Minas Gerais and the Future of Extractive Capitalism

As its name might suggest, Minas Gerais (“General Mines”) is the mining capital of Brazil. It has a rich history as an exporter of precious metals and its most famous tourist attraction, the colonial town of Ouro Preto (“Black Gold”), was once the linchpin of Portugal’s lucrative gold trade in the Americas. This legacy continues into the present day through the activities of Vale, Brazil’s former state mining company that was semi-privatized in 1997 along with Petrobras, the state-owned oil giant. The second largest mining company in the world (2010 net revenue of $52.5 billion), Vale is one of Brazil’s most important “national champions” and an anchor of its economy. As this map shows, Vale’s activities are concentrated primarily in Minas.

Globally, the mining industry has been riding high in recent years. With a surge in commodity prices coming from skyrocketing Chinese demand (I mentioned in a previous post the idea of a “supercycle”), international mining companies have seen record profits in recent years. Vale’s success has driven Minas to the forefront of Brazil’s economic expansion: the state’s economy grew by 10.9% in 2010, the fastest rate in the country. The Fundação João Pinheiro, a think-tank, attributed these results almost entirely to mineral industrialization and exportation.

Eduardo Galeano wrote a book several years ago entitled “The Open Veins of Latin America.” A historical masterpiece that recounts 500 years of resource expropriation and exploitation by imperialist powers, the book proved an instant hit among the region’s prominent leftists, including President Hugo Chavez of Venezuela. From the silver mines of the Andes and the rubber factories of the Amazon to the banana, coffee and sugar plantations of Central America and the Caribbean, Galeano recounted the horrors by which greedy international and local elites plundered the continent’s riches and exploited the labor of its people. While I believe the book’s overly socialist tone and its glossing-over of the shortcomings of the Latin American revolutionary left oversimplify and diminish its argument somewhat, it nevertheless paints a vivid picture of the region’s history of extractive economics. Flying across Minas into Belo Horizonte, I was struck by the way in which the picturesque mountain countryside was regularly broken up by aerial views of massive, dirty craters dug deep into the earth, pouring runoff into the streams and slowly swallowing up the nature around them. For the first time, I was seeing the open veins of Latin America not only as a metaphor but as real, bleeding wounds burrowing down into the heart of the planet.

The more time I spend in Minas, the more I fear the monster that we have created: an immense machine of extraction and consumption whose unquenchable hunger for natural resources only grows with time. In small cities across the state, Vale has set up such vast operations that it has essentially usurped the role of the local government. During our visit to Itabira, a mining outpost that sits on the edge of an artificial lake created by Vale to dump its polluted mineral byproducts, I was struck by the way in which people referred to the company as the de facto authority in the town. This is a pretty common story for any small town that serves as a base of operations for a large company, but it was nevertheless surreal to witness in person. What are the implications when a company beholden only to its shareholders begins to wield more authority than local, democratic institutions based on community consensus? But that's a whole other issue I won't even begin to touch here...

Residents often tell me about how the steady expansion of mining in the region means that, over time, more and more mountains are swallowed up for the sake of economic growth. Based on our traditional economic indicators, the results have been fantastic. Mineiros have made lots of money from selling this natural capital and the BH region has been flourishing as a result. But will there be a point where it finally stops, where local people decide that enough mountains have been destroyed and that they prefer to maintain the little nature they have left? Probably not. People will continue to demand minerals such as iron ore and aluminum to manufacture new products, and Mineiros will be happy to sell what they have if it means more money in their pockets. Our economic system works in a way that we go after resources until none are left, and then we move on to look for more somewhere else. It does not bode well for the future of Minas Gerais.

E.F. Schumacher, a German economist, wrote eloquently in his 1972 book “Small is Beautiful” about the eminent dangers of extractive capitalism. The entire system of modern capitalism is precedented on unlimited economic growth. Our economy must constantly produce more and more in order for us to stay satisfied and continue to improve our quality of life. A recession occurs when our economy fails to grow, causing extreme economic anxiety. Slow economic growth in the industrialized world following the 2008 recession has led to international panic, and everyone is an agreement that the immediate goal must be to once again resume a “healthier” 3 to 4% growth rate. But, as Schumacher sagely pointed out, is unlimited growth truly possible in a world of finite resources? Mining is one of the best examples of this dilemma. There is a certain quantity of iron ore and aluminum on the planet. Eventually, that will run out. Even before it runs out, we may need to go to such extreme lengths to extract the remainder that we irreversibly damage our planet, such as devastating the entire natural landscape of Minas Gerais. The argument for environmentalism, in this sense, can be boiled down to economics. Extractive capitalism cannot last forever, and we better start planning an alternative before it’s too late.

This is not, I should mention, a hypothetical scenario. In several cities in Minas, residents are facing an unknown future as minerals begin to dry up. In Itabirito, a recent study found that local deposits will be exhausted within 15 years, and the municipal government is now trying desperately to invest money in new economic development programs to prevent the city’s imminent collapse. While this effort should be applauded, it will most likely come to naught. Such is the fate of the vast majority of the world’s mining towns: when the riches run out, the world moves on.

Seeing this reality here in Minas serves as a constant reminder of the importance of recycling in our society. Although recycling has become such a nearly universal symbol for the modern environmental movement, people often tend to laugh it off as a mere feel-good action to build societal consciousness while doing little to solve the big picture issues. But recycling matters. Not only does it help reduce the quantity of waste we generate, it also cuts to the heart of the problem at the center of extractive capitalism: dependence on non-renewable resources. If we do not learn how to conserve and reprocess natural resources such as energy, minerals, water and timber on a massive scale, fundamentally transforming our economic model away from nonstop extraction, then we are going to be in for a rude awakening at some point down the road. There is no point in “developing” our society if we do it in a way that is fundamentally unsustainable. Across the world, recycling is not only about protecting and improving the livelihood of the catadores; it is also about protecting our way of life as we know it.