Some Research Issues in the Science, Technology and Economics of Mining

1. Some Research Issues in theScience, Technology and Economics of Mining

2. Effective management from a societal perspective • Involves good practice from business management, economic policy, science and technology • Best practice in one area usually depends on what is happening in the other areas • This is certainly true of S&T.

3. Why the wide range of outcomes in mining? • Potential contribution is often great, as where it launches growth acceleration, and over say 15 years leaves country 60% richer than it would otherwise have been without that acceleration • Often falls far short of potential, leading to the idea of “Natural Resource Curse”, as where petroleum in Nigeria often credited with making the general population worse off • So best for a country to know what it is doing

4. The Potential • Static ``resource allocation`` gains by achieving best use of resources • Positive linkage effects, especially if there are underutilized resources • Can lead to economy’s acceleration from slow or modest growth to sustained high growth (“take-off”)

5. But… The “Natural Resource Curse” • Whereby natural resource dependency may actually lower growth on average • Debatable in extreme form, but • Incontestable that there are lots of relative failures and that average long run growth performance is weaker than might be expected • Since there are also successes, there is a very wide range of growth outcomes in mineral dependent countries • Are things getting better over time?

6. Factors in the “Growth” Curse • Corruption (theft, etc.) and associated weak governance • Weak economic management for other reasons (a) lack of expertise on the mechanisms of the curse (b) short time horizon, lack of policy continuity (c) inflexible economy • The political appears to be more important than the economic

7. The “Inequality” Curse • Corruption and theft tends to be income/wealth concentrating • Mining is capital intensive, so creates few jobs, shrinks other tradables sectors (mainly manufacturing and agriculture) and pushes down on the equilibrium wage for many types of labour • Some linked industries are also capital intensive • Empirical evidence consistent with this expectation • Can greatly swell the informal sector—Venezuela after late 1980s

8. The “Environmental” and “Human Rights” Curses • High profit industries create great incentives to break rules and often attract people willing to do it or to turn a blind eye • Setting often environmentally fragile and in areas populated by politically weak groups • Implies need for strong regulations, firmly applied

9. How to get near the Success end of the Spectrum of Possibilities • Good economic management—general principles fairly clear but details not, for lack of empirical research to date and because every country differs • Good S&T policy, again many general principles clear but details not, e.g. where payoffs are biggest, how to interface with business, who should do the research, etc. • Good integration of the two and of environmentalists likley to be quite important

10. Economic Research Priorities-1 • Country-based attempts to understand the growth impacts of minerals exports, why sometimes so much higher than other times, e.g. Brazil, Chile, Mexico, Colombia, Peru Ecuador, all of which have confronted potential or actual NRC problems • Studies of how comparative advantage shifts are achieved when the mining sector shrinks in relative or absolute terms, e.g. role of devaluations, directed S&T efforts, flexible labour and capital markets • Possible crash-softening effects of a strong manufacturing sector?

11. Foreign Direct Investment and Growth • Overall evidence that on average FDI contributes to host country growth is weak, if present at all • Probably it does when directed to some sectors but does not when going to others? Is mining one of the “others”? • But trends may be improving over time? If so, why?

12. Economic Research Priorities-2 • Case study and other approaches to better understanding the apparent mining-inequality link • How much is political, broadly defined (to include degree of corruption, etc.) and how much is economic/technological • Role and character of the informal sector

13. Science, Technology, and the Contribution of Mining • Technology within the sector • Technology in linked sectors, especially manufacturing and agriculture • Potential for appropriate technology in any of these? • Scope of action at the national level

14. Who Should do and Who Should Finance the S&T Research and the Economic Research • Private sector’s role • Public sector, research and funding, especially of independent institutions • Independent arms-length institutions (think tanks, academic)

15. The Regulatory Apparatus • Especially important in mining, given its nature—extractive, environmentally dangerous, non-competitive or chaotically competitive • Important to study best practice in the success stories

16. Preparing the “Mining-Related Technocracy” • The range of economic and technological issues that some or all of those involved should understand, e.g. the Natural Resource Curse • Avoids private time wasted debating non-issues and may raise level of public discourse

17. Some Lessons from Canada • Lots of experience does not eradicate major scandals • A promising first phase of an Oil Heritage Fund can go down the drain as later governments take a different course • A generally open society does not end research distortion in the public sector and muzzling of scientists, especially on the environmental front • Short-run interests tend to outweigh longer run ones • Lack of policy continuity across governments