Caught between a rock and a hard place, Australia can’t just dig its way out

Is the resources boom good or bad for Australia? It is hard to argue the latter when Australia is among a handful of major developed economies still growing.

But the rarely contested notion that the resources boom is Australia's saviour deserves serious critical scrutiny.

While Australia appears to have so far escaped the ravages of the deep economic and political crisis now afflicting Europe and the US, the resources boom creates massive problems domestically and externally.

Domestically, the resources boom means that more than ever the wealth of the few comes at the expense of the many – a situation all-too-familiar in the US and parts of Europe. This is partly because of the usual pitfalls inherent in resource-led growth, but largely to do with the historical processes of social and political change that took place in Australia and around the world in the decades leading up to the current boom – whereby in the name of comparative advantage, precarious employment and rising inequality were tolerated.

As the vast academic literature on the 'resource curse' and the popularisation of terms like the 'Dutch disease' show, resource-led growth is often associated with a decline in other parts of the economy, erratic growth patterns, highly uneven economic development geographically, deepening wealth and income disparities, and in many poor countries, even conflict and war. Indeed, on this last point, in the undeveloped world, natural resources are often central to the rise and consolidation of pernicious elites and bitter contestations over elite power.

While Australia has of course been spared internal conflict it has not avoided many of the other by-products of intensive resource exploitation. For one, the rising value of the Australian dollar – whose fortunes have for some time been linked to the market value of Australia's main export commodities and, not unrelated, considerable speculative activity – has placed significant pressure on non-resource exporting sectors.

Notably, sectors that are both big export earners and big employers, such as higher education (our number 3 earner), tourism (number 5) and manufacturing, are made less competitive internationally by a strong dollar. For example, this is reflected in the declining rates of enrolment by foreign students in our universities.

In contrast, the booming resources sector – which is now overwhelmingly our biggest export earner, generating $135 billion or just shy of half all of our export earnings in 2010 – employs no more than 2 per cent of the Australian workforce.

Yet it is not only existing jobs in, and the profitability of, non-resource sectors that is at stake, but how to develop an economy that is economically sustainable and which adds social value. The latter is important in terms of maintaining a high quality of living based upon social cohesion and obviating vulnerabilities; the former is crucial given that our economy is heavily dominated by the simple exploitation of exhaustible bulk commodities.

And for those that think that in Australia, endowed with 7.5 million square kilometres, talking about the exhaustion of mineral resources is a tad dramatic, think again. Journalist and researcher Paul Cleary, among others, has suggested in his recently published book, Too Much Luck,that our national resource wealth may well be spent within as little as forty years.

All of this demands that we rapidly harness the resources boom towards the development of more sustainable industries, which will provide broad employment opportunities with decent pay. Otherwise, the rundown shells of Macmansions in sprawling, largely deserted, suburbs (a scene now readily apparent in the US) will be all that is left to tell the story of Australia's riches.

Although the government's much diluted mining 'super profits' tax – the Mining Resource Rent Tax – has recently been passed in the House of Representatives, it is obvious that it will not do much to correct the imbalances generated by the boom, not least because of the federal government's scandalous agreement – indicative of the incommensurate clout of the mining lobby in Canberra – to compensate mining companies for increases in State royalties.