Some days rent-seeking is a challenging business. Take Tom Albanese, CEO of Rio Tinto, who today held forth on the evils of government intervention in mining. According to Reuters:
Besides, technical constraints, we are also seeing human constraints. We are seeing a combination of resource nationalism in some cases,” he said, citing “difficult governance” in certain countries.
“And in countries with good governance and infrastructure, you have this very new pattern that is increasingly challenging for our sector of activism of stakeholder engagement,” he said, speaking in front of a packed audience at the Credit Suisse Asia Investment Conference in Hong Kong.
I couldn’t agree more with Mr Albanese that we need open access to commodities. When I ran The Diplomat, someone asked the head of PacCom, the US Pacific Fleet headquarters, what kept him up at night. He answered “resource conflict”.
And he was right, resource nationalism is one of the surest paths to war we know. Free markets and open access to commodities are an essential ingredient in peaceful development, especially in current circumstances when development is resource intensive because of vast urbanisations. And, moreover, many of the regimes governing the development rely on growth for legitmacy.
As Martin Wolf argued today in the FT when addressing Chinese global leadership:
… it would be helpful if a consensus could be reached on the terms of investment and trade in natural resources. One aim should be to ensure that commodity-exporting countries – particularly poor ones, with limited capacity for governance – benefit from foreign investment and exports of natural resources. China will be a central player in securing such agreements. Above all, the world needs to agree that the underlying principle must remain those of free trade in open world markets. Prices need to be set in global competition, with, of course, the possibility of long-term contracts.
But what of Mr Albanese? Well, I just wish he’d practice what he preaches. I mean, companies are just as able to mess up free markets as governments are, by for instance, monopolising supply. One example of such might have been Mr Albanese’s attempt to merge iron ore production and marketing arms with BHP throughout 09/10.
Moreover, where was Mr Albanese’s horror at government interference when the Australian government strategically prevaricated over the Chinalco proposal to take over his company?
And how did Mr Albanese reward the Australian government? By announcing a HUGE iron ore development in Guinea with the same company that was going to take his over a few months before, in direct competition with Australian iron ore (I won’t even mention the RSPT).
Now, of course, Rio is having a few sovereign risk problems as a result.
The fact is, keeping markets free takes regulation as well as liberalisation. The trick is to know in which circumstance to apply which.