Just how substantial is Australia's competitive advantage. Huge--in every respect. At least that is the received wisdom. But some Australian's beg to differ.
Here is a decidedly negative view out of Sydney. See what you think.
Nation brainwashed by cult of boom
Peter Hartcher
November 5, 2011
It's entered into the culture. ''If I get sick of this, I'll move to Western Australia and get a job driving a truck.'' The mining boom has provided us with a frontier of last resort, a modern gold-rush romance, a western adventure fable for the frustrated urban middle classes.
It's based on stories of unskilled suburban 19-year-olds chancing into mining towns to be offered $120,000 a year driving trucks, on reports of looming labour shortages in the industry, and on the mind-boggling profits of the big companies. BHP Billiton, for instance, made a profit of less than $6 billion two years ago. This year it declared $23 billion, the size of the economy of the oil sheikdom of Bahrain.
For most of us, the western adventure option is spoken in jest or exasperation. Which is just as well. All the elements of the vision are based on reality, but we've put them together to create a dangerously inflated picture of the opportunity. As a nation, we've turned it into a modern white man's cargo cult.
And the truth is only slowly dawning on us that while the boom is a source of wealth, it's also Australia's biggest economic problem.
Cargo cults sprang up in some Pacific islands after the Second World War. Misunderstanding the origins of the cargo that came down from the skies in US and Japanese war supplies, and wanting them to come back after the soldiers were long gone, some tribes continued to look skywards for miraculous reappearances of food, medicine and weaponry. Instead of using their time productively to supply their needs, the followers of at least half a dozen surviving cults carry out rituals in the hope that it will bring the unearned deliveries of bounty back. . . .
We sneer at such ignorance. But consider our own irrationalities when it comes to mining. A poll by Essential Media in September asked Australians to nominate the three industries that are ''the most important for Australia's economic future''. Number one was mining with a score of 67, second agriculture with 58, and tourism with 46, Next came manufacturing with 37, construction 25 and finance 21.
But this impression is based on a hugely exaggerated idea of the size of the mining sector. In a survey in the same month, the Australia Institute asked people to nominate the size of mining in the overall economy. The average response was 35 per cent. The reality? Last year mining and energy - all the coal, iron ore, gold, bauxite, oil, gas, copper, uranium and everything else - accounted for 8.4 per cent of economic output, or gross domestic product, according to the Bureau of Statistics. That made it smaller than the finance industry, smaller than manufacturing.
Similarly, people told the pollsters that they thought mining employed about 16 per cent of all Australian workers. The reality? Last year the mining and energy sector employed 1.5 per cent of the workforce, according to the the bureau. Far from being one of the biggest employers, that made it the second smallest of the 19 categories used by the bureau. Even the arts and recreation services category employed more workers. . . .
This is not to argue that mining is unimportant. It is important, of course. Its greatest value is in earning export income - mining and energy account for more than half Australian exports. It's just that it's not anywhere near as important as Australians think it is. . . .
(M)ining booms are inherently erratic. You cannot base a national economy on a phenomenon that arrives unpredictably in a great rush and then disappears again some years later. This is the fifth big mining boom in Australian history. The others all ended, usually in an ugly bust. The longest ran for 15 years.
As one of the giants of mining, Sir Arvi Parbo, has reflected on his 60 years in the business: ''During my time in the industry the supply and demand of minerals were in a steady state for only relatively short periods … Most of the time - the 'normal' environment, if you like - it was either a boom or a bust.'' Planning a national economy in expectation of a mining boom is like taking your surfboard down to the beach to wait for a tsunami. It might never arrive. And even if it does, it's not necessarily the best thing that's going to happen to you. You might get smashed if you're not very careful.
And that's exactly what's happening to Australia, and why the mining boom is the biggest economic problem facing the country.
It's an old syndrome with a number of names - the resources curse, the Dutch disease, the Gregory thesis after the Australian economist Bob Gregory. It's been on dismal display in many countries for centuries.
It works like this. The great surge in demand for energy or minerals pushes their price way up, and this carries the national currency with it. That's the main reason the Australian dollar, which has averaged about US77¢ since it was floated in 1983, has been trading roughly between $US1 and $US1.10 in the past year or so.
That's all to the good if you're planning an overseas trip, but it's devastating if you're an exporter in any sector outside mining. Because the high value of the currency puts you at a price disadvantage to your competitors from other countries. Australia's third biggest export, after coal and iron ore, is education. Fifth biggest is tourism. But they are suffering acutely with the Australian dollar at these levels. It's one of the biggest cost problems facing Qantas.
Manufacturing is taking an absolute hammering too. Look at the news this week of the plight of the Holden Commodore. Not only is it tough to export with the currency so high. It's also tough to compete in your home market against imports, which become much cheaper measured in Australian dollars. We know what this means. The Treasury has told us. Over the next nine years, Australia will lose 170,000 manufacturing jobs if the mining boom continues as it is. That's almost double the pace at which the sector lost jobs in the past decade. The mining boom is great for mining but crippling for others.
The rush to extract as much coal seam gas as possible is another example of the complicating costs of a mining boom. The growing friction between farmers and miners over use of prime agricultural land for gas extraction has drawn attention to the problems that can occur when hyper-pressurised water and chemicals are forced into the ground to open cracks, potentially contaminating water tables. It's a growing problem internationally. In yesterday's paper was news that this practice, ''fracking'', was probably responsible for what seismologists initially thought to be two minor earthquakes in north-western England this year.
It was our cargo cult attitude to mining - ''It'll solve all our problems, so all hail the mining industry!'' - that drove Donald Horne to distraction. It was our resource complacency that drove what he called ''the lucky country mentality'' after the name of his 1964 classic, The Lucky Country. In the last interview of his life, in 2005, he took great satisfaction from the reform and prosperity of the Australian economy since he wrote the book. But he told me: ''It's quite appalling to discover people saying today that Australia is still the lucky country because we have all these minerals. There's still a bloody lucky-country mentality!''
He's right. . . . (D)on't plan your future around that truck-driving job. The giant yellow trucks the miners are now trialling are fully automated. No driver required.
Peter Hartcher is the Sydney Morning Herald political editor.
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