Resource Extraction Industries in Developing Countries

Darryl Reed

ABSTRACT. Over the last one hundred and fifty years, the extraction and processing of non-renewable resources has provided the basis for the three industrial revolutions that have led to the modern economies of the developed world. In the process, the nature of resource extraction firms has also changed dramatically, from small-scale operations exploiting easily accessible deposits to large, vertically integrated, capital intensive transnational corporations characterized by oligopolistic competition. In the last ten to fifteen years, coinciding with processes of economic globalization, another major change has been occurring as resource extraction industries have been shifting their operations from developed to developing countries. This shift has greatly impacted the populations of these countries and raises a variety of ethical issues. This article investigates the nature of these changes and the ethical issues that arise, focusing in particular on the development impact of the activities of these industries and the potential adequacy of different policy approaches to regulating them. KEY WORDS: business ethics, development ethics, mining ethics

Non-renewable resources have long played a key role in the development of human civilization. Most recently, they have provided the basis for the three industrial revolutions that have led to the modern economies of the developed world.
Darryl Reed is Assistant Professor in the Division of Social Science and Co-ordinator of the Business & Society Program at York University. He has a wide range of interests in the field of business ethics. His work has appeared in the Journal of Business Ethics, Business Ethics Quarterly, Business Ethics: A European Review, Business and Society , and the International Journal of Social Economics.

While resource extraction industries (REIs) continue to play a key role in modern developed economies, over the course of 20th century, and especially in the last ten to fifteen years (coinciding with processes of economic globalization), transnational corporations (TNCs) involved in the extraction and processing of these resources have been shifting their operations from developed to developing countries. This increase in activities by REIs in developing countries in the new global economy has greatly impacted the populations of these countries and raises a variety of ethical issues. The purpose of this article is to provide some general background to the operation of REIs in developing countries and the ethical issues that their activities raise. It is organized into six sections. The first section offers a brief account of the nature of resource extraction industries, while the second examines the transnationalization of their activities. Next, recent changes in the context in which REIs operate are investigated. The fourth section looks at different aspects of the development impact of REIs in the developing world. In the fifth part of the article, a short exposition is provided of the normative problematic that REIs face in operating in developing countries. The following section then examines in greater detail the key ethical issues that the activities of REIs in developing countries raise, briefly looks at the current practices employed in REIs to respond to ethical issues and discusses some concerns about whether these practices (and the self-regulatory public policy environment in which they are employed) represent an adequate response to the ethical issues identified.

Journal of Business Ethics 39: 199226, 2002. 2002 Kluwer Academic Publishers. Printed in the Netherlands.

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Darryl Reed vertically integrated corporations. Here, Standard Oils dominance over the refining process proved to be the key in facilitating vertical integration. In aluminum, Alcoas patent rights granted it a virtual monopoly over metal production and, on this basis, it was able to integrate both backwards into raw material extraction and forwards into fabrication. The development of vertically integrated, oligopolistic firms and the introduction of new technology were closely intertwined as new technology laid the basis for increased concentration (by allowing for economies of scale, geographic expansion of markets, etc.), while integration and concentration helped to reduce the risk involved in introducing new and expensive technology. Another key change was the development of national markets in the major industrial economies. This change was facilitated in large part by the revolutions in transportation, especially railroads. In principle, improvements in transportation could have helped to increase competition by opening up regional markets to new players. In practice, however, this was not the primary impact. Rather, improvements in transportation and the development of national markets led to fewer, but larger firms, as firms increasingly had to attain national size in order to compete. National markets also induced firms to seek out control over reserves (and ancillary resources) in their home country. It became common for firms to acquire rights to reserves that were in excess of the prospective needs for decades into the future. This latter practice contributed in part to another key condition for the emergence of oligopolistic firms, viz., limited supplies. Minerals and fossil fuel reserves are finite. If firms attain control over all (or a substantial proportion of such) reserves, then, by definition, they achieve (oligopolistic or) monopolistic control. While oligopolies have been the rule among REIs, it is difficult for firms, even titans like Standard Oil, to develop or maintain actual monopoly control. Historically, the primary source of difficulties has been the discovery of new reserves. In the U.S. this occurred in the copper industry in the 1800s with the discovery of new finds in Montana (which allowed Anaconda to challenge the estab-

Resource extraction industries are not only as old as human civilization itself, but are also a key constitutive of our history. The significance of metals in human (pre-)history is most clearly reflected in our designation of early historical epochs (e.g., copper age, bronze age, iron age). In ancient times, the ability to extract and process key metals determined the fate of empires. In more recent times, other resources (viz., coal and oil) have provided the basis for industrial revolution(s). While human civilizations have long depended upon resource extraction, up until the mid 19th century, these industries were largely based on small-scale operations that had high cost structures and exploited rich and easily accessible deposits (e.g., deposits of high grade ores, surface seepage of oil). Between the 1860s and 1890s, however, important technological and organizational developments would lay the basis for a dramatic shift in the structure of key REIs (e.g., copper, aluminum, oil, etc.), leading to vertically integrated, capital intensive industries characterized by oligopolistic control.1 On the technological front, key developments in the extraction and processing of resources had tremendous effects on the supply side of REIs. In the case of oil, the introduction of drilling techniques enabled the exploitation of subterranean reserves, while new large refineries allowed for economies of scale and combined with advances in transportation to allow oil to be moved over long distances. Similar changes in extraction and refining processes in the mining industry allowed for the exploitation of lower grade ores. Changes in technology also had demand side effects. Some of these effects arose from the rise of new industries (e.g., the demand for copper in the electricity industry and later the development of the automobile industry), while others were related to supply side changes themselves, which stimulated new uses and the search for new markets. Key organizational developments also took place during this period. In the oil industry for example, by the early 1900s there was a shift away from small, single-stage, local firms to large,

Resource Extraction Industries in Developing Countries lished Lake Michigan producing pool) and in the oil industry at the turn of the century with the discovery of new fields in Texas (which allowed the Texas Company and Gulf Oil to challenge the dominance of Standard Oil). In the aluminum industry, by contrast, Alcoas dominance over domestic reserves meant it went unchallenged until after WWII, when Reynolds and Kaiser were able to gain access to the recently discovered bauxite in Jamaica (Girvan, 1978). In addition to the objective factors, subjective factors also come into play in the development of oligopolistic markets, i.e., supplies can be artificially limited by suppliers. The most celebrated (and probably the best documented) case is that of John D. Rockefeller and Standard Oil (Tarbell, 1904). There are two common ways in which supplies can be limited, viz., by contracts (and similar arrangements) and by buying out other suppliers. In the oil industry, the former strategy was initially used, with a small number of suppliers exerting control over a large number of widely dispersed producers. Later on, the oil industry attempted to shift to the latter strategy. Similar strategies were also used in mineral extraction industries. Such practices can, of course, provoke reaction from the government, as in the enactment and enforcement of antitrust legislation that ultimately resulted in the breakup of Standard Oil in 1911. Anti-trust legislation, however, has done little to limit high concentration levels in REIs or, critics would argue, to control anticompetitive practices (Shaffer, 1983).

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2. The transnationalization of resource 2. industries Micro-economic reasons for transnationalization The same logic that led to the development of oligopolistic firms at the national level, propelled firms to transnational activities. In the case of U.S. firms, foreign investment begins to take off in the 1890s and rose rapidly until the start of WWI. Immediately before the war, nearly three quarters of U.S. foreign direct investment was in

the Western hemisphere, with the mining and petroleum industries accounting for more than half of the total. In terms of its investments, the U.S. followed what might be considered a typical colonial pattern. In Europe (and to a lesser extent in Canada), it concentrated its investments in manufacturing (due in no small part to host government restrictions). Here investments were primarily in fields where U.S. firms had a technological advantage or differentiated products. To the degree that the resource extraction industries did invest, it tended to be in marketing and refining/processing. In the oil industry, for example, Standard Oils first forays into Europe in the 1880s and 1890s involved establishing subsidiaries to market U.S. refined products in England and Germany. They also established refineries in France at the same time. It was only on the periphery of Europe, in Romania, that Standard was engaged in extraction (and also had refineries). In Latin America, by contrast, U.S. FDI was concentrated (85%) in primary industries (mining, petroleum and agriculture) and railroads. In the resource extraction industries, typically extraction occurred in the host country with subsequent steps being carried out in the U.S. (Shaffer, 1983). There are two key aspects of the firms growth process that help in explaining transnationalization, viz., policies for securing and allocating raw materials and policies for allocating production, financial and research resources between products. The former are most important with respect to our concerns about developing countries. Procurement of raw materials operates on the basis of the least cost rule. Because costs change over time (e.g., as high grade or easily extracted reserves are depleted) and reserves are finite, it makes sense for firms to have a wide geographical spread of supplies. Thus, firms are constantly looking for potential new sources so as to widen their options, limit competitors options and replace depleted reserves. While operating a range of operations does imply some constraints on operations (e.g., minimum production levels to maintain concessions), firms can generally shift incremental production to lower cost sites. A wide variety of sites, also allows firms to make contingency plans in the case of (rela-

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Darryl Reed country is good for General Motors, and vice versa is generally unquestioned by corporate leaders. In the realm of domestic politics, some doubts do arise among politicians, however. The reality of democratic politics, as reflected in the need for compromise, generally means that in the domestic arena few governments are ever capable of completely identifying national interest with business interests. In the international realm, however, ambiguity about the relationship between corporate and national interest usually disappears. One clear indication of the willingness of governments to promote opportunities for its firms abroad (rather than just free trade) is the adoption of contradictory policies, which cannot readily be explained apart from corporate interests. In the U.S., the oil industry was an early beneficiary of such contradictory policies.2 Another clear indication of governments predisposition to identify nation interests with those of business involves governments promoting the interests of firms abroad under questionable circumstances. One such set of questionable circumstances is the promotion of company interests in ways that contradict domestic laws. Again, the U.S. oil industry benefited in this way through the efforts of the U.S. government to open up the Iraqi market (dominated by Britain) in the interwar period.3 Another set of questionable circumstances involves the government operating on behalf of domestic firms, while prosecuting these firms at home. This was the situation in the early 1950s when the U.S. government was seeking to open the Iranian market (again, dominated by Britain) to U.S. firms. Under the agreement reached, five U.S. oil companies were to take part (40% share) in an eight company consortium. At the time, all five of these companies were being prosecuted by the U.S. government for violations of U.S. antitrust laws (Sampson, 1984; Shaffer, 1983). Strategic importance. The key role of resource extraction industries in modern economies has meant that they have also taken on geo-political significance. Such significance can be understood both in terms of traditional security concerns (i.e., national defence and containment of

tively) sudden events that affect cost and firms abilities to extract reserves, e.g., changes in government policy, expropriation, war, acts of God, etc. (These same factors have typically also led companies to diversify into other related industries in mining and energy production.) Historically, then, the least cost rule has resulted in the planned displacement of source supplies. Typically, this has involved moving from sources in developed countries to developing countries and, then, between developing countries. In the case of oil, for example, U.S. companies first shifted incremental production from the U.S. to Mexico and Venezuela in the 1920s1940s and then later to the Middle East in the 1950s and 1960s. Similarly, U.S. copper companies shifted production to Chile in the 1920s1940s, but shifted back to the U.S. when problems arose with the Chilean government. In the case of aluminum, Alcoa first shifted incremental production to Guyana and Surinam in the 1920s1940s, then to Jamaica and the Dominican Republic in the post WWII period, and then on to Australia and Africa in the 1970s, after changes in the investment climate in Jamaica (Girvan, 1978).

Political economic factors in transnationalization While micro-economic logic was a necessary factor in inducing transnational activities, pursuing transnational activities was generally facilitated by political economy factors. While three major types of factors can be distinguished analytically, in practice they overlap and are frequently inseparable. These include the identification of national economic interest with the interests of domestic corporations, (geo-political) strategic considerations and the exercise of political influence by corporations and corporate leaders. National (economic) interest. The identification of national economic interests with the interests of domestic corporations has a certain common sense appeal. This connection most famously expressed in the words of former GM president, Charles E. Wilson, What is good for the

Resource Extraction Industries in Developing Countries enemies, e.g., the Cold War) as well as in terms of economic security concerns (e.g., shortages of key resources that could cripple the economy). Oil has clearly been the commodity most closely associated with strategic concerns. The military significance of oil first came to prominence with the decision of the Royal Navy in 1913 to convert from coal to oil. This decision was controversial because, while Britain had extensive coal reserves, it had no domestic oil reserves and only limited oil reserves within the Empire (in Burma). Another problem that arose involved finding an appropriate oil firm to take the lead. While it was originally a director from Shell who pushed the conversion of the British fleet to oil, Churchill and other political leaders where reluctant to trust a non-British company (which they considered Shell to be because of the 60% holdings by Royal Dutch). The most obvious source of oil appeared to be the recently discovered field in Persia. The advantages of Persia were twofold. Although not formally a part of the Empire, Persia was clearly in the British sphere of influence and could be easily defended from its bases in India. Also, a British company, the Anglo-Persian Oil Company (later Anglo-Iranian and then British Petroleum), had concessions there. When this company suffered financial troubles that threatened the plan, the (Conservative-led) British government took the extraordinary step of buying controlling interests (51%) to ensure that ownership control did not fall into foreign hands. While the British government had no interest in running the firm, and demanded only two of the seven directorships, it did require that all directors be British subjects and retained for its directors the right of veto (which was to be used only in cases involving military policy and admiralty contracts). The British example was followed by the French government after the war, which bought into Compagnie Franaise des Ptroles to ensure access to that companys reserves in Iraq. While WWI raised similar concerns for the U.S. about securing oil supplies, unlike the U.K. and France it did not employ state ownership to address the problem. In the U.S. context, with a large number of oil companies at the time, this option would have been prohibitively expensive.

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Moreover, given the size and ownership structure, there was little reason to believe that U.S. companies could be bought out by foreign interests. What the U.S. did do, however, was to change its general policy of promoting overseas expansion of U.S. corporations to focus specifically on the oil industry. Such strategic considerations were reflected in the U.S. governments dealings with Mexico and Iraq in the interwar period and with Iran in the early 1950s (Bromley, 1991; Schaffer, 1983). The most recent manifestation of such strategic considerations was, of course, the 1991 Gulf War. Political influence. Another factor that contributed to transnationalization was the ability of corporate leaders to assert influence, both directly on foreign officials (to allow foreign investment under favourable conditions) and indirectly through home government officials. The ability of corporate leaders to exercise influence derives in part from the oligopolistic structure of the industry and large size of individual firms (which provide industry leaders with large amounts of resources to lobby government). In the case of home governments, the economic and strategic importance of these industries may also make government officials and administrators particularly receptive to industry concerns and provide opportunities for contact. The actual channels through which political influence can and has been exercised are varied. Early on channels tended to be more informal, based upon personal contact. Senior officials often had contacts at the highest level of government. One of Standard Oil president Walter Teagles poker buddies was President Harding. Also counted among Teagles friends was President Coolidge, who upon leaving office was invited by Teagle to head the American Petroleum Institute (Sampson, 1984). Another important method that emerged for firms to assert influence with respect to their foreign interests involved industry officials themselves becoming engaged in politics.4 Again, the Rockefeller interests in particular were quite prominent in this regard. Between the presidencies of Harry Truman and Ronald Reagan, some eight secretaries of state were closely con-

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Darryl Reed Starting in the 1980s, however, democratic revolutions have been sweeping the developing world (as well as former state socialist countries). In Asia, democratic change first came to the Philippines and South Korea, then more recently to Indonesia. In Latin America, Argentina and Brazil, and later Chile, rid themselves of brutal military regimes. In South Africa, a long popular struggle finally brought an end to apartheid and ushered in democratic reforms. Though the process of democratization is not complete and many countries (e.g., Pakistan, Nigeria) have lapsed into authoritarian rule, the victories have been significant. The impact has been particularly great at the level of guaranteeing some minimal level of civil and political rights. It is less clear, however, whether processes of democratization have been very effective with respect to providing the people of developing countries (and their governments) any real self-determination in terms of generating development strategies. It could be argued, as discussed below, that processes of economic globalization (which have overlapped in time with the recent wave of democratization) have largely undermined the public policy autonomy of developing countries. This lack of opportunity for self-determination, critics would note, pertains not only at the national level, but also among particularly vulnerable population groups (e.g., indigenous groups and other ethnic/racial minorities) at local levels, where its consequences can be even more devastating (Hadenius, 1997; Rimanelli, 1999).

nected with Rockefeller interests (Schaffer, 1983). Over the years, while personal contacts and revolving door practices have remained important,5 the exercise of influence has become more formalized (e.g., through industry officials serving as government consultants or witnesses) and sophisticated (e.g., the use of citizen front groups to lobby politicians, the financing of think takes and research projects that provide government officials with information on issues related to industry concerns, etc.). 3. The changing environment of resource 3. extraction Over the last two decades or so a variety of forces have been changing the environment in which resources extraction industries operate in developing countries. These changes have exerted pressures in different directions, providing both new opportunities for resource extraction industries and subjecting them to increased scrutiny. In what follows we examine some of major changes that have occurred. Processes of political democratization One of the major developments involves an increase in democratically elected governments in developing countries. In the immediate postWWII period there was initial optimism about the prospects for democracy (and development) in many of the newly-independent countries of African and Asia. These hopes suffered serious setbacks, however, as many of the former colonial territories either failed to achieve democratic government or quickly saw their democratic states succumb to military rulers. Among the few countries that were able to sustain democratic governments, the nature of the democracy in question was frequently less than robust. The situation was similar in Latin America and the Caribbean. Although most of the major countries of the region had achieved formal independence much earlier, few were able to sustain uninterrupted democratic rule throughout the post-war period, while exceptions like Mexico, were characterized by one-party states.

Processes of economic globalization While increased political democracy is clearly welcomed in developing countries, it is not clear that it is being accompanied by any significant increase in the ability of countries to effectively regulate corporate activities and determine their own development fate. The reason for this relates to a variety of structural changes that are commonly lumped together under the term globalization. One such area of structural change has involved technological advances (e.g., transportation, telecommunications, etc.) and organizational developments in firms (e.g., out-

Resource Extraction Industries in Developing Countries sourcing, JIT, etc.) that have facilitated the transnationalization of production and finance. These changes have been conceptualized as a shift from a Fordist to post-Fordist system of production (Lipietz, 1987). A second key area of change has involve processes of economic liberalization (e.g., cutbacks in government spending, privatization, etc.) and deregulation (e.g., of financial markets) in individual states. These changes have been characterized by Jessop (1994) as a shift from a Keynesian welfare state to a Schumpeterian workfare state. A third area structural changes involves reforms in the international economy (e.g., trade and investment liberalization), changes which might be characterized as a shift from a liberal international to a neo-liberal global economy (Cox, 1987). These processes of globalization (combined with problems relating to previous development efforts, including the imposition of structural adjustment programs by international financial institutions) have led to a shift from interventionist to more market-based development strategies. Under this new regime, developing countries are not only liberalizing trade, but they are liberalizing foreign investment (including allowing new forms of joint ventures) and also privatizing nationalized firms. Moreover, in an effort to attract foreign investment, they are increasingly being forced by competition by other developing countries to engage in regulatory bargaining (e.g., offering tax breaks, concession in environmental regulation, etc.). The overall result, critics argue, is a loss of public policy autonomy for developing countries and an international race to the bottom. (Strange, 1996) From the perspective of TNCs liberalizing reforms are obviously very attractive. They imply reduced barriers to entry, decreased risk and new investment opportunities, both through greenfield activities and mergers and acquisitions (especially as countries privatize state enterprises). Indications of the impact of economic liberalization are perhaps most evident in resource sectors such as mining. Since the mid 1980s there has not only been an increase in investments in this sector in developing countries, but a significant shift from developed countries to

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developing countries, most notably towards Latin America (Otto, 1998). Major trade agreements such as APEC have the liberalization of the mining industry as a high priority objective. For their part, Asian countries have recently been re-regulating the mining industry in an effort to attract foreign capital (Naito et al., 1998). African countries too have been liberalizing their mining policies since the 1980s, in large part due to direct pressures from international financial institutions. By 1995, some 35 African countries had amended their mining regulations to make them more attractive to foreign investors (African Agenda, 1997). As a result of such changes, between 1991 and 1997, exploration investments expanded 6 times in Latin America, quadrupled in the Pacific region, and doubled in Africa (Drillbits and Tailings, 1998)

Multilateral initiatives for sustainable development Another key change that has been influencing the environment of resource extraction industries has involved increased multilateral action on issues related to the environment and development, which have commonly been discussed together in recent years under the banner of sustainable development. Three key events are linked to the development and diversification of the notion of sustainable development. The first of these was the publication of the World Conservation Strategy (WCS) in 1980 (IUCN, 1980). Based upon a discourse dating back to the early 1970s, this publication was primarily responsible for introducing the concept of sustainable development. The second major event was the publication of the report of the World Commission on Environment and Development. More commonly known as the Brundtland Report- after the head of the Commission, former Norwegian Prime Minister Gro Harlem Brundtland this document has provided the most widely cited definition of sustainable development development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (WCED, 1987, p. 43) The third key development was the United Nations Conference on

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Darryl Reed developing world. Historically it has been the North that has received the benefits of growth and the North has proven unwilling to share such benefits in sufficient proportion to meet the basic needs of the South. For this reason the South needs to grow. Generally, however, what is required for sustainability is a redistribution in the rates of growth (and consumption) between North and South. This requires increased control by developing countries over their resources and structural change in the global economy, including more stringent international regulation. For its part, the Rio conference might be characterized as a growth-centered approach to sustainable development.7 While the Rio conference, like the WCED, seems to give a priority to development over sustainability, its understanding of development differs from the WCED. Whereas the latter placed an emphasis on meeting basic needs and saw increased equity as the key to promoting development, in the Rio conference development is understood more exclusively in terms of growth (and the need to maintain growth levels in both developing and developed countries), while questions of equity are largely ignored. The priority of growth is also reflected in Rios treatment of major environmental issues. The approach to preserving bio-diversity and ecosystems, for example, seems to focus on maintaining small pristine areas (and the maintenance of the gene pool through the collection of specimens to be preserved in laboratory environments), while allowing most of the environment to be opened up for commercial development (with trade and investment agreements guaranteeing Northern countries access to Southern resources). Similarly, efforts to limit environmental degradation are subordinated to economic development through the adoption of voluntary multilateral agreements (e.g., the Kyoto agreement) and a reliance on self-regulation by business (Kirby et al., 1995). Clearly, as REIs have come to adopt the language of sustainable development, they have favoured this latter growth-centered approach that was reflected in the Rio conference.

Environment and Development (UNCED) in 1992. More commonly known as the Earth Summit or Rio after the host city this event, which was the largest ever meeting of heads of states in the world, gave unprecedented publicity to the issues of the environment and development and popularized the term sustainable development to such an extent that its use is now de rigeur among NGOs, governmental bodies and the private sector. The concept of sustainable development, like most popular ideas, is contested and a range of incompatible conceptions (with widely differing public policy implications) vie for dominance. On the basis of the three events noted above, a very loose categorization of approaches can be offered.6 The position of the WCS might be best characterized as a conservation-centered approach to sustainable development. The WCS is primarily concerned with issues related to the sustenance of ecosystems and is generally foreboding in its tenor, presenting a conservation or disaster scenario. Here environmental concerns take precedence over traditional approaches to development (e.g., industrialization as a method of raising living standards), while the conception of development that is advocated primarily involves small scale/subsistence projects that draw upon traditional knowledge. This is a constrained approach to development, in a sense, for the means to promote development are conceived primarily in terms of their ability to contribute to the primary goal of conservation (Adams, 1990). The position of the WCED, by contrast, might be considered an equity-centered approach. The WCED begins by arguing that a series of crises (developmental, environmental and global insecurity) threaten the world and, in particular, developing countries. While a number of elements are posited as essential to dealing with this series of crises, the key is increased equity internationally. The approach of the WCED is decidedly human-centered. While it is concerned with conserving the environment, the greatest emphasis is placed upon meeting the basic needs of people in the developing world (including future generations). Guided by this end, the WCED is not opposed to growth, at least for the

Resource Extraction Industries in Developing Countries Civil society activity There has long been much public scepticism about the appropriateness of the practices of REIs, going all the way back to John D. Rockefeller and Standard Oil. Generally, this concern has remained diffuse and, as a result, has had little effect on corporate activities or practices. Starting in the 1960s, however, there was a significant rise in organized opposition to perceived irresponsible corporate activity, both generally and with respect to REI. In the last decade or so, as Kapelus notes in his article in this volume, there has been a large surge in not only Western NGOs, but also local civil society organizations in developing countries. This increased activism reflects renewed public concern about a lack of corporate responsibility. Individual events and the activities of individual firms have played a major role in rallying opposition to corporate activities. The execution of Ken Saro Wiwa by the military government in Nigerian, for example, is commonly cited as a key event that galvanized public opinion (Knott, 1999). It is also the case, though, that this new upsurge in activity represents a response to the broader processes of globalization (as illustrated by the protests that have accompanied all major international economic meetings since Seattle). Public concern about the activities of REIs is being expressed through a wide range of civil society organizations including development NGOs, environmental groups (e.g., Friends of the Earth, Environmental Defense Fund), human rights organizations (e.g., Amnesty International, Human Rights Watch), affected groups in developing countries (e.g., MOSOP), progressive businesses (e.g., the Body Shop), shareholder groups (e.g., BHP Shareholders for Social Responsibility) and corporate watchdog organizations (e.g., Multinational Monitor), including a number specifically dedicated to resource extraction industries such as mining (e.g., Mining Watch Canada, Mineral Policy Institute, Project Underground, Mining Impact Coalition, etc.). Such organizations may engage in a wide variety of activities designed to force REIs to change their policies and practices including, among others: 1) publicly criticizing irresponsible

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activities, e.g., Anita Roddicks criticism of Shell (Curtis, 1999); 2) disrupting the activities of companies; 3) initiating legal processes, e.g., to stop specific activities, to get compensation for damages, etc.; 4) boycotting company projects; 5) encouraging shareholder activism, and; 6) lobbying governments to penalize corporations or restrict the activities, e.g., recent efforts taken against Unocal because of their operations in Burma (Hood and Penniman, 1998).8 While most NGOs remain suspicious of REIs, their tactics are not always confrontational or oppositional (Knott, 1998). As noted above, some NGOs seek to work closely with corporations and local communities to help better, ensure more responsible behaviour. Civil society groups and local communities have achieved a number of individual victories in the form of shutting down operations or preventing them from being undertaken in the first place. One frequently cited example was the closing of Ok Tedi Mine on Bougainville Island in Papua New Guinea (Clark and Cook Clarke, 1999). More generally, however, the success of such groups has come in the form of increasing public consciousness about issues and altering the manner in which new projects are approved and undertaken. This is most notable, as the other articles in this volume attest, in the increased attention by REIs to environmental issues and the concerns of local communities.

4. Resource extraction industries and 4. development A relatively long history of involvement of REIs in developing countries raises an obvious question, viz., whether their presence has contributed to development. Development, of course, is a contested notion. Early interest in development tended to focus primarily on economic factors, in particular rates of growth and industrialization. Over the last couple of decades, however, concepts such as human development and sustainable development have served to broaden the common understanding of development to include political, socio-cultural, and environmental concerns. In

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Darryl Reed While it is not possible to provide an extended account of the contribution of REIs to growth and development, a few key historical trends can be noted. First, early on in the century REIs seem to have been in a very strong position to promote their own interests. In the case of colonial territories, such firms typically had the support of their home government. In Latin America, where most countries were independent, REIs were also in a relatively strong position vis--vis domestic governments. In the oil industry, for example, foreign firms tended to dominate operations in part due to the level of risk involved and start-up costs which served as effective deterrents to local entrepreneurs. During this period they enjoyed very low tax rates, relatively low labour costs and earned high profits. There were of course variations across countries due to specific historical circumstances. Key determinants of higher profits rates apart from the nature of supplies, demand, geography included the ability of local elites to extract rents and the ability of labour to demand high wages (as well as a lack of competition from domestic entrepreneurs). For REIs, the most favourable circumstances for controlling such costs tended to be some form of strongman rule. Such a political arrangement typically enabled them to get more extensive concessions and control labour costs. Critics, of course, will argue that these are the conditions that also tend to undermine the development impact of resource extraction industries (Philip, 1982). Second, later in the century, the balance of power shifted to some extent between firms and developing countries. In Latin America, for example, several countries were able to nationalize oil and mining industries by the 1930s. A further wave of nationalization would occur in the post-war period, not only in Latin America, but in a great many former colonies in Africa and Asia. The extent to which the populations of developing countries benefited from nationalization and the extractions and processing of resources generally was, again, conditioned by a range of factors (viz., demographics, organizational capacities and expertise of government, etc.), most notably perhaps, the make-up of the political forces within the country. While more

what follows, the impact of REIs with respect to each of these different aspects of development is examined in turn.

Economic development Historically, the notion of economic development has been closely associated with processes of industrialization and the achievement of sustained levels of growth. There is a branch of economics that attempts to examine the contribution of resources industries to growth and development, viz., resource economics. While this field has frequently noted certain anomalies in terms of resource industries and growth (e.g., the so-called Dutch disease), its ability to provide a cogent account of such phenomenon and the role of REIs in development generally has been subject to much criticism (see, for example, Mikesell, 1997). There are several basic problems in understanding the role of REIs in promoting growth and development (which fields like resources economics have typically not problematized). The first problem relates to the fact that REIs have been operating in many developing countries for nearly a century or more. Over this time, there have been dramatic changes in the circumstances of developing countries, most notably perhaps in terms of political organization. Outside of Latin America, a vast majority of developing countries were under colonial rule for the first half of the 20th century, while in the post-colonial period they were frequently subjected to internal conflicts and nondemocratic governments. In Latin America, while most of the major countries were independent throughout the 20th century, military coups and dictatorships have been interspersed with democratic governments over the course of the century. A second problem with evaluating the role of REIs relates to differences across countries, viz., geo-political significance, economic structure (e.g., subsistence agricultural, plantations, ranching, manufacturing), demographics (e.g., ethnic and racial diversity), etc. These differences can dramatically affect the strategies and prospects of firms (in ways that traditional economic analysis does not capture).

Resource Extraction Industries in Developing Countries populist governments tended to distribute wealth more widely (e.g., Venezuela), many authoritarian governments were able to limit the gains to a small coterie of supporters (e.g., Mobutu in Zaire) (Philip, 1982; Wrong, 2001). Third, the nationalization of REIs frequently, though not always, occurred in the larger context of an interventionist development strategy (import substituting industrialization or ISI) designed to accelerate the process of industrialization. It is generally acknowledged that the results of the ISI strategy in developing countries have been disappointing. While in some instances this strategy has contributed to the development of large industrial conglomerates, these firms have largely remained uncompetitive internationally, relying for their success on government subsidies and protection from foreign competition. Nowhere in the developing world is there any clear example of REIs providing an effective spur to development. While a few gulf states have become wealthy on the basis of their oil reserves, they cannot readily be called developed in any conventional understanding of the term (and as a result, some will argue, they are now beginning to face serious problems). (McCrary, 1998) Indeed, the most successful cases of development, the so-called newly industrializing countries (NICs) of East Asia were relatively resource poor. Explanations for the failure of the ISI strategy and, more specifically the limited role of REIs in playing a more dynamic role in development, are complex and contested (Banuri, 1991; Ascher, 1999). What is clear, however, is the general attitude and approach that REIs took in the face of efforts by developing countries to introduce greater control over their resources. Typically such companies have operated in ways often morally questionable ways that were clearly designed to frustrate the development plans of developing countries. The reason why is relatively simple to understand. A key component of traditional development strategies has been to exert control over ones natural resources and to force foreign companies involved in the extraction (and processing) to pay more dearly (so that more investments could be made in human resources and industrial development). To this

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end a number of standard practices were implemented, e.g., nationalizing reserves, increasing taxes, requiring further stages of processing to be done in the host country, limiting equity participation in joint ventures, etc. Such measures are resisted by corporations because they increase costs and eat into their profits. A commonly cited instance of such a strategy is the bauxite industry in Jamaica. Bauxite was discovered in Jamaica in 1942 and by the early 1960s all the major aluminum companies had operations there. In an effort to increase the development impact of the industry, the Manley government, which was elected in 1972, raised taxes on bauxite (which most of the aluminum companies had previously avoided paying through the creative use of transfer prices) and announced its intention of becoming a 51% owner in all mining operations. In response, the aluminum companies abandoned Jamaica for more favourable investment climates (in Africa and Australia). The response of the aluminum companies, while effective from an industry point of view, was horrendous from the perspective of Jamaican efforts to promote development and the socio-economic situation of ordinary Jamaicans (Girvan, 1976; George, 1989; Velasquez, 1995). REIs, of course, do not only affect the macroeconomy. They have a very tangible impact on the economic development of local communities. Although historically not a great deal of attention has been paid in the literature to the effects of these industries on local communities, especially the negative effects, this situation has changed dramatically in recent years, primarily due to the work of NGOs, as Kapelus discusses in his article. In addition to the more positive effects of employment generation and spin-off activities, which firms tend to highlight, there are also a range of potential negative economic impacts associated with these industries. Primary among these are the dispossession of local inhabitants from their land (e.g., due to formal and informal expropriation of lands, land claim disputes) and the degradation of lands and related resources that reduce their productive capacity (e.g., pollution of streams and rivers, erosion due to deforestation, etc.). (See, for example, Sangaji, 2000.)

210 Political development

Darryl Reed countries as being in the best interests of local people (e.g., by providing employment) and providing leverage for reforms (the strategy of constructive engagement), there are obvious examples where such justifications do not seem appropriate (e.g., Mobutus Zaire). Even in instances where such claims might appear to have been more credible (e.g., South Africa in the 1980s), they were frequently not supported by local populations (e.g., the ANC attributes a large part of its success in bringing apartheid to an end to the economic pressure put on the white South African government form grassroots pressures and foreign governments) (Mandela, 1993). Such situations continue to exist today. While the case of Myanmar (Burma) has probably received the most publicity, there are many other cases where the operation of resource extraction industries support the continuation of non-democratic governments rather than lead to democratic reforms, most notably perhaps, the oil producing gulf states of Saudi Arabia, Kuwait, Bahrain, etc. (For their part, most Western powers have shown little interest in promoting democratic reform and have largely ignored reports of human rights abuses in such countries unless it appears to be in their strategic or economic interests to take them up.) A closely related concern involves decisions by firms to operate in countries that, while formally democratic, contain conflict zones. There are several issues here. One concerns the actual legitimacy of such governments and the question of whether the firms decision to operate is helping to perpetuate a situation of dubious political legitimacy. Another concern relates to the (civil and political) rights of individuals and groups (e.g., labour unions, local communities) opposed to government policy and the operations of the firm. A prime example of this is the current situation in Colombia, a country that accounts for more than half of the deaths of labour leaders in the entire world (the vast majority of whom are associated with unions in the oil industry). A key issue here is how the security concerns of firms give rise to a situation of terror. This can occur both through the direct activities of firms (e.g., oil companies in Colombia have been accused of having close links with paramilitary

Historically, REIs have acted in ways that have had adverse effects on political development. Perhaps, the most blatant cases involve the direct support by firms for the overthrow of legitimate governments (which typically occurs after such governments have asserted their sovereignty over their natural resources). One clear example of this involves the decision by the government of Mohammad Mossadegh in Iran to nationalize the holdings of British Petroleum 1951. In response to this move, BP was first able to win assurances from the other major oil companies that they would not buy oil from Iran, a strategy that placed tremendous economic pressure on the Mossadegh government to reconsider its policy. When this did not have the desired effect, the British government joined by the U.S. government (which had been reluctant to take any action, in part due to its own interests in breaking up the British monopoly in Iran) was persuaded to intervene in the matter. The result was strong support for a coup in 1953 that led to the overthrow of Mossadegh, the return of the Shah and the (re-)entry of foreign oil companies into Iran (Sampson, 1984). A similar case involves the democratically elected government of Salvador Allende in Chile in 1973, which fell victim to a CIA backed coup in 1973 after nationalizing foreign copper holdings, of which the U.S. companies Anaconda and Kennecott had the largest stake (Kaufman, 1988). In both these instances, industry actors found sympathetic ears within their home governments in their efforts to promote their economic interests over the will of the people of the countries in question. While these are the most overt cases of corporate activity undermining political development, it could be argued that decisions by corporations to operate in countries without democratic governments are equally as damaging, if not as dramatic. At issue here is the degree to which the operations of corporations serve to prop up non-democratic regimes and inhibit the emergence of democratic governance (and respect for basic civil and political rights). While corporations and their home governments often justify TNC operations in non-democratic

Resource Extraction Industries in Developing Countries organizations, including employing members of these organizations for security purposes) and through the government and military working with paramilitary groups to help protect the investments of foreign oil firms (Ismi, 2000). A similar situation, critics claim, exists in a number of African countries (Ford, 2000). Another important issue relating to political development, beyond the questions of democratic institutions at the national level and the securing of civil and political rights, is local autonomy. This problem is particularly salient for indigenous groups (and other ethnic minorities) who typically have had no say in how nations states were formed (e.g., the determination of boundaries, the nature of the political institutions) and little ability to represent their interests once states were formed. Many such groups (e.g., the Uwa in Colombia and Ecuador, the Ogoni in Nigeria, various groups in Sudan) have been directly (and adversely) affected by resource extraction industries without having any opportunity to effectively contribute to the policies that determine the conditions under which these industries carry out their activities.

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Environmental and socio-cultural impact The nature of REIs necessarily involves alterations to the environment and various forms of displacement of local populations. With respect to the environment, resource extraction industries can have wide-ranging (adverse) effects. Primary among these are: 1) the degradation of ecosystems through processes of extraction, refining and transportation, e.g., oil spills, cyanide spills, acid mine drainage, etc.; 2) degradation of the environment through the use of products of these industries such as oil, e.g., smog, ozone depletion; 3) changes in ecosystems, viz., flooding, deforestation, desertification and; 4) the loss of biodiversity.9 While such negative impact occurs in both developed and developing countries, the latter tend to be more vulnerable due to a variety of factors that may differ when firms operate in these different contexts. Such factors include regulations in effect covering extraction and refining processes (e.g., extraction methods,

reclamation standards, etc.), the ability and will of governments to enforce such regulations, the ability of local communities to participate in decision-making, other pressures on firms (e.g., boycotts, negative publicity, etc.), etc. Not infrequently, for example, it is the case that firms cause environmental damage through methods that are perfectly legal in the host (developing) country in which they are operating, but which would be illegal in their home (developed) country.10 Such adverse environmental impact and the economic effects noted above can (individually and in concert) lead to adverse social and cultural effects on local communities. In the social realm, the direct and indirect effects of resource extraction industries may include such problems as increased health problems, the break-up of local communities (through forced removal, degradation of traditional livelihood opportunities, etc.), increased ethnic and racial tension (as populations move to and from resource extraction sites), etc. as attested to by the papers in this issue by Idahosa and, Boele, Fabig and Wheeler. Indigenous groups and ethnic minorities tend to suffer disproportionately from such effects (Clarke and Cook Clarke, 1999). In the realm of culture, adverse effects can occur at either of two levels. At one level, as business has become increasingly global (especially in its marketing strategies), there has been a general trend for Western culture to commercialize and displace local cultures in developing countries (e.g., fashion, music, cinema, literature, language, etc.). While REIs may contribute to this broader phenomenon, their activities are even more likely to contribute to another trend. This is the absorption of indigenous groups and other ethnic minorities into a national or dominant culture within the country (involving the loss of language, traditional lifestyles, systems of meaning, etc.) (Project Underground, 2000a).

5. The normative problematic of 5. operating in developing countries The circumstances under which REIs and other TNCs operate in developing countries can vary

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Darryl Reed developing countries (vis--vis developed countries) it is frequently the case that civil and political rights are either not adequately established in law, are not effectively upheld through the legal system and/or cannot be effectively exercised by a large percentage of the population due to other causes (poverty, illiteracy, etc.). (Amnesty International, 2000) A second area of difference relates to political-administrative institutions and practices. In developing countries the design of the institutions (vis--vis those in developed countries) may not adequately conform to defensible democratic principles (viz., the principles of the constitutional state). The extreme case, of course is where there are no democratic institutions or formal democratic processes. However, even when the extreme case does not hold, these political-administrative institutions may be riddled with corruption (Transparency International, 2000). Such corruption ranging from grease payments for processing applications to endemic corruption in bidding processes and a complete monetarization of the electoral system tends to increase the ability of business to exert influence (vis--vis ordinary citizens and other groups such as organized labour, environmentalists, etc.) as they have greater resources to employ. Third, the level of civil society activity, the density of civil society organizations and the resources to which such organizations have access may be considerably less in developing countries. Finally, developing countries, in part due to the circumstances above and in part due to less economic clout, are generally not as able to exert to influence in international affairs, most notably perhaps when it comes to determining the form of multilateral (economic) agreements. Third, with respect to the socio-cultural realm, developing countries typically are less well-off in terms of a number of important social areas, viz., education and access to information (e.g., lower literacy rates, lower levels of primary and secondary education, less access to the information highway, etc.), health (e.g., higher infant mortality rates, lower life expectancy, less access to safe drinking water, etc.), food and shelter (chronic under nourishment, famine, etc.), gender equality (e.g., lower labour force partic-

dramatically from those that hold in developed countries. This fact raises a number of normative questions in relationship to the practices and responsibilities of REIs. In what follows, we will first note some key differences and then go onto examine the basic normative problematic. In the next section we focus more specifically on issues.

Differing circumstances When operating in developing countries, corporations may face significantly different environments. These differences can be organized under the concepts of economic, political and socio-cultural realms. Beginning with the economic realm, two basic differences tend to distinguish developing economies from developed economies. First, markets in developing countries tend to be less established and competitive than in developed countries. This holds not only for markets in consumer and producer goods, but also financial markets as well as markets in executive personnel and labour markets generally. The less competitive nature of markets gets reflected in such indicators as higher levels of un(der)employment, lower levels of shareholdings, greater dominance of family firms, etc. (Claessens et al., 1999) Second, and not unrelated to the previous point, developing countries tend to have different economic structures than developed economies (Martinussen, 1997; Singh, 2000). More specifically, whereas the economies of developed countries have been industrial in nature, the economies of developing countries are more resource-based economies (including agriculture). In many instances, (governments of) developing countries may be largely dependent upon a single resource industry (e.g., Nigeria, where the government receives about 97 percent of its total revenue from jointventures in oil and gas), a condition that makes them extremely susceptible to influence by the industry in question (Federal Office of Statistics, 1997). Second, with relation to the political realm, four basic areas of difference may distinguish developing countries from developed nations. The first of these is civil and political rights. In

Resource Extraction Industries in Developing Countries ipation rates for women, less access to education, etc.) (UNDP, 2000). In addition, such countries (especially the poor within them) are more susceptible to the effects of (natural and man-made) disasters as both individuals and governments have fewer resources to help anticipate and respond to the results of such events. In many developing countries, there are also significant populations of indigenous groups, which historically have not been integrated into the market economy and have had only limited contact with dominant cultures. As resource extraction (and other) industries penetrate into their areas, such groups are not only frequently unable to effectively represent their interests through the political process, but risk loss of the break-up of their communities and loss of their traditional lifestyle and language (and absorption into the dominant culture).

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The normative problematic It is commonly, though not universally, held in ethics that differing circumstances can alter the responsibilities that we have. This position is expressed, for example, in the Kew Gardens principle (Simon et al., 1972), which states that our responsibility to respond to the need of others depends upon such conditions as the urgency of their state, our proximity, our capabilities and the likelihood of others (not) responding. Principles like Kew Gardens were designed primarily with a view to the situation of individuals responding to the needs of other individuals. While the same basic notion (viz., that responsibilities vary with circumstances) may hold for corporate actors, the complexity of modern societies and the roles of institutions are important to keep in mind. In complex modern societies, we rely heavily on institutional measures to promote desired social outcomes. Two sets of institutions are most important. First, we rely upon the discipline of markets. Under ideal conditions, the functioning of markets harmonizes the pursuit of profit by firms with larger social goods, e.g., allocative efficiency (understood as Pareto Optimality), innovation, growth. Second, we rely upon the

institutions of political democracy to help us determine and promote policies that, in our considered opinion, will best reflect our societal values. Over the course of the 20th century this meant the institutionalization of not only basic civil and political rights, but also, to varying degrees, social and cultural rights (e.g., access to health care, education, disability allowances, etc.) as embodied in the policies of the welfare state. When these two sets of institutions function relatively effectively, then they relieve organizations like corporations (and the individuals within them) of a great deal of responsibility in terms of determining what appropriate standards of business behaviour are (e.g., what constitutes a fair wage, what constitutes fair competition, etc.). They also relieve organizations of direct responsibilities to come to the aid of others (e.g., rather than organizations directly assisting the indigent, the state provides for them through social welfare programs which are funded through the tax system). In developing countries, as noted above, it is frequently the case that neither markets or the institutions of political democracy function in ways that even nearly approximate the ideal. Under these circumstances, when firms seek to maximize shareholder value, it does not contribute to a common good. Moreover, insofar as the institutions and practices of political democracy are deficient, government may not develop and enforce legislation that encourages responsible business practices, effectively protects the rights of its citizens or meets pressing needs of its people. One of the most basic normative questions that arises, then, for corporations operating in developing countries, is whether and to what extent deficiencies in markets and the institutions of political democracy impose greater responsibilities upon them to assist the needy, to develop their own standards of conduct, etc. This broad question sets the context for the following discussion of individual issues relating to the activities of REIs.

214 6. Normative issues, industry practices 6. and on-going concerns

Darryl Reed ensure that their business runs in accord with the logic of competitive markets (e.g., not to engage in collusion and other non-competitive practices, not generate negative externalities, etc.). The second is whether corporations have any obligation to go beyond this and take the development impact of their operations into account (e.g., how capital-labour ratios impact employment generation) (Reed, 2000). Industry practices. REIs have become increasingly aware of the growing public concern about their operations in recent years and have felt a strong need to respond. One indication of the degree of sensitivity of industry officials is expressed in their adoption of formal codes and policies. Firms in these industries are more likely to have a formal written code of ethics and social responsibility (Reichert et al., 2000). These codes and policies may, in principle, be directed at any of the three levels noted above. At the level of the internal constituencies of the firm, many if not most REIs do claim to pay competitive wages that are above the local minimum wage. In addition, it has become common for many firms to adopt independent standards or the standards of their home country with respect to issues of health and safety. Another notable development is that many companies are realizing the need to develop management programs to help ensure more effective implementation of codes and standards (see, for example, Oil & Gas Journal, 1998). At the level of local communities, virtually all large firms have tried to establish better relationships by developing a multifaceted program under the concept of good neighbour policies. The elements of such an approach that relate most directly to economic development include employing local inhabitants in projects, using local suppliers, support for the development of new entrepreneurs, provision of infrastructure, etc. For their part, international financial institutions like the World Bank, encourage firms in these sectors to undertake local economic development (LED) projects.11 At the level of macroeconomic development, there has been an increased emphasis by REIs on transparency in recent years (discussed below). To

REIs have historically operated in morally questionable ways that have resulted in a negative development impact. In recent years, as noted above, there has been increased public pressure on these industries to operate in more socially responsible ways. For their part, recognizing that it pays to be proactive, resource extraction industries have responded. At issue, however, is the nature of their response(s). In addition to questions about the appropriateness or adequacy of individual policies and practices that firms adopt, there is the larger question of the overarching public policy approach (viz., self-regulation) that provides the context in which these individual tactics are employed. In this section, we identify some of the major normative issues involving REIs and their development impact, we examine the response of REIs to these issues and we discuss some on-going concerns that question whether these responses represent an adequate and effective solution to the issues in question.

Economic development Normative issues. Historically, REIs have operated in a variety of (morally questionable) ways that have (adversely) affected economic development. For our concerns, we can distinguish three primary levels at which issues arise. The first of these involves the internal policies of corporations and the welfare of employees (and their families). Key normative concerns here include appropriate wage levels, health and safety standards, etc. A second level is that of local communities. Primarily what is at issue here is whether local communities enjoy an appropriate balance of benefits (e.g., employment, spin-off activities, tax-revenue, etc.) and costs, i.e., negative impact on livelihood (due to pollution, deforestation and other environmental impacts, disputed land claims, etc.) and associated sociocultural and political problems noted below. The third level is macro-economic development. There are two basic issues here. The first is the level of responsibility that corporations have to

Resource Extraction Industries in Developing Countries the extent that initiatives are directed inward towards the companys practices and not only outward towards governments in developing countries, they might have a positive impact on the macro-economy, not only by cutting down on rent-seeking behaviour by government officials, but also by ensuring more competitive practices. It is not clear, however, that commitments to transparency have in any way reduced such questionable practices by REIs as regulatory bargaining. What is also worrisome, especially in industries that have historically engaged in collusion and other forms of non-competitive practices,12 is the recent spate of mergers and acquisitions. This has not only involved REIs buying up or into formerly public firms in developing countries, but mergers and acquisitions amongst themselves. Prime examples of this include the merger of Exxon and Mobil in 1998, the merger of British Petroleum and AMOCO in 1998, and BP-AMOCOs subsequent purchase of ARCO in 2000. On-going concerns. At the levels of the firm, local communities and the national economy, the most basic on-going concern is whether employees, local communities and the country as a whole receive an appropriate share of the benefits from the activities of the resource extraction industries (through employment, economic spin-off activities, LED programs, taxation by local and national governments, etc.). Calculating what constitutes an appropriate level of benefits is dependent upon some (implicit or explicit) theory of distributive justice. The underlying question, of course, is who should determine the criteria of distributive justice. Under (neo-)liberal economic policy regimes, it is primarily the market that determines what fair value is. Standard justifications of the use of the market as an instrument of distributive justice, however, imply that a wide range of conditions hold, e.g., markets that approach the norms of perfect competition, a fair initial allocation of resources (which raise questions of historic injustice), etc. (Buchanan, 1985) In the absence of such conditions, markets have to be supplemented by regulation (and redistribution) in order to ensure fair outcomes. In developing countries in an age

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of liberalization, governments are not in a position to effectively regulate (or redistribute) so as to ensure that actual market outcomes conform to ideal market (or other normative ideal) outcomes. As a result, the only way that the results of imperfect markets are likely to be adjusted is through the voluntary action of corporations (e.g., by paying more than subsubsistence minimum wages, by undertaking LED projects, etc.). What this means is that, in practice, it is corporations that determine the standards of distributive justice. This fact raises several concerns. Apart from the procedural question of whether it is corporations that should determine standards of distributive justice (discussed below), there is the obvious substantive question of whether the standards that corporations set are fair. Clearly, there are many individual examples (e.g., of wages, employment generation, taxes paid) that can be found that would strike most people (including many in the industry) as unfair. The more important question is probably whether the commonly cited best practices standards are fair. From a normative theoretical perspective, best standards seem to be dubious criteria (though in practice they may represent important minimal benchmarks). The manner in which such criteria are determined remains unclear, but would seem to reflect existing power relations (e.g., between firms and stakeholder groups) rather than sound normative theoretic justification, as indicated by the fact than many stakeholder groups question the fairness of best practices (Project Underground, 1998). A second basic concern that arises is whether best practice standards are likely to be followed by most firms (a point that relates not only to economic issues but also to environmental and social issues as well). Firms could be motivated to live up to such standards either out of pragmatic motivation (i.e., considerations about the effects on company performance operating through stakeholder pressure, public good will, etc.) or ethical motivation (i.e., it is the proper thing to do). Cragg et al. (1995), however, have effectively argued (with specific reference to the mining industry) that it is extremely unlikely that firms operating out of pragmatic (rather than

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Darryl Reed the risks involved in counting on reclamation to be done properly (e.g., how local communities are much more at risk than firms, which may actually benefit if they can avoid/reduce the costs of reclamation). The third key activity entails efforts by firms to cut back their operations and the demand for their (non-renewable) products, e.g., through encouraging recycling, investing in alternative (renewable) products (e.g., solar and wind power). Again, the basic issues here are the trade-offs between conservation and human wellbeing and the distribution of the costs and benefits (e.g., it may be energy industries which stand to lose the most in the development of low-cost, environmentally friendly energy sources). A basic question that runs through all these issues is the extent to which industries should go beyond the established legal requirements (both in terms of their activities and in reporting on their activities). Again, answers to these questions will potentially depend both upon the ethical theory one employs as well as the circumstances in effect (e.g., the lack of a legitimate government to establish appropriate standards). There is also a range of normative issues relating to the socio-cultural realms that arise. In terms of social issues, many questions can be phrased in terms of basic (social) rights (e.g., to education, to health care, etc.). At issue here is the degree to which individuals and local communities (in addition to those directly employed) participate in the wealth generated by projects. More specifically, the question to be raised is whether firms have any obligations to directly address such problems (especially when governments fail to adequately provide) and, if so, to what extent and under what circumstances (e.g., when they have a direct relationship with a local community, when the community are nonvoluntary stakeholders, etc.). Another key issue that arises relates to the distribution of goods and resources between communities, which can result in other social problems such as ethnic tensions. Again, a fundamental question here is whether corporations have specific responsibilities to address such issues that are generally indirect results of their activities (or whether this is entirely the responsibility of government). In the

ethical) motivation will act in a socially responsible fashion and live up to the standards that are formally espoused. Moreover, even when senior management is apparently well motivated and intent upon addressing problems, it can still be extremely difficult for them to get their subsidiaries to effectively implement and abide by the standards that the head office has set, as the paper by Boele, Fabig and Wheeler in this issue illustrates.

Environmental and socio-cultural impact Normative issues. There are a range of normative questions that arise in relation to the (potential) environmental and socio-cultural impact of the operations of resource extraction industries. With respect to environmental impact, there are two basic concerns that define the normative issues involved. One is the trade-off between conservation (understood as preserving, to as great an extent as possible, existing ecosystems and biodiversity) and human well-being (understood primarily in terms of consumption of material goods). The other is the distribution of the benefits and risks entailed in the operations of resource extraction industries. These questions can probably be most easily investigated by examining the three basic forms of activities in which resource extraction industries may engage. The first of these would be extraction and subsequent processing/refining activities. Here basic questions would include how the choice of methods (e.g., surface vs. underground mining, the use of toxic substances such as cyanide and mercury for extraction) influence both the balance between conservation and the short-term promotion of human ends (e.g., the destruction of ecosystems vs. increased productive capacity) and the distribution of benefit and risks (e.g., local communities suffering the brunt of risk and adverse effects from cyanide spills, while companies stand the most to gain in terms of decreased costs). With respect to the second activity, reclamation processes, the two key issues are the ability of such processes to justify or rectify the damage done to environment through extraction and the fairness of the distribution of

Resource Extraction Industries in Developing Countries realm of culture, the basic issue is the displacement and loss of local cultures (including lifestyle, language, systems of meaning, etc.). While the basic normative issue here is whether it is important to preserve local cultures, an increasingly small number of people will argue against this (at least publicly). As a result, the key practical questions are what are the most appropriate ways to preserve them, e.g., allowing them to remain isolated from dominant cultures, actively intervening to support them, commercializing them (e.g., as tourist attractions) and the extent to which these different options are compatible with the activities of resource extraction.13 Again, the underlying (political) question is who should decide the answers to these questions. In the absence of government legislation, these decisions frequently fall on firms, who obviously have interests in seeing resource extraction as compatible with preserving local cultures.14 Industry practices. Resource extraction industries are very cognizant of the need to address environmental and socio-cultural issues and have widely expressed this concern through the adoption of the triple bottom line framework (which addresses issues of financial, social and environmental performance). In terms of the environment, this awareness is also expressed by the fact that such industries are the most likely to have specific policies on the environment, especially as they relate to extraction/processing and reclamation activities (Reichert et al., 2000). There has also been a strong move by major players to adopt best practices or independent standards or codes of conduct established by industry groups (e.g., the ISO 14000 series, the Valdez principles)15 and to engage in more open reporting. Firms have been encouraged to move in these directions by international financial institutions (see the paper by Szablowski in this issue)16 and multilateral bodies17 as well as civil society groups. In terms of the latter, some firms have sought to work more closely with NGOs and local communities (e.g., through multi-stakeholder committees) in their efforts to assess the impact of the activities and develop more appropriate guidelines (Mining Watch Canada, 2001). In addition, research extraction

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industries have also been active in promoting research on the impact of their activities, both directly funding analysis of their operations and by providing funding to research institutes, e.g., International Association of Environment and Development (IIED, 2000). With respect to the question of promoting recycling and the development of alternative (renewable) energy, REIs have a mixed record. In the oil industry, for example, Shell has recently come out with a relatively strong statement on its commitment to move in the direction of renewable energy (Watts, 2001). Exxon-Mobil, by contrast, has been sharply criticized by NGOs for its failure to invest in renewable energy sources and is seen as a key source of influence behind the Bush administrations decision to abandon the Kyoto protocol (Drillbits and Tailings, 2001). With respect to social and cultural issues, as Kapelus argues in his paper in this issue, REIs have been forced to acknowledge an obligation to directly contribute to the well-being of local communities and to respect local cultures and values. These obligations are fulfilled through corporate social responsibility or good neighbour policies. Under this rubric, (large) firms spend millions of dollars to fund a wide variety of socio-cultural activities (e.g., health care, education, community development, sport, cultural programs, etc.), as discussed in several of the papers in this volume. Again, as noted above, industries are encouraged to adopt such policies by a range of actors (e.g., international financial institutions, multilateral bodies, business groups and NGOs) and frequently draw upon principles and policies that these actors have established. Ongoing concerns. Two closely related factors give rise to a range of concerns with respect to the environmental impact of REIs. The first of these is the appropriateness of the dominant conception of sustainable development that tends to underlie their practice and policies. The concern with this approach, which we have labelled growth-centered, is the way that it downplays two key matters, viz., conservation of ecosystems (which implies a need to cut back on resource extraction) and equity (which implies a need to

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Darryl Reed Under a self-regulatory regime that assumes a growth-centered approach to sustainability, local communities (and others) are dependent not only upon the competence of REIs (e.g., to effectively implement their policies so as to avoid toxic spills), but also upon their moral insight (as to what specific situations require) and moral commitment (to act in accord with appropriate norms even when this is in direct opposition to significant economic interests). The record of REIs in demonstrating such moral insight and commitment, however, is at best open to question and gives credibility to the charges of greenwashing that are frequently made against them (Beder, 1998; Tauli-Corpuz and Kennedy, 2001). In terms of social impact, a variety of concerns have been raised about the CSR programs of REIs. One fundamental question, which Kapelus notes in his article, is the appropriateness of the level of spending on CSR vis--vis profits generated. A second concern involves the priorities of spending and how they are determined. At issue here is both the extent to which local communities participate in determining spending priorities and who in the local community participates (e.g., traditional chiefs, business elites, grassroots organizations). Perhaps, the major concern, however, relates to the role of CSR programs in the overall development strategy of developing countries. At issue is whether such programs are serving to legitimize neo-liberal policies (including cuts in corporate taxes) at the national and international level and a reduction in the role of the state as a provider of social services. The obvious concern is that, while such programs may bring important benefits to local communities immediately surrounding extraction sites, they cannot be relied upon to provide a comprehensive program which provides sufficient levels and a full range of services (in an equitable manner) for an entire nation. With respect to cultural impact, as noted above a wide variety of factors contribute to threaten local cultures. While some of these factors operate in indirect and rather diffuse ways (e.g., the general marketization of social relations, penetration into markets by foreign cultural industries, etc.) and may be difficult to stop

evaluate how the benefits from and REIs are distributed). The second factor is the public policy approach that is used to regulate REIs. At the national level, programs of economic liberalization (and the perceived need by developing economies to attract foreign capital) have led to less stringent regulation in developing countries18 (in practice if not on the books) and a greater reliance on (voluntary) self-regulation by industry, including efficiency arguments.19 At the international level this approach consists of voluntary agreements that individual countries can choose to opt out of at any time (e.g., the U.S.s recent decision to opt out of the Kyoto accord). For their part, REIs have been major players in promoting a self-regulatory approach to international public policy operating through such bodies as the World Business Council for Sustainable Developments (WBCSD) Global Mining Initiative (GMI) and Business Action for Sustainable Development (BASD), a new joint venture of the International Chamber of Commerce and the WBCSD chaired by Sir Mark Moody-Stuart, the recently retired chairman of Royal Dutch/Shell. A primary goal of these bodies is to ensure that no binding international regulation will be imposed upon the mining (or other) industry at the upcoming World Summit on Sustainable Development (Rio+10) in South Africa in 2002. Through these vehicles, REIs (and other business interests) have been issuing reports (e.g., Sustainability Through the Market), running large advertising campaigns (e.g., the series of ten two-full-page ads run in the International Herald Tribune under the title The Business Case for Sustainable Development) and commissioning new projects (e.g., Mining, Minerals and Sustainable Development, which claims to be an independent process of participatory analysis aimed at identifying how mining and minerals can best contribute to the global transition to sustainable development) (Corporate Europe Observer, 2001). The basic concern with respect to the environment is that these two factors can combine to make populations (especially local communities) and the environment increasingly vulnerable.

Resource Extraction Industries in Developing Countries without placing severe (and often unwanted) restrictions on larger parts of the population, there are also factors which primarily affect specific groups and which could be addressed rather directly. Most notable in this regard is the impact that foreign companies, especially REIs, have when they operate in previously isolated territories inhabited by indigenous groups. The concern here is that such groups are not only frequently unable to comprehend the likely impact of such operation on their culture, but that even when they do, they are not able to effectively oppose such operations through the political process as such decisions are made by central governments. Such governments may favour the interests of REIs over indigenous groups for any number of reasons (e.g., potential rent-seeking behaviour, potential tax revenue, modernization ideology, etc.).

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Political development Normative issues. With respect to political development, two closely related concepts provide the parameters for normative questions, viz., (civil and political) rights and political democracy. With respect to the topic of rights, there are two basic issues. The first is whether firms should respect basic rights. At one level, this is an uncontroversial question as it is generally held that firms do have such a responsibility. Where controversy arises is with respect to the details of what respect for basic rights entails (e.g., what does respecting an employees right to association or free speech entail?). A second, more controversial question relating to rights is whether firms have any responsibility for the actions of others. The question, in effect, is whether, in situations where the firms operating in a country (or region) may tend to induce or provoke abuses of basic rights (e.g., the case of Colombia cited above), firms have any obligation to respond, e.g., to put pressure on potential rights abusers or people that may have influence over them (e.g., local politicians) or even to quit their operations. The second key concept, political democracy, also raises a variety of normative questions. The

most basic of these is whether firms should operate in countries with non- (or questionably) democratic governments. The underlying question here is whence business derives its sanction to operate. Do firms have a basic right to conduct business or are they granted some form of sanction by a legitimate government? If the latter is the case, then the question is what constitutes a legitimate government. This question has been resolved in practice (and institutionalized in international law) on the basis of a realist definition of legitimacy, viz., the ability of a government to defend its territory and maintain order and, some would add, the stipulation that it not engage in gross violations of human rights (McCleary, 1992). As a result of this realist approach to international relations, the question of whether firms should operate in non-democratic environments has been largely determined by firms themselves (rather than on the basis of public discourse and democratic decision-making). This practical ability of firms to make this decision is, of course, a normatively controversial question, as is the realist understanding of legitimacy upon which it is based. For those who reject realist approaches to international ethics, the normative theoretical question of whether firms should operate in non-democratic environments still remains. The answer to this will largely depend upon where one stands on the deontological-utilitarian spectrum, with the more deontologically inclined denying the legitimacy of operating in nondemocratic governments (unless there is broad popular support for this) and utilitarians basing their decisions on whether the operations of firms under such circumstances is more likely to inhibit or promote utility (and possibly democracy). Operating under non-democratic conditions may imply increased responsibilities for corporations. This is so not only with respect to respect to the political realm (e.g., providing space for public discourse), but also in the economic (e.g., adopting higher standards for minimum wages, health and safety conditions), socio-cultural (e.g., increased levels of contributions to local communities) and environmental realms (e.g., more stringent environmental standards), as the lack of a legitimate government

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Darryl Reed recently that corporations have started to raise these questions more systematically. REIs (again reflecting negative publicity and stakeholder pressures) have been among the most active industries in this regard (e.g., BP Amoco, Shell, Rio Tinto). Most major firms in these industries have policies on human rights. These generally refer to norms developed by industry, multilateral groups and/or NGOs. A prime example of a collaborative effort to generate such norms is the joint project by the Prince of Wales Business Leaders Forum and Amnesty International entitled Human Rights Is It Any of Your Business? (Frankenthal and House, 2000) which addresses such areas as labour rights, land rights, indigenous peoples rights, operating in conflict zones, dealing with security forces, etc. Multilateral initiatives such as the UNs Global Compact also incorporate basic principles concerning respect for human rights. While adopting such standards has helped the image of REIs to some extent, one area where their practices especially continue to come under sharp criticism, as Kapelus notes in the case of Rio Tinto, is the area of labour rights. In terms of issues related to political democracy, perhaps the most attention has been paid to the issue of corruption and political influence. Typically, REIs are treating these issues under the rubric of increased transparency. With respect to the issues of corruption, REIs tend to view the problem primarily as originating from the governments and bureaucracies of developing countries (Banks, 1997). They have responded in recent years by calling for greater transparency on the part of governments and by establishing their own policies on bribery (which commonly, as in the case of BP, distinguish between a refusal to pay bribes and a desire, but not necessarily a prohibition, not to pay grease payments). Increasingly, REIs are collaborating with independent bodies such as Transparency International. To the extent that REIs address the question of political influence, they also do so under the rubric of increased transparency. Focusing on transparency typically means that corporations commit themselves to limiting payments to legal transactions (e.g., campaign donations). It does not commit them to limiting

calls the fairness of the established standards into question (Reed, 2002). Another question related to political democracy concerns the level at which democracy should operate. More specifically, the question is the extent of the autonomy that local communities should enjoy. The saliency of this question is enhanced by circumstances involving indigenous groups and ethnic minorities which, historically, were not able to effectively participate in decisions concerning the formation of the nation state or exercise influence in it once it was established. The practical question that arises for resource extraction industries is the degree to which they should not only consider the interests of such groups, but also how much they should enable them to participate in the firms decision-making processes (a question raised in the paper by Cragg and Greenbaum). Additional questions related to political democracy include such issues as how firms should respond to overtures to engage in corrupt practices (e.g., grease payments, bribes) and defining the limits of acceptable influence (e.g., lobbying practices, campaign contributions, etc.). This latter question relates both to the activities of firms in developing countries and their efforts to enlist the support of home governments, e.g., to provide export subsidies, to place informal pressure on individual countries, to support multilateral actions (e.g., trade agreements) that favour their interests, etc. The larger context within which these latter questions arise are processes of economic globalization that have largely shifted the balance of power between firms and states and, it could be argued, have largely undermined the policy autonomy of developing countries. As noted above, in many developing countries the influence of resource extraction industries is magnified by the extent of the countries dependency on a single industry (e.g., oil in Nigeria). Industry practices. While business responsibilities involving issues of political development have received significant attention in the past, such attention has generally focused on individual cases, most notably the question of apartheid in South Africa. It has been only much more

Resource Extraction Industries in Developing Countries the size of their payments (except to legal maximums) or asking of themselves whether the amount of money they donate might involve undue influence. With respect to operating in conflict zones and non-democratic environments, some REIs have also shown an increased willingness to confront these problems in recent years. Typically this openness consists of developing their own principles or standards (or abiding by independent standards, e.g., Amnesty Internationals, the UNs Global Compact) when operating in such areas. In some instances it has also involved firms undertaking social impact studies. It does not, however, generally extend to firms asking the question of whether they should be operating under these circumstances, as Idahosa notes in his paper. That is, they do not appear willing to consider the possibility that their operations, despite their intentions, might be contributing to a deterioration in the situation and that, as a result, they should not be operating there on moral grounds. Perhaps, the most blatant form of this attitude is being expressed by oil and gas companies currently operating in Mynamar. Premier Oil of the U.K., for example, has basically rebuked calls by the Blair government for it to divest (Aldred, 2000). For its part, Unocal has vigorously fought efforts by both activists (who have taken legal action in an attempt to revoke its charter) and individual states in the U.S. (e.g., Massachusetts passed legislation, later overturned by the Supreme Court, barring corporations operating in Myanmar from bidding on state contracts) to pressure it to withdraw. One recent exception to this general approach has been the efforts by the diamond industry to develop a certification program to address the problem of conflict diamonds, (an initiative that was undertaken only after extremely negative publicity and tremendous civil society pressure) (Global Witness, 2000). Finally, with respect to the issue of local autonomy, REIs have shown a similar disposition. They are increasingly willing to consult with local communities, take their concerns in consideration and possibly modify their plans. They are not, however, as the paper by Cragg and Greenbaum in this volume indicates, generally

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willing to include local communities into decision-making or consider the possibility that local community desires (not to have REIs operating in their communities) might take precedence. As some of the other papers in this volume suggest, firms are also selective in deciding who will represent the communitys interests to them, often preferring local elites that are more inclined to share their views. On-going concerns. A key aspect of the notion of political development is that people should be increasingly able to actively and equally participate in decisions that affect their lives. The basic concerns that arise with respect to political development are that the practices of REIs (and TNCs generally) are undermining the ability of citizens to effectively participate in the political process and, correspondingly, privatizing the process of interest representation. Insofar as TNCs (and other economic and political elites) have largely been able to undermine the public policy autonomy of nation states in the developing world (through the simultaneous promotion of economic liberalization at both the international and national levels), it is no longer citizens that make decisions through their government. Rather, governments have largely ceded decision-making powers (practically if not legally) to business with respect to a wide range of issues. As noted above, these include environmental standards, labour standards, the protection of cultural values and heritage, etc. Not only this, but under the present international order corporations continue to be able to effectively decide for themselves (rather than the international community or citizens of the country in question) such questions as whether it is (morally) appropriate for them to be operating in non-democratic countries. With the declining public policy autonomy of national governments (and the lack of any international organizations that allow for effective input by individuals and local communities), citizens are increasingly forced to engage directly (as stakeholders) with corporations if they want their interests to be represented and their claims to be heard. In doing so, however, they are engaging in a process in which there are tremen-

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Darryl Reed have pointed out some concerns about the selfregulatory public policy approach (which reflect more general concerns about TNCs operating in the global economy). Of particular concerns are the facts that this approach places the most vulnerable populations at greater risk, does not generally encourage the use of a precautionary principle with respect to the environment, masks the power relations involved in the relationships between corporations and stakeholders and undermines democratic control over the economy, forcing people to increasingly try to impose limits on corporations as stakeholders rather than as citizens. Acknowledgements

dous power differentials between the actors and in which there is no set of enforceable rules. Under these circumstances, stakeholders have to either rely on the conscience of corporations to respond to their concerns as moral demands or try to make it in the interests of corporations to listen to their demands, by imposing costs upon them (e.g., through boycotts, protests, etc.). Not only are the prospects for success unlikely under such circumstances, but the goals of political development (as the promotion of active and equal participation in decision-making) are lost in the process.

7. Conclusion For reasons indicated in this paper, the operations of REIs in the developing world have long been the subject of criticism. As these REIs have increased their presence in the developing world over the last couple of decades, this criticism has not only continued, but become more vocal reflecting perhaps both the increased impact of their operations and better organization by their critics. For their part, REIs have responded to charges brought against them by adopting codes and policies to guide their behaviour in a variety of sensitive areas. These initiatives which involve activities by individual firms and industries as well as collaboration by firms and industries with NGOs and multilateral bodies in turn have come under attack by critics as being, at best, ineffective and, at worst, mere marketing ploys. While the increased activities of REIs in developing countries raise a wide variety of ethical issues, the most fundamental point of contention involves the basic strategy that should be employed to promote more responsible behaviour by these industries. For their part, the corporate responsibility initiatives undertaken and advocated by REIs (and TNCs generally) reflect a self-regulatory approach. They contend, that market-based solutions can effectively address the concerns of stakeholders. I have offered some reflections elsewhere on alternative (non-selfregulatory) public policy approaches to international regulation (Reed, 2002). In this article I The author would like to acknowledge support he received as part of research team working on a study of The Ethics of Development Induced Displacement. This project was funded by a grant from the Social Sciences and Humanities Research Council of Canada. Notes
1

In the oil industry, for example, these technological advances were so important that the drilling of the first well by Colonel Titus Drake near Titusville Pennsylvania in 1859 has come to mark the origins of the industry even though oil had been sold commercially in Canada, Burma, Russia and Romania before this time. 2 The U.S., for example, adopted an open door policy in the 1890s, which served U.S. oil interests as a method for entering markets to which they had previously been excluded. In other situations, however, such as against Mexico in the interwar period, the U.S. adopted policies (such as the minimum duty policy) that protected established U.S. oil interests against other foreign investors (Shaffer, 1983). 3 The final agreement reached in 1928 put the seven participating U.S. companies in a position where they would have to enter into production sharing arrangement. Such arrangements violated the essence of U.S. anti-trust law, which had been previously used to dismantle the parent company (Standard Oil) to which most of the firms previously belonged.

Resource Extraction Industries in Developing Countries

The practice of business leaders entering into politics and subsequently returning to industry (or consultancy) is commonly referred to a revolving door. It is important to note that while the existence of revolving doors provides greater possibilities for corporate leaders to exert influence (e.g., through personal contacts), it may also make it less necessary. When former industry officials take up government office, then they more naturally make decisions that positively affect the industry on the basis of conviction (that national business interests are identical with corporate interests) or strategic interests. This does not makes the use of political influence less of an issue, but rather makes it more systemic. 5 In the present U.S. administration, a significant number of key officials have (had) close connections with natural resource sectors. These include, among others, Secretary of Treasury, Paul ONeill (as chair of Alcoa), National Security Adviser Condoleeza Rice (as a member of the board of directors of Chevron), Commerce Secretary, Don Evans (as CEO of Tom Brown, Inc., an oil company), Vice-President, Dick Cheney (as CEO of Haliburton, the oil services firm), not to mention President Bushs own links to the oil industry. In addition, the transition team for the Department of Energy was largely dominated by people affiliated with or working for the extractive energy industry, including representatives from such companies as Phillips Petroleum, Enron, Kennecott, Southern California Edison, the National Mining Association and the Nuclear Energy Institute. Critics have raised the question of whether such personnel decisions have influenced key decisions by the Bush administration relating to the environment, e.g., the decision to allow drilling in the Alaska Natural Wildlife Preserve, the decision to no longer respect the Kyoto protocol, the abandonment of CO2 emissions, the scrapping of environmental clean-up sites, etc. (Mokhiber and Weissman, 2001). 6 This framework is partially suggested by the work of Barbier (1987) and Cowell et al. (1997) who distinguish three different aspects of sustainable development, viz., the economic system (involving primarily technological and micro-economic considerations), the social system (involving social issues and macroeconomic concerns) and the ecological system (involving the natural and physical sciences). 7 The Rio conference was a meeting in which diverse interests were represented and a wide range of positions advocated. A number of documents are associated with the Rio conference (e.g., Agenda 21, the Rio Declaration, Framework Convention on Climatic Change), but not all of these (e.g., the
4

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Convention on Biological Diversity) were negotiated as part of UNCED. The characterization of the Rio conference refers primarily to the nature of these declarations and documents. Critics claim that these documents represent an unholy alliance between Northern money, Northern self-interest and soft green concerns (Kirby et al., 1995, p. 10). 8 A visit to the websites on any of the corporate watchdog groups will give a good sampling of the nature and range of activities that are employed against REIs. 9 Again, corporate watchdog groups provide extensive information, both on the general nature of the problems and specific instances. See, for example, Project Underground (2001b) on the issue of acid mine drainage. 10 Mining Watch (1998) notes, for example, that Ok Tedi Mine in Papua New Guinea, has spewed 80,000 tonnes per day of untreated tailings directly into the Ok Tedi River. Laced with high levels of copper as well as lower doses of cadmium, zinc, and other contaminants, the tailings have wiped out almost all aquatic life along the first 70 km of the river and caused the flooding of forests and fertile community gardens. BHP, majority shareholder in the highly lucrative mine, is based in Australia, where this sort of tailings dumping would be illegal. 11 The more fundamental question here, of course, is not whether the firms undertake development projects, but whether the projects themselves contribute to or undermine development. Here the World Bank has frequently come under sharp criticism with respect to the projects it finances. For one example of this, involving the Chad/Cameroon Oil Pipeline Project, see Friends of the Earth (2001). 12 In the oil industry, for example there has been a long history of collusion and other forms of noncompetitive practices (Sampson, 1984; Girvan, 1978). Such practices enable large oil companies to maintain high profits even in the face of gluts (Rothschild, 1986). 13 There are, of course, other issues than the loss of cultural traditions. One extremely important issue for many indigenous groups has been their conception of the sacredness of land and their opposition to extraction processes. See, for example, Sewall (1999) and Jayaraman (2001). 14 As Cook and Cook Clarke (1999, p. 192) note, because developing countries do not have key policies in place (e.g., social and development policy, indigenous peoples legislation, reporting requirements), the mining industry in normally required to bring with it the basics of a social and cultural program.

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tally friendly makes economic sense (Porter and van der Linde, 1995). While not without some merit, the adequacy of this approach, especially as it relates to the situations of developing countries, has been seriously called into question (Redclift, 1994). For a case refuting the efficiency-based argument with specific reference to the oil sector, see Gorman (1999).

While there are more than forty such international codes of conduct, critics argue that they (and selfregulation generally) are ineffective because none of them has mechanisms to hold firms accountable. In the case of the Valdez principles, for example, critics not only argue that the principles provide no new constraints on the activity of firms (Sanval and Neyes, 1991), but that the incident itself was in large part due to processes of deregulation and economic liberalization (Benoit, 1989). 16 Most notable in terms of influence is the International Finance Corporation (http://www.ifc.org/), the branch of the World Bank group that makes loans to the private sector. The IFC, which recently characterized the required change in mining practice as a shift form Enclave to Sustainable Development, has elaborated a number of policies (e.g., on indigenous peoples, cultural property and the environment, local communities) to which firms must conform in order to receive loans. For critiques of the World Bank, see Friends of the Earth (2000) and Fox and Brown (1998). 17 Critics argue that such organizations are typically not even handed in their treatment of environmental and social issues vis--vis economic issues, as they tend to take specific steps to promote economic liberalization, but make only vague statements when it comes to protecting the environment and vulnerable groups. Mining Watch (1998), for example, states of APEC that: APEC has provided a new forum for government-level discussions on environmental topics and technologies. However (despite official claims to the contrary) the trade and environmental discussions appear to be very weakly linked. One indicator is the relative attention paid to trade versus ecosystem health. Individual Action Plans, produced annually by member governments, outline their progress in meeting APEC liberalization objectives, and plans for new steps. Canadas 1996 Individual Action Plan, for example, makes dozens of specific commitments to pursue deregulation, eliminate tariffs, and so on. However, there is no parallel measure of progress on protecting or enhancing community and ecosystem health. 18 In developed countries, there has been some difference in approaches to mining policy, but in general the underlying philosophy tends to be more in line with a growth-centered approach to sustainable development. For a contrast between the different approaches of Canada and Sweden and their implications the activities of REIs, see Cowell et al. (1999). 19 Some prominent business theorists such as Michael Porter have tried to argue that being environmen-

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