Ponce & McClintock - 2014 - The Explosive Combination of Inefficient Local Bureaucracies and Mining Production

The Explosive Combination of InefficientLocal Bureaucracies and Mining Production:

Evidence from Localized Societal Protestsin Peru

Aldo F. PonceCynthia McClintock

ABSTRACT

Although numerous scholars have analyzed the effects of natural resourceextraction at the national level, few have explored it systematically at the locallevel. Focusing on Peru, where both mining production and local social protestshave greatly increased in recent years and where a new tax has required miningcompanies to transfer revenue to subnational governments, this study exploresthe resource curse at the local level. In particular, why do protests arise mostlyin the areas of natural resource extraction? Employing subnational data for Perufor the period 20049 and LAPOP survey data from 2010, the research con-firms previous findings that social conflict is provoked by both the negativeexternalities of mining and the revenues from the new tax. The article furtherdemonstrates that local bureaucratic capacity is a significant independent vari-able. Greater subnational bureaucratic capacity can ameliorate the pernicioussocietal effects of a local resource curse.

Is there a local resource curse or not? Most scholars (Auty 1993; Collier and Hoef-fler 2004; Dunning 2008; Ross 2001) charge that at the national level, naturalresource extraction has negative consequences for economic development, democ-racy, and civil war, although some scholars (Haber and Menaldo 2011) have foundpositive effects. However, scholarly work on the local impact of natural resourceextraction is relatively scarce. Some studies focus on the social and economic effectsof natural resource extraction and find, overall, that the impact of natural resourceextraction on key indicators of human welfare has been modest (Barrantes 2005;Loayza et al. 2013). Other studies observe that social conflict arises mostly in areaswhere natural resource extraction occurs and aim to explain why (Arellano-Yanguas2011a, b). This study seeks to contribute to this line of analysis. Why do protestsarise mostly in those local areas where natural resources are extracted? In particular,this study explores the effect of state capacity at the local level to ameliorate theeffects of natural resource extraction.

2014 University of MiamiDOI: 10.1111/j.1548-2456.2014.00243.x

Aldo F. Ponce is a professor and researcher in the Divisin de Estudios Polticos, Centro deInvestigacin y Docencia Econmicas. [email protected]. Cynthia McClintock is a pro-fessor of political science and international affairs at George Washington [email protected].

This study also builds on scholarly work on societal protests in Latin America.Traditionally, this work has explored the consequences of large-scale mobilizationfor important national-level political changes, such as the ousting of presidents orthe modification of their neoliberal policies (Hochstetler 2006; Lazar 2006; Aubreyet al. 2012). However, localized social protest has been increasing dramatically. Anew literature has redirected attention to localized protest either in response to eco-nomic liberalization (Murillo and Ronconi 2004; Garay 2007; Arce 2008; Kohl2002) or due to clientelistic linkages (Auyero 2000).

Another variety of localized societal protest expresses opposition to miningoperations. Protesters charge that extractive industries damage the environment andhurt local livelihoods. Local populations have increased their demands to share thewealth generated by extractive industries (Ribot 2004; Holden and Jacobson 2006).Recently, particularly intense localized protests have occurred at mining sites in Peru(Conga), Chile (Mina Invierno), Argentina (Fanatina), Panama (Cerro Colorado),Uruguay (Aratir), Costa Rica (Crucitas de Crutis), and Ecuador (Fruta del Norte)(El Observador Global 2012). Although case studies of localized protests againstmining operations are numerous, analyses that test arguments through quantitativetechniques are rare.

Peru is an important case for the study of localized social protest for various rea-sons. First, Peru is one of the leading mining producers in the world.1 Peru openedto mining investment in the 1990s under the authoritarian government of PresidentAlberto Fujimori (19902000); protest was scant because the political opportunitystructure persistently delegitimized protest and weakened collective action (Roberts1996; Tanaka 2002). But in 2000 Fujimori fell and, under the democraticallyelected governments of Alejandro Toledo (20016) and Alan Garca (200611), thepolitical opportunity structure was more favorable to mobilization (Arce 2008;Grompone and Tanaka 2009; Yashar 1998; McAdam et al. 2001; Tarrow 1998).Concomitantly, protest has become frequent, and it is possible to test key hypothe-ses quantitatively. The Peruvian Ombudsmans office registered 217 separate con-flicts in June 2011 alone (The Economist 2011); the average number of conflicts byregion increased from 1.02 in 2005 to 6.91 in 2010.

Peru is also significant because it has introduced an innovative tax on miningcompanies, called the canon, which is explicitly allocated both to the region (akinto a state in other countries) and to the municipality where a mining company oper-ates. Since 2004, the canon has amounted to 50 percent of the total income taxespaid by mining companies, and the rise in revenues transferred to subnational gov-ernments has been steep and rapid.

Specifically, this article examines the capacity of local bureaucracies to respondto citizens demands. More precisely, do the capacity and effectiveness of localbureaucracies matter when explaining the impact of natural resource extraction andthe frequency of localized societal protests? Can the execution of the canon helpattenuate the pernicious effects of mining production? From the empirical analysis,it emerges that the greater effectiveness of local bureaucracies in spending theirbudgets for public investment does help reduce localized societal protests. We also

PONCE AND MCCLINTOCK: PERU MINING AND PROTESTS 119

find that more favorable citizens assessments of the performance of subnationalgovernments inhibit participation in protests. Furthermore, using different datasets,we confirm the two major empirical findings reported by Arellano-Yanguas (2011a,b, 2013): that the existence of mining revenues triggers mobilization and that thenegative effects of mining exacerbate localized societal protests in the context of astate (Peru) that fails to mediate between local communities and mining companies.

This study is the first to rigorously assess the effect of local bureaucracies capac-ity on the frequency of localized societal protests against natural resource extraction.Recently, natural resource revenues have been transferred from central to subna-tional governments, not only in Peru but also in Angola, Bolivia, Ecuador, Brazil,Chad, Colombia, Indonesia, Kazakhstan, Madagascar, Mexico, Nigeria, Papua NewGuinea, the Philippines, Russia, Sudan, the Democratic Republic of the Congo, andVenezuela (Warner and Alexander 2006; Arellano-Yanguas 2011a). This studyoffers important insights for the possible effects of these transfers.

This article is divided into five sections. The first section discusses miningsnegative externalities and the canon. The second section develops our hypotheses; itdescribes the independent variables that might either fuel or diminish societalprotests. Using subnational data from Peru for the period 20049, the third parttests the accuracy of these hypotheses through a panel data model with a negativebinomial estimator. The fourth part presents the results, and the final segment offerssuggestions for policy reforms.

MINING IN PERU AND THE INITIATIONOF THE CANON

Since the 1990s, mining activities have expanded dramatically in Peru. Unfortu-nately, with these activities have come many costs to contiguous communities. AsWilson (1973) argues, the confluence of narrowly concentrated costs and widelydistributed benefits (low benefits per capita) makes local groups hostile to mining.Partly in an effort to compensate nearby communities for these costs, in 2001 thePeruvian government established the canon. The canon mandated that 50 percentof companies taxes be spent by regional and municipal governments on publicinvestment. However, especially considering the flaws in Perus decentralizationeffortsinitiated at about the same timevarious aspects of the canon initiativehave been troubled.

Mining Activities in Peru, 1990sPresent

Investment in Perus mining sector has grown substantially in the last 20 years, duein large part to market reforms implemented during the 1990s under the Fujimorigovernment (Szablowski 2007). In 1995, a new land law, Law 26505 (article 7),provided mining firms the right of unrestricted use of land in exchange for compen-sation paid to the landowner. Landowners have property rights only over the sur-face, since mineral rights belong to the state. If a landowner did not want to sell or

120 LATIN AMERICAN POLITICS AND SOCIETY 56: 3

charged a price higher than the market price, the property could become subject toexpropriation. Even when the Peruvian government did not expropriate the lands,mining firms could use this provision as a threat to reduce the prices they would payas compensation (Szablowski 2002).

In addition, the Fujimori administration eliminated the prohibition on the saleof collective peasant community lands. Since the 1920s, Peruvian constitutions hadstipulated that land owned in common by campesino communities could be neithersold nor mortgaged. Article 11 of Law No. 26505 established that community landscould be sold by a vote of 50 percent of community members attending an assemblyin communities located on the coast and two-thirds of members votes in commu-nities located in other regions.

Furthermore, in the early 1990s a new tax regime established that mining firmswere exempt from royalty payments and from a 30 percent profit tax until they hadrecovered their initial investments. (Royalties intend to compensate the country forthe depletion of its mineral reserves.) The Fujimori administration signed a fiscalstability agreement to guarantee the maintenance of these incentives over time.Other reforms favoring mining included the elimination of restrictions on remit-tances of profits and capital, the simplification of licensing procedures, the suppres-sion of performance requirements for foreign investments, the adoption of newlabor legislation that weakened the bargaining power of labor unions, changes toindigenous land tenure, the reduction of taxes, free capital mobility, and the priva-tization of state firms and concessions (Szablowski 2007; Daffs 1997; Zavalla2004; Pinto 2009).

Due partly to these reforms, mining investment increased from US$200 millionin 1993 to US$1.5 billion in 2000 and to as much as $2.7 billion in 2009 and $4billion in 2010. Mining investment of US$35.4 billion is expected between 2010 and2016. Likewise, mining production grew considerably between 1995 and 2008.2 Thenumber of hectares assigned to mining concessions increased steadily from approxi-mately 15 million hectares in 2002 to almost 20 million hectares in 2010.

Mining production, if not well regulated, has been associated with substantialdamage to the environment, livelihoods, and property of local populations. Localcommunities cannot recover these damages because they are not directly compen-sated by firms; like individual landowners, communities do not own the minerals.Studies have found that mining production has compromised the water resources ofsurrounding communities (Bury 2002a; Bebbington and Williams 2008). Waterpollution can damage agriculture and livestock and prevent personal consumption,and the potential shortage of water creates distress and uncertainty (Arellano-Yan-guas 2013). Societal protests in response to water pollution have been studied inprevious qualitative research focused on a few cases (Bury 2002a; Lingan 2008; Beb-bington et al. 2007, 2008; de Echave et al. 2009; Szablowski 2002; Sanborn andTorres 2009; Paredes 2008; Muradian et al. 2003; Scurrah 2013; Bebbington andWilliams 2008).

In addition to environmental damage, mining companies have been payinglocal landowners what the company determines as fair market value for their


lands. Landowners have been forced to accept these prices under the expropriationprocedures specified in Law No. 26505. As landowners experience economic lossesdue to this law, they became dissatisfied (Bury 2002a, b). Bury also contends thatpeasants believe that mining operations are responsible for social problems such asprostitution, theft, family dislocation, and the loss of cultural traditions (2002a,13). In general, local communities have blamed mining firms for provoking socialdislocation and weakening family networks.

Regrettably, the benefits to local communities from mining are often scant.Mining operations are capital-intensive and employ well-educated people who usu-ally come from urban areas (Perla 2010). As a consequence, previous studies havefound, only limited employment benefits are available to people in surroundingrural areas. Zegarra et al. (2007) point out that the inhabitants close to mining oper-ations whose living conditions improve are overwhelmingly urban. Comparingpoverty rates between mining and nonmining districts, Barrantes (2005) finds thatmining production diminishes the likelihood of poverty by only 5 percent.

Revesz and Diez (2006) contend that peasants opposition to mining providedopportunities for local leaders and political organizations to obtain political support.These local actors are usually disconnected from national political parties, but theywork with churches, peasant defense committees, NGOs, and other organizationsto mobilize protests (Lingan 2008; de Echave 2009; Arellano-Yanguas 2011a).

Unfortunately, efforts to attract mining investment were not complemented byan enhancement of the states regulatory capabilities (Pinto 2009; Avila et al. 2011;Szablowski 2007). In fact, the already large influence of the private sector over thestate seemed to be reinforced (Durand 2005).

The agency in charge of regulating the mining sector, the Ministerio de Energay Minas, was also in charge of attracting investment; the two goals obviously con-flicted (Bebbington et al. 2007). The separation between these two goals has beengrowing, however, thanks to the creation of the Ministerio del Ambiente by Legisla-tive Decree 1013 in 2008. To date, this new ministry focuses mainly on the regula-tory function but lacks the human and financial resources to fulfill its duties effec-tively (Avila et al. 2011; Pinto 2009). Furthermore, the creation of this new ministryhas diminished the regulative authority of local and regional governments (Pinto2009). Law 30011, promulgated in April 2013, aims further to empower this min-istry and improve its coordination with subnational governments; however, sincethese recent initiatives are only now being implemented, their results cannot yet beevaluated.3

As Arellano-Yanguas (2008, 2011a, b, 2013) reports, communities perceivethat companies are not keeping agreements and mobilize as a strategy for continuednegotiation with the companies. Arellano-Yanguas contends that local communitiesfear collusion between the Peruvian government and the mining firms. To compen-sate, the communities mobilize as the only way to promote negotiation on an equalfooting (2011, 631).

Several qualitative studies argue that a causal link exists between negative exter-nalities or lack of regulation, on the one hand, and an increase in conflicts, on the


other (Revesz and Diez 2006; de Echave et al. 2009; Bebbington 2007; Scurrah2008). In fact, the Ombudsmans office reports a substantial increase in the numberof protests during the 2000s.4

THE CANON POLICY

The Toledo administration initiated the decentralization process in Peru in 2002(McNulty 2011). Twenty-five regional governments, coinciding with the formeradministrative units called departments, were created. Previously, in 2001, theToledo administration initiated the canon policy. The Ley de Canon (Law No.27506) established that 50 percent of the taxes paid by mining firms would be trans-ferred to the regions and municipalities where extractive operations took place(Zavalla 2004). A December 2004 modification of this rule stipulated that 25 per-cent of the total canon would be transferred to regional governments, 40 percent tomunicipalities of the region, 25 percent to municipalities of the province (regionsare divided into provinces), and10 percent to district municipalities (Grupo Prop-uesta Ciudadana 2007).5

The 2004 amendment concentrated transfers in the regional and local jurisdic-tions farther from where the mining resources were extracted (Arellano-Yanguas2011a). These resources must be spent on public infrastructure and investment inscientific and technological research (through universities). Because of the increasein mining production, the amount of canon transfers increased rapidly during the2000s (see online appendix 4). As a consequence, subnational governmentsincreased their participation in spending the total public budget from 12 percent to16.3 percent between 2002 and 2008 (Neyra 2009).

This steep increase in transfers has not been accompanied by a rapid develop-ment in local bureaucracies capacities for spending (Loayza et al. 2014). Avila et al.(2011) point out that subnational governments are still spending at a far slowerrhythm than the increase in the resources they have at their disposal. Figure 1shows the rates of execution of canon transfers in 2010 by region.6

Figure 1 also reveals important differences in the rates of execution amongregions. While only one region spent its entire budget, several spent less than 40 per-cent. One reason is that the distribution of the canon has been skewed toward onlya few local and regional governments, which have been inundated with anavalanche of resources (Zavalla 2004; Herrera 2009; Canavire-Bacarreza et al.2012). Barrantes (2005) estimates that only 74 subnational governments, from atotal of 1,526 receiving canon transfers, obtained 54 percent of all transfers. In addi-tion, the top 20 percent of the subnational governments receiving transfers enjoyedapproximately 86 percent of all transfers. Claudia Viale and Carlos Monge (2012)find that the economies of the five districts receiving the greatest amount of canonsuffered distortions.7 For instance, agricultural producers had to pay higher salariesto scarcer available workers.

Regrettably, most local bureaucracies have not developed the capabilities nec-essary to take full advantage of the canon (Avila et al. 2011; Baca et al. 2007;


Canavire-Bacarreza et al. 2012; Crabtree 2014; Loayza et al. 2014). As Tanaka(2002) points out, the implementation of Toledos initiatives was disorganized,slow, and improvised. Unfortunately, the Fiscal Decentralization Law and Legisla-tive Decree 955 prohibited the delegation of functions and prerogatives to subna-tional governments from entailing an increase in the public budget. In addition,subnational governments must comply with all the regulations for canon transfersdetermined by the National System of Public Investment (SNIP). Baca et al. (2007)argue that these regulations are too rigid and complicated and that they worsen sub-national governments performance.8

During the 2006 presidential campaign, candidates promised to accelerate andperfect decentralization. Nevertheless, the winner, Alan Garca, did not make seri-ous efforts toward this end. On the contrary, the Garca administration recentralizedaspects of the budgetary process (Avila et al. 2011). The only two efforts it made toenhance decentralization were to implement a pilot project in 50 districts to transfersome responsibilities for health and education to municipalities, and to open newpositions for professionals in subnational governments through Legislative Decree1026 of June 2008. However, Decree 1026 neither provides any specific incentivefor regional or local governments to hire the most competent professionals nor stim-ulates the direct transfer of professionals (e.g., with part of their wages paid by thenational government). As a consequence of Garcas minimal effort, significant lim-itations in the capacities of subnational governments continue under the currentadministration of Ollanta Humala (201116).


Figure 1. Rates of Execution of Canon Transfers, 2010 (percent)

Sources: Grupo Propuesta Ciudadana 2010, various years; Ministerio de Economa y Finanzas n.d.

What Are the Effects of the Canon?

One likely effect is on peasants strategic behavior. Arellano-Yanguas (2011a, b)argues that the existence of the canon is a catalyst for mobilization and that com-munities mobilize to put pressure on the distribution of the canon. Arellano-Yan-guas also identifies conflicts for these resources between levels of governments. Forinstance, In Ancash, Moquegua, and Pasco, municipalities challenge regional gov-ernments over the criteria they use to allocate money among municipalities (2011a,632). Some subnational governments fight each other over territorial boundaries;they try to claim jurisdiction over territories with mining resources. Furthermore,Arellano-Yanguas (2011a) warns that subnational governments often employ thecanon to pay unskilled labor higher salaries than teachers, health workers, policeofficers, and other public officials (presumably for patronage purposes), who thenmobilize to show their discontent.

A second possible effect of the canon is that to the extent that the canon is notspent, discontent is not appeased. Discontent endures as local populations becomeaware of the existence of canon resources and perceive that these resources couldhelp resolve problems. Local populations usually demand the construction of newroads, hospitals, and schools (de Echave et al. 2009).

Previous scholarly work discusses a relationship between a states efficiency andthe emergence of societal protests. Catalina Smulovitz and Enrique Peruzzotti(2000) contend that mobilization aims to enhance accountability from bureaucrats.As Adam Przeworski (1997) states, one of the problems facing democracies is thatbureaucrats are somewhat independent: they are not circumscribed by fixed calen-dars; they enjoy a certain degree of autonomy from politicians agendas; and theycan avoid some electoral mechanisms of control. Under these conditions, mobiliza-tion against bureaucrats may reflect institutional deficits (Smulovitz and Peruzzotti2000). As a World Bank document states,

Across the world, we find citizens are mobilizing, often locally, to demand better serv-ices. Not by shouting, but by counting. Making sure their governments spend effec-tively, and keep their promises. (World Bank 2004)

Smulovitz and Peruzzotti also argue that mobilization as a mechanism for soci-etal accountability becomes most effective when The media observe and reportabout the organization and mobilization of civil society; civil society informs and isinformed by the media (2000, 152). In fact, localized protests have been highlysalient in the Peruvian media in recent years.

In Peru, local governments accountability to local communities has remainedweak. Despite the establishment of local or regional councils, their demands havenot received much attention from regional presidents (Baca et al. 2007). CarlosLeyton (2005) and Eduardo Balln (2011) have pinned the blame on the low qual-ity of subnational bureaucracies. Local authorities limited accountability andresponsiveness has been consistently protested by local communities. For instance,De Althaus (2011, 17779) describes protests such as those of Ilave in 2004 and El


Moqueguazo in 2008; in both cases, protesters demanded greater spending on keyinfrastructure for their communities. (Indeed, the mayor of Ilave was tortured andassassinated for his incapacity to spend for new infrastructure.) Regrettably, withlimited administrative and technical capabilities, inefficient local bureaucracies mayfail to deliver due compensations.

EXPLAINING LOCALIZED CONFLICTS: THE HYPOTHESES

We present three hypotheses for the explanation of localized conflicts: the incapacityof subnational governments to respond to local communities demands; strategicbehavior, specifically protest as a negotiation strategy; and negative externalities(environmental or social). While the arguments based on strategic behavior and onnegative externalities have been explored in Arellano-Yanguass studies (2011a, b,2013), which combine quantitative and qualitative analysis, the explanation basedon bureaucratic capabilities remains untested. This article not only evaluates thisuntested hypothesis but also examines empirically these three variables together, forall Peruvian regions, and over a longer time span.

Our first hypothesis is that if subnational bureaucracies incapacity leads tolower spending of canon revenues to respond to local needs and demands, dissatis-faction endures and protests continue. As a result, the most efficient bureaucraciesare more likely to successfully prevent protests. Accordingly, we test the followinghypothesis:

Hypothesis 1. Local bureaucracies incapacity to employ their resources to respond tocommunities demands does not ameliorate the frequency of localized societalprotests.

In other words, the more inefficient local bureaucracies are, the more likely are soci-etal protests.

Second, as Arellano-Yanguas (2011a, b, 2013) states, the existence of these rev-enues could foster protests as local communities seek to better negotiate the distri-bution of the canon resources. As noted, the transfer of these resources has also cre-ated conflicts among levels of government, among districts or regions over territorialboundaries, and with labor. Therefore we test the following hypothesis:

Hypothesis 2. The more revenues subnational governments receive from the taxationof mining firms, the more likely an increase in localized protests.

Our third test is to determine whether mining operations increase societalprotests, since the economic and social costs (negative externalities) of this activitytend to be narrowly concentrated in a limited geographical area. Local communitiesprotest to demand greater concessions from mining companies. Arellano-Yanguas(2011a, b, 2013) suggests that these communities seek more compensation as they


suffer higher costs (e.g., expropriated land) and perceive that companies profits aregreater. The concentration of these costs and the lack of effective regulation lead usto the third hypothesis:

Hypothesis 3. The greater the negative externalities of production in the miningsector, the more likely that localized protests will increase.

DATA AND MODELS

The empirical analysis consists of two steps. First, we use a negative binomial esti-mator for panel datasets to explain the monthly number of conflicts by region, so asto examine the validity of the three hypotheses. Second, we employ logistic regres-sions to further evaluate the validity of hypothesis 1 at the individual level by takingadvantage of survey data. Herein, we estimate how evaluations of local bureaucra-cies performance affect the likelihood of participating in a localized protest for agiven individual. Since inefficiency might not translate directly into individuals per-ceptions and evaluations of performance, we confirm that these two variables arerelated through our second step.

First Step: Explaining the Number of Protests

We construct our dependent variables employing the monthly number of conflictsin the reports of the Defensora del Pueblo. These reports provide detailed data onactive protests by type and by region (given the localized nature of most of the con-flicts) from May 2004 to December 2010. By relying on regional-level data onprotests, we add to work by Yashar (1999) and Hagopian (2000) that helps to cor-rect the traditional bias of analyses of protests only at the national level.

More precisely, we employ three different dependent variables to test ourhypotheses. The first dependent variable is all the types of conflicts reported by theDefensora del Pueblo. Even though several of these conflicts are not directly relatedto environmental activities, they could be indirectly related to the mining sector. Forinstance, there are cases in which communities claim pecuniary benefits fromregional and local bureaucracies when they know that these bureaucracies obtainedadditional revenues due to mining operations.

However, some types of conflicts might be less sensitive than others to changesin the externalities or revenues generated by mining activities. Specifically, oursecond dependent variable excludes conflicts related to labor issues, territorial dis-putes, or cocaine. None of these conflicts is directly related to the considerationsabout costs created by the mining sector. Our third dependent variable includesonly conflicts related to social and environmental issues.

By combining temporal (by month) and geographic (by region) data, we con-struct a panel dataset with a negative binomial estimation. We employ a negativebinomial estimation because the distribution of the dependent variables violates theusual assumptions of normality in two different ways. First, density plots show that


the Poisson counts are overdispersed. Second, since the distribution of conflicts isdiscrete and skewed, the errors are not normally distributed (Long 1997). To correctfor these problems, we estimate negative binomial models for panel datasets. Weproceed to use this type of model for each of our dependent variables.

Data for our key independent variables were taken from different sources. Forour first independent variable, the capacities of local bureaucracies, we employ thepercentage of execution of total canon transfers. The percentage of transfers spentprovides a good proxy for the capacities of local bureaucracies. Although the per-centage of transfers spent is not a comprehensive measure, it is a necessary minimumrequirement: if a bureaucracy is spending only a small percentage of its budget, it isunlikely to be responsive or accountable to citizens in other ways. Thus, a relativelyhigh level of expenditure is a necessary condition, however insufficient, to determinethe degree of bureaucratic capacity. (To assess key bureaucratic characteristics, suchas productivity, effectiveness, and transparency, we would need a more complexmeasure, but it would not be exempt from problems, such as the correct selectionof its components and their relative importance [Kuhry and Pommer 2004]).

We do provide not only an evaluation of the efficiency of the supply side ofpublic goods but also an assessment of the impact of the individuals degree of sat-isfaction (the demand side) about the provision. Hence, we acknowledge thatalthough we do not provide a perfect measurement of bureaucratic capacity, wedirectly assess its consequences on individuals decisions to protest.

For our second independent variable, peasants strategic behavior, our proxy isthe amount of regional canon per capita. For our third independent variable, themagnitude of negative externalities imposed on surrounding areas by mining pro-duction, our proxy is regional mining production per capita. We expect that as thedependent variable measures types of conflicts relatively more related to the miningsector and its distributional effects, the impact of the key independent variablesbecomes greater.

In addition to our key independent variables, we lag the dependent variable andinclude it as an additional independent variable to capture dynamic effects in ourmodels. This is especially relevant for our type of data, in which some active con-flicts can endure over several periods.

Also, we employ as a control variable the percentage of taxpayers in a givenregion. Citizens belonging to the formal economy might evaluate subnational gov-ernments based not only on the governments ability to respond to their demands,but also on their own efforts to fund government operations and policies. We expectthat a greater percentage of taxpayers might be associated with more protests as thegovernments performance might not fulfill their expectations. This effect could beespecially important in rural areas where payments from taxpayers are, in practice,voluntary (Alfaro and Rhling 2007). These taxpayers might be even more likely todemand results from local bureaucracies.

We also include control variables commonly used in other studies explainingsocietal protests. We incorporate the variable exports per capita to assess the impli-cations of the subnational effects of economic liberalization (Hecock 2006). We


employ a dummy variable to reflect the potential political opposition from regionalauthorities who do not belong to the party controlling the Peruvian executive. Asnoted, regional leaders have been able to take advantage of communities dissatisfac-tion to gain political support, especially if they can blame the national governmentfor communities problems (Lingan 2008; Arellano-Yanguas 2013; Balln 2011).We control for poverty rates: higher poverty rates might be positively associatedwith discontent and therefore also with mobilization (Del Alamo 2010; Castro2011). To capture the potential effect of change in economic conditions, we add thepercentage change in regional gross domestic product. Numerous scholars, includ-ing Alison Brysk and Carol Wise (1997), contend that economic performance, andparticularly economic growth, influences mobilization in Latin America.

For each of our dependent variables, we estimate three different specificationsas robustness checks. In the first specification, we control only for our economicvariables (change in regional GDP, regional exports per capita, and percentage oftaxpayers). In our second specification, we add the poverty rates variable. In thethird specification we include the political opposition variable.

Second Step: Explaining the Likelihood of Protest Participation for an Individual

Although the rate of execution provides a direct measure of bureaucratic performance,it might fail to reflect accurately how citizens perceive this performance. For thisreason, we corroborate the robustness of the previous empirical model by consideringindividuals as the units of analysis. We employ two logistic regressions with robuststandard errors to explain the probability of participating in a protest, which becomesour dependent variable. Using data from the most recent LAPOP survey (2010) thatincludes information about the degree of satisfaction with the services provided by theregional government in Peru and whether or not the respondent had participated in aprotest, we evaluate whether or not the degree of satisfaction matters to protest. In thesecond regression, we control for typical demographic and socioeconomic characteris-tics (age, gender, socioeconomic status, urban status, and marital status).9

RESULTS

Table 1 displays the results for nine different specifications testing our hypotheses.As noted, we test each of our dependent variables in three specifications. While forthe first and second dependent variables we examine the validity of our hypothesesusing data for our less restrictive measures of protests (all types or excluding thoseweakly related to mining operations), for the third dependent variable we use onlydata for protests related to environmental and social issues.

Overall, the results confirm the validity of our hypotheses. Our key independ-ent variablesthe percentage execution of canon transfers, total canon per capita,and mining production per capitamatter across almost all specifications.10 First,our main variable of interest, execution of canon transfers, appears consistent and



Tab

le 1

. Exp

lain

ing

Soci

etal

Pro

tests

All T

ypes

Exce

pt L

abor

Issu

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errit

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ests

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f Soc

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and

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Inte

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53**

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1.49

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15**

*11

.16

7.86

12.0

711

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9.12

(0.5

5)(0

.64)

(0.7

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28)

(79.

58)

(81.

35)

(24.

75)

Dep

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(lagg

ed)

0.11

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0.12

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0.17

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0.16

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0.25

***

0.25

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0.24

***

(0.0

05)

(0.0

1)(0

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(0.0

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(0.0

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Tes

ting

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ses

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03**

0.0

03**

*0

.004

***

0.0

03**

0.0

03**

0.0

04**

*(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.002

)

Can

on p

er c

apita

0.00

2*0.

002*

0.00

2*0.

004*

**0.

003*

**0.

003*

*0.

01**

*0.

01**

*0.

01**

*(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.001

)(0

.01)

(0.0

01)

(0.0

01)

Min

ing

prod

uctio

n pe

r cap

ita0.

0004

**0.

0004

**0.

0004

**0.

0002

0.00

1***

0.00

1***

0.00

1***

0.00

1***

0.00

1***

(0.0

002)

(0.0

002)

(0.0

002)

(0.0

002)

(0.0

002)

(0.0

002)

(0.0

002)

(0.0

002)

(0.0

002)

Con

trol

Var

iabl

es

Cha

nge

in th

e re

gion

al G

DP

0.0

2***

0.0

2***

0.0

2***

0.0

3***

0.0

3***

0.0

3***

0.0

4***

0.0

4***

0.0

4***

(0.0

1)(0

.02)

(0.0

1)(0

.01)

(0.0

1)(0

.006

)(0

.01)

(0.0

1)(0

.01)

Expo

rts p

er c

apita

0.0

001

0.0

001

0.0

001

0.0

001

0.0

001

0.00

020.

0004

0.0

004

0.00

04(0

.000

2)(0

.000

2)(0

.000

2)(0

.000

3)(0

.000

3)(0

.000

3)(0

.000

3)(0

.000

3)(0

.000

3)

Perc

enta

ge o

f tax

paye

rs0.

22**

*0.

23**

*0.

22**

*0.

20**

*0.

19**

*0.

19**

*0.

16**

*0.

18**

*0.

18**

*(0

.02)

(0.0

2)(0

.02)

(0.0

2)(0

.02)

(0.0

2)(0

.02)

(0.0

3)(0

.03)


Tab

le 1

. Exp

lain

ing

Soci

etal

Pro

tests

(con

tinue

d)

All T

ypes

Exce

pt L

abor

Issu

es, T

errit

oria

lO

nly

Prot

ests

Rel

ated

toAl

l Typ

es o

f Soc

ial P

rote

stsD

isput

es, a

nd C

ocai

neSo

cial

and

Env

ironm

enta

l Iss

ues

____

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

____

_Sp

ecifi

catio

nSp

ecifi

catio

nSp

ecifi

catio

nV

aria

bles

12

31

23

12

3

Pove

rty

rate

s0.

003

0.00

010.

02**

*0.

01**

*0.

01*

0.01

(0.0

1)(0

.005

)(0

.01)

(0.0

1)(0

.01)

(0.0

1)

Polit

ical

opp

ositi

on0.

23**

0.21

**0.

28**

(0.1

0)(0

.10)

(0.1

3)

Num

ber o

f gro

ups

2424

2424

2424

2424

24N

umbe

r of o

bser

vatio

ns1,

632

1,63

21,

632

1,63

21,

632

1,63

21,

632

1,63

21,

632

Log

likel

ihoo

d1

989

198

91

986

181

81

729

172

71

405

140

41

401

Wal

d te

st2,

580*

**2,

582*

**2,

575*

**2,

148*

**2,

395*

**2,

376*

**1,

535*

**1,

530*

**1,

513*

**

***

p <

0.01

, **

p <

0.05

, * p

< 0

.1

robust across all specifications.11 Second, our results confirm that mining produc-tions negative externalities increase localized protests.12 Third, the revenues frommining (measured by canon per capita) have also been fueling societal protests. Theresults also show that the effect of the key explanatory variables on the number ofprotests intensifies as conflicts less related to environmental conflicts are excludedfrom the dependent variable.

Moreover, our expectations with respect to our lagged dependent variable, thepercentage change in regional GDP, political opposition, and the percent of taxpay-ers are confirmed; they are statistically significant across our models. The effect ofpoverty on protests seems to be less robust. Furthermore, the amount of exports percapita does not seem to predict protests.

We also find that citizens who are relatively more satisfied with the services pro-vided by regional governments are less likely to participate in a protest. We displaythe results in table 2. Other results indicate that males (rather than females) and cit-izens living in rural areas (rather than those living in urban areas) are more likely toparticipate in protests. We further estimate predicted probabilities for the secondspecification of this logistic model. We show in figure 2 how the probability of par-ticipating in a protest diminishes for an individual as his or her degree of satisfactionwith the local governments performance improves.


Table 2. Degree of Satisfaction with Regional Governments

Dependent Variable:Participated in a Protest Specification 1 Specification 2

Constant 1.10*** 0.30(0.36) (0.71)

Degree of satisfaction with the services 0.27** 0.28**provided by the regional government (0.13) (0.13)

Age 0.01(0.01)

Gender 0.71***(0.20)

Socioeconomic statusa 0.18(0.15)

Living in urban areas 0.51***(0.20)

Married 0.06(0.21)

Number of observations 920 920Log likelihood 366.34 353.54

*** p < 0.01, ** p < 0.05, * p < 0.1aFive-point scale: 0 = lowest status, 5 = highest status

To sum up, we find consistent evidence supporting our expectations for ourtime frame. Most important, when local bureaucracies execute higher percentages oftheir budgets, they can help compensate negative externalities. Other potentialexplanations unrelated to miningtested through our control variablesalso helpaccount for the steep rise of societal conflicts in this Andean country.

CONCLUSIONS

This study makes several contributions. First, it adds to the emerging literature onthe existence and consequences of a local resource curse (Arellano-Yanguas 2008,2011a, b). Although we find that transfers to subnational governments exacerbatelocalized protests, we also find that these protests are tempered by subnational gov-ernments bureaucratic capabilities. The greater execution of public budgets appearsto reduce conflict and social dissatisfaction. Subnational governments capability is avariable that should be given careful attention in scholarship about the resource curse.

In addition, our study provides a novel perspective on the relationship betweenlocal bureaucracies capacities and the emergence of localized protests. Sheddinglight on why and how these localized protests develop, our work contributes to con-tentious politics theory, especially to the focus on the roles of the local territory.According to this literature, the local territory is where economic, social, and polit-


Figure 2. Predicted Probabilities of Protesting for an Individual

Note: Estimated from specification 2 of table 2.

ical processes interact to create community identities (Agnew 1987; Martin andMiller 2003; Simmons 2005; Svampa 2009). The territory becomes the place ofsocial and political conflict (Simmons 2005).

Furthermore, our study has important implications for policymakers pursuingboth social peace and extractive investment, not only in Peru but also in other min-eral-rich countries that transfer revenues to subnational governments. Overall, as inPeru, local bureaucracies may not have developed the necessary administrative andtechnical capabilities to spend these revenues. Accordingly, this article suggests theneed to increase the administrative and technical capabilities of local bureaucraciesso that budgets are spent and the quality of projects is improved. For instance, thePeruvian government could provide greater financial resources and expertise forhiring more effective and experienced professional staff. Decentralization can bebeneficial (by bringing government closer to the people), but only when local unitsare relatively efficient and accountable. Improvements in the effectiveness and qual-ity of local bureaucracies should also lead the central government to expedite theevaluation of projects presented by regional and local authorities so that the nationalgovernment can further rely on the quality of the projects. In addition, the centralgovernment needs to be efficient and accountable in its evaluation of those projects.

However, improving the functioning of regional and local bureaucracies andnational regulatory authorities is likely to take time. Therefore, these mid- or long-term solutions could be complemented by other policies. First, canon transferscould be redesigned to channel spending more to those areas with greater miningproduction (measured by tons of minerals) and not necessarily to those generatingmore taxes. Second, the Peruvian government could more actively encouragemining firms to improve their relationships with local communities through greaterdirect social investment (e.g., construction of hospitals or schools). Currently,incentives for such investment do not exist (Perla 2010; Alayza 2007), and contri-butions from mining firms to local communities are voluntary (de Echave et al.2009; Arellano-Yanguas 2011b, 2013). Accordingly, the government could requirefirms to create additional benefits for local communities, established on the basis ofdirect dialogue between the firms and the communities.

Third, the possibility of direct cash transfers could also be considered. Directcash transfers could more accurately target compensation for negative externalities.An optimal balance between compensating the surface owners and ensuring the fea-sibility of new mining projectswhich are relevant for countries growth and devel-opmentshould be pursued. Fourth, the Peruvian government could continue pro-viding greater financial and human resources to the Ministerio del Ambiente toeffectively fulfill its regulatory functions.

Overall, as this study shows, the elimination of societal conflicts does notdepend only on mining production or bureaucratic capabilities. Specifically, povertyand institutional weaknesses, including in particular the lack of national politicalparties, might provoke conflicts. However, our study suggests that in a context ofincreased mining and the channeling of taxes from mining companies to subna-tional bureaucracies, subnational bureaucratic capacity makes a significant differ-


ence to the frequency of localized protests. Greater subnational bureaucratic capac-ity can ameliorate the pernicious societal effects of a local resource curse.

NOTESThe authors would like to thank Alejandro Anaya, Moiss Arce, Beatriz Caiuby Labate,

Rodolfo Garca Del Castillo, Rafael Garduo, Carlos Monge, Hctor Nuez, Ral Pacheco-Vega, Kurt Unger, Rodrigo Velzquez, and three anonymous reviewers for their commentsand suggestions. Additional data may be found in the authors six online appendixes athttps://sites.google.com/site/aldofponceugolini/data.

1. According to the Mineral Commodity Summary produced by the U.S. GeologicalSurvey (2012), Peru was, in 2011, the worlds second-largest major producer of copper,second-largest of silver, sixth of gold, second of zinc, fourth of mercury, third of tellurium,and third of tin.

2. Comprehensive data are provided in online appendixes 1 and 2.3. Law 30011 enhances the powers of the Organismo de Evaluacin y Control Ambi-

ental (OEFA), which belongs to the Ministerio del Ambiente. These powers include newmechanisms to effectively punish damages to the environment and collect the fines imposedby the OEFA.

4. Online appendix 3 shows the average number of societal protests in Peru by region,by year, and by type of conflict since 2004 (when data are available). Ombudsmans officereports are available at http://www.defensoria.gob.pe/conflictos-sociales.

5. Regional governments receive 80 percent of this amount, but public universities inthe region obtain the remaining 20 percent.

6. The means of the rates of execution (considering all regions) were even lower duringprevious years: 52.7 percent in 2005, 57.7 percent in 2006, 49.86 percent in 2007, 51.02percent in 2008, and 58.58 percent in 2009 (60.2 percent in 2010).

7. Districts are circumscriptions ruled by a municipality.8. Carlos Diez Canseco of Andina Consultoria Estratgica said that the Ministerio de

Economia y Finanzas was very slow to process the regions requests, often taking three years.Diez Canseco thought that the rules requiring that the canon be spent for projects (and onlyfor projects) were too strict and that the canon could be spent for other things (Diez Canseco2011).

9. Online appendixes 5 and 6 provide details on the sources and further statistics ofall dependent and independent variables.

10. We also multiply the percentages of execution of canon and the available amountof revenues coming from operations in the mining sector. The estimated coefficient of thisadditional variable is negative; however, it does not reach statistical significance. It is thenmore likely that both key independent variables exert a separate and distinguishable effect onthe number of protests. We also evaluate the possibility of endogeneity between the executionof canon and the frequency of protests. Since capabilities to spend should not vary signifi-cantly from one month to another, we lag this independent variable one year to explore thispossibility. The results were also statistically significant and reveal that this modified inde-pendent variable also exerts a similar effect on the dependent variable.

11. Furthermore, in case citizens could not clearly distinguish the percentage of execu-tion of canon from the percentage of execution of the total budget for public investment, wealso test the latter as an independent variable (instead of the percentage of execution ofcanon). The results are not identical to those of the percentage of execution of canon. How-


ever, the coefficients associated with this rate of execution matter in most of the specificationsdisplayed in table 1. It is interesting that the rates of only canon remain more robust.

12. In addition, we employ the number of hectares as a proxy of the scope of miningactivities. The results are also positive across specifications. However, they do not reach sta-tistical significance at the 10 percent level.

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Ponce & McClintock - 2014 - The Explosive Combination of Inefficient Local Bureaucracies and Mining Production