Catching Australia, Part II

The “Luck” Won’t Last

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.

>Mine, Baby, Mine

>A Tick for Solid Energy

Regular readers of this blog will be well aware that we have scant regard for the state using its coercive power to engage in commerce. However, the state owned enterprise (“SOE”) model, where commercial operations are run on commercial terms at a reasonable arms length basis, has worked reasonably well–at least in the short term. (Having said that, we doubt that it would have survived another left-wing Labour government. Labour had already stacked SOE boards with its “friends” who had less commercial experience than an ante-diluvian Neanderthal. The writing was on the wall.)

We were cheered recently when the Government’s mining company, Solid Energy announced that it intends to bid for what remains of the Pike River Coal company. The Chief Executive, in true mercantilist spirit, declared his company’s interest in bidding, slammed other bids (by entities as yet unnamed) as not worth the paper they were written on, and talked up his company’s considerable experience in West Coast mining. He also added a deft political touch by promising to pay out Pike River’s creditors and work to recover the bodies of the slain miners.

More cheering still was his intimation that Solid Energy would employ open cast mining to extract the highly valuable coal from Pike River, pointing out that Solid Energy currently operates open cast mines successfully, in compliance with environmental codes.

If any company would be successful in extracting this valuable asset, it would likely be Solid Energy. The fact that it will likely be partially privatised in the next year or so makes the proposition even more attractive.

>Picking Up the Pieces

>Overcoming Adversity at Pike River

It is a gross understatement to say that things went wrong in the Pike River mine. In the end, despite best endeavours, all of the preventative safety systems proved inadequate. At first glance it would also initially appear that not nearly enough thought and planning had gone into building a technological infrastructure that would not only survive a mine blast, but would enable rescuers expeditiously to enter the mine thereafter.

We are pleased that inquiries will take place–although we are scathing of the number. All this speaks of a plethora of bureaucratic bodies fulfilling respective statutory obligations. Ten different inquiries are not going to add much supplementary information–but they will consume an awful lot of time and money as labyrinthine bureaucratic boxes are ticked. This is but a small part of the price we have to pay for having decided that we would rather be managed by bureaucrats, than live our lives in thankful acknowledgement of God’s wondrous providential care.

But we expect the mining industry will learn a great deal from the disaster. Mines generally, and coal mines in particular, will end up being better, safer, and more productive places to work. As we apply our God-given gifts, intelligence, resourcefulness and skills to analysing and learning from the disaster we will make progress; we will all be better off. And that is the way it is supposed to be. God has commanded us, after all, to go forth and subdue His earth, making it bring forth its pluriform riches (Genesis 1:28). Mining is an act of obedience to our Creator.  

Just as every earthquake is studied and engineering knowledge grows, leading to safer and better buildings, so it will be with the mining industry as a result of Pike River.

In this respect, several salutary things have impressed us in the aftermath of the disaster. Firstly, while pop-pundits like Mike Hoskings of a local radio breakfast show has repeatedly asked every guest whether mining has a future in New Zealand (implying that it should go the way of whale blubber), the industry and company spokesmen and national leaders have remained judicious and non-reactionary. Gerry Brownlee, Mining Minister has used the simile of an aircraft crash. When a plane goes down we work to make aviation safer, not use it as a reason to stop flying.

Career miners have affirmed that the industry in their minds is something about which they are passionate and they would never willingly give up. “It gets in your blood,” the Chairman of Pike River said–and he is a life-long miner. The Coasters themselves have more than a little passion and enthusiasm about mining–which is one of the lifeblood industries of the region.

We have no doubt that the best way to honour the memory of the fallen miners is to overcome the hazards which proved fatal to them so that those who come after them will not suffer the same fate.

We also spare a thought for the shareholders who put up the capital to develop the Pike River mine. There will be some who have lost a great deal. These people are the financial equivalent of the miners themselves. Both are needed to make a mine exist and work. Such entrepreneurs who are willing to put so much at risk are also heroic in their own way. They can only be admired.

We have also appreciated Andrew Little’s contribution. Here is a union leader who is not fixated by the antediluvian dogma of class warfare, it would seem, and who has publicly supported both management and miners during the disaster.

Not so long ago we took great offence at a Prime Minister who disgraced her office by her gratuitous slur of people of the West Coast, calling them “feral”–as she hounded and persecuted one of their number, Kit Richards who had dared to stand up to her. Thankfully we have not seen a repeat of such shameful, ill mannered behaviour during this recent disaster.

D H Lawrence, in his Whales Weep Not!, tells us

They say the sea is cold, but the sea contains
the hottest blood of all, and the wildest, the most urgent.

Similarly, they say the earth is hot, but yet hotter still is the blood of miners.

>Environmentalism is Deadly

>The Duck Won

It is beyond dispute that coal mines can be deadly places. But it is also apparent that mines hobbled by the religion of environmentalism are likely to have a far higher mortality quotient. This is what is now emerging in the aftermath of the Pike River mine disaster.  Here is a quotation from MacDoctor: 

Finally, I have to agree with Mark Hubbard (also cross-posted to NotPC) who is of the opinion that environmentalism has a large part to play in the deaths of these men. Much of the coal at Pike River is superficial enough to remove by open cast mine, a far safer proposition for methane-rich coal like this. It is only the fact that this was conservation land that lead to Pike River being an underground mine (although I expect the owners of Pike River to be coy about this, because it does not reflect particularly well on them, either). DOC even scotched the insertion of a second ventilation shaft in order to preserve the habitat of a duck. Yes, a duck.

Should we arrest the duck and execute it for criminal negligence or manslaughter?  How about the responsible bureaucrats at the Department of Conservation?  Well, execution may be a bit extreme–but imprisonment must surely be on the cards.  Ok–so they were just carrying out government policy, and, as we know, greenism is an essential oil of the established religion of the age–a religion established by government and foisted upon us by laws and hosts of regulations innumerable. 

But it gets worse. 

But it is more than mere environmentalism that is going on here. As I commented at NotPC:

“Unfortunately, Mark, it is much worse than you portray. While an open-cast mine is undoubtably uglier than a side-shaft mine, it does not require a great deal of extra effort to restore the damaged environment. The cost difference between the two mines would have been more than enough to cover the extra cost involved. Most modern open-cast mines have a detailed plan to restore the environment and the eventual impact is minimal.
“I therefore come to the sad conclusion that 29 miners have just died, not for the sake of the environment, but because of aesthetics”

There was nothing unique in that environment that could not have been either transferred somewhere else or restored when the mine was decommissioned. Therefore one must conclude that a sensible open cast mine was not approved because it was ugly, not because of irreversible environmental damage.

And that is beyond sad…

Nail on the head, bro.