by Jim H.
The downgrading of Australia’s economic prospects in October by the International Monetary Fund (IMF) was in large part conditioned by a fall in mining ore export earnings.
The main problem is that the world market for the
proceeds of mining has fallen. There are some good reasons for this.
In the first place, the global economy has declined,
mainly due to the poor performance of the United States and Europe, and this
has meant that demand has fallen behind supply. The quantity dug out of the
ground in Australia has been continuously rising, at a time when there has also
been growth in other parts of the world, mainly South America and Africa.
Unless there is an improvement in the performance of the United States and
Europe, there will be little prospect for the recovery of Australia’s mining
industry.
China has been the workshop of the world in recent
times and is heavily dependent on the export of manufactured commodities.
Decline in the global economy has resulted in contraction of this market. The
shift towards greater reliance on domestic consumption has been slower than the
pace of change in the global economy, and this has caused some decline in
China’s economic growth. This should not be exaggerated however. This year’s
GDP growth has declined to a still very respectable 7.4% and between 7-8% is
expected over the next decade. A fall in Chinese demand has had a second level
impact on prices.
Recall that the amount
of ore Australia exports has not gone down. It is the price that can be charged for this ore that has gone down.
The third factor is the high exchange rate for the
Australian dollar. It means that for other countries, it is has become more
expensive to buy from Australia. There is incentive to buy from countries that
have a lower value currency. This could become an even bigger threat in the
future. For instance, China has diversified its sources and will diversify even
more so in the future. There is no real dependency on Australia from their
side.
Increasing
exposure to global crisis
If the situation should worsen, the buffer that has so
far shielded Australia from the worst of the global economic crisis may be
starting to wither.
Already, 23% of mining companies recently surveyed by
the Commonwealth Bank are planning to lay off some workers. A significant
number of new mining projects or expansions in the pipeline have been shelved
or abandoned, on the basis that the mines have been assessed to not be
profitable enough. Other plans for future capital investment have been stopped
for now. Mining companies have become more risk adverse in the present
circumstances.
A
rationally planned and socialised industry
On the other hand, a curtailment of mining could
reduce one of the pressures faced by many other industries, in that an over-inflated
mining industry has leached an excess of investment capital towards itself. At
least this could be the case, if Australia could be isolated from the general
capitalist economic crisis.
This could only be achieved with a proper national
economic plan that replaces the overwhelming reliance on the market, and
especially, replaces total control in the hands of the big mining companies and
banks closely associated with them, with reliance on social planning and action
to ensure that economic development is properly balanced, sustainable and meets
the real need of Australian society.
Instead of this, the big mining companies seek to
secure their own position by demanding a substantial increase in productivity.
What this means is that each worker should produce more over a given period of
time. The claim that the problem is a lack of sufficient productivity is a
furphy. Mining in Australia is highly capital intensive. The pace of work is
dictated by the technology, and Australia is already has a high level of
productivity by world standards.
The talk about productivity is really about reducing
pay and conditions for workers as a new source of profit to cover up losses
from declining prices. Effectively, this means forcing workers to work more
unpaid time.
These mining companies are also running a campaign for
tax reform that brings them a further windfall. It is being orchestrated
through the Mining Council of Australia, which is pressing the politicians to
not only do away with the Mining Resources Rent Tax, and Carbon Tax, but also
cut back further on company tax and state royalties. These changes will do
nothing to improve Australia’s economic performance. On the contrary, they will
aggravate it further. More resources will be turned away from other more
important needs.
Dependence
on foreign investment
A big part of the problem is that Australia is today
almost totally dependent on capital imports from high finance investors from the
US and Europe in the main. No industry shows this more clearly than mining. The
bulk of its profits go to these foreign investors. In today’s conditions, they
are more fickle, and investment capital is much less stable and more volatile
than before, constantly seeking new avenues for investment.
To maintain this dependency on foreign investment, as
the big mining companies and their backers wish, it is necessary to guarantee a
sufficient return. But why maintain this dependency? It would be much better to
begin on a path towards independence based on reliance on domestic investment
and control. Only then would it be possible to have an industry that operates
rationally and according to Australian conditions and needs instead of those of
others.
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