POLITICAL ECONOMY OF CORPORATE SOCIAL RESPONSIBILITY IN THE EXTRACTIVE INDUSTRIES: A GAME-THEORETICAL ANALYSIS

Abstract

The local community and social infrastructure development projects implemented by the extractive sector companies in the frame of their corporate social responsibility (CSR), if effective, can be an important source of long-term development for the local communities affected by the mining operations. However, their effectiveness depends on whether the projects are tailored to the needs of the local community, and whether the decision-making for each project is done in a transparent manner and in cooperation with key stakeholders and beneficiaries (including the governments of different levels and communities themselves). In this regard, the dissertation is aimed at answering the following research question: how the decisions on CSR priorities are taken in the context of political economic relations and interactions between corporations, governments, and communities in developing countries. The dissertation does so by developing a game-theoretic model (based on the non-cooperative sequential games design) as an instrument to analyze the decision-making for community and social infrastructure development projects in the frame of CSR of the extractive industries. The model describes possible strategies for four key players (the company, the national government, the regional government, and the local community) and points at the factors (variables) that can determine their decisions. The variables include the costs of cooperation, including sharing the political control over the CSR resources, the value of the social license to operate (SLO), which is an important incentive for companies to fully cooperate with the local communities, and the perceived risk of social conflict (unrest) in case of non-cooperation with the local community. The model is intended to be applied to more than one case of the decision-making for the CSR projects. In the frame of this dissertation research, it was applied to the analysis of three case studies, two in Kazakhstan and one in Mongolia, all of them related to mining companies. The data collection for each case was done using the qualitative analysis of semi-structured interviews and the document analysis of policy documents and legislation. The practice of decision-making revealed in each specific case was compared to the “typical” case for the countries, which is the typical practice of the extractive sector companies as described by the experts working in the field and interviewed by the author. In general, the model proved to be useful for the analysis, as it is pointing at the key factors that determine the costs, benefits, and the perceived risks of decentralization of the decision-making and cooperation with the communities in each case. As a result of the analysis, particularly of the Mongolian case, the model was revised to incorporate the strategies related to cooperation/non-cooperation with the local (sub-regional) level of government. The model can be developed further with the operationalization of the key variables in quantitative terms and application to the new cases. The analysis presented in the current dissertation provides grounds for policy recommendations aimed at decreasing the costs of cooperation with the communities for the companies and governments and increasing the value of this cooperation (and the SLO) for the companies. For example, raising awareness of the communities, involving the civil society organizations to work with the communities, and establishing permanent channels of consultations between the company and the community reduces the costs of cooperation with the community. The Mongolian experience of legally establishing the community development agreements as a prerequisite for mining activities of the companies increases the value of cooperation with the communities for the companies, while the requirements for these agreements to be openly discussed and published improve their transparency and overall quality. This is a practice that can be introduced in other countries, including Kazakhstan.