Australia's mining menace

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Handful of coalSpeaking on the recent release of Australia's GDP figures, the shadow treasurer, Joe Hockey said 'The economy is increasingly, obviously, reliant on the mining boom, and the evidence out of today is clear: that if there's a cough in the mining boom, the rest of the economy catches pneumonia.' Hockey was right about one thing; the mining boom is infecting the rest of the economy. But he has misdiagnosed exactly what the problem is.

In Hockey's interpretation of events, the resources boom is the engine of Australia's growth, propping up the flagging sectors elsewhere in the economy, and the recipe for success is to grant the mining industry special privileges and hope that it keeps us all afloat.

Unsurprisingly that is a policy judgement the industry endorses, and it has spent considerable time and money trying to convince the government of it. They have been largely successful judging by Prime Minister Julia Gillard's recent reassurances to a mining dinner that 'What I really want you to take away tonight is an understanding of just how central your industry is to the Government's economic agenda.'

The problem with this view of the mining sector as being central to the welfare of the economy is that it's a total furphy. The mining industry is not supporting other sectors of the economy, it's holding them back.

While the big mining states of WA and Queensland are booming, in other parts of the country like Tasmania and regional Victoria the economy is sluggish. Areas that rely on manufacturing are suffering from rising interest rates and the effects of the strong Australian dollar on terms of trade.

The Reserve Bank could offer relief on this by lowering interest rates, which would ease credit for small businesses and help to rein in the dollar, but it is loath to do so because of inflation fears largely caused by runaway growth in the mining sector.

That is the essential problem of the 'two speed' economy; decisions on monetary policy that would benefit the rest of the country are being held back because of the mining states. The boom is driving growth in the resource rich areas, but it is impeding growth everywhere else.

Even in the states where mining dominates, the positive effects of the industry boom on the wider economy are questionable. Business owners in non-mining activities are hampered by their inability to compete with the massive salaries offered in the mines. For residents it is increasingly difficult to find tradies to work on their houses, and when they do they are often charged exuberant fees. All activity is centred on the relentless expansion of the mines and this is crowding out growth and investment in other areas.

The potential damage of this scenario is obvious to anyone who lives in Ravensthorpe, WA, which was left devastated when BHP Billiton closed down its nickel mine there. The former agricultural town closed down virtually overnight after the mining giant decided to pull the plug. All that is left now are half finished homes, built in anticipation of the mine's long term operation.

If things continue at the current rate, the whole of WA and North Queensland will be left as abandoned wastelands when the boom ends, as itinerant workers flee and leave behind half-empty towns and cities without an economic base.

Hockey's opinion that the economy 'is increasingly, obviously, reliant on the mining boom' is not only incorrect (the financial and manufacturing sectors actually account for more GDP growth than the resource sector), it's dangerous. Placing mining at the 'centre of economic policy' as Gillard would have it condemns Australia to be a bimbo economy. We must aspire to more than that.

If Australia is to continue to grow it needs to be equipped to do more than dig things up for the rest of the world. That means diversifying, investing in new technology and increasing productivity.

These are things that the resources sector has not done well in recent years. Between 2002 and 2011 productivity in mining halved, and as former Newcrest Mining executive Ian Smith advised the Australian Minerals and Metals Association recently, it was all due to a relentless greed for profits.

'The IR landscape didn't do that — we did that as an industry,' he told an AMMA conference. 'Because of the pricing of the commodities there has been an attitude where we would do anything to get the project on while these prices prevail. We destroyed what we were doing as the most productive industry within Australia.'

This is not the kind of model that can sustain for very long. Short-term profiteering at the expense of real productivity is not a secure basis for an economy; just ask anyone who invested money in an Icelandic bank.

The resources sector brings real benefits to the Australian economy and needs to be supported, but the wider economy needs to be supported too, and that means bringing mining's disruptive expansion under control.

Part of the reasoning behind Ken Henry's proposed mining tax was that it would help to bring mining sector growth back to a more sustainable level. A modest slow down would maintain a healthy industry while giving the rest of the economy a break, helping to restore Australia's growth to a more stable footing.

Unsurprisingly this was a message that the mining magnates did not want to hear; why should Gina Reinhardt and Andrew Forrest care about giving a break to car workers in Geelong or small business owners in Launceston? They don't, and after defeating the first mining tax with an effective fear campaign, the industry is once again squaring up for a fight.

The Minerals Council has started airing commercials designed to warn off any attempt to curb its gargantuan profits. 'We all eat from the same tucker box up here' proclaims a small town miner in one of the adverts. Maybe they do, but what about the rest of us? 


Steven LittlewoodSteven Littlewood works as an economic researcher and industrial officer in the trade union movement. He is a founder of the new think tank Aequitas, which aims to foster a progressive policy dialogue between the UK and Australia. 

Topic tags: mining boom, bhp billiton, Ravensthorpe, joe hockey, julia gillard, Gina Reinhardt, Andrew Forrest

 

 

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"If Australia is to continue to grow it needs to be equipped to do more than dig things up for the rest of the world. That means diversifying, investing in new technology and increasing productivity."

Right on!
But continued, dynamic growth also requires an understanding of how these variables are related. An understanding of economic activity must take account of the FACT that there are two (not one) types of firms and correlatively two types of consumers: those that produce basic goods and those that produce capital goods which are used in the production of the basic goods. Basic goods are consumed directly and more or less immediately; capital goods are only consumed indirectly over a longer, often indeterminate, period of time.


Some year twelve students in a well-respected Jesuit institution in Sydney think that the lifeblood of an exchange economy is the productive process. They are being taught that the firm and household diagram which is used in economic textbooks is “unscientific” because it overlooks the fact that there are two kinds of firms.

A “truly scientific analysis” requires an understanding of the relationship between two distinct economic circuits. The basic circuit is the flow of consumer goods and can be understood as a rate (so much every so often) and the producer circuit is the flow of capital goods and can be understood as a series of accelerators (speeding up, slowing down, or even maintaining) the rate of flow in the basic circuit. The purpose of economic analysis and policy is to monitor the relationship between the circuits in changing contexts.

And this theoretic understanding of an exchange economy can, as the students in fact know, be verified.

The future of the Australian economy (or at least, the hope for the future) is not in the mines but in the minds of these students.

Tom H Canberra | 17 June 2011


Three cheers for Stephen Littlewood , who has skillfully presented an article of the cruel facts about how mining boom is killing most other industries in regions such as Townsville N/Qld .All his statements & more have been brewing in my mind for sometime . The rural& construction industries have long been the nurseries for the mines labour force ,creating self reliant, industrious workers of both genders (the girls are said to be superior operators of dump trucks etc .),only to be seduced by absurdly high wages offered by mining companies . Construction industry productivity/profits have severly suffered by having to exist with lower end of labour supply on above value cost . An equally severe outcome is the social disorder created by fly in /out system .I remember the then Qld premier trying to convince a community group meeting in Julia Creek that F I/FO eliminated the social dysfunction of traditional mining towns ,ie the family friend/ wife predator had 7 nights on alternate week of husband's night shift ,to set his traps .Now in Distant cities he has 24/7 time to set his traps for very stressed wives who have full parenting,mentoring roles .Regret word restricts further comments .
John Kersh | 17 June 2011


For the greater good of all - not just a few. Hear hear.
Suzbat | 17 June 2011


Indeed Steven Littlewood. It is diversity or perish. But then the present government in WA is a conservative one, they want to stay things as they are, including the neglect of the homeless despite all the wealth currently generated here.
Joyce | 17 June 2011


Littlewood's article prompts a look at changes to economic beliefs and practice over the decades.

The present favorite, although not expressed so bluntly, is that 'greed is good' and governments should stay out of the action.

In contrast, both Liberal and Labor parties once agreed that the Keynesian theory of limited government intervention was the way to go - and consequently the decades after World War 2 were atable and reasonably prosperous.

This contrasted with the misery of the Great Depression of the 1930s that lingered on for years: the result of discredited pre-Keynesian theories.

We should remember the lessons of history and combat the'greed is good' belief however cleverly it is presented. We must get the balance right.
Bob Corcoran | 17 June 2011


Diversity is the rule for nature. It's how ecosystems survive shocks and catastrophes. It means having multiple redundancies, as opposed to monopolistic tendencies of our corporatised economic model. Given the longevity of natural systems, perhaps it's time economists looked to nature to teach them how to create viable systems?
Gerard | 17 June 2011


Serious nations husband their natural resources, particularly where those resources are finite, non-renewable resources. They thoughtfully exploit their resources for maximum benefit to the nation, for now and for the foreseeable future.

They refrain from driving people off their land. They enter into partnerships with those people, and afford them health care. they educate and train them, so that the people themselves operate the mines, and operate processing plants.

Serious nations export processed products, not dirt. They export metals: ingots of copper, aluminium and zinc, pellets of nickel, bars of iron.

Other nations, on the other hand, just dig up dirt. They blow up their country and ship it out as fast as they can. The people, dispossessed of their county, look on, while guest workers, flown in on temporary work visas, operate the giant machines that turn land into dirt and load it onto ships. The owners of the companies with the concessions to dig these holes in the country, are feted in all the best cities in all the best countries.

These latter nations are not what we call serious nations.

Other world leaders mock them behind their backs, for these latter nations are the world's Banana Republics.
David Arthur | 17 June 2011


Good analysis - and that's just the economic aspect of the drain that is large-scale mining. Nicholas Rothwell in his brilliant THE MONTHLY article (Sept., 2010)gets to a more basic concern with this industry: 'The nature Tarkovskty (film-maker of 'Stalker')depicted as under threatis under threat everywhere', and Rothwell deals with the devastation in the Pilbara, etc.But if we are to discuss economic effects, let's get to the real heart of the issue: when are we going to discuss Steady State Economics because you can't have growth forever on a finite planet?
len puglisi | 17 June 2011


Really good article. Thank you.
Moira Byrne Garton | 18 June 2011


"If Australia is to continue to grow it needs to be equipped to do more than dig things up for the rest of the world. That means diversifying, investing in new technology and increasing productivity."

The article blindly perpetuates the myth that economic growth is normal and desirable.

There is a a failure to recognise that economic growth is neither forever nor sustainable. The world needs to downsize its economy and its population.
Peter | 18 June 2011


CongratulationsET. This is precisely the kind of analysis that, sadly, will not appear in any of the Murdoch papers. Our induced reliance on mineral resources has made this country delusional, lazy, technologically challenged, less inventive and devoid of any social reform. And to think that in global terms, we are the most fortunate of all nations!
Alex Njoo | 19 June 2011


My apologies. I mean, of course ES. ET has gone home.
Alex Njoo | 20 June 2011


Ä modest(mining)slow down would.....give the rest of the economy a break"...". Is Steven including manufacturing,in his allusion to "the rest of the economy"? With tariff barriers gone and our manufacturers totally unprotected is Steven suggesting that a mining slow down will help Australia produce more shoes and cutlery sets?
Claude Rigney | 21 June 2011


Claude, the clear point is made in the article that a slow down in mining would allow an easing of monetary policy. This would help to bring down the value of the dollar, which would assist terms of trade for manufacturing.
Steven Littlewood | 22 June 2011


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