Whats the plan?

To begin with, I am not an economist, I do not have extensive training in market development, finance, trade analysis or anything like that. What I do have is a laymans insight and appreciation of the economic and social development of Australia as a nation. Much fuss is made of the benefit of our resources boom and that as a result of the income it provides to Australia as a nation we should be encouraging and stimulating its development. It is a vital industry if we as a nation are to keep unemployment down and avoid an economic downturn. This is a very reasonable argument to make if it is established that the ownership of such industries is primarily Australian, resulting in circular flow of profits from the industry back into the greater economy. However, much of the mining industry, up to and exceeding 80%1 in the case of some companies, is foreign owned. The profits gained by such bodies does not readily flow back to the Australian economy but rather is sent offshore resulting in a slow bleed of economic gains. It would also be reasonable to ignore the fact that we are leaking such profits if we could ascertain that a large number of the Australian citizens and residents were employed in such ventures as that would mean their incomes were taxed and such tax would re-enter our economy to fuel social and infrastructural developments. Unfortunately the actual number of employed peoples in the mining industry is equal to only 2.4% of all Australian employment.2 The silver lining of this is that a tiny section of the employed population produces a massive profit in relative terms and in addition boosts the average wage which make statistics easy to utilize in the industrys defense. Unfortunately little of that profit actually stays in Australia and statistics are easily used to mislead. In addition the mining industry receives substantial subsidies from the government and thus the taxpayer, these subsidies include a reduction in the cost of fuel through an exclusion on government taxes. Some advocates of the mining sector argue that this is not in itself a subsidy but is actually closer to a tax expenditure or subsidized price.3 In my personal opinion that is an argument of semantics, the definition of subsidy, tax credit and tax expenditure is always up for debate, especially if it provides a deflection of cost, responsibility and accountability, this is true not just for the mining industry but for all of them. One of the strongest touted messages of the mining industry are the high wages that miners and associated workers receive. In Western Australia it sits around $2,388.20 per week after tax4 While fantastic news for the families of miners in WA the aforementioned article fails to mention that with the maturation of the mining boom the cost of living has also sky-rocketed with a creep in household costs,

http://www.businessspectator.com.au/article/2013/9/6/industries/extracting-benefits-foreign-mininginvestment accessed 01-02-2014 2 http://www.innovation.gov.au/Industry/ReportsandStudies/Documents/KeyFactsAustralianIndustry.pdf accessed 01-02-2014

3

http://www.minerals.org.au/file_upload/files/publications/mca_backgrounder_FINAL.pdf accessed 01-022014 4 http://www.miningaustralia.com.au/news/mining-industry-pays-highest-wages accessed 01-02-2014

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Whats the plan?

particularly electricity causing increased hardship among those who have not directly benefitted from mining but may be involved in support industries or the wider region.5 The knock on effect of financial pressure on many residents in WA includes a need to work more hours in non-mining sector jobs, resulting in health and social problems.6 The reason given for this cost in living is that the Australian dollar has appreciated and as a result exported products do not sell as well, ergo, as the mining sector increases in profitability the manufacturing sector falls. So it strikes me that maybe we should be using this time of boom to prepare for the inevitable bust period which occurs at regular frequencies at a rate of about one serious economic downturn per decade. Australia was lucky to escape as lightly as it did from the recent global economic downturn. While our current government fails to give credit to our previous one, the strategy of stimulus before the crash happened by the government of Rudd and Gillard was widely lauded as an economics master stroke. Two reasons7 provided that are attributable to the government during the GFC are that interest rates were quickly cut at the onset of the crisis and that minor tax cuts and incentive hand-outs reduced household debt, preventing individual households from going into survival mode. The GFCs limited effect in Australia is also credited to strong regulation of banking and finance 8, something that undoubtedly chafed speculator profits but also prevented the boom/bust scenario from occurring as it did in other nations, most notably the USA. The result of the GFC for the general Australian public meant that although we were not as strongly affected we may have to deal with a period of low investment in our nation due to external sources consolidating their position at home. This has led to our own downturn in the manufacturing sector as corporations previously established in Australia look to trim the fat. Conversely the reduction in manufacturing has allowed the mining industry to stress its importance to the Australian economy, using the nervousness of the public and financial sector to gain wide-spread popular support, aided in part by targeted media and government support and despite protests based on social, environmental and even economic factors. The end result is, in my opinion, understandable and also sad, our collective fear of being left behind economically has allowed interests that are global and corporate in nature to dominate the planning of our next thirty to forty years. It is naive to believe that international interests care for the well-being of the Australian people, or for the welfare of our nation as a whole. Global experience has been that while nations will enforce, where able, standards of conduct on their indigenous corporations, it is much
5

http://www.wacoss.org.au/Libraries/P_A_Cost_of_Living_Cost_of_Living_in_WA_Papers/WACOSS_Cost_of_Li ving_Report_2011.sflb.ashx accessed 01-02-2014

6

http://www.wacoss.org.au/Libraries/P_A_Cost_of_Living_Cost_of_Living_in_WA_Papers/WACOSS_Cost_of_Li ving_Report_2011.sflb.ashx accessed 01-02-2014 7 http://www.wealthfarm.com.au/articles/the-australian-economy.html accessed 01-02-2014 8 http://www.wealthfarm.com.au/articles/the-australian-economy.html accessed 01-02-2014

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Whats the plan?

more difficult to do so with multi-nationals. Where these multi-nationals are held to account for their actions it often seems like a calculated risk, with the punishment for such actions being well below the profit made for undertaking such actions in the first place. While the resource sector boom is expected to last for several decades if all goes well it is common for the enthusiastic supporters of the boom to overlook the myriad of issues that could cause its crash. While Australia has access to massive amounts of raw materials the profit gained from selling those materials depends on two things, the price we can get and the need for them in the first place. Industry moguls provide the argument that there will always be a need as long as the price we ask is not too high, to ensure that need they argue for a reduction in wages paid to the workers enabling the materials to be sold at a lower price in larger amounts, resulting in higher profits. Again, much of that profit does not remain in Australia, in effect we are hastening our own demise. Furthermore, reducing the wages of those people working in the mines could result in an even greater number of people being unable to meet cost of living increases that can be attributable to the increase in utilities as a result of increased need, an increased need that falls directly on the shoulders of the resources industry. The aforementioned argument also assumes that the clients buying our resources, in particular those in Asia and the Sub-continent, will have an ongoing need for such materials. Logic and a belief in capitalist consumption would agree that is the case. As something grows larger it continues to need more resources to sustain that growth. This belief ignores the regular effects of global financial downturns. During my childhood Australia seemed to be enamored with and in awe of the growth of Japan in manufacturing and technology. Japan eventually fell into a deep recession, the aftereffects of which are still being felt today, in that nation and abroad. It is, in my view, inevitable that China will eventually suffer the same fate regardless of what controls are devised. You may ask why?, again, I must stress I am no economist and this is simply the product of my own rationalization. China, while still technically a communist nation, has allowed the investment of private industry to creep into every sector of its economy. This is not in itself a bad thing as it has allowed many individuals in China to make their fortunes, so many in fact that China now leads the way in new millionaires and billionaires and is expected to overtake the USA for the outright most millionaires and billionaires in the near future.9 Chinas corporations are also among the worlds most corrupt with nine out of eleven companies gi ven a rank of Zero transparency by Transparency International being from China, interestingly and

http://www.therichest.com/rich-list/world/top-10-countries-with-the-most-millionaires-in-2012/ accessed 01-02-2014

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Whats the plan?

certainly worryingly several of these companies are involved in the resources sector10 and have ties to current projects in Australia. The inevitable result of corruption is the eventual downfall of a company and the catastrophic ripple effect in linked industries. Once the fall comes Australia will need to be prepared to re-divert our efforts away from digging resources from the ground and selling them cheaply and quickly, to undertaking and developing industries that have long-term sustainable profit outlooks. The entire point of my musings so far has not been to simply demonize the resources sector as it is a vital and even necessary part of our economy. However, the issue of profit distribution as a result of mining and other resources harvesting needs to be heavily scrutinized as we are flamboyantly wasting what may be a once in a century opportunity to develop long term, sustainable improvement of Australia as a nation in our haste to Make it big short term. It is far more desirable for our nation to utilize the resources we have, not by exporting them raw at break-neck speed but by turning them into manufactured goods and controlling the market. The obvious argument is that the high level of wages in Australia means that we are uncompetitive in global markets but given the reliance of emerging nations such as China, India and others on materials we are failing to recognize the simple truth that we can dictate the market. While a common tactic for foreign investments is to threaten taking business somewhere else it is plain that Australia, when it comes to raw resources, holds a great many more cards than any competitor. We have more coal and more uranium than almost any other nation. Our mineral resources are still plentiful and our massive landmass indicates the likelihood of much more. Foreign investors and domestic companies may threaten to withdraw investment in Australian resources but to do so would be to shoot themselves in the foot. Other nations that are rich in resources either need to use all of their own, plus more or are so hopelessly beset by internal woes that they are unable to effectively manage their industrial sectors. But in an effort to please a very minor number of very wealthy individuals our nation has quickly sold off many of our rights to manage our lands and its bounty so as to acquire a quick buck. The political advantage of this of course is that we fill our coffers quickly which is often interpreted as excellent financial management. The same could be said of selling all a houses furniture so you can flash your cash at the pub on Friday night, the long term effects are somewhat less beneficial. So what industries are available to us to develop if we are not focusing on what is a proven breadwinner? As previously mentioned Australias mining sector only employs about 2% of our population, a majority of our population is engaged in the services sector.11 However, very few of these individuals play any
10

http://www.businessweek.com/articles/2013-10-17/chinas-companies-most-at-risk-for-corruption-saystransparency-international accessed 01-02-2014 11 http://blog.id.com.au/2013/australian-demographic-trends/health-care-is-now-australias-largest-industry/ accessed 01-02-2014

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Whats the plan?

role in exported services and as a result they have a much smaller effect on GDP growth than the mining and secondly the manufacturing sectors. What are the services we could provide? Well, Australia is learning to deal with a rapidly aging population, the effect of this is that we have a large force of well trained, motivated workers in the health care industry. While we must always attend to the needs of our own citizens there is little to prevent Australian business from investing in further new technologies that reduce the burden of caring for those in need. Australia has a long standing history of scientific development and we are frequently at the forefront of medical research, yet these industries are not toted as primary breadwinners, resulting in discoveries here being repatriated to overseas interests. Personally I find this a deplorable state of affairs as eventually our own healthcare system is require to buy back medicinal and treatment products from other nations which were initially developed here. We also have the ability to export our education services. While recent OECD ranking have been widely circulated with much wailing and gnashing of teeth at our apparent drop in ratings, closer analysis has shown that this is because by and large they are viewed in isolation. The overall analysis of Australia has been positive with commendations on the suitability and impact of higher education, particularly for international students. 12 The negative impact of Main Stream Media on the report will undoubtedly be a cause of distress to many education providers but the only cause of concern that is notable is the lack of early childhood development. From personal experience I have ascertained that the suggestions promoted in the report have already been put into practice and that the only reason they have not had been observable is the lag between investigation, implementation and the release of the report itself. I suspect, somewhat cynically I admit, that the loudest advocates for a change in the Australian education system, particularly the public education system, are doing so at the whim of personal ideology and vested interests, not from any real interest in the future of our population. To reinvigorate the export of educational services we need, as a nation, to put aside the notions of class warfare so obviously brought to the forefront of social commentary by politicians and their supporters and instead concentrate on the global success of students who have studied here in Australia. Despite the negativity surrounding racial violence, inequality and the tabloid selling hysteria over sound bite statistics we remain a nation that provides exceptional service and we are justifiably renowned as a viable alternative to other nations for education. A third industry that requires immediate and sustained development is our tourism industry. The reasons for doing so are that unlike either the manufacturing or resources sectors the tourism sector has the potential to be low impact on our environment and with the correct controls entirely sustainable over time. While Australians are justifiably proud of our greater landmarks and environmental treasures our concentration on the Eastern seaboard and its associated attractions limits our nations potential. Long term, effectively delivered marketing would allow other areas of Australia to receive greater

12

http://www.oecd.org/australia/EAG2012%20-%20Country%20note%20-%20Australia.pdf accessed 01-022014

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attention, leading to development of tourism in Central, Western and Southern Australia, especially in relatively un-promoted areas such as Tasmania, South Australia and Eastern West Australia. To develop the potential of these places would require a stronger, more concerted effort towards transport and infrastructure development, this in turn would provide employment for many who would otherwise be reliant on the resources boom and who, long term, may face an uncertain future. Increased logistical efficiency would of course benefit the resources and manufacturing sector and when provided in an ecologically balanced way would further reduce the impact of large vehicle/resource movements across our delicate landscape. Keen eyed observers would note that there was a strong push for the development of Australian tourism in recent memory but that it has faded into obscurity.particularly after the Where the bloody hell are you? campaign13. This public relations failure was quickly eclipsed by the global economic downturn and its associated troubles, enabling Tourism Australia to slink into the background after being berated, somewhat unfairly in my opinion, by both the Australian and international press. With a well-supported, expanded campaign to improve the tourism industry Australia could again be at the forefront of desired tourist destinations. The campaign would need to incorporate several different strategies to hit target audiences in more than one way as direct advertising is not always appropriate and can be ignored. Better is to look at those things that previously served as a catalyst for improved tourism and exposure on the global stage. Crocodile Dundee, terrible yet classic movie in which an absolute caricature of an Australian saves an American girl, charming her with his roguish humor and derring-do, it was because of its success that people in the US recognized Paul and began making their way here, or at least thought fondly of Australia. Im not saying we need to get Paul Hogan out of retirement but it certainly wouldnt hurt to have quality movies with strong investment featuring Australia injected into the global film market. Lara Bingle was and still is an undoubtedly beautiful woman but beautiful women are common fare in today s photoshopped society. An established icon, combined with a well-known but up and coming star would be more appropriate. Amusing combinations that come to mind include Hugh Jackman and Dame Edna, Keith Urban and Anh Do, Chris or Liam Hemsworth and Geoffrey Rush. We have a massive array of talented potential ambassadors who could be utilized. Other things we could look at using more effectively to promote our nation? Koalas. Our equivalent to a Panda, pretty much useless but super cute and the fluffy terrors attract thousands of tourists by their fuzzy ears alone, we could and indeed should expand on this brand to include quokas and bilbies as well, both are cute and in my opinion much friendlier and less stinky than the koala.

13

http://www.abc.net.au/news/2008-02-07/tourism-australia-looks-beyond-controversial/1036344 viewed 01-02-2014

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Whats the plan?

Sports events. Australia is a nation built for sport, in recent history we have become a nation that seems mostly content to watch it and as a result may at the time of writing be the fattest on earth but that does not mean we cannot improve. Sports like car rallies could better utilize the great desert road systems we have, Adelaide to Darwin could be a contender for the great African rallies, our brand of V8 racing could be exported to TV screens around the world, drawing crowds to events across the nation. Soccer is a growing sporting area and recent interest indicates that finally the larger soccer world is taking notice of our teams.14 This is something that should be greatly encouraged as it will grow our national profile, resulting in greater investment in sporting development and therefore a greater ability to compete on the world sporting stage. One last area that Australia desperately needs to invest in is our social capital. By this I mean the opportunities of our people to promote our nation simply through their satisfaction with Australia as a place to live, work and play. One of the reasons that Australia has enjoyed such social stability and why it has been free of the unrest that plagues so many other nations is our traditionally laid back attitude to politics, world events and domestic disasters. This does not mean that we should bury our heads in the sand or that we should not strive to minimize the negative impact that such events have on our nation, but that we should always remember that life in Australia is pretty good. That there is enough for all and that we dont need to compete with other nations in a race to the bottom when it comes to ethical standards, education and paranoia. Australia should continue being open, welcoming and accepting of difference; that is the best way to prevent alienation, anger and resentment from developing among our population, newly arrived and naturally born. While social discord makes for exciting news, it makes for a miserable country. Equality between races, genders and backgrounds should be our highest priority, fair, transparent government, even handed laws and an open mind will see us improve our nation much faster than veiled threats, divisive politics and rabble rousing ever will. Now, if I can come up with all this in the space of a couple of hours, just consider for a moment what we as a nation can achieve if we stop with the partisan squabbling and work together with the best interests of all our people at heart. Im still hopeful it can be done. Thats all for now, thanks for reading B. Groot 01-02-2014

14

http://www.footballaustralia.com.au/news-display/Manchester-City-to-acquire-Melbourne-Heart/83937 accessed 01-02-2014

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