Property rights urgently needed to allow mineral riches to be safely exploited

Gerry Brownlee’s announcement that he wants to unlock New Zealand’s mineral wealth has set hearts all aflutter, with the Standard (poor lambs) likening his trial balloon to a precursor to rape and pillage and Metiria Turei complaining that we don’t really need to get richer, and that mining stuff is just “old dinosaur thinking” anyway.

Tell that to the Lucky Country to the west of us, where everyone is still (on average) around 25% wealthier than each of us based in no small part on digging stuff out of the ground and selling it.

Which leads me to ask and answer an obvious question for you:

Is it possible to mine without upsetting the neighbours, and to set up a legal structure that allows it?

And the answer:

Of course it is. It just requires the clear recognition of private property rights.

Such a shame then that we have so few of them – that nearly half of New Zealand’s land is ‘owned’ by the government and around one-third set aside as “conservation land” – with up to 70% of all known potential mineral resources on government land administered by the Department of Conservation.

And although Gerry Brownlee, bless ‘im, is keen to get mining going again in New Zealand, he’s not going to countenance a change in either the government ownership of mineral rights (all naturally occurring gold, silver, uranium, and petroleum in New Zealand is owned by the Government, and permits under the Crown Minerals Act are needed to explore for or mine these minerals), or of government ownership of land.

That’s a great pity since there’s so much at stake – and his proposal simply to improve “access” to conservation land for mining is probably the worst of both worlds.

How much is at stake? Well, Australia is often known as "the lucky country" because of its resource riches. And according to a 2006 World Bank study (which being the World Bank is bound to be full of holes, but it’s all we’ve got to look at) Australia's underground mineral wealth only amounts to around $11,500 per Australian, most of which is being tapped, whereas New Zealand’s is around a third of that at $3,600, most of which is not being tapped. That’s not quite Australia’s mineral riches, but that’s a respectable amount of wealth to lock up just to protect a few snails-- according to Brownlee’s advisers that’s around $140 billion of gross in-ground value locked up.

And what’s wrong with just improving access rather than improving private ownership rights?  Because the incentives are all wrong. One look at the Soviet Union’s lethal legacy of filth or of logging and forest clearance in the Amazon is enough to show what happens when government owns everything, and is interested in extraction at all costs.

Improving access instead of improving private ownership rights does nothing to solve the Tragedy of the Commons problem that is at the cause of so much of the world’s environmental degradation:  As long as a resource is either unowned or held in common (or govt) ‘ownership,’ then the incentive for each resource user is to take as much as they can when they can and whenever they can, no matter the consequences for the quality and the quantity of either the resource or the are in which its being extracted.  That's the tragedy: common ownership provides no incentive for genuine 'stewardship' – and any attempt to replace natural incentives with bureaucratic management is doomed to failure.  Just ask the residents of Magnitogorsk or the Mato Grosso.

Conflict is not inevitable with mining. The answer, as I pointed out to Nandor Tanczos a few years back, is not political management but clearer property rights, and greater common law protection of those rights. Property rights take the issue out of the political arena, allowing those who do hold rights to express their own values without political interference from the likes of either Mr Brownlee or Mr Tanczos. Elizabeth Brubaker from Canadian organisation Environment Probe makes that case superbly here.

When property rights are properly expressed through common law for example, property rights involve a 'bundle' of rights, and each rights-holder is promised clear legal protection by the courts over their 'stick' in the bundle. When such a thing as mining is contemplated, every owner of a stick in the affected bundle has absolute protection in expressing their own values--whether that’s conservation of the environmental values, or the use of the resource--and that legal protection must be recognised by anyone proposing to exercise the use of their own 'stick.'  Everyone is free to make their own valuations of each of the ‘sticks,’ and in the end, the resources end up in the hands of those who value them most.

If for example I have a clear and protected right to use a stream running through an area affected by proposed mining, then under common law the miner is obliged to take my values into account by either not damaging the waterway, or by purchasing my assent and the assent of all other affected stream-users -- and of all other affected parties. (Elizabeth Brubaker offers some examples here of the sort of legal protection afforded to stream-users by common law).  These affected parties might hold rights to access, hunting, harvesting, tramping, logging, birding, or profits à prendre; they might hold a conservation covenant, or just have the right to peaceful enjoyment of their property – but under common law all their rights must be protected as long as they wish them to be protected.

That's protection then for all rights-owners' chosen values, and all done without all the picketing, bickering and politicking we see now. If it be objected that this excludes all those who value the untrammelled value of wild and untouched land, then let them express the extent to which they really do truly value the conservation estate by becoming a rights-holder in it, rather than seeking to use the government's club to enforce their chosen values over others. It doesn't require full ownership, it simply means acquiring the right to a 'stick' in the bundle.

I commend the idea to your attention.

NB: Check out the New Zealand Mineral Exploration Association’s website, which has all the information you’d want to know about where and how much we’re minerally endowed. See.

Wealth, and why we don't have it

Wealth. What is it? Where does it come from? Why are some people in some places wealthier than others? And why does New Zealand have to borrow so damn much in pursuit of it?

These are the sorts of questions people have been asking for centuries, and since Adam Smith it's been something for which we have some pretty good answers.

We've all heard the commitments to get New Zealand back into the top half of the OECD, and many of us have seen those graphs that Rod Deane pulled out recently showing NZ's rise and decline in those rankings over the last century-and-a-half -- and we've realised that getting back into the top half of the OECD isn't as easy as politicians' promises would have you believe.

According to my dictionary, wealth is defined as "affluence, plenty and prosperity, a profusion, great plenty (of); prosperity." Clearly, wealth has something to do with productivity, with resources, with capital, and with what Julian Simon called the ultimate resource: the creative human mind applied to productivity. But how to explain and quantify the relationship?

Two years ago, the World Bank began examining questions such as these, and unusually for such an organisation, they came up with something worth studying. They found something that hadn't been accounted for in all their previous studies on the subject. Ronald Bailey explains:

Two years ago the World Bank's environmental economics department set out to assess the relative contributions of various kinds of capital to economic development. Its study, "Where is the Wealth of Nations?: Measuring Capital for the 21st Century," began by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal and mineral resources), cropland, pasture land, forested areas and protected areas. Produced, or built, capital is what many of us think of when we think of capital: the sum of machinery, equipment, and structures (including infrastructure) and urban land.

But once the value of all these are added up, the economists found something big was still missing: the vast majority of world's wealth! If one simply adds up the current value of a country's natural resources and produced, or built, capital, there's no way that can account for that country's level of income.

What's missing in those traditional measures is what links the human mind with productivity: the rule of law. In a sentence, the creative human mind is more productive the more that the rule of law is recognised.

The explanation for that is simple. You see, when the protection of law is weak, then the mind is only able to plan short range. When property rights are weak, for example, people tend to build their furniture before they build their roofs -- and you can see the evidence of this in shanty towns all over the globe. When time horizons are short, this is rational behaviour. But shanty towns aren't the natural human environment, are they. Take a shanty town dweller out of the shanty and set him down in a place where the rule of law is better recognised, and immediately his time horizons become longer, his prospects much brighter, and his house and his wallet much richer.

Extent time horizons by setting in place the rule of law, and immediately you bring the distinctive attribute of the creative human mind -- the ability to think and to plan long range -- to bear on the question of productivity. That's the real link between wealth and law, and it's something politicians actually can do something about.

You see, this is what the World Bank's researchers realised in their study. What's more important in determining wealth than natural resources or real capital is what they eventually termed this "intangible capital" -- that is, "the wealth product that comes from securing people's rights through the rule of law," so called "intangible factors" such as "the trust among people in a society, an efficient judicial system, clear property rights and effective government."

All this intangible capital ... boosts the productivity of labor and results in higher total wealth. In fact, the World Bank finds, "Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries."

Once one takes into account all of the world's natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type. The bottom line: "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity."

This "intangible capital" can be quantified, and what we find when that exercise is done is that "the natural wealth in rich countries like the U.S. is a tiny proportion of their overall wealth—typically 1 percent to 3 percent—yet they derive more value from what they have."

Cropland, pastures and forests are more valuable in rich countries because they can be combined with other capital like machinery and strong property rights to produce more value. Machinery, buildings, roads and so forth account for 17% of the rich countries' total wealth.

Overall, the average per capita wealth in the rich Organization for Economic Cooperation Development (OECD) countries is $440,000, consisting of $10,000 in natural capital, $76,000 in produced capital, and a whopping $354,000 in intangible capital. (Switzerland has the highest per capita wealth, at $648,000. The U.S. is fourth at $513,000.)

By comparison, the World Bank study finds that total wealth for the low income countries averages $7,216 per person. That consists of $2,075 in natural capital, $1,150 in produced capital and $3,991 in intangible capital. The countries with the lowest per capita wealth are Ethiopia ($1,965), Nigeria ($2,748), and Burundi ($2,859).

So what does this mean for New Zealand, and any hope we have of getting rich, and getting back into the top half of the OECD?

Well, here's the bad news. In the rankings of "intangible capital," New Zealand comes a pitiful twenty-first with just $243,000 of "intangible capital" per head, behind Spain and Singapore at nineteenth and twentieth, and just ahead of Greece, Portugal, South Korea and Argentina.

That's a measure of how poor we are in the rule of law.

And just look at our performance as compared to Australia, often known as "the lucky country" because of its resource riches. But Australia's resource wealth only amounts to $25,000 per Australian, compared to our own resource wealth of $43,000 per head; the difference between the lucky country and us is that they're "luckier" in terms of the rule of law: in the "intangible capital" represented by that measure, Australians are half again as wealthy as we are, with $371,000 per head compared to our own $243,000 per head.

So the message is clear, and when you boil it all down it's not complicated. If wealth is your goal, and if ambitions to be in the top half of the OECD are genuine, then concentrate on the rule of law, and on the "intangible capital" of an efficient judicial system, of clear property rights and of effective government.

Simple.

• Ronald Bailey's article is here: The Secrets of Intangible Wealth - Reason magazine.
• The World Bank study is here: Where is the Wealth of Nations: Measuring Human Capital for the 21st Century [200-page pdf]
  

The buzzword for this morning is 'sustainability'

The buzzword for this morning is 'sustainability.' Be aware that both National and the Clark Government have now trumpeted that your freedom and your future prosperity are to be sacrificed on the altar of 'sustainability' -- National are doing so in the name of political strategy; Clark in the pursuit of a political diversion, but the few carrots and the many sticks are the same. So what the fuck does it mean, this flatulent buzzword? It's no good looking to your dictionary for help:

Sustain v.t., to bear the weight of, to hold up, to keep from falling...

Not much help there. No, sustainability is more about keeping people down than it is about keeping anything up.

'Sustainability' first became fashionable with the UN's Bruntland Report of 1987, which provided a recipe for authoritarians to take control of their nations' economies -- this report by the way was produced on on the back of scare stories from Rachel Carson about DDT (which proved to be both wrong and destructive), from Paul Ehrlich on the population explosion (which proved to be embarrassingly wrong), and from the Club of Rome on how the world is running out of resources (which myth Julian Simon almost "single-handedly routed"). All were wrong, spectacularly wrong, but their spectres still haunt the world through the 'sustainability' detritus of this report.

The Bruntland Report defined sustainable development as

development that "meets the needs of the present generation without compromising the ability of future generations to meet their own needs."

This nostrum was adopted by the Agenda 21 circus in Rio early in the '90s, by schools and universities around the world, and was reaffirmed by the World Sustainability Summit in Johannesburg as recently as 2002. As the Ayn Rand Institute's Robert Tracinski pointed out at the time, the confusion seen at the 20002 summit

is precisely the result of taking "sustainable development" seriously -- with all of the contradictions inherent in the notion.

For environmentalists, the campaign for "sustainable development" is not motivated by a legitimate desire for development. Instead, it is an attempt to put a respectable face on their anti-development, anti-industry, anti-technology philosophy. The environmentalists want to pretend that strangling industrial civilization would not consign the world to a permanent hell of poverty, starvation and mass death. They want to evade the monstrous consequences of their ideas.

Thus, they tell us that there is something called "sustainability," a magic mechanism that will help the Third World achieve prosperity -- even as the environmentalists restrict the only known conditions for prosperity: free trade and industrialization. The way to achieve this contradiction, or at least to achieve the illusion of it, is the central idea of the Johannesburg conference: the demand that industrialized nations pay out massive aid subsidies, putting Third World countries on the dole rather than helping them develop their own economic production. It is an attempt to give the Third World some of the results of industrial development without actual industry or development.

But even the promise of aid is a lie, because Western money can do no good when the greens have outlawed all elements of industrial development. For example, there is much talk in Johannesburg about using Western aid to prevent famine, to halt the spread of disease and to provide Third World countries with clean water and sanitation. But it is the environmentalists who have campaigned against the construction of hydroelectric dams, a major source of electric power and clean water. It is environmentalists who have tried to block the use of genetically modified crops, which are more resistant to drought and disease. And it was environmentalists who stopped the use of DDT, allowing the resurgence of malaria, which once again kills millions in the Third World each year.

These campaigns are proof of the greens' real motives. They want to stop development and keep the Third World in a state of poverty -- while they work to bring the same ideal of poverty to industrialized nations...

Michael Shaw and Ed Hudgins call 'sustainable development' Sovietization, and they highlight a number of philosophical problems with the notion:

The U.N.'s concept of Sustainable Development is antithetical to individual freedom and economic liberty. It is, philosophically speaking, unsustainable. Development in this context refers to the use of naturally occurring materials such as land, forests, rivers, water, and the like. The notion of Sustainable Development assumes that if not managed by some collective body, these materials will be destroyed by individual owners. The United Nations Habitat Conference Report in 1976 stated: "Private land ownership is also a principal instrument of accumulation and concentration of wealth and therefore contributes to social injustice…Public control of land use is therefore indispensable."

This idea plays on the notion that resources are limited. Yet there is no such thing as a "natural resource." There is only matter and energy in the world that we human beings with our remarkable minds are able to make use of for our survival and well-being. Oil, for example, a century and a half ago, was not a resource to a farmer who found it seeping out of his land; it made the land worthless for growing crops or grazing farm animals. Only when men discovered how to use it to heat homes, run electrical generators, and propel planes and automobiles did it become a resource. Since from a human perspective there is no limit to the potentially usable matter and energy in the universe, there is no problem of running out of resources. The only problem is which resources will be developed and at what cost.

There is nascent technology, for example, to generate energy via ocean waves or to use orbiting collectors that would convert and beam energy to Earth via microwaves or lasers.

And University of Arizona, Tucson, Professor John Lewis has done serious work on the technology and economics of mining asteroids for minerals.

Sustainable Development is supposed to meet "the needs of the present without compromising the ability of future generations to meet their own needs." This definition is collectivist to the core. Not only does it ignore individual owners of assets, it in effect bestows title to those assets to an unborn future collective—not even future individuals who might inherit titles to property - but to "future generations." Agenda 21's definition of Sustainable Development was lifted from the 1977 Constitution of the Soviet Union.

In addition, this conception assumes that one can judge at any given time whether some use of an asset will be sustainable in the future. But such knowledge is virtually unobtainable. Estimates a century ago that America would soon lose its forests—a renewable resource -- were wrong; we have more woodlands today than at that time. Predictions at that time that America would run out of oil in a few decades also proved spurious. Consider the folly if our ancestors had determined to save whale oil for lighting a few homes during the twentieth century.

But more fundamental is the fact that we cannot know how technology will affect the sustainable use of any given asset in the future. A snapshot is not a movie. America's history shows material progress over past centuries by any measure. If we had asked at any given time whether the use of an asset were sustainable without knowledge of future technologies that are simply unknowable before they are created, not doubt most development and progress would not have occurred.

This brings up another flaw in the definition of Sustainable Development. It is likely that future generations will live better than present ones if governments do not sabotage economic growth through takings, taxes, and regulations. If anything, the present generation makes itself a victim by forgoing the use of resources for the sake of future ones. The present generation bequeaths to the future a wealth of capital and knowledge. That means future generations will not need to reinvent the wheel.
[...]
These problems with Sustainable Development show that at best it is a subjective, collectivist muddle and its application inevitably will destroy private control of property and with it freedom itself.

'Sustainability' is not about wealth production, rational analysis or the use of science or technology for advancement of human welfare. Quite the opposite: at root it is about sacrifice, paying penance for our prosperity and our freedom, and like all forms of sacrifice or of altruism, it's more about the present-day sacrifice than it is about future results (if any).

As Bjorn Lomborg points out for example, rational analysis of authoritarian reactions to projected environmental problems see the solutions as more expensive and more damaging than the so-called problems. As he says, "Just because there is a problem doesn’t mean that we have to solve it, if the cure is going to be more expensive than the original ailment." That of course doesn't stop much irrationality.

We're supposed to conserve 'resources' for future generations, for example, but if ‘resources’ are ‘conserved for future generations,’ when in fact will the resources be used? Which future generation will be allowed to access them? When? This is a sacrifice of the present to a future that never arrives. If ‘resources’ may no longer be used, can they really be called a ‘resource’? It is the human mind that has turned trees, rocks and mud puddles of yesterday into the resources of today; it is the human mind that is the ultimate resource -- and just like all the other resourcess, it is not running out, although with economies and industry being shackled it is the mind being applied to production that is itself being shackled.

But will our grandchildren really thank us tomorrow for not applying our minds and our energy to production today? Will they really thank us tomorrow for not having built today the roads, dams, abattoirs, oil refineries, industrial and chemical plants, canals, sewerage systems, pulp and paper mills, railways and mines that we present generations have enjoyed as a gift from our own predecessors? Will they think we've been sensible? Or bloody idiots with an anti-human agenda who should have been silenced with a gag and a bucket of paraquat.

But in the end it's not sense that attracts politicians is it, it's power, and the reason for the more-than-decade-long popularity of the 'sustainability' nostrum is that it delivers power to those who are hungry for it: to politicians and their minions. It is nothing other than a pseudo-concept giving planners, bureaucrats, politicians and minor functionaries power over your property and your industry and the use of your mind to create new wealth and new resources. And it does this in a way peculiarly suited to politicians -- by delivering them a constituency that can't talk back. If ‘resources’ (i.e., your property) must be protected for ‘future generations,’ and in the absence of future generations to speak for themselves, then the idea of 'sustainability' nostrum empowers someone to speak on their behalf. That someone of course is a politician.

How ironic: a constituency from tomorrow that can't answer back, used to shackle the constituency of today that can. What could be more ingenious? And what could be more suitable to sell politically.

Are you buying it?

LINKS: 'Bluegreen - the new symbol of wetness - Not PC
Bruntland Report - Wikipedia
'Sustainable development's unsustainable contradictions - Robert Tracinski, Capitalism Magazine
Sovietizing America: How sustainable development crushes the individual - Michael Shaw & Ed Hudgins, The Objectivist Center
Speaking for the speechless - Not PC (Aug, 2005)
Altruism: It's about us, not about them - Not PC (May, 2005)

RELATED: Politics-NZ, Environment, Philosophy, Ethics

More mining please

When do you think this was written:

You must know that the world has grown old, and does not remain in its former vigour. It bears witness to its own decline. The rainfall and the sun’s warmth are both diminishing; the metals are nearly exhausted; the husbandman is failing in the fields, the sailor on the seas, the soldier in the camp, honesty in the market, justice in the courts, concord in friendships, skill in the arts, discipline in morals...

The person who said "in the third century AD" wins the prize. Yep, today's pessimists and are pikers compared to the doom-makers of the third century. Since then, we've mined, scraped, drilled, extracted and quarried millions and millions and millions of tons of stuff from the earth, and guess what: there's still billions of tons left, and even without recycling some of that stuff that's enough for at least another million years of extraction.

George Reisman has done the calculation. Go check his working for errors. And even with all that stuff extracted, man's ingenuity continually finds new uses for all the stuff we can extract, increasing the amount of useable stuff potentially available to us.

Despite this however, George is not entirely optimistic. The problems he sees, however, are not with resources running out, but with resources being taken out of possible production:

Our growing problems in connection with the supply of natural resources are not caused by nature but by us. We have allowed ourselves to abandon our reason and give up our freedom. We have allowed ourselves to be led by people who would have us freeze and be immobilized rather than spill some oil on snow hardly any of us will ever see or disturb the habitat of wild animals that mean nothing to us. If we allow this to continue, then where we are headed is to a world describable by these terrible words of despair [at the start of the post].

And if we chose not to allow this, not to tolerate this ...

There is no helplessness in fact. To men who use reason and are free to act, nature gives more and more. To those who turn away from reason or are not free, it gives less and less. Nothing else is involved.

I guess that's why the late Julian Simon used to all the human mind and human creativity "the ultimate resource."

UPDATE: Links and 'punchline' added.

LINK: Mining for the next million years - George Reisman's blog
The ultimate resource - Cafe Hayek

RELATED: Conservation, Environment

Energy: Crisis? What crisis?

Anyone who wonders about the value of blogs need only look to George Reisman to see how the blog phenomenon has made an intelligent and perceptive writer into an enormously prolific one.

Reismans thoughts today are on energy, the apparent lack of it, and the solution to the reported long-term lack of it. As usual, his thoughts cut through the nonsense. The "solution to the energy crisis [a crisis with "no solution" according to the New York Times] is so blindingly obvious," he says.

The solution is: allow the oil companies to drill for oil—in Alaska, in the Gulf of Mexico, off the coast of California, on all the land mass of the United States now set aside as “wild-life preserves” and “wilderness” areas. Allow the construction of new atomic power plants! Stop interfering with the strip mining of coal! Stop interfering with the construction of refineries, pipelines, and harbor facilities necessary to the supply of oil and natural gas! This will increase the supply and reduce the demand for oil (this last because substitutes for it will be more readily available). All this can be summed up in very few words: Politicians and environmentalists, get the hell out of the way!

Instead, we are told that the oil companies are responsible for the scarcity of oil and its high price and should be punished for it. No! The truth is that the environmentalists and the politicians who support them are responsible.

This is not an energy crisis, it is a political crisis -- one equivalent to NZ's but on a larger scale. On one side are those trying to produce; on the other those trying to stop them; and on the sidelines are cheerleaders for the latter who are blaming the former for the problem. Put that way, perhaps the real crisis is one of incipient blindness, and a lack of reason...
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LINKS: Today’s New York Times’ Headline: “Energy Crisis: Many Paths but No Solutions” - George Reisman's blog
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TAGS: Energy, Economics, Politics, Environment

Coromandel mining exposes "a clash of values"--Tanczos

The High Court's recent decision to overturn the blanket ban on mining on the Coromandel "exposes a clash of values," said Nandor Tanczos this morning on bFM--and of course he's right. It does.

There are many opposed to mining in the Coromandel, not least Thames-Coromandel District Council Mayor Philippa Barriball whose District Plan had put the ban in place. "A mining company would have to be prepared to spend $10 million before even getting to the Environment Court," she threatened after the decision. So there.

So how is such a clash of values to be played out? There are only three options, as I see it.

1) Violent conflict;
2) Politicisation of the issue--the current default position involving picketing, bickering and politicking;
3) Property rights.

Property rights takes the issue out of the political arena, and allows those who do hold rights to express their own values without political interference from the likes of Ms Barriball. Elizabeth Brubaker from Canadian organisation Environment Probe makes that case here.

When properly expressed through common law for example, property rights involve a 'bundle' of rights, and each rights-holder is promised clear legal protection by the courts over their 'stick' in the bundle. When such a thing as mining takes place or is contemplated for example, an owner of a stick in the affected bundle has absolute protection in expressing their own values--whether conservation of the environmental values, or use of the resource--and that legal protection must be recognised by anyone proposing to exercise the use of their own 'stick.'

If for example I have a clear and protected right to use or take from a stream running through an area affected by the mining, then under common law the miner is obliged to take my values into account by either not damaging the waterway, or by purchasing my assent and the assent of all other affected stream-users, and indeed all other affected parties. Elizabeth Brubaker offers some examples here of the sort of legal protection afforded to stream-users by common law, and similar legal protections exist for other rights' holders, including those who might hold rights to access, hunting, harvesting, tramping, logging, birding, or profits à prendre, who hold a conservation covenant, or who just have the right to peaceful enjoyment of their property.

That's protection then for all rights-owners' chosen values, and all done without all the picketing, bickering and politicking we see now. If it be objected that this excludes all those who value the untrammelled value of wild and untouched land, then let them express the extent to which they do truly value that land by becoming a rights-holder in it, rather than seeking to use the government's club to express them. It doesn't require full ownership, it simply means acquiring the right to a 'stick' in the bundle.