Home > Has the mining boom triggered an ECONOMIC PLAGUE?

Has the mining boom triggered an ECONOMIC PLAGUE?

Editorial
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In tying itself too closely to the mining boom, has Australia's economy dealt itself a major blow?

The over reliance on coal has already seen the mining tax fail to raise its planned revenues.

The mining industry sits in a league of its own, chest puffed, looking out at Australia's rich soil like the predator eagle scouring for its next meal- or in Gina Rinehart's case, the next jackpot.

Known as the 'lucky country', Australia has a lot to be thankful for; good weather, fertile land and of course it's natural resources.  

The phrase, muttered by Donald Horne in his 1964 book was an indictment of 1960's Australia, intended to claim that Australia's economic prosperity was not down to clever enterprise, but rather an economy held together by its good fortune at stumbling upon its natural resources. 

Recently. the Financial Review reported on a speech given by Professor Ross Garnaut of Victoria University which outlined that Australia's economy, carried by the mining boom, will sooner or later experience a deep economic recession. 

An observation that resonates high following speculation of an oncoming plague, historically titled the 'Dutch disease'.

Dutch Disease, a term coined in 1977 by London's The Economist Newspaper, was used to describe the situation in the Netherlands after its discovery of a large natural gas field in 1959. Now a common economical phrase, Dutch disease is used worldwide as a way to describe the apparent relationship between the increase in exploitation of natural resources and the decline in manufacturing and other sectors, much like Australia's previously thriving agricultural industry. 

Such a dramatic increase in wealth tends to have a paradoxically adverse consequence further down the line as currency strengthens and other exports become too expensive for other countries to buy. In Australia's case, it is no secret that the manufacturing, agricultural and retail industries are all suffering. 

In what was described by Paul Howes, National Secretary of The Australian Workers' Union, as the "making or breaking year for the future of Australian manufacturing", 2013 has brought more disappointment with the recent announcement that  at least 1200 workers  will be made redundant following the news that Ford are to cease operations in Australia. Another blow to an industry that employs five times as many workers as the mining sector. 

As it stands, the mining industry's contribution to the Australian economy is now $121 billion a year with its export income generating $138 billion per annum, half of total goods and services and a huge part of Australia's success. 

So what's the problem?

Some economists believe that if a countries high inflows are to be permanent, it becomes a trade evolution or a "self-correcting mechanism" as Christine Ebrahimzadeh refers to it in an International Monetary Fund article, "a way for the economy to adapt to an increase in domestic demand."

However you look at it, evolution or not, the Australian economy will suffer. If the mining industry continues to grow and other sectors like manufacturing are forced to shut down, people will lose jobs, consumer spending will drop and there is the potential to bring down yet another already struggling industry - retail, which is losing out to competitive overseas imports.

Another worry is that a shift in resources away from manufacturing, which facilitates enterprise and innovation, might jeopardise a country's long term growth potential by killing off an important source of human capital development. Arguably the number of trainees and apprentices in Australia is rising significantly each year, with the  mining industry investing millions of dollars in education and training and billions into research and development. This critical funding will  see the level of skilled professionals entering the workforce increase and Australia will be ensured of its long-term productivity and growth.  

The future of the economy

A statement from the Department of mines and petroleum (DMP) Deputy Director General Tim Griffin said that recent figures according to the Australian Bureau of Statistics "showed investment in committed projects across WA remained strong".

"However, early indications are that a previous high level of high-risk exploration expenditure ... is softening"
he said.

Griffin described expenditure on exploration as "critical" as the current mines run out of high grade ore and commented that the softening of expenditure in this area "is reflected in the difficulty junior explorers are having in attracting investment to support their projects".

Further questions into the future of the Australian economy in relation to its natural resources were answered by the Chamber of Minerals and Energy of Western Australia, Chief Executive Reg Howard-Smith, who suggested that it is not just manufacturing and the like that are suffering from the high Australian dollar created by the boom.

"The sectors current challenge is on the high cost of doing business here in Australia. Given volatile market dynamics, capital and labour productivity have become a vital element in maintaining WA resource project competitiveness.

"When combined with decreasing ore grades and new minerals and energy rich regions emerging around the world, the level of competition in the global resources sector is increasing for Western Australia" he said.

Despite the economic plague that has blackened other countries, it seems Australia is for now, immune to the virus. With the WA resource sector entering the transition from a construction phase into production, it is likely that we will see the economic contribution significantly increase, despite the anticipated deceleration in mining investment. 

"It is our clear view that the resource sector will continue to be a significant contributor to the national economy for many years into the future," says Howard-Smith.

A view that is supported by a wealth of government approved projects under construction totalling an estimated $177 billion in WA, with a further $120 billion ear-marked for major future projects.

As for manufacturing, its future seems dependent on government intervention, a view that some are opposed to because of the costs of doing so. Manufacturing Australia Chair Sue Morphet responding to the  current gas crisis that could see a further 200,000 jobs lost and up to $28 billion in economic value wiped out said that "Rather than asking what the cost of intervention is, governments should be asking what is the cost to the nation of doing nothing".

"It is not good enough for poor planning and bad policy to turn one of Australia's greatest strategic assets - our abundant energy resources - into a liability. No other gas-rich country lets this happen. Why should we let it happen in Australia?"

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