What is the future we need?
We are a global movement. We believe minerals, natural resources and the commons are a shared inheritance. It is our duty to ensure future generations inherit at least as much as we did. If we fulfill our duty, we may enjoy the fruits of our inheritance. A loss is a loss to all of us and all our future generations.
Through the Goa mining PIL (public interest litigation) in the Supreme Court of India (WP 435/2012), we have developed a tight proposition for minerals, extensible to natural resources and the commons.
Minerals, our shared inheritance
- We, the people of [Goa], own the minerals in common. The government is merely a trustee of natural resources for the people and especially future generations (Public Trust Doctrine).
- As we have inherited the minerals, we are simply custodians and must pass them on to future generations (Inter-generational Equity Principle).
- Therefore, if we mine and we sell our mineral resources, we must ensure zero loss, ie. capture of the full economic rent (sale price minus cost of extraction, cost including reasonable profit for miner). Any loss is a loss to all of us and our future generations.
- All the money received from our minerals must be saved in a Permanent Fund, as already implemented all over the globe (Botswana, Norway, etc). Like the minerals, the Permanent Fund will also be part of the commons. The Supreme Court of India has ordered the creation of a Permanent Fund for Goan iron ore and already $13 million is deposited. This is a global judicial precedent.
- Any real income (after inflation) from the Permanent Fund must only be distributed equally to all as a right of ownership, a commons dividend or a Citizen’s Dividend.
These principles are sufficient in themselves to receive support from most people. Read on!
Grounds for the principles
These principles are first and foremost constitutional in India (& likely most countries). They flow from the Public Trust Doctrine & the Inter-generational Equity Principle. These are also the inheritance customs for a large part of the population. It has strong parallels with Pope Francis’ environmental encyclical. It is aligned with environmental and mineral resource economics. From an economic theory perspective, all we are asking for is respect for property rights. This is unarguable in all flavours of mainstream economics (although indigenous people & others will argue that nature cannot be owned). It is palpably fair, ethical, right, just and moral.
We advocate that this be the default framework for minerals (and the commons generally). Any variations from these principles (“social or welfare purposes”) would require strong justification.
The first problem: Massive losses
Title to sub-soil minerals are usually with governments. In India, minerals are largely owned by the sub-national governments. Mining is effectively the sale of the family gold. The goal must be to receive the full value, the economic rent. There are relatively few studies that attempt to calculate whether mineral owners have suffered losses.
In our first paper, Implementing Intergenerational Equity in Goa, we used World Bank data series for iron ore mining to estimate the economic rent per ton. We then multiplied this by the tons exported (from the local industry body) to estimate the total economic rent of the iron ore exported. Then compared this with the actual amounts received by the state government through royalty. Over a 5 year period (2004–2009), the state of Goa lost more than 99% of the value of its minerals.
In our second paper, Catastrophic Failure of Public Trust in Mining: Case Study of Goa, we repeat the analysis. However, we estimate the economic rent from the annual reports of Sesa Goa, our largest miner, accounting for 1/3rd of the mining. While the after tax cost of capital should have been 10–12%, we set it at 20%. Of the balance value, the state of Goa lost over 95% of the economic rent. This was over a 8 year period (2004–2012). This paper also shows similar results in iron ore, coal, oil and gas across India.
Worldwide, IMF data (para 64) shows significant losses of the economic rent are common — minimum of 15% for oil and 35% for minerals. Energy is 1/7th the world economy. Some $7 tn of oil & minerals are extracted each year. World Bank mineral depletion estimates are $27 tn between 1970 and 2013.
Creates extensive problems
Effectively, we are selling our mineral inheritance, our family gold, very cheap. This creates corruption, crony capitalism & poor governance. The obviously unfair terms of the mining lease creates incentives for the miner to extract rapidly and exit. This in turn creates the human rights violations and environmental damage. Eventually this leads to conflict and civil war.
As we are selling the minerals cheap, it also eventually drives over consumption, leading to global warming & unsustainability.
Most minerals are owned by the state as a trustee on behalf of the people and especially future generations. This loss is therefore borne equally by everyone, effectively a per-head tax. And a few miners and their cronies are getting ultra rich. This is looting economics, not trickle down. It is driving inequality. It is a clear violation of Article 17 of the Universal Declaration of Human Rights, and probably others we are not aware of. It violates justice, equality, common good, and is simply unethical and unfair.
In most countries, zero loss is not an explicit objective of the mining ministry. This must change.
The second problem: Government accounting and statistics
Mining is clearly the sale of the family gold. A related issue is that government accounting and statistics treat money from mining as revenue, not the sale of inherited assets. Other than being obviously wrong, it is contrary to private sector accounting. Green accounting essentially acknowledges this issue.
Terming mineral receipts “windfall revenue” disguises its nature as a sale of an inherited asset. More revenues are good, & we don’t examine windfalls closely. Inherited wealth is frittered away in consumption.
Due to the commodity cycle, “windfall revenue” treatment creates huge volatility in government budgets. “Revenue” booms. Expenditure rises to keep pace. Prices crash. “Revenues” crash. Sell more inherited wealth at the price bottom? Prices drop further. Cut the public sector? Impose a new tax? Hard choices to make.
Alaska, which only deposits 25% of its oil money, has suffered from the price volatility impact, as you can see from their ongoing budget discussions. So too Saudi Arabia, Venezuela and Russia. Some countries like Norway & Botswana have a fiscal policy that effectively considers minerals to be capital — they target the non-mineral revenue deficit, and deposit 100% of mineral receipts into their Permanent Fund, effectively treating mineral receipts as capital receipts.
This incorrect accounting also creates pressure to extract — more revenues are good. Money from minerals is easy money, which in turn drives poor governance and eventually autocracies.
The distortion is significant. In Goa, we found over the same 8 year period (2004–2012), the official deficit was 2.46% of GDP. If we treat mineral receipts as capital receipts, then the “non-mineral” deficit rises to 3.73%. However, if we treat the losses as expenses, then the deficit increases to an incredible 41.47%. This is clearly unsustainable.
Note that mineral receipts accounted for only 8% of Goa government revenues. This is much higher in many resource rich nations, approaching 90% in some cases. These nations are simply consuming their inheritance.
We are asking for is for government accounting, statistics and fiscal policy to treat money from mining as capital receipts from inherited assets, not “windfall” revenue as is the current practice. This simple change will be quite profound. “We manage what we measure.” The immediate impact of this change would be to strip government revenues of all mining money. And minerals become an asset with a different set of questions: Should we extract? When should we extract? How much should we extract? What minimum price do we want for our asset? What is its value? Are we incurring a loss? How are we investing the money we receive for our children?
We have written a detailed paper to the IMF, UN, IPSASB, WB, INTOSAI, etc to correct this anomaly. Following some questions and comments, we have sent a response to FAQs. As the relevant government accounting standard is under review, we have started an online petition, A simple accounting change that will save countless lives.
Scale of the injustice
The loss of economic rent and the consumption spending by the government are effectively an enormous loss to the commons, borne by our children & future generations. The absolute losses in Goa were enormous. US$ 9 billion in eight years. Twice state government revenues from all sources. 28% of cumulative GDP. Each family lost more than the average private assets of households in Goa. It is simply immoral.
As a counterfactual, had our principles been applied for that same 8 year period in Goa, today every citizen in Goa would receive a commons dividend of Rs. 1,000 a month. This would have made a significant dent on poverty (the national poverty line is at Rs. 932 per month).
If significant losses are likely, perhaps it would be better to develop fairer institutions before extracting.
Our principles are clearly fair and universal. The citizen’s dividend is a critical aspect of our design, as it is intended to link the citizen to their minerals. This will create monitoring so that these losses do not recur.
It will also have tremendous other impacts. After the vote, it will be the first true manifestation of equality. As a right of ownership, the citizen’s dividend also is different from a government subsidy. As it grows over time, and keeps pace with inflation as well, the citizen’s dividend is also a Universal Basic Income (UBI), and comes with all its benefits.
Zero loss mining makes the mining lease fair. This reduces the incentives for the haste, and the damage that comes after.
Since the state doesn’t benefit from the mining “revenue”, either at the point of extraction or the distribution of real income, there is little incentive to extract mindlessly.
The whole system is fair, likely reducing many mineral conflicts (though Scotland is more likely to separate from the UK, etc).
Safeguarding great wealth
If we extract minerals, then there is a large amount of wealth “created”. This will attract thieves of all kinds. This in turn drives corruption, poor governance and over-consumption. And environmental damage, human rights violations ending up with conflict. And the huge money coming out makes it difficult to stop as crony capitalists buy the political system with patronage.
What we are essentially doing is allowing mining while sequestering the great wealth away from everyone — miner, government/politician & the people, and only allowing the real income to trickle out.
And everyone is a stakeholder. Transparency, state of the art controls, and whistle-blower rewards and protections are necessary to make it difficult to steal from the pot.
What about Ecological Economics?
We found the Intergenerational Equity principle (“what will future generations do”) to be the core principle — first safeguard the inheritance — if that is done, consume the crop. From this we derive sustainability (sustain what for whom? planetary capability for future generations). From this we derive, through weak sustainability, the precautionary principle for critical assets, and the polluter pays principle for damage to non-critical assets.
Mining is essentially the conversion of natural resources into other non-wasting assets. The first step is listing the assets in the inheritance. These are at least three (a) the damage to the environment/society/agriculture, (b) the work / income associated with the minerals (which depletes along with the minerals), and © the mineral value or economic rent. In Goa, we found (a) extensive damage to environment/society, (b) the minerals could be exhausted in nine years (Shah Commission), and © we were receiving less than 5% of the mineral value, and even that was being consumed, a total loss to most of Goa, and our children. For each asset, we need to create a mechanism to ensure that the total value of our commons remains “non-wasting”.
For Goa mining, we propose a tiered structure. The precautionary principle (“don’t risk a catastrophe”) we propose to implement through a cap mechanism, set at the lowest volume where any irreversible damage was observed (12 mt saw the benthic life of our rivers almost extinct) or any legal limit is breached anywhere. The limit would drop sharply on a breach like a stock market trigger. If everything was OK over a long period [5 years], then the limit would increase in increments of [5 mtpa]. Separately, the polluter pays principle would apply to all identifiable damage. And the District Mineral Foundation would be expected to compensate the rest of the damage that cannot be identified to anyone. For the mineral exhaustion, we propose an independent cap set at 1/200th of the reserves, ensuring extraction over 7 generations.
The government needs money!
One common concern is money should go to the government budget. There are two sorts of reasons: (a) The good things government can do (education, health, infrastructure, renewables, etc) (b) The future will be richer, so we need not save as much.
Our design is intended to make Citizen’s stakeholders, creating an endowment effect. Only then would they monitor mining. Diversion to the budget provides easy money to the politicians, which would worsen governance. If we divert even 1% to the budget, soon enough there will be a budget crisis and this will eventually become 99% or 100%. The link with the citizen gets broken. Raiding the Permanent Fund and then the remaining minerals will be next. The only standard that can be defended is an absolute standard.
From a governance standpoint, if the investments are so productive, then surely capital markets would finance it or taxes could be raised. If this is not possible, it is more likely an issue of the credibility of the governance to deliver the anticipated benefits.
The other idea that the future will be richer depends on continuing growth. Numerous clouds surround us. It would be a bold prediction that the future will always be richer than us, for even the next 1,000 years.
These two blog posts explain further: Why 100% to Permanent Fund and Why income distribution only as Citizen’s Dividend.
What do we do in practice?
We have submitted a detailed note on how our approach needs to be incorporated within India’s National Mineral Policy. Our Goenchi Mati Manifesto suggests a practical framework for implementation in Goa. The 3rd EPW paper discusses how we are approaching this issue at the Supreme Court. More work is needed and inputs would be appreciated.
Can it be implemented?
1. Economics: Keep in mind that our principles would be supported by most flavors of economics. All we are asking for is respect the property rights of commoners.
2. Politics: Politically, minerals have always been a difficult issue as very few people benefit or are harmed directly. The vast majority want “development” and are realistic enough to see that our cars and phones need minerals. However, with this argument and the large losses, we can address the development seekers without stopping mining. Finally, the urban population can get concerned about mining as an corruption/governance issue and a human rights / fairness issue.
As a separate matter, a challenger party can disrupt patronage politics with a stunning vision of a new social compact, one that explicitly treats everyone as equal, while striking a blow at crony capitalism. The first mover advantage is large, and is still available. Sort of “everyone gets a dividend while the corrupt cronies weep & our children cheer”.
Keep in mind that over 50 Permanent Funds from natural resources exist globally, so there is a feasible political path.
3. Moral/Religion: Our principles achieve both intra-generational equality (the Citizen’s Dividend) and inter-generational equity (the Permanent Fund). This is effectively the golden rule (treat everyone as you would want to be treated) which is the moral bedrock of all large religions. The Archbishop of Goa showed his strong support for our ideas, linked to the environmental encyclical of Pope Francis. Is an inter-faith resolution feasible similar to the one before the Paris Convention?
The Future We Need
At a deeper level, the world has an ecological problem and an economic problem. Neither can be solved in the current political system. Change here is difficult due to the money flowing in (Citizen’s United), and eventually, the biggest source is crony capitalism. And the biggest sector for crony capitalism, and actually the biggest sector of the economy is energy & minerals. Looking even deeper, over the last 500 years, we’ve had individualism dominating community, and a shift to consuming the planet instead of acting as custodians for our children.
Our 5 principles essentially reverses this dynamic. We reframe towards community thinking through the commons. We reframe our relationship as stewards of the planet, not consumers. Zero loss mining + the Citizens Dividend controls crony capitalism. We control inequality and extreme poverty on the economic side. And the environment benefits first from the re-framing as custodians, and then from getting the appropriate price with proper environmental safeguards. Higher prices would over time compress consumption as well.
Starting with minerals is probably the easiest point. People can agree on mineral values (unlike a forest). It is usually obvious that the mineral is being depleted, purely capital (sand and water are exceptions). We can successfully make the argument in minerals even to global warming deniers or those wanting more development. If they agree, they implicitly accept the community and custodianship reframing. The reframing opens up a path to eventual acceptability of the need for true sustainability.
Our framework naturally leads to many other ideas as well. Carbon tax + dividend. Pollution tax + dividend. Land tax + dividend. All these are premised on the idea of commons, and the tax is a recovery of the value destroyed (by carbon / pollution) or created (land, value created by society). The dividend is key — since a large majority will be net beneficiaries under any such scheme, they will support tax increases, eventually squeezing consumption. The land tax also has the impact of lowering land values and making it expensive to keep land permanently fallow. India’s land taxes are a fraction of the western norm of 1–2% of the capital value of property and a hidden source of inequality, like mining.
Clearly, our principles must be part of the core of any sustainable economy. It quite simply is The Future We Need.
What are we doing?
1. The Goenchi Mati Movement (GMM) in Goa is advocating for the full implementation of our 5 principles. Our manifesto (goenchimati.org/manifesto) lays out how these principles can be implemented in Goa. In general, we found that people of all strata understand our principles very easily and naturally. Those who read the manifesto also found it clear and logical. Amongst our supporters in Goa, we have a miner, a tribal mining affected leader and a mining dependent trade union leader. You can view a list of prominent GMM supporters. In our recent state elections, 4 political parties endorsed our manifesto, including Aam Aadmi Party (a good governance / anti corruption party that swept the Delhi elections). Consider supporting us. However, we found it difficult to get the idea to spread virally and were unable to significantly impact the elections. More work is needed here.
We did have some success. The Government of India has discussed our idea in the recent Economic Survey (pg 297), and CGD reported on it. The Shadow Chancellor of the UK is also interested in our ideas.
2. Goa Foundation (goafoundation.org), an environmental non-profit that is involved, among other things, in litigation against mining in Goa, and supports the Goenchi Mati Movement. The Supreme Court order on the Permanent Fund is a result of Goa Foundation’s work. This research work is under Goa Foundation. GF has also been advocating how these principles should be implemented with the Goa and the Central governments.
3. In partnership with an alliance (mm&P) and a non-profit (Common Cause), we have launched a campaign to change India’s National Mineral Policy. The first draft does contain some language on Intergenerational Equity. However, the road is long and much can change.
4. We are conscious that these principles are universal, and we would like to implement them globally. Our global initiative is The Future We Need (TFWN). We are looking for global partners.
5. The second initiative of The Future We Need (after GMM) is to advocate a change in government accounting, statistics & disclosure from revenue to capital. The relevant international accounting standard, IPSAS — 13 Leases, is under review, but unfortunately doesn’t include mineral leases. We have started an online petition, A simple accounting change that will save countless lives. Consider supporting us.
1. A youtube video at a conference on basic income. This doesn’t cover the environmental aspects.
1. The three published papers in EPW related to this work are Implementing Intergenerational Equity in Goa, Catastrophic Failure of Public Trust in Mining: Case Study of Goa and Intergenerational Equity Case Study
2. I’d recommend reading these two blog posts that answer Why 100% to Permanent Fund and Why income distribution only as Citizen’s Dividend.
4. How a loss from the commons is equivalent to a negative basic income or a per-head tax.
6. A recent article on the deeper causes of the Alaska budget crisis and how implementing our principles would avoid it.
Goa specific in more detail
1. A 9 part series of articles on what happened in Goa with a lot of detail, so that the information is in the public domain. Ore Chor! 144 is on how bad the lease renewals were. Links to the earlier ones are in the article.
2. A youtube playlist going into some detail (80 minutes)
3. Somewhat of a history of what happened: http://goenchimati.org/intergenerational-equity-documents/. It has a particular lens, but covers quite a wide swathe of the work with links to go into much more detail.
4. Most of our collateral can be accessed on our website — academic papers, explainer videos, articles, etc.