Mining and Local Economic Well Being: Weighing Benefits and Costs Thomas Michael Power The University of Montana Economics Department and Power Consulting, Inc. June 18, 2013 Duluth and Ely, MN

Why the Controversy over New Mining? The Promise of Mining –New High Paying Jobs –Significant Wealth Extracted from the Earth –New Income to Households and Governments –Pure Benefits? That is what “economic impact” analysis often suggests. “Free Lunch Economics”?

Real Economic Analysis Weigh benefits against costs –Consider the tradeoffs that any real economic choice involves. –Are their substantial net benefits? –Proceed with mining only if there are. That is how mining companies look at mineral deposits. –They do not mine every single mineral deposit –Most mineral deposits are left in the ground.

Why Might We Suspect That the Costs Associated with Mining Can Be Quite High? Look at the Past Economic Impacts of Mining –in Minnesota, the Upper Peninsula, and Wisconsin. –across the Nation and Around the World

Mining and Local Prosperity Many mining areas are synonymous with lagging economies and, even, persistent poverty and unemployment –Appalachia, Ozarks, Four Corners –Copper Towns of Butte, MT, Silver City, NM, Globe-Miami, AZ, the Upper Peninsula of MI. –Iron Range, MN –Uranium belts of New Mexico and Western Colorado –Gold and Silver Mining Towns: Silver Valley, ID, and Lead and Deadwood, SD

The Economic Anomaly of Mining The Economic Promise: –Tremendous Wealth Extracted –High Wages Paid Frequent Economic Outcome: –Depressed and Rundown Towns & Regions –Lower average incomes, higher unemployment, and higher poverty –Mining Regions Are Often Economically Depressed Regions

Why Are Mining Areas Not Uniformly Prosperous? “The Economic Anomaly of Mining—Great Wealth, High Wages, Declining Communities,” T.M. Power, New Mexico Bureau of Geology and Mineral Resources, 2005 Lost Landscapes and Failed Economies: The Search for a Value of Place,” T.M. Power, Island Press, 1996

Explanations for the Failure of Prosperity to Follow Mining Unstable demand and prices Labor displacing technologies Landscape Intensive: Environmental damage to the region. This is a serious economic problem. Limited economic connection between mining and rural economies. Value flows out of the local economy Mining can displace other economic activities –Visitor economy –Amenity-supported in-migration of people and businesses Ultimate exhaustion of any particular mineral deposit

Clearly We Need to Weigh Both Benefits and Costs Should not just display apparent spectacular positive “benefits.” Mining Companies Regularly Weigh Private Benefits and Costs and Often Decide Not to Mine. –That is why Minnesota’s known copper deposits have not been developed for over a century. The Public and Government Agencies Need to Do the Same Thing –They, too, may rationally decide not to proceed with mining when the costs exceed the benefits.

A Framework for Weighing the Costs and Benefits of Copper Mining Carefully and critically evaluate the expected monetary consequences, both positive and negative. Carefully and critically evaluate the non-market environmental consequences. Consider requiring mitigation measures that maximize benefits and minimize costs. Make an informed judgment about whether the benefits justify the remaining, unavoidable costs.

This Time Will Be Different! Be very skeptical of such assertions. They haven’t proved to be true over a century and a half of actual experience with mining. It is a form of collective wishful thinking to which all of us are susceptible.

Non-Mining Sources of Economic Vitality in the Northeastern MN Emergence of a 21 st Century Economy Ongoing development of professional service sectors –Especially Health Services –Services are not all low wage, “lousy” jobs Retention and attraction of retirees –Income that follows people’s location choices Retention and attraction of residents and small businesses (local “amenities”) Recreation and Tourism

A New Part of the Local Economic Base The attractiveness of the area –Social environment: small cities, safe, un- congested, good schools and services. –The natural environment: clean water and air, wildlife, outdoor recreation, scenic beauty. Attract and hold residents and the economic activity associated with them. Undermining environmental quality undermines economic vitality

The Public Policy Challenge of the Proposed New Copper Mining How to support the ongoing revitalization of the mining areas that was well underway when the current national economic meltdown struck? How to avoid stepping back onto the economic “roller coaster” that mining tends to create? How to avoid further damaging the natural environment of mining areas and extending that damage to surrounding rivers, lakes, and wetlands? How to protect the water resources that are the current and future economic base of Northeastern Minnesota?

Thank You! Questions?