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We talk a lot about metals investments here and yet there's little discussion - perhaps thankfully - about the politics of investing in "extractive" industries. I posted the following in response to - what I think is - a very shallow article about the unfolding situation in Ecuador, a country where I have invested some money. Since I can't be certain that I will be sufficiently flamed by my ultra-politically-correct compatriots in Canada to justify the time spent writing it, I thought I'd post it here for discussion. (My "anti-American" viewpoint should ensure I'm not disappointed.) I think the politics of investing is kinda fascinating in itself so have a go at me if you think I'm full of it.
The original article is here:
http://thetyee.ca/News/2008/07/11/CanMining/
My response (I know, it's obnoxiously spread over 3 "comments" - get yer own blog!!) is here:
"Without meaning to cast any doubt on the good intentions of the commenters here I'd like to suggest that this article and the comments it received reflect a worldview that is almost completely wrong.
Gold is not a luxury good. It's a form of currency. In the present environment it acts as the anti-dollar. It is a way for countries and individuals to at least partially escape the hegemony of the dollar standard, the system by which the world's economic surplus is returned to the US via purchase of dollar-denominated debt (mostly treasuries but also largely US mortgage debt.) Why do you think Cheney says (echoing Reagan) that deficits don't matter? It's because - net / net - the rest of the world is forced to swallow the extra debt created by US deficits or face rising currencies and falling exports. This means that, in effect, the rest of the world is paying for America's war to secure control over Iraq's oil! This is one of the reasons that the central banks of China and Russia among many others are adding to their gold stocks. A rising gold price and falling US dollar marks the gradual end of this system and is a particularly welcome development for world peace and shared prosperity.
I strongly recommend to anyone that doubts the above the work of Michael Hudson. His interviews at Counterpunch are here:
http://tinyurl.com/5kkdqu
His website here:
http://www.michael-hudson.com/
In a similar vein the coincidence of the rise of socialist movements in Latin America and the rise in commodity prices is linked. The power of these countries - Ecuador, Venezuela, Bolivia etc. - to renegotiate their terms of trade with the rest of the world so that they take an equitable share of the wealth has risen with commodity prices. This marks a large historical inflection point. The IMF used to be able to set terms of trade that heavily favoured the financial powers (read Anglo-world.) The ludicrous IMF-enforced mining policies that Ecuador is currently re-engineering are a good case in point. But the IMF is now basically broke. (Hurrah!) It only has a very small number of loans on its books to I think Turkey and Greece. It can't pay its operating expenses.
My point is that an anti-mining stance predicated on the dominance of western finance enforced through the dollar standard is simply hopelessly out of date. Why do you think that Correa - Ecuador's socialist President - is pro mining? (The fact that this is not even mentioned in the article is I think very telling.) Its because he recognises that commodity producers like Ecuador have the upper hand and that resource development can become a huge positive for his country on terms that Ecuadorians can themselves dictate.
The other things which seems suspect to me here are the assumption that all Canadian corporate involvement is necessarily exploitative in a meaning beyond profitable. Here's a company operating in Nicaragua that is developing the country's geothermal resources:
http://tinyurl.com/56785j
This promises to be a huge win-win for Nicargua: electricity costs will drop dramatically as will the country's dependance on bunker oil. Carbon credits alone will amount to 40 million of taxed cah-flow coming in from more developed countries. The fact that this company can raise investment capital in Canada is a huge benefit to Nicaragua. The simplistic anti-corporate stance on display here is simply incoherent. If the terms under which companies invest in a country are equitable (via tax laws, royalties etc.) then the investment is a positive for everyone.
I believe that, in the case of Dynasty Metals (mentioned in the article), this is also the case (as does Rafael Correa, presumably since he visited the site to reassure the local community and shareholders that he supported it after the mining moratorium was announced.)
Finally, if I am right about the above then foreign-sponsored opposition to mining is at least potentially damaging to the interests of local people. This never seems to occur to anyone who supports anti-mining NGOs. If you accept that 1) some mining is necessary - try building a modern windmill without steel - then it follows that 2) not all projects should be opposed. If not all projects should be opposed then perhaps funding local opposition to a particular project might tip the scales too heavily against it and end up costing stakeholders an opportunity for much needed economic development. The certainty with which anti-mining views are expressed here suggests to me that this has never occurred to some of you. Are you sure you've earned that white hat gringo?"
Incidentally I've recently found a couple of really interesting blogs by westerners living in South America. The first is mostly about investing in South American resource plays but strays into some pretty funny and illuminating thoughts about SA politics and especially how badly the area is covered by the western press:
http://www.incakolanews.blogspot.com/
The second does a similar job on Venezuela minus the investment focus:
http://www.borev.net/
The original article is here:
http://thetyee.ca/News/2008/07/11/CanMining/
My response (I know, it's obnoxiously spread over 3 "comments" - get yer own blog!!) is here:
"Without meaning to cast any doubt on the good intentions of the commenters here I'd like to suggest that this article and the comments it received reflect a worldview that is almost completely wrong.
Gold is not a luxury good. It's a form of currency. In the present environment it acts as the anti-dollar. It is a way for countries and individuals to at least partially escape the hegemony of the dollar standard, the system by which the world's economic surplus is returned to the US via purchase of dollar-denominated debt (mostly treasuries but also largely US mortgage debt.) Why do you think Cheney says (echoing Reagan) that deficits don't matter? It's because - net / net - the rest of the world is forced to swallow the extra debt created by US deficits or face rising currencies and falling exports. This means that, in effect, the rest of the world is paying for America's war to secure control over Iraq's oil! This is one of the reasons that the central banks of China and Russia among many others are adding to their gold stocks. A rising gold price and falling US dollar marks the gradual end of this system and is a particularly welcome development for world peace and shared prosperity.
I strongly recommend to anyone that doubts the above the work of Michael Hudson. His interviews at Counterpunch are here:
http://tinyurl.com/5kkdqu
His website here:
http://www.michael-hudson.com/
In a similar vein the coincidence of the rise of socialist movements in Latin America and the rise in commodity prices is linked. The power of these countries - Ecuador, Venezuela, Bolivia etc. - to renegotiate their terms of trade with the rest of the world so that they take an equitable share of the wealth has risen with commodity prices. This marks a large historical inflection point. The IMF used to be able to set terms of trade that heavily favoured the financial powers (read Anglo-world.) The ludicrous IMF-enforced mining policies that Ecuador is currently re-engineering are a good case in point. But the IMF is now basically broke. (Hurrah!) It only has a very small number of loans on its books to I think Turkey and Greece. It can't pay its operating expenses.
My point is that an anti-mining stance predicated on the dominance of western finance enforced through the dollar standard is simply hopelessly out of date. Why do you think that Correa - Ecuador's socialist President - is pro mining? (The fact that this is not even mentioned in the article is I think very telling.) Its because he recognises that commodity producers like Ecuador have the upper hand and that resource development can become a huge positive for his country on terms that Ecuadorians can themselves dictate.
The other things which seems suspect to me here are the assumption that all Canadian corporate involvement is necessarily exploitative in a meaning beyond profitable. Here's a company operating in Nicaragua that is developing the country's geothermal resources:
http://tinyurl.com/56785j
This promises to be a huge win-win for Nicargua: electricity costs will drop dramatically as will the country's dependance on bunker oil. Carbon credits alone will amount to 40 million of taxed cah-flow coming in from more developed countries. The fact that this company can raise investment capital in Canada is a huge benefit to Nicaragua. The simplistic anti-corporate stance on display here is simply incoherent. If the terms under which companies invest in a country are equitable (via tax laws, royalties etc.) then the investment is a positive for everyone.
I believe that, in the case of Dynasty Metals (mentioned in the article), this is also the case (as does Rafael Correa, presumably since he visited the site to reassure the local community and shareholders that he supported it after the mining moratorium was announced.)
Finally, if I am right about the above then foreign-sponsored opposition to mining is at least potentially damaging to the interests of local people. This never seems to occur to anyone who supports anti-mining NGOs. If you accept that 1) some mining is necessary - try building a modern windmill without steel - then it follows that 2) not all projects should be opposed. If not all projects should be opposed then perhaps funding local opposition to a particular project might tip the scales too heavily against it and end up costing stakeholders an opportunity for much needed economic development. The certainty with which anti-mining views are expressed here suggests to me that this has never occurred to some of you. Are you sure you've earned that white hat gringo?"
Incidentally I've recently found a couple of really interesting blogs by westerners living in South America. The first is mostly about investing in South American resource plays but strays into some pretty funny and illuminating thoughts about SA politics and especially how badly the area is covered by the western press:
http://www.incakolanews.blogspot.com/
The second does a similar job on Venezuela minus the investment focus:
http://www.borev.net/
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