Rahul Basu writes: Goa Foundation, one of the country’s best-known environmental groups, has proposed a whole new approach to mining that’s designed to tackle the colossal damage caused by rampant corruption and human greed. It can be applied globally to natural resources and commons generally, but starting with minerals as their economic values are clearer.
I’m a member of Goa Foundation, the well-known environmental NGO in Goa, India. Through the course of our Goa mining PIL in the Supreme Court, we have developed a tight proposition for natural resources and commons generally, but starting with minerals as the economic values are clearer. We take the perspective of owners of sub-soil assets. Quite simply, we are asking for the following principles to be implemented (in Goa and globally):
- We, the people of Goa, own the minerals in common. The state government is merely a trustee of natural resources for the people and especially future generations (Public Trust Doctrine).
- As we have inherited the minerals, we are simply custodians and must pass them on to future generations (Intergenerational Equity Principle).
- Therefore, if we mine and we sell our mineral resources, we must ensure zero loss, ie. capture of the full economic rent (sale price minus cost of extraction, cost including reasonable profit for miner). Any loss is a loss to all of us and our future generations.
- All the money received from our minerals must be saved in a Permanent Fund, as already implemented all over the globe. Like the minerals, the Permanent Fund will also be part of the commons. The Supreme Court of India has ordered the creation of a Permanent Fund for Goan iron ore and already $13 million is deposited.
- Any real income (after inflation) from the Permanent Fund must only be distributed equally to all as a right of ownership, a Citizen’s Dividend.
Note that these principles are first and foremost constitutional. They flow from Article 295/297, the Public Trust Doctrine, the Intergenerational Equity Principle and Article 14 Equality. However, these are also the inheritance customs for a large part of the population. It has strong parallels with Pope Francis’ environmental encyclical. It is in tune with environmental and mineral resource economics. From an economic theory perspective, all we are asking for is respect for property rights. This is unarguable in all flavours of mainstream economics (although indigenous people & others will argue that nature cannot be owned). It is palpably fair, ethical, right, just and moral.
We advocate that this be the default framework for minerals (and the commons generally). Any variations from these principles (“social or welfare purposes”) would require strong justification.
Scale of the problem
Any losses (violating principle 3) are permanent. We found that in Goa, we were receiving less than 5% of the economic rent over a 8 year period (2004-2012). The loss was 28% of cumulative GDP, about 2 times the cumulative state budget, and on a household basis, greater than the average private assets per household. (see the first & second papers published in the Economic & Political Weekly, below). And the trifle that was received was spent, not saved (violating principle 4). A total loss for our children.
Data indicates a similar situation across India, across minerals, and across the planet. Losses soared during the China boom. IMF estimates that at best, countries lose around 15-35% of their petroluem value and 35-55% of their value in hard minerals (Fiscal Regimes for Extractive Industries: Design and Implementation, para 64). The amounts at stake are enormous. $27 tn was extracted between 1970 and 2013 (World Bank). If we assume a 50% loss on average, this is a loss of $13.5 tn, or equalised, $2,000 per person globally. Another estimate is that $7 tn of minerals are extracted each year. Trillions are certainly being lost annually.
These unfair losses (rent seeking) are a large driver of crony capitalism globally. Keep in mind that energy is the single largest economic sector on the planet.
Further, the absurd terms of contract incentivises rapid extraction & exit by the mining lessee for fear of public uprising if they find out. This in turn incentivises human rights violations, environmental damage, conflict and war.
Separately, this also underprices the minerals, leading to over consumption.
The losses are a huge driver of inequality – money is being taken equally from everyone, and a few are becoming rich. This is looting economics. After the loot will come the trickles from the rich.If losses will range at 35% at best, perhaps it would be fairer to develop better institutions before extracting.
Windfall revenues or common inherited assets?
A large part of the mining money actually received by governments are treated as “windfall revenue”, not the “sale of common inherited assets”, and were spent. Due to the commodity cycle, this creates huge volatility in government budgets. “Revenue” booms. Expenditure rises to keep pace. Prices crash. “Revenues” crash. Sell more inherited wealth? Prices drop further. Hard choices to make. And inherited wealth is frittered away in consumption, violating principle 4.
Alaska, which only deposits 25% of its oil money, has suffered from the price volatility impact, as you can see from their ongoing budget discussions. So too Saudi Arabia, Venezuela and Russia. Some countries like Norway have a fiscal policy that effectively considers minerals to be capital – they target the non-mineral revenue deficit, and deposit 100% of mineral receipts into their Permanent Fund. This avoids this issue by effectively treating mineral receipts as capital receipts.
We are asking for is for government accounting, statistics and fiscal policy to treat money from mining as capital receipts from inherited assets, not “windfall” revenue as is the current practice. This is where WAVES Partnership and green accounting is moving. This is how the private sector accounts for minerals. Yet this simple change will be quite profound. “We manage what we measure.” The immediate impact of this change would be to strip government revenues of all mining money. And minerals become an asset with a different set of questions: Should we extract? When should we extract? How much should we extract? What minimum price do we want for our asset? What is its value? Are we incurring a loss? How are we investing the money we receive for our children?
Hidden per-head taxes
Since minerals & the permanent fund are part of the commons, any diversion to the budget (violating principles 4 or 5) is nothing but a per head tax (or a negative universal basic income) – something that cannot be legislated in a democracy. Diversion to the budget also provides easy money to the politicians (assuming the Permanent Fund is insulated), which would worsen governance. I’d recommend reading these two blog posts that answer Why 100% to Permanent Fund and Why income distribution only as Citizen’s Dividend.
On the flip side, our structure has some positives. The Citizen’s Dividend links the citizen to their minerals and the Permanent Fund. Focus on loss in rent will ensure that the terms of the extraction contracts are fair for the owners, but not exorbitant. The Citizen’s Dividend creates incentives and capability for public monitoring of the contract terms as well as violations. This changes incentives for the miners – lower human rights and environmental law violations. The whole system is fair, likely reducing many mineral conflicts (though Scotland is more likely to separate from the UK, etc). Since the state doesn’t benefit from the mining “revenue”, either at the point of extraction or the distribution of real income, there is little incentive to extract.
Deeper implications are many. The Citizen’s Dividend is also a Universal Basic Income, reducing poverty, and promoting equality / community. The environment is protected in multiple ways – lower incentive to extract, higher prices for minerals (acting like a carbon tax), etc. It reduces conflict. Fundamentally, we are reframing from individualism to community of individuals, and from consumers of the planet to stewards. It quite simply is the future we need.
Mining is essentially the conversion of natural resources into other non-wasting assets. The first step is listing the assets in the inheritance. These are at least three (a) the damage to the environment/society/agriculture, (b) the work / income associated with the minerals (which depletes along with the minerals), and (c) the mineral value or economic rent. In Goa, we found (a) extensive damage to environment/society, (b) the minerals could be exhausted in nine years (Shah Commission), and (c) we were receiving less than 5% of the mineral value, and even that was being consumed, a total loss to most of Goa, and our children.
For each asset, we need to create a mechanism to ensure that the total value of our commons remains “non-wasting”. The 3rd EPW paper discusses how we are approaching this issue at the Supreme Court. Our Goenchi Mati Manifesto suggests a practical framework for implementation. More work is needed and inputs would be appreciated.
Linkage to Ecological Economics
We found the Intergenerational Equity principle (“what will future generations do”) to be the core principle – first safeguard the inheritance – if that is done, consume the crop. From this we derive sustainability (sustain what for whom? planetary capability for future generations). From this we derive, through weak sustainability, the precautionary principle for critical assets, and the polluter pays principle for damage to non-critical assets. Note that intergenerational equity, sustainable development, precautionary and polluter pays principles are all constitutional under Article 21 (right to life).
For Goa mining, we propose a tiered structure. The precautionary principle (“don’t risk a catastrophe”) we propose to implement through a cap mechanism, set at the lowest volume where any irreversible damage was observed (12 mt saw the benthic life of our rivers almost extinct) or any legal limit is breached anywhere. The limit would drop sharply on a breach like a stock market trigger. If everything was OK over a long period [5 years], then the limit would increase in increments of [5 mtpa]. Separately, the polluter pays principle would apply to all identifiable damage. And the District Mineral Foundation would be expected to compensate the rest of the damage that cannot be identified to anyone.
What are we doing?
- The Goenchi Mati Movement (GMM) in Goa is advocating for the full implementation of our 5 principles. Our manifesto (goenchimati.org/manifesto) lays out how these principles can be implemented in Goa. In general, we found that people of all strata understand our principles very easily and naturally. Those who read the manifesto also found it clear and logical. Amongst our supporters in Goa, we have a miner, a tribal mining affected leader and a mining dependent trade union leader. You can view a list of prominent GMM supporters. Consider supporting us. However, we found it difficult to get the idea to spread virally and were unable to significantly impact the elections. More work is needed here.
We did have some success. The Government of India has discussed our idea in the recent Economic Survey (pg 297), and CGDEV reported on it. In our recent state elections, 4 political parties endorsed our manifesto, including Aam Aadmi Party (a good governance / anti corruption party that swept the Delhi elections). The Shadow Chancellor of the UK is also interested in our ideas. The Archbishop of Goa also showed his strong support for our ideas, linked to the environmental encyclical of Pope Francis.
- Goa Foundation (goafoundation.org), an environmental non-profit that is involved, among other things, in litigation against mining in Goa, and supports the Goenchi Mati Movement. The Supreme Court order on the Permanent Fund is a result of Goa Foundation’s work. My research work is under Goa Foundation.
- mines, minerals & People (www.mmpindia.in), an all India alliance, has started an all India petition using our principles and work as the base. Do consider supporting it. Also consider creating movements similar to Goenchi Mati in your respective states.
- We are conscious that these principles are universal, and we would like to implement them globally. Our global initiative is The Future We Need (TFWN.)
- The second initiative of The Future We Need (after GMM) is to advocate a change in government accounting, statistics & disclosure from revenue to capital. We make a pretty strong claim that much of the resource curse can be traced to this simple error in government accounting. The relevant international accounting standard, IPSAS – 13 Leases, is under review, but unfortunately doesn’t include mineral leases. We have started an online petition, A simple accounting change that will save countless lives. Consider supporting us.
- The three published papers in EPW related to this work are Implementing Intergenerational Equity in Goa, Catastrophic Failure of Public Trust in Mining: Case Study of Goa and Intergenerational Equity Case Study
- I’d recommend reading these two blog posts that answer Why 100% to Permanent Fund and Why income distribution only as Citizen’s Dividend.
- Here’s our detailed note on mineral accounting by governments.
- How a loss from the commons is equivalent to a negative basic income or a per-head tax.
Goa specific info in more detail
- A 9 part series of articles on what happened in Goa with a lot of detail, so that the information is in the public domain. Ore Chor! 144 is on how bad the lease renewals were. Links to the earlier ones are in the article.
- A YouTube playlist going into some detail (80 minutes)
- Somewhat of a history of what happened: http://goenchimati.org/intergenerational-equity-documents/. It has a particular lens, but covers quite a wide swathe of the work with links to go into much more detail.
- Most of our collateral can be accessed on our website – academic papers, explainer videos, articles, etc.
Goenchi Mati Manifesto
Mining in Goa is highly divisive. So in drafting our position on mining we have carefully considered all stakeholder needs and considered certain principles to come up with concrete steps that create a win-win situation for all.
New Book: Eat Dust – Mining and Greed in Goa, by Hartman de Souza
If there is one book which speaks of all mining blighted societies, then it’s this one. The book by Hartman de Souza breaks all the boundaries of genres and gets its politics and economics right on. At once travelogue, investigative journalism and family memoir, Eat Dust maps the culture, topography and cultural diversity of Goa.
How Goa’s mining lobby, government and media ganged up against a young tribal activist
Nandita Haksar, Scroll.in
Ravindra Velip, a 27-year-old tribal activist fighting mining in Goa, is facing the combined might of the state government, the mining lobby and a complicit media. A founding member of green activist group Rainbow Warriors, he was arrested and placed in judicial custody. When he was assaulted in jail, it went unreported.