Business-community relationships for extractive industries: A case study in Peru.
| Autor | Ventura, Jose |
| Cargo | Case study |
Abstract
Natural resource-based economies have long relied on foreign demand to fuel their growth. For instance, the extractive sectors in Peru have experienced a rapid expansion, driven by a rising demand for commodities. Alongside economic growth, extractive operations have triggered social and environmental concerns among the various stakeholders, thus resulting in either social conflict or a deterioration of the relationship between companies in the extractive industries and local communities. In this context, the purpose of this paper is to understand the relationships between companies in the extractive industries and rural families. This research uses the case-study method. The findings show that a trustful relationship is supported by a beneficiary-society approach that builds upon philanthropic and ethical types of relationships. Unlike the type of relationship based on economic or legal interests, a trust-based relationship offers avenues for managing social conflict that have yet to be explored.
Key words: rural communities; extractive industries; social conflict; business-community relationships; Peru.
Introduction
Over the last 15 years, extractive industries have gained momentum in Latin America (Damonte, Kuramoto, & Glave, 2014) and contributed significantly to the growth of the gross domestic product (GDP) of economies in the region. For instance, Peru's extractive sector accounted for an average of 13.5% of its GDP over the last ten years (Banco Central de Reserva del Peru [BCRP], 2015) and made up about 62% of total exports in 2014 (Superintendencia Nacional de Aduanas y Administracion Tributaria [SUNAT], 2015). Clearly, the Peruvian economy depends heavily on extractive industries; likewise, the social and environmental impacts of these industries on rural communities are also of note. Peru's mining industry went from operating on 15 million hectares of community lands (Dorregaray, 2005) in 1993, to 81.72 million hectares in 2015 (Ministerio de Energia y Minas [MINEM], 2015a).
According to Peruvian government sources, by 2013 a great deal of lands occupied by 6,436 officially recognized peasant communities in Peru had been franchised to mining companies (Superintendencia Nacional de los Registros Publicos [SUNARP], 2016). Although the Peruvian economy grew 2.4% in 2014, compared with 1.3% growth in Latin America and the Caribbean overall and 3.4% growth worldwide during the same period (International Monetary Fund [IMF], 2015), the number of social conflicts resulting from the exploitation of natural resources increased much more substantially during the same period. As of October 2007, the Peruvian Ombudsman's Office had registered 80 social conflicts (Defensoria del Pueblo, 2007), and by November 2015 this figure had climbed to 215, of which 149 (69.3%) were socio-environmental conflicts (Defensoria del Pueblo, 2015).
Thus far, a climate of distrust and a lack of cooperative relationships remain key challenges for extractive firms. The reactions of rural communities to extractive operations have become all the more delicate, thus leading to delays and/or the cancellation of projects, which in turn may compromise the producing country's economic health and, hence, prevent the government from fulfilling its mandate to develop the countryside. For instance Davis and Franks (2014) contend that company-community conflict triggered by environmental and social impacts can involve costs arising from temporary shutdowns or delays, of up to US $20 million per week. At the same time, the greatest expenses are the opportunity costs due to planned future projects or expansion plans that stalled. For companies in the extractive industries, therefore, reconciling the needs and views of stakeholders (i.e., governments, local communities, employees, non-governmental agencies) with the company's own obligations to investors and showing how company activities can contribute both to GDP and to meaningful outcomes for local communities have become critical concerns to the prospect of earning the "social license to operate" (Deloitte, 2015, p. 6).
The literature on the relations between business and society shows two clearly different approaches. On the one hand, businesses seek to create goods and services to meet the needs of society, creating economic values for the company and satisfying the needs and wants of society. Companies are profitable as a result of the goods and services that they provide to society (Drucker, 1985; Friedman, 1962, 1970; Prahalad & Hart, 2008; Porter & Kramer, 2006). On the other hand, companies must share their profits with society. Companies must contribute directly to society because business activity negatively affects society; negative externalities (Coase, 1960) society assumes such liabilities, including environmental pollution, asymmetry of power, and social and economic inequities. In this case, society must be directly compensated by the company for its negative practices and effects on society (Ahlstrom, 2010; Bell & Emory, 1971; Du, Bhattacharya, & Sen, 2007, 2010; Freeman & Phillips, 2002; Freeman & Reed, 1983; Freeman, Wicks, & Parmar, 2004; Garriga & Mele, 2004).
Focusing a little more on the interaction between business and society, the literature describes the conflicted relationship between companies in the extractive industries and rural communities. Studies show the dimensions of the problem and the negative effects of such conflicts (Bebbington, 2013; Damonte et al., 2014; Davis. & Franks, 2014; Nem Singh, 2012). However, these studies reveal little on the link between companies in the extractive industries and rural communities. The information available on the subject focuses on social conflicts and how they are managed but not on the underlying relationships themselves. Corporate social responsibility (CSR) seeks to bring companies in the extractive sector closer to rural communities. However, they do not study the type of relationships being built. Companies' CSR strategies are exclusively disputes about the environment, human rights or health and safety; rather, they are better understood as the control over the community and the right of community members to control the direction of their lives (Laplante & Spears, 2008).
Furthermore, information on social responsibility has yet to penetrate deeply into the kinds of relationships built between businesses and rural communities (Altman, 1998; Damonte, 2008; Laplante & Spears, 2008; McKenna, 2016). Very little is known about the type of relationship there is between companies in the extractive sector and the members of communities, especially for the cases in which the literature indicates that the rural communities are not homogenous entities. Furthermore, Andean rural communities, as well as indigenous societies, are in the process of change. Significantly, the family and the community remain very intertwined concepts. Studies affirm that family is the most stable social entity within the rural communities (Castro, 2012). In this sense, the relationship between companies in the extractive sector and rural communities ends up being a relationship between the companies and rural families.
Hence, through the case study method this paper seeks to understand the relationships between companies and rural families. A review of the literature on the relationship between business and society opens the paper and includes a conceptual framework. The second part of the paper introduces the research method. The third part presents and compares findings related to two companies in the extractive sector. Finally, the fourth section discusses these findings and offers possible conclusions.
Literature Review
The relationship between business and society has been determined by the evolving conception of the business as a social entity. Companies (the basic units of the business sector) are commonly viewed as members of society; that is, the visible economic face of a social system (Steiner, 1971). In spite of this, the initial definitions of a business alluded to it as a vehicle of wealth creation that was independent from society (Friedman, 1962; Lucas & Sargent, 1981). Nowadays, nonetheless, the multiplicity of linkages with other social agents requires firms to accept greater responsibility toward society.
The activities of business influence society by either inducing or preventing changes in the social system (Schumpeter, 1939). Business outcomes can contribute by providing inputs to meet social needs. They can also exert positive or negative influences on the local scenario in which they undertake their activities (neighboring communities). This latter aspect makes the social responsibility (SR) of a company a relevant issue, because the direct influence of businesses on society makes it likely for a business to accept the greater responsibilities that go along with this influence (Carroll, 1993; Garriga & Mele, 2004). In so doing, companies adopt SR activities to create accountability and to demonstrate their concern for societal members' well-being and issues in a broader social context (Peloza & Shang, 2011; Sen, Bhattacharya, & Korschun, 2006).
Likewise, social influence on companies is paramount. Society, for example, provides a firm with qualified labor resources as well as consumers, both necessary for its very existence. This argument showcases the influence of society, which has also been contemplated within the frame of the stakeholder theory, whereby different parties or interest groups (consumers, employees, suppliers, or trade unions, to name a few) have a stake in the success of failure of a business (Parmar et al., 2010). Consumers, for instance, are capable of exerting scrutiny over companies' behavior. Over time, historical experience creates an evaluative context whereby consumers can elicit positive/negative associations that increase/decrease their sense of trust (Bhattacharya &...
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