The rise in copper prices has produced euphoria in the government and ruling elites, despite relative complications for certain exporters. The price rise seems not to be a momentary phenomenon. Although abundance is not noticeable in the daily life of Chileans, three out of four expect that the price rise will raise their living standards. Everything is looking good. But a kind of conspiracy of silence hides something basic. The ones who do best out of the copper price are the multinationals who manage two thirds of Big Mining, not Chile. (1) The multinationals are the main winners : they pay low taxes and walk off with colossal profits.
The figures are startling. With copper at US$2.60 per pound, the profits leaving Chile for production in 2006 will be US$16 billion. More than twice the surplus of CODELCO (2) One is dealing with real plunder, the culmination of an open handed policy towards the multinationals that began with the dictatorship and has been maintained to the present day and which, apparently, President Bachelet wants to continue. Punto Final talked to the economist Orlando Caputo of the Study Centre CETES, an academic and expert in copper and the world economy.
PF. What is the situation relating to multinational profits in Big Mining of copper during this period of high prices?
OC. The profits of the foreign companies that control 70% of Chilean copper are so high that they are equivalent to more than twice the surplus of CODELCO. El Mercurio (3) on April 30th reported that in the first quarter the profits of Escondida (4) were US$1.136 billion, which means more than US$5 billion for the whole year, including taxes. One has to take in the general panorama and we can use data from recent studies. There is no information from the multinationals since they are not obliged to publish accounts. We can only make deductions. There are figures for profits sent overseas resulting from direct foreign investment, which are after-tax profits. The significant figures are these : 1999, US$1.603 billion; 2002, US$2.557 billion; 2003, US$4629 billion; 2004, US$8.231 billion; and 2005, US$11.088 billion.
These figures include the total of foreign direct investment but help us get to the figures for the mining multinationals. If we discount profits of foreign non-mining companies, we arrive at the companies that are, namely, the copper mining companies. To their profits we need to add remittances made up of accelerated depreciation and other items that we can consider as earnings. We can conclude from these calculations that the surpluses of the mining multinationals were approximately US$10 billion in 2005. This year however, when prices and their trends are higher, the surpluses of the copper mining multinationals are around US$16 billion. A figure that would finance the new social program announced by Michelle Bachelet for 27 years.
To appreciate what these earnings mean we can establish other relations. One is that which exists with the material investments made, which together with labour and the natural resource itself, constitute the source of those profits. According to the Foreign Investments Committee, that investment in the mining sector for the period 1991 - 2004, that is to say the democratic period, was US$16 billion in round figures. That figure is practically the same as the earnings for 2006. In just one year the multinationals will earn the same amount that they invested over 14 years, and the investments in the democratic period represent more than 80% of the investment in copper Big Mining since 1974.
PF: Are copper prices likely to stay high? Isn't some opinion that up to US$1.50 of the current prices can be attributed to speculation? What's your view?
OC: I think one should not overestimate speculation, which without doubt exists. Nor should one think that the price outlook is an absolute mystery, although the analysts have often been wrong. There are deeper factors. The price rise in raw materials - including oil and other energy resources - has to do with to relative scarcity, which is a real phenomenon. At the same time, there is more demand, from China, north America, Japan, India somewhat, western Europe, all economies on a dynamic curve, reactivated.
In "The Economy at the Start of the 20th Century", published in 2004, I suggest that we're at the start of a structural change, a rise in raw materials prices in the medium to long term, which could be very positive for backward countries of the Third World. The north American economy is showing notable strength in which productive capital is becoming more important than financial capital. A phenomenon which is shared in other central countries. Whereas in Latin America financial and productive capital continue to be interlinked. In the last 20 years, natural resources have become the private property of the multinationals. On the other hand change and cyclical crisis have produced a new realtionship between the conditions of production and the world market. Overproduction of industrial products and services, mostly in high technology, is coinciding with a new period of under-production or scarcity of raw materials and energy resources.
None of this means that at some point a crisis may not occur to disrupt the world economy's globalized system. But it is a period of relative bonanza of which we ought to be capable of taking advantage. What used to be called royalty turned out to be a joke. Chile has not taken advantage of its key position in world production, which would allow it to play a very active role in the market, as OPEC does in the oil sector.
Although I am not particularly optimistic with regard to the mining policy of President Bachelet, I think some things are happening through the very characteristics of the current situation. One is dealing with a new moment, which changes the picture. The multinationals are getting profits they never imagined, nor did the State when it gave them exemptions and privileges. For reasons of equity, solutions must be sought, which might be a renegotiation of the legal and tax regime the multinationals enjoy and a royalty that secures the profit that really belongs to the country. There are precedents, even in north American legislation, by which special taxes have been applied to windfall profits that distort the terms of contracts. Part of the profits should be assigned to building foundries and refineries so the country no longer exports raw minerals.
PF: The Bolivian government's nationalization of hydrocarbons has been criticised by the Right and by the multinationals. The same has happened in Chile. Leaders of the Concertacion (5) have done so, calling into question explicitly, indeed, the nationalization of copper in 1971. Are those criticisms justified?
OC: Absolutely not. In the case of Bolivia, that country recovered its oil wealth by a decision of the constitutional government. It conforms with Bolivian law and is an expression of sovereignty. It ends the pillage that has lasted for years manifested, as well as in other things, by the sale of gas to Argentina and Brazil at "solidarity prices", which in the first place benefited the groups Repsol and Petrobras, at prices far inferior to international prices. UN Resolution 1803 recognizes the right of States to dispose freely of their wealth and natural resources. No one disputes the legitimacy of nationalization in the interests of a country and its people.
As for the significance of Chile's nationalization of copper, it is certainly the most important structural measure of the 20th century. For 35 years, CODELCO, which has been run well generally, has handed over in surpluses to the State between US$35 billion and US$40 billion. It comprises a fundamental contribution to the national budget. It was decisive for the functioning of the country during the dictatorship and even for arms purchases, despite that budget item being very over funded. Right now, billions of dollars from those profits will be used, it has been announced, to build up reserves for a pensions fund. In the end, the fact that CODELCO is a State company opens up unprecedented possibilities for development that have not been exploited by the democratic governments.
1. Foreign mining companies active in Chile : Homestake, BHP-Billiton (Australia); Phelps Dodge, Cyprus, Minnessota Mining (United States); Placer Dome, Barrick, Falconbridge, Noranda, Potash Corporation of Saskatchewan (Canada); Mitsubishi, Sumitomo, Nittesu, Nippon Mining (Japan); AngloAmerican, Rio Tinto (UK); Norsk Hydro (Norway). (Information from the Chile Foreign Investment Committee.)
2. Codelco (Corporacion Nacional del Cobre de Chile) is the Chilean State copper company.
3. El Mercurio - right-wing Chilean national daily newspaper.
4. "The Escondida copper-gold-silver mine is located in the arid, northern Atacama Desert of Chile about 160 km southeast the port of Antofagasta, at an elevation of 3,050 m above sea level. The mine is a joint venture between BHP-Billiton (57.5%), Rio Tinto (30%), a Japanese consortium (10%) and the International Finance Corporation (2.5%). It came on-stream in late 1990 and its capacity has since been increased by phased expansions to the current level of 230,000t/d ore throughput. The mine employs around 2,200 people." (http://www.mining-technology.com/projects/escondida/)
5. Concertacion - the ruling centrist social democrat party led by Michelle Bachelet.
Translated from Spanish into English by toni solo, a member of Tlaxcala (www.tlaxcala.es), the network of translators for linguistic diversity. This translation is Copyleft.