The experience gained from creating a large-scale iron ore exporting business, and doing so as a state-owned enterprise (SOE), set a precedent for economic governance through the second half of the twentieth century in Brazil. It offers important insight into the use of natural resources, in general, and on state economic intervention. This chapter identifies two of the issues that can be understood more fully in light of the iron ore case. It briefly reviews the subsequent and related history of petroleum development and the influence of the iron ore experience on economic governance. The chapter then explores the widespread privatization of SOEs since 1988, identifying continuities and discontinuities with historical experience. In conclusion, this chapter identifies (without analysing) other examples of current controversies regarding sovereignty and natural resources in Latin America in which the institutional debates about natural resources covered in this study may have a conspicuous role.

The role of minerals within the Brazilian economy remains controversial and frustrating for some economic analysts. In 1995, one mining economist referred to the ‘Brazilian mineral question as one of the central dilemmas of the economy’. Although Brazil's mineral endowment is the richest in Latin America, the extraction of other minerals has not attained the success of iron ore.

Minerals offer an unusually clear venue for understanding the history and application of economic ideas in Brazil. This chapter demonstrates the path dependency of economic ideas and the importance of ideology for conditioning economic governance within Brazil by focusing on the long course of often competing debates about import-substituting industrialization, export promotion and foreign economic involvement. The strong hold of structuralist theories during the middle of the twentieth century; the role of foreign individuals, capital and technology; the divide between public and private sectors in the economic sphere and the emergence of the state as an industrial entrepreneur have been prevailing themes in Brazilian debates about governance and ideology. As we have seen in Chapters 3 to 5, they have also been the themes that dominated the institutional conflicts in developing industrialized iron ore capacity for three centuries.

The emergence of structuralism and of economic nationalism examined in this chapter makes three important points. First, the debates and developmental efforts of the second half of the twentieth century were not new; they have roots in ideologies articulated as early as the colonial era. Secondly, competing (and evolving) definitions of property were central to the formulation of the economic role of the Brazilian state in the twentieth century. Thirdly, the abstract ideas of economic ideologies were important factors that shaped the manner in which industrialized mining emerged within Brazil.

As the Panic of 1819 gripped the nation, the Commonwealth's leading newspaper, the Richmond Enquirer, announced on 21 May 1819, ‘we shall for several months keep open a head in this paper, styled “Political Economy”’. The object was ‘to excite investigation’ because, according to the Enquirer, ‘The times particularly demand information on the subject of political economy. The country is lamentably deficient in important knowledge.’ As the Enquirer editorial suggested, ‘Never did a thicker gloom hang over the monied transactions of this land. The state of the markets, of trade, of the interest of manufactures, the great problem of the banking system, of the precious metals; there is scarce an individual in this country, who does not feel some interest in these questions.’ The announcement concluded, ‘Things are winding up; but perhaps too fast and in too much panic’.

Four days later, the first article under the new banner appeared. ‘A deeper gloom was never spread over the commercial world than is seen at this moment’, wrote the author of the piece, Economicus. First describing conditions in Europe, he then turned to America. ‘Here we find in almost every quarter, an unparallelled embarrassment in the money market’. According to Economicus, the nation's condition could be blamed on the banks. ‘It is a melancholy (nay worse, it is a disgraceful) fact, that this country, blessed beyond any that the world ever shone upon, has been brought to this condition, principally by monied institutions: by their multiplication and mismanagement’. Most important was the mismanagement which had ‘given birth to the wildest spirit of speculation. Speculation has generated banks; and banks have generated a tenfold spirit of speculation’. This spirit had, in turn, affected the ‘moral habits of this nation’, including corrupting ‘our manners’ and undermining our ‘republican principles’.

The Introduction indicated that modern economic theory, particularly monetarist and asymmetric information theory, has focused on the role of financial institutions and their credit mechanisms as the source of major contractions in the real economy. The debt-deflation view of great depressions sees ‘easy money as the great cause of over-borrowing’ i.e., easy money and liberal loans start the process leading to economic downturns.

There is a close relationship between economic growth in China and energy demand, exacerbated by the absence of local resources in China to match the amount needed for its own economic growth, while energy efficiency remains a challenging issue as total Chinese energy usage is 40 quadrillion BTU per annum or approximately 6,500 BTU per dollar of GDP, below the rate and efficiency of developed economies. Due to these factors, among others, China has to turn outwards for its energy needs.

To meet its energy needs, the Middle East/Gulf region is its primary supplier of petroleum and natural gas for the foreseeable future. There are many schools of thought about China's energy links and connections with the Gulf region and the Middle East. Historically, during the ideological divide of the Cold War, Mohamed Bin Huwaidin argued that there had been perceptions of China as a power sufficiently distant from the USSR, despite being in the socialist bloc, and a possible source of support for the developing world, especially with Chinese provision of monetary and other forms of help for the developing world along with the promotion of the Chinese developmental model to developing economies.

The 1955 Bandung Conference was perceived by some as an event of SinoArab mutualism as some Arab states founded official relationships with China as the latter provided finances and other forms of non-monetary support for various Arab causes.

In August 1972 a medical survey revealed that an alarming number of the refinery's employees had developed cancer. It was suspected – and later confirmed – that this was due to exposure to nickel in the working environment. In the coming decades, mitigating cancer risks became the management's most serious challenge. However, this was not the only environmental issue that craved attention. The refinery also had to face increasing pressure to limit its external pollution.

The Norwegian business system changed in the 1970s and 1980s as large, export-oriented industrial firms lost much of their position as pillars of society. The advent of modern environmentalism altered the relationship between industrial companies, political authorities and the wider civil society. It was no longer enough to offer well-paid jobs or to secure substantial export revenues. Industrial plants like the nickel refinery also had to satisfy increasingly more stringent environmental requirements.

One could find a similar development all over the Western world. This implied that multinational companies and their subsidiaries had to operate in a new type of political economy, where environmental issues became much more important. The question in this case study is how the Kristiansand subsidiary, the mother company and the local union tackled these challenges? How did a multinational firm like Falconbridge comply with Norwegian regulations? What responsibility did the company assume for its sick employees and what standards did it follow?

Corporate Environmental Strategies

Industrial companies reacted very differently to environmental issues and the changes in the business system.

The US model of development is characterized by its adept ability to evolve, adapt and react to external conditions, for example after perceptions of economic decline in the late 1980s, its structural reform and transformation into a high-technology economy during the period of the information technology (IT) economic boom that started in the 1990s stands as testimony to its historically adaptable strength and resilience. This may be just one example of many which has historically led US out of cyclical recessions into prosperity time and again.

The US economy is also based on free competition, ensuring its industries are not sheltered from innovation and improvements from foreign competitors. Risk-averse culture may free up innovation, encourage leaps in product and technological development and inspire people to reach new heights in human achievements. The US economy has also demonstrated innovation in systemic innovation, churning out new ideas for management systems and seeking out growth opportunities whenever possible. The deregulation processes of the 1980s, implemented by the Reagan administration, and then broadened in the 1990s by Clinton freed up the service industries (for e.g. telecommunications) and made them highly competitive in the context of the US and then subsequently global economy. Later, this partly inspired innovation revolutions in information, communication and technology in other economies, which was an important factor in making globalization possible and shrinking the size of the world, facilitating global trade.

The South African economy has developed as an interlinked unitary entity only since the first decade of the twentieth century. Prior to 1910, when the Union of South Africa was constituted as a unitary state within the British Commonwealth, four separate colonies existed in the sub-region of Southern Africa. The two independent Boer Republics of the Orange Free State and the South African Republic were defeated by Britain in the South African War of 1899–1902, and incorporated as British colonies in 1902. The economies of the Boer Republics were primarily agricultural and displayed limited sophisticated commercial activity prior to the mineral discoveries of 1867 and 1886: ‘Even the Boer republics, in spite of the presence there of some 50,000 people of European descent, lacked the basic structure to support a viable modern economy’. The Cape Colony economy was the most diversified of the four colonies by the mid-1860s. The Cape maintained a thriving agricultural manufacturing and commercial economy, soliciting the establishment of financial institutions. It was into the most vibrant centre of commerce and trade in Southern Africa that insurance was first sold in the early 1800s. Many insurance companies from various parts of the world commenced the sale of insurance in the South African market – using general agents. Shortly after the arrival of the 1820 British settlers in the Cape Colony, on 14 March 1831 the first South African insurance company was established.

At the Kristiansand refinery, the 1950s are remembered as the era of rapid expansion. Production tripled and the plant was thoroughly upgraded. However, the development of the Kristiansand subsidiary was not a foregone conclusion. The war had weakened its position somewhat as the political risk of conducting the refining in Norway had been exposed. As we shall see the post-war strengthening of the Toronto head office also reduced Kristiansand's influence within the company.

From 1950 onwards Falconbridge profited enormously from the US strategic stockpiling programme. The American subsidies and the huge deliveries to the stockpiles revived the whole question of building a new Canadian refinery. If this had been realized it would of course have diminished Falconbridge's need for the Kristiansand refinery and it could indeed have cast its long-term survival into doubt.

This chapter investigates Grønningsæter and Steen's endeavours to protect and promote the Kristiansand subsidiary's mandate within the Falconbridge organization and their efforts to modernize and expand the plant. As shown in Chapter 1, Julian Birkinshaw, Neil Hood, Robert Pearce and Joseph D'Crutz have all argued that affiliates often fight for their mandates within multinational companies.

The fact that subsidiary managers try to promote the interests of their fiefdoms is perhaps not very surprising. It might be just as rewarding to ask how and why this is done.

Introduction

Nearly a half-century before the financial crisis of 2008–9, there was another time (conservatively, from 1959, when Triffin first presented his analysis to a Congressional committee, to 1977, the end of the Bellagio Group conferences, which is the period covered in this book) when reforming the world monetary system was on everyone's lips. Many academics and policymakers were formulating plans for its reconstruction before illiquidity, speculation and loss of confidence brought the system to a predicted ruin. Not since the Great Depression was the fear of a total financial meltdown so real.

In his statement before the US Congress, economist Robert Triffin articulated the problem that would become known as the ‘Triffin Paradoxs’. That is to say, as the global economy expanded, the United States – as the marginal supplier of the world's reserve currency – could continue to supply reserve assets to foreigners by running a current account deficit and issuing dollar-denominated obligations to fund it. If the United States ever stopped running balance of payments deficits and supplying reserves, the resulting shortage of liquidity would pull the global economy into a contracting spiral. Nevertheless, Triffin warned that if the deficits continued, excess global liquidity risked fuelling inflation. Moreover, the build-up in dollar-denominated liabilities might cause foreigners to doubt whether the United States could maintain gold convertibility or might be forced to devalue, thus undermining confidence in both the dollar and the monetary system depending on the dollar.

The Banco do Brasil was founded before Brazil. Since 1808, government (and national) banks with this name have dominated banking, money management and economic policy. Until creation of the Central Bank in 1965, the Banco do Brasil supervised banks, managed the money supply, promoted exports, controlled imports, provided lending of last resort to banks, brokers and private firms and managed foreign exchange operations and national reserves. Until reforms in the 1980s, the Banco do Brasil remained executor of federal government budgets and retained free access to funds at Treasury to settle accounts. The modernization of Brazilian government and the development of specialized agencies for banking, money and finance policy is a story of extricating prerogatives from the Banco do Brasil. The gradual transfer of monetary policy to SUMOC (1945), central banking to the Central Bank (1965) and fiscal management to Treasury (1986) and Senate as determined by the 1988 Constitution has produced fundamental change at the bank. Since opening the industry in the 1990s, policymakers and Banco do Brasil executives have adopted market oriented policies and corporate governance reforms inspired by private banking to meet competition.