Richard Denniss is an economist and executive director of The Australia Institute.
Australia has a bigger share of the seaborne coal market than Saudi Arabia has of the world oil market. And Australia has a bigger share of the seaborne iron ore market than all of the OPEC counties combined have of the world oil market. Everyone knows that if OPEC doubled their oil supply the world oil price would fall. Yet Australians are being told that our decision to double our iron ore exports between 2007 and 2014 had no impact on the price of iron ore.
Someone is talking crap.
While it’s hard for mere mortals to turn water into wine, it’s easy to turn wine into water. Just take a glass of wine, add a very large quantity of water and, hey presto, you’ve got water. But if you add water, one drip at a time, to a glass of wine, it’s virtually impossible to decide when it stopped becoming wine and started becoming water.
So what’s watery wine got to do with the price of iron ore? Lots.
Between 2005 and 2014 Australia built or expanded almost 400 mines. Not surprisingly, doing so put enormous pressure on the cost of the labour, capital and raw materials need to build them. Even though the mines were often in remote areas, their construction drove up the cost of building hospitals in Canberra and factories in Melbourne.
In 2013 the mining industry, which employs only 2 per cent of Australians, was responsible for 60 per cent of all capital expenditure in Australia. Think about that. Nearly two thirds of the things being built were for an industry that employs only one fiftieth of the workforce. Tony Abbott believes that mining will define the economy of our future, but no economist believes it will ever be a major employer.
As the mining companies bid against each other for skilled workers and scarce materials as they rushed to double our mining output the Reserve Bank of Australia steadily lifted interest rates to ‘make room’ for the mining industry’s enormous expansion. What ‘make room’ really means, however, is that the RBA was trying to discourage the non-mining sector from investing and employing to prevent wages and inflation from rising too fast. The demise of manufacturing and tourism is proof of what a good job of they did.
It gets worse. The RBA’s high interest rates made Australia an attractive place for foreigners to invest spare cash. And as foreign money flooded into Australia chasing high returns it pushed our exchange rate up which, you guessed it, made it even harder for the non-mining industries to compete internationally. Tourist arrivals in North Queensland fell by 370,000 between 2009 and 2011. Foreign students decided it was cheaper to get a degree in Britain than in Sydney. And of course the car industry announced it just couldn’t keep going when the exchange rate was 30 per cent above its long term average.
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