SIDEBAR 7-1 Benefits of SXEW to Producers and Consumers

Solvent-extraction/electrowinning (SXEW) is partly responsible for the decline in the real price of copper in the past 30 years. Millions of people who use copper-containing products have benefited. The United States, the world’s largest copper-consuming country, has benefited greatly.

SXEW has also improved the competitiveness and profitability of many companies by reducing production costs and enabling them to exploit copper minerals that might otherwise be wasted. The technology was developed and first used by smaller copper mining companies in the United States. Later, SXEW was adapted by foreign producers and major U.S. copper companies.

With globalization and the rapid diffusion of new technologies around the world, conventional wisdom suggests that innovating firms will only be able to maintain short-term competitive advantages. This argument rests on two critical assumptions. First, the innovation is a one-time event, rather than a series of associated innovations over an extended period of time. Second, the new development is neutral in that it affects all producers equally. More often than not, one or both of these assumptions is incorrect.

Today, for example, the SXEW process is the result of first a single innovation in chemical reagents that was followed by literally hundreds of innovations in equipment, instrumentation, and operations over a period of 40 years. These innovations by vendors, operators, and researchers have reduced costs and greatly extended the range of applications of SXEW. As a result, firms and countries can benefit from lower costs for as long as they remain technological leaders.

In addition, SXEW is not a neutral technology. It has particularly helped countries with a history of copper mining that has left many large oxide waste dumps; countries with an existing copper mining industry that must reduce or capture sulfur emissions from its smelters (SXEW requires large quantities of sulfuric acid); countries with arid climates because heavy precipitation can make leaching difficult; and countries with copper mines that produce few valuable by-products because SXEW cannot yet recover valuable by-products economically. In short, SXEW helps the United States and a few other copper-producing countries more than it helps others. This is not entirely surprising because U.S. producers and suppliers have played an important role in the development of the technology.

External benefits, of course, are not unique to advances in the mining industry. Over the research and development cycle, the ratio of external to total benefits tends to fall. For this reason, government funding supports a higher proportion of basic research than development. Activities other than research and development can also create external benefits. Governments around the world, for example, fund education on the grounds that the social benefits of education will far exceed the private benefits.

External benefits are the most important but not the only, rationale for government support for research and development. Without detailing the full litany of possible reasons for market failure, we note that the discount rates firms use to assess investment projects, including research and development projects, may exceed the appropriate rates for society as a whole. Therefore, without government support, the private sector tends to underfund research and development, particularly projects that are highly risky and projects that are expected to produce benefits in the distant future. For this reason, the government may have a strong interest in supporting so-called high-risk, “far-out,” “off-the-path,” “blue-sky” research.

RESEARCH AND DEVELOPMENT IN MINING TECHNOLOGY

Minerals are basic to our way of living. Essentially everything we use is a product of the mining, agriculture, or oil and gas industries, including the things that comprise and operate the tools of the so-called computer-information and communications age. Basic industries (i.e., mining, agriculture, and energy) play a crucial role in our economy.

Because of high capital requirements, small profit margins, the cyclic nature of commodity prices, long lead times for the development of new properties, and environmental constraints, the mining industry historically has been very conservative in initiating and adopting new technologies. Nevertheless, the industry has made significant advances in productivity, environmental control, and worker health and safety.

The development of the SXEW process, for example, has led to the low-cost production of copper from waste and rawore dumps of copper minerals (primarily oxides and silicates) found at many copper mines. SXEW is a hydrometallurgical process that differs radically from the traditional method of producing copper by milling, smelting, and refining. Currently SXEW accounts for about a third of U.S. copper production (Sidebar 7-1)

For more than a century, the federal government has been involved in research and development to meet the basic needs of society—food and other agricultural products, energy, and minerals. The role of the government has been largely to foster research that improves efficiency, and therefore reduces costs to the consumers, and lessens the environmental consequences of agricultural, energy,



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