Chapter 4 – The Asset Sale

The Asset Sale

LITTLE HAS CHANGED SINCE 1519, the year Hernando Cortés and his fleet reached Mexico’s Yucatán peninsula in search of glory, conquest, and riches for God and Spain. Cortés was no ordinary conquistador: unlike his predecessors, who came only to loot, Cortés envisioned Mexico a Spanish province in Spain’s service.

With cunning, and with the help of firearms, coats of mail, and mounted troops which the Indians considered supernatural, Cortés began a three-hundred-year subjugation. Under Spanish rule, looting ended and the state-sanctioned extraction of Mexico’s assets began.

In the Europe of the fourteenth and fifteenth centuries, with the bourgeoisie rising, commerce expanding, and European kings needing to finance their wars, gold had become Europe’s most prized commodity. Gold shipments from Mexico, at first limited to nuggets that Indians gathered from the ground and panned from rivers, steadily grew as rich underground veins were discovered. Silver and other precious metals soon followed, as did cochineal (dried insects yielding a scarlet dye), and indigo.

The Spanish monarchy bled the Mexican economy dry of any profits it might make: it wanted Mexico’s resources and little else. Spain prohibited colonial industries that might compete with those of Spain, taxed producers of all precious metals, levied duties on other imports and exports, sequestered profits from government monopolies in salt, quicksilver and, in the eighteenth century, tobacco, and introduced a bewildering array of other taxes. In February of each year, these revenues sailed from Mexico in a treasure fleet to Spain.

The soil gave up its produce for Spain as well. All the land being the property of the crown, the Indian populations had little protection from encroachment by the hacendados, or large farmers. As the Indians’ standard of living declined, that of the hacendados rose higher and higher.

Mexican industry zigged and zagged according to the imperial policies of the day. Sixteenth-century kings, promoting new export crops, planted wheat fields, vineyards, orchards of fruit trees, and groves of mulberry trees for silkworms, only to have seventeenth-century kings chop them down when Spanish manufacturers complained about this colonial competition.

Mining, which made large fortunes, was the only Mexican industry which Spain unswervingly encouraged: the mine’s annual yield continued to increase, rising from about two million pesos in the middle of the sixteenth century to about thirteen million in the middle of the eighteenth.

Over the centuries, the population of Mexico and the other colonies increasingly became European in character as Spanish immigrants came to the colonies to form the dominant class and the colony’s viceroy ruled on behalf of the Spanish monarch. When the colonies of Spain and other European powers became independent in the 1800s and 1900s, the new, Mexican-born leaders no longer had to answer to an imperial power, but little else changed.

In most cases, the new governments inherited colonial systems that centuries earlier had dissolved the Indians’ traditional property rights, deeming much of their resources to be state property. The new rulers, in Spanish America and elsewhere, pushed expropriation still further, adding oil, iron, lead and copper to the list of extractable assets. Under independent rule, the world’s emerging nations began to export their assets with unprecedented vigor: rubber from Malaysia, timber from the Philippines, coffee from Tanzania, copper from Zaire, bauxite from Venezuela.

In the 1950s and 1960s, to further accelerate such exports, Third World governments decided to borrow money, mainly from the international aid agencies and other public bodies. And the public bodies encouraged them, believing that the Third World needed capital to earn foreign exchange for the technology and know-how to industrialize. How better to acquire it than by selling its abundant assets?

In the 1970s, when the price of oil, copper and other commodities soared, those assets became even more valuable, pushing the credit ratings of their Third World owners to unprecedented levels and resource exploitation to new heights. In the 1980s, when the world’s economy reeled through recession, and the Third World’s debt crisis hit home, among the few constants in that uncertain time was the Third World’s asset sale, which continues, as it has from the start, unabated to this day.

Today’s debt crisis has not authored the asset sale: with or without the debt crisis, the asset sale would continue. But one thing has changed. Where once the beneficiary was a conquistador, or a colonial power, or a local elite, today the Third World’s foreign financiers are claiming a share of the bounty. To pay off existing debts — and also to reestablish credit for more borrowing — debtor nations are selling off their various resource assets.

Brazil is becoming the world’s largest iron ore exporter, with roughly $2 billion a year from the Carajas mining operation alone. In petroleum-exporting Indonesia, when foreign exchange revenues fell with the price of oil the government increased its timber exports. A quarter of its non-petroleum exports, totaling some $3 billion per year, now comes from forestry products, increasingly from the last great tropical rainforest refuge found in the Indonesian archipelago on the island of Irian Jaya. By 1990, more than half of Indonesia’s rainforests had been razed.

Forests in other countries have also fallen under the logger’s axe to meet the banker’s deadline. Ecuador loosened logging restrictions to meet international interest payments. In Southern Cameroon, the United Nations’ Food and Agriculture Organization is pushing the exploitation of a pristine tropical forest to help retire Cameroon’s $4.7 billion debt. In Ghana, the World Bank is asking the forest industry to step up its foreign exchange earnings. To help Ghana comply, Canada’s national foreign aid agency donated the forestry equipment Ghana needed to extract the trees. Tropical timbers became so marketable that, by 1990, 14 of the 17 most deeply indebted nations were rapidly losing their rainforests.

The United Nations leads an international effort to increase Third World exports: a controversial 1990 U.N. report exhorted African countries to boost their commodity industries through new exports to Asia and eastern Europe. The World Bank and other institutions encourage countries to boost “non-traditional exports,” or exports they have never produced before.

A decade ago, Ecuador boosted shrimp, enough to make shrimp the country’s second largest foreign exchange earner after oil, and Ecuador the world’s leading shrimp exporter. But shrimp farming has high environmental costs. To create the shallow ponds this industry needs, the coast’s mangrove cover was all but destroyed. Meeting no mangrove barriers, storms in 1983 inundated and salinated 80,000 hectares of prime agricultural land. Silt, no longer trapped by the mangroves, now threatens to clog the country’s largest port of Guayaquil. Fishing cooperatives blame depleted catches on the loss of the mangroves, which had provided a nursery for commercially important fish species.

The Philippines similarly found prawn farming to be damaging. Because prawns require a mix of fresh and salt water, fresh water is pumped into the ponds and mixed with sea water. Large ponds employ huge turbines pumping 25,000 gallons of water per minute, drying up fresh-water wells and forcing nearby consumers to ration water. After several years, the parched water table sucks in water from the sea, raising salinity levels. Left unchecked, agricultural land becomes salinized and, ironically, the prawn ponds themselves are destroyed. Now, after only a few years of operation, experts believe the prawn farms need to be closed down for a generation to flush out the salinity.

IN 1975, AT THE HEIGHT of the foreign borrowing boom, Philippine President Ferdinand Marcos’s government ran an ad in Fortune magazine that made it clear where he stood when it came to his country’s assets: “to attract companies … like yours … we have felled mountains, razed jungles, filled swamps, moved rivers, relocated towns, and in their place built power plants, dams, roads…. All to make it easier for you and your business to do business here.” By 1990, the language used by Third World governments to attract foreign businesses, especially those that would produce exports, had become more muted, but remained plunderous none the less.

In glossy brochures distributed to the delegates at the annual meetings of the international development banks every year, Third World governments advertize their countries’ resources and new investment opportunities for bankers and manufacturers. At an Inter-American Development Bank meeting, Venezuela waxed eloquent about being the home of the fabled city of El Dorado: it wasn’t just a legend, Venezuela said. The jungle region thought to contain the fabled city “does indeed hold vast stores of gold and diamonds.” But, the brochure went on to say, there is more to Venezuela’s wealth than that: in addition it has oil, iron ore, steel, bauxite and “torrential rivers” providing “abundant and cheap hydroelectric power.” Gone was the “inward-looking subsidized economy” in favor of “one propelled by private sector activity and geared towards exports.”

Gabon’s brochure to the delegates of a World Bank and IMF Annual Meeting bragged about plans to mine new minerals such as barites, niobium, gold, and diamonds; to develop its “almost virgin agricultural sector”; and to take advantage of its new railway into the forests for the “intense exploitation” and “evacuation” of logs and timber.

Chile’s exports of choice were copper, fruit, pulpwood and other forestry products, and fish meal. Chile achieved its status as the world’s largest fish meal exporter at the expense of its fish stocks, which are now threatened with extinction. For Bolivia, a combination of soybeans, gold, oil, and gas were its exports of choice; for Guatemala, pulpwood; for Burma, oil and tropical timber; for the Sudan, pesticide-dependent cotton monocultures; and for Senegal, Mali, and Mauritania it was rice, sugar, and cotton from the massive Senegal River project. Hundreds of millions of dollars had been borrowed to transform the Senegal’s subsistence farmers into cash-crop farmers, and now the millions would have to be repaid.

RESOURCE EXTRACTION CAN BENEFIT an economy without harming the environment, when the extracted resource is controlled by those with an incentive to husband it, and when common resources — air, water, and earth — are intelligently managed to protect the rights of those who might be downwind or downstream.

Traditional societies enforce strong regulations to protect the common environment — anyone poisoning the communal well in an African village will meet swift justice. But traditional societies are in demise, with the traditional rights of individuals and whole communities eroded, even outlawed, by remote central governments prepared to sacrifice individuals and whole communities to the national interest. These rights to property — both private and communal — and to one’s health, are now being appropriated by the state in what amounts to another form of asset sale — the exploitation of common resources for export purposes.

In Mexico, 2,000 foreign-owned assembly plants that line the U.S.-Mexican border — maquiladoras as they are known — have provided Mexico with an enormous economic benefit. Mexicans assemble U.S.-made parts into finished products, then ship them back to the U.S., helping to reduce the region’s unemployment rate from 40 per cent to almost zero and earning more foreign exchange for the nation than anything else save oil. But according to a special report in The Wall Street Journal, “their very success is helping turn much of the border region into a sinkhole of abysmal living conditions and environmental degradation…. Old cars on dirt paths raise huge clouds of dust that mingle with exhaust fumes and industrial pollution to cast a poisonous pall of smog over the border towns…. Aquifers shared by both Americans and Mexicans are being sucked dry at an alarming rate, and industrial toxins and untreated sewage are poisoning rivers, streams and other water sources.”

Contributing to the poisonous shroud that frequently envelopes the Mexican and U.S. cities of Juarez and El Paso are the U.S. furniture makers who fled Los Angeles’ tough new restriction on solvents emissions.

According to The Wall Street Journal, “Little is being done about the wholesale environmental destruction, health hazards and poor living conditions that the rush to the border has spawned. Though Mexico’s environmental laws were stiffened in 1988, its fiscal crisis has left it with so few inspectors to enforce the laws that they can be evaded with ease; a 1988 survey of maquiladora plant managers in Agua Prieta, Mexico, disclosed that none had ever seen such an inspector.”

Mexican officials, says The Wall Street Journal, are not eager to press the point. “We are not in a position to scare these companies away,” says Leobardo Gil Torres, the mayor of one border town. “We are in a crisis, you see. What do we do if these companies leave?”

The trade-offs between economic progress and environmental protection seem irresolvable to this mayor, and to others in the lawless jurisdiction in which Mexicans find themselves. Yet such trade-offs had once been resolved, through traditional laws that enforced respect for property rights. Modern systems cannot cope with the commons they have created, and as long as that remains the case, the asset sale will continue.

Sources and Further Commentary

For sources on Mexico’s history see A History of Mexico by Henry Bamford Parkes, Houghton Mifflin Company, Boston, 1960; The European Discovery of America: The Southern Voyages 1492-1616 by Samuel Eliot Morison, Oxford University Press, New York, 1974.

For information on Indonesia’s rainforests see “Indonesia takes steps to protect rain forests” by Steven Erlanger in The New York Times, September 26, 1989; “Indonesia: Suharto’s Latest Budget is Bad News for Irian Jaya’s Forest” in World Rainforest Report, Australia, July 1989; “Too Fast Too Soon” in Euromoney, U.K., September 1990.

For information on Cameroon’s rainforests see “Cameroon set up for timber sting” by Damien Lewis, in BBC Wildlife, March 1990; on Ghana’s rainforests see The Tropical Forestry Action Plan: What Progress? by Marcus Colchester and Larry Lohmann, The World Rainforest Movement and The Ecologist, U.K., 1990; and December 20, 1990 correspondence from CIDA senior vice-president Douglas Lindores in response to an Access to Information request from Probe International. For details on rainforests in general see Rainforest Action Report by Friends of the Earth, U.K., Spring 1990.

The details of CIDA’s donation of forestry equipment for Ghana’s logging operations are contained in CIDA’s December 1990 response to Probe International’s Access to Information request, including CIDA’s “Logical Framework” document.

The U.N. report that encourages Third World nations to boost their commodity exports is called Africa’s Commodity Problems: Towards a Solution, as reported in “Revitalization of African Commodities” in Development Forum, New York, September-October 1990.

For details on Ecuador’s shrimp industry see “Shrimps no longer small fry in Ecuador” in Financial Times, London, August 18, 1989.

For background on the Philippines see “Marcos’s Ghost” by Robin Broad and John Cavanagh in The Amicus Journal, A Publication of the Natural Resources Defense Council, vol. 11, no. 4, New York, Fall 1989; Fortune, October 1975.

The brochures handed out by various countries at the annual meetings of the multilateral development banks referred to include: Venezuela: The Great Turnaround: Rising to New Heights, A Special Sponsored Report, sponsored by the Oficina Central de Informacion de la Presidencia (OCI), Venezuela, published by International Media Partners, New York, 1990; Gabon: A Wealth of Resources Fuels New Growth, A Special Sponsored Report, sponsored by the Finance Ministry of Gabon and published by International Media Partners, New York, 1989.

A good example of sustainable resource extraction is that practiced by the Brazilian seringueiros, or rubber tappers and Brazil nut gatherers. Numbering approximately half a million, these forest dwellers depend on the standing rainforest which contains rubber trees and Brazil nut trees that can be continually harvested.

Sources of information on the Mexican maquiladoras include “Boom and despair: Mexican border towns are a magnet for foreign factories, workers and abysmal living conditions” by Sonia Nazario in The Wall Street Journal, September 22, 1989; “The Maquiladora Boom” in Mexico Service, New York, October 3, 1990; “Moving beyond borderline plants” by Madelaine Drohan in The Globe and Mail, Toronto, November 22, 1990; “Love Canals in the Making” by Philip Elmer-DeWitt in Time, U.S., May 20, 1991.