In my previous blogs, I have attempted to demonstrate how concentrations of power and/or excess reliance upon a single resource can create dangerous disequilibriums not only within the context of financial markets, but within economic, social and political contexts as well. I also pointed toward the danger of excess debt and reliance upon debt to achieve the appearance of near-term stability, when in fact this may simply create even larger, long-term disequilibriums, especially when debt levels grow faster than levels of economic growth. I stated that many developed countries are currently faced with the dual challenges of both excessive debt and slowing economic growth. Resolution of these challenges will likely require both a reduction in debt and a means of achieving economic growth. These objectives can conflict, so achieving both will not be easy.
With respect to the latter, the way forward seems to require increased reliance upon economic growth in developing countries, many of which have more favorable demographics and less troublesome levels of debt. However, economic, political, and social structures in some of these countries differ from those in many of the developed countries, which can lead to difficult adjustments. The need for such adjustments is nothing new, and against a backdrop of true equilibrium, would probably be relatively easy to manage. However, against a backdrop of “stable disequilibrium,” and uncertainty whether economic growth could not only lead to further economic and financial market disequilibriums, but could also undermine those political and social objectives that serve as the very raison d’etre for many countries, the willingness to make such adjustments becomes a real challenge, to say the least.
If we are to be successful in balancing these concerns and objectives from the broadest possible perspective, it will require constructive efforts, cooperation, and commitment from all of us. Somehow, the corruption, injustices, and even fear of the same that typically result from imbalanced concentrations of power and/or excess reliance upon a single resource will need to be minimized.
The Importance of Technology as an Engine for Growth
In my last two posts, I directed readers’ attention to the fact that China controls over 95% of the global production of rare earth elements, and also holds a dominant position in many of the downstream manufacturing operations further along the supply chain. I described the importance of these rare-earth based components to a great number of technological applications, and I briefly mentioned that technology is one of the most important drivers of economic growth. Recall, for example, the impact of the Industrial Revolution. The transfer of technology among countries is, therefore, vital to a more balanced level of global economic growth. But, for capitalist economies, respect for intellectual property rights ensuring that the creators of such technology will be rewarded for their efforts is equally vital. Violations of intellectual property rights and reliance upon monopolistic power to coerce transfers of such technology could lead, therefore, not to more balanced global economic growth, but to even more worrisome levels of concentrated power.
Developing an understanding of, and respect for, intellectual property rights would likely be the most effective way of limiting the various means by which such rights are inappropriately accessed and transferred. In the absence of such respect, enforcing intellectual property rights should not be the responsibility of only those who own such rights. To avoid violating the principle of internal sovereignty, government officials and legal authorities within violating countries should understand the nature and significance of intellectual property rights and should take credible actions to ensure that they are properly protected. Such actions should include effective means of preventing attempts to improperly gain access to such rights, and directly penalizing those responsible for the improper transfer of such rights. However, it should also be recognized that those entrusted with the possession of such rights must also be held accountable if they don’t uphold their responsibility to protect those rights.
We Still Have the Keys So Who is Willing to Drive?
Having said this, the rest of us should not sit idly by waiting for “the powers that be” to settle such matters. There is also a role to be played by private sector businesses, investors, and consumers. Our role is especially important when a lack of capital investment in certain industries has allowed certain parties to acquire monopolistic powers over relatively low-cost, but critical materials that make it easier to coerce valuable technology from businesses that possess this technology but can’t apply it without access to the critical materials. Rather than advocating the pursuit of inferior, perhaps antiquated substitutes, I believe it is incumbent upon the private sector to allocate their capital and purchasing dollars in a manner that will restore healthy levels of competition and thus market equilibrium. In other words, in my last post, when I indicated that “It’s all about the people,” I was not referring only to the managers and directors of rare earth mining companies; I was also referring to me and you, in our roles as investors, consumers, and responsible members of society.
Energy and Our National Security
With this in mind, I am proud to say that I will join approximately 200 people this coming week in attending the TREM’11 (Technology and Rare Earth Metals For National Security and Clean Energy 2011) conference in Washington, D.C. The two-day conference to be held on March 22-23 is being sponsored by the IAGS TREM Center, a title which includes two acronyms, one for the Institute for Analysis of Global Security, and the other for the Technology and Rare Earth Metals Center. The stated purpose for this conference is to help secure a reliable and diverse supply chain for rare earth metals and other materials that are critical to our nation’s energy needs and security. The sponsors of the conference hope to achieve this by allowing interested individuals to join executives from the minerals, defense, energy, finance, and automotive industries in interacting with key figures from the US Departments of Defense, Energy, Interior, Commerce and State in an effort to better understand the issues surrounding metals needed for energy and security, and to influence the policies that affect the way America produces, imports and uses technology metals.
Recent developments regarding skyrocketing prices and restricted access to rare earth elements had already made the relevance of this conference clear to me. However, this year’s conference unfortunately has been made even more relevant by more recent developments including unrest in several countries in North Africa and the Middle East, followed by a devastating 9.0 earth quake and tsunami in Japan on March 11. As if the human suffering caused by these natural disasters was not enough, these tragic events were followed by a series of emergencies at a number of damaged nuclear energy plants. Now, on Sunday March 20, just two days before the conference, coalition forces are staging air strikes in Libya after Col. Gadhafi’s Saturday morning attack on civilians and rebel forces in Benghazi.
Running on Empty
It has been difficult to observe the pain and suffering brought about by these events, so first and foremost I would like to express my sympathy for all those caught up in these calamities At the same time, I can’t help think about ways to prevent such occurrences in the future, and in doing so, what stands out is the role that energy needs have played in both instances. We seem to be perched between reliance on oil, and reliance on rare earth elements needed to deliver us from oil. Will the Middle East remain sufficiently stable long enough to enable us to reduce our dependency on oil to less dangerous levels? How severely will the nuclear accidents in Japan discourage efforts underway to launch new safer nuclear power plants using simpler, thorium-based nuclear energy technologies? I can only hope that these recent developments will serve to strengthen the resolve of this year’s TREM’11 participants to identify better, safer ways to satisfy the world’s energy needs.
I will summarize the proceedings of this conference in my next post. In the meantime, I think it would be helpful to provide some background information regarding the views and objectives of certain representatives of the IAGS, and the IAGS TREM Center.
Turning Oil into Salt
I will start with Gal Luft, the Executive Director of the IAGS, and Anne Korin, the co-director of the IAGS. Together, Gal Luft and Anne Korin have also authored an important book titled, “Turning Oil into Salt.” The basic premise of the book is that the threat oil dependence presents to our national and economic security is not a function of the amount of oil we consume or import. It is a function of oil’s status as a strategic commodity. Oil’s strategic status, in turn, stems from its virtual monopoly over fuel for transportation. While there are many sources of energy available to us to satisfy our non-transportation needs, we are almost entirely dependent upon oil for our critical transportation needs. Through a combination of flex-fuel engines and electrification of vehicles to enable them to derive power from our nation’s already established electricity grid, the strategic commodity status of oil could be reduced to merely a commodity, such as salt. Years ago, salt was a strategic commodity because it had a virtual monopoly over food preservation. But, with the advent of canning, electricity, and refrigeration, salt lost its strategic status – even though it is still in wide use today.
What Else Do We Need In Order to Arrive at our Destination?
Next, let me turn your attention to Yaron Vorona, who is the Executive Director of the TREM Center at the IAGS. Yaron also founded the International Lithium Alliance, a membership organization consisting of producers and users of lithium whose purpose is to provide global leadership on all major strategic issues affecting the lithium industry, particularly with respect to economics, the environment, and social sustainability. Lithium ion batteries have important implications for the development of electrified automobiles. And, from the standpoint of national and energy security, lithium is an abundant resource that is available from numerous sources throughout the world, many located in countries such as Chile with which the United States maintains friendly relations.
Estamos Bien en el Refugio los 33
It is no doubt for this reason that Laurence Golborne Riveros, the Chilean Minister of Mining, has been invited as one of the keynote speakers for this year’s conference. You may recall the August 5, 2010 Copiapo mining accident in which thirty-three Chilean miners were trapped 2,300 feet underground for a record 69 days – less than six months after Chile suffered a magnitude 8.8 earthquake and tsunami. Laurence Golborne Riveros remained intimately involved in that rescue mission even after the thirty-third miner was raised to the surface on October 13, 2010 to be reunited with his family and loved ones. His dedicated, sensitive management of the rescue operation earned him great admiration by the miners and their families, and great respect among the people of Chile and freedom loving people around the world. At a time when the headlines are filled with reports of many government leaders in conflict with the people that they have a responsibility to govern, it will be an honor and a pleasure to attend his presentation at this year’s TREM’11 Conference. I hope to learn how applications for lithium, including batteries for automobiles, could lead to mutually beneficial trading relationships between Chile and the United States – and possibly even a better, safer world for all of us.