Why mining in this country is unsustainable

Supporters of mining in this country argue their case by underscoring the industry’s potential contribution to development. To be sure, many well-meaning public figures and organizations that champion mining as a developmental strategy, including the Management Association of the Philippines (sponsor of this column), qualify their stand by insisting that mining operations should, in addition, be “sustainable.” The mining industry itself (and government agencies that are responsible for its regulation) usually prefix its official position on this contentious issue with the same magical words, “developmental” and “sustainable.” So do individual mining establishments in their effort to burnish their images as upright corporate citizens.

Stakeholders

My own position on this issue is that under present legal and institutional conditions, mining in the Philippines can neither be developmental nor sustainable.

There is one thing about mining, however, that we can all agree on: It has tremendous potential for creating economic value, and under current global market conditions, it is a very profitable business.

The questions I pose are twofold: (1) How is the economic value created by mining operations distributed among the various stakeholders in the industry? In particular, how much of this added economic value goes to the citizens of the country who, after all, own our natural wealth? (2) How are the costs associated with this activity shared among them?

For our present purpose, I shall focus on the two major stakeholders in mining operations: the community—and in the larger context, the whole of society—in which this activity is being undertaken; and the owners of the mining establishments. (The other stakeholders in mining operations include the employees, customers, suppliers and financiers, all of whom, understandably, want the firms to be successful, i.e., to be profitable.)

These stakeholders have different and often conflicting economic goals. Communities and the country’s citizenry are motivated by their collective desire for sustained economic and social upliftment (i.e., development), while mining firms are driven mainly by immediate returns on investment.

These two stakeholders also have divergent time perspectives. The community has a much longer one, extending over many generations well into the future, while business firms have a much shorter time perspective which usually depends on their revenue and production cycles.

So disparate are the economic interests and time frames of these two groups of stakeholders that it is impossible to find a common solution to the “mining problem” that is satisfactory to both. The community and society would want to realize as much development from mining operations while putting in check the accompanying social costs. In the same vein, mining firms would want to realize as much revenue at the lowest possible operational costs. In a word, both seek to maximize their net economic gains from mining operations. All too often, however, the economic benefits accruing to the mining industry are realized at the expense of some economic sacrifice on the part of society, mainly in terms of reduced future productivity.

Sticking point

The major sticking point in the mining issue arises from the fact that each stakeholder has a different view of the costs that they have to bear in pursuing their economic objectives. When a mining firm befouls the atmosphere, pollutes water supplies, contaminates the soil, and disturbs the delicate geological balance in the area within and around the mining site, the corresponding costs in terms of lower long-run economic productivity from the mining area are borne not by the firm but by the community. Unless these so-called external costs are factored into the private cost-benefit calculations of the firm, mining activities will be extended beyond levels that are consistent with the long-run interests of society. From a social viewpoint, mining operations are sub-optimal and therefore unsustainable.

Individual mining projects are also unsustainable from the viewpoint of the mining concessions themselves. At some point in time, the mineral ore that is being mined is completely exhausted, or extraction costs become prohibitive and their operations cease to be viable. The company disinvests from its current operation and moves on to other sites in the country or elsewhere in the world, and the community in question is left holding the bag. (To stress my point, I invite the reader to take a short drive from Baguio to the town of Itogon in Benguet, or to visit the town of Paracale in Camarines Norte or Narra in Palawan, or come to Baguio City itself and see for himself/herself the extent of the “development” that mining has contributed to these communities.)

This is where government as conserver of the national patrimony comes in. It can enact and implement laws that force mining firms not only to preserve the environment but also to replace in one form or another the economic resources that they have extracted from nature—say, by building new schools or by developing the community’s water distribution system—in order to ensure that the mining areas entrusted to them remain as economically productive when they leave as when they first came in. The main reason why this ideal situation remains a pipe dream is the very flawed law that is supposed to preserve the economic value of our mineral resources, R.A 7942, or the Philippine Mining Act of 1995, which effectively legitimizes the many acts of economic malfeasance perpetrated by mining firms in the country. (More on this in another column, given the opportunity.)

‘Incentive problem’

There is yet another reason, however, one that economists call the “incentive problem,” and to which I now turn.

In the context of our present discussion, the problem arises from the fact that the warm bodies that make the decisions in mining companies and in government pursue their own personal interests in making their choices, interests that invariably conflict with those of the individuals who employ them—the stockholders in the case of mining corporations, and the citizens of the land in the case of society.

As a rule, the managers of mining companies are evaluated and rewarded for their efforts in generating profits for their employers. They therefore have the financial incentives to understate, ignore, conceal or avoid certain costs that have no direct bearing on income, including those that cause environmental damage or safety hazards to the community. They can do this with impunity because they alone are privy to relevant engineering and technical information that are stored in their data bases and encrypted in technical reports—data that could be potentially damaging to the corporation should these fall into the “wrong” hands.

For their part, elected and appointive officials at all levels of government are motivated by their re-electability, or promotability (in addition, of course, to their usual financial interests). Promoting “development” is therefore in their personal interests, even if this will compromise the economic interests of future generations of Filipinos.

Mining is a messy business, figuratively and literally speaking, and to say that it is good for the country is self-deluding!

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a knowledge management consultant. Feedback at [email protected].  For previous articles, visit <map.org.ph>.)