Systematic Comparison of Regulatory Frameworks to Deal with Informal Mining in Latin America
Topic: Extractive Industry University Involved: Hertie School of Governance Year: 2014 Students Involved: 1 Transparency International Chapter: TI-Mexico, TI-Chile, and TI-Colombia
The natural resource curse theory claims that many countries, while having access to vast non-renewable resources, do not manage to transform them into enhanced economic growth performance. Such outcomes, however, are not the inevitable result of the availability of the resource per se, but rather of both its presence and the existence of inadequate political and economic institutions. Identifying and understanding such conditions has prompted an extensive research agenda; in fact, plenty of efforts have been devoted to understanding and evaluating taxation systems, revenue collection and transfer methods, diversification strategies, macroeconomic stability policies and monitoring mechanisms developed to impede the resource abundance to become a curse.
How the mining industry is regulated thus becomes a major concern as regulations create the conditions for transforming resources into prosperity. Regulation also delimits the scope of what is and is not acceptable, and that means that those that cannot, do not want to, or do not know how to operate within the legal framework will most likely carry out their activities with scarce consideration for labor health and safety standards or environmental standards. Not surprisingly, international institutions such as the World Bank and ILO, deeply influenced by the seminal work of De Soto (2003), have reached a consensus in the sense that formalizing property rights is an economic development-enhancing activity. This is especially true for gold mining, the type of mineral extraction more prone to informal extraction given its open access nature, and the possibility to do so relying on low-tech devices.
Within Latin America, variation in the size of the informal sector, as well as in their mining legislation and in the overall economic performance of the countries, is considerable. This creates the proper conditions to conduct a diverse case-comparison as both variation in the dependent variable and in several potential independent variables is observed. Two pairs of countries have been selected:
a. Colombia and Peru share similar economic conditions, and have a pervasive informal sector: at least 15,000 families (circa 60,000 people) are involved in informal mining in Colombia; in Peru official figures indicate that around 40,000 workers are directly involved in such activities. Both, moreover, have developed overt policies against informal mining (a proxy of the informality pervasiveness).
b. Chile and Mexico, in contrast, have both a considerably better economic performance and a smaller informal mining sector limited to a few regions, with Chile in this regard the extreme case. Both, interestingly enough, lack a specified legal differentiation of small scale mining.