Mural protesting Barrick Gold mining in northern Argentina
There is now a growing chorus of opinion calling for Global South countries with substantial production in extractive industries (mining, petroleum, gas) to utilize the tax revenue from this production to bring about widespread improvements in living standard. An array of institutions, from the International Monetary Fund, to the World Bank, to a variety of United Nations entities, including the United Nations Development Program have all weighed in on this issue. The substantial rise in commodity prices, between the early 2000s and 2013, generated wealth that (theoretically) could have been used for development programs, especially for social programs (conditional cash transfer programs being one of favorites) and for infrastructural development. There is a consensus that while the commodity boom brought about some improvements in many African countries, for example, the results in terms of improved inclusion could have been considerably better than they were.
Whether commodity booms become opportunities for development depends, as all of above-mentioned institutional documents make clear, on “state capacity”—on the ability of governments to extract tax revenue from foreign companies and to invest it in ways that will be conducive to inclusive economic growth. It also depends upon state regulation of investors to ensure that local communities benefit from (and are not harmed by) such investment. Hence, Global South countries, so the argument goes, need to develop more state capacity; they need better tax regimes, stronger and more effective tax collection, and more transparency—all the trappings of what passes these days for “good governance.” We are not told how exactly governments are to develop this “capacity.” Nor is there any discussion about how countries might develop the “capacity” to confront and regulate powerful multinational corporations.
There are important issues of power and power disparity that any discussion of state regulation of mineral, oil, and gas companies must take into account. It is questionable whether, on their own, states can develop enough “capacity” to do what international organizations are recommending.
There are a number of interrelated dimensions to the power disparity issue. One is that the power of multinational corporations, in general, and extractive companies, in particular, has increased substantially since the late 1970s when the ideology of the free market began to take hold. Governments privatized their holdings in the extractive industries, while reducing regulations governing corporate behavior in such areas as labor relations, resulting in greater corporate ownership concentration and less accountability. At the same time, governments often made international agreements giving MNCs the rights to pursue claims against states while the World Trade Organization (WTO) offered corporations a new forum to pursue and protect property rights. Hence, the power of multinational corporations in relation to the weak states of many Global South countries is now greater than ever.
Furthermore, with the debt crisis and the institution of Structural Adjustment Programs, the World Bank and the International Monetary Fund (IMF) exhorted Global South countries to encourage investment through providing generous tax breaks, reduced royalty payments, the duty free importation of inputs, and the right to repatriate profits. The assumption was that the ensuing economic growth would “lift all boats.” Now that it has not, countries are being advised to alter direction—but in contexts in which MNCs expect high returns and have even greater power to resist.
While it is certainly the case that corruption in Global South governments have contributed to the fact that the benefits of extractive growth have not been widespread, the actions of foreign corporations have been highly corrosive to state capacity and to the likelihood that investment will improve the lives of those in mining communities. In Ghana, for example, tax evasion and manipulations to avoid paying taxes is widespread. Recent studies have estimated the loss of tax revenue from MNCs to developing countries at between $1 and 6 billion a year. In addition to these challenges, there is also the negative impact extractive industries often have on local community welfare—a matter that cannot simply be explained away by pointing to unaccountable host governments. A recent report shows that Canadian mining companies in Latin America have been one of the most notable offenders, responsible for environmental degradation, extensive pollution, population displacement, and serious health consequences. The report documents payments from Canadian mining companies to local government officials for protection against those protesting the harmful consequences of mining investment. The emergence of corporate social responsibility codes of behavior suggests a growing awareness on the part of MNCs that they must modify both their behavior and tactics. However, because there is no enforcement mechanism, this is not enough.
Despite growing public criticism in the North, northern governments have been unable to regulate effectively the behavior of the MNCs operating outside their borders. A 2009 Canadian bill, with widespread public support, attempted to issue standards for Canadian mining and oil companies operating abroad. It failed to pass due to heavy lobbying by the Canadian mining industry, which argued that the proposed regulation would harm the industry’s international competitiveness. Similar efforts in the UK and Australia failed for similar reasons. If the strong states of the north cannot overcome the resistance of powerful MNCs, how can we expect global south governments to do so?
The only solution is a multifaceted one, involving northern, and southern governments, and international monitoring bodies. The initiation of tough regulatory legislation on the part of northern countries would be an important place to start. This type of legislation might initiate the development of a strong international consensus on appropriate MNC behavior and thereby support efforts to develop the taxing and regulatory capacity of Global South governments.