20 December 2019

Democratic Republic Of The Congo: When The Blessings Of Liberty Are Denied

The Nobel Prize winning economist Milton Friedman, in his seminal work Capitalism and Freedom, argued quite powerfully for the intertwining of political and economic freedom, asserting that a free polity and a free market were the foundations of economic prosperity everywhere. That thinking has guided much of the political and economic rhetoric on matters affecting the developing nations of the world.

During his tenure as Federal Reserve Chairman, Alan Greenspan added an additional element to the prosperity equation--technology.
When historians look back at the latter half of the 1990s a decade or two hence, I suspect that they will conclude we are now living through a pivotal period in American economic history. New technologies that evolved from the cumulative innovations of the past half-century have now begun to bring about dramatic changes in the way goods and services are produced and in the way they are distributed to final users. Those innovations, exemplified most recently by the multiplying uses of the Internet, have brought on a flood of startup firms, many of which claim to offer the chance to revolutionize and dominate large shares of the nation's production and distribution system.
Technology makes life better for everyone. Technology raises everyone's standard of living, and ends crushing poverty.

We know this because Alan Greenspan has said so. We know this because experts and academics have said so. Research at the Federal Reserve Bank of Dallas states the case quite thus:
Technological progress is the key to a country’s long-term increase in its material well-being, the work of Nobel laureate Robert Solow and economist Trevor Swan showed in the 1950s. The contribution of factors of production, such as capital or labor, is only temporary. The Nobel Prize-winning work reshaped our understanding of why countries such as the United States exhibit sustained labor productivity growth, while others such as Niger and Zimbabwe become impoverished. Technological progress also might hold a key to understanding persistent differences in the rates of improvement in the standard of living among countries.
The science is settled, as it were. Technology is the magic elixir to bring prosperity to everyone. The secret for poor countries to climb out of poverty is technology. Technology powers economic growth, and economic growth powers rising living standards.

Except, of course, when technology does not power economic growth. Then technology can make life much, much worse. Then technology can foster new ways to exploit and disadvantage people and nations.

That is the sobering takeaway from the Daily Mail's report on a lawsuit filed against Big Tech firms Apple, Google parent Alphabet, Microsoft, as well as electric car manufacturer Tesla, on behalf of child laborers maimed and killed in African cobalt mines. According to the lawsuit, Big Tech is the consumer driving the market for cobalt, a key mineral for use in lithium batters, smartphones, and all the technological wizardry extolled by Alan Greenspan and the brahmins of the Federal Reserve. Much of this much sought-after African cobalt is mined using child labor and arguably slave labor.

If we take the lawsuit claims at face value, technology has created misery and not prosperity for African cobalt miners.

Cobalt: The "Unofficial" Conflict Mineral

Cobalt is the essential mineral for almost all modern electronics. Virtually every manufacturer of computers, tablets, smart phones, and devices with the ephemeral "Internet of Things" (IoT) relies on cobalt. Tesla's car batteries are dependent on cobalt, as do those of electric vehicles produced by other car manufacturers.

Perversely, the largest known reserves of cobalt in the world are found in countries such as the Democratic Republic Of The Congo (DRC), a country that has been racked by nearly non-stop civil war for decades. Amazingly, cobalt has been left off the official lists of "conflict minerals"--minerals the extraction and sale of which are closely watched to prevent the revenue flowing to the many rebel groups at large in the DRC and other countries--maintained by the United States and other nations. This exclusion imposes much looser reporting regulations on the global supply chain for cobalt. While some companies such as Apple have announced they will regard cobalt as a conflict mineral, they are at the end of a very long supply chain, one in which most participants have every economic incentive to not subject cobalt mining to conflict mineral scrutiny.

As electronic and "smart" technologies become ever more pervasive, the demand for cobalt continues to rise, and so does the demand for cheap labor--and thus for child labor. Amnesty International has had numerous reports of children as young as seven, and some as young as four, working in cobalt mining, reports dating back several years. The growth of smart phones and other devices has been paralleled by a growth in the use of child and exploitative labor in the DRC and elsewhere to mine cobalt.

The Chinese Connection

As cobalt is extracted from African mines, much of it is shipped to China, where it is used in electronics and battery manufacture.  Chinese involvement goes much deeper, however, as the largest cobalt suppliers in the DRC are owned by Chinese firms such as Zhejiang Huayou Cobalt, Ltd (Huayou Cobalt), through its subsidiary Congo Dongfang Mining (CDM). Perhaps unsurprisingly, Huayou and CDM has routinely denied using child labor in cobalt extraction:
Our company has not been aware that any of our legitimate suppliers has hired child labour in their mining sites or operated in unsafe working conditions … CDM has rigorously selected its ore suppliers to ensure the procurement of raw materials through legitimate channels
However, Huayou also has claimed it does not/cannot trace the origins of all of its stores of cobalt, nor the labor practices at many of the actual mines. It simply has never verified the labor practices involved in its mining operations. 

Nobody Tolerates Child Labor. Except When They Do.

Unsurprisingly, most of Big Tech strenuously denies encouraging or supporting the use of child labor in cobalt extraction.
Apple said it leads the industry in supply chain standards, and last year cut ties with the largest artisanal cobalt supplier. Microsoft told us it does not tolerate child labor and that it is working with NGOs to eliminate it. Samsung said it's mapping its supply chain, and Tesla explained it performs audits, and has very little cobalt in its batteries. 
Dell, Fiat Chrysler, General Motors, and Volkswagen have also denied complicity in child labor practices. 

Amnesty International, in their 2016 investigation, claimed that none of the companies named as being involved in child labor practices or sourcing cobalt from the DRC have been able to independently verify the sources of their cobalt supplies.

Yet the use of child labor has, if anything, increased as the demand for cobalt has gone up. In 2012 UNICEF estimated some 40,000 children were working in DRC cobalt mines. The labor of those 40,000 children produces some twenty percent of DRC-sourced cobalt, which accounts for half of cobalt extraction world wide. Despite all the protestations of innocence by the companies at the consuming end of the supply chain, the extraction end has a fairly large dependency on child labor.

With between ten and twenty percent of cobalt extracted world wide mined using child labor, the likelihood your tablet or smart phone exists in part because of child labor is significant. Protestations and proclamations of standards aside, it is a given that someone buys up cobalt mined by children, which means that, protestations and proclamations of standards aside, Apple, Samsung, and the rest of Big Tech are almost certainly profiting from the child miners of the DRC. What they condemn with their lips they reward with their wallets.

Apple Is Profiting. Africa Is Not.

Child labor is exploitative labor. It is a form of modern slavery. The children are paid a pittance--as little as 8 pence a day. While Wall Street banking titan Goldman Sachs has called cobalt "the new gasoline", but DRC is certainly not seeing any profits from it. Not only are there no signs of new wealth, but the cobalt mines themselves are some of the most toxic environments on earth, with the surrounding soil too contaminated for growing vegetables or supporting livestock to feed the miners. In an eerie parallel to the coal industry, cobalt miners have their own respiratory illness--"cobalt lung"--caused by inhalation of cobalt-laden dust which wreaks havoc on the lungs, leading to pneumonia and even death.

Technology, it would seem, powers economic growth everywhere but in the DRC. Despite being the second largest country in Africa and possessing half the known deposits of cobalt in the world, the DRC is one of the poorest nations on Earth. Apple, meanwhile, has generated profits in the tens of billions of dollars, much of it from the sale of iPhones, with unknown quantities of African cobalt behind their manufacture.

Amazingly, the vendors in the cobalt supply chain such as Huayou Cobalt go so far as to defend the use of child labor (despite claiming no knowledge of it happening), having told the Washington Post that "‘it would be irresponsible’ to stop using child labour, claiming: ‘It could aggravate poverty in the cobalt mining regions and worsen the livelihood of local miners.’" For Huayou, child labor is the way to combat regional poverty.

Yes, they really said that.

The Scandal: This Is Old News

While the lawsuit against Big Tech companies for the sufferings of child laborers is a new twist, the underlying issues are old news. Amnesty International's major report on child labor in DRC's cobalt mines was released in 2016, while UNICEF called attention to the problem in 2014. Given DRC's persistent placing among the world's most corrupt nations, it takes no great leap of imagination to presume these labor abuses have existed for as long as the DRC has mined cobalt.

The world has seen these abuses, witnessed the mistreatment of workers and the exploitation of children, and documented the pollution and environmental degradation rampant around cobalt mines. The world has seen, and witness, and documented, and watched, and ultimately done little. Children still work the DRC cobalt mines, their output still gets sold to the consumers of the world through China, and they still get but a pittance for their labors. This has demonstrably been the case for at least the past decade.

To be clear, the DRC is not unique in this regard. Child labor has been a persistent problem world wide, with the International Labour Organization estimating that as many as 218 million children perform some form of work, and 152 million of those are victims of exploitation. According to watchdog group China Labor Watch, as recently as this year Apple and its manufacturing partner Foxconn used child labor to churn out the iPhone 11. While Apple denies the claims, if those claims are true then Apple plausibly uses child labor throughout its global supply chain for iPhones.

Corruption Erases Freedom

If the DRC is not prospering from the sale of its mineral wealth, while companies such as Apple and Microsoft clearly are, the inevitable question to ask is "why not?" How is the major source of a valuable commodity so lacking in plenty? If we follow Friedman's thesis, and accept the premise that Apple and the rest of Big Tech are participating in a free market for technology, by rights the DRC should be enjoying significant prosperity.

That the DRC is not prosperous means we must, in order to follow Friedman's thesis, reject the premise that technology markets--at least the market for cobalt--is a free market populated by free participants.

This is not a difficult rejection. Not only is the DRC among the world's most corrupt nations, but the immediate destination of most of its extracted cobalt is an only somewhat less corrupt China.

These markets are not free because the polities are not free. China is helmed by a fascist oligarchy whose constitution subordinates the citizens to the State. The DRC is a country wracked with continuing violence from a variety of rebel groups and political corruption, despite having a largely peaceful transfer of power from outgoing President Joseph Kabila to incoming President FĂ©lix Tshisekedi. Even the presence of UN peacekeepers has not quelled the violence.

It takes no great leap of logic to surmise that political corruption and endemic violence erode the rule of law and trust in governing institutions--two essential elements for political freedom. Using Friedman to argue the counterfactual, this lack of political freedom, particularly in the DRC, erases economic freedom and leaves economic exploitation it in its wake.

In the face of corruption, technology has little to offer in the way of personal or national prosperity, for technology by itself does not--cannot--create the freedom necessary for prosperity.

Corruption Is Contagious

Yet we should not pretend that corruption, political and economic, are confined to the DRC or to China. The Big Tech firms have been called out repeatedly over the years for this very issue--child labor in Congolese cobalt mines--and yet the exploitation continues. For all of Apple's self-congratulatory comments about setting high standards, it still partakes of the same corrupt supply chain that literally enslaves children. For all the denials, Microsoft, Alphabet, and Tesla all continue to turn a blind eye to what has been reported again, and again, and again.

For all the condemnation we should visit upon Huayou Cobalt and the DRC government for allowing these labor abuses to continue, we should not pretend that any firm relying on African cobalt to manufacture their products is not complicit to some degree. There have been too many reports, too many studies, too many news accounts for anyone at Apple, anyone at Alphabet, anyone at Tesla to seriously claim not to be aware of the abuses or their company's role in them. Yet they have done nothing--and as the apocryphal quote oft-attributed to the British politician Sir Edmund Burke reminds us, "all it takes for evil to prevail in this world is for good men to do nothing." 

Apple has done nothing. Evil has prevailed in the DRC. 

Samsung and Tesla have done nothing. Evil has prevailed in the DRC.

What Is To Be Done?

The brutal reality of technology is this: the markets for high-tech products depend on the mineral resources of countries not blessed with good government or virtuous public institutions. The smartphones, tablets, and laptops that permeate modern society would not exist--certainly would not be as broadly available and affordable--without the cobalt and other minerals extracted from places such as the Democratic Republic Of The Congo.

The technologically advanced societies that comprise the "Free World" depend on the mineral wealth of a world substantially less free. 

My practice in these postings is to end with a call to action of some kind, an encouragement to the reader to make a change, or a recommendation on how a specific ill might be remedied. I confess on this topic I have no such encouragement or recommendation. I see the problems, but the practical solutions and steps to be taken remain hidden from my sight. The obvious means of economic protest and sanction are simply unrealistic in light of the power imbalances involved and the fundamentally unfree nature of the global cobalt market. 

In a free market, when one is dissatisfied with one vendor he is able to buy from another vendor. With over half of the world market for cobalt being supplied by the DRC, there is no other vendor. Refusing to buy cobalt from the DRC is in most instances tantamount to refusing to buy cobalt, period--an alternative the market is unwilling to consider. This market power goes a long way in nullifying efforts to bring reforms to the DRC, as those in power have no incentive to change.

In a perverse irony, the corruption of the DRC is the counterfactual which proves Milton Friedman was correct: political freedom and economic freedom are necessary to sustain each other. Remove one and the other disappears as well. The "Blessings of Liberty" promised in the Preamble to the United States Constitution include material well being.

Diplomatic pressures and the opprobrium from organizations such as Amnesty International seek to mobilize public opinion against the corrupt leaders of the DRC, but with market demand for cobalt constantly rising, it is difficult if not impossible for those efforts to gain much leverage. Those in government are able to withstand public condemnation because privately the cash continues to flow.

Lawsuits such as the one filed this past week represent an effort to give the companies who profit most from child labor a direct financial incentive to be more aggressive in combating the practice. It remains to be seen how successful such lawsuits will be.

However, so long as countries such as the DRC remain in thrall to corrupt governments, so long as political freedom is denied the people, the economic freedom that is unquestionably necessary to prosperity will remain elusive. So long as economic freedom is denied the people, political freedom will likewise remain elusive.

If the United States is the shining example of what the blessings of liberty bring, the Democratic Republic of the Congo is the stark warning of what follows when the blessings of liberty are denied.

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