If you think capitalism works perfectly, youre awfully naive. But if you think free market operations beat the pants off state-run ones, youre right. Case in point: one of South Americas largest smelter and refinery facilities in La Oroya, Peru.
In 1974, the Peruvian government took the facility, now more than 80 years old, from an American company. Under nationalization it continued to produce lead, gold, silver, copper, zinc and other metals.
La Oroya is hell no more.
All of this was ending up in the bodies of the workers, their wives, their children and their neighbors. Almost 100 percent of the children in La Oroya suffered excessive blood-lead levels.
Finally in 1997 the government sold this nightmare back to the gringos, the Missouri-based Doe Run Company which also produces metal products in North America and Africa. As part of the deal, whats now called Doe Run Peru promised to quickly begin a massive cleanup called the Program to Administer and Maintain (improve) the Ambient (environment), or PAMA.
After six years, the improvements are remarkable.
While originally required to spend $107 million to execute the PAMA, DRP chose to increase that to $174 million. More than half the PAMA projects had been completed by the end of 2002.
Arsenic in the air has declined by about a fifth between 1997 and 2003 while lead levels have fallen over 50 percent. Total discharges into the areas two rivers have been cut by more than half, and the amount of dissolved lead in the water has fallen by about 80 percent. Yet the facility produces 10 percent more metals now than it did when DRP took over.
Unfortunately, theres little historical data on blood lead levels in children because tests were conducted differently each time, leaving apples-to-oranges comparisons. But there was an 18 percent drop just from 2000 to 2001 among a select group, essentially the result of a DRP pilot program to teach area residents better hygiene such as washing hands and bathing more frequently.
Six years ago, these geese would have been wearing gas masks.
Indeed, one influential activist publication is called "La Oroya Cannot Wait." But to some extent it must. Just as fad diet followers discover you cant really lose 30 years of accumulated fat in 30 days, you cant clean up decades of filth from government mismanagement in just a few years.
With the backing of the municipal council and already one of the largest unions, DRP recently announced that some improvements scheduled for 2006 would indeed be pushed back five years. But its also going to invest another $226 million in cleanup operations, close part of an especially dirty zinc plant and delay a planned sulfuric acid plant to further cut sulfur dioxide emissions.
The company is always balancing the costs of cleanup with the responsibility to stay profitable. Thats how it could pay the Peruvian government almost $6 million in taxes in 2003, with a $44 million payroll for DRPs 3,100 La Oroya employees. These are some of the highest-paying jobs in the region and 75 percent of the workers are unionized.
Further, while green groups would have us think cutting toxic exposure is a simple matter of cutting emissions, lead is to La Oroya what sand is to South Beach. Like sand, it gets into everything – and everybody. It would do so even if there were no smelter.
DRPs operations, however, are bringing health, wealth and hope to a terribly impoverished people. But while state-run companies can run losses forever; capitalist ones cannot. The activists dont realize this; believing that through some form of alchemy DRP can just keep pouring in the money and eliminating profitable plants.
But the only magic theyll accomplish is making DRP vanish. Trying to shake out too many eggs from DRP too quickly just may kill this gold-producing goose.
Read Michael Fumentos additional work on environmental issues.