Compensation and benefit sharing: Why resettlement policies and practices must be reformed

Many public and private sector projects, such as hydropower dams or mines, trigger forced population displacement but fail to resettle people sustainably and instead cause their impoverishment. Social science research has found that one root cause of such failures and of impoverishment is asset dispossession and the insufficient financing of resettlement. Most governments, however, state that (1) compensation alone is sufficient for restoring the income and livelihood of those displaced, and (2) resources to supplement compensation with additional financing are not available. The author critiques and rejects these positions. He offers a theoretical analysis of the limits and flaws of compensation payments for expropriated assets, and argues that resources are available for supplementing compensation with financial investments for resettlers' development. The sources for supplementary financing are the economic rent (windfall profits) generated by natural resource projects such as hydropower or mining and the regular stream of benefits generated by all projects that require resettlement. Further, the author argues that financial investments in resettlers' welfare are indispensable and that benefit sharing is feasible. Therefore, both should become basic principles of resettlement legislation and practice. In addition to theoretical analysis, the author documents with empirical evidence that some countries (China, Brazil, Canada, Columbia and Japan) already make investments additional to compensation for post-displacement reconstruction. The author sums up his argument in these key points: (1). Compensation alone cannot prevent the impoverishment of resettlers and cannot in itself restore and improve their livelihoods; (2). Additional financing is needed for direct investments in resettlement with development; (3). Compensation levels must be increased; (4). Financing resources are available in most cases for investing in resettlers' development, but allocation of investments depends on the political will of governments and project owners; (5). Firm opposition to displacement and under-compensation is growing in many countries and the strength of resettlers' demands and political opposition does influence allocation levels; (6). Mechanisms for benefit sharing and transfer are known and effective and these mechanisms can be adjusted to different country and economic sector conditions; (7). The introduction of benefit-sharing rules requires legislative enactment for robust application.