Andrew Thackrah on a mining boom built on myth

In the piece below Andrew Thackrah shows how much of the political and economic logic that underpins Western Australia's so called "mining led economic boom is built upon a series of myths.

In particular, the wealth generated by the mining industry, which enriches some at the expense of many, is built on the back of massive public investment and active intervention by the State Government to advance the interests of mining corporations and WA's business and corporate elite.

This piece first appeared in the online publication Australian Policy and History.

Mining, Myths and making it up in Western Australia

by Andrew Thackrah,
Postgraduate candidate, School of Humanities, University of Western Australia

Following then prime minister Kevin Rudd's announcement in May that the Commonwealth Government would introduce a new 40% 'super-profits' tax on the profits of some mining companies, a wave of hysteria swept through sections of the political class of Western Australia. In its Foundation Day editorial the state's main newspaper, The West Australian, said its inhabitants could be forgiven for feeling like 'they are living in a state under siege'. Prominent Western Australian identity and boss of Fortescue Metals, Andrew Forrest, has predicted the new tax could result in 30,000 job losses.

Julia Gillard's ascension saw a new deal negotiated with the mining companies. The rate of taxation was reduced to 30% and the number of companies affected by the new arrangements was drastically cut. The hyperbole, however, has not subsided. Fresh mining industry-funded ads have claimed that electricity prices will rise and the value of superannuation funds fall if the new arrangements are introduced. With Tony Abbott promising to oppose Labor's 'big new tax', the proposed changes have become a red-hot election issue - nowhere more so than in the mining-centric state of Western Australia.

Western Australia is a mining state whose citizens' obsession with resources has shaped almost every facet of their lives. A degree of parochialism commonly creeps into political debates in the West. Ironically, however, in their strident defence of the significant role played by resource companies in maintaining Australia's prosperity, mining tax opponents have clearly highlighted just how much the dominant framework of political economy in Western Australia draws upon globally ascendant free-market ideology. In short, the history of mining in Western Australia bears striking parallels to the wider history of contemporary free-market capitalism. 

This reality becomes clear when one considers two of the key arguments deployed against the mining tax. First, it is suggested that the mining industry is a 'golden goose' that spreads prosperity throughout society and that government regulation will only succeed in 'killing off' the good times. The 'golden goose' defence of the mining industry was quickly deployed following the announcement of the super-profits tax. Shadow Treasurer Joe Hockey, for example, declared that Kevin Rudd was 'about to take money off the golden goose that's delivering Australia an age of prosperity'. 

Globally, this line of argument commonly has been used to defend the interests of domestically dominant industries. Yet, as British geographer Doreen Massey highlights in World City, her book on the City of London, the golden goose analogy serves to conceal more than it reveals. Massey notes that instead of the concentration of economic activity in London's finance sector over the last two to three decades being seen as '…an element in the production and reproduction of inter-regional inequality… it is taken as given and then interpreted as a source of London's largesse to the nation as a whole'.

The point here is not to deny that the finance and mining sectors have produced substantial wealth. Rather, the golden goose analogy serves to promote the notion that minimal government regulation actually spreads that wealth throughout society, obscuring the creation of inequalities (both local and global) upon which economic growth may actually rely. One only has to think of the economic stagnation in areas of northern England and Scotland and the continuing poverty of some indigenous Australians to be reminded of the losers in periods of rapid growth. 

The second key argument deployed by mining tax opponents is that mining fosters an entrepreneurial spirit that is entirely independent of government involvement in the economy. West Australian newspaper columnist Paul Murray, for example, recently made the extraordinarily simplistic assertion that 'mining has always met its own risk - and provided its own infrastructure. It doesn't want, or need, the Government as a "silent partner" in its business'.

The notion that mining has thrived when government has left the industry to its own devices simply flies in the face of history. As academic (and now Vice-Chancellor of Victoria University) Elizabeth Harman noted in the early 1980s, a paradigm has reigned in Western Australia where state and capital have worked together to ensure that the need for development is prioritised over other interests. Premier Charles Court was particularly pro-active in attracting mining investors to the state. 

A more recent analysis of WA economy by Peter McMahon of Murdoch University reveals that, while private enterprise has played a vital role in the state's history, it has not done so as a solo operator. McMahon notes that 'successive governments…were absolutely critical in developing W.A.' Recently the Barnett Government committed $3.5 million for the development of plans to build a new port in the Pilbara and boasted that the Government's decision to construct new power lines had ensured that a large resource project went ahead. Just as the finance industry was lured to London by conscious government regulatory and tax changes, so, too, the Western Australian mining industry is aided and abetted by the state. 

The 'golden goose' and 'entrepreneurial spirit' arguments outlined above follow from a specific aspect of free market thought - the notion that commercial enterprise guided only by a minimal state sees wealth 'trickle down' to almost all in society. Ideas like these have not emerged in a vacuum. David Harvey in his Brief History of Neo-liberalism explains how such free market notions have become dominant since the Western economic crises of the 1970s. They were championed by leaders such as Ronald Reagan and Margaret Thatcher as part of a conscious political strategy. The continuing reality of inequality reminds us that, rather than being grounded in common sense, free market ideas are a product of a historically specific context that leaves them open to revision and debate. Voters in Western Australia and beyond should look carefully at the rhetoric used by anti-mining tax campaigners. It says much about how the political and economic logic of the present is grounded in myth-making about the past.

WA miners spend their money everywhere except where the mines are

image courtesy of the ABC

 The mining and resource companies are always telling us that local economies and local communities benefit from all the money spent by those who work in the mines. 

In the Pilbara and Kimberley  region of WA 78% of mining salaries earned in the region are not spent in the region. The reason is the fly in fly out workforce.

Compare that figure to Queensland where 39% of mining salaries are spent outside the area.

For every $100 earned by miners in those regions, workers in the social welfare and health sectors earn $48 and workers in the retail trade earn $29. 

Those other workers actually live in the Pilbara and Kimberley towns and have to survive the massively inflated costs of living, housing and basic good and services that are driven up by the mining boom, without the huge salaries of their mining counterparts. 

They also live in towns suffering from the lack of long term investment by governments, the mining companies and the private sector in an adequate level of social infrastructure and public goods and services.  And they face the health, social and environmental consequences of living in close proximity to industrial plants and mining sites.

The boom economy does not reach many of those who have to live in the shadow of the mining industry.

Democracy and the big miners

A PS to the RSPT

By Gavin Mooney

The ‘debate’ around the super profits tax has been illuminating. For me it has said so much about the mentality of the top executives in the mining sector - and of politicians. Early on there were the suggestions that Kevin Rudd was a communist (Clive Palmer), that it amounted to nationalisation (Andrew Forrest) and the tax was straight from the pages of Das Kapital (Julie Bishop)

In the wake of their success in bringing down both Rudd and the tax, their arrogance and their indifference to democracy is now out there in full flow. According to Forrest it wasn’t the miners who brought down Rudd – Twiggy’s pal – it was Ken Henry. Atlas chief David Flanagan divulges to The Australian that he would talk to his wife each night about the implications of the tax ‘and the legacy it would leave for their two children’. He went on: ‘I actually could see a scenario where the RSPT could destroy the fabric of the Australian economy… I mean, totally f…ing smash it to bits.’

Forrest asked ‘who voted for Ken Henry?’ Thank God for Forrest to alert us to the dangers of an unelected Ken Henry. And thank God for those who brought down the tax and saved us from these commies who were otherwise set to ‘destroy the social fabric’ of Australia.

These mining giants also have global aspirations. They are keen to use their power to save not just Australia. They want to save the world from nasty governments elsewhere as well! In a speech to mining executives in London last week, Tom Albanese, the Rio Tinto CEO, according to Peter Wilson in The Australian, ’issued a none-too-subtle warning about the events in Canberra to other governments attracted to the idea of “resource nationalism” and hiking taxes on mining profits’. Albanese is reported to have stated: ‘Policy makers around the world’ (and presumably that includes democratically elected governments – like ours) ‘can learn a lesson when considering a new tax to plug a revenue gap, or play local politics’. We are fortunate however that as Wilson reported Albanese ‘held back from openly crowing about the fall of Mr Rudd’.

The Fin Review joined in. ‘In a shot across the bows of Brazil, South Africa and Chile’, writes Andrew Cleary, ‘Rio Tinto’s chief executive Tom Albanese, has warned countries considering a super tax on resources to “learn a lesson” from the Australian government’s experience in dealing with the industry’s opposition’.

I would encourage readers to write to The Australian and the Fin Review to express their thanks to the big miners for saving – today - the social fabric of Australia yesterday and – tomorrow - the world. Good chance your letters will be published.

Against this background what chance any reasoned debate about the impact of the mining industry on global warming? Ah, but the Flanagan kids’ future is secure in the knowledge that their dad and the other big miners are there to look after the future of all of us.

And just a final thought: why do we need an election?

A public health case for the super profits resources tax

The Resources Super Profits Tax – a public health initiative

by Luke Slawomirski*

Amidst all the hysteria surrounding the proposed RSPT, not a single person has made a key argument in its favour…. That it will benefit the health of all Australians.

Those to whom this may seem preposterous overlook a key underpinning philosophy for the tax, which Lindsay Tanner eloquently outlined in Parliament a couple of weeks ago. This is to prevent the (further) development and embedding of a two-tier economy driven by extreme commodity prices and a largely oligopolised market.

By extension, this situation naturally leads to some individuals growing wealthier while others are left behind, an effect compounded by inflationary pressures induced by super profits (anybody living and paying their rent/mortgage in WA will attest to this).
This is bad for our health.
Surely not! A rising tide lifts all boats; there’s a trickle down effect; more money coming in means people are happier and give more to charity; jobs are created; the tax will push cost of living up even further!

The last argument was comprehensively debunked by Ken Henry in front of a Senate Committee. A recent study by the Australia Institute dispelled the ‘rising tide’ myth. It is well known that charity contribution has nothing to do with wealth. An there’s no need to even speak of the tenuous link between wealth and life satisfaction.

More and more empirical evidence is emerging to show that the more unequal or economically stratified a society, the less healthy all its citizens are.

Let me be clear. We’ve know for a long time that being poor is bad for your health. What we are learning now is that being rich in itself is not enough if you live in a country with a steep socio-economic gradient (where the gap between rich and poor is large).

The work of epidemiologists such as Sir Michael Marmot and Richard Wilkinson is showing that, beyond a certain threshold of GDP per capita termed the ‘epidemiological transition’, absolute wealth ceases to exert any significant influence of health and wellbeing. Rather, it is how the wealth is distributed that counts.

Nations which consistently outperform their counterparts on a range of health and wellbeing indicators (such as life expectancy, coronary disease, obesity, smoking, depression, drug abuse, homicide, incarceration rates, suicide and so on) are ones where the wealth gap is narrower. These tend to be the Scandinavian countries like Norway (which, as it happens, has a functioning tax on its oil reserves very similar to the one proposed here).

Japan also stands out (no it’s not their diet or culture… the rise has only been apparent since WW2). It is a low-taxing country but the income gradient is relatively flat – the CEO of a company will earn maybe 20-30 times what the janitor earns.

Even some developing countries like Costa Rica outperform much more affluent ones on a range of measures. Kerala, a state in southern India, has lower infant mortality rates and comparable life expectancy to the USA, despite being much much ‘poorer’.

The USA, in spite of its wealth and tremendous spend on health care (12-13% of GDP), languishes around the middle of the table that includes developing as well as developed nations.

This same can be observed when comparing states within the USA, neutralising the argument that the differences are cultural and measurement related. Adjoining states with homogenous populations can exhibit considerable differences in population health.

Differences that are largely attributable to the levels economic (in)equality within them. These reductions in health manifest at both ends of the social spectrum.

So how does Australia rate?

Overall not too bad but slipping. We also have inordinately high rates of mental illness and drug abuse.

The point is that, based on the epidemiological research into inequality, permitting a 2-speed boom/bust economy to develop will be to the detriment of social cohesion and consequently bad for our health…of everyone.

So back to ‘the tax’.

The economic arguments for the RSPT are sound (almost all reputable economists in Australia endorse it) not least because it is coupled with a lowering of company tax. The environmental case is strong, as is the moral argument. And, as we can see, there is also a for public health case for instituting it.

So what’s the problem?

Firstly, I think the population is so strongly inculcated with the ‘more is more’ mantra that mounting any argument for wealth redistribution is extremely difficult. Anybody raising this as an issue is branded a communist. Tax is un-Australian and anti-freedom.

There is also the strong mythology around mining and wealth creation built into our national narrative. People like Andrew Forrest and Clive Palmer are seen as heroes not only because they have managed to become extremely wealthy (let’s remember that Kerry Packer got a state funeral here) but their image taps squarely into the mystique of Aussie machismo.

Latte-belt pinkos can squawk all they like about equality. Twiggy and Clive are the real men who turn the wheel of the Australian economy, put 4WDs in our driveways and jest skis on our waterways. This perception has been very astutely exploited by the pro-mining lobby in the RSPT debate.

The mining mythology makes it politically very hard to argue for the tax, but I think the Government has also made an absolute hash of selling it. Also, the lack of consultation has been astoundingly short sighted and arrogant. Meanwhile the Opposition, true to form, have trained the crosshairs squarely on the lowest common denominator, braded it a ‘great big new tax’ and prophesised impending economic doom.

On the grounds of this tax and the Coalition’s declaration to dump it, one can only hope that the Government scrapes in at the next election and commences the necessary reform to make this a more cohesive, progressive and ‘healthy’ nation.

*Luke Slawomirski is a public servant working for a Western Australian Government Department. He has a clinical background and a Masters Degree in Health Economics. He has strong interest in health policy, and, in particular, the social determinants of health. The opinions expressed in his piece are personal and not reflective of the view of the Government agency for which he works.

The mining tax is good news for Australia's health

The Mining Tax is good for Australia's Health
by Gavin Mooney

(This piece first appeared on Crikey, May 27, 2010)

Plans for a tax on mining profits may be causing palpitations amongst mining industry chiefs, but perhaps it’s actually a positive for the broader population’s health.

The proposed new tax on super profits has clear health effects. Some are negative and are the result of the apoplexy that its announcement has caused among the ‘big miners’.

But there are potentially some substantial positive health effects as well. What is noteworthy is that while there has been concern expressed by the super prophets of doom for the health of the goose that has in the past, they tell us, laid the golden egg (of mining booms), the positive impact on human health seems to have been ignored.

While several aspects of the tax remain to be sorted, one thing is clear. It is a tax on the rich which is redistributive to the poor or at least to the rest of us. The best evidence for this is that it is those on high incomes who are leading the charge against this impost.

Twiggy Forrest and his big miner mates are not the downtrodden of Australia. Their shareholders are also relatively well heeled. So among Australians, it is those on above average incomes who will be hit by this tax.

On whom will the benefits be bestowed? Well like all such tax gathering exercises we never quite know and probably never will.

But we can be clear that not all of the monies will be returned to the top end. There will be some redistribution. There are for example noises about it going to pensioners who overall are not the richest gang in town. It has been suggested that hospitals will benefit and since we can assume that means public hospitals, the benefits of that will go more to the poor – who tend to use public hospitals more than the rich and who tend to be more sick anyway. And Ken Henry has endorsed the idea that Aboriginal people should benefit.

But the big health news is simply that the tax will reduce income inequalities in this country. These have been growing in recent years – so a shift back to a more egalitarian Australia would be good. A ‘fairer go’ in itself would be welcome but as Wilkinson and Pickett* have so ably shown recently, inequality kills – and their concern has not been geese but people.

But just imagine if this idea of redistribution were to catch on in a major (as opposed to a big miner) way?

Imagine if the people (that forgotten breed) were to think: ‘this is a good idea, we like the notion of a fairer Australia and we buy this idea that these public health gurus tell us that inequality is bad for our health. We can relate to that. It’s not that we are envious – we are not into this ‘politics of envy’ stuff. But we do believe in a fair go.’

Where might this all end, good heavens? Well in economic theory (sorry, but yes there is such a thing) the excess profits tax is relevant in any industry where there are big profits and barriers to entry.

That is not socialism or communism (as big miners have claimed). It is straight textbook economics.

So who or what is next in line? Surely the banks … here again there are excess profits and barriers to entry. Beyond the banks? Well readers can draw up their own list.

The excess profits tax on mining might just be a start to redistribution through taxation and a move to a more egalitarian society. The government in the wake of the “Preventative” Task Force Report is beginning to buy into the idea of using the social determinants of health as the road to better population health. It’s easier anyway than trying to take on the AMA.

So there are major health issues at stake here and not just big miner ones.”

* The Spirit Level: Why More Equal Societies Almost Always Do Better, Richard Wilkinson and Kate Pickett, Allen Lane: London.