Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Distributing Benefits from Mining Industry

           Critics of the 1995 Mining Act, which was already ruled constitutional by the Supreme Court in 2004, once again are questioning its constitutionality by claiming that the Act violates the Constitution’s provision on equitable sharing of proceeds from the development of the country’s mineral resources.

          As Chairman of the Committee on the National Economy and Patrimony of the Constitutional Commission of 1986 that drafted the Philippine Constitution ratified in 1987, I can attest to the fact that the commissioners left the task of defining what is an equitable share—always a contentious matter—to the legislative and executive branches of the Government.  As the economists in the Commission pointed out, the inexact science of economics is concerned with the allocation of scarce resources among the multiple and often conflicting objectives of society.  Necessarily, such an act of allocation is achieved through the policy making process shared by the President and the legislators, without involving the Judiciary.

          It is also in the spirit of the Constitution that the State holds ownership of natural resources in a capacity of stewardship.  It is the Filipino people who actually own the natural resources and who should benefit from their exploitation.  In determining equitable sharing,   benefits accruing to society or the Filipino people in general are threefold:  (1) the taxes paid by the mining enterprise; (2) the compensation to government as the steward of the people; and (3) the direct benefits to the people in the form of jobs generated (both direct and indirect), infrastructures constructed by the private mining firm, and other social benefits such as education, health services and housing that are provided to the immediate communities by the mining companies.

          In my opinion, the critics of the 2004 Supreme Court decision are giving short shrift to what are called external economies of the mining industry.  While they are very vocal about the external diseconomies (e.g. environmental degradation and disruption of indigenous cultures) they do not give sufficient consideration to the positive multiplier effects of mining operations.

          Here again, the inexact nature of economic science comes into play.  There are those who claim that these positive multiplier effects are insignificant.  Our own studies at the University of Asia and the Pacific conclude otherwise.  An economist of the University of Asia and the Pacific, Dr. Cid Terosa, used the tools of input-output or inter-industry analysis to measure the favorable impacts of the industry on total GDP, total employment, household income and consumer spending.  His analysis followed the same line of thinking of President Benigno Aquino III when he pronounced in his July 2012 State of Nation Address that in addition to directly employing 1.3 million workers, the Business Process Outsourcing (BPO) sector will generate in 2016 an "estimated 3.2 million jobs for taxi drivers, baristas, corner stores, canteens, and many others that will benefit from the indirect jobs that the BPO industry will create."

          In like manner, the mining industry has major impacts on employment, income and consumption that go much beyond the taxes paid by the mining enterprises.  Using the concept of the multiplier, the total output multiplier of the mining industry is 2.6.  This means that 2.6 pesos additional output is created in the economy every time final demand such as export demand of the mining industry increases by one peso.  Since total exports of the mining industry in 2011—when metal prices reached a peak-- reached 115.2 billion pesos, the total output multiplier effect is about 299.52 billion pesos, which is 3.3% of the nominal GDP in 2011.  The total household income multiplier of the mining industry is 0.32.  Applying this multiplier, the additional household income induced in the economy by total mining exports is estimated to be 36.9 billion pesos.  This is about 1% of total family income in 2011.  The total employment multiplier effect of the mining industry is 179,158 additional direct and indirect jobs in the economy (this is very visible in the town of Toledo, Cebu which became a ghost town when Atlas Mining had to close down for a few years but has bounced back strongly with the opening of the copper mine in recent times).  The increase in employment is about 6.3% of the total number of employed persons, not an insignificant amount during these periods of world-wide unemployment.  The total compensation received by the mining industry workers, which is 6.8 billion pesos, can induce a multiplier effect of 10.8 billion pesos.  Finally, the fiscal spending multiplier will lead to an additional output of 37.4 billion pesos as a result of the total taxes paid by the industry, which was 10.4 billion pesos in 2011.  Only by considering the totality of the multiplier effects of the mining industry can the Government make a more rational assessment of costs and benefits of the entire mining industry.

          I am aware that these research findings may be disputed by other economists, using other methodologies and data bases.  This fact highlights the inadvisability of the issue of equitable sharing of benefits from mineral resources being decided by the judicial branch.  It should be subject to the usual policy debates that are proper to the legislative and executive branches of Government.  The Supreme Court should inhibit itself from making decisions on the equitable sharing of benefits from mineral resources.  For comments, my email address is bernardo.villegas@uap.asia.