The Jamaican government took several important steps vis-a-vis the bauxite industry in 1974. First, it began negotiations with the companies to take over majority ownership; second, it imposed a substantial levy on bauxite exports; and third, it took a leading role in the formation of the International Bauxite Association, an OPEC-styled producers' organization. The main objectives of these moves, which were supported by the Jamaican bourgeoisie, were to raise state revenues and increase the Jamaican share of the bauxite profits. In making these moves, the Manley government also became a symbol of third world aspirations to assert greater control over their natural resources and challenge the dominance of the transnational corporations. In the article that follows, we will examine the factors that influenced the Jamaican actions, the possibilities and limits of third world challenges to
the existing international economic order, and the implications of this challenge for U.S. imperialism.
FACING JAMAICA'S CRISIS
Several factors came together which pushed the Manley government and the national industrialists to move against the bauxite companies. First was the precarious situation of
the Jamaican economy. By late 1973, it was clear that the economic revitalization which PNP supporters had expected after the election was not occurring. Manley had initiated a series of ad hoc reforms during his first two years in
office - nationalization of the foreign-owned electric power, telephone and bus companies and enactment of a limited, piece meal land reform program. But these actions, while attacking some of the symptoms of the prevailing maladies, did not get to the root of the profound problems which faced the country.
Jamaica had become increasingly dependent on foreign capital, both as an investment and a loan source. The relatively weak industrial bourgeoisie relied more and more on the state
to raise investment funds for its own purposes, usually through loans obtained from international agencies like the World Bank, the International Monetary Fund, the Inter-
American Development Bank, and the U.S. Agency for International Development. These loans were often channeled to local capitalists through state lending agencies such as the
Jamaican Development Bank. While benefiting the Jamaican bourgeoisie, these loans created a serious weakness in the economy by increasing the country's external dependence, and adding to the mounting foreign debt.
Moreover, developments in the international economy heightened the fiscal crisis of the Jamaican state. Chief among these was the international economic crisis and worldwide inflation, which inflicted a heavy burden on all producers of raw materials. Jamaica's balance of payments situation took a turn for the worse with the 1973 oil crisis, which more than tripled the country's oil import bill from $55 million to nearly $180 million per year. Like other commodity producers, Jamaica's export earnings did not grow in pace with the
skyrocketing oil bill and the rising cost of manufactured goods from the industrialized capitalist countries.
While all social classes in Jamaica were affected by the situation, it was the dominant class which was able to act to protect its interests. The industrial bourgeoisie was especially hard hit by the foreign exchange squeeze, since they depended heavily on imports used in industry and retailing, as well as for their personal consumption. If an additional $135 million would have to be paid in oil, it would mean $135 million less for electric appliances, cars and gasoline, and shopping trips to Miami.
It was in large part pressure from the more dynamic and astute sectors of the bourgeoisie which mobilized the state to move against the bauxite companies. They saw the bauxite levy as a way to capture a larger part of the companies' profits to finance their import bill and to enlarge the state budget. Not only would this revenue be used to underwrite projects to
directly benefit business. But it would also finance government programs to buy off the unrest and growing militancy among peasants, workers and the unemployed. While the capitalists quietly maneuvered the government to ensure their own interests, Manley also received backing from other sectors - the radical intelligentsia, the trade unions, dispossessed peasants and the unemployed, all of whom rallied around the banner of nationalism as the PNP moved against the aluminum companies.
THE BAUXITE LEVY
The first move came in January 1974, when the PNP announced it would renegotiate tax agreements with the bauxite companies. Not surprisingly, the negotiating team was composed of several of Jamaica's most prominent capitalists from the leading 21 families - Mayer Matalon, of the Matalon family, P. E. H.
Rousseau and Douglas Fletcher, former ambassador to the United States.
Until 1974, the value of bauxite had been determined by negotiations between the government and the companies. Since sales of "alumina and bauxite were intra-company transfers rather than free market sales, there was no market price. Because of their leverage vis-a-vis the government, the companies were able to secure low rates of taxation in negotiating sessions with the government. According to the
latest round in 1967, taxation was based on a price of $7.50 while the companies reported a value of $15.00 per ton of bauxite to U.S. customs authorities.
In mid-1974, Jamaica announced the abrogation of previous agreements and the imposition of a novel method of taxation - a "production levy" on all bauxite either exported or processed in Jamaica. The levy was set at 7% percent of the selling price of aluminum ingot, instead of the previous
method of computing the tax based on an artificial profit negotiated between the government and the companies. As a result, the tax rate increased 480 percent between 1973 and
1975, from $2.50 to $14.51 per ton. At about the same time, the government began negotiations with the companies to take over majority ownership of their mining operations.
This move was accompanied by another well-orchestrated plan on the international level: steps to form the International Bauxite Association, to present a common front to the
transnationals. In March 1974, the major bauxite producers met in Conakry, Guinea, to discuss formation of the IBA. Present were Jamaica, Guyana, Surinam, Guinea, Yugoslavia, Australia, Sierra Leone and Ghana. From this meeting Jamaica emerged as the leading force in the IBA because, as Jamaican economist
Norman Girvan explained: "Alone among the bauxite exporting nations, Jamaica had both the motivation to seek higher returns and the leverage to secure them, even over the
opposition of the companies."(1) As we will see, Jamaica's leverage was based upon two factors: the companies' substantial dependence on Jamaican ore, and the massive amounts of capital the companies had invested in refineries
there in the late sixties.
THE INTERNATIONAL POLITICAL CLIMATE
In addition to the internal political and economic factors that led the PNP to raise the bauxite levy, the formation of the IBA was also influenced by the international conjuncture.
A producers' cartel in bauxite had been on the agenda since 1967, when the Caribbean Bauxite Mine and Metalworkers Federation Congress called upon the Caribbean governments to take the initiative with all other producing countries to set up a "Council of Bauxite Producers." But it was not until 1973
when OPEC demonstrated the effectiveness of a producer cartel in securing higher prices for its members' exports that the bauxite producers were confident in acting. The lack of retaliation by the U.S. government and the success of the oil boycott undercut earlier hesitations about forming a producers association. In fact, the bauxite producers were in an even stronger position than the OPEC countries in so far as the U.S. depended on imported ore for some 88 % of its bauxite, while dependence on oil imports had only been 40 percent.
Another factor which made 1974 an auspicious time for the success of the IBA was the recovery from the earlier worldwide recession, and the resulting increase in world demand for all industrial raw materials. There was an expectation that the inflation in bauxite prices and tight supplies would continue, particularly given the increase in speculation and stockpiling
by industrial consumers of aluminum. The tight supply situation was an aftermath from the stagnation of the sixties, when an initial over expansion had caused prices to drop. In
spite of increased demand, the lead time required for construction of new production facilities meant it would be several years before the supply situation would change. All of these factors put the bauxite producing countries in an unusually favorable position.
Finally, the coming together of the bauxite producers was also spurred forward by the rising tide of third world nationalism in the early seventies. Greater national control over natural resources was a major aspect of third world demands for a "new international economic order" that would end the dominance of advanced capitalist countries and transfer some of the wealth back to the third world. The rallying cry of the "new order" and "national control" was enthusiastically taken up by the local bourgeoisie in the third world as an opportunity to increase their share of the profits extracted by the transnationals. In this favorable atmosphere of the early seventies, a wave of commodity producers associations were formed, ranging from copper to bananas to bauxite.
THE IBA TAKES SHAPE
The IBA formally came into existence on July 29, 1975, with headquarters in Jamaica. As part of its overall goal of safeguarding the interests of member countries in relation to the bauxite industry, the IBA association outlined several main objectives, including: [1] to negotiate with the transnationals to secure a fair return from the bauxite industry; and [2] to promote the orderly and rational development of the bauxite industry.(2)
The major success of the IBA has been in presenting the companies with a common front on the question of price. After three years, the IBA was able to establish a coordinated price, so that final delivery price (including transportation and the levy) for alumina and bauxite from every member country is equivalent. However, it is also clear that in securing a larger share of the profits for member countries, the IBA does not intend to challenge the rights of companies to privately own and control the industry.
A look at how the IBA has affected Jamaica reveals both the strengths and the limitations of producer cartels. One of the most significant results of the IBA for Jamaica has been the
increase in government revenue resulting from the levy. To begin with, the tax take from the bauxite industry in 1974 rose by six times the amount received in 1973. While revenues
declined in 1975 and 1976 because of worldwide recession, strikes, and increased purchases by the companies from other sources, by 1977 they had risen above the 1974 level.
One reason for the increased revenue was the use of the "production levy" to tie or "index" Jamaica's tax rate to the selling price of aluminum ingot (in addition to setting the tax rate at more than twice the previous level). Thus, the doubling of aluminum prices (from 25 cents a pound in 1973 to 54 cents in 1977) gave a major boost to Jamaica's tax return, and both are likely to increase in the future.
In addition, the availability of information to the government has improved its bargaining position. Prior to 1974 the government had to rely on company data to estimate the extent of Jamaica's bauxite reserves, which were always far below actual amounts. With the advent of the IBA, joint ownership and the establishment of the Jamaica Bauxite Institute (which
monitors the industry within Jamaica), the Jamaican government now has access to independent information on the industry,
giving it a new, though limited, measure of control. The JBI, for example, discovered that the island's high grade bauxite reserves totaled 2 billion tons, not the 600 million tons the
companies were claiming.
Not surprisingly, many of the benefits from the increased bauxite earnings went to Jamaican industrialists. To handle the additional revenues, the government created the Capital
Development Fund, whose official purpose was "building up and rationalizing the productive capacity of the economy."(3) Management of the Fund was placed in the hands of a key
representative of national capital, Mayer Matalon. The bulk of the Fund's $600 million budget has been funneled into the construction industry, and to finance companies owned by
some of the very men who were on the bauxite levy negotiating team, and who now sit on the board of the Fund itself.
THE ALUMINUM COMPANIES RESPOND
Shortly after the formation of the IBA, the major aluminum companies in Jamaica agreed to sell 51 percent of their mining assets and lands (but not refineries) to the Jamaican government. What explains this apparent capitulation to government pressure on a proposal they had adamantly refused to consider for over two decades?
For one, the companies were clearly impressed with the unity presented by the IBA members - a new situation that would make it more difficult to play off one supplier against another, as the companies had done in the past. And they were also worried that the Jamaican government, if rebuffed, might take over their holdings. Displaying the adaptability that has allowed other transnationals to survive and prosper in the face of third world nationalism, the aluminum companies decided that new tactics were needed to guarantee their continuing access to Jamaican ores.
The companies also found themselves vulnerable to pressure from the Jamaican government because of their dependence - at least in the short run - on Jamaican ores. The $700 million the companies had invested in Jamaica represented sunk costs, money spent on vast mining and refining complexes that could not be removed.
If Jamaica expropriated these properties, the companies would be forced to build new facilities at tremendously inflated costs. As noted in the comprehensive report on the IBA's impact on the U.S. economy, prepared by the Boston-based Charles River Associates (CRA) research firm for the U.S. Department of Commerce: "Until these plants are virtually
fully depreciated in a physical sense, it will not become economical to replace them with refineries located in the United States or Australia and supplied by Brazilian or Australian bauxite." But more than this, it continues, "if the present rapid rate of inflation in capital equipment costs continues, replacement of these refineries by new ones located
outside of the high tax countries [read Jamaica, Guyana, Surinam] may never be economically feasible."(4) Current costs are three to four times the original investment in alumina facilities.
Moreover, the operations of many alumina plants in the U.S. are geared specifically to Jamaican bauxite: Kaiser is 88 percent dependent on Jamaican ore, Reynolds 45 percent, and Alcoa 10 percent.(*)(5) Since any conversion to handle non-Jamaican ores would be extremely costly to the companies, there were simply no feasible alternatives to Jamaican bauxite.
As compared to previous years, the bauxite companies were no longer secure in the thought that Jamaica would be unable to find alternative markets for bauxite and alumina in the event of nationalization. The entry of several new firms into the U.S. refining business in the late sixties and early seventies had increased the competition and provided alternative buyers for bauxite and alumina. In addition Guyana and Guinea had recently concluded contracts for sale of some of the bauxite from their nationalized industries to the Soviet Union.
Consequently, the bauxite companies had to consider that if they were intransigent, Jamaica might nationalize the industry and still be able to find buyers for its alumina and bauxite.
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(*) Revere Copper and Brass was a latecomer to the aluminum industry and to Jamaica as well. In 1971 Revere opened a 220,000 ton alumina plant in central Jamaica to supply its Scottsboro, Alabama, reduction plant. The Jamaican factory was poorly sited and inefficient, resulting in its closure in August 1975. Revere filed a $64 million claim with the U.S. Overseas Private Investment Corporation alleging the closure was the result of Jamaica's bauxite levy, which was tantamount to expropriation. OPIC denied the claim. Revere is currently negotiating to sell its still idle plant to the Jamaican
government.
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The aluminum companies also realized that agreeing to the joint venture and levy was a tactical compromise that could serve their own interests well. Their principal short-run objective - like that of the U.S. government - was to make certain that Jamaica respected the rules of the capitalist game. As Alcoa's resident U.S. manager said in an interview, the companies want to ensure "that Jamaica has a stake in
the system."(6)
The joint venture arrangements worked out between Jamaica and the companies in late 1976 and 1977 appear to do just that, while at the same time making it clear that the companies are still in charge. Kaiser, Reynolds and Alcoa each negotiated separate agreements with the government (Alcan is in the process of negotiating), but all the agreements follow the
same pattern:
-The government will purchase all company-owned lands at "book value," that is, the price the companies paid (which is far below present market value). In turn, the government
guarantees the companies a 40 years' supply of bauxite from lands it will lease back to the companies at 7 percent of the purchase price.
- The government will purchase 51 percent of the bauxite mining operations, and has the option to purchase a share of any alumina refining plant for "book value" (the value paid for the plant less depreciation).
- The companies will retain management control of the joint ventures through 10-year management contracts.
- The production tax paid to the government is fixed at 7.5 percent for eight years, instead of rising to 8.5 percent as was initially announced.(7)
Under the Alcoa agreement, Jamaica has purchased 51 percent of the company's mining assets for $8 million, which gives the government only a 6 percent interest in Alcoa's $132 million integrated mining and refining operation. Under this "partnership," Jamaica is free to sell its 6 percent share of the company's output to Alcoa or to a third party.(8)
THE BALANCE SHEET
In sum, how have the interests of the aluminum companies been affected by the Jamaican government's actions, and what has
Jamaica gained? As far as the bauxite levy is concerned, the aluminum companies (like the oil companies) have been able to pass along tax increases to consumers of aluminum. In fact,
the heightened bauxite levies accounted for less than 25 percent of the rise in aluminum prices in 1974: the companies simply took advantage of the levies to justify price hikes to increase profits.(9)
Yet the companies' present situation in Jamaica is hardly ideal, since every capitalist enterprise prefers complete freedom to make price and production decisions - an area where
the IBA and Jamaican government now have some influence. In fact, the aluminum companies' apparent capitulation to the Jamaican government was seen as a class betrayal by some corporate leaders. To quiet such fears, Kaiser President Cornell Maier, for example, made a well-publicized speech to the banking and industrial community of San Francisco to
assure it that Kaiser had not "sold out" instead of "fighting it out." And fight the companies did, by cutting back production and pressuring the U.S. government to take action against the Manley government. (See part II11.)
On the other hand, while the aluminum companies may no longer have hegemony, they have worked out an accommodation that meets their objectives. Their profits are not threatened; they have appeased the nationalist sentiments of the Manley government; they still exercise decisive power in management decisions; and they have guaranteed themselves access to ore supplies by giving the Jamaican government a stake in the future success of their venture.
Although the partial success of the Jamaican government in breaking the stranglehold of the bauxite companies on the industry should not be underestimated, the continuing superiority of the companies in technology, capital resources and control of markets seriously limits any challenge to their power. And this limitation will continue to temper the efforts of third world countries to obtain better terms from the transnationals.
The Jamaican government clearly took the power of the aluminum companies into account in opting for a joint venture rather than nationalization. In Guyana, where the government made another choice by nationalizing Alcan in 1971, marketing and management difficulties had followed. For Jamaica, the
partnership route was seen by the Jamaican government as a cautious alternative that would not disrupt the economy and lead to some of the problems Guyana had faced.
Jamaica has, however, made some strides in overcoming total dependence on the companies by working out cooperative arrangements with other third world governments. One of these
agreements (with Mexico) envisions a jointly owned industry comprising bauxite mining, alumina refining and aluminum smelting. Jamaica is to provide the ore and alumina which would then be shipped to Mexico, where power is cheap, for smelting to aluminum ingot. Jamaica is to have majority ownership of the mining and refining while Mexico would own
the majority of the smelter. In addition, an agreement with Venezuela will ship Jamaican alumina there for smelting into aluminum, which will be sold to Japan. A projected three-cornered project between Jamaica, Trinidad and Guyana foresees the development of a regional aluminum industry using ore from Jamaica and Guyana, with petro-power from Trinidad and hydro-power from Guyana. And in early 1978 a ten-year contract for sale of Jamaican alumina to Algeria was announced.(10)
The possible future impact of such joint arrangements on the international market cannot be overlooked. However, these joint government projects have to be seen as part of the trend towards "state capitalism" in the third world - a development that needs much further study. It is clear, though, that in
Jamaica as well as other Latin American countries, important sectors of the bourgeoisie realize that they stand to benefit from the greater involvement of the state in the economy.(11) Even under a progressive government, the capitalist state will channel benefits to the working class only insofar as is necessary to stabilize the situation.
FUTURE PROSPECTS FOR THE IBA
What about future prospects for joint action by bauxite producing countries through the IBA? The ability of the IBA to use its leverage to the maximum is limited by the promise of
member countries to refrain from using bauxite as a political weapon against the consuming nations. The tacit commitment to operate within the rules of the capitalist game is common to all the third world commodity cartels. But in the case of the IBA it is reinforced by the fact that one of its members is Australia, a developed capitalist nation for whom bauxite is of minor economic importance. Only 5 percent of Australia's export earnings come from bauxite, whereas for Jamaica the dependency is some 46 percent.
Australia is clearly the weak link in the IBA which the companies and the consuming countries have sought to break. Ever since Australia joined the IBA under the previous labour government of Prime Minister Gough Whitlam, its participation in the organization has been regarded by the governments of the industrialized capitalist countries as a betrayal. The U.S. and British governments in particular have placed a good deal of pressure on Australia, and the Charles River Associates report maintained that Australia's association
with IBA could undermine the country's military and political relationships with the U.S. and Britain.
Another threat to the united front presented by the IBA is Brazil. Although Brazil has not yet joined the IBA, it has the world's fourth largest bauxite reserves, an estimate based on as yet uncompleted explorations. Predictions are that Brazil will become a major exporter beginning about the mid-eighties, when reserves there come into production. At that time, Brazil is likely to be a target of pressures not to comply with the IBA. Brazil's decision will certainly be affected by the country's need for large export earnings to pay off its massive foreign debt. But on the other hand, this mammoth debt makes the country a target for diplomatic and financial blackmail by international lenders who could make loans contingent on non-compliance with the IBA.
Should these weak links hold firm, the companies may resort to an age-old tactic used to sabotage cartel agreements - secret deals and discounts. Without complete cooperation of member nations in revealing information on costs and marketing, the effectiveness of the IBA would be undermined.
A CHALLENGE TO IMPERIALISM?
The official U.S. response to the Manley government's bauxite policies went far beyond a consideration of the immediate interests of the aluminum companies. Just as important was
the question of how Jamaica's moves affected the U.S. corporate economy, and the entire world capitalist system. In economic terms, the cost of the IBA-backed changes has thus far been relatively small. It has added a mere $300 million to the U.S. trade bill, as compared to the $32 billion added by the 1972 oil price hike.
A more crucial issue than cost is the implication of Jamaica's actions for future access to supplies of strategic raw materials like bauxite. Not only the U.S., but most advanced
capitalist countries are highly dependent on imported bauxite. On the one hand, the Jamaican government and the IBA have no
intention of threatening the continuity of future supplies. But on the other hand, producer cartels and third world demands for a bigger share of the capitalist pie introduce a
new element of uncertainty and instability into the world capitalist system, already shaken by economic crisis among the industrialized nations.
Former Kissinger advisor C. Fred Bergsten (currently an Assistant Secretary at the Treasury Department) warns of the disruptive effects producer cartels may have:
If the cartels succeed ... they can disrupt individual industries. They will raise the spectre of interruptions of supply, deterring needed investments . . . and adding to the risk of political enmities in the already uncertain world.
... They could trigger more scrambles for position among the largest consuming countries and intensify the element of conflict in their relations. Hence they could mark a new factor in both international economics and world policies.(12)
The spectre of a cutoff of raw materials supplies, of growing inter-imperialist rivalry, and the further polarization of the world between rich and poor countries clearly concerns U.S. policy makers. While one U.S. response may be to grant some of the reforms demanded in the proposed new international economic order - by stabilizing commodity prices, for example, or by channeling more aid to the third world - the U.S. is also determined to stem the rising tide of third world nationalism wherever possible. Jamaica may not have nationalized U.S. bauxite companies, but the broader political and symbolic significance of the government's bauxite policies were an important element in Washington's moves to destabilize the Manley government - the subject of the next article.
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REFERENCES
II. BATTLE OVER BAUXITE
1. Norman Girvan, Corporate Imperialism, M. E. Sharpe, Inc. (White Plains, N.Y.), 1976, p. 137.
2. D. E. Pollard, Producer Associations - The Experience of the International Bauxite Association, International Bauxite Association, February 1977.
3. Capital Development Fund, Annual Report, 1974.
4. Charles River Associates, Policy Implications of Producer Country Supply Restrictions: the World Aluminum/Bauxite Market, U.S. Department of Commerce, March 1977. S. Girvan, op. cit., p. 104.
6. Interview, Kingston, August 1977.
7. Hu Gentles, Jamaica and the Bauxite Companies: What the Agreements Mean, Jamaica Bauxite Institute (no date).
8. Jamaica-Alcoa 1976 Agreement: JAMALCO Joint Venture Agreement (official document), October 1976.
9. See C. Fred Bergsten, "A New OPEC in Bauxite," Challenge, July-August 1976, p. 18.
10. Jamaica Weekly Gleaner, February 20, 1978, p. 6.
11. See, for example, NACLA Report, September-October 1977, on the case of Mexico.
