Huffpost Business
The Blog

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors

Hippo Reads Headshot

The Not-So-Hidden Costs of Gold Mining

Posted: Updated:

It sounds like the stuff of fables: Hidden in a remote mountain range in eastern Ecuador lies eight billion dollars worth of Inca gold. But it's not a fable -- it's reality.

Mark Honigsbaum, a journalist and medical historian, traveled deep into the Andes in search of the lost treasure, a journey he recounts in his book, Valverde's Gold. Tracing the story of Inca leader, Atahualpa, and the leader's capture by the Spaniards, Honigsbaum tells another story as well -- that of our obsession with gold itself and the lengths we go to uncover it.

Today, gold's importance in the collective imagination is rivaled only by its status in the global commodity market where, until recently, it was considered one of the world's safest investments. It was until last April, when gold suffered its biggest one-day drop since 1983. A sharp plunge in gold prices wiped billions from the market, leaving analysts speculating whether the "golden decade" has come to an end. For the companies who mine the commodity, the crash could not have come at a worse time. In recent years, the industry has suffered from a growing number of conflicts -- some of them violent -- between mining companies and communities who are often less-than-thrilled about having an open-pit mine in their backyard. In the past five years these disputes have increased by 300 percent. Last year, in Peru alone, there were 149 conflicts involving mines.

These trends would not have occurred without the worldwide commodity boom beginning in the late 1990s. Mining corporations like Barrick Gold, Rio Tinto and Newmont made significant investments in resource-rich countries, many of which enjoyed huge economic growth. Some of the biggest success stories have been in Latin America, with Chile and Brazil leading the way. But a study published last year by Washington-based Rights and Resources Initiative, reveals all this growth has come with a heavy price tag: growing resource dependency in Latin America, and a host of environmental and social problems.

As the "resource curse" suggests, discoveries of mineral and oil wealth do not automatically generate prosperity. Often, countries are actually worse off -- with many suffering from more corruption, higher poverty, and in extreme cases, civil war. For many of these countries, another challenge is ensuring they get a fair share of the profits from their own resources. In the past, contracts for resource extraction heavily favored investors, leaving host governments without much money to fund desperately needed development like roads, schools and hospitals. Faced with growing public resentment, many governments are now re-writing those agreements and in some cases, nationalizing whole industries.

Venezuela's former leader, Hugo Chávez, led the charge back in 2003 when he seized control of the country's oil industry. As John Cassidy wrote for the New Yorker in 2012, Chávez's socialist experiment has had mixed results. On the one hand, the economy suffers from inflation and debt, but on the other hand, Chávez's policies have significantly reduced poverty and income inequality.

Newly elected left-leaning governments in Peru, Ecuador and Bolivia have followed similar -- though less extreme -- strategies by imposing higher taxes and royalties on mining companies. Bolivia just opened a new lithium plant on the edge of the salt flats, and President Evo Morales hopes to not just mine the resource, but also develop Bolivia's domestic manufacturing capacity so more of the profits stay within the country.

Ecuador's Rafael Correa has taken a more unconventional approach to resource development. As Scott Wallace writes in his National Geographic story, "Rainforest for Sale," Correa has offered to leave some of his country's vast oil reserves in the ground. The reason: Some of that oil lies beneath the Yasuní National Reserve, a protected area in the Amazon with unrivaled biodiversity and home to two indigenous tribes.

But there's a catch: He wants other countries to pay for it. As compensation for the billions of dollars in unrealized oil revenues, Correa is asking for $3.6 billion to help finance Ecuador's economic development and protect one of the earth's richest ecological resources. So far, the money has only trickled in and Correa is under increasing pressure to exploit the oil. After all, says the president, "We cannot be beggars sitting on a sack of gold."

Additional Reading:

- Mark Thirwell examines whether Australia's remarkable economic growth will survive when the commodities boom ends in his Pacific Standard article, "Can Australia Keep Beating the Economic Odds?"

- Can Bolivia become the Saudi Arabia of the electric car era? Lawrence Wright travels to Bolivia to find out in 'Lithium Dreams' for The New Yorker (2010)

- Read Columbian author and Nobel Prize winner Gabriel Garcia Marquez's hallucinogenic novel, One Hundred Years of Solitude.

Additional Viewing:

- Watch The Motorcycle Diaries, the story of Marxist revolutionary, Che Guevara's journey through South America.

- Look at the Swedish photographer, Gustav Arvidsson's photographs of landless peasants in Colombia, a country where mining companies, palm oil plantations and big cattle ranches have rid entire villages of their subsistence farmers.