By Jonathan B. Wight

In theory, markets work to maximize wealth creation through voluntary exchange. In the pure version espoused by Pareto, trade is always win-win.

A problem develops when there are externalities—as occurs quite frequently and to great expense in the area of mining. Precious metal mining uses vast amounts of water that otherwise might go to local farmers; cyanide is used to leach metal from junk rock. Arsenic is found in the drinking water and downstream. The landscape may be forever ruined for any other purpose, and mining companies (after extracting their profit), may simply decide to go bankrupt rather than fulfill clean-up obligations.

Economic theory rightly includes these negative externalities in ascertaining what is “efficient.” But as a practical matter, dealing with the myriad of problems that arise with mining, public policy is not decided on the basis of Pareto’s win-win. This is because any policy creates some losers, so we are stuck in a win-lose situation.

Instead, economists rely on the Kaldor-Hicks formulation, which is the idea that a policy is efficient as long as the winners win more than the losers lose—even if no compensation is paid.

Yet how is this public policy decided on? Is there a working democracy? Is there a free press? Is there an impartial judiciary to adjudicate property rights? None of these safeguards to human rights work very well in Guatemala.

The result, according to The Guardian, is devastation in many rural communities, with protestors beaten or killed. Multinational mining companies, in a crony capitalist alliance with the government, seem to operate with impunity:

“The case centres on allegations dating back to 2007, when the women say hundreds of police, military and and private security personnel linked to a Canadian mining company descended on the secluded village of Lote Ocho in eastern Guatemala.”

“A few days earlier, security personnel had set dozens of homes ablaze in a bid to force the villagers off their ancestral lands, according to court documents….11 women say they were raped repeatedly by the armed men.”

Will the defenders of market capitalism speak up to protest such outrage? Or, will defenders of market capitalism side with corporate interests and short term profits?