August 2000, Richard M. Auty / United Nations Conference on Trade and Development (UNCTAD)
The early-1970s marks a discontinuity in post-war trends in demand for minerals, the supply of minerals and the behaviour of mineral markets, as the industrialized countries' dominance of these markets was eroded. The wide-ranging changes in the global mining industry at that time coincided with a reappraisal of the sanguine mainstream view that mineral reserves were adequate. Further investigation since then has demonstrated that the materials intensity of gross domestic product (GDP) declines at higher income levels (there may be an "environmental Kuznets curve", which implies some de-linking of GDP from the consumption of "environmental" capital); that more and more curbs are being imposed on demand for traditional minerals as a result of the substitution of materials and product miniaturization, and that the pattern of mineral supply is following that of demand, and shifting to the developing countries. While these changes and reappraisal were taking place, the Governments of mineral-driven economies were intensifying their efforts to boost the domestic benefits of extracting their finite mineral resources, using producer cartels and nationalization as their principal tools. The hitherto dominant multinational mining companies based in the industrial countries responded by diversifying into a wider range of minerals and geographical regions.
The net effect of these changes was to create chronic excess supply (part a much wider misallocation of scarce global capital resources at that time) and to diminish the flexibility of mineral markets from the mid-1970s until the late1980s. However, neither the producer cartels nor the State enterprises achieved their objectives, and there is a strong case that both were counter-productive. As a result, from the late1980s onwards, and under pressure from the global financial institutions, the developing countries began to privatize their mining sectors and to compete vigorously for foreign direct investment in order to revitalize their mining sectors. This latest trend should be treated with caution, however. Resource-rich countries have a generally disappointing growth record, which may be traced to growth-repressing conflicts over resource rents. The measures required to remove economic distortions and restore rapid economic growth will prove beyond the capacity of some Governments, which may then turn again on the multinational firms and try to use them as scapegoats, drawing on fashionable "green" arguments to bolster their case. The multinationals should therefore seek to improve not only the environmental sustainability of their mines, but also their social sustainability. They must also be ready to reinforce the enclave nature of mining and wait for better times should a host Government reject efforts to negotiate a reasonable division of the mineral rents.
