The Good, the Bad and the Ugly

By Calfucura, Enrique; Ortiz, Astrid MartÍnez et al. | Americas Quarterly, Winter 2013 | Go to article overview

The Good, the Bad and the Ugly

Calfucura, Enrique, Ortiz, Astrid MartÍnez, Sanborn, Cynthia, Dammert, Juan Luis, Americas Quarterly

How to avoid the resource curse is more than an academic question. Luckily, both investors and governments are learning how to take better advantage of natural resources while not falling into the trap of easy money and the corruption that comes with it.

Understanding when natural resource extraction investments provide longterm, broad-based benefits-not just to investors but also to local communities and national economies-is essential to our global economy. While global economic growth will wax and wane from year to year, and with it the demand and price of commodities, over the long term natural resource demand will continue to grow. Whether it's timber, oil, natural gas, coal, or metals, the natural bounty of the earth remains a central feature of modern production.

As demand for these materials has spiked in recent years with the industrialization of one-time developing countries like China, India and Brazil, so too have the prices of these commodities. These increases have brought greater investment as well as schemes by nationstates to open up their lands for exploration.

With support from the Ford Foundation, we conducted a study of 12 natural resource extraction investments in three countries-four each in Chile, Colombia and Peru. All but two of them (a timber investment in Chile and a natural gas project in Peru) were mining projects. The goal was to understand under what conditions investment in natural resource extraction contributed to broader community and national development.

For the purposes of the study, we define "conditions" to include: the legal and regulatory framework that governs natural resource investments; the transparency and predictability of the legal and regulatory framework; the system in which public revenue is collected- through taxes and royalty payments-and distributed to national and subnational governments; the quality and efficacy of public officials; the community context and relations with the state and investors; and the labor and environment practices of the investing companies.

Of course, a central question is how to define broader community and national development. For this, our re- search partner-Americas Society-defined the broader socioeconomic good as comprising several factors.

They include: the extent to which natural resource investment contributes to socioeconomic development in the immediate area surrounding the activities, through public and private social programs and economic growth and development; the extent to which investment and public policy have generated value-added growth in the local and national economies; and last, whether these investments have avoided long-term social conflict and helped to build community ties.

Each of the three countries studied represents a different stage in the development of their local mining industry and each case study-including the timber/wood case study in Chile and the natural gas study in Peru- represents different lessons in terms of addressing the community tensions and the public and economic distortions caused by natural resource extraction investment and the global resource boom.

What's on the Books: Country by Country page 68

Despite differences in how governments in the three countries collect and allocate revenues from natural resource extraction and in the legal frameworks governing labor and the environment, they all share one important trait. For all their individual flaws, all three countries are electoral democracies with the attendant guarantees for citizens' rights. That context provides opportunities and flexibility for adjustments, accountability, transparency, and-at times-mediation between sectoral and individual interests and collective preferences. How well the governments fulfill those responsibilities varies, as we will see below. But there is no underestimating the importance of the role played by democratic governance in these countries to help ensure that natural resource extraction benefits the broadest common good while respecting fundamental environmental, human and labor conditions and rights. …

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