General Propositions: Reprimarization of economy (Rep E) involves a shift from diversified import substitution industrialization to increased dependence on agro-mineral export.
RepE is especially pronounced and embraced by center-left regimes (CLR) resulting from popular movements which overthrew neo-liberal regimes.
RepE is promoted under the banners of anti-neoliberalism and even anti-imperialism even as CLR sign long-term large scale contracts with a wide gamut of MNC who became major economic actors in the growth strategy.
RepE policy is a pragmatic adaptation to several internal and external circumstances: The incapacity or difficulties of private and state sectors to develop a national industrial/high-technical economy and the opportunities, high prices and relatively lucrative exploitation of international markets in Asia via ‘partnerships’ with MNC.
By relying on extractive capitalism center -left regimes (CLR)turn into complex rentier states collecting royalties, ‘rents,’ from the export of raw materials.
Commodity cycles of the past are replaced by “mega cycles,” as decade long favorable prices of commodities replaces year to year price fluctuation. The steady inflow of revenues leads to stable budgets and finance imports without sudden and abrupt budget and trade deficits (and balance of payments problems).
Accumulation of foreign reserves, budgetary discipline, tight fiscal accounting – essentially orthodox state fiscal policies ensures capital inflows and the appreciation of the local currency. Appreciation of the currency further accentuates RepE as industrial products lose price competitiveness because of the high costs of production.
RepE paradoxically becomes part of a stabilizing syndrome(ss) in the world political economy. Stable, long term growth,a stable currency, stable finances, stable external accounts, stable budgets, relative social and political stability and re-election or continuity of incumbent executive officials (presidents),are essential features of the ss.
In contrast to the EU and US, the Latin American RepE do not face a fiscal, financial and balance of payments crises … nor do they face the level of social unrest found in southern Europe
The divergent outcome between EU/USA and Latin American results from differences in the deregulatory regimes: the former deregulated the financial sector prejudicing the productive sectors by creating hyper-financial economies subject to severe market manipulation by speculators.The latter deregulated the extractive sector in response to rising demand from Asia for its products, leading to large scale, long-term investments, steady growth and lucrative returns.
The juxtaposition of anti-imperialist ideology and the RepE has led to a dual polarization: on the one hand between the ‘center left regimes’ and the Washington establishment and on the other between the extractive public-private coalitions and the eco-indigenous communities.
For the better part of the past decade, the center-left extractive regimes(CLER) dependent on primary exports have gotten the better part of the conflict with both their external and internal adversaries.
Because of their diverse markets,the consistently high prices for their exports,and re-negotiated contracts with the MNC which increased state revenues, the CLER have successfully resisted US economic pressure,and avoided relying on the IMF .Since they have surplus trade balances and plentiful foreign reserves they have no need for balance of payments loans and have formed Latin American regional alliances (ALBA) which provide a certain degree of security from US intervention.
Because of their substantial revenues and reasonably high and stable growth, the CLER have been able to finance poverty programs, grant wage concessions, expand social expenditures and co-opt sectors of the leadership of the trade unions and social movements. Drawing on their anti-imperialist rhetoric, populist appeals and clientalistic electoral organization, the CLER have repeatedly and decisively beaten back challenges from the traditional pro-US right and isolated and marginalized electoral challenges from the eco-indigenous social movements and the radical left.
Profile and Performance of the CLER
The CLER has presided over a near decade of sustained growth in GNP ranging from 3 to 8 percent. Growth in the extractive sector, both in terms of investment, trade, revenues, production has at times exceeded double digits.New long-term large scale investments are In the process of being realized and there are few signs that the mega cycle is coming to an end.
All is not smooth sailing: peasant-Indian protests have led to some blockage and even cancellation of mining agreements and mining strikes have led to some temporary curtailment of production. The prognosis for the immediate future is for a continuation of the past decade of growth, incremental changes, and continued dependence on the extractive sector as the motor-force of growth.
The political and economic profile, however, shows some deep vulnerabilities over the medium run, especially because of the decline of economic diversity and the high dependence on markets for primary goods. Moreover, most of the CLER regimes are based on highly personalistic incumbent leaders, whose rule is limited and whose charisma provides the ‘glue’ that holds the contradictory elements-mnc and popular classes- together.
Vulnerabilities of the CLER
Despite the macro-economic and electoral successes of the CLER the developmental strategy is subject to a number of vulnerabilities which are prejudicial to the great majority of the working population and threaten the sustainability of the model.
We will proceed by listing the key performance indicators in telegraphic fashion accompanied by a brief commentary.
Primary products are an increasing percentage of Latin America’s exports earnings especially among CLER. This is a cause and consequence of the decline of industrial sector activity and the result of a deliberate regime strategy. Historically, dependence on primary commodity exports has led to great volatility in the economy, a highly polarized class structure and oligarchical rule.
Concentration on primary products exports has been accompanied by the growing concentration of ownership, especially foreign capital in the extractive sector frequently in association with public sector technocrats with close past and probably future ties with the private sector. A parallel set of lucrative satellite consultantships emerge along with investment houses engaged in deal making, mergers and acquisitions, to enlarge the scope of operations of joint ventures. Concentration of ownership is closely correlated with the growth of mega millionaires and the concentration of wealth. Private national capitalist and banking firms join the partnership and benefit by servicing the state-MNC extractive firms.The mnc,technocrats,investment houses,consultantships and bankers become the new ruling class of the CLER.
The royalty and tax payments are far from optimal even as some of the past minimal contracts have been renegotiated to increase payments to the “host” country. “Invisible incentives”, depreciation clauses, transfer payments, overbilling of operational charges, exorbitant salaries,allow the mnc to reduce royalty payments and taxes on profits even though nominally the rates have increased, depriving the local treasury of revenues.
Profits is the name of the game that makes primary commodities such a lucrative venture. MNC engaged in extractive industries have reaped record aggregate profits over the decade at multiple points in the productive chain: first in the sale of the raw materials, then in their marketing and processing, as well as in the initial sale of inputs (machinery,chemicals etc.). The MNC share of the final price of a processed raw material far exceeds the return to the ‘source country’.
Profits are, at best, only partially reinvested in the site of the exploitation of primary goods. The bulk of profits are exported back to the home office and taken as executive salaries, bonuses, dividends or re-invested in diverse sectors, in overseas sites, with a minimum multiplier effect in the host country. A minute fraction of profits are invested in upgrading local skills and technology and diversifying the economy of the commodity exporting country by adding value to the raw material.
The percentage of raw materials processed locally into finished goods, with high value content is minimum. Most of the MNC and their state partners take the bureaucratic – rentier ‘easy path’ of raw material exploitation and at best, refining and smeltering, adding little value. As a result the high value jobs are created in the home market of the MNC while the dynamic site of raw materials exploitation remains a privileged enclave in the midst of poverty and economic underdevelopment. Raw material specialization leads to a pattern of extreme uneven development between the ‘enclave and the rest of the economy and society. This in turn creates a geographically and socially polarized class structure in which regionally based multi-class blocs compete and conflict for the wealth and revenues accrued by the state. The role of the state as a ‘mediator’ or re-distributor between the resource rich enclave and the rest of social economy is compromised by its ties and contracts with the MNC and the ‘career’ and ‘class interests’ of technocrats with a biography of ties with international capital.
While exports of primary products, especially in an era of high prices, creates a generally favorable balance of payments, never the less the fact that most of the capital and intermediary goods and professional services and technology are purchased from overseas manufacturers, bankers, consultantships results in the large scale seepage of earnings overseas and the reproduction of domestic technological backwardness. CLER produced fertilizers, chemicals, farm machinery, seeds and irrigation systems; training local agronomists and specialists to provide technical expertise and run extension programs would create a world class competitive economy capable of lessening their dependence on foreign financing and external decisions capable of shifting the sites of investment and production.
Social Indicators and Extractive Capitalism
While most extractive capital regimes pay lip service to “ploughing the earnings” into social programs, at best most regimes only engage in incremental increases in social spending directed at ‘pockets of extreme poverty’ and subsistence survival. With the exception of Venezuela, few large scale long-term comprehensive social program are designed and funded to provide well remunerated employment, universal free public health care and education, livable and general pensions and low cost food and housing subsidies. Instead social spending is directed at creating clientelistic poverty programs which serve narrow electoral interests rather than creating a healthy, educated productive and participatory citizenry. The image of a poor peasant sitting on a mountain of precious metals retains relevancy in most capitalist extractive economics.
The common practice of extractive regimes is to concentrate income, revenues, expenditures and high salaries in the capital cities. In contrast the local economies and regions of the extractive exploitation receive an infinitely small proportion of state investments in social and economic infrastructures.
Roads and transport is constructed to link the sites of exploitation to their overseas destination, in the form of a “wheel spoke”. The alternative a ‘grid’ pattern would link exploitation sites with the internal market, cities, towns and villages of the interior,and to factories producing domestic inputs and processing raw materials.
While State and MNC officials cite the relatively high wages which accrue to wage and salaried earners in the extractive sector in comparison to workers outside the enclave, the more relevant comparison are the labor/profit ratios within the enclave, the ratio of earnings to productivity and value generated and the ratio of salaries, bonuses and dividend payments to the elite ,compared to the average wage/salary income of non-managerial workers. The disparities between executive/managerial salaries and the mining, agricultural and energy workers has spiraled as prices and profits realized have grown during the past decade.
Most of the great mining, agricultural and energy projects are capital intensive: highly mechanized, with large inputs of advance technology and employing a small cadre of engineers, employees, managers (divided between foreign and nationals) and a small percentage of the labor force. Each million dollars invested creates one job. The capital-labor relation, especially after initial more labor intensive infrastructure construction is completed, makes little impact on the unemployed .The work force engaged in the labor intensive local economy which has been disrupted by the extractive investments are marginalized. While in aggregate terms the capital invested in the extractive economy far surpasses capital invested in the local economy, the costs to local producers both in terms of the loss of livelihood, income and health infirmities is substantial and likely leads to a net negative outcome. In other words, from a cost-benefit analysis, the MNC and the State may accrue substantial gains while the local producers suffer a net loss in material and personal terms :break-up of community ties and reciprocal relations,and the disruption of family and kinship .
Women are the visibly “invisible” biggest losers resulting from the disruptions to the local economy caused by large scale extractive capital. Women play an integral role in family farming, local handicrafts, textiles, ceramics, rug weaving and dairy production as well as in marketing and trade linked to petty commodity production. When extractive capital via MNC-State contracts displaces or undermines the local economy (via contamination) it, almost exclusively, hires male workers, confining women to a marginal role, forcing young women to migrate, look for work in personal services or semi-licit-illicit occupations (prostitution – barmaids). Moreover the ‘side-effects’ are enormously demanding on women’s time and energy in treating the ailments and diseases spread by chemical sprays and usages .A multitude of contaminants have a major impact on children, pregnant women, the elderly and employed males directly and indirectly engaged in high risk extractive occupations – family ‘nursing’ is overwhelmingly a women’s unpaid obligation.An extractive capital takeover means, for women, loss of income, status, social life (marketing) and greater subordination within the family.
Mining and energy investments bring capital to a region but they also add social costs. For every dollar which is invested, the regional economy is burdened with the cost of dealing with the inflow of criminals, prostitutes, alcoholism, drug addiction, gambling, venereal diseases, crime and other anti-social ‘overhead costs’. While the profits are privatized, the costs of the social fallout burden the community, the local government and economy.
The extractive industry is characterized by a multi-tiered, highly unequal, polarized class structure. At the very top are the multi-nationals and their national partners – the 1% of multi-millionaires (and billionaires) who earn a multiple of the entire rest of the labor force. The next level of upper senior management,is a mixture of foreign and local directors, drawn from outside the region and who interact with the international circuits. Below them are engineering and middle management who operate the day to day production process and supervise labor relations – the latter may also include a ‘local’ who has some background as a former labor lawyer or trade unionist. Next in the hierarchy are the office workers, which include regional employees and transfers from the cities.Depending on the degree of mechanization they vary in number, up to one-third of the labor force, with a specific pay and benefits scale and social organizations which differentiates them from manual laborers. The next strata are the ‘stable’ or ‘permanent’ workers (a relative category) with long-term contracts,and benefits including housing and other subsidies. They form up to half the manual labor force. Below them are the temporary workers with the lowest pay,greatest insecurity of employment,with few if any benefits and engaged in the riskiest, insalubrious work. In addition there are temporary ‘migratory’ workers who are hired for specific projects like road construction, and repair and other short term projects. In addition there is a reserve army of unemployed ‘migrants’ who provide ‘services’ of dubious social and productive value and who could serve as strike breakers.
Labor segmentation is an employers’ strategy to lessen labor’s collective power and strengthen the negotiating power of capital.Fragmentation and competition pits workers against each other. Extractive capital dissolves solidarity and efforts at co-operation involving all members of a community. At best, solidarity and unity depends on the capacity of unionized manual workers to forge links with the adjoining classes and small scale producers and retailers.
The point is that extractive capital creates few stable skilled jobs with decent income and a large number of auxiliary jobs with no defined benefits and few future prospects, especially for those employed in high risk and disease prone occupations.
Lifetime expectancy is limited in many extractive occupations. This means lifetime earnings of workers may end up being less than would accrue to workers engaged in healthier family based activity. The same could be said for family security: while employed extractive workers do purchase modern electronic and household conveniences, occupational illnesses can lead to early discharge, destitution and lower income over a lifetime (the long run).
Extractive capitalism is probably the world’s greatest polluter and mine workers and communities adjacent to the mines,are the worst affected. Testimony and studies by ecologists working with indigenous communities in Ecuador, Peru and Bolivia have documented widespread illnesses due to oil spills, contaminated aquifers, rivers and adjoining farmland and among residents, especially young children. While the extractive industry has increased state resources, the costs in term of destroyed natural resources due to pollution, infrastructure development and collateral damage to community life, weighs heavy in the balance.This is especially the case if we consult mortality rates and the decline in the quality of life of workers and residents afflicted with extractive capital induced illnesses. The scope and depth of contamination and the economic costs in most cases impoverish the local communities far outweighing any monetary gain accruing due to wages and salaries to a reduced labor force.
Extractive capitalists single-minded pursuit in exploiting raw materials causes them to run roughshod over the pre-existing economic activity.Local farming, cultivation of basic staples and raising of livestock, are devastated as the local producers are displaced, water for irrigation is rerouted toward the mines and plantations,and the roads and markets are clogged by heavy transport .Poisonous chemicals undermine the health of local producers. The eruption of extractive capitalism is matched by the disruption of local production, with severe social dislocations and an increases in social marginality; as the mines grow in scope and revenues, the household economy declines.
Claims by advocates of extractive capital that the labor force displaced from household production will be re-absorbed in the new jobs created by the mining sector are the exception and not the rule.Labor intensive farmING, artisanry and livestock raising employs far more workers, of both genders, than the capital intensive mining sector. Moreover, the accident-disease complex which accompanies mining creates a shorter work cycle, discarded workers becoming a burden in households with shrinking income and declining resources. The net result is that extractive capital benefits from the most productive time frame of the life cycle and the community/household is saddled with the cost of maintenance of labor in its least product phase.
The decisions concerning the entry, location, conditions of operation, environmental impact of extractive capital are taken via agreements between a small elite of executives in the capital and the CEO’s of the MNC.
An examination of the decision-making structures reveals the exclusion of those communities, local citizens and leaders most affected. The initiative to invest is usually influenced by a combination of elite incentives and concessions – at the cost of the local treasury – and land grants on terms favorable to the MNC .Little if any account is taken of local impacts on livelihood, health and pre-existing productive systems. The decision-making structure is elite, urban, corporate centered; environmental impact studies are carried out by elite sponsored ‘consultancies’ who invariably approve of lucrative projects.
Citizen participation is initially minimum especially regarding in the scope, design and operations of extractive projects. However, as the project progresses toward operational status, citizens, communities and broad sectors of civil society are mobilized on several levels. The negative influence on the existing economy; the harmful impact on the environment ,the unequal distribution of revenues, the low levels of local employment ,the small contribution to community welfare, and other related issues arouse the ire of the local community and frequently lead to mass protests.
The typical pattern is one in which elites decide and local communities respond. Faced with harsh opposition the regime responds with violence – state repression –upholding the power, privileges and prerogatives of the extractive capitalists. Secondly, faced withwidespread opposition ,the regime and the mnc attempt to negotiate with and co-opt local leaders, making limited concessions regarding local social projects, but never ceding the basic elite accord or decision-making structure. Symbolic “consultative groups” are chosen but without any power to revise or control the process of extraction.
On an authoritarian – citizen participatory scale, the decision making structure that accompanies the entry of extractive capital and the terms of exploitation, is highly centralized and authoritarian. In contrast, the local opposition rates high on a scale of citizen participation taking the form of assemblies, debates, formulation of political and social action and with regard to resolving negotiations.
Elections and debates play little or no role in the entry of extractive capital. Unelected technocrats, bankers, investors, play the dominant role out of the public domain with no democratic oversight. In contrast the community opposition is led by elected leaders, with a mandate (revocable) from a general assembly and accountable to a “town meeting”.
Elite decision-makers are exclusively concerned with short-term decisions concerned with the lowest costs in exploiting, extracting and transporting primary resources. They leave the local community to cope with the long-term disasters which usually befall in the aftermath of erosion: mudslides, slag dam breakdowns, underground flooding and other ‘long term’ adversities. In contrast, local communities are concerned with long term effects and strategic decisions which impact on long-term survival and local prosperity. There is a basic conflict of interest embedded in the relation between extractive capital and its central state sponsors and local communities, civil society and indigenous movements.
Extractive capital in its real-existing structure, operations and impact has a sharply polarizing effect, as measured by precise economic, social, environmental and political indicators.
The key is inequality: the unequal distribution of benefits and costs, the unequal distribution of political power and the unequal costs of environmental pollution. Inequality derives from the concentration of economic power in the international hierarchical structures of capital, reinforced and amplified by the local political executive (the regime) which imposes by fiat, the terms by which extractive capital exploits natural resources. The local communities and labor face the greatest cost in terms of the adverse consequences of a natural resource based economy, accrue the smallest fraction of the profits and revenues and the biggest losses in terms of health, citizenship and civic culture. The contrasting fortunes between capital and labor is most acute in the ‘company towns’ where virtual ‘total control’ by the MNC and state, forces communities to engage in large scale mobilizations to correct the least everyday injustices.
While the site of exploitation detonates conflict, the resolution in large part depends on each side’s capacity to mobilize support in the larger national and international political community. The MNC’s mobilizes its links to the ‘financial-export-import’ sectors and the state to call on the armed forces and the upper middle class; the local community mobilizes the provincial capitals, towns and villages and the urban leftist parties , trade unions and ecology NGO’s.
The resolution of the conflict depends on the strength of the contending forces .The result has vital consequences not only for those communities directly affected but on the entire structure of the economy and class structure. Extractive capital in command tends to polarize society into two; it creates a ‘mono-cultural’ economy vulnerable to cycles (mega or not); it reduces citizen participation; it accentuates speculative flows of capital to and from commodities.