Monday, September 5, 2011

South Africa & mining

Here's a gated link to an article in the Financial Times on their mining industry- class members, link here. In addition to some useful ideas for class such as the rising marginal costs of mining South Africa's deepening mines and weak infrastructure, the article features a thoughtful reflection on the balance between industry and economic development. The question, as put by
the country's minerals and energy minister, is "how to make use of our vast mineral wealth to eliminate the evil triplets"- poverty, inequality, and unemployment.

If the mines are nationalized, the companies that made investments to get the mines where they are today will lose, and suddenly the government will be running the place. Usually that's not a good thing for productivity: being a nationally owned industry means basically one's budget decided every year by John Boehner and Nancy Pelosi: in other words, since everything's always up in the air, it's hard to do planning, and the most skilled managers usually aren't interested in participating, since higher paying jobs are available in the private sector. Further, if the government starts taking people's investments for its own, that really chills the climate for others considering investing in the country.

So nationalization has serious costs, but if mine owners are dragging their feet about making other required reforms, some such extreme action might be necessary. The minerals and energy minister isn't in favor of nationalization, and hopefully industry will feel safe enough to improve productivity by making some investments. The whole world, and the country in particular, need to get those economic engines roaring again.

h/t Marginal Revolution

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