Photo: futureatlas.comA number of months ago I wrote a blog entry on the requirement in the Dodd-Frank bill, put in by then-Senator (and now Kansas governor) Sam Brownback, prohibiting the purchase of “conflict minerals”—those that might be used to finance warfare in Africa, particularly the Congo. I noted the very simple economic point that this would create a surplus that would drive prices down, mostly harm local miners, but benefit buyers/countries without U.S.-level scruples about these purchases.
I shouldn’t brag—any Econ I student could have seen this point; but it is nice, albeit depressing, to see this prediction come true. From David Aronson in the New York Times:
Unfortunately, the Dodd-Frank law has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.
The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords — especially the glamorous high-tech firms like Apple and Intel that are often the ultimate buyers of these minerals. It’s easier to sidestep Congo than to sort out the complexities of Congolese politics — especially when minerals are readily available from other, safer countries.
For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule under the kleptocracy of Mobutu Sese Seko (when the country was known as Zaire) and that is now just beginning to emerge from over a decade of brutal war and internal strife.
Brownback’s provision has harmed precisely those it was designed to protect, the small-scale miners in the Congo, but it has certainly lowered the price faced by Chinese processors for these inputs. Law of unintended, but what should have been perfectly expected, consequences.
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Is that kind of like making abortion safe, legal, and rare. And free?
Your basis for the article is wrong. The consequences of the law were entirely intentional. Those people who survived as mine slaves can now go back to farming like their grandfathers did. It is not going to happen overnight, and most mine slaves never learned to farm in the first place, but the change, even if painful, is good.
Hi, this is David Aronson, the author of the NYT op-ed. I’ve enjoyed Freakonomics for a long time, so it’s a pleasure to be mentioned by you.
Neither I nor any of the Congo civil society organizations I spoke to have your pedigree in economics, but it was obvious to most of us that Dodd-Frank would a) cause reputable Western firms to seek their minerals elsewhere, b) thus hurting the poor miners most, and c) result in non-Western firms moving in to fill the gap.
My fear is that the Western firms aren’t coming back. Right now, to my knowledge, there’s only one Chinese counter buying minerals from eastern Congo, so it’s obviously buying at a major discount–and only purchasing a fraction of the available supply. Which to me raises these questions: if more Chinese firms come in to eastern Congo, will they coordinate their purchasing behavior so as to continue to behave in monopsonistic fashion? Or will they start to compete with each other? Will demand from non-Chinese, non-Western sources eventually drive prices (and demand) back up to near-previous levels? How many firms need to start buying again–and at what volume–for the artisinal miners to again be making (close to) what they used to make?
Any guidance from you or your audience would be welcome.
hi david, thanks for such a great article that has at last focused the debate on some impacts of the DF law. ITRI is the international tin trade association working on a DRC traceablity project. Should you need information on the current trade prices and routes i can provide that off-line; please email me.
Our original comments on DF from last july seem to unfortunately be correct.
http://www.itri.co.uk/SITE/UPLOAD/Document/ITRI%20conflict%20mineral%20bill%20statement.pdf
Kay
encouraging a corrupt system because its easier in the short term for those people does them no favors, this will force them to either overcome or die trying, either is better than the life they have now.
@Jonathan ” . . . die trying . . . better than the life they have . . .” Who are you to decide who lives or dies by what YOU think is it’s worth! The small miners were not the corrupt ones, but you don’t care if they starve to death because of government regulation.
Agreed. My Congolese partner and I run a Congo based export company (agriculture and minerals). We work only with artisanal chiefs/tribes for the minerals, specifically to give them a highly visible, well-documented path to market to avoid the militia and any connection with conflict. I’m supposed to be shipping coltan for one of the chiefs while I’m here and had to tell them we can’t find a buyer – the smelters have vanished – they all say it’s not worth the risk that Apple, etc. won’t buy from them. They can get all this somewhere else. Meanwhile innocent people in the Congo are now starving.
The politicians and activists, who despise Kinshasa on every other occasion, are now all quoting the support of the Congo government for this bill, as well as the NGOs. None of them wants to quote the chiefs or the approximately 1 million people on the ground in the Congo being devastated by this.
So the government, the NGOs and the activists all sit in their warm houses supporting each other, and the chiefs and people plead for this bill to be stopped, without anyone to quote them. Who would you believe, the bureaucracies and activists, or the people who actually have to live with this disastrous bill?