The conflict minerals provision tucked deep inside the gigantic Dodd-Frank Act requires manufacturers to determine their use of minerals sourced from the Democratic Republic of the Congo (DRC), namely tungsten, tin, tantalum and gold. These minerals can be found in an assortment of products like clothing, electronics and household goods. Why was a manufacturing regulation attached to a financial reform bill? To protect Main Street from Wall Street? Nope. To curb conflict in the Congo.
The former Belgium colony and second largest country in Africa experienced a brutal, decade-long civil war during the 1990s that claimed millions of lives. The newly established government told a handful of U.S. officials in 2007 that conflict lingered in the east because rebels funded their operations through the sale of minerals. The discussion gave birth to the regulation of conflict minerals. The proposed law would force publicly-owned U.S. businesses to inspect their supply chains and openly admit whether they used minerals sourced from the DRC.
Advocacy groups and Hollywood elites like George Clooney and Matt Damon championed the idea. The strategy assumed public disclosure would shame businesses into action, which would cut off rebels from the market, sap their power and promote stability in the DRC. Experts on the Congo, however, begged congress not to pass this cause célèbre regulation. They argued that the Congo would become a proving ground for soothing Americans’ conscience. Yet, the infamous benevolence of big government outweighed any considerations to the contrary.
In the end, Dodd-Frank ushered in a law that used the state to arbitrarily coerce citizens into accepting the fleeting causes of dilettantes. Supporters stood apparently unaware that the power of the government to compel at random sets a precedence for a rudderless, often tyrannical form of governance. Worse still, there was no serious review of the law’s application in the Congo. Backers simply assumed their goodwill would deliver people from harm. And make no mistake, this provision was not a misguided policy of do-gooders. Indeed, doing good inherently demands a review of the results to determine its effectiveness. No, this was a product of the feel-gooders or those that concern themselves with intent rather than outcome.
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Feel-gooders, fully convinced of the righteousness of their motives, will go to frightening lengths to ensure absolute endorsement of their position. This regulation is a window into that resolve.
The law initially compelled companies to publicly declare themselves “conflict-free” until the D.C. Circuit Court of Appeals overturned the clause as a violation of the first amendment. The court recognized that bringing awareness to a problem is not the same as coercing people into adopting state-imposed sentiments. Our system rejected the most egregious part of the regulation. But the body of the law remains.
Businesses of all sizes now conduct extensive and costly supply-chain reviews in good faith. A company can claim to have no knowledge of a mineral’s origin or partial knowledge without consequence. A business must deliberately source minerals from conflict areas without disclosure or simply fail to conduct an audit to face a civil penalty. Moreover, recent polling shows that only 45 percent of companies planned to be knowingly conflict free in the future. In essence, compliance has become a vain and expensive exercise.
Let us not forget the Congo, either. The Congolese now call it “Obama’s law.” The name speaks volumes. It infers disassociation and metaphorically places blame at the feet of the final signatory. After all, the regulation engineered a de facto boycott on an already impoverished nation when companies fled to avoid compliance costs or the stigma of conflict minerals. Unfortunately, a large percentage of mineral operations came from Congolese artisan miners outside rebel control. This exodus drove thousands deeper into poverty. Many families have since turned to unreliable subsistence farming. Others have joined militias for quick cash. Rebels, meanwhile, substitute conflict minerals for other sellable resources. So conflict continues.
Another story in the long, injurious saga of government charity cannot dissuade feel-gooders, though. They now demand supplemental federal aid for devastated communities; capital that will simply be used to repair damage the law already caused. Others want statutory revisions, which just ignores the regulation’s flawed nature. And proponents still claim victory since some companies have moved to more transparent sourcing. They not only assume their efforts are the reason for “conscientious” supply chains, but they still believe those changes have somehow benefitted the victims. Evidence says otherwise.
Indeed, those who see their intent as the sole measure of success inevitability respond to failure by redoubling efforts in the same direction. When left unattended, this detrimental cycle simply grows in both size and longevity.
The failed regulation also serves as a reminder that compulsion does not engender principled behavior. This faulty logic is akin to the old English saying, “The beatings will continue until the morale improves.” As business expert and author of Values, Inc., Dina Dwyer-Owens observes, a public ethos can only begin in a company that privately practices a code of values.
Congress needs to repeal the provision completely. Otherwise, it will become the first trickle in a long downpour of coercive benevolence.
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