Begin = forwarded message:

From: = James W Mickens <jmickens Æ eecs.umich.edu>
Date: October 26, 2005 6:43:40 PM = EDT
To: mjste Æ umich.edu
Subject: = Re: NYTimes.com: Behind Gold's Glitter: Torn Lands and = Pointed Questions

You are correct - this is a fascinating article. As = in any story about
economics, there are two = basic themes: supply and demand. To meet supply
requirements in the face of dwindling gold deposits, = gold producers must
rely on environmentally = unfriendly extraction methods. The supply is
driven by cultural expectations about the value of = gold. For example,
governments see gold as a = safe investment against the volatile dollar,
and individuals see gold as an important part of = societal rites such as
marriage. I find the demand = aspect of the article much more interesting,
since it involves the psychological aspects of = gold's attractiveness. It's
difficult to = encourage governments to abandon gold reserves, but I think
that individuals could be moved away from gold and = towards some
(hypothetical) substitute = through advertising. For example, nobody in the
Western world cared about diamonds until De Beers = started its "Diamonds
are Forever" marketing = campaign. In the span of a decade, diamonds became
synonymous with quality and upper-class style. = Supposing that there is
some other = metal besides gold that's shiny, reasonable rare, and could be
extracted in an environmentally friendly way, the = current gold
manufacturers could agree to = migrate from gold to this new metal. Note
that = it's really only necessary for the new metal to be shiny and
extractable in an environmentally safe way - the = "rare" aspect could be
imposed from above by = giving the gold companies a monopoly on the
Beers has done for years, keeping diamond = prices artificially high through
vertical = control of the manufacturing process. Allowing monopolies on
non-essential items in exchange for less = environmental damage seems like a
good tradeoff = to me.

[For a reference regarding De Beers and marketing, = see:
=A0 http://en.wikipedia.org/wik= i/De_Beers
]

The article = makes some trenchant observations about the local impact of
large-scale World Bank projects. The following line = is pretty stunning:
". . . the mine will create just = 450 full-time jobs. More than 8,000
people will = be displaced."

There are several reasons for this. First, gold = mines don't require 8,000
employees, = and the World Bank has to be wise to this. Second, the gold
companies manage to seduce the local governments = into accepting deals that
increase tax = revenue but don't require *direct* corporate investment in
the local economy. The result is that corporations = pocket large amounts of
money as = direct profit, and the government is left with large amounts = of
money without having to face problems of = corruption and financial
ineptitude. = The only solution is to have the World Bank adopt more
hardball negotiating tactics with the gold = companies. An individual
government = doesn't have the power to do this---if poor country A
negotiates hard, poor country B will see this and = offer the gold company a
better deal, = leaving country A high and dry with nothing to show for
taking the moral high ground.

For = years, a persistent (and I think proper) criticism of the World = Bank
has been that it focuses on = improving GDP at the expense of reducing
wealth = disparities and improving basic services. Its relations with = the
gold companies seem to follow = this general trend. This could change, but
it would = require a sea-change in the supply-side framework that America
typically applies in its approach to international = aid. Such a sea change
might happen if Obama wins = the 2008 Presidential election. We'll have to
wait and see . . . ;-).

~j