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The Dutch Disease has infected the Australian economy

By John Töns - posted Wednesday, 17 August 2011

The Dutch Disease is a mechanism whereby selling a country's resources raises the value of that country's currency. The higher currency value then causes a proportionate slump in manufacturing in that country because the manufacturers can't export at the higher dollar price.

While it most often refers to natural resource discovery, it can also refer to "any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment.

This is an accurate summary of the problem that the Australian economy faces and one that seems to be ignored by all sides of politics. In fact the reverse is the case – we see our politicians reverently genuflecting at the altar of the commodities boom for thus far it has meant shelter from the cold winds of successive global recessions.


However, there is a hefty price, because the commodities boom is leading to the unravelling of other industries; industries which we will need when China and India no longer buy so frenetically.

In fact, we need these industries now.

By ignoring the adverse impact that the mining boom is having we are setting ourselves up for a major depression. It is not as we if have not been there before. The boom years created by the gold rush were followed by a major slump when the gold ran out.

However, in the 19th century, humanity was still a long way from over exploiting the planet's limited resources. In 2006 humanity was using 140% of the earth's available resources per annum; we were drawing down on our natural capital at a rate faster than the earth is able to replenish it. Since 2006 we have become more efficient in our resource use, but as the various world economies are continuing to grow, we are still outstripping our natural resources.

What this means for Australia is that unless we are able to become self sufficient we are going to face a future where we will not be able to import the things we need.

We are seeing the start of this with oil.


The Saudis are producing as much oil as ever but are exporting less because they are consuming more of it themselves. At the same time we see the Chinese foreign policy in Africa is to 'squat' on stock piles of natural resources. They are also buying up farms in countries like Australia and New Zealand with an eye on the growing needs of their huge population.

And what are we doing? We are rejoicing in the high dollar, a high dollar that is driving our small business enterprises to the wall. Even food is being imported instead of producing it ourselves. In the name of the free market we are destroying our primary industry – fewer people are entering the industry – expertise is lost and many farms are converted to life style properties.

Australia is now importing some 60% of the fresh fruit and vegetables we eat.

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About the Author

John Töns is President of the Zero Carbon Network a network established to promote clear thinking about the issues associated with climate change. In addition to operating the only zero carbon boarding kennels in South Australia he is also completing a PhD at Flinders University in the area of Global Justice. John is a founding member of a new political party Stop Population Growth Now.

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