ENVIRONMENT: Report Disputes View that Mining Spurs Development

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Sep 23 2002 (IPS) - The World Bank and other international financial institutions (IFIs) should reassess their continued backing for mining projects in poor countries, says a report released Monday by Oxfam America.

Contrary to what the report calls “folklore” propagated by the IFIs and the global mining industry, mining never acted as a major spur to development in the United States, Canada, or Australia, the three countries often held up by the IFIs as examples for development that mineral-rich poor countries could follow.

“This study shows definitively that traditional World Bank claims are wrong,” said Keith Slack, policy advisor of Oxfam America. “Historically, mining was never a significant source of national wealth in countries like the U.S., Canada, and Australia that the World Bank claims it was.”

“Therefore, the Bank needs to honestly reassess its promotion of large-scale mining in poor countries, which often has serious negative impacts on local communities and the environment,” he added.

Oxfam is one of a growing number of environmental and development groups that argue that mining in many developing countries has hurt economic development, disrupted nearby communities, and devastated surrounding natural environments.

Groups have long argued that mining has been most damaging to the environment, but in recent years they have broadened their attack to include the less-than-positive economic impacts as well.

Earlier this year, Friends of the Earth (FoE) published an attack on the Bank’s policies called ‘Treasure or Trash’ that contended that mining should only be carried out in countries with strong regulatory and enforcement mechanisms of the kind that rarely exist in poor countries.

At this year’s annual meeting of the World Bank and the International Monetary Fund (IMF), which gets underway here this week, FoE and other groups will press the Bank to reduce or eliminate its lending for mining projects, including oil and gas developments, which are not discussed in the Oxfam report.

Foreign investment in mining, especially in remote areas of Latin America, Eastern Europe, Africa, and Central and Southeast Asia, has grown spectacularly over the past decade primarily because many developing countries need to raise cash quickly in order to reduce their external debt.

The result has been a wave of privatisations, often supported or encouraged by the Bank, which have given foreign companies access to mines previously owned by the state.

Since 1980, the Bank and its affiliates have provided well over one billion dollars in loans and other support for rock mining projects. But lending has risen sharply since 1994, with the Bank group providing as much in new loans to such projects as it did for the 14 years before then.

In addition, its private sector affiliates, the International Finance Corporation (IFC) and the Multilateral Insurance Guarantee Agency (MIGA) have tripled their support for ore-mining projects over the same period. Although their involvement is relatively small in financial terms, their involvement is critical to encouraging private sector companies to invest.

The Bank has defended its support by citing the ostensible role played by mining in promoting economic development in the United States, Australia, and Canada. In one recent publication, it argued flatly that “mining was the main driver of growth and industrialisation in Australia and the United States over more than a century”.

Such rhetoric has been echoed by the mining industry, whose investments are increasingly concentrated in developing countries.

“The experiences of the U.S., Canada, and Australia in becoming among the richest nations in the world while continuing to rely on mining clearly proves that mining is an economic foundation that can reliably help nations escape from poverty,” three mining industry spokespersons wrote earlier this year in response to another critical Oxfam report.

But the new report, Digging to Development? A Historical Look at Mining and Economic Development argues that mining became significant in each of the three countries only after they had developed other aspects of their economies. And the industry, virtually without exception, left behind communities – sometimes the legendary “ghost towns” – that were economically depressed, along with serious environmental pollution.

Written by Thomas Power, chairman of the University of Montana economics department, the report argues that Bank and industry arguments for a link between mining in the U.S., Canada, and Australia “has a folklore character” that is not based on the empirical evidence at all.

“In a development context, mining was just part of a complex pattern of institutional, technological, and corporate development that characterised not only mining but also agriculture, manufacturing, retail trade, and services,” according to the report.

The Bank’s promotion of mining also ignores other key factors, including the development of political and social institutions, cultural values, public infrastructure and environmental protection, it says.

The mining-as-development argument also ignores the fact that all three countries were already high-income advanced economies when they began developing their mineral resources in the late 19th and early 20th centuries, a stage of development that does not apply to poor countries today.

Similarly, the analogy does not take account of the sharp decline in transportation costs since the mid-20th century, according to Power.

High transportation costs ensured that, previously, ore was processed in nearby communities, creating new industries and new jobs. But low transportation costs today make it possible for the raw ore to be shipped virtually anywhere where manufacturing plants exist, thus depriving mining communities and countries of the opportunity to build new industries and create new jobs.

But even in the United States, Canada, and Australia, mining communities were unable to survive long when the mines themselves became less productive. “Over the last several decades, local communities dependent on mining in these developed countries continue to lag behind their national and other regional economies,” says the report.

Finally, unlike most developing nations today, the three developed countries were effectively continental nations with vast geographies and many mining sites over their territory.

As individual mineral deposits became less productive, mining companies could shift their operations, and their personnel in some cases, to new mines, and the economies never became dependent on just one mineral, the report finds.