By Humphrey Hawksley
To understand how soft power from far away can tackle poverty and conflict in the developing world, there are few better places to look than the war-ravaged community around Bukavu in the eastern Democratic Republic of Congo.
The soft power in question is a little-known section of a new American law: the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act drawn up in response to the 2008 economic collapse.
It’s the combination of two bills from the US House and the Senate, of which Section 1502 specifically addresses the production of minerals from eastern Congo. Profits from their trade are used by various militias to wage wars that have killed more than 6 million people in the past 15 years. They are known as conflict minerals such as tin, coltan, and gold used for electronics and other products.
The aim of Dodd-Frank is not primarily to help the people of DRC, but to protect investors — and consumers — from being tarnished with a conflict mineral connection.
For example, gold mined from eastern Congo makes up only a fraction of overall global production. But most of it is traded illegally, and black market sales are worth $1 billion a year, ample to pay for the Kalashnikovs and rocket launchers needed in tribal conflict.
Right now, conflict minerals are blamed for funding the warlord Bosco Ntaganda, who began a new rebellion in April while being on the wanted list of the International Criminal Court for war crimes.
Section 1502 requires any US company to register with the Securities and Exchange Commission if there’s a possibility that its products contain such minerals.
These are the early days, but the knock-on impact from Dodd-Frank may well see the ouster of a distribution system for natural resources that has changed little since the 1800s.
At present, the system favors wealthy buyers, mainly Western democracies, against poor communities of the developing world who produce the raw materials for consumer goods — those described by Paul Collier as the Bottom Billion.
Although yet to be fully implemented, the law has already prompted a boycott, with companies refusing to buy from eastern Congo in order to protect their reputations.
Drums of unsold tin line warehouses in Bukavu. Miners who make a precarious living at best are forced to hunt for alternative income streams and, despite the economic uncertainty, many have been successful.
Human rights groups have joined forces with the fractured DRC government to back the change, arguing that diversification, however tough to begin with, will give communities choices they’ve so far been denied.
All this counters the argument used by multinationals for centuries that a boycott would only hurt those at the bottom of the supply chain.
Eastern Congo is proving that this is not the case. This, in turn, reflects an unfolding narrative of the pressure for change on global trade, not only for minerals but also for other raw materials such as cotton, cocoa, and sugar, where child labour, human trafficking and dangerous working conditions remain widespread.
The rise of a new middle class in Africa and Asia has increased demand for raw materials and thrown a spotlight on the destructive inequalities of international trade. Unlike those from Western democracies, these new consumers have first-hand experience and therefore more empathy with the challenges of ending poverty and the quest for personal dignity.
Both the poor and the high street shopper now share technology that has made them more aware of how the system works. Those digging for gold around Bukavu have cell phones linked directly to world market prices. They know their income has not kept pace with gold’s five-fold increase in price in the past decade.
Consumers, too, can check how a company carries out due diligence on its products and how it cares for those in its supply chain.
So the multinational is facing a new question from both its suppliers and those who buy its merchandise: How should it access raw products and by what methods will the benefits be fairly divided?
The current system broadly works as follows.
Ever since decolonisation, some half a century ago, many rulers of commodity-rich nations have overseen the continuing poverty of their people, while profiting from a mix of aid from Western governments and tax revenue from international business.
Western democracies have vocally expressed a desire to end corruption and dictatorships, but they and their multinational companies have enjoyed the stability those authoritarian regimes delivered.
Until now, there’s been very little long-term planning for change.
But as with the uprisings in the Middle East and North Africa, international business needs to tune its antenna into the growing voices of opposition to methods of trade. If companies get it wrong, they may find they no longer have a supply chain, and therefore no profits to offer shareholders.
Even at this early stage of the Dodd-Frank legislation, some conclusions can be drawn:
First, the impetus for change did not come from the multinationals themselves. While a few engage with the issue, most have not, continuing to expect that the low prices paid for raw products would continue and deliver benefits for their shareholders.
Motorola and Intel are named by activists as two companies that have visited the mining areas and had a positive impact. In the cocoa trade, the world’s biggest food company, Nestlé, has broken ranks with the confectionary industry and last month announced plans to end child labor on cocoa farms in the Ivory Coast.
Second, the legislative muscle of the United States was needed to force change, and this is likely to happen again. The 2001 Congressional Harkin-Engel Protocol was the driver eventually causing policy change within Nestlé.
Third, global institutions have rallied around the Dodd-Frank initiative. The 34-nation Organisation of Economic Cooperation and Development is drawing up guidelines to achieve a global coherence that brings European and other foreign companies in line with those in the US.
Industry associations are tightening up. The World Gold Council plans to have a Conflict-Free Gold Standard by the end of the year. The International Tin Industry Association is taking similar steps.
Fourth, reform forced by legislation can have a significant and immediate impact on both local communities and international business operations. Voluntary guidelines, favored by Europe, take far longer to bring change, and American lawmakers are far more ready to use legislative muscle than their European colleagues.
Fifth, Congress may move to other supply chains.
Dodd Frank Section 1502 highlights a relatively contained problem in a small area of Africa. But it is an indicator of a wider confluence of events in which elected representatives have felt compelled to tell international business how to behave.
Western businesses have had ample opportunity to develop self-regulating trading practices that would produce fairness in the supply chain. The DRC example shows that, despite years of bloodshed, this didn’t happen.
But as the voices of the Bottom Billion become louder, as consumers’ compassion builds about their plight, change is inevitable. As with Dodd-Frank, other US-led legislation could target and shame industries over child labour, safety, trafficking, and other issues.
This post was originally published at YaleGlobal.
11 July 2012