Evolution of Opportunity at Sector Level
6.4 Implications of the ‘Mining Boom’
As a consequence of a business-friendly institutional framework (labour, mining, tax, environment), nearly perfect natural conditions (ore quality, geography, climate, proximity to the sea, water availability), material infrastructure (roads, ports, electricity), and the quality of its mining labour force, Chile has experienced an unprecedented and prolonged ‘mining boom.’ The boom has been comprehensive in scope but for the purposes of this thesis, suffice is to briefly examine the following five areas: structure of ownership, production levels, value added of exports, tax revenues, and in a separate subsection, the core and periphery divide.
Re-transnationalisation. From a nationalised industry in the early 1970s, today’s Gran Minería is mainly constituted by transnational corporations (TNCs).TNCs returned to the sector in the early 1980s, taking over medium-size operations sold off by the dictatorship (e.g. Exxon and Disputada de Las Condes in 1978). BHP Billiton’s Escondida was the first major mine developed from scratch under the new regulations in 1990. A succession of operations followed which include Candelaria, Cerro Colorado, and Quebrada Blanca in 1994, Zaldívar in 1995, El Abra –a joint venture between CODELCO and Cyprus Amax- in 1996, Collahuasi and Lomas Bayas in 1998, Los Pelambres in 1999, El Tesoro in 2001, and Spence in 2006. Unsurprisingly, for Debrott (2002) the industry’s restructuring of ownership can only be described as one of re-transnationalisation (Figure 6.1 opposite page).
Overproduction and falling price. The world’s copper production has increased significantly as a consequence of the proliferation of transnational mining companies in Chile: from the 532,000 metric tonnes (MT) produced in 1960, through the 708 MT produced in 1971 and 1,588,000 MT in 1990, to over 5,360,000 MT in 2006 (35.2% of world’s copper mine production) (COCHILCO, 2007; Debrott, 2002). Whereas in 1987 CODELCO was responsible for 77% and TNCs for 23% of all copper produced in Chile, in 2006 CODELCO produced 31.2% and TNCs 68.7% (COCHILCO, 2007) (see Table 6.2 at the end of this chapter). For several commentators this situation has been one of overproduction, in turn responsible for the worldwide price collapse of copper observed in the late 1990s and early 2000s (Caputo, 1996; Caputo et al., 2001; Caputo et al., 2000).
The effect of the mining policy was significant and - as predicted by economic theory, Chile finally proved Jagdish Bagwhati's theorem of Impoverishing Growth
(1957) - overinvestment in mining, attracted by the huge ground rent that typically exceeds one fifth of copper sales, so massive; that Chile by itself gloated the world market with copper, busting world prices by half even before demand started to dwindle after 2000.
(Riesco, 2003: 6)
The thesis of overproduction has been strongly denied by the government (Cartagena, 2000), although CODELCO itself has restricted output tin several occasions to compensate for low prices.
Figure 6.1: La Gran Minería over the twentieth century
1904-76 1976-1982 1982-present
Old mining Anaconda
Chuquicamata Kennecott El Teniente Andes Potrerillos El Salvador Andina CODELCO Chuquicamata El Teniente El Salvador Andina CODELCO
Div. CODELCO Norte Chuquicamata Radomiro Tomic (1997) Div. El Teniente Div. El Salvador Div. Andina National TNCs Antofagasta Los Pelambres Michilla El Tesoro Foreign TNCs Exxon Minerals
Disputada de Las Condes Anglo-American Sur Andes Mantos Blancos BHP-Billiton Escondida Cerro Colorado Candelaria Collahuasi Barrick Gold Zaldívar Phelps-Dodge/CODELCO El Abra Quebrada Blanca Spence
Decreasing value and involution on the value added of exports. ‘Exports of copper roughly doubled in volume from 1995 to 1999, while the value of exports declined and government income declined from about half of exports in 1989 to five per cent in 1999’ (Riesco, 2003: 6). In other words, during the 1990s the state received less income from copper than it did during the 1980s, when CODELCO produced half of what it did in the
1990s. This is an extremely important issue as copper prices have an immense impact in the Chilean economy. CODELCO is said to be ‘Chile’s best business ever’ with tax revenues between 1971 and 2003 representing more than all taxes paid by all private companies over the same period (Alcayaga, 2005). While in a low price year like 1999 CODELCO’s contributions represented US$ 269 million and 1.9% of fiscal revenue, in a high price year like 2006, contributions reached US$ 8.3 billion and 22.1% of tax revenue (COCHILCO, 2007). A linked debate has to do with the type of final product being exported. This is because although more copper has been produced, less copper has been refined in Chile. In fact, most new exports have been of copper concentrate (30% pure copper) rather than of greater value-added copper cathodes (99% pure copper) (Lagos, J. F., 1999). Furthermore, while most TNCs produce more concentrate than cathodes, the
opposite is true of CODELCO.19
Increasing tax evasion and decreasing tax revenue. CODELCO’s importance contrasts with that of new transnational corporations. In effect, only Escondida and Mantos Blancos pay taxes, while all others have consistently declared losses (Alcayaga, 2005). However, Escondida’s tax bill is minimal when compared to CODELCO’s and Mantos Blancos has paid taxes on two years only. This is a direct consequence of the tax regulations put in practice by the Concertación as these two companies are regulated by a different tax regime. There are various forms to avoid taxes (transfer prices, parent companies’ high- interest rates, massive ‘losses’ in future markets, consultancy payments to parent companies, etc). Although admittedly a low-price decade, it is estimated that between 1991 and 2002, Chile lost at least US$ 2 billion in tax revenue. For some authors however, the current situation should improve in the future as companies settle their initial costs (Lagos, G. and Torrens, 2000), but most remain unimpressed (Alcayaga, 1999, 2005; Caputo, 2000; Comité de Defensa del Cobre, 2008; Lavandero, 1999; Luna et al., 2004; Riesco, 2001, 2002, 2004) which goes to explain the government’s semi-U-turn with its ‘Royalty 2’ initiative.
Figure 6.2: Approximate locations of mines (A) (Regions I, II, and III)
Source: based on several sources including Consejo Minero (2003, 2004)
Cerro Colorado Collahuasi El Abra Chuquicamata Radomiro Tomic Michilla Quebrada Blanca Escondida Zaldívar Lomas Bayas El Tesoro El Salvador Mantos Blancos
Old nationalised mines (traditional Gran Minería) controlled by CODELCO since 1976
Old private mines now controlled by large transnational corporations
New CODELCO mines
New private mines controlled by large transnational corporations
Outsourcing and the core and periphery divide
In spite of the proliferation of new mines, the total number of workers employed in La Gran Minería has declined slightly from 37,476 workers employed in 1987 to 34,403 in 2006 largely due to the implementation of new production processes and technology (COCHILCO, 2007). The most evident effect of neoliberal regulations and the mining boom in copper mining employment has occurred in its composition.
Since the early 1980s, there has been a simultaneous decline in the number of direct jobs and a significant increase in the number of atypical forms of employment, particularly that of outsourcing. There are no disaggregated statistics for copper mining, but statistics for the mining sector as a whole (Table 6.1), show that while in the 1970s the number of contract workers employed in mining was negligible, one out of three miners was a contract worker in 1988, and two out of three miners were contract workers in 2004 (Echeverría, 2006). This has been especially evident in the case of CODELCO. While the number of direct workers employed by CODELCO has decreased from 24,000 in 1989 to 17,936 in 2006, the number of contract workers has increased from 1,371 to just under 30,000 between the same years (CODELCO, 2007).
The phenomenon of outsourcing emerged in Chile as direct product of the dictatorship’s re-regulation of labour in the late 1970s. Until then, companies –and mining companies for that matter- were not allowed to outsource core tasks and functions, or to pay contract workers less than what direct workers receive (see previous chapter). Scrapping these and other regulations was crucial in making Chile’s labour market and mining sector highly flexible. For old mining companies outsourcing represented a straightforward way to ‘get rid of the grease’, which resulted in thousands of direct jobs lost and direct workers re-employed as contract labour. For new companies flexible outsourcing regulations allowed to design ventures presupposing minimal direct employment. The terms core and periphery are used here to refer to these two groups because working and employment conditions between direct and contract workers differ greatly.
Figure 6.3: Approximate location of mines (B) (Regions III, IV, V, VI and Metropolitan)
Source: based on several sources including Consejo Minero (2003, 2004)
Mantoverde Candelaria Carmen de Andacollo Los Pelambres Los Bronces Andina El Teniente El Soldado
Old nationalised mines (traditional Gran Minería) controlled by CODELCO since 1976
Old private mines now controlled by large transnational corporations
New CODELCO mines
New private mines controlled by large transnational corporations
Core workers. Core workers are typically equated with CODELCO workers, as they have long been considered Chile’s ‘labour aristocracy,’ with employment and working conditions well above the national average. They are broadly seen as a privileged group, thanks to their public status, strategic weight on the economy, and the strength of their organisation, the Federación de Trabajadores del Cobre (FTC). In Frank’s words, they inhabit mining’s ‘old world’.
The “old world” is one where the state is the predominant employer and where unions or federations have a long relationship with the state, and perhaps with management in charge of the company. Most workers here enjoy a permanent contract and good employment protection and the union has a long tradition of collective bargaining and strikes. Importantly, by resisting (further) privatization, the union also demonstrates that it wants this old world to survive. For that reason, most unions are part of a federation or confederation, and are likely affiliated to CUT. Union members tend to be familiar with each other, for years they have worked side by side in the same company, they reside in the same community, and they go to the same pub. In short, the old is a well-structured place with a long history.
(Frank, 2002: 44)
It is however mistaken to associate core employment to old mining in general, or to CODELCO in particular because direct workers employed by transnational corporations share many of the ‘privileges’ normally associated with ‘old mining’ workers -a proper contract of employment being the main one.
Periphery workers. Likewise, Frank (2002) describes the ‘new world’ as one of insecurity, where the great majority of workers are temporarily employed as contract labour. With the exception of some groups of highly skilled workers, employment and working conditions for contract workers in the mining sector are precarious. Differences in pay between direct and contract workers are stark. While a typical worker employed by CODELCO takes home between £900 and £1200 pcm, a standard contract worker takes home £250 pcm on average, but many of them work for the minimum wage (Caputo and Galarce, 2007). Contract workers suffer significantly more accidents than core workers (Echeverría, 2006), work longer and unsocial hours (De Laire, 1999a, 1999b), present low levels of unionisation and collective bargaining (Agacino et al., 1998; González, 1998), and their subjective experience of work is one of precariousness and abandonment (Abarzúa, 2008). Workers in the ‘new world’, says Frank,
(…) move frequently from one location to another, often earn less money, face tougher collective bargaining, and their contracts are less enforced. Though possible in theory, in practice, workers in this world have little chance of being able to move into the old world. Though equally structured, the worker in the new world is often less familiar with the employer, and often sees and works with new colleagues. Unlike many of the old world unions, these new unions have only recently created or joined a federation, or even CUT. In short, the new world is unfamiliar and tends to remain so unless workers decide to unionise.
(Frank, 2002: 44)
The periphery of copper mining employment is far from homogeneous. It is therefore necessary to distinguish between types of services outsourced, contract workers, and provider firms.
Table 6.1: Number of Direct and Contract Workers in Mining, 1975-2004
Year Direct Workers Contract Workers Total
1975 74782 0 74782 1976 75535 0 75535 1977 72967 0 72967 1978 67369 0 67369 1979 64746 0 64746 1981 59777 0 59777 1982 54206 290 54496 1985 63926 3174 67100 1990 74508 10751 85259 1995 54938 27300 82238 1996 51166 34737 85903 1997 51284 41976 93260 1998 48839 47738 96577 1999 46186 38031 84217 2000 46621 39476 86097 2001 44794 48418 93212 2002 45056 54633 99689 2003 42457 57437 99894 2004 44341 68120 112461
Source: Echeverría (2006: 48, Table 10)
Services outsourced. Mining companies hire contract workers to perform a broad variety of activities. A useful categorisation is that of CODELCO, which distinguishes between the outsourcing of services, ‘investment’, and operational tasks. The ratio between these
three groups varies greatly depending on a company’s strategy and mining cycle. In the case of CODELCO (2006) for example, it is 28%, 45%, and 27% respectively. The outsourcing of services and investment tasks involve non-core functions. Services include transportation, catering, security, and cleaning services, and ‘investment’ tasks consist of the one-off building of mines, or other major infrastructure projects.
The outsourcing of operations is far more problematic as it often involves a blurring between core and non-core tasks. Operational tasks include mining development, tunnelling, and other continuous functions that although may not be directly linked to extraction or processing or mineral resources, are nevertheless essential -sine qua non- for the business. Unsurprisingly, most abuses of outsourcing legislation occur in this area. Relative to other sectors however, the use of outsourcing to disguise the employment relationship has represented less of a trend in the mining sector. Mining companies with a particularly poor record in this regard such as CODELCO have an estimated 15 to 20 percent of their workforce in disguised employment relationship.
Types of contract workers. These three sets of tasks can also be associated with three distinct types of worker. Service and operations contract workers (henceforth also referred to as non-montajistas) are relatively low skill employed in ‘permanent short-term’ contracts. Permanent because of the continuous nature of these activities, and ‘short term’ because of the artificial temporary nature of their (rolling) contracts of employment. These workers tend to be local workers that live and work in the same geographical area. Industrial assemblage contract workers (or montajistas) tend to be high skill, work on a temporary basis, and away from where they reside for long periods. Whereas service contract workers generally have not mining background (relatively young, and in the case of services, female workforce), a substantial number of operations contract workers are former core workers. Industrial assembly workers are, on the other hand, mostly construction workers. As this research will show, these workers have also organised in different types of organisations, and pursued different strategies, achieving different degrees of success.
Type of firms and the ‘outsourcing chain’. Although provider companies are normally small firms that make use of legal provisions that attenuate the demands of labour legislation, in the mining sector the size of provider enterprises vary greatly. Indeed, the very distinction between user and provider is a relative one, depending on a company’s
position in the outsourcing chain. A large transnational corporation (e.g. Balfour-Beatty) is a provider enterprise for a large transnational mining user enterprise (e.g. BHP Billiton), and simultaneously a user enterprise for several other provider firms. These are normally three to four ‘medium-size’ provider firms, that are in turn, subcontractors relative to BHP-Billiton. These ‘medium-size’ provider firms are also the user firms of several hundreds small-size provider enterprises (sub-sub contractors relative to BHP-Billiton). As a general rule, it can be said that the farther away from the original commercial contract, the worse the employment and working conditions of workers, and the greater the economic vulnerability and likelihood of default of provider companies (Figure 6.4).
Figure 6.4: The Outsourcing Chain
Contract Worker Trabajador Contratista Contract Worker Trabajador Subcontratista Contract Worker Trabajador Sub- subcontratista User Enterprise Empresa Mandante Direct Worker Trabajador Directo Main Provider Enterprise Empresa Contratista Provider Enterprise I Empresa Subontratista Provider Enterprise II Empresa Sub- Subcontratista