Monday, August 31, 2009

Property rights urgently needed to allow mineral riches to be safely exploited

Gerry Brownlee’s announcement that he wants to unlock New Zealand’s mineral wealth has set hearts all aflutter, with the Standard (poor lambs) likening his trial balloon to a precursor to rape and pillage and Metiria Turei complaining that we don’t really need to get richer, and that mining stuff is just “old dinosaur thinking” anyway.

Tell that to the Lucky Country to the west of us, where everyone is still (on average) around 25% wealthier than each of us based in no small part on digging stuff out of the ground and selling it.

Which leads me to ask and answer an obvious question for you:

Is it possible to mine without upsetting the neighbours, and to set up a legal structure that allows it?

And the answer:

Of course it is. It just requires the clear recognition of private property rights.

Such a shame then that we have so few of them – that nearly half of New Zealand’s land is ‘owned’ by the government and around one-third set aside as “conservation land” – with up to 70% of all known potential mineral resources on government land administered by the Department of Conservation.

And although Gerry Brownlee, bless ‘im, is keen to get mining going again in New Zealand, he’s not going to countenance a change in either the government ownership of mineral rights (all naturally occurring gold, silver, uranium, and petroleum in New Zealand is owned by the Government, and permits under the Crown Minerals Act are needed to explore for or mine these minerals), or of government ownership of land.

That’s a great pity since there’s so much at stake – and his proposal simply to improve “access” to conservation land for mining is probably the worst of both worlds.

How much is at stake? Well, Australia is often known as "the lucky country" because of its resource riches. And according to a 2006 World Bank study (which being the World Bank is bound to be full of holes, but it’s all we’ve got to look at) Australia's underground mineral wealth only amounts to around $11,500 per Australian, most of which is being tapped, whereas New Zealand’s is around a third of that at $3,600, most of which is not being tapped. That’s not quite Australia’s mineral riches, but that’s a respectable amount of wealth to lock up just to protect a few snails-- according to Brownlee’s advisers that’s around $140 billion of gross in-ground value locked up.

And what’s wrong with just improving access rather than improving private ownership rights?  Because the incentives are all wrong. One look at the Soviet Union’s lethal legacy of filth or of logging and forest clearance in the Amazon is enough to show what happens when government owns everything, and is interested in extraction at all costs.

Improving access instead of improving private ownership rights does nothing to solve the Tragedy of the Commons problem that is at the cause of so much of the world’s environmental degradation:  As long as a resource is either unowned or held in common (or govt) ‘ownership,’ then the incentive for each resource user is to take as much as they can when they can and whenever they can, no matter the consequences for the quality and the quantity of either the resource or the are in which its being extracted.  That's the tragedy: common ownership provides no incentive for genuine 'stewardship' – and any attempt to replace natural incentives with bureaucratic management is doomed to failure.  Just ask the residents of Magnitogorsk or the Mato Grosso.

Conflict is not inevitable with mining. The answer, as I pointed out to Nandor Tanczos a few years back, is not political management but clearer property rights, and greater common law protection of those rights. Property rights take the issue out of the political arena, allowing those who do hold rights to express their own values without political interference from the likes of either Mr Brownlee or Mr Tanczos. Elizabeth Brubaker from Canadian organisation Environment Probe makes that case superbly here.

When property rights are properly expressed through common law for example, property rights involve a 'bundle' of rights, and each rights-holder is promised clear legal protection by the courts over their 'stick' in the bundle. When such a thing as mining is contemplated, every owner of a stick in the affected bundle has absolute protection in expressing their own values--whether that’s conservation of the environmental values, or the use of the resource--and that legal protection must be recognised by anyone proposing to exercise the use of their own 'stick.'  Everyone is free to make their own valuations of each of the ‘sticks,’ and in the end, the resources end up in the hands of those who value them most.

If for example I have a clear and protected right to use a stream running through an area affected by proposed mining, then under common law the miner is obliged to take my values into account by either not damaging the waterway, or by purchasing my assent and the assent of all other affected stream-users -- and of all other affected parties. (Elizabeth Brubaker offers some examples here of the sort of legal protection afforded to stream-users by common law).  These affected parties might hold rights to access, hunting, harvesting, tramping, logging, birding, or profits à prendre; they might hold a conservation covenant, or just have the right to peaceful enjoyment of their property – but under common law all their rights must be protected as long as they wish them to be protected.

That's protection then for all rights-owners' chosen values, and all done without all the picketing, bickering and politicking we see now. If it be objected that this excludes all those who value the untrammelled value of wild and untouched land, then let them express the extent to which they really do truly value the conservation estate by becoming a rights-holder in it, rather than seeking to use the government's club to enforce their chosen values over others. It doesn't require full ownership, it simply means acquiring the right to a 'stick' in the bundle.

I commend the idea to your attention.

NB: Check out the New Zealand Mineral Exploration Association’s website, which has all the information you’d want to know about where and how much we’re minerally endowed. See.

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9 Comments:

Blogger Oswald Bastable said...

Tke a bush walk on the West coast ans see what had happened to ' strip-mined' land totally unprotected by law, last century,

I nearly fell down a mine shaft. The bush has swallowed all of man's attempts to 'defile the land'

When the conditions for mining are to restore the land, it winds up like a park- far better than the original.

8/31/2009 07:42:00 pm  
Blogger PC said...

That's true, and you can go all over the Coromandel and inspect the ravaged landscape from a half-century or so of raping the environment for its gold and kauri . . . if you know where to look . . .

8/31/2009 07:51:00 pm  
Anonymous Anonymous said...

Tke a bush walk on the West coast ans see what had happened to ' strip-mined' land totally unprotected by law, last century...raping the environment for its gold and kauri . . .

Now think how much richer and more productive NZ was a century ago - when people minded useful stuff rather than going on lefty "walks"

8/31/2009 08:40:00 pm  
Anonymous matt said...

I am pleased that National has floated this idea. It is the right question to ask.

However, I am not convinced mining will make New Zealand richer.

a) mineral poor countries/territories like Japan, Hong Kong and Singapore are wealthier than us.

b) Many and in fact most mineral rich countries are poorer than us. Dutch disease is a real problem. Minerals can drive up the exchange rate and crowd out other industries, and can create wasteful incentives for lobbying and political powerbroking. This is very costly.

What I think really matters to wealth is security of property rights. Pretending all those resources are not in the ground may not hurt NZ on net. But i recognise the trade offs here.

8/31/2009 11:10:00 pm  
Anonymous nic said...

PC,

In theory your solution makes intuitive sense. But under the status quo all NZers own all the land under govt control.

Do you have a workable mechanism to distribute individual property rights, whilst at the same time compensating every NZer?

9/01/2009 02:18:00 am  
Anonymous LGM said...

Nic

If you own a piece of land and can get the minerals out from that land, then those minerals are yours. No compensation need be paid to anyone.

LGM

9/01/2009 07:05:00 am  
Anonymous matt said...

On the resource curse:

http://www.foreignpolicy.com/articles/2009/08/17/the_devil_s_excrement?page=full

Are NZ's property rights strong enough to avoid it? I wouldn't hold my breath.

9/02/2009 03:23:00 pm  
Blogger PC said...

Great link, Matt.

The curse of "rich subsoil and poor institutions."

Without property rights, "oil -- or gold or zinc -- makes you poor."

George Reisman calls this the "Argentine delusion," since "it is especially prominent in that country" -- " a peculiar consequence of the collectivist view of natural resources . . . [that] manifests itself in such statements as: "We are a rich country but a poor people." And: "We have tremendous wealth. None of our problems are real or fundamental. They're just psychological."

9/02/2009 03:48:00 pm  
Anonymous Elizabeth Brubaker said...

Thanks for the reference to Environment Probe's work on property rights. Since we have a new web site, the link you provided no longer works. Please visit us at www.environment.probeinternational.org and find all of our work on the subject. Regards, Elizabeth Brubaker

9/24/2009 08:22:00 am  

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