In achieving the right regulatory paradigm to promote effective governance for the multinational enterprises in resource rich countries, and more specifically on the mining and extractive sector, I first refer to the theory of the \u201cresources curse.\u201d\u00a0 The theory of resource curse offers an underpinning foundation to explain the need for an effective governance mechanism for managing the negative impacts observed in resource mining communities following a resources boom. The resource curse effects may offset governance and economic performance, exposing countries to inequitable resource distribution; resource control conflicts; continued rent-seeking; and potential corruption.\u00a0 There are 3 general reasons for this resource curse: 1. Poorly defined resource rights and distributive systems; 2. Repressive, corrupt and poor social management systems in the extractive sector; and 3. Lobbying for rents that undermines the economic and political institutional quality, that further reduces economic growth and increases poverty.<\/p>\n
In light of the discussion of regulatory pluralism and designing the right policy mixes for an effective governance mechanism, I have developed a framework that builds on the four main types of regulatory mechanisms commonly used by the industries: command and control (CAC), voluntarism, self-regulation, and co-regulation. Although each of these regulatory mechanisms has different strengths and weaknesses, they each deal with a relationship between the government, the industry body and the individual business organisation.\u00a0 This regulatory arrangement can be conceptualised as a regulatory triangle involving interactions between these three parties. Firstly, CAC regulation poses direct state intervention in markets and prescriptive standards for corporate behaviour. Secondly voluntarism, is where individual business organisation decides to implement own sets of standards and guidelines. Thirdly, self-regulation, sees an organised group (e.g., industry association) regulating member behaviour, monitoring or policing the industry codes of conduct with, or instead of government. Finally, co-regulation is another mechanism combining government regulation and self-imposed industry safeguards with some third party (e.g., society, NGOs) oversight.<\/p>\n
Choosing the right regulatory paradigm in promoting effective governance for mining and extractive sector companies, requires consideration of: the type of the industry; the behaviour to be regulated; and the alignment of corporate-public interests. Above all, the goals in selecting the appropriate mechanism should be aimed at (but not limited to), improvement in industry behaviour, full compliance and legitimacy in the eyes of the stakeholders.<\/p>\n
Prior experience in the international mining sector has shown that one mechanism will not ensure effective governance, given the spatial and demographic pressures of enforcement on multinational mining enterprises. Occasions of violence, corruption, conflict, rent-seeking, and unequal resource distribution in international mining spans many governance regimes \u2013 from socialist to democracy. Such instances involving human rights abuse, draw attention to the correct system of effective governance for the mining sector. Australia, for instance has adopted an effective democratic system that combines CAC, self-regulatory, co-regulatory and voluntary mechanisms to encourage the mining sector to improve transparency and accountability in the mining sector. This has been possible due to its proactive stance in strengthening the quality of the domestic institutions including the civil society, governments and in the industry.<\/p>\n
Meanwhile international attention has also focused on the emerging role of voluntary codes of conduct and put pressure on companies to shoulder their corporate social responsibility (CSR). One way this has been done successfully, is by companies gaining their social license to operate (SLO). Another mechanism is CSR standards, codes and accountability mechanisms, developed by mining companies, and mining industry associations, standards and certification organisations, non-government organisations, financial institutions and the United Nations processes and guidelines. CSR rest on the concept of the \u201csocial license to operate\u201d (SLO), which motivate Australian mining companies to become more transparent and accountable.<\/p>\n
As a result, Australia has developed a successful approach to managing democratic governance for improved transparency and accountability of multinational enterprise in mining. This approach still requires further improvement yet provides opportunities to improve industry transparency and accountability in the resource rich developing countries.<\/p>\n
The Australian mining sector has experienced a range of challenges over the years: land use conflicts; debate over foreign direct investment and ownership levels in mining; fluctuating resource markets, demand and prices; environmental and social damage; rising costs of stakeholder engagement and remediation of mine sites; and more. In addressing these challenges, the Australian mining companies have resorted to self-regulation for sustainable economic and social development to minimise the negative impacts of ineffective governance in mining, and to assist CAC, mainly led by the industry body the Mineral Council of Australia (MCA).<\/p>\n
The MCA operates as a de facto mining regulatory body relying on self-regulation.\u00a0 The MCA is legitimised by its adoption of the Brundtland Commission\u2019s 1987 definition of sustainable development: \u201cthat meets the needs of the present without compromising the ability of future generations to meet their own needs\u201d. The MCA further established an Environmental and Social Policy Committee and utilises a voluntary self-assessment protocol to achieve ICMM goals of sustainable development.<\/p>\n
Mongolia is an example where resource nationalism had traditionally led to increasing state ownership in major mineral deposits.\u00a0 During this period the Mongolian Government aimed to maximize the economic and political benefits from mining industries. However, as with the Australian government, resource rich developing economies such as Mongolian lacks the financial and human resources, and experience to engage directly in larger mining projects.<\/p>\n
During the decade to 2000, privatisation of mines reflected its shift towards a market economy.\u00a0 During the mining boom in the mid-2000s, the government reasserted its control over the mining industry through its mining policy and state- backed mining enterprises. The Mineral Resources and Petroleum Authority of Mongolia (MRPAM), issued 3,447 mineral licenses to foreign and domestic companies in 2016, and mining is a growing export sector. Complex regulation by numerous regulatory bodies and socio-environmental concern about land use has led to increasing demand for separation of ownership and operation of mining projects and better efficiency in managing the Mongolian mining sector. There is room here for good governance practices and commitment to self-management and CSR by the multinational mining industry under the transparent, accountable self-regulation principles. There are several ways of facilitating this aim – regional cooperation; regulatory reform\/ research\/ piloting, and stakeholder management. These options were explored in my 2017 AAF Fellowship Program and it is my hope that this process continue in the panel discussions that follow: democracy and resource endowment and distribution, corruption and exploitation and future prospects for reform in mining governance.<\/p>\n
Lessons learned in the Australian mining sector show that an effective democratic system of governance is required to better manage the economic, social, political and environmental costs of resource extraction. Such a system will draw on a variety of self-regulatory, co-regulatory, voluntary and CAC mechanisms, and requires ongoing cooperation with other regions and stakeholders. Opportunities for improvement in corporate mining governance also include collaborative international engagement and cross-institutional research, pilots of new mechanisms and close monitoring and review by government and other stakeholders.<\/p>\n