Sustainable development in Asia

What would the world be like if Asia — the most populous, the most dynamic quadrant of the globe — were to fail in making the transition to a sustainable lifestyle?

I would argue that there can’t be a sustainable future for the world if Asia does not make that transition. But I firmly believe that Asia will make the transition. The region has immense human talent and a long history of social responsibility.

The springboard for Australian mining investment in Asia was the Pacific: Papua New Guinea, Fiji and some other islands. Many of these projects brought enormous benefits, but they were often not sustainable benefits.

A lesson learned was that no company can operate sustainably in the absence of sound civic governance, and sound civic governance includes recognizing the rights and aspirations of local people. Following its experience in the Pacific region, the Australian mining industry reached out to Asia, this time as a destination for project investment, as distinct from the historically successful role as a trading partner. The same general lesson has again been learned: a nation’s wish to profit from its resources cannot be carried out at the expense of those most affected by resource development. In the same way, local people cannot expect to reap all the economic benefits of such development.

Many hopes for the region rested on the management of its resource developments. They still do. Indonesia, for instance, can hardly expect to pull itself out of its economic slump without a strong flow of direct foreign investment.

One reason Indonesia’s investment flows have faltered is concern over respect for property rights and agreements, which are essential for large, long-term, direct investment. Without mining and resource development, and without foreign investment, it will be difficult to foster economic growth, sustainable or otherwise.

In the post-war era, development economists suggested that large mineral projects could inject wealth into a developing nation. That wealth would then fund public services and build much-needed infrastructure. In addition, they assumed that successful mineral and energy developments would give rise to other economic activity and attract more investment.

About a generation ago, this simple economic model began to be questioned. People saw that the proceeds from resource developments were not always used to build health clinics or fund schools; indeed, the anticipated upstream and downstream economic spinoffs were sometimes conspicuously absent, and whenever such benefits did occur, the beneficiaries tended to be major cities. The extent of local resentment to this was considerable. More broadly, people started to talk disparagingly of foreign investment in overseas mining operations as “enclave development.” Also, some nations lacking natural resources, such as Japan and Singapore, were outstripping countries with a greater endowment of minerals and energy. Mineral wealth began to be seen as a dubious blessing.

Economic models don’t always explain how mining can contribute to sustainable development. There are examples that prove resources to be a blessing. There are examples that prove the opposite.

For mining to be sustainable, it must contribute to economic growth, but it must also accept responsibility for the inevitable environmental, social and cultural impacts.

For development to be sustainable, it must be a collaborative exercise. It must involve government, local residents and, often, local, national or international non-governmental organizations (NGOs).

One of the inherent problems with mining is that, while the benefits are widely disbursed, the physical and social impacts are largely local. This paradox exists in the developed world. It is even more pronounced in developing economies, such as those found in Asia. There, history, religion and tradition may compound economic differences between the national centre and distant provinces.

The decentralization program the Indonesian parliament endorsed in 1999 was an acknowledgement of this paradox. It was a courageous decision, but it has caused problems in the short term, as legislatures and bureaucracies struggle to determine the limits of their respective powers. And there have been serious problems for resource companies whose investments were made under a more centralized regime.

Despite these problems, there is good reason to believe that an economic development model that builds from the local to the national is, in the long run, more sustainable than one that does the opposite. There is, however, one important proviso: the sustainable model only works when every player is clear about the rules of the game in terms of risk and reward.

The trend these days is for partnerships — with government, civil organizations, local land-owners, and international organizations. It is a healthy development and promises to create more benefits and to focus them on local communities.

But such partnerships will only flourish when based on the assumption of obligations by all parties. Companies have rights they want to retain and they have corresponding obligations. This should apply equally to governments and NGOs.

It is not fair to expect companies to behave impeccably, while governments sidestep their obligations, disregard agreements or tolerate excesses.

Neither is it right for NGOs to pretend that the standards of accountability, honesty and verification of information they demand of others do not apply to themselves.

The world must shift to a more sustainable lifestyle, and Asia will be an important proving ground for ways to make that shift, as well as a source of innovation for the rest of the world.

— The preceding is an edited version of a speech presented at a dinner of the Business Council of Australia in Melbourne. The author is the chief executive officer of London-based Rio Tinto.