reed, darryl (2002) - resource extraction industries in developing countries.pdf

ABSTRACT. Over the last one hundred and fiftyyears, the extraction and processing of non-renewableresources has provided the basis for the three indus-trial revolutions that have led to the moderneconomies of the developed world. In the process, thenature of resource extraction firms has also changeddramatically, from small-scale operations exploitingeasily accessible deposits to large, vertically integrated,capital intensive transnational corporations character-ized by oligopolistic competition. In the last ten tofifteen years, coinciding with processes of economicglobalization, another major change has been occur-ring as resource extraction industries have beenshifting their operations from developed to developingcountries. This shift has greatly impacted the popu-lations of these countries and raises a variety of ethicalissues. This article investigates the nature of thesechanges and the ethical issues that arise, focusing inparticular on the development impact of the activi-ties of these industries and the potential adequacy ofdifferent policy approaches to regulating them.

KEY WORDS: business ethics, development ethics,mining ethics

Non-renewable resources have long played a keyrole in the development of human civilization.Most recently, they have provided the basis forthe three industrial revolutions that have led tothe modern economies of the developed world.

While resource extraction industries (REIs)continue to play a key role in modern developedeconomies, over the course of 20th century, andespecially in the last ten to fifteen years (coin-ciding with processes of economic globalization),transnational corporations (TNCs) involved inthe extraction and processing of these resourceshave been shifting their operations from devel-oped to developing countries. This increase inactivities by REIs in developing countries in thenew global economy has greatly impacted thepopulations of these countries and raises a varietyof ethical issues.

The purpose of this article is to provide somegeneral background to the operation of REIs indeveloping countries and the ethical issues thattheir activities raise. It is organized into sixsections. The first section offers a brief accountof the nature of resource extraction industries,while the second examines the transnationaliza-tion of their activities. Next, recent changes inthe context in which REIs operate are investi-gated. The fourth section looks at differentaspects of the development impact of REIs in thedeveloping world. In the fifth part of the article,a short exposition is provided of the normativeproblematic that REIs face in operating in devel-oping countries. The following section thenexamines in greater detail the key ethical issuesthat the activities of REIs in developing coun-tries raise, briefly looks at the current practicesemployed in REIs to respond to ethical issues anddiscusses some concerns about whether thesepractices (and the self-regulatory public policyenvironment in which they are employed) rep-resent an adequate response to the ethical issuesidentified.

Resource Extraction Industries in Developing Countries

Darryl Reed

Journal of Business Ethics

39: 199–226, 2002.© 2002 Kluwer Academic Publishers. Printed in the Netherlands.

Darryl Reed is Assistant Professor in the Division of SocialScience and Co-ordinator of the Business & SocietyProgram at York University. He has a wide range ofinterests in the field of business ethics. His work hasappeared in the Journal of Business Ethics, BusinessEthics Quarterly, Business Ethics: A EuropeanReview, Business and Society, and theInternational Journal of Social Economics.

1. The origin and nature of resource 1. extraction industries

Resource extraction industries are not only as oldas human civilization itself, but are also a keyconstitutive of our history. The significance ofmetals in human (pre-)history is most clearlyreflected in our designation of early historicalepochs (e.g., copper age, bronze age, iron age).In ancient times, the ability to extract and processkey metals determined the fate of empires. Inmore recent times, other resources (viz., coal andoil) have provided the basis for industrial revo-lution(s). While human civilizations have longdepended upon resource extraction, up until themid 19th century, these industries were largelybased on small-scale operations that had high coststructures and exploited rich and easily accessibledeposits (e.g., deposits of high grade ores, surfaceseepage of oil). Between the 1860s and 1890s,however, important technological and organiza-tional developments would lay the basis for adramatic shift in the structure of key REIs (e.g.,copper, aluminum, oil, etc.), leading to verticallyintegrated, capital intensive industries character-ized by oligopolistic control.1

On the technological front, key developmentsin the extraction and processing of resources hadtremendous effects on the supply side of REIs.In the case of oil, the introduction of drillingtechniques enabled the exploitation of sub-terranean reserves, while new large refineriesallowed for economies of scale and combinedwith advances in transportation to allow oil to bemoved over long distances. Similar changes inextraction and refining processes in the miningindustry allowed for the exploitation of lowergrade ores. Changes in technology also haddemand side effects. Some of these effects arosefrom the rise of new industries (e.g., the demandfor copper in the electricity industry and laterthe development of the automobile industry),while others were related to supply side changesthemselves, which stimulated new uses and thesearch for new markets.

Key organizational developments also tookplace during this period. In the oil industry forexample, by the early 1900s there was a shiftaway from small, single-stage, local firms to large,

vertically integrated corporations. Here, StandardOil’s dominance over the refining process provedto be the key in facilitating vertical integration.In aluminum, Alcoa’s patent rights granted it avirtual monopoly over metal production and, onthis basis, it was able to integrate both backwardsinto raw material extraction and forwards intofabrication. The development of vertically inte-grated, oligopolistic firms and the introductionof new technology were closely intertwined asnew technology laid the basis for increased con-centration (by allowing for economies of scale,geographic expansion of markets, etc.), whileintegration and concentration helped to reducethe risk involved in introducing new and expen-sive technology.

Another key change was the development ofnational markets in the major industrialeconomies. This change was facilitated in largepart by the revolutions in transportation, espe-cially railroads. In principle, improvements intransportation could have helped to increasecompetition by opening up regional markets tonew players. In practice, however, this was notthe primary impact. Rather, improvements intransportation and the development of nationalmarkets led to fewer, but larger firms, as firmsincreasingly had to attain national size in orderto compete. National markets also induced firmsto seek out control over reserves (and ancillaryresources) in their home country. It becamecommon for firms to acquire rights to reservesthat were in excess of the prospective needs fordecades into the future.

This latter practice contributed in part toanother key condition for the emergence ofoligopolistic firms, viz., limited supplies. Mineralsand fossil fuel reserves are finite. If firms attaincontrol over all (or a substantial proportion ofsuch) reserves, then, by definition, they achieve(oligopolistic or) monopolistic control. Whileoligopolies have been the rule among REIs, it isdifficult for firms, even titans like Standard Oil,to develop or maintain actual monopoly control.Historically, the primary source of difficulties hasbeen the discovery of new reserves. In the U.S.this occurred in the copper industry in the 1800swith the discovery of new finds in Montana(which allowed Anaconda to challenge the estab-

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lished Lake Michigan producing pool) and in theoil industry at the turn of the century with thediscovery of new fields in Texas (which allowedthe Texas Company and Gulf Oil to challengethe dominance of Standard Oil). In thealuminum industry, by contrast, Alcoa’s domi-nance over domestic reserves meant it wentunchallenged until after WWII, when Reynoldsand Kaiser were able to gain access to therecently discovered bauxite in Jamaica (Girvan,1978).

In addition to the objective factors, subjectivefactors also come into play in the developmentof oligopolistic markets, i.e., supplies can beartificially limited by suppliers. The most cele-brated (and probably the best documented) caseis that of John D. Rockefeller and Standard Oil(Tarbell, 1904). There are two common ways inwhich supplies can be limited, viz., by contracts(and similar arrangements) and by buying outother suppliers. In the oil industry, the formerstrategy was initially used, with a small numberof suppliers exerting control over a large numberof widely dispersed producers. Later on, the oilindustry attempted to shift to the latter strategy.Similar strategies were also used in mineralextraction industries. Such practices can, ofcourse, provoke reaction from the government,as in the enactment and enforcement of antitrustlegislation that ultimately resulted in the break-up of Standard Oil in 1911. Anti-trust legisla-tion, however, has done little to limit highconcentration levels in REIs or, critics wouldargue, to control anticompetitive practices(Shaffer, 1983).

2. The transnationalization of resource 2. industries

Micro-economic reasons for transnationalization

The same logic that led to the development ofoligopolistic firms at the national level, propelledfirms to transnational activities. In the case ofU.S. firms, foreign investment begins to take offin the 1890s and rose rapidly until the start ofWWI. Immediately before the war, nearly threequarters of U.S. foreign direct investment was in

the Western hemisphere, with the mining andpetroleum industries accounting for more thanhalf of the total. In terms of its investments, theU.S. followed what might be considered a typicalcolonial pattern. In Europe (and to a lesser extentin Canada), it concentrated its investments inmanufacturing (due in no small part to hostgovernment restrictions). Here investments wereprimarily in fields where U.S. firms had a tech-nological advantage or differentiated products. Tothe degree that the resource extraction industriesdid invest, it tended to be in marketing andrefining/processing. In the oil industry, forexample, Standard Oil’s first forays into Europein the 1880’s and 1890s involved establishingsubsidiaries to market U.S. refined products inEngland and Germany. They also establishedrefineries in France at the same time. It was onlyon the periphery of Europe, in Romania, thatStandard was engaged in extraction (and also hadrefineries). In Latin America, by contrast, U.S.FDI was concentrated (85%) in primary indus-tries (mining, petroleum and agriculture) andrailroads. In the resource extraction industries,typically extraction occurred in the host countrywith subsequent steps being carried out in theU.S. (Shaffer, 1983).

There are two key aspects of the firm’s growthprocess that help in explaining transnationaliza-tion, viz., policies for securing and allocating rawmaterials and policies for allocating production,financial and research resources betweenproducts. The former are most important withrespect to our concerns about developing coun-tries. Procurement of raw materials operates onthe basis of the “least cost rule.” Because costschange over time (e.g., as high grade or easilyextracted reserves are depleted) and reserves arefinite, it makes sense for firms to have a widegeographical spread of supplies. Thus, firms areconstantly looking for potential new sources soas to widen their options, limit competitors’options and replace depleted reserves. Whileoperating a range of operations does imply someconstraints on operations (e.g., minimum pro-duction levels to maintain concessions), firms cangenerally shift incremental production to lowercost sites. A wide variety of sites, also allows firmsto make contingency plans in the case of (rela-

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tively) sudden events that affect cost and firms’abilities to extract reserves, e.g., changes in gov-ernment policy, expropriation, war, “acts ofGod,” etc. (These same factors have typically alsoled companies to diversify into other relatedindustries in mining and energy production.)Historically, then, the least cost rule has resultedin the “planned displacement” of source supplies.Typically, this has involved moving from sourcesin developed countries to developing countriesand, then, between developing countries. In thecase of oil, for example, U.S. companies firstshifted incremental production from the U.S. toMexico and Venezuela in the 1920s–1940s andthen later to the Middle East in the 1950s and1960s. Similarly, U.S. copper companies shiftedproduction to Chile in the 1920s–1940s, butshifted back to the U.S. when problems arosewith the Chilean government. In the case ofaluminum, Alcoa first shifted incremental pro-duction to Guyana and Surinam in the1920s–1940s, then to Jamaica and the DominicanRepublic in the post WWII period, and then onto Australia and Africa in the 1970s, after changesin the “investment climate” in Jamaica (Girvan,1978).

Political economic factors in transnationalization

While micro-economic logic was a necessaryfactor in inducing transnational activities,pursuing transnational activities was generallyfacilitated by political economy factors. Whilethree major types of factors can be distinguishedanalytically, in practice they overlap and are fre-quently inseparable. These include the identifi-cation of national economic interest with theinterests of domestic corporations, (geo-political)strategic considerations and the exercise of polit-ical influence by corporations and corporateleaders.

National (economic) interest. The identification ofnational economic interests with the interests ofdomestic corporations has a certain commonsense appeal. This connection – most famouslyexpressed in the words of former GM president,Charles E. Wilson, “What is good for the

country is good for General Motors, and viceversa” – is generally unquestioned by corporateleaders. In the realm of domestic politics, somedoubts do arise among politicians, however. Thereality of democratic politics, as reflected in theneed for compromise, generally means that in thedomestic arena few governments are ever capableof completely identifying national interest withbusiness interests. In the international realm,however, ambiguity about the relationshipbetween corporate and national interest usuallydisappears.

One clear indication of the willingness of gov-ernments to promote opportunities for its firmsabroad (rather than just “free trade”) is theadoption of contradictory policies, which cannotreadily be explained apart from corporate inter-ests. In the U.S., the oil industry was an earlybeneficiary of such contradictory policies.2

Another clear indication of governments’ pre-disposition to identify nation interests with thoseof business involves governments promoting theinterests of firms abroad under questionablecircumstances. One such set of questionablecircumstances is the promotion of companyinterests in ways that contradict domestic laws.Again, the U.S. oil industry benefited in this waythrough the efforts of the U.S. government toopen up the Iraqi market (dominated by Britain)in the interwar period.3 Another set of ques-tionable circumstances involves the governmentoperating on behalf of domestic firms, whileprosecuting these firms at home. This was thesituation in the early 1950s when the U.S.government was seeking to open the Iranianmarket (again, dominated by Britain) to U.S.firms. Under the agreement reached, five U.S. oilcompanies were to take part (40% share) in aneight company consortium. At the time, all fiveof these companies were being prosecuted by theU.S. government for violations of U.S. antitrustlaws (Sampson, 1984; Shaffer, 1983).

Strategic importance. The key role of resourceextraction industries in modern economies hasmeant that they have also taken on geo-politicalsignificance. Such significance can be understoodboth in terms of traditional security concerns(i.e., national defence and containment of

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enemies, e.g., the Cold War) as well as in termsof economic security concerns (e.g., shortages ofkey resources that could cripple the economy).Oil has clearly been the commodity most closelyassociated with strategic concerns. The militarysignificance of oil first came to prominence withthe decision of the Royal Navy in 1913 toconvert from coal to oil. This decision was con-troversial because, while Britain had extensivecoal reserves, it had no domestic oil reserves andonly limited oil reserves within the Empire (inBurma). Another problem that arose involvedfinding an appropriate oil firm to take the lead.While it was originally a director from Shell whopushed the conversion of the British fleet to oil,Churchill and other political leaders wherereluctant to trust a non-British company (whichthey considered Shell to be because of the 60%holdings by Royal Dutch). The most obvioussource of oil appeared to be the recently discov-ered field in Persia. The advantages of Persia weretwofold. Although not formally a part of theEmpire, Persia was clearly in the British sphereof influence and could be easily defended fromits bases in India. Also, a British company, theAnglo-Persian Oil Company (later Anglo-Iranianand then British Petroleum), had concessionsthere. When this company suffered financialtroubles that threatened the plan, the(Conservative-led) British government took theextraordinary step of buying controlling inter-ests (51%) to ensure that ownership control didnot fall into foreign hands. While the Britishgovernment had no interest in running the firm,and demanded only two of the seven director-ships, it did require that all directors be Britishsubjects and retained for its directors the rightof veto (which was to be used only in casesinvolving military policy and admiralty con-tracts). The British example was followed by theFrench government after the war, which boughtinto Compagnie Française des Pétroles to ensureaccess to that company’s reserves in Iraq.

While WWI raised similar concerns for theU.S. about securing oil supplies, unlike the U.K.and France it did not employ state ownership toaddress the problem. In the U.S. context, with alarge number of oil companies at the time, thisoption would have been prohibitively expensive.

Moreover, given the size and ownership struc-ture, there was little reason to believe that U.S.companies could be bought out by foreign inter-ests. What the U.S. did do, however, was tochange its general policy of promoting overseasexpansion of U.S. corporations to focus specifi-cally on the oil industry. Such strategic consid-erations were reflected in the U.S. government’sdealings with Mexico and Iraq in the interwarperiod and with Iran in the early 1950s (Bromley,1991; Schaffer, 1983). The most recent manifes-tation of such strategic considerations was, ofcourse, the 1991 Gulf War.

Political influence. Another factor that contributedto transnationalization was the ability of corpo-rate leaders to assert influence, both directly onforeign officials (to allow foreign investmentunder favourable conditions) and indirectlythrough home government officials. The abilityof corporate leaders to exercise influence derivesin part from the oligopolistic structure of theindustry and large size of individual firms (whichprovide industry leaders with large amounts ofresources to lobby government). In the case ofhome governments, the economic and strategicimportance of these industries may also makegovernment officials and administrators particu-larly receptive to industry concerns and provideopportunities for contact.

The actual channels through which politicalinfluence can and has been exercised are varied.Early on channels tended to be more informal,based upon personal contact. Senior officialsoften had contacts at the highest level of gov-ernment. One of Standard Oil president WalterTeagle’s poker buddies was President Harding.Also counted among Teagle’s friends wasPresident Coolidge, who upon leaving office wasinvited by Teagle to head the AmericanPetroleum Institute (Sampson, 1984). Anotherimportant method that emerged for firms toassert influence with respect to their foreigninterests involved industry officials themselvesbecoming engaged in politics.4 Again, theRockefeller interests in particular were quiteprominent in this regard. Between the presi-dencies of Harry Truman and Ronald Reagan,some eight secretaries of state were closely con-


nected with Rockefeller interests (Schaffer,1983). Over the years, while personal contactsand revolving door practices have remainedimportant,5 the exercise of influence has becomemore formalized (e.g., through industry officialsserving as government consultants or witnesses)and sophisticated (e.g., the use of citizen frontgroups to lobby politicians, the financing of thinktakes and research projects that provide govern-ment officials with information on issues relatedto industry concerns, etc.).

3. The changing environment of resource 3. extraction

Over the last two decades or so a variety of forceshave been changing the environment in whichresources extraction industries operate in devel-oping countries. These changes have exertedpressures in different directions, providing bothnew opportunities for resource extraction indus-tries and subjecting them to increased scrutiny.In what follows we examine some of majorchanges that have occurred.

Processes of political democratization

One of the major developments involves anincrease in democratically elected governmentsin developing countries. In the immediate post-WWII period there was initial optimism aboutthe prospects for democracy (and development)in many of the newly-independent countries ofAfrican and Asia. These hopes suffered serioussetbacks, however, as many of the former colonialterritories either failed to achieve democraticgovernment or quickly saw their democraticstates succumb to military rulers. Among the fewcountries that were able to sustain democraticgovernments, the nature of the democracy inquestion was frequently less than robust. Thesituation was similar in Latin America and theCaribbean. Although most of the major coun-tries of the region had achieved formal inde-pendence much earlier, few were able to sustainuninterrupted democratic rule throughout thepost-war period, while exceptions like Mexico,were characterized by one-party states.

Starting in the 1980s, however, democraticrevolutions have been sweeping the developingworld (as well as former state socialist countries).In Asia, democratic change first came to thePhilippines and South Korea, then more recentlyto Indonesia. In Latin America, Argentina andBrazil, and later Chile, rid themselves of brutalmilitary regimes. In South Africa, a long popularstruggle finally brought an end to apartheid andushered in democratic reforms. Though theprocess of democratization is not complete andmany countries (e.g., Pakistan, Nigeria) havelapsed into authoritarian rule, the victories havebeen significant. The impact has been particu-larly great at the level of guaranteeing someminimal level of civil and political rights. It is lessclear, however, whether processes of democrati-zation have been very effective with respect toproviding the people of developing countries(and their governments) any real self-determina-tion in terms of generating development strate-gies. It could be argued, as discussed below, thatprocesses of economic globalization (which haveoverlapped in time with the recent wave ofdemocratization) have largely undermined thepublic policy autonomy of developing countries.This lack of opportunity for self-determination,critics would note, pertains not only at thenational level, but also among particularly vul-nerable population groups (e.g., indigenousgroups and other ethnic/racial minorities) at locallevels, where its consequences can be even moredevastating (Hadenius, 1997; Rimanelli, 1999).

Processes of economic globalization

While increased political democracy is clearlywelcomed in developing countries, it is not clearthat it is being accompanied by any significantincrease in the ability of countries to effectivelyregulate corporate activities and determine theirown “development” fate. The reason for thisrelates to a variety of structural changes that arecommonly lumped together under the term“globalization.” One such area of structuralchange has involved technological advances (e.g.,transportation, telecommunications, etc.) andorganizational developments in firms (e.g., out-

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sourcing, JIT, etc.) that have facilitated thetransnationalization of production and finance.These changes have been conceptualized as a shiftfrom a Fordist to post-Fordist system of produc-tion (Lipietz, 1987). A second key area of changehas involve processes of economic liberalization(e.g., cutbacks in government spending, privati-zation, etc.) and deregulation (e.g., of financialmarkets) in individual states. These changes havebeen characterized by Jessop (1994) as a shiftfrom a Keynesian welfare state to aSchumpeterian workfare state. A third area struc-tural changes involves “reforms” in the interna-tional economy (e.g., trade and investmentliberalization), changes which might be charac-terized as a shift from a liberal international to aneo-liberal global economy (Cox, 1987).

These processes of globalization (combinedwith problems relating to previous developmentefforts, including the imposition of structuraladjustment programs by international financialinstitutions) have led to a shift from interven-tionist to more market-based development strate-gies. Under this new regime, developingcountries are not only liberalizing trade, but theyare liberalizing foreign investment (includingallowing new forms of joint ventures) and alsoprivatizing nationalized firms. Moreover, in aneffort to attract foreign investment, they areincreasingly being forced by competition byother developing countries to engage in regula-tory bargaining (e.g., offering tax breaks, con-cession in environmental regulation, etc.). Theoverall result, critics argue, is a loss of publicpolicy autonomy for developing countries and an“international race to the bottom.” (Strange,1996)

From the perspective of TNCs liberalizingreforms are obviously very attractive. They implyreduced barriers to entry, decreased risk and newinvestment opportunities, both through green-field activities and mergers and acquisitions(especially as countries privatize state enterprises).Indications of the impact of economic liberal-ization are perhaps most evident in resourcesectors such as mining. Since the mid 1980’sthere has not only been an increase in invest-ments in this sector in developing countries, buta significant shift from developed countries to

developing countries, most notably towards LatinAmerica (Otto, 1998). Major trade agreementssuch as APEC have the liberalization of themining industry as a high priority objective. Fortheir part, Asian countries have recently beenre-regulating the mining industry in an effort toattract foreign capital (Naito et al., 1998). Africancountries too have been liberalizing their miningpolicies since the 1980s, in large part due todirect pressures from international financial insti-tutions. By 1995, some 35 African countries hadamended their mining regulations to make themmore attractive to foreign investors (AfricanAgenda, 1997). As a result of such changes,between 1991 and 1997, exploration investmentsexpanded 6 times in Latin America, quadrupledin the Pacific region, and doubled in Africa(Drillbits and Tailings, 1998)

Multilateral initiatives for sustainable development

Another key change that has been influencing theenvironment of resource extraction industries hasinvolved increased multilateral action on issuesrelated to the environment and development,which have commonly been discussed togetherin recent years under the banner of “sustainabledevelopment.” Three key events are linked to thedevelopment and diversification of the notion ofsustainable development. The first of these wasthe publication of the World ConservationStrategy (WCS) in 1980 (IUCN, 1980). Basedupon a discourse dating back to the early 1970s,this publication was primarily responsible forintroducing the concept of “sustainable devel-opment.” The second major event was thepublication of the report of the WorldCommission on Environment and Development.More commonly known as the BrundtlandReport- after the head of the Commission,former Norwegian Prime Minister Gro HarlemBrundtland – this document has provided themost widely cited definition of sustainable devel-opment – “development that meets the needs ofthe present without compromising the ability offuture generations to meet their own needs.”(WCED, 1987, p. 43) The third key developmentwas the United Nation’s Conference on


Environment and Development (UNCED) in1992. More commonly known as the EarthSummit or Rio – after the host city – this event,which was the largest ever meeting of heads ofstates in the world, gave unprecedented publicityto the issues of the environment and develop-ment and popularized the term “sustainabledevelopment” to such an extent that its use isnow de rigeur among NGOs, governmentalbodies and the private sector.

The concept of sustainable development, likemost popular ideas, is contested and a range ofincompatible conceptions (with widely differingpublic policy implications) vie for dominance.On the basis of the three events noted above, avery loose categorization of approaches can beoffered.6 The position of the WCS might bebest characterized as a “conservation-centered”approach to sustainable development. The WCSis primarily concerned with issues related to the“sustenance” of ecosystems and is generally fore-boding in its tenor, presenting a “conservation ordisaster scenario.” Here environmental concernstake precedence over traditional approaches todevelopment (e.g., industrialization as a methodof raising living standards), while the conceptionof development that is advocated primarilyinvolves small scale/subsistence projects that drawupon traditional knowledge. This is a constrainedapproach to development, in a sense, for themeans to promote development are conceivedprimarily in terms of their ability to contributeto the primary goal of conservation (Adams,1990).

The position of the WCED, by contrast, mightbe considered an “equity-centered” approach.The WCED begins by arguing that a series ofcrises (developmental, environmental and globalinsecurity) threaten the world and, in particular,developing countries. While a number ofelements are posited as essential to dealing withthis series of crises, the key is increased equityinternationally. The approach of the WCED isdecidedly human-centered. While it is concernedwith conserving the environment, the greatestemphasis is placed upon meeting the basic needsof people in the developing world (includingfuture generations). Guided by this end, theWCED is not opposed to growth, at least for the

developing world. Historically it has been theNorth that has received the benefits of growthand the North has proven unwilling to share suchbenefits in sufficient proportion to meet the basicneeds of the South. For this reason the Southneeds to grow. Generally, however, what isrequired for sustainability is a redistribution inthe rates of growth (and consumption) betweenNorth and South. This requires increased controlby developing countries over their resources andstructural change in the global economy,including more stringent international regulation.

For its part, the Rio conference might becharacterized as a “growth-centered” approachto sustainable development.7 While the Rioconference, like the WCED, seems to give apriority to development over sustainability, itsunderstanding of development differs from theWCED. Whereas the latter placed an emphasison meeting basic needs and saw increased equityas the key to promoting development, in the Rioconference development is understood moreexclusively in terms of growth (and the need tomaintain growth levels in both developing anddeveloped countries), while questions of equityare largely ignored. The priority of growth is alsoreflected in Rio’s treatment of major environ-mental issues. The approach to preservingbio-diversity and ecosystems, for example, seemsto focus on maintaining small pristine areas (andthe maintenance of the gene pool through thecollection of specimens to be preserved inlaboratory environments), while allowing most ofthe environment to be opened up for commer-cial development (with trade and investmentagreements guaranteeing Northern countriesaccess to Southern resources). Similarly, efforts tolimit environmental degradation are subordinatedto economic development through the adoptionof voluntary multilateral agreements (e.g., theKyoto agreement) and a reliance on self-regula-tion by business (Kirby et al., 1995). Clearly, asREIs have come to adopt the language of sus-tainable development, they have favoured thislatter “growth-centered” approach that wasreflected in the Rio conference.

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Civil society activity

There has long been much public scepticismabout the appropriateness of the practices ofREIs, going all the way back to John D.Rockefeller and Standard Oil. Generally, thisconcern has remained diffuse and, as a result, hashad little effect on corporate activities or prac-tices. Starting in the 1960s, however, there wasa significant rise in organized opposition toperceived irresponsible corporate activity, bothgenerally and with respect to REI. In the lastdecade or so, as Kapelus notes in his article inthis volume, there has been a large surge in notonly Western NGOs, but also local civil societyorganizations in developing countries. Thisincreased activism reflects renewed publicconcern about a lack of corporate responsibility.Individual events and the activities of individualfirms have played a major role in rallying oppo-sition to corporate activities. The execution ofKen Saro Wiwa by the military government inNigerian, for example, is commonly cited as akey event that galvanized public opinion (Knott,1999). It is also the case, though, that this newupsurge in activity represents a response to thebroader processes of globalization (as illustratedby the protests that have accompanied all majorinternational economic meetings since “Seattle”).

Public concern about the activities of REIs isbeing expressed through a wide range of civilsociety organizations including developmentNGOs, environmental groups (e.g., Friends ofthe Earth, Environmental Defense Fund), humanrights organizations (e.g., Amnesty International,Human Rights Watch), affected groups indeveloping countries (e.g., MOSOP), progressivebusinesses (e.g., the Body Shop), shareholdergroups (e.g., BHP Shareholders for SocialResponsibility) and corporate watchdog organi-zations (e.g., Multinational Monitor), includinga number specifically dedicated to resourceextraction industries such as mining (e.g., MiningWatch Canada, Mineral Policy Institute, ProjectUnderground, Mining Impact Coalition, etc.).Such organizations may engage in a wide varietyof activities designed to force REIs to changetheir policies and practices including, amongothers: 1) publicly criticizing irresponsible

activities, e.g., Anita Roddick’s criticism of Shell(Curtis, 1999); 2) disrupting the activities ofcompanies; 3) initiating legal processes, e.g., tostop specific activities, to get compensation fordamages, etc.; 4) boycotting company projects;5) encouraging shareholder activism, and; 6)lobbying governments to penalize corporationsor restrict the activities, e.g., recent efforts takenagainst Unocal because of their operations inBurma (Hood and Penniman, 1998).8 Whilemost NGOs remain suspicious of REIs, theirtactics are not always confrontational or opposi-tional (Knott, 1998). As noted above, someNGOs seek to work closely with corporationsand local communities to help better, ensuremore responsible behaviour.

Civil society groups and local communitieshave achieved a number of individual victories inthe form of shutting down operations or pre-venting them from being undertaken in the firstplace. One frequently cited example was theclosing of Ok Tedi Mine on Bougainville Islandin Papua New Guinea (Clark and Cook Clarke,1999). More generally, however, the success ofsuch groups has come in the form of increasingpublic consciousness about issues and altering themanner in which new projects are approved andundertaken. This is most notable, as the otherarticles in this volume attest, in the increasedattention by REIs to environmental issues andthe concerns of local communities.

4. Resource extraction industries and 4. development

A relatively long history of involvement of REIsin developing countries raises an obviousquestion, viz., whether their presence has con-tributed to “development.” Development, ofcourse, is a contested notion. Early interest in“development” tended to focus primarily oneconomic factors, in particular rates of growthand industrialization. Over the last couple ofdecades, however, concepts such as “humandevelopment” and “sustainable development”have served to broaden the common under-standing of development to include political,socio-cultural, and environmental concerns. In


what follows, the impact of REIs with respectto each of these different aspects of developmentis examined in turn.

Economic development

Historically, the notion of economic develop-ment has been closely associated with processesof industrialization and the achievement ofsustained levels of growth. There is a branch ofeconomics that attempts to examine the contri-bution of resources industries to growth anddevelopment, viz., resource economics. Whilethis field has frequently noted certain anomaliesin terms of resource industries and growth (e.g.,the so-called “Dutch disease”), its ability toprovide a cogent account of such phenomenonand the role of REIs in development generallyhas been subject to much criticism (see, forexample, Mikesell, 1997). There are several basicproblems in understanding the role of REIs inpromoting growth and development (which fieldslike resources economics have typically notproblematized). The first problem relates to thefact that REIs have been operating in manydeveloping countries for nearly a century ormore. Over this time, there have been dramaticchanges in the circumstances of developingcountries, most notably perhaps in terms of polit-ical organization. Outside of Latin America, avast majority of developing countries were undercolonial rule for the first half of the 20th century,while in the post-colonial period they were fre-quently subjected to internal conflicts and non-democratic governments. In Latin America,while most of the major countries were inde-pendent throughout the 20th century, militarycoups and dictatorships have been interspersedwith democratic governments over the course ofthe century. A second problem with evaluatingthe role of REIs relates to differences acrosscountries, viz., geo-political significance,economic structure (e.g., subsistence agricultural,plantations, ranching, manufacturing), demo-graphics (e.g., ethnic and racial diversity), etc.These differences can dramatically affect thestrategies and prospects of firms (in ways that tra-ditional economic analysis does not capture).

While it is not possible to provide an extendedaccount of the contribution of REIs to growthand development, a few key historical trends canbe noted. First, early on in the century REIsseem to have been in a very strong position topromote their own interests. In the case ofcolonial territories, such firms typically had thesupport of their home government. In LatinAmerica, where most countries were indepen-dent, REIs were also in a relatively strongposition vis-à-vis domestic governments. In theoil industry, for example, foreign firms tendedto dominate operations in part due to the levelof risk involved and start-up costs which servedas effective deterrents to local entrepreneurs.During this period they enjoyed very low taxrates, relatively low labour costs and earned highprofits. There were of course variations acrosscountries due to specific historical circumstances.Key determinants of higher profits rates – apartfrom the nature of supplies, demand, geography– included the ability of local elites to extractrents and the ability of labour to demand highwages (as well as a lack of competition fromdomestic entrepreneurs). For REIs, the mostfavourable circumstances for controlling suchcosts tended to be some form of “strongman”rule. Such a political arrangement typicallyenabled them to get more extensive concessionsand control labour costs. Critics, of course, willargue that these are the conditions that also tendto undermine the development impact ofresource extraction industries (Philip, 1982).

Second, later in the century, the balance ofpower shifted to some extent between firms anddeveloping countries. In Latin America, forexample, several countries were able to nation-alize oil and mining industries by the 1930s. Afurther wave of nationalization would occur inthe post-war period, not only in Latin America,but in a great many former colonies in Africa andAsia. The extent to which the populations ofdeveloping countries benefited from nationaliza-tion and the extractions and processing ofresources generally was, again, conditioned by arange of factors (viz., demographics, organiza-tional capacities and expertise of government,etc.), most notably perhaps, the make-up of thepolitical forces within the country. While more

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populist governments tended to distribute wealthmore widely (e.g., Venezuela), many “authori-tarian governments” were able to limit the gainsto a small coterie of supporters (e.g., Mobutu inZaire) (Philip, 1982; Wrong, 2001).

Third, the nationalization of REIs frequently,though not always, occurred in the larger contextof an interventionist development strategy(import substituting industrialization or ISI)designed to accelerate the process of industrial-ization. It is generally acknowledged that theresults of the ISI strategy in developing countrieshave been disappointing. While in some instancesthis strategy has contributed to the developmentof large industrial conglomerates, these firmshave largely remained uncompetitive interna-tionally, relying for their “success” on govern-ment subsidies and protection from foreigncompetition. Nowhere in the developing worldis there any clear example of REIs providing aneffective spur to development. While a few gulfstates have become wealthy on the basis of theiroil reserves, they cannot readily be called “devel-oped” in any conventional understanding of theterm (and as a result, some will argue, they arenow beginning to face serious problems).(McCrary, 1998) Indeed, the most successfulcases of development, the so-called newlyindustrializing countries (NICs) of East Asia wererelatively resource poor.

Explanations for the failure of the ISI strategyand, more specifically the limited role of REIs inplaying a more dynamic role in development, arecomplex and contested (Banuri, 1991; Ascher,1999). What is clear, however, is the generalattitude and approach that REIs took in the faceof efforts by developing countries to introducegreater control over their resources. Typicallysuch companies have operated in ways – oftenmorally questionable ways – that were clearlydesigned to frustrate the development plans ofdeveloping countries. The reason why is rela-tively simple to understand. A key component oftraditional development strategies has been toexert control over one’s natural resources and toforce foreign companies involved in the extrac-tion (and processing) to pay more dearly (so thatmore investments could be made in “humanresources” and industrial development). To this

end a number of standard practices were imple-mented, e.g., nationalizing reserves, increasingtaxes, requiring further stages of processing tobe done in the host country, limiting equityparticipation in joint ventures, etc. Such measuresare resisted by corporations because they increasecosts and eat into their profits.

A commonly cited instance of such a strategyis the bauxite industry in Jamaica. Bauxite wasdiscovered in Jamaica in 1942 and by the early1960s all the major aluminum companies hadoperations there. In an effort to increase thedevelopment impact of the industry, the Manleygovernment, which was elected in 1972, raisedtaxes on bauxite (which most of the aluminumcompanies had previously avoided payingthrough the creative use of transfer prices) andannounced its intention of becoming a 51%owner in all mining operations. In response, thealuminum companies abandoned Jamaica formore favourable investment climates (in Africaand Australia). The response of the aluminumcompanies, while effective from an industry pointof view, was horrendous from the perspective ofJamaican efforts to promote development and thesocio-economic situation of ordinary Jamaicans(Girvan, 1976; George, 1989; Velasquez, 1995).

REIs, of course, do not only affect the macro-economy. They have a very tangible impact onthe economic development of local communi-ties. Although historically not a great deal ofattention has been paid in the literature to theeffects of these industries on local communities,especially the negative effects, this situation haschanged dramatically in recent years, primarilydue to the work of NGOs, as Kapelus discussesin his article. In addition to the more positiveeffects of employment generation and spin-offactivities, which firms tend to highlight, there arealso a range of potential negative economicimpacts associated with these industries. Primaryamong these are the dispossession of local inhab-itants from their land (e.g., due to formal andinformal expropriation of lands, land claimdisputes) and the degradation of lands and relatedresources that reduce their productive capacity(e.g., pollution of streams and rivers, erosion dueto deforestation, etc.). (See, for example, Sangaji,2000.)


Political development

Historically, REIs have acted in ways that havehad adverse effects on political development.Perhaps, the most blatant cases involve the directsupport by firms for the overthrow of legitimategovernments (which typically occurs after suchgovernments have asserted their sovereignty overtheir natural resources). One clear example of thisinvolves the decision by the government ofMohammad Mossadegh in Iran to nationalize theholdings of British Petroleum 1951. In responseto this move, BP was first able to win assurancesfrom the other major oil companies that theywould not buy oil from Iran, a strategy thatplaced tremendous economic pressure on theMossadegh government to reconsider its policy.When this did not have the desired effect, theBritish government – joined by the U.S. gov-ernment (which had been reluctant to take anyaction, in part due to its own interests in breakingup the British monopoly in Iran) – was per-suaded to intervene in the matter. The result wasstrong support for a coup in 1953 that led to theoverthrow of Mossadegh, the return of the Shahand the (re-)entry of foreign oil companies intoIran (Sampson, 1984). A similar case involves thedemocratically elected government of SalvadorAllende in Chile in 1973, which fell victim to aCIA backed coup in 1973 after nationalizingforeign copper holdings, of which the U.S. com-panies Anaconda and Kennecott had the largeststake (Kaufman, 1988). In both these instances,industry actors found sympathetic ears withintheir home governments in their efforts topromote their economic interests over the will ofthe people of the countries in question.

While these are the most overt cases of cor-porate activity undermining political develop-ment, it could be argued that decisions bycorporations to operate in countries withoutdemocratic governments are equally as damaging,if not as dramatic. At issue here is the degree towhich the operations of corporations serve toprop up non-democratic regimes and inhibit theemergence of democratic governance (andrespect for basic civil and political rights). Whilecorporations and their home governments oftenjustify TNC operations in non-democratic

countries as being in the best interests of localpeople (e.g., by providing employment) andproviding leverage for reforms (the strategy of“constructive engagement”), there are obviousexamples where such justifications do not seemappropriate (e.g., Mobutu’s Zaire). Even ininstances where such claims might appear to havebeen more credible (e.g., South Africa in the1980s), they were frequently not supported bylocal populations (e.g., the ANC attributes a largepart of its success in bringing apartheid to an endto the economic pressure put on the white SouthAfrican government form grassroots pressures andforeign governments) (Mandela, 1993). Suchsituations continue to exist today. While the caseof Myanmar (Burma) has probably received themost publicity, there are many other cases wherethe operation of resource extraction industriessupport the continuation of non-democratic gov-ernments rather than lead to democratic reforms,most notably perhaps, the oil producing gulfstates of Saudi Arabia, Kuwait, Bahrain, etc. (Fortheir part, most Western powers have shown littleinterest in promoting democratic reform andhave largely ignored reports of human rightsabuses in such countries unless it appears to bein their strategic or economic interests to takethem up.)

A closely related concern involves decisions byfirms to operate in countries that, while formallydemocratic, contain conflict zones. There areseveral issues here. One concerns the actual legit-imacy of such governments and the question ofwhether the firm’s decision to operate is helpingto perpetuate a situation of dubious politicallegitimacy. Another concern relates to the (civiland political) rights of individuals and groups(e.g., labour unions, local communities) opposedto government policy and the operations of thefirm. A prime example of this is the currentsituation in Colombia, a country that accountsfor more than half of the deaths of labour leadersin the entire world (the vast majority of whomare 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. Thiscan occur both through the direct activities offirms (e.g., oil companies in Colombia have beenaccused of having close links with paramilitary

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organizations, including employing members ofthese organizations for security purposes) andthrough the government and military workingwith paramilitary groups to help protect theinvestments of foreign oil firms (Ismi, 2000). Asimilar situation, critics claim, exists in a numberof African countries (Ford, 2000).

Another important issue relating to politicaldevelopment, beyond the questions of democ-ratic institutions at the national level and thesecuring of civil and political rights, is localautonomy. This problem is particularly salient forindigenous groups (and other ethnic minorities)who typically have had no say in how nationsstates were formed (e.g., the determination ofboundaries, the nature of the political institu-tions) and little ability to represent their inter-ests once states were formed. Many such groups(e.g., the U’wa in Colombia and Ecuador, theOgoni in Nigeria, various groups in Sudan) havebeen directly (and adversely) affected by resourceextraction industries without having any oppor-tunity to effectively contribute to the policiesthat determine the conditions under which theseindustries carry out their activities.

Environmental and socio-cultural impact

The nature of REIs necessarily involves alter-ations to the environment and various forms ofdisplacement of local populations. With respectto the environment, resource extraction indus-tries can have wide-ranging (adverse) effects.Primary among these are: 1) the degradation ofecosystems through processes of extraction,refining and transportation, e.g., oil spills, cyanidespills, acid mine drainage, etc.; 2) degradation ofthe environment through the use of products ofthese industries such as oil, e.g., smog, ozonedepletion; 3) changes in ecosystems, viz.,flooding, deforestation, desertification and; 4) theloss of biodiversity.9 While such negative impactoccurs in both developed and developing coun-tries, the latter tend to be more vulnerable dueto a variety of factors that may differ when firmsoperate in these different contexts. Such factorsinclude regulations in effect covering extractionand refining processes (e.g., extraction methods,

reclamation standards, etc.), the ability and willof governments to enforce such regulations, theability of local communities to participate indecision-making, other pressures on firms (e.g.,boycotts, negative publicity, etc.), etc. Notinfrequently, for example, it is the case that firmscause environmental damage through methodsthat are perfectly legal in the host (developing)country in which they are operating, but whichwould be illegal in their home (developed)country.10

Such adverse environmental impact and theeconomic effects noted above can (individuallyand in concert) lead to adverse social and culturaleffects on local communities. In the social realm,the direct and indirect effects of resource extrac-tion industries may include such problems asincreased health problems, the break-up of localcommunities (through forced removal, degrada-tion of traditional livelihood opportunities, etc.),increased ethnic and racial tension (as populationsmove to and from resource extraction sites), etc.– as attested to by the papers in this issue byIdahosa and, Boele, Fabig and Wheeler.Indigenous groups and ethnic minorities tend tosuffer disproportionately from such effects(Clarke and Cook Clarke, 1999). In the realmof culture, adverse effects can occur at either oftwo levels. At one level, as business has becomeincreasingly global (especially in its marketingstrategies), there has been a general trend forWestern culture to commercialize and displacelocal cultures in developing countries (e.g.,fashion, music, cinema, literature, language, etc.).While REIs may contribute to this broaderphenomenon, their activities are even morelikely to contribute to another trend. This is theabsorption of indigenous groups and other ethnicminorities into a national or dominant culturewithin the country (involving the loss oflanguage, traditional lifestyles, systems ofmeaning, etc.) (Project Underground, 2000a).

5. The normative problematic of 5. operating in developing countries

The circumstances under which REIs and otherTNCs operate in developing countries can vary


dramatically from those that hold in developedcountries. This fact raises a number of norma-tive questions in relationship to the practices andresponsibilities of REIs. In what follows, we willfirst note some key differences and then go ontoexamine the basic normative problematic. In thenext section we focus more specifically on issues.

Differing circumstances

When operating in developing countries, cor-porations may face significantly different envi-ronments. These differences can be organizedunder the concepts of economic, political andsocio-cultural realms. Beginning with theeconomic realm, two basic differences tend todistinguish developing economies from devel-oped economies. First, markets in developingcountries tend to be less established and com-petitive than in developed countries. This holdsnot only for markets in consumer and producergoods, but also financial markets as well asmarkets in executive personnel and labourmarkets generally. The less competitive nature ofmarkets gets reflected in such indicators as higherlevels of un(der)employment, lower levels ofshareholdings, greater dominance of family firms,etc. (Claessens et al., 1999) Second, and notunrelated to the previous point, developingcountries tend to have different economic struc-tures than developed economies (Martinussen,1997; Singh, 2000). More specifically, whereasthe economies of developed countries have beenindustrial in nature, the economies of developingcountries are more resource-based economies(including agriculture). In many instances, (gov-ernments of) developing countries may be largelydependent upon a single resource industry (e.g.,Nigeria, where the government receives about97 percent of its total revenue from joint-ventures in oil and gas), a condition that makesthem extremely susceptible to influence by theindustry in question (Federal Office of Statistics,1997).

Second, with relation to the political realm,four basic areas of difference may distinguishdeveloping countries from developed nations.The first of these is civil and political rights. In

developing countries (vis-à-vis developed coun-tries) it is frequently the case that civil andpolitical rights are either not adequately estab-lished in law, are not effectively upheld throughthe legal system and/or cannot be effectivelyexercised by a large percentage of the popula-tion due to other causes (poverty, illiteracy, etc.).(Amnesty International, 2000) A second area ofdifference relates to political-administrativeinstitutions and practices. In developing coun-tries the design of the institutions (vis-à-vis thosein developed countries) may not adequatelyconform to defensible democratic principles(viz., the principles of the constitutional state).The extreme case, of course is where there areno democratic institutions or formal democraticprocesses. However, even when the extreme casedoes not hold, these political-administrativeinstitutions may be riddled with corruption(Transparency International, 2000). Such cor-ruption – ranging from grease payments for pro-cessing applications to endemic corruption inbidding processes and a complete monetarizationof the electoral system – tends to increase theability of business to exert influence (vis-à-visordinary citizens and other groups such as orga-nized labour, environmentalists, etc.) as they havegreater resources to employ. Third, the level ofcivil society activity, the density of civil societyorganizations and the resources to which suchorganizations have access may be considerably lessin developing countries. Finally, developingcountries, in part due to the circumstances aboveand in part due to less economic clout, aregenerally not as able to exert to influence ininternational affairs, most notably perhaps whenit comes to determining the form of multilateral(economic) agreements.

Third, with respect to the socio-cultural realm,developing countries typically are less well-offin terms of a number of important social areas,viz., education and access to information (e.g.,lower literacy rates, lower levels of primary andsecondary education, less access to the “infor-mation highway,” etc.), health (e.g., higher infantmortality rates, lower life expectancy, less accessto safe drinking water, etc.), food and shelter(chronic under nourishment, famine, etc.),gender equality (e.g., lower labour force partic-

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ipation rates for women, less access to education,etc.) (UNDP, 2000). In addition, such countries(especially the poor within them) are more sus-ceptible to the effects of (natural and man-made)disasters as both individuals and governmentshave fewer resources to help anticipate andrespond to the results of such events. In manydeveloping countries, there are also significantpopulations of indigenous groups, which histor-ically have not been integrated into the marketeconomy and have had only limited contact withdominant cultures. As resource extraction (andother) industries penetrate into their areas, suchgroups are not only frequently unable to effec-tively represent their interests through the polit-ical process, but risk loss of the break-up of theircommunities and loss of their traditional lifestyleand language (and absorption into the dominantculture).

The normative problematic

It is commonly, though not universally, held inethics that differing circumstances can alter theresponsibilities that we have. This position isexpressed, for example, in the Kew Gardensprinciple (Simon et al., 1972), which states thatour responsibility to respond to the need ofothers depends upon such conditions as theurgency of their state, our proximity, our capa-bilities and the likelihood of others (not)responding. Principles like Kew Gardens weredesigned primarily with a view to the situationof individuals responding to the needs of otherindividuals. While the same basic notion (viz.,that responsibilities vary with circumstances) mayhold for corporate actors, the complexity ofmodern societies and the roles of institutions areimportant to keep in mind.

In complex modern societies, we rely heavilyon institutional measures to promote desiredsocial outcomes. Two sets of institutions are mostimportant. First, we rely upon the discipline ofmarkets. Under ideal conditions, the functioningof markets harmonizes the pursuit of profit byfirms with larger social goods, e.g., allocativeefficiency (understood as Pareto Optimality),innovation, growth. Second, we rely upon the

institutions of political democracy to help usdetermine and promote policies that, in ourconsidered opinion, will best reflect our societalvalues. Over the course of the 20th century thismeant the institutionalization of not only basiccivil and political rights, but also, to varyingdegrees, social and cultural rights (e.g., access tohealth care, education, disability allowances, etc.)as embodied in the policies of the welfare state.When these two sets of institutions functionrelatively effectively, then they relieve organiza-tions like corporations (and the individualswithin them) of a great deal of responsibility interms of determining what appropriate standardsof business behaviour are (e.g., what constitutesa fair wage, what constitutes fair competition,etc.). They also relieve organizations of directresponsibilities to come to the aid of others (e.g.,rather than organizations directly assisting theindigent, the state provides for them throughsocial welfare programs which are fundedthrough the tax system).

In developing countries, as noted above, it isfrequently the case that neither markets or theinstitutions of political democracy function inways that even nearly approximate the ideal.Under these circumstances, when firms seek tomaximize shareholder value, it does not con-tribute to a common good. Moreover, insofar asthe institutions and practices of political democ-racy are deficient, government may not developand enforce legislation that encourages respon-sible business practices, effectively protects therights of its citizens or meets pressing needs ofits people. One of the most basic normativequestions that arises, then, for corporationsoperating in developing countries, is whether andto what extent deficiencies in markets and theinstitutions of political democracy impose greaterresponsibilities upon them to assist the needy, todevelop their own standards of conduct, etc. Thisbroad question sets the context for the followingdiscussion of individual issues relating to theactivities of REIs.


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

REIs have historically operated in morally ques-tionable ways that have resulted in a negativedevelopment impact. In recent years, as notedabove, there has been increased public pressureon these industries to operate in more sociallyresponsible ways. For their part, recognizing thatit pays to be proactive, resource extraction indus-tries have responded. At issue, however, is thenature of their response(s). In addition to ques-tions about the appropriateness or adequacy ofindividual policies and practices that firms adopt,there is the larger question of the overarchingpublic policy approach (viz., self-regulation) thatprovides the context in which these individualtactics are employed. In this section, we identifysome of the major normative issues involvingREIs and their development impact, we examinethe response of REIs to these issues and wediscuss some on-going concerns that questionwhether these responses represent an adequateand effective solution to the issues in question.

Economic development

Normative issues. Historically, REIs have operatedin a variety of (morally questionable) ways thathave (adversely) affected economic development.For our concerns, we can distinguish threeprimary levels at which issues arise. The first ofthese involves the internal policies of corpora-tions and the welfare of employees (and theirfamilies). Key normative concerns here includeappropriate wage levels, health and safety stan-dards, etc. A second level is that of local com-munities. Primarily what is at issue here iswhether local communities enjoy an appropriatebalance of benefits (e.g., employment, spin-offactivities, 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 socio-cultural and political problems noted below. Thethird level is macro-economic development.There are two basic issues here. The first is thelevel of responsibility that corporations have to

ensure that their business runs in accord with thelogic of competitive markets (e.g., not to engagein collusion and other non-competitive practices,not generate negative externalities, etc.). Thesecond is whether corporations have any oblig-ation to go beyond this and take the develop-ment impact of their operations into account(e.g., how capital-labour ratios impact employ-ment generation) (Reed, 2000).

Industry practices. REIs have become increasinglyaware of the growing public concern about theiroperations in recent years and have felt a strongneed to respond. One indication of the degreeof sensitivity of industry officials is expressed intheir adoption of formal codes and policies.Firms in these industries are more likely to havea formal written code of ethics and social respon-sibility (Reichert et al., 2000). These codes andpolicies may, in principle, be directed at any ofthe three levels noted above. At the level of theinternal constituencies of the firm, many if notmost REIs do claim to pay competitive wagesthat are above the local minimum wage. Inaddition, it has become common for manyfirms to adopt independent standards or thestandards of their home country with respect toissues of health and safety. Another notabledevelopment is that many companies are realizingthe need to develop management programs tohelp ensure more effective implementation ofcodes and standards (see, for example, Oil & GasJournal, 1998).

At the level of local communities, virtually alllarge firms have tried to establish better rela-tionships by developing a multifaceted programunder the concept of “good neighbour policies.”The elements of such an approach that relatemost directly to economic development includeemploying local inhabitants in projects, usinglocal suppliers, support for the development ofnew entrepreneurs, provision of infrastructure,etc. For their part, international financial insti-tutions like the World Bank, encourage firms inthese sectors to undertake local economic devel-opment (LED) projects.11

At the level of macroeconomic development,there has been an increased emphasis by REIs ontransparency in recent years (discussed below). To

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the extent that initiatives are directed inwardtowards the company’s practices and not onlyoutward towards governments in developingcountries, they might have a positive impact onthe macro-economy, not only by cutting downon rent-seeking behaviour by government offi-cials, but also by ensuring more competitive prac-tices. It is not clear, however, that commitmentsto transparency have in any way reduced suchquestionable practices by REIs as regulatorybargaining. What is also worrisome, especiallyin industries that have historically engaged incollusion and other forms of non-competitivepractices,12 is the recent spate of mergers andacquisitions. This has not only involved REIsbuying up or into formerly public firms indeveloping countries, but mergers and acquisi-tions amongst themselves. Prime examples of thisinclude the merger of Exxon and Mobil in 1998,the merger of British Petroleum and AMOCOin 1998, and BP-AMOCO’s subsequent purchaseof ARCO in 2000.

On-going concerns. At the levels of the firm, localcommunities and the national economy, the mostbasic on-going concern is whether employees,local communities and the country as a wholereceive an appropriate share of the benefits fromthe activities of the resource extraction industries(through employment, economic spin-off activ-ities, LED programs, taxation by local andnational governments, etc.). Calculating whatconstitutes an appropriate level of benefits isdependent upon some (implicit or explicit)theory of distributive justice. The underlyingquestion, of course, is who should determine thecriteria of distributive justice. Under (neo-)liberaleconomic policy regimes, it is primarily themarket that determines what fair value is.Standard justifications of the use of the marketas an instrument of distributive justice, however,imply that a wide range of conditions hold, e.g.,markets that approach the norms of perfect com-petition, a fair initial allocation of resources(which raise questions of historic injustice), etc.(Buchanan, 1985) In the absence of such condi-tions, markets have to be supplemented byregulation (and redistribution) in order to ensurefair outcomes. In developing countries in an age

of liberalization, governments are not in aposition to effectively regulate (or redistribute)so as to ensure that actual market outcomesconform to ideal market (or other normativeideal) outcomes. As a result, the only way thatthe results of imperfect markets are likely to beadjusted is through the voluntary action ofcorporations (e.g., by paying more than sub-subsistence minimum wages, by undertakingLED projects, etc.). What this means is that, inpractice, it is corporations that determine thestandards of distributive justice.

This fact raises several concerns. Apart fromthe procedural question of whether it is corpo-rations that should determine standards ofdistributive justice (discussed below), there is theobvious substantive question of whether thestandards that corporations set are fair. Clearly,there are many individual examples (e.g., ofwages, employment generation, taxes paid) thatcan be found that would strike most people(including many in the industry) as unfair. Themore important question is probably whether thecommonly cited “best practices” standards arefair. From a normative theoretical perspective,“best standards” seem to be dubious criteria(though in practice they may represent importantminimal benchmarks). The manner in whichsuch criteria are determined remains unclear, butwould seem to reflect existing power relations(e.g., between firms and stakeholder groups)rather than sound normative theoretic justifica-tion, as indicated by the fact than many stake-holder groups question the fairness of “bestpractices” (Project Underground, 1998). Asecond basic concern that arises is whether “bestpractice” standards are likely to be followed bymost firms (a point that relates not only toeconomic issues but also to environmental andsocial issues as well). Firms could be motivatedto live up to such standards either out of prag-matic motivation (i.e., considerations about theeffects on company performance operatingthrough stakeholder pressure, public good will,etc.) or ethical motivation (i.e., it is the properthing to do). Cragg et al. (1995), however, haveeffectively argued (with specific reference to themining industry) that it is extremely unlikely thatfirms operating out of pragmatic (rather than


ethical) motivation will act in a socially respon-sible fashion and live up to the standards that areformally espoused. Moreover, even when seniormanagement is apparently well motivated andintent upon addressing problems, it can still beextremely difficult for them to get their sub-sidiaries to effectively implement and abide bythe standards that the head office has set, as thepaper by Boele, Fabig and Wheeler in this issueillustrates.

Environmental and socio-cultural impact

Normative issues. There are a range of normativequestions that arise in relation to the (potential)environmental and socio-cultural impact of theoperations of resource extraction industries. Withrespect to environmental impact, there are twobasic concerns that define the normative issuesinvolved. One is the trade-off between conser-vation (understood as preserving, to as great anextent as possible, existing ecosystems and bio-diversity) and human well-being (understoodprimarily in terms of consumption of materialgoods). The other is the distribution of thebenefits and risks entailed in the operations ofresource extraction industries. These questionscan probably be most easily investigated byexamining the three basic forms of activities inwhich resource extraction industries may engage.The first of these would be extraction and sub-sequent processing/refining activities. Here basicquestions would include how the choice ofmethods (e.g., surface vs. underground mining,the use of toxic substances such as cyanide andmercury for extraction) influence both thebalance between conservation and the short-termpromotion of human ends (e.g., the destructionof ecosystems vs. increased productive capacity)and the distribution of benefit and risks (e.g.,local communities suffering the brunt of risk andadverse effects from cyanide spills, while com-panies stand the most to gain in terms ofdecreased costs). With respect to the secondactivity, reclamation processes, the two key issuesare the ability of such processes to justify orrectify the damage done to environment throughextraction and the fairness of the distribution of

the risks involved in counting on reclamation tobe done properly (e.g., how local communitiesare much more at risk than firms, which mayactually benefit if they can avoid/reduce the costsof reclamation). The third key activity entailsefforts by firms to cut back their operations andthe demand for their (non-renewable) products,e.g., through encouraging recycling, investing inalternative (renewable) products (e.g., solar andwind power). Again, the basic issues here are thetrade-offs between conservation and human well-being and the distribution of the costs andbenefits (e.g., it may be energy industries whichstand to lose the most in the development oflow-cost, environmentally friendly energysources). A basic question that runs through allthese issues is the extent to which industriesshould go beyond the established legal require-ments (both in terms of their activities and inreporting on their activities). Again, answers tothese questions will potentially depend bothupon the ethical theory one employs as well asthe circumstances in effect (e.g., the lack of alegitimate government to establish appropriatestandards).

There is also a range of normative issuesrelating to the socio-cultural realms that arise.In terms of social issues, many questions can bephrased in terms of basic (social) rights (e.g., toeducation, to health care, etc.). At issue here isthe degree to which individuals and local com-munities (in addition to those directly employed)participate in the wealth generated by projects.More specifically, the question to be raised iswhether firms have any obligations to directlyaddress such problems (especially when govern-ments fail to adequately provide) and, if so, towhat extent and under what circumstances (e.g.,when they have a direct relationship with a localcommunity, when the community are “non-voluntary stakeholders,” etc.). Another key issuethat arises relates to the distribution of goods andresources between communities, which can resultin other social problems such as ethnic tensions.Again, a fundamental question here is whethercorporations have specific responsibilities toaddress such issues that are generally indirectresults of their activities (or whether this isentirely the responsibility of government). In the

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realm of culture, the basic issue is the displace-ment and loss of local cultures (including lifestyle,language, systems of meaning, etc.). While thebasic normative issue here is whether it is impor-tant to preserve local cultures, an increasinglysmall number of people will argue against this (atleast publicly). As a result, the key practicalquestions are what are the most appropriate waysto preserve them, e.g., allowing them to remainisolated from dominant cultures, actively inter-vening to support them, commercializing them(e.g., as tourist attractions) and the extent towhich these different options are compatible withthe activities of resource extraction.13 Again, theunderlying (political) question is who shoulddecide the answers to these questions. In theabsence of government legislation, these deci-sions frequently fall on firms, who obviously haveinterests in seeing resource extraction as com-patible with preserving local cultures.14

Industry practices. Resource extraction industriesare very cognizant of the need to address envi-ronmental and socio-cultural issues and havewidely expressed this concern through theadoption of the “triple bottom line” framework(which addresses issues of financial, social andenvironmental performance). In terms of theenvironment, this awareness is also expressed bythe fact that such industries are the most likelyto have specific policies on the environment,especially as they relate to extraction/processingand reclamation activities (Reichert et al., 2000).There has also been a strong move by majorplayers to adopt “best practices” or “indepen-dent” standards or codes of conduct establishedby industry groups (e.g., the ISO 14000 series,the Valdez principles)15 and to engage in moreopen reporting. Firms have been encouraged tomove in these directions by international finan-cial institutions (see the paper by Szablowski inthis issue)16 and multilateral bodies17 as well ascivil society groups. In terms of the latter, somefirms have sought to work more closely withNGOs and local communities (e.g., throughmulti-stakeholder committees) in their efforts toassess the impact of the activities and developmore appropriate guidelines (Mining WatchCanada, 2001). In addition, research extraction

industries have also been active in promotingresearch on the impact of their activities, bothdirectly funding analysis of their operations andby providing funding to research institutes, e.g.,International Association of Environment andDevelopment (IIED, 2000). With respect to thequestion of promoting recycling and the devel-opment of alternative (renewable) energy, REIshave a mixed record. In the oil industry, forexample, Shell has recently come out with arelatively strong statement on its commitment tomove in the direction of renewable energy(Watts, 2001). Exxon-Mobil, by contrast, hasbeen sharply criticized by NGOs for its failureto invest in renewable energy sources and is seenas a key source of influence behind the Bushadministration’s decision to abandon the Kyotoprotocol (Drillbits and Tailings, 2001).

With respect to social and cultural issues, asKapelus argues in his paper in this issue, REIshave been forced to acknowledge an obligationto directly contribute to the well-being of localcommunities and to respect local cultures andvalues. These obligations are fulfilled throughcorporate social responsibility or good neighbourpolicies. Under this rubric, (large) firms spendmillions of dollars to fund a wide variety ofsocio-cultural activities (e.g., health care, educa-tion, community development, sport, culturalprograms, etc.), as discussed in several of thepapers in this volume. Again, as noted above,industries are encouraged to adopt such policiesby a range of actors (e.g., international financialinstitutions, multilateral bodies, business groupsand NGOs) and frequently draw upon princi-ples and policies that these actors have estab-lished.

Ongoing concerns. Two closely related factors giverise to a range of concerns with respect to theenvironmental impact of REIs. The first of theseis the appropriateness of the dominant concep-tion of sustainable development that tends tounderlie their practice and policies. The concernwith this approach, which we have labelled“growth-centered,” is the way that it downplaystwo key matters, viz., conservation of ecosystems(which implies a need to cut back on resourceextraction) and equity (which implies a need to


evaluate how the benefits from and REIs are dis-tributed).

The second factor is the public policyapproach that is used to regulate REIs. At thenational level, programs of economic liberaliza-tion (and the perceived need by developingeconomies to attract foreign capital) have led toless stringent regulation in developing countries18

(in practice if not on the books) and a greaterreliance on (voluntary) self-regulation byindustry, including efficiency arguments.19 At theinternational level this approach consists ofvoluntary agreements that individual countriescan choose to opt out of at any time (e.g., theU.S.’s recent decision to opt out of the Kyotoaccord). For their part, REIs have been majorplayers in promoting a self-regulatory approachto international public policy – operatingthrough such bodies as the World BusinessCouncil for Sustainable Development’s(WBCSD) Global Mining Initiative (GMI) andBusiness Action for Sustainable Development(BASD), a new joint venture of the InternationalChamber of Commerce and the WBCSDchaired by Sir Mark Moody-Stuart, the recentlyretired chairman of Royal Dutch/Shell. Aprimary goal of these bodies is to ensure that nobinding international regulation will be imposedupon the mining (or other) industry at theupcoming World Summit on SustainableDevelopment (Rio+10) in South Africa in 2002.Through these vehicles, REIs (and other businessinterests) have been issuing reports (e.g.,“Sustainability Through the Market”), runninglarge advertising campaigns (e.g., the series of tentwo-full-page ads run in the International HeraldTribune under the title “The Business Case forSustainable Development”) and commissioningnew projects (e.g., “Mining, Minerals andSustainable Development,” which claims to be an“independent process of participatory analysisaimed at identifying how mining and mineralscan best contribute to the global transition tosustainable development”) (Corporate EuropeObserver, 2001).

The basic concern with respect to the envi-ronment is that these two factors can combine tomake populations (especially local communities)and the environment increasingly vulnerable.

Under a self-regulatory regime that assumes a“growth-centered” approach to sustainability,local communities (and others) are dependent notonly upon the competence of REIs (e.g., toeffectively implement their policies so as to avoidtoxic spills), but also upon their moral insight (asto what specific situations require) and moralcommitment (to act in accord with appropriatenorms even when this is in direct opposition tosignificant economic interests). The record ofREIs in demonstrating such moral insight andcommitment, however, is at best open toquestion and gives credibility to the charges of“greenwashing” that are frequently made againstthem (Beder, 1998; Tauli-Corpuz and Kennedy,2001).

In terms of social impact, a variety of concernshave been raised about the CSR programs ofREIs. One fundamental question, which Kapelusnotes in his article, is the appropriateness of thelevel of spending on CSR vis-à-vis profits gen-erated. A second concern involves the prioritiesof spending and how they are determined. Atissue here is both the extent to which localcommunities participate in determining spendingpriorities and who in the local communityparticipates (e.g., traditional chiefs, business elites,grassroots organizations). Perhaps, the majorconcern, however, relates to the role of CSRprograms in the overall development strategy ofdeveloping countries. At issue is whether suchprograms are serving to legitimize neo-liberalpolicies (including cuts in corporate taxes) at thenational and international level and a reductionin the role of the state as a provider of socialservices. The obvious concern is that, while suchprograms may bring important benefits to localcommunities immediately surrounding extractionsites, they cannot be relied upon to provide acomprehensive program which provides sufficientlevels and a full range of services (in an equi-table manner) for an entire nation.

With respect to cultural impact, as noted abovea wide variety of factors contribute to threatenlocal cultures. While some of these factorsoperate in indirect and rather diffuse ways (e.g.,the general marketization of social relations,penetration into markets by foreign culturalindustries, etc.) and may be difficult to stop

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without placing severe (and often unwanted)restrictions on larger parts of the population,there are also factors which primarily affectspecific groups and which could be addressedrather directly. Most notable in this regard is theimpact that foreign companies, especially REIs,have when they operate in previously isolatedterritories inhabited by indigenous groups. Theconcern here is that such groups are not onlyfrequently unable to comprehend the likelyimpact of such operation on their culture, butthat even when they do, they are not able toeffectively oppose such operations through thepolitical process as such decisions are made bycentral governments. Such governments mayfavour the interests of REIs over indigenousgroups for any number of reasons (e.g., poten-tial rent-seeking behaviour, potential tax revenue,modernization ideology, etc.).

Political development

Normative issues. With respect to politicaldevelopment, two closely related conceptsprovide the parameters for normative questions,viz., (civil and political) rights and politicaldemocracy. With respect to the topic of rights,there are two basic issues. The first is whetherfirms should respect basic rights. At one level,this is an uncontroversial question as it is gener-ally held that firms do have such a responsibility.Where controversy arises is with respect to thedetails of what respect for basic rights entails(e.g., what does respecting an employee’s right toassociation or free speech entail?). A second,more controversial question relating to rights iswhether firms have any responsibility for theactions of others. The question, in effect, iswhether, in situations where the firm’s operatingin a country (or region) may tend to induce orprovoke abuses of basic rights (e.g., the case ofColombia cited above), firms have any obligationto respond, e.g., to put pressure on potentialrights abusers or people that may have influenceover them (e.g., local politicians) or even to quittheir operations.

The second key concept, political democracy,also raises a variety of normative questions. The

most basic of these is whether firms shouldoperate in countries with non- (or questionably)democratic governments. The underlyingquestion here is whence business derives itssanction to operate. Do firms have a basic rightto conduct business or are they granted someform of sanction by a legitimate government? Ifthe latter is the case, then the question is whatconstitutes a legitimate government. Thisquestion has been resolved in practice (andinstitutionalized in international law) on the basisof a “realist” definition of legitimacy, viz., theability of a government to defend its territoryand maintain order and, some would add, thestipulation that it not engage in “gross” viola-tions of human rights (McCleary, 1992). As aresult of this realist approach to internationalrelations, the question of whether firms shouldoperate in non-democratic environments hasbeen largely determined by firms themselves(rather than on the basis of public discourse anddemocratic decision-making). This practicalability of firms to make this decision is, of course,a normatively controversial question, as is the“realist” understanding of legitimacy upon whichit is based. For those who reject realist approachesto international ethics, the normative theoret-ical question of whether firms should operate innon-democratic environments still remains. Theanswer to this will largely depend upon whereone stands on the deontological-utilitarianspectrum, with the more deontologically inclineddenying the legitimacy of operating in non-democratic governments (unless there is broadpopular support for this) and utilitarians basingtheir decisions on whether the operations offirms under such circumstances is more likely toinhibit or promote utility (and possibly democ-racy). Operating under non-democratic condi-tions may imply increased responsibilities forcorporations. This is so not only with respect torespect to the political realm (e.g., providingspace for public discourse), but also in theeconomic (e.g., adopting higher standards forminimum wages, health and safety conditions),socio-cultural (e.g., increased levels of contribu-tions to local communities) and environmentalrealms (e.g., more stringent environmental stan-dards), as the lack of a legitimate government


calls the fairness of the established standards intoquestion (Reed, 2002).

Another question related to political democ-racy concerns the level at which democracyshould operate. More specifically, the questionis the extent of the autonomy that local com-munities should enjoy. The saliency of thisquestion is enhanced by circumstances involvingindigenous groups and ethnic minorities which,historically, were not able to effectively partici-pate in decisions concerning the formation of thenation state or exercise influence in it once it wasestablished. The practical question that arises forresource extraction industries is the degree towhich they should not only consider the inter-ests of such groups, but also how much theyshould enable them to participate in the firm’sdecision-making processes (a question raised inthe paper by Cragg and Greenbaum).

Additional questions related to politicaldemocracy include such issues as how firmsshould respond to overtures to engage in corruptpractices (e.g., grease payments, bribes) anddefining the limits of acceptable influence (e.g.,lobbying practices, campaign contributions, etc.).This latter question relates both to the activitiesof firms in developing countries and their effortsto enlist the support of home governments, e.g.,to provide export subsidies, to place informalpressure on individual countries, to supportmultilateral actions (e.g., trade agreements) thatfavour their interests, etc. The larger contextwithin which these latter questions arise areprocesses of economic globalization that havelargely shifted the balance of power betweenfirms and states and, it could be argued, havelargely undermined the policy autonomy ofdeveloping countries. As noted above, in manydeveloping countries the influence of resourceextraction industries is magnified by the extentof the countries dependency on a single industry(e.g., oil in Nigeria).

Industry practices. While business responsibilitiesinvolving issues of political development havereceived significant attention in the past, suchattention has generally focused on individualcases, most notably the question of apartheid inSouth Africa. It has been only much more

recently that corporations have started to raisethese questions more systematically. REIs (againreflecting negative publicity and stakeholderpressures) have been among the most activeindustries in this regard (e.g., BP Amoco, Shell,Rio Tinto). Most major firms in these industrieshave policies on human rights. These generallyrefer to norms developed by industry, multi-lateral groups and/or NGOs. A prime exampleof a collaborative effort to generate such normsis the joint project by the Prince of WalesBusiness Leaders Forum and AmnestyInternational entitled “Human Rights – Is It Anyof Your Business?” (Frankenthal and House,2000) which addresses such areas as labour rights,land rights, indigenous peoples’ rights, operatingin conflict zones, dealing with security forces,etc. Multilateral initiatives such as the UN’sGlobal Compact also incorporate basic principlesconcerning respect for human rights. Whileadopting such standards has helped the imageof REIs to some extent, one area where theirpractices especially continue to come under sharpcriticism, as Kapelus notes in the case of RioTinto, is the area of labour rights.

In terms of issues related to political democ-racy, perhaps the most attention has been paidto the issue of corruption and political influence.Typically, REIs are treating these issues under therubric of increased transparency. With respect tothe issues of corruption, REIs tend to view theproblem primarily as originating from thegovernments and bureaucracies of developingcountries (Banks, 1997). They have responded inrecent years by calling for greater transparencyon the part of governments and by establishingtheir own policies on bribery (which commonly,as in the case of BP, distinguish between a refusalto pay bribes and a desire, but not necessarily aprohibition, not to pay grease payments).Increasingly, REIs are collaborating withindependent bodies such as TransparencyInternational. To the extent that REIs address thequestion of political influence, they also do sounder the rubric of increased transparency.Focusing on transparency typically means thatcorporations commit themselves to limitingpayments to legal transactions (e.g., campaigndonations). It does not commit them to limiting

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the size of their payments (except to legalmaximums) or asking of themselves whether theamount of money they donate might involveundue influence.

With respect to operating in conflict zones andnon-democratic environments, some REIs havealso shown an increased willingness to confrontthese problems in recent years. Typically thisopenness consists of developing their ownprinciples or standards (or abiding by indepen-dent standards, e.g., Amnesty International’s, theUN’s Global Compact) when operating in suchareas. In some instances it has also involved firmsundertaking social impact studies. It does not,however, generally extend to firms asking thequestion of whether they should be operatingunder these circumstances, as Idahosa notes in hispaper. That is, they do not appear willing toconsider the possibility that their operations,despite their intentions, might be contributing toa deterioration in the situation and that, as aresult, they should not be operating there onmoral grounds. Perhaps, the most blatant form ofthis attitude is being expressed by oil and gascompanies currently operating in Mynamar.Premier Oil of the U.K., for example, has basi-cally rebuked calls by the Blair government forit to divest (Aldred, 2000). For its part, Unocalhas vigorously fought efforts by both activists(who have taken legal action in an attempt torevoke its charter) and individual states in theU.S. (e.g., Massachusetts passed legislation, lateroverturned by the Supreme Court, barringcorporations operating in Myanmar from biddingon state contracts) to pressure it to withdraw.One recent exception to this general approachhas been the efforts by the diamond industry todevelop a certification program to address theproblem of “conflict diamonds,” (an initiativethat was undertaken only after extremely negativepublicity and tremendous civil society pressure)(Global Witness, 2000).

Finally, with respect to the issue of localautonomy, REIs have shown a similar disposition.They are increasingly willing to consult withlocal communities, take their concerns in con-sideration and possibly modify their plans. Theyare not, however, as the paper by Cragg andGreenbaum in this volume indicates, generally

willing to include local communities intodecision-making or consider the possibility thatlocal community desires (not to have REIsoperating in their communities) might takeprecedence. As some of the other papers in thisvolume suggest, firms are also selective indeciding who will represent the community’sinterests to them, often preferring local elites thatare more inclined to share their views.

On-going concerns. A key aspect of the notion ofpolitical development is that people should beincreasingly able to actively and equally partici-pate in decisions that affect their lives. The basicconcerns that arise with respect to politicaldevelopment are that the practices of REIs (andTNCs generally) are undermining the ability ofcitizen’s to effectively participate in the politicalprocess and, correspondingly, privatizing theprocess of interest representation.

Insofar as TNCs (and other economic andpolitical elites) have largely been able to under-mine the public policy autonomy of nation statesin the developing world (through the simulta-neous promotion of economic liberalization atboth the international and national levels), it isno longer citizens that make decisions throughtheir government. Rather, governments havelargely ceded decision-making powers (practicallyif not legally) to business with respect to a widerange of issues. As noted above, these includeenvironmental standards, labour standards, theprotection of cultural values and heritage, etc.Not only this, but under the present internationalorder corporations continue to be able to effec-tively decide for themselves (rather than theinternational community or citizens of thecountry in question) such questions as whetherit is (morally) appropriate for them to be oper-ating in non-democratic countries.

With the declining public policy autonomy ofnational governments (and the lack of any inter-national organizations that allow for effectiveinput by individuals and local communities),citizens are increasingly forced to engage directly(as “stakeholders”) with corporations if they wanttheir interests to be represented and their claimsto be heard. In doing so, however, they areengaging in a process in which there are tremen-


dous power differentials between the actors andin which there is no set of enforceable rules.Under these circumstances, stakeholders have toeither rely on the conscience of corporations torespond to their concerns as moral demands ortry to make it in the interests of corporations tolisten to their demands, by imposing costs uponthem (e.g., through boycotts, protests, etc.). Notonly are the prospects for success unlikely undersuch circumstances, but the goals of politicaldevelopment (as the promotion of active andequal participation in decision-making) are lostin the process.

7. Conclusion

For reasons indicated in this paper, the operationsof REIs in the developing world have long beenthe subject of criticism. As these REIs haveincreased their presence in the developing worldover the last couple of decades, this criticism hasnot only continued, but become more vocal –reflecting perhaps both the increased impact oftheir operations and better organization by theircritics. For their part, REIs have responded tocharges brought against them by adopting codesand policies to guide their behaviour in a varietyof sensitive areas. These initiatives – whichinvolve activities by individual firms andindustries as well as collaboration by firms andindustries with NGOs and multilateral bodies –in turn have come under attack by critics asbeing, at best, ineffective and, at worst, meremarketing ploys.

While the increased activities of REIs indeveloping countries raise a wide variety ofethical issues, the most fundamental point ofcontention involves the basic strategy that shouldbe employed to promote more responsible behav-iour by these industries. For their part, the cor-porate responsibility initiatives undertaken andadvocated by REIs (and TNCs generally) reflecta self-regulatory approach. They contend, thatmarket-based solutions can effectively address theconcerns of “stakeholders.” I have offered somereflections elsewhere on alternative (non-self-regulatory) public policy approaches to interna-tional regulation (Reed, 2002). In this article I

have pointed out some concerns about the self-regulatory public policy approach (which reflectmore general concerns about TNCs operating inthe global economy). Of particular concerns arethe facts that this approach places the mostvulnerable populations at greater risk, does notgenerally encourage the use of a “precautionaryprinciple” with respect to the environment,masks the power relations involved in the rela-tionships between corporations and “stake-holders” and undermines democratic controlover the economy, forcing people to increasinglytry to impose limits on corporations as “stake-holders” rather than as “citizens.”

Acknowledgements

The author would like to acknowledge supporthe received as part of research team working ona study of “The Ethics of Development InducedDisplacement.” This project was funded by agrant from the Social Sciences and HumanitiesResearch Council of Canada.

Notes

1 In the oil industry, for example, these technolog-ical advances were so important that the drilling ofthe first well by “Colonel” Titus Drake near TitusvillePennsylvania in 1859 has come to mark the originsof the industry even though oil had been sold com-mercially in Canada, Burma, Russia and Romaniabefore this time. 2 The U.S., for example, adopted an “open door”policy in the 1890’s, which served U.S. oil interestsas a method for entering markets to which they hadpreviously been excluded. In other situations,however, such as against Mexico in the interwarperiod, the U.S. adopted policies (such as the“minimum duty policy”) that protected establishedU.S. oil interests against other foreign investors(Shaffer, 1983). 3 The final agreement reached in 1928 put the sevenparticipating U.S. companies in a position where theywould have to enter into production sharing arrange-ment. Such arrangements violated the essence of U.S.anti-trust law, which had been previously used todismantle the parent company (Standard Oil) towhich most of the firms previously belonged.

222 Darryl Reed

4 The practice of business leaders entering intopolitics and subsequently returning to industry (orconsultancy) is commonly referred to a “revolvingdoor.” It is important to note that while the existenceof “revolving doors” provides greater possibilities forcorporate leaders to exert influence (e.g., throughpersonal contacts), it may also make it less necessary.When former industry officials take up governmentoffice, then they more naturally make decisions thatpositively affect the industry on the basis of convic-tion (that national business interests are identical withcorporate interests) or strategic interests. This doesnot makes the use of political influence less of anissue, but rather makes it more systemic.5 In the present U.S. administration, a significantnumber of key officials have (had) close connectionswith natural resource sectors. These include, amongothers, Secretary of Treasury, Paul O’Neill (as chairof Alcoa), National Security Adviser CondoleezaRice (as a member of the board of directors ofChevron), Commerce Secretary, Don Evans (as CEOof Tom Brown, Inc., an oil company), Vice-President,Dick Cheney (as CEO of Haliburton, the oil servicesfirm), not to mention President Bush’s own links tothe oil industry. In addition, the transition team forthe Department of Energy was largely dominated bypeople affiliated with or working for the extractiveenergy industry, including representatives from suchcompanies as Phillips Petroleum, Enron, Kennecott,Southern California Edison, the National MiningAssociation and the Nuclear Energy Institute. Criticshave raised the question of whether such personneldecisions have influenced key decisions by the Bushadministration relating to the environment, e.g., thedecision to allow drilling in the Alaska NaturalWildlife Preserve, the decision to no longer respectthe Kyoto protocol, the abandonment of CO2 emis-sions, the scrapping of environmental clean-up sites,etc. (Mokhiber and Weissman, 2001).6 This framework is partially suggested by the workof Barbier (1987) and Cowell et al. (1997) who dis-tinguish three different aspects of sustainable devel-opment, viz., the economic system (involvingprimarily technological and micro-economic consid-erations), the social system (involving social issues andmacroeconomic concerns) and the ecological system(involving the natural and physical sciences). 7 The Rio conference was a meeting in whichdiverse interests were represented and a wide range ofpositions advocated. A number of documents areassociated with the Rio conference (e.g., Agenda 21,the Rio Declaration, Framework Convention onClimatic Change), but not all of these (e.g., the

Convention on Biological Diversity) were negotiatedas part of UNCED. The characterization of the Rioconference refers primarily to the nature of thesedeclarations and documents. Critics claim that thesedocuments represent an “unholy alliance betweenNorthern money, Northern self-interest and softgreen concerns” (Kirby et al., 1995, p. 10).8 A visit to the websites on any of the corporatewatchdog groups will give a good sampling of thenature and range of activities that are employed againstREIs.9 Again, corporate watchdog groups provide exten-sive information, both on the general nature of theproblems and specific instances. See, for example,Project Underground (2001b) on the issue of acidmine drainage.10 Mining Watch (1998) notes, for example, that “OkTedi Mine in Papua New Guinea, has spewed 80,000tonnes per day of untreated tailings directly into theOk Tedi River. Laced with high levels of copper aswell as lower doses of cadmium, zinc, and othercontaminants, the tailings have wiped out almost allaquatic life along the first 70 km of the river andcaused the flooding of forests and fertile communitygardens. BHP, majority shareholder in the highlylucrative mine, is based in Australia, where this sortof tailings dumping would be illegal.”11 The more fundamental question here, of course,is not whether the firms undertake developmentprojects, but whether the projects themselvescontribute to or undermine development. Here theWorld Bank has frequently come under sharp criti-cism with respect to the projects it finances. Forone example of this, involving the Chad/CameroonOil Pipeline Project, see Friends of the Earth (2001).12 In the oil industry, for example there has been along history of collusion and other forms of non-competitive practices (Sampson, 1984; Girvan, 1978).Such practices enable large oil companies to maintainhigh profits even in the face of gluts (Rothschild,1986).13 There are, of course, other issues than the loss ofcultural traditions. One extremely important issue formany indigenous groups has been their conception ofthe sacredness of land and their opposition to extrac-tion processes. See, for example, Sewall (1999) andJayaraman (2001). 14 As Cook and Cook Clarke (1999, p. 192) note,because developing countries do not have key policiesin place (e.g., social and development policy, indige-nous peoples legislation, reporting requirements), “themining industry in normally required to ‘bring withit’ the basics of a social and cultural program.”


15 While there are more than forty such internationalcodes of conduct, critics argue that they (and self-regulation generally) are ineffective because none ofthem has mechanisms to hold firms accountable. Inthe case of the Valdez principles, for example, criticsnot only argue that the principles provide no newconstraints on the activity of firms (Sanval and Neyes,1991), but that the incident itself was in large partdue to processes of deregulation and economicliberalization (Benoit, 1989).16 Most notable in terms of influence is the Inter-national Finance Corporation (http://www.ifc.org/),the branch of the World Bank group that makes loansto the private sector. The IFC, which recentlycharacterized the required change in mining practiceas a shift “form Enclave to Sustainable Development,”has elaborated a number of policies (e.g., on indige-nous peoples, cultural property and the environment,local communities) to which firms must conform inorder to receive loans. For critiques of the WorldBank, see Friends of the Earth (2000) and Fox andBrown (1998).17 Critics argue that such organizations are typicallynot even handed in their treatment of environmentaland social issues vis-à-vis economic issues, as theytend to take specific steps to promote economic lib-eralization, but make only vague statements when itcomes to protecting the environment and vulnerablegroups. Mining Watch (1998), for example, states ofAPEC that: “APEC has provided a new forum forgovernment-level discussions on environmental topicsand technologies. However (despite official claims tothe contrary) the trade and environmental discussionsappear to be very weakly linked. One indicator is therelative attention paid to trade versus ecosystemhealth. Individual Action Plans, produced annually bymember governments, outline their progress inmeeting APEC liberalization objectives, and plans fornew steps. Canada’s 1996 Individual Action Plan, forexample, makes dozens of specific commitments topursue deregulation, eliminate tariffs, and so on.However, there is no parallel measure of progress onprotecting or enhancing community and ecosystemhealth.”18 In developed countries, there has been somedifference in approaches to mining policy, but ingeneral the underlying philosophy tends to be morein line with a growth-centered approach to sustain-able development. For a contrast between the differentapproaches of Canada and Sweden and their implica-tions the activities of REIs, see Cowell et al. (1999).19 Some prominent business theorists such as MichaelPorter have tried to argue that being environmen-

tally friendly makes economic sense (Porter and vander Linde, 1995). While not without some merit, theadequacy of this approach, especially as it relates tothe situations of developing countries, has been seri-ously called into question (Redclift, 1994). For a caserefuting the efficiency-based argument with specificreference to the oil sector, see Gorman (1999).

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