The Australian economy is in danger of being torn apart by the resources boom.
The high prices being paid for our minerals, the unprecedented foreign investment to dig up those minerals and the rising value of the dollar are already reshaping our economy. This is only the beginning.
It will end, all booms do, but this one will take some time and it will bring great change.
We need to think big. The mining companies are, as record prices spur them on into prime farming land and deeper and more distant reserves.
But capitalism demands that the companies must think about themselves. Democracy requires that our governments think about the rest of us.
Navigating this boom and emerging with our economy and society intact is going to require government leadership, vision and backbone in spades; and a willingness from business to stop relying on their default catchcries of the past and engage boldly with new ideas.
Right now there are $174 billion of firmly committed funds racing down the investment pipeline to build new resources projects – mostly LNG, iron ore and coal, with another $256 billion of less definite projects queued up behind them. This massive investment is coming because the promise of profit resounds.
Commodity prices have tripled in the last 10 years and are likely to remain high for two or three decades. The resounding promise of profit.
The Australian dollar is a commodity currency, so the dollar will be high for a long time too.
The strength of the dollar is the greatest economic challenge faced by Australian employers. The high dollar might be good for cheap overseas holidays, but it’s a disaster for many of our key industries. Education, tourism and retail are under the pump.
Manufacturing - which in the past has been geared for an exchange rate of 65 to 75 cents - is staring down the barrel of another 20-30 years of an inflated dollar. It is facing a major crisis.
Manufacturing employs a million Australians. It’s the major source of the skilled blue-collar jobs that sustain our great industrial regions. But make no mistake. Left to its own devices, the mining boom will kill manufacturing.
This is a big problem. Very bloody big. It calls for big solutions. But the economic reform debate we’ve seen playing out has scarcely reflected this.
Rather, a conga line of business chiefs hark back to the 80s and 90s using catch cries of the need for increased competitiveness and productivity. IR reform. Lower costs. IR reform. Individual contracts.
The answer from business to this economic challenge; to the start of the Asian Century; to this realignment of the planets for our economy, boils down to this: Cutting penalty rates. Getting rid of leave loading. Longer hours, less pay.
Even the manufacturers – the people Mr Anderson represents – the people who are in harms’ way; whose businesses are under threat from the dollar pushed sky-high by mining profits – can hardly bring themselves to stand up to the miners and demand a piece of the mining action.
No, their plan for getting through the boom is by asking the workers to pay – to ride out the high dollar by becoming low labour cost producers – to compete with China’s low-wage, mass-producing manufacturers on the world stage.
Will someone tell ‘em they’re dreamin’!
Although in these beliefs the mining companies and the manufacturers have common cause. The miners want IR reform too. Over the years the miners have pursued their anti-union, individual contract ‘flexibility’ agenda with religious zeal.
Yet the miners’ religion has become the opiate of the manufacturers. A false consciousness that is blinding them to the bleeding obvious: the alleged labour productivity problem is simply lazy management thinking that wage cuts equal productivity improvement.
Cutting penalty rates and wages produces a one-off and unsustainable increase in output per dollar of wages – it produces NO long term ongoing gains.
Real productivity growth comes from innovation, better technology, increased skills and better infrastructure – NONE of which are produced by cutting penalty rates and wages.
As that well-known lefty think tank – the National Australia Bank – made clear in a productivity report just a fortnight ago, labour productivity figures are being dragged down by mining because record resource prices are sparking record capital investment by mining companies.
You don’t produce a lot when you’re building mines. They are investing in major construction projects in remote Queensland, remote Western Australia, off-shore. These things cost a lot of money to get going – they will deliver returns, but not for years.
Consequently, productivity figures are down.
As NAB also pointed out – Trotskyists that they are - declining labour costs may simply encourage more labour-intensive production methods leading to a tendency for labour productivity to decline.
Anyway, the idea that unbridled management prerogative – unshackled from pesky unions and government red tape – can deliver higher productivity levels is unfounded. In mining, statistics show that output per person has increased faster in unionised coal mining under collective bargaining than in the non-union iron ore and gold mining sectors under individual contracts.
Labour productivity did not improve during the decade of statutory individual contracts which started with the introduction of AWAs in 1996 and most studies suggest productivity declined under WorkChoices.
So let’s not pretend the push from business to wind back the Fair Work Act is actually about productivity, and the national interest.
Yes, we can shift money from workers to employers by paying people less and making them work longer and harder. Yes, business would like that. But a shop assistant at Myer going without weekend penalty rates does nothing for productivity.
If the bosses want to pay less, they should be upfront and say so. The debate should be honest and not shrouded in euphemisms like efficiency, productivity and competitiveness.
We need to shift the economic reform debate away from the narrow and false parameters of productivity and IR reform.
I believe the Federal Government is only just starting to grasp the enormity of the challenge presented by this boom – the tussle for land and skilled labour, the heavy burden on social infrastructure, the fallout for other industries.
The scale of the boom is difficult to conceive from Canberra. If you work in a mining area, it’s obvious. On the drive from Mackay to Emerald in Qld you pass mine camps that have sprung up on the side of the road. At Copabella there are 2,500 beds, at the camp at Moranbah there are 1,200 beds, at Dysart the camp has over 1,500 beds.
The Mining companies are building elaborate single persons quarters with gyms and wet messes to accommodate the workers on the seven day tours of 12 hour shifts. They don’t build mining towns anymore. Fly-in fly-out is the go. On Wednesdays at change of shift you can’t move at Mackay airport for all the workers wearing fluoro vests and boots blackened with coal dust.
Rents in central Queensland are astronomical. Want to move there with your family to be close to them and to work? Then expect to pay $2,000 a week rent. And mines will subsidise that rent while building more single men’s quarters rather than get involved in expanding the towns or building more towns.
But the ground is starting to shift.
The commissioning of the White Paper on Australia in the Asian Century is a promising sign. The Asian century - the rapid industrialisation of India and China - is fuelled by Australian resources. Our economy will be transformed, but how it is transformed is very much up for grabs.
Last week’s future jobs forum – brought to us by the determination of the manufacturing unions – delivered tangible results.
Yes – for crying out loud, let’s ask the mining companies to do the right thing! Let’s require them to be transparent and accountable in their engagement with local industry. They spend millions telling us they’re good corporate citizens, let them prove it. It would be a good start.
The answer to the high dollar pricing our goods out of international markets is not to cut wages. The answer must be to ensure access to the huge market for infrastructure we have right here at home created by the mining boom.
We need to build on this good first step with long-term national manufacturing plan. Without it, manufacturing may well not survive the two or three decades left in this boom.
The wealth created in the Resources sector must deliver a higher return to the community. The Resource Super Profits Tax was a good idea. It was abandoned too readily. Politics. The Mineral Resource Rent Tax is a shadow of the RSPT but at least it’s a start.
The mining companies scream that any impost will slow investment. But in a boom of this intensity, taking some of the heat and speed out of it is not a bad thing. The only people wanting to exploit all our resources all at once are the mining companies. I am pro-mining, I’ve spent my entire working life dealing with mining companies. But this boom needs to be managed. And believe me the mining companies are not the ones to manage it.
We need to seriously look at a Sovereign Wealth Fund. A sovereign wealth fund could really allow us to think big. To invest in emerging industries, to develop our manufacturing base for the long term, to fund major national infrastructure.
It is entirely possible that when this boom ends we will be left with no work to do, big holes in the ground, some airstrips in places no one wants to go and large commodities ports that are of little interest to anyone but recreational divers. Of course our dollar will dive, but we’ll have no manufacturing industry to take advantage of it.
Let’s stop quibbling over penalty rates and individual contracts – let’s have a real discussion about how we make sure this boom delivers for all Australians and leaves us a better a place for it. And I say to those who Mr Anderson represents: cast off the shackles of IR reform and individual contracts that bind you to the miners, stand with us and governments and demand that the boom benefits us all. You have nothing to lose but your chains.
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