Australia: The one sided mining boom

Review of “Too much luck” by Paul Cleary

Paul Cleary, a senior writer with The Australian newspaper, has thrown a much needed rock in the stagnant pond of what passes for economic and political debate in Australia.

His new book, Too much luck: The mining boom and Australia’s future, poses questions that are increasingly being asked about the dramatic coal, iron ore, and liquefied natural gas rush.

He explains how 361 mining complexes in Australia now produce one billion tonnes of minerals each year, “enough to fill 3,000 of the biggest bulk carriers that ply the world’s oceans.”

In the 1960s, mining made up 2% of Australia’s GDP and 8% of all its exports – now mining makes up 10% of GDP and 60% of all exports.

The non-mining capitalists are feeling left out of this profits bonanza and are in fact experiencing a worse situation because of the mining boom. Just one example is the high Australian dollar, which spent a number of weeks above parity with the US dollar this year, the first time since it was floated in the late 1980s. These suffering sectors include manufacturing, private education, retail and tourism.

These industries also feel politically unrepresented as both the major parties, the Australian Labor Party and the Liberal Party, seem to be in the pocket of a mining sector. While mining is growing rapidly it still only makes up 10% of the Australian economy and employs only 194,000 people, the equivalent of 1.7% of the Australian workforce.

In that sense Cleary has hit a raw nerve and his book will deservedly become a bestseller. For socialists, his questions about the mining boom provide valuable arguments against capitalism and its politicians in Australia. It shows how the system mishandles the wealth that is created even in the so called ‘good times’.

Too much luck is written in a very accessible, journalistic style and militant unions should consider bulk copies for their union delegates and activists.

Mining, Aboriginal Australia and the environment

The sections on the impact of the mining boom on Aboriginal Australia and on the environment reinforce points made by others rather than make groundbreaking arguments. Nevertheless Cleary explains better than most.

For example, he outlines how Xstrata’s (a massive multinational mining corporation) McArthur River Mine led to a diverting of an entire river a distance of 5km to allow for open-cut mining near an Aboriginal sacred site.

When the Australian Federal Court blocked this, the Northern Territory (one of the Australian states) government rushed through legislation to override the decision. This was then ratified by Federal Environment Minister Peter Garrett. Peter Garrett was the lead singer of the famous Australian band ‘Midnight Oil’ in the 1980s, who sung protest songs about the treatment of Aboriginal people, US imperialism and environmental destruction.

Cleary exposes the tiny payouts made by mining companies to local Aboriginal communities to gain approval for exploration: “the industry came to describe these deals as ‘fuck-off’ agreements…There is also evidence that the mining payments allowed the government to pull back on services, thereby shifting costs onto the communities.”

The mining boom’s impact on the environment is also well explained by Cleary: “BHP Billiton plans to increase the size of its Olympic Dam [uranium] mine in South Australia by 500%. It will leave behind a toxic lake and a 44-square kilometre mound of radioactive tailings, which will remain active for 10,000 years.”

The Olympic Dam uranium mine

This single project will increase South Australia’s greenhouse gas emissions by up to 9%. Cleary points out, “BHP would not dare put such a proposal in a developing country”.

New mines still need Environmental Impact Statements, but “this process is becoming redundant now that mines tend to be built in clusters” he says.

Can Australia rely on mining forever?

What makes this book so politically charged are Cleary’s arguments on the economic mishandling of the mining boom from a long-term capitalist perspective. He asks why Australia does not keep some of the mining profits aside in a sovereign wealth fund as is the case in some other countries.

In Norway, with a population one quarter that of Australia, a 70% tax on North Sea oil profits, has created a $600 billion sovereign wealth fund. In tiny East Timor a fund created from the oil wealth now equals US$7.7 billion.

Cleary argues for state capitalist intervention in the economy. He admiringly writes about Qatar where the dictatorship has “maintained majority interests in all infrastructure projects (and) therefore the government captures a majority of the value generated across the entire supply chain, instead of just the tax revenue from production.”

Paul Cleary is no socialist. He can be best described as a pro-market writer who argues for a more far-sighted approach to the mining boom than is currently being carried out by government and mining bosses.

He argues that the mining profit bonanza won’t last forever as Australian diamonds and manganese will run out in 20 years, gold in 30 years, silver and zinc in 45 years and iron ore soon after. Black coal is estimated to run out in 100 years.

However this far sighted approach stands in contrast to the Labor party and the Liberals who are both in the pocket of the mining sector and see short-term profits before all else. Prime Minister Julia Gillard was put into office after a mining industry-led campaign against Kevin Rudd inspired by his quite moderate super profits tax.

Kevin Rudd and Julia Gillard

Cleary explains that the high prices for commodity exports won’t last. He agrees with those who claim that loose liquidity has driven commodity prices high and that the Chinese economy is a bubble “based excessively on debt-fuelled investment”.

“Investment accounted for almost 60% of Chinese growth in the 5 years to 2010, compared with 25% in the five years to 2000. Investment cannot keep endlessly expanding; as with a Ponzi scheme, when new contributions dry up, the whole thing comes crashing down.”

Even if the Chinese economy continues with high growth in the short to medium term, new suppliers of commodity goods will enter the market (eg from Africa) and this will drive down prices at Australia’s expense.

One negative of the mining boom for the other 90% of the economy is the high Australian dollar it creates. This makes manufacturing exports more expensive. It makes full-fee paying courses for international students more expensive as it does with travel costs for inbound tourists.

Cleary adds another negative: “In 2011-12, more than 70% of all investment in Australia is slated for the minerals and energy sector, according to the ABS capital expenditure survey. An industry that makes up just one-tenth of the economy now commands more capital than the other 90%.”

Too much luck explains how the mining boom puts Australia deeper into debt. As savings are low here, the investment in mining comes from borrowing abroad, raising the current account deficit.

Cleary fears Australian capitalism is turning into a one-sector economy. He criticises the rigid neo-liberal comparative advantage theory which argues that an economy should concentrate on its strengths (mining in Australia’s case) and let the rest wither away.

“There is one glaring weakness with this theory…comparative advantage involves narrowing a country’s economic base until we eventually rely on just a few industries, or even one main industry, for export income…Would you feel comfortable if your (superannuation) fund manager decided to shift most or all of your assets into resources?…Australia is doing the same as we specialise in resources at the expense of industries like export tourism and education…Australia is exploiting its ‘comparative advantage’ as a low-cost producer of minerals and energy, instead of maintaining a broad-based export sector.”

Mining, taxes and Kevin Rudd

The most riveting part of this book is the chapter on how mining profits are under-taxed, especially since the mining bosses-backed coup against Kevin Rudd.

In 2010 coal and iron ore alone earned around $90 billion, three times the amount of a decade earlier. Mining is now three times more profitable that the non-mining economy.

Not surprisingly, the Rudd government wanted to tax this once in a lifetime bonanza. “His 40% marginal tax rate on super profits was not some kind of left-wing tax grab”, explains Cleary. Indeed it was backed by the IMF and World Bank!

Kevin Rudd’s proposal would have raised $12 billion in its first two years, rising to more than $100 billion over a decade. But this was too much for the mining bosses. They waged a $22 million advertising campaign that culminated in the Gillard coup against Rudd and the immediate replacement of his proposed tax with a much weaker alternative.

Within days of becoming PM, Gillard cut the marginal tax rate from 40% to 22.5% and limited it to coal and iron ore. “Total cost of concession: $15 billion over four years, rising to $60 billion over ten years (and possibly $100 billion if prices stay high)”, explains Cleary.

Soon after, Rio Tinto CEO Tom Albanese boasted: “Policy-makers around the world can learn a lesson when considering a new tax to plug a revenue gap, or play to local politics.” In fact Cleary believes an auxiliary reason for the mining bosses’ campaign was to send a message to other governments not to follow Australia’s lead.

Tom Albanese

The threat made by the mining bosses that gained some traction amongst workers (mainly because it was not effectively combated by the unions) was that the Rudd tax would lead to disinvestment and an end to the resource boom.

Cleary effectively counters this as a furphy: “Mines are not like factories that can be packed up and moved overseas. The resources are here in the ground, and Australia provides a stable, peaceful and democratic environment (for investors). Places like Brazil and Africa provide potentially more supply, but companies have to factor in higher ‘country risk’ in many of these places. Australia is the sweet spot for mining multinationals: we have a lot of the stuff and we let it go for a song.”

Reflecting a growing disquiet amongst bosses in the majority sectors of the economy Cleary criticises the Business Council of Australia for joining the mining bosses’ campaign: “the Business Council is meant to represent the full spectrum of business in Australia, yet its position was determined by an industry representing just 10% of the economy.”

The move by mining boss Gina Rinehart to take a stake in the Ten Network and Fairfax Media shows the aggressive approach of the mining sector, dripping as it is in virtually-untaxed profits. Most of these profits go overseas as about 80% of mining is foreign-owned.

Who does the government represent?

Cleary wrote in The Australian newspaper recently how State governments share the Federal government’s compliance with the needs of the mining bosses: “States such as WA that face soaring debt levels are addicted to the direct revenue hit they receive from mineral royalties. There seems to be no other reason [Western Australian state Premier] Barnett and Queensland’s [Premier] Anna Bligh are so enthusiastic about such projects.”

Both Labor and Liberal are bending over backwards to support the mining companies, with even conservative politicians going quiet over farmers’ rights when they clash with mining exploration needs.

We have the unusual situation where in an advanced capitalist country the major parties don’t represent the capitalist class as a whole, but one minority (albeit profitable) sector. This is guaranteed to lead to greater tensions within the ruling class in the years to come.

For workers, Rudd’s moderate mining tax showed the vast amounts that could be available to a government to spend on public health, education and transport if mining was taxed more – $100 billion in fact. If the government taxed as in capitalist Norway it could create a fund equal to $3.6 trillion!

This is just a fraction of what a democratically planned socialist economy could do, where the big mining companies, and other sections of big business, were not merely taxed but were brought into public ownership under workers’ control and management.

Production could be transformed away from environmentally destructive methods and slowed down to make the ‘good luck’ last. Profits could be ploughed back into wages, better working conditions, support for communities in mining areas and, nationally, could revolutionise living standards.

Too much luck brilliantly slams the mismanagement of the mining boom by Federal and State politicians. The alternative however is not slightly more far-sighted capitalist management as Paul Clearly argues in his last chapter, but a democratic socialist society where people’s needs were put before big business profits.

Too much luck: The mining boom and Australia’s future

By Paul Cleary

Black Inc., 2011. RRP $24.95

Excerpts from the book:

“(Today’s boom) resembles Australia’ second mining boom, which relied heavily on London investors and bankers and ended in misery in the late 1890s. So intense was the rush that from 1894, on average one WA company was floated in London every day for a period of two years…

For a few years (Kalgoorlie) was flowing in French champagne and British companies bought land in the main street, believing the place was destined to become a major city. One mine the size of a grave raised 700,000 pounds when floated, but the investors later found out that what gold there was had been stolen.

(Historian Geoffrey Blainey) describes the mining boom that swept the south western Tasmanian town of Queenstown in the late 1890s, where ‘prospectors, financiers, swindlers, investors, clairvoyants and carpet-bag speculators’ congregated to exploit the riches found underneath nearby Mt Lyell.

…Mt Lyell proved to be a vast source of copper and silver…in one lucky strike, a quarter of a million ounces of silver came from a slope barely the size of a suburban dining room.

…After a century of mining at Mt Lyell, an entire valley that was once a lush rainforest is now completely denuded, pockmarked with craters filled with toxic tailings. The devastation covers an area of about 50 square kilometres.

…The town is a shadow of its former glory days decried by Blainey; the population is about 2,000 and a three-bedroomed home can be bought in Queenstown for just $50,000. There is nothing to show for the vast riches extracted over the past 108 years.

The state of Tasmania was paid enormous royalties for almost a century, but its leaders never thought to save for when mineral prices collapsed, or for when the ore ran out.

Mt Lyell and Tasmania are harbingers for what Australia as a whole might look like one hundred or even fifty years from now.”

We might add, if we allow capitalism to continue.

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October 2011