes, “is meant to address poverty, not promote the commercial interests of Canadian mining companies” (Mining Watch 2012). Nor, she adds, “should it subsidise the obligations of mining companies to provide benefits to affected residents and rehabilitate damaged environments”.

Note as an example the contract awarded by CIDA to World Vision Canada, which received more than C$89 million in foreign aid money in 2010 (second to Care Canada, at nearly C$99 million), for a project with Barrick Gold in Peru (North 2012; Engler 2012).

On these socio-environmental conflicts based on the resistance of communities affected by Canadian and other mining operations, see the articles in this special section of the CJDS, as well as the numerous reports of Canada Mining Watch, the mines and communities website (http://www.minesandcommunities.org), Clark (2002) and North, Clark, and Patroni (2006).

Of course, the companies risk the investments of their shareholders, but these risks pale in comparison to the risks that the communities affected by mining activities have to assume (and with little to no power to influence decision-making and policy in this area).

In his latest report, the Auditor General of Mexico, according to the investigative journalist Francisco Bárcenas (2012, 31), put his finger on the ulcer that has caused Mexico to bleed minerals profusely over the years. The auditor established that the fees paid by the mining companies, 70 per cent of which are Canadian, for their concessions to mine minerals are below the costs of the administrative procedures. The auditor's report reads: “The amount of the fees currently paid is symbolic and contrasts with the volumes extracted from the non-renewable mineral resources, since their value is well above the concession fees charged by the State over, as observed in the period 2005 to 2010, when the value of production amounted to 552 billion pesos [US$46 billion] and the fees charged were only 6.5 billion pesos [US$543.4 million], some 1.2 per cent of the first” (author's translation from the Spanish) Furthermore, he notes, it is not evident that the fees charged were actually paid, revealing the “utter laxity of the application of the law” and the “‘omissions of the authorities in monitoring compliance” with the law (Bárcenas 2012, 31).

Among developing nations, arguably “only DR Congo, Indonesia and Mongolia can compete with Brazil, Chile and Peru in reaping financial benefits […] from the exploitation of their mineral treasure troves” (Reuters, 30 August 2011; http://www.minesandcommunities.org). However, there does not seem to be a consensus among South American governments as to how to meet this challenge or how to share the resource rents. Colombia, currently the destination of choice for foreign investors (followed by Brazil and Chile, and then Mexico), has applied a policy of “flexibility” in fixing royalties rates (1% in the case of gold mining) and has not decided on how or when they will be applied. On the other hand, Chile is still “negotiating” with mining companies over its “voluntary” tax system, while Peru's new government has yet to draw up any new legislation (although the mining companies operating in the country have reportedly agreed to pay higher royalties in an overhaul of the current system, that is higher than the current rates of 1–3% on sales). The position of Ecuador's president Rafael Correa is clearer: although at present the government does not charge any royalties at all on mining – a future royalty rate of 3–5%, and possibly a windfall profit tax are planned – oil extraction companies will have to pay a royalty rate of 8 per cent, putting him on the same path as Evo Morales, who, on taking over the state, forced the foreign companies in this sector to accept not only an increase in taxes and the royalty rate on resource extraction, but a windfall tax of 70 per cent (Raymond James Mining Team 2008). As for Mexico, as already noted, foreign investors in the mining sector enjoy a zero royalty rate and an effective tax rate on operations (sales rather than profits) of 1.2 per cent.

The most obvious case in point is president Humala, who upon achieving office changed his community-supportive and resource nationalist tune to the tune struck by the companies that proposed to construct the country's biggest copper (and gold) mine, promising the country billions of dollars of resource rents. Another case in point is Evo Morales in the Bolivian government's controversial TIPNIS project to build a highway through a protected indigenous reserve, against the vehement opposition and organized resistance of the indigenous communities affected by the project. More recently, President Correa in Ecuador has appealed for support from his fellow presidents in Peru and Colombia in dealing with “radical environmentalists” in their opposition to plans to auction off 16 new lots of land in indigenous territories for oil exploration and drilling (Fraser 2012), and the opposition to the development of the “buena minería” (good mining, needed for the country to “escape poverty”). The solution, Correa emphasized, is no to oppose mining per se, but bad mining: “we can't be beggars sitting on a sack of gold” (ANDINA 2012).

The Conga mine, a joint project between Denver-based Newmont Mining Corp., Peru's Buenaventura and the World Bank (via the International Financial Corporation), would help the company (and the government) meet the goal of producing 7 million ounces of gold and 400 million pounds of copper by 2017, a major boost to the GDP, rents (royalties and taxes) collected by the government and the company's profits. But these immense rents and profits would come at the cost of devastating the land, water, and livelihoods of the local indigenous communities surrounding the mining operations.

Although governments generally acknowledge the rights and ownership of the land in the areas populated by the indigenous communities, and also the right of indigenous peoples to be consulted in regard to proposed mining operations and other extractivist projects in their territory, they usually also reserve the right to cede to the mining companies the right to exploit the subsoil resources under a “social license” issued under a regulatory regime (environmental protection) and a royalty or tax payment agreement.

An example of one of these NGOs is Global Response, which has prepared a manual that can be used by activists to engage and counter the diverse strategies used by mining companies to overcome local resistance. See Zorrilla (2009).

An example of this tactic is the approach used by Goldcorp, the Canadian firm that dominates the global gold extraction industry to consolidate its operation in Zacatecas, the country's biggest producer of gold and silver. With the stated purpose of assisting the state in promoting the social development of communities suffering from a high degree of “marginality” (marginación), Goldcorp announced in Zacatecas a grant of US$72 million (La Jornada, Zatecas edition, 15 March 2012), in addition to the US$36 million that it spent in the state in 2011.

Garcia's claim is probably not correct. Every company has to submit an environmental report for every proposed project, regardless of whether it is deemed to be in the “national interest”. The point is, notes Lust (2012), these reviews “play no role whatsoever in policy and government decision-making regarding approval or not of the project or the concession to explore and extract”.