History of Peru Exploitation of the natural resources: Mining enclaves

With the energetic crisis in the world, the question of the management of natural resources is more than ever primordial. In this debate, Peru has to take an important position. Indeed Peru has exceptional natural resources. It is one of the 17 countries in the world characterized by biological mega diversity. Its economy is based essentially on the exploitation, the transformation and the exportation of its natural, agricultural, and sea resources, the majority of Peruvians living thanks to these activities. So Peru has got important natural richness in its subsoil. Its mines produce lead, copper, silver, iron, phosphates, zinc, oil, coal and gold. Peru also possesses resources in gas in the Amazonian basin. The gold is the main export of Peru, which became the fifth world producer. With 187, 5 tons, its production was multiplied by eight since 1992. In the same way, the country has an interesting agricultural potential thanks to the big variety of its climates and to the irrigation of the desert lands of the coast. Finally, fishing in Peru is a vital sector which takes advantage of full of fish waters of the Pacific. The country is the biggest world producer with more than 9.5 million tons a year. The History shows how much the management of natural resources is difficult for a country. Numerous authors consider even the possession of natural resources as a curse. The Resource Curse Thesis makes reference to the situation, conflicting with intuition, where a country rich in natural resources shows a mediocre performance in term of economic growth and reduction of the poverty compared with a country devoid of this "richness" (Steven, 2003). We can see for example that countries as the United States, Canada or Australia knew how to, for several centuries, benefit from their abundance of resources. On the contrary, Nigeria, Saudi Arabia or Venezuela has no strong economic growth. Several problems can be recurring: an unstable economic growth, an unequal distribution of the income, numerous social problems and an exploitation of the resources often little reflected and harmful for the environment.
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The mining is at once one of the oldest industries of the world and one of the most important for the economy of numerous developing countries. Considering the record level of the prices of minerals such as the gold and the copper, its importance and its influence increased in a spectacular way during the last years. The large-scale industrial mining presents a wide range of economical, social and environmental challenges for the governments and the waterside local communities of the surrounding sites. The Peruvian history is punctuated by era of abundance due to natural resources, but also by crises of resources depletion or decline of demand and the price on the world markets: the guano, the rubber, the phosphates... The most striking example is obviously that of guano. Between 1840 and 1879, it generated enormous wealth because the country benefited during this period of the world monopoly of it fertilizing. In this context a lot of different questions and approaches are possible. The management of the mining enclaves is a very interesting topic. From the colonization, Spanish people had looked for the maximal exploitation of the resources until now, with big companies. During all this history, it has grouped together several of the main issues in Peru as the treatment of the native people for Amazonia and the nonrational over-exploitation of the natural resource in particular the Amazonian forest.

Summary

1. General presentation of the mining enclaves

Principle of a enclave Historical approach in Peru The recurring issues and the challenges to meet

2. Cerro de Pasco in the past

3. Cerro de Pasco nowadays

The state of Cerro de Pasco nowadays Foreign domination Environmental issues Social issues Health issues

1. General presentation of the mining enclaves

Principle of a enclave

By definition an enclave is a distinct territorial, cultural, or social unit enclosed within or as if within foreign territory. In economy, an enclave means that a productive area of a country is controlled directly by abroad, in particularly by a multinational company. This phenomenon was the result of an local economic groups incapacity to maintain control of production. Two different cases could occur. In Latin America the formation of this enclave was mostly a process in which nationally controlled economic sectors were gradually displaced because of their inability to be competitive in production requiring technology, marketing systems and heavy capital investments. Another case more extreme is possible. Some enclave had been formed as the direct result of expansion of occidental economies, like in the continental Caribbean countries. In the both case, enclaves are the reflect of the nature of capitalism and the development of occidental countries without respect for the local activities. Moreover this type of economical structure on local economies is more than controversial. Admittedly the enclave companies brought order to the national economic system. However the expansion of these national economies was becoming more and more dependent of the foreign technology and capital. Moreover, the activities of local producers was becoming less and less significant in the national economy. There had two types of enclave : the mining and the plantation enclaves. They had different characteristics : mining ones required little labor but large capital input and the plantation ones required a lot of labor force and a little of capital.

Historical approach in Peru

Before the second part of the XIX century, the world economy was principally dominated by the European imperialism. The capitalist expansion followed a monopolistic model establishing the international work division : The dependant and
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colonized areas had the role of raw material producers and consumers of the production of the industrial countries. The Latin-American countries were integrated to the economical world through the production units activities directly under foreign control. At the end of the second part of the XIX century, the United States of America became the new world center of domination. In order to integrate the world market, Latin America had to change its export model to adapt. The enclaves were born from this necessity of adaptation. They represented a modern sector like a technological and financial extension of the industrialized economy. They were highly specialized and with large surpluses.

Finally the principle of the enclave economy can be considered as a continuation of the Peruvian economical dependency. Indeed after the independence, authors as Mariategui had noticed that Peru had continued to be dominated by the European countries and then the United States. The guano boom, the export agricultural sector or the beginning of the American investment in mines are all the result of a foreign will. It was simply a change of dominator from Europe to United States. In 1915 the values of the Peruvian imports and exports with the United States were estimated at 48% and 45% versus 21% and 25% for the United Kingdom.

The recurring issues and the challenges to meet

The establishment conditions and the social and economical consequences of these enclaves were not all similar. They depended widely of the level of development and diversification of the local economy. However, in every case, their establishments were the expression of the capitalist expansion of occidental countries and not a local initiative. Moreover their development followed everywhere the same model. More, everywhere we can meet recurring issues.

Economical issues

As we have explained behind the mining enclave didnt help the local economy. In some situations, the national oligarchy lost the control of the export control. In the other situations, the traditional oligarchy managed to coexist with enclaves, but with a little significance in the world market. That could be explained by the well-known Dutch disease. This disease is an economical phenomenon which links the natural resources exploitation and the decline of the local industry. Its name is from the Dutch case during the sixteens and designed the prejudicial consequences of a significant growth of the natural resources for a country. During the 60s, huge gas deposits were found in Holland. So, the export incomes had considerably increased, and as a response the Dutch currency had increased too. The effect was devastating for the Dutch economy : the competitiveness of the other economical sectors became lower. That phenomenon happened in Peru because of the enclaves. Higher wages were paid to skilled labor. But that had never benefited to the national economy and the domestic market. There had a disjuncture between the enclaves and the rest of the country. Worst, in agricultural enclaves the wages were low, because the unskilled labor were abundant. They didnt have to pay the labor force well.

Social issues

The first social issue appears because of the economical issues. An enclave, by principle, cant enable to a sustainable development for the areas around it and for the country. The major part of the exploitation benefits are for the multinational. Because of the phenomenon of Dutch Disease the other sectors become lower and less competitive. So we can notice a impoverishment of the economy and then the population around. This is obviously a big obstacle to a human development.

We can think that at least the employees can have some benefits of that. However the fact that the multinational has all powers is a obstacle to that. The multinational can impose the work conditions it wants. There are numerous case of abuses from these multinationals. Moreover as multinationals directly controlled by abroad, they

have few scruples about employment. As a result there are a big instability of the employment.

Environmental issues

There are three main problem for the environment : destruction of territories, contamination of the environment, production of a huge quantity of wastes. Indeed the extraction of metal produces a big quantity of toxic wastes. For instance, the extraction of 3 or 5 grams of gold can implicate the production of 32 kilos of sulfuric acid, which would contaminate the water and would need weight metals. Considering the production of wastes, they cant be neglect. Inewe can consider that copper deposits contain about 1% of copper and gold deposits contain between 5 and 10 grams of gold per ton. That means that in a copper mine, after the extraction and the different steps of the process, 99% of the treated rocks or even 99,999% for a gold mine, become mining waste. Moreover these wastes are very voluminous and they contain a big quantity of sulfuric metals which become sulfuric acid. For example, in Chuquicamata in Chili the copper mine wastes occupy 48km ! In the same way, the wastes and the effluents from the mining activities could contain huge concentrations of different toxic products like arsenic or lead. They contaminate so the rivers around with the different impacts we can imagine. Moreover as previously, the multinationals have created states in state. They could act as they want. By economical reasons they dont always take the necessary measures to handle the environmental damages.

2. The case of Cerro de Pasco between 1900 and 1940

Cerro de Pasco is a city of the center of Peru, the main city of the Pasco region and an important mining area. Located at 4380m in the Andeans, its one of the highest city in the world. Its average temperature is 4C. It had been one of the most important deposit of silver in the world when it was discovered at the beginning of the
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XVI century.

The beginning of the North American domination

From 1901-1902, north American entrepreneurs became to be more and more interesting by the cooper resources in Peru. At this time, mining companies did a first capital contribution of 10 millions of dollars. Then the company had got 6000 acres of land and have built 83 miles train lines and a refining factory closed to Cerro de Pasco. Thus at this time we have assisted to the spectacular entrance of the American capital in Peru : this was the birth of the copper age. Between 1905 and 1915 the value of the copper exportations was multiplied by 5. We know that this establishing had got in the way of local entrepreneurs, even if their roles in the mining sector was minor. Before the beginning of the 20 th century, mine was a quite limited activity, running by foreign families. The local economical elite had
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played a secondary role. After a initial animosity, it didnt opposed a big resistance. Thus, in Cerro de Pasco the company could develop its activity in an easy way, in the way it wanted. In the same way the Peruvian State didnt control the activity of the company. The State only cashed the duties on activity, importation and exportations. So, progressively the city of Cerro de Pasco became a state in a state.

To 1940 : a complete enclave

The enclave integration to the local economy was very little. The enclave functioned like a island linked to the metropolis by a ferry system. Concerning the relations with the Peruvian state, there were really little too. Leguia (1919-1930) introduced taxes for importations. These taxes concerned all the mining products and the petroleum. But these incomes were absorbed by the state budget. There were no reinjection in the mining region. So we can describe the Peruvian State as a facilitator for the foreign operations and for the American investments in Peru (there were only investments in mining and petroleum).

For the work force that isolation had huge consequences. Lets remind that, according to the data about 8% of the population worked in the mining sector, 12 % in factories and 61 % in agriculture. The salaries were decided by the company. We can consider than the salaries of the obreros were no more than the necessary for the reproduction of the work force. Plus they didnt increase a lot with time (from 790 soles en 1925 to 957 en 1940); To compared, the salaries of the empleados went from 1842 to 7200 soles in the same period. Because of the different characteristics already presented (isolation, policy of exportation and short-term production), we had the same situation than in West Europe during the industrialization. The companies looked for minimizing the costs. For the local non-qualified work force, the consequences were difficult. It was too easy to replace one worker with another.

After 1940 : A period of change From 1940, the customs of the enclave became less and less important, nut by the will of the company. Indeed the company had decided to expand its activity in a horizontal and vertical way. They had decided to diversify their activity inside the Peruvian economy. However we have to notice that these changes were the company initiative.

3. Cerro de Pasco nowadays

The state of Cerro de Pasco nowadays The deposits had been depleted by the Spanish. But Cerro de Pasco is still an active mining area. Nowadays the mine belongs to the Volcn Compaa Minera company which have bought it from Centromin after the privatization in the 90s. The se last years, the mine have had a combined production between subterranean extraction and open air extraction. The total production reaches 3,34 millions of tons in 2006 : 58 300 tons of lead, 155 300 tons of zinc et 8.5 million ounces of silver. The reserves of mineral are estimated at 40 million tons in reserve and 50 millions in resources. The cooper production have stopped but we can still see some remains of the old foundry. With the progress of time the Peruvian city was gradually encroached on by the open air mine. The town seems to be put down at the edge of a sinkhole. The mine is progressing every day. The quarry, where are extracting zinc, copper and lead, is 1 900 meters wide and 380 meters deep.

Foreign domination The mining companies are very powerful. At the end of 2007, the municipality had granted to Volcan company 11,3 hectares of extra areas in the down town. It had accepted with that the destruction of the main square of the city and the colonial church. Otherwise, the company had threaten to close the mine and to let 4.000

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persons jobless. Each year a part of the population has to move to enable the mine to extend. According to Sanden Otten, a Dutchman working for 2 years with the National Confederation Of Communities Affected By Mining (CONACAMI), the majority of the Cerro de Pasco inhabitants are not complaining because it has a job thanks to the mine.

Environmental issues Water contamination : The rivers Huachn, Paucartambo, Tingo, Huallaga, San Juan are contaminated in the big majority by the mine wastes and with a minor proportion by the domestic wastes. Domestic and solid waste : in the Pasco region, more than 20 tons of waste are produced by days. 12 are produced in the city of Cerro de Pasco. These wastes are stocked in the dumps of Rumillana, Rumiallana, Montecarlo, Pucayacu or Leongasha. More worrying, there are 80 illegal dumps. The open-sky dump of Rumillana receipts each day 9 tons of waste

Social issues Basic unsatisfied needs : According to the national statistics and technology bureau of Peru INEI, the basic needs are unsatisfied. 41, 9% of the population live in places with at less one unsatisfied basic necessity considering the following indicators : Physically inadequate housing, heaped housing, housing without hygienic service, children who are not present at the school and high economic dependence . Unemployment : Between 1990 and 2000 more than 1800 persons have lost their jobs with Centromin Peru. We know that the family average in Cerro de Pasco is 6 persons by family. So we can consider than 10,800 persons have been affected by this wave of unemployment. The situation is the same with the other mining companies. Health issues The soil and the water are contaminated by lead. Studies have showed that 9 persons on 10 have a rate of metal in blood of too high. The consequences on the
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health are dramatic : abdominal pain, neurological complications, tiredness, lethargy, decline of the longevity.

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Bibliography

In French: http://www.persee.fr/web/revues/home/prescript/article/tiers_00407356_1977_num_18_72_2761 http://www.persee.fr/web/revues/home/prescript/article/tiers_00407356_1975_num_16_64_2583 http://observers.france24.com/fr/content/20100519-cerro-pasco-ville-devoree-unemine-perou http://www.unil.ch/gse/page2744_fr.html

In Spanish : http://www.aidesep.org.pe/ http://www.idrc.ca/uploads/user-S/11169598481munipasco_nov03.pdf

In English : http://www.ibcperu.org/doc/isis/9984.pdf http://books.google.com/books?id=NNI8I8Qj7mYC&pg=PA71&lpg=PA71&dq=cardos o+et+faletto+mining+enclave&source=bl&ots=Y9QYXbDRQT&sig=0SSzYOTbYfW6 Sdz-VhuPy_zEgbE&hl=fr&ei=q5HYTO_A4_QsAOM6ICVCA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBwQ6AEw AA#v=onepage&q&f=false http://upsidedownworld.org/main/news-briefs-archives-68/1872-cerro-de-pasco-perumining-red-lakes-and-piles-of-waste

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