Statist
Prohibition: The War on Mining
The
Duterte regime is an administration based on prohibition.
During
the post election period, I deduced that the composition of the
cabinet, and not their pronouncements, will determine the incoming
administration’s policies:
Understand
that cabinet positions signify as heads of the implementing agencies
of the government. Hence when the president uses his apparatchiks to
execute his political programs, the political path or direction veers
toward the leftism.
Additionally,
I wrote of the significance of the Environment and Natural Resources
department to the left.
Environment:
Land is a key factor of economic production. And this is why the
environment position is also critical in as much as it is for the
agriculture. The
communist aim is for the complete control over resources. This
not only secures funding for their programs, it is also designed to
ensure logistics and control of production.
So
when Mr Duterte offered anti-mining fanatic and tycoon Ms Gina Lopez
the DENR post, such has partly affirmed on my suspicions of the left
leaning policy direction of the incoming regime.
It
is an example of revealed preferences. Action speaks louder than
words.
Yet
today’s
environmental politics have become a vehicle for socialism in
disguise.
For instance, Patrick Moore founder of the Greenpeace abdicated from
the organization he established because
“Greenpeace
took a sharp turn to the political left, and began to adopt policies
that I could not accept from my scientific perspective.”
A
pro-business environment cannot just happen when the cabinet is
comprised of members of the red brigade, military bureaucrats, and
appendages of cronies.
That’s because hardly any of them—based on their experience,
interests, network and ideology—has been shaped by free markets.
But
they all have a common ground: statism. The difference is on how
their different versions of statism should work.
Even
worse, because of such divergence, their interests would likely run
antithetical to each other. Duterte’s cabinet essentially
represents a cauldron or mishmash of internal contradictions. Once
operational, the cabinet will likely be filled with tensions from
conflicts of interests.
Nevertheless,
it is Mr Duterte’s political inclinations that ultimately will
matter. Early this June, he reaffirmed or reiterated to deny that he
is a communist and instead that he declared that he represents ‘left
of center’. Of course he has to reject communism. That’s
because the military won’t likely accept a communist leadership.
Besides, left of center and communism can signify a wordplay, left of
center can also be defined as soft core communism.
One
may ask, wouldn’t two heads be better than one? But the quality of
diversity matters. Policy decisions from the current makeup of the
Duterte cabinet will hardly be about the miscellany of the merits
between market economy and interventionism, but rather, it would
largely characterize interventionism. Again the stark difference will
be that of the essence of redistribution: the beneficiaries and the
losers of competing interest groups, as well as its mechanics (how to
go about such process)
In
short, policy decisions will mostly be about division of spoils: who
will gain and who will lose.
From
Mr Duterte’s actions, through Ms. Lopez, he has already condemned
or blackmailed the mining industry.
Why
the War on Mining Will Fail
The
stock market’s response to the Lopez appointment represents a
typical reaction to the surge in political risks due to perceived
policy uncertainty. In particular, this is called regime uncertainty
or business apprehensions over property rights. Or distressed
business confidence, as explained by Austrian economist Robert Higgs,
from “investors’
private property rights in their capital and the income it yields”
that “will be attenuated further by government action.” And “such
attenuations can arise from many sources, ranging from simple
tax-rate increases to the imposition of new kinds of taxes to
outright confiscation of private property. Many intermediate threats
can arise from various sorts of regulation, for instance, of
securities markets, labor markets, and product markets. In any event,
the security of private property rights rests
not so much on the letter of the law as on the character of the
government that enforces, or threatens, presumptive rights”1
So
in consideration that according to Philippine Republic act no. 79421,
“All mineral resources in public and private lands within the
territory and exclusive economic zone of the Republic of the
Philippines are
owned by the State”,
this implies that should Ms Lopez impose a ban on mining, all it
takes is for her to do is to revoke all the mining claims. And by
doing so, such would incite assets of all mining companies to
evaporate!
Of
course, an outright ban on mining is easier said than done.
Remember,
contrary to the fantastically simplistic utopian mindset of
billionaire Ms. Lopez, the mining industry is not just statistics or
economic or financial numbers. It involves lives of hundreds of
thousands of people who survive from it. The government also depends
on the industry for its taxes. So an outright ban will have very very
very nasty (social stability, economic and political) consequences,
something which both Mr Duterte and Ms Lopez will surely live to
regret on...if they impose a total ban.
Here
are the numbers.
Based
on the data from the Mines
& Geosciences Bureau in the 1H of 2015 in the formal mining
industry there were an estimated 234-235 thousand people employed
(2014-1H 2015) and the government also raked in Php 32.27 billion in
taxes in 2014 and Php 13.76 billion in 1H of 2015. The sector had a
gross production output of Php 204.7 billion in 2014 and Php 108.21
billion in 1H of 2015.
Of
course this represents only the formal economy.
The
mining sector represents a puny segment of the Philippine economy
with a share of 1Q 2016 1.24% and 2015 1.06% (RGDP) or .9% and .8%
based on NGDP, and with .2% of total taxes revenues in 2014. And this
is the reason why it is being bullied and blackmailed.
And
because the Duterte regime believes that the bubble economy will
continue to provide them with the necessary tax revenues for their
pet boondoggles, they believe that they can exorcise the mining
industry of environmental evils through intimidation.
Here
is an example. Take a look
at this comment: "I will require you to go to Canada or
Australia, learn how to mine the precious metals inside the bowels of
the earth and do it. Because ... (if) you are spoiling the land, I
will cancel it without hesitation."
The
overweening Mr Duterte practically believes in fairy tales. He
essentially thinks that he can achieve market based performance with
socialist repression.
Canada and Australia are basically relatively liberal economies even
from the mining standpoint. These countries invite investors and
promote competition. They do not bully or intimidate them.
His
model China has
even become the top gold producer in the world. As for China’s
role as top gold producer, that’s because the central bank has
become its principal buyer!
Once the
bubble economy begins to corrode and where prices of metals soar,
such industry bullying will come to an end. Ban on mining will
transform to welcome back mining!
Of
course, another
reason why mining won’t likely be totally banned is because the
Bangko Sentral ng Pilipinas not only buys gold from the miners (even
illegal miners), they get revenues from sales to them!
So
I expect the BSP to oppose a total ban.
Of
course, a
total ban will fail too.
Here
is a simple thought exercise.
What
happens when hungry people see food in a vacant land in the
neighborhood? Will they one, instinctively go and pick the food up?
Or two, will they wait for the government’s permission to pick the
food up? Or three, just ignore the food?
If
your answer is number one, then just replace food with gold or other
open pit minerals. This
means that people will mine products regardless of what government
says.
That’s because minerals have value. So when minerals are accessible
for mining, the public will mine it. Such is the reason why they
become a source of livelihood whether or not the government approves
on them.
Meanwhile,
number two represents the government’s chimerical position where
people should behave as sheep (sheeple)
This
is an example of why guerilla mining have proliferated.
In
fact, they have represented what the Duterte and Lopez tandem have
been bellyaching about. The 2014
slide from the Chamber of Mines shows us that only 2% of the
million hectares of mineable properties are covered by permits! And
yet these 2% account for as the responsible miners being subjected to
political harassment. This reveals that much of the mineable
properties are being subject to guerilla mining.
Proof?
This
Reuters
April 2015 report says that there are about 300,000 small scale
or guerilla gold miners.
Small
scale miners used to sell to the BSP. Apparently because law of
economics say that when one raises the cost of something, one also
get less of it. So when the BSP increased taxes (excise and
withholding) such led to vastly reduced sales and output. And the
alternative response by the informal economy has been to increase
smuggling!
"Smuggling
activity could still be prevalent,"
he said, adding many small-scale miners also operate without proper
permits. By law, all gold produced by small-scale miners must be sold
to the Philippine central bank.
Data
from the MGB showed gold sold by small-scale miners and traders to
the central bank in 2014 was worth only 180 million pesos ($4
million)
based on current foreign exchange rates, compared with $25
million
in 2013, $47
million in 2012, $764 million in 2011 and $962 million
in 2010.
"Gold
production (by small miners) in 2014 was about 18 tonnes, down from
about 30 tonnes before the BIR started collecting taxes from small
miners," Jasareno said, referring to the Bureau of Internal
Revenue, which
in 2012 ordered the imposition of a 2-percent excise tax and
5-percent withholding tax on gold
purchases
See
what higher taxes can do?
That’s
economics at work.
Of
course, part of the reason why output has collapsed can also traced
to the recent bear market 2012-2015 of gold prices.
I
believe that with NIRP central bank policies in place, such bear
market in gold HAS ENDED.
But
the increase in smuggling activities simply means going around higher
costs of doing business.
So
to apply total ban on mining simply means to induce a shift in mining
activities to the underground.
And such
shift would translate to magnifying the risks to the environment.
I
don’t think that Mr. Duterte’s cooperatives will work too.
Reason? Mining is a capital and technology intensive industry. Just
where will cooperatives get funds and expertise? From the government?
Cooperatives
will only mean corruption, inefficient mining and aggravation of the
despoliation of the environment.
And
mining
won’t be stopped no matter how the government prohibits it.
That’s even if they shoot to kill the population involved in them.
If they resort to the latter, then expect a civil war.
Instead,
the more practical direction is that mining will again serve as
another aspect of the regime’s division of spoils. Mining will
become a haven for Duterte cronies.
Perhaps
one may expect that the Lopez group and their allies or network, will
not only become media friendly to the Duterte regime, they may become
eventual mining magnates.
Sorry
MVP, Mr Duterte says you are out. But the Lopez Group is in!
The
nice part about policymaking is that errors in policy judgements have
no consequence for policymakers. Yet the bigger the error, the
mechanical response has always been to double down. More of the same
is needed!
Yet
if death penalty should be re-imposed then this should first be
applied to them. Policy errors affect, not just one or a few people,
but millions.
___
1
Robert
Higgs Regime
Uncertainty, Why the Great Depression Lasted So Long and Why
Prosperity Resumed after the War Independent review 1997 p. 568
No comments:
Post a Comment