Economic Growth “Development” and the Triple Crisis: El Salvadore and Gold Mining

Let me introduce myself as does my business card: I am a professor of development. I am aware that most mainstream economists – and even many so-called development professionals — define progress primarily through the lens of aggregate economic growth. Yet, my recent research in El Salvador shows why this definition of progress is wrong.

El Salvador is poor by almost any economic measure, be it per capita gross domestic product or per capita income. But a rich vein of gold lies buried beneath its mountains. This has led some prominent individuals in that country to argue that gold mining is the ticket to economic growth and therefore “development.” Former Salvadoran finance minister and mining company advisor Manuel Hinds said that renouncing mining would be “globally unprecedented” and “unjustifiable.”

This is, of course, what mainstream economic theory would have one believe.

Yet, as is often the case with field research, my travels deep into mining country in El Salvador in 2011 and 2012 and interactions with ordinary Salvadorans there revealed the reality of what “development” is and what it is not. Salvadoran farmers told me about mining executives from the Canadian firm Pacific Rim and others coming into their towns around eight years ago as mining prices started to skyrocket (gold prices have gone from under $300/ounce in 2000 to over $1,600 today). The companies promised prosperity; they said that mining was the only chance for “development.”

However, the experience of ordinary Salvadorans whose homes sit atop the lucrative minerals in the northern province of Cabanas expanded the definition of development from narrowly defined economic issues to social and environmental ones as well. In visits to neighboring Honduras to look at the impact of mining, they discovered the contamination of rivers by the cyanide used in commercial mining, and encountered widespread health problems. They told me how mining firms like Pacific Rim were eager to win popular favor, so began throwing money around to mayors and to local projects. With this money came conflict.

In Cabanas I met Lidia Leiva, whose only water source had dried up during the exploratory drilling by Pacific Rim, transforming her into a strong opponent of mining. Then, just this past June, her college-age son David Urias, a vocal critic of voter fraud, was murdered, his skull crushed by a large rock, his brains dispersed on the road. So too, since 2009, have other anti-mining activists been “disappeared” and assassinated. Having herself received death threats, Lidia and the rest of her family now not only grieve for David but also live in fear. How does one factor this kind of violence into the calculation of how mining might, or might not, contribute to development?

In the nearby province of La Union, I visited the town of San Sebastian, where the Milwaukee-headquartered Commerce Group once mined a particularly rich vein of gold. But, the Salvadoran government revoked their mining permit in 2006 when studies showed massive contamination of the water there due to what is technically called acid mine drainage. Local people showed me the “tailings” from the mine which also contain sulfides. Each time it rains, these turn to sulphuric acid and leech arsenic and other toxic substances into the water and land. I learned of the many health problems that have resulted. How to factor these environmental costs into the development equation?

In Cabanas, I was interviewed on a community radio show – a youth-run radio where employees showed me chilling and untraceable text messages warning them of death if they did not stop their educational outreach regarding the need to protect the environment from mining. The interviewer, having looked at my business card, asked me how what mining companies said could possibly be true: was this social and environmental nightmare really what “development” was meant to entail?

The good news is that, in El Salvador, local groups coalesced into a national coalition that proved strong enough so that, as early as 2009, the major political parties in El Salvador voiced opposition to mining. And, indeed, the president elected that year, Mauricio Funes of the progressive FMLN party, has steadfastly refused to issue new mining permits.

These local and national actions in El Salvador are, in my mind, something that we who care about “development” should applaud. But, do the rules of international trade and investment honor such a truer definition of national progress that goes beyond economic growth for the elite to broader social and environmental factors? Absolutely not.

Today, both Pacific Rim and Commerce Group are suing the government of El Salvador in the International Centre for the Settlement of Investment Disputes (at the World Bank) under pro-corporate trade agreements and investment laws. Incredibly enough, these mining companies are arguing that national governments do not have the right to keep mining out – and they may well win.

Development? The future is up for grabs in El Salvador and elsewhere. Will El Salvador’s government be able to stand strong and keep U.S. and Canadian mining companies out? Or, will the international tribunal set up to adjudicate investor-rights cases trump local and national democratic decisions? Will no new investor rights clauses be negotiated by the Obama administration (as Obama promised in his first presidential campaign) or will they be included in new free trade agreements like the Trans-Pacific Partnership (as they now are in draft)? Will Lidia and the remaining members of her family be safe? And, will the small-scale farmers of Cabanas be able to save their rivers and their land and live in peace?

In this fragile and interconnected world, we need once and for all to throw out the outdated, mainstream notion that there is just one economics and one definition of development. We should follow the lead of the Salvadorans with whom I met and develop a “real world economics.” Fortunately, there are those in the economics profession taking up the challenge, as Boston College professor Juliet Schor and others are now trying to do with “new economics” trainings for graduate students.

Hopefully, one day my business card will speak for itself.