Resource rents, strikes and the people

2014-06-24 08:00

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Resource rent is the extra value received by the resource owner above costs that include a normal return. For Karl Marx, this “unearned income” (surplus value) also includes labour or the value received above that required for subsistence, which is clearly inherent to capitalist production.

However, in his Critique of the Gotha Program, Marx notes: “Labour is not the source of all wealth. Nature is just as much the source of use values (and it is surely of such that material wealth consists!) as labour, which itself is only the manifestation of a force of nature, human labour power.”

Globally, in 2012, mineral resource rents (in mining, oil and gas) were estimated at about $4?trillion (R43?trillion) annually, or 7% of global gross domestic product, and for South Africa the ANC State Intervention in the Minerals Sector (Sims) study estimated that mineral resource rents (after normal taxes) amounted to about R80?billion annually.

This was indirectly confirmed by a Wood-Mackenzie study that estimated after-tax resource rents for South African iron ore and coal miners at R40?billion annually. But who rightfully owns these resource rents?

During colonialism-apartheid, mineral resources were private property attached to property rights expropriated by the settlers and these rights were often subsequently severed, whereby the mining company would buy the mineral rights from the farmer, leaving him/her with the surface (farming) rights.

Consequently, the mining companies held the mineral rights, including all rights to resource rents, in perpetuity.

In 2002, the Mineral and Petroleum Resources Development Act gave partial effect to the Freedom Charter (“The mineral wealth beneath the soil?...?shall be transferred to the ownership of the people as a whole”) by obliging all holders of private “old order” mineral rights to exchange them for state “new order” mineral rights (mining leases/licences), but the state failed to take ownership of the resource rents, instead allowing the superprofits of the resources boom to be taken by the mining companies.

During the boom, mine workers became aware of obscene company profits and executive pay packages, and in 2012 resorted to strike action under a new union to try to get their perceived share of the resource rents that were being appropriated by the companies and executive management.

Bowman and Isaacs contend that boom surpluses (resource rents) “shed light on the underlying economic causes of worker discontent and the rise of the Association of Mineworkers and Construction Union. The discontent that has sustained the [five-month] strike stems not from conditions over only the past two years, but from a much deeper frustration among the workforce concerning failure to receive what is perceived as a fair share of the value of the goods produced.

Startlingly, in the case of Impala Platinum and Anglo American Platinum, more was distributed to shareholders in dividends and share buybacks than was given to the entire workforce during the 2000-2008 period (R45.8?million to shareholders and R42.42?million to labour in the former, and R90.3?million compared with R89.5?million in the latter, with Lonmin’s at R17.1?million to shareholders and R33?million to labour).”

Consequently, part of the motivation for the dramatic wage-increase demands by miners are the above-average returns on investment made by the mining companies (resource rents) that are not currently captured by the state (through a resource rent tax).

The bulk of these resource rents belong to the “people as a whole”, as the ultimate owners of the mineral rights (through the state) rather than to the mining companies or, for that matter, the mine workers. In this sense, one of the causes of the strike is the failure of the state to capture the people’s resource rents, resulting in distorted corporate investment and remuneration decisions and union wage demands.

The state needs to urgently assess and impose a resource rent tax (RRT) of at least 50% on returns on investment above a normal return on investment (ROI) (Sims proposes above 15% ROI).

Under current costs/prices, the platinum companies may not qualify, but they would in the longer term.

The imposition of an RRT for all mineral resources would result in more rational wage demands, company surplus allocations, and executive bonuses and remuneration; greater ability to tackle the looming national debt trap; and greater investment in human and economic infrastructure to enhance national competitiveness and contribute towards intergenerational equity in the extraction of our finite natural resources.

The current mining labour unrest and higher real wages will inevitably move the mining companies towards greater mechanisation and less employment.

However, owing to the lack of investment in local mining-technology development since liberation, the mining companies will mechanise using foreign manufacturers (meaning job losses here and job gains in Europe).

Nevertheless, South Africa still has a robust cluster of manufacturers (like Aard, Bell, Rham, Bird and Fermel) that could develop and manufacture the requisite mechanisation capital goods, with support (technology development) from the mining companies and the state.

The state needs to urgently impose local content and local technology-development requirements in all natural resources-exploitation rights (licences, leases or concessions) and it needs to rebuild our capacity to exploit minerals using technology.

Although the move to mechanisation could be job neutral if the capital goods, subassemblers, components manufacturing and services are all localised, the move to higher-skilled mechanised mining labour and higher-skilled capital goods labour would still leave a pool of laid-off miners that could not be reskilled/retrained for the new jobs.

Targeted strategies to create employment for these (migrant) workers would need to be devised and implemented, including accelerated agricultural programmes in the sending areas, public works (infrastructure) programmes/projects and reskilling for other industries/sectors, possibly through a special shareholder mandate to the Industrial Development Corporation and the Development Bank of SA.

Barma et al point out that “natural resource rents are most reliably transformed into sustainable development riches when a government can make credible intertemporal commitments to both extractive companies and its own citizens, and when the political regime is inclusive, such that the government faces incentives to use resource rents to provide public goods that enhance the collective welfare”.

Barma et al continue that “despite the primacy of the state, all power does not rest with government officials and institutions.

Rather, the ruling elite comprises individuals and groups both within and outside government who together assert a monopolistic control of wealth. In particular, a ‘class of rent-seeking pseudoentrepreneurs’ enjoys an umbilical relationship with the state.

These business elites are intertwined in the state capture of resource rents and prove to be entrenched obstacles in the face of transformative measures.

Together with this rent-seeking dynamic between political and economic elites, the intrusion of the state in the economy – as a result of its control over natural resource sector activities – blurs the distinction between public and private.”

The extent to which our state can “un-blur” these distinctions and undertake “intertemporal” interventions on behalf of our people (both the current and future generations) remains to be seen, but will likely play out within the term of the current new government given the scary conjuncture of a contracting economy, labour demands, a looming national debt trap, hyperunemployment and popular protests.

– This piece originally appeared online at

Jourdan is an SA Communist Party researcher

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