By Christopher Sabatini, Special to CNN
Editor's note: Christopher Sabatini is editor-in-chief of the policy journal Americas Quarterly. The views expressed are his own.
News last week that over 100 people had been affected by a toxic spill from the copper mine in Antamina added more fuel to the debate in Peru over the safety and responsibility of mining. Despite the spills and controversy, the extraction of natural resources in Peru contributed the largest share to the county’s impressive 7-plus percent average growth for the last seven years. But can it continue?
For almost a year, another conflict has raged north of where last week’s spill occurred in Cajamarca between a handful of community leaders and Colorado-based Newmont over the mining company’s plans to develop and expand the gold and copper Conga mines. Local community leaders, supported by international non-governmental organizations, claim that Newmont’s operations will pollute water sources, a charge disputed by the mining company and a number of studies it has commissioned. Public marches, road blockages and violence over the Conga mines have crippled the national government and forced President Ollanta Humala to make several cabinet changes.
In Peru and outside, the clash has been portrayed as emblematic of the escalating and inevitable tension between the global markets’ demand for natural resources and the environmental and political rights of the communities where those commodities are produced.
Both sides are right in seeing it as a sign of things to come. But framing it only as a conflict between companies and communities misses one of the crucial elements that underlies the conflict: how well local governments manage and direct the revenues generated by the mining-resource boom to address long-simmering social demands.
Ultimately, even assuming the environmental benevolence of natural resource extraction companies (OK, admittedly a huge assumption), the responsibility of providing the basic public, social services to the poor rural communities where natural resource extraction activities often take place is that of a national government. Unfortunately, in many of the countries where natural resource extraction investment has rushed in, the capacity of governments to fulfill these basic public functions has been – and is still – sorely lacking. The failure of governments to provide the foundation for socioeconomic demands of these communities means that these conflicts will simmer, and with it the tensions between company and community.
Peru provides a perfect example of state failures and the challenge of resolving the tension between global demands for resources and local demands for respect and the safety of their citizens.
From 2000 to 2010, exports of commodities – from soy beans to oil, basically things you take out of the ground and sell – in South America soared. From 2007 to 2011 alone, Peru’s exports – the bulk of it primary products – increased by a yearly average of 12.9 percent, reaching a total of $45.6 billion in 2011.
The boom has brought a flood of tax and royalty income to the Andean nation – even before President Humala raised the tax rate on mining company profits. Then, in September of last year, shortly after reaching office, Humala increased the tax rates from royalties of 1-3 percent of companies’ operating profits to 12 percent, and imposed a special tax of between 2 percent and 8.4 percent on windfall profits.
Historically, the Peruvian state bureaucracy has always struggled with even the most basic functions, from internal security, to ensuring effective infrastructure (according to the World Bank, only 11 percent of roads are paved) to providing education in the ethnically and geographically challenging country.
But that’s only the national government.
In Peru, thanks to decentralization and tax laws, 75 percent of revenue generated from natural resource extraction is automatically transferred to provincial and district level governments. In the case of mining areas, this means rural (largely poor) counties and municipalities.
Many of the elected officials in charge of these local governments – and the huge pots of money they now control – have little education or preparation for public administration. To make matters worse, there’s no local civil service, meaning that an entire body of public servants managing millions of dollars can be changed – and often are – when a new mayor is elected.
So, just to give an idea, the district of San Marcos – the home base of the now-famous Antamina copper and zinc mine (one of the 10 largest mines in the world) – reportedly received $60 million in tax-generated revenue from mining activities in 2011.
What has it done with the windfall? In the windswept, poor, Indigenous area stretching from the Andean highlands to the Pacific Ocean, the question is better what hasn’t it done? For one, the district’s capital city, San Marcos, still lacks potable water. In fact, the city is a small-scale sprawl of poverty, hastily thrown up cement buildings and angry youth, many ready to rail against mining to any outsider. The smaller rural villages are even worse off – without potable water, in some cases even basic infrastructure – because many of the resources passed to the district government remain in the seat of local government, San Marcos (a microcosm of the problem of centralization that played out at a national level for centuries).
The bulk of the new-found wealth hasn’t gone to social programs. Instead, it has funded massive, ridiculous Mussolini-esque public works: the refurbishment of town plazas, the improvement of (and often the construction of new) municipal buildings and, in the case of Chavín, the construction of a massive sports facility that includes an Olympic swimming pool that has yet to be filled (in the Peruvian highlands – not a region known for water sports). This is also not to mention the incredible stories of personal enrichment and corruption and the mysterious car accident that killed (or did it?) the former mayor of San Marcos.
Does any of this absolve the private companies that come and take the minerals, natural gas or whatever out of the ground from any responsibility to the local communities? Of course not, especially when – as in the case of the Antamina spill – local companies fail to protect local citizens. Too often, natural resource extraction industries have despoiled local environments, exploited local workers and – as a result of corrupting public officials – gotten away with it. But while by no means perfect – and it varies by country and company – international and national standards have often constrained the ability of international companies to run roughshod over environmental, labor and developmental standards.
But in all of this, governmental incompetence and corruption remain the primary drag on basic development needs – public investments in education, infrastructure and health care, for example.
The larger goals of development are public goods, delivered through governmental institutions. When national or local public offices lack the capacity, oversight and leadership to do more than just accomplish personal or short-term goals, it isn’t merely the fault of the private sector. But these knotty, long-term challenges are embedded in the sad history of exploitation of local governments and the degradation of the public and political sector in these countries. Overcoming them is a long-term problem that goes beyond the friction between companies and communities, one that will shape the capacity of countries and investors to continue to provide natural resources for global economic growth.