Just in case you haven’t had Enough of the conflict minerals debate…

David Sullivan and Laura Heaton respond to the negative blogger buzz around the conflict minerals legislation they helped push through.

Their central point, I believe, boils down to this: conflict minerals might not be the most effective policy change, but it’s the policy we can change most effectively.

This is a good lesson in public policy-making: you don’t choose a policy because it’s the best one imaginable; you must consider other variables. Most of all, the effectiveness of each policy option has to be balanced by whether you can effect the change. If you want it spelled out:

Actual Impact = Pr(Success) x Potential Impact

In the spirit of debate and transparency, I’m going try to be provocative, with three points.

First, let’s tackle potential impact. They argue for substantial change:

So how do we expect to see this new law change the calculations of those currently benefiting from the minerals trade?

…if the regulation is written to appropriately include the thousands of companies that depend upon these materials to manufacture electronics, jewelry and other products, we believe it could create the ‘demand shock’ necessary to change the present dynamics on the ground in Congo.

This demand shock is central to their argument. The obvious question: will the legislation shock the demand? Dan Fahey wrote that only a very small percentage of the world’s supply of these minerals come from the Congo. If the BRIC nations don’t enforce the legislation, or if the courts don’t include the vast majority of manufacturers, the policy will create no shock at all.

This is a simple quantity argument. It may or may not be true. But estimating demand shocks is one of the oldest and simplest tools in the economic toolbox. Has anyone done this calculation? A good econ grad student could pump it out. In the absence of evidence, signs point to a small potential impact.

(There is hope, though. A commenter argues that manufacturers are the wrong ones to target, but that the market has a real choke point: processors. If true, these are the details we want to be sure the legislation gets right.)

Second, even if the potential impact is modest, there’s a good argument for the legislation if they have a high probability of success. Here there is another clear argument from Enough:

There are numerous other pressure points that the international community should help address…

But the conflict minerals issue resonates with a potent group of actors in the United States, namely, advocates and concerned consumers who do not want their purchases to fund armed groups in Congo, a handful of dedicated members of Congress and leaders in the Obama administration who see a lasting solution to the Congo conflict as part of their personal priorities and legacies, and increasingly, leaders in the electronics industry itself, which is responding to the moral and consumer pressure to take on this issue.

For a small advocacy organization, we would stop here. For one of the largest and most influential human rights campaigners in the country, I hope for more. This is Enough, after all, not Good Enough.

Let’s campaign for policies that are powerful, not just popular. Enough has mentioned peacekeeping support among a host of tougher, more effective-seeming solutions. Are these so unattainable?

Yes, the simple and sexy solution resonates with church groups, college students, and small-town news editors. But please tell me that some of the greatest marketing minds in international advocacy can come up with slogans, campaigns and, yes, bracelets, for a less obviously popular cause.

In a different realm–women’s poverty–organizations like SAVE and CARE and Nike Foundation have not taken the easy (and hugely profitable) route–“YOU can save the poor and helpless starving woman”–but have made a harder but better message succeed: “Women are economic powerhouses. Invest in them.”

Making that campaign work took good sense and guts, and the Enough staff have plenty of both. I say let’s rise to the challenge and make the higher impact, tougher sells work.

Third and last, the simple policy equation I gave was incomplete. It should have gone something like this:

Actual Impact = Pr(Success) x [Potential Impact – Adverse Effects]

You also have to consider unintended consequences. What if victory on a high-profile, sexy, but ultimately limited issue keeps Congress from acting on the important things? If the price of victory is complacency, it is a price too dear.

These three points are not a matter of opinion. They are a matter of facts. The tragedy is the facts aren’t clear, and so we settle back on opinion and its popular cousin, hope. For me, the facts so far don’t seem Enough.

5 thoughts on “Just in case you haven’t had Enough of the conflict minerals debate…

  1. As that commenter talking about choke points….I was referring specifically to coltan (columbo tantalite) rather than the other metals/minerals like cassiterite (tin) or wolframite (tungsten) and certainly not referring to gold.

    The existence of such choke points is a result of the technology, the complexity of it, required to extract the metals from the minerals. Cassiterite to tin is pretty simple, it can be done with early medieval technology (a bloom furnace and some charcoal is all that’s needed. A DIY enthusiast could do it in their backyard) and was originally done with bronze age technology of course. There are the ruins of such furnaces all over Cornwall and Devon, dating from the 13th cent onwards and we certainly have stories (and some proof, like ingots of tin found in E Mediterranean wrecks) that Phoenicians were trading for tin from Cornwall in 500 BC.

    Such a technology means that we really cannot choke off the supply by looking to the industrial processors….anyone can refine the ore and then supply low grade tin to scrap merchants and it enters the supply chain that way.

    Very much the same applies to gold….gold smelting is similarly an old and possibly small scale technology. Labour plus s forest to make charcoal is really all that’s required. There’s certainly a large enough scrap collection chain to introduce such material into.

    On the one hand this means that Enough might be right in suggesting that any army of inspectors is necessary therefore. However, it also means that no army could ever be large enough. Because you would have to monitor all of the ways in which scrap and secondary material enters the supply chain and that just isn’t possible. Absolutely no one could possibly state that they’re not using material that comes from such a source, it’s just absolutely not possible.

    These aren’t my specialties but just sitting at my desk on a Saturday afternoon I can sketch out plans to beat any such system of monitoring….not because I wish to indulge in doing so but just to try and point out that it won’t in fact work. If I can dodge such a monitoring system then so can others.

    Tungsten I know less about, sorry.

    As to coltan, yes, there the processors really are the choke point. There’s a small number of people who have the requisite very complex technology available. And they already refuse to accept DRC sourced coltan. For example, here’s Cabot, the US processor:

    http://www.cabot-corp.com/Tantalum/Capacitors/Product-Information/GN200809161037AM6983/

    ” * We reject any new offer of ore if there is any possibility that the source is the DRC. We have instructed the personnel in our organization responsible for acquiring raw materials not to acquire any material containing tantalum, including coltan, that they have reason to believe was mined in the Kahuzi-Biega National Park and the Okapi Wildlife Reserve in the Congo, and not to sell any such material. We employ several controls to ensure that we do not purchase ore from the DRC, including the requirement of a government issued certificate of origin to ensure the ore we purchase is not sourced from the DRC.
    * We do not acquire any material containing tantalum from the following countries:

    *
    o Republic of Congo
    o Democratic Republic of Congo
    o Republic of Zambia
    o Republic of Burundi
    o Republic of Rwanda”

    There are processors who aren’t so delicate about matters: in Kazakhstan and China. But then what makes anyone think that they can effectively monitor the inputs into factories in those countries?

    What I’m really trying to get to is that monitoring, the law and audits, along with public shaming, have almost certainly got as far as they’re capable of getting in hte supply chain and I cannot see Enough as doing anything other than creating lots of jobs for people authorised by Enough to work as supply chain auditors…to no effect other than a paycheque.

  2. China is the world’s largest consumer of tin, and most of the smelting happens in southeast Asia. However, most of the trading companies that purchase Congolese tin ore are based in Europe – Amalgamated Metal Corp (AMC) used to buy around half of the Kivu’s tin production, and Belgium-based Traxys and Trademet buy a fair chunk of the rest. Pressure them last year had a significant impact: they suspended all exports from the Kivus after allegations that they were indirectly financing rebel groups. While they may very well try to hide behind front companies in BRIC countries, that might eventually be more of a nuisance than just complying with basic due diligence.

    But in general I think we might be misunderstanding the goal of due diligence. I don’t think we are trying to directly squeeze the financing of Congolese armed groups. As long as they control the mining sites and supply chains, the minerals will find their way onto the market somehow, by hook or crook. But due diligence and sanctions for non-compliant companies could provide the necessary incentive structures for companies and the Congolese state to strengthen their regulatory agencies, clear the soldiers out of the mines and render the trade more accountable and transparent. That could then finally prompt companies to invest in industrial tin mining in the Kivus – the Bisie polygon in particular – which would in turn cut out a lot of the crooked middlemen and militias that currently benefit from the trade and who parasitize the Congolese state.

    This will take quite a bit of investment.

  3. Could you explain what you mean when you say:

    “only a very small percentage of the world’s supply of these minerals come from the Congo. If the BRIC nations don’t enforce the legislation, or if the courts don’t include the vast majority of manufacturers, the policy will create no shock at all.”

    Wouldn’t representing a smaller share of the market mean that producers in the DRC are more susceptible to changes in demand? If they represent such as small percentage of the market, switching costs should be low, which should make buyers less interested in running the risk of angering regulators. I would think it is a lot easier to create a demand shock for the DRC in specific markets than in the Rhodesian chromium case for example, where the percentage of the market controlled by the target was far higher.

    Cooperation from the BRIC countries might be easier than it seems also. According to the USGS, Australia and Brazil are the two largest tantalum producers; Brazil and Canada are the two largest niobium producers; China, Indonesia and Peru are the largest tin producers (Congo ties with Brazil in 5th); and China, Russia and Canada are the largest tungsten producers. I really appreciate the argument Dan Fahey makes more generally, but at least some of the BRIC countries would benefit from less competition, and it would be slightly easier to coordinate given these circumstances.

    On the other side though, almost none of what is produced in the DRC comes to the US, at least not directly. The big exporters are almost all countries that are not the DRC, so I am pretty sure that legislation in the US is not the best place to instigate a dent in demand, let alone a serious shock.

    (http://minerals.usgs.gov/minerals/pubs/commodity/tungsten/mcs-2010-tungs.pdf)

    (http://minerals.usgs.gov/minerals/pubs/commodity/tin/)

    (http://minerals.usgs.gov/minerals/pubs/commodity/niobium/)

  4. I think you are still arguing against a straw man.
    On point one, you make a simple mistake. The important fact is not the size of the Congolese market to the global market. The important fact is the size of the companies affected by the legislation to the producers (exporters/processors). Think of it like this. If Nike is consuming 90% of the global shoelace market, and NIke decides they can’t work with you the shoelace producer, it is not particularly important what percentage of the global shoelace producing market you are. Even if you are 0.1 %, of the global shoelace producers, you might care quite a bit if you can no longer sell to Nike (depending, in part, on your ability to find other purchasers, what the pay, and transaction costs).
    On the second point, I think you missed a key component. There is a background constraint to the equations you did, which is what can be done by the US. ENOUGH worked on a policy that resonated with US constituencies AND was directly material to the US Congress AND could be implemented through US legislation. So they can’t just advocate for any policy at all, but policies that are relevant in the US.
    Importantly, you ignore that ENOUGH does campaign on all sorts of other issues, including support for peacekeepers. This is not absent from their campaign materials. It was absent from the legislation, because that clearly would not be material to a financial reform bill. This is also a matter of facts. We can see ENOUGH’s support for peacekeepers, and we will see that in the future.
    On point three, it is not a question of facts. It is clearly stated as a counterfactual. “What if Congress doesn’t pay attention to other important issues?” I’m not sure what facts one can appeal to. I also find it highly unlikely that this legislation will distract Congressional attention from other DRC issues in the future. I suspect it is much more likely that it will RAISE the profile of the DRC in foreign affairs issues for Congress as a result of extensive lobbying. The “advocacy space” is not fixed. In fact, it might be expanded by the result of lobbying. But regardless, there is no “fact” to appeal to resolve this argument.
    Finally, Jason is right that the legislation creates an incentive structure for responsible supply chains, which in the long run will likely be a good thing.

  5. When Congo gets control of its territory it will be able to monitor and control the mining in Kivu. Until then they wont. Legislating record keeping by US traded public companies wont end the wars in the Congo. The Kimberley Process did not end the war in Sierra Leone. The Royal Marines did.
    The goods shipped out from Kivu rarely if ever pass through the US until they are in consumer goods. Only in cell phones and only tantalum can goods entering the US have a source and value added trail that might be enforceable. Gold and tin never will. The hope of stopping the wars and militias in Congo is admirable. An unintended consequence of this legislation will be the increased cost of doing business and possible end of doing business with 9 other African countries who may transship some Congolese material but also produce their own. If economies in the 9 other African countries listed in this law are injured as a consequence and livelihoods reduced then instability and poverty are the results of this well intentioned and poorly crafted legislation. Instability and poverty that could well lead to increased civil conflict in those countries.