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

By Shahar Hameiri and Toby Carroll - posted Wednesday, 30 November 2011


But the specific – and largely negative – social outcomes of Australia's resources boom are not pre-determined. If we look at Norway, perhaps the only country to tame the 'resource curse' over time and the world's sixth-ranked in terms of income equality, we can see that more equitable growth is possible in Australia if the political will to socialise the benefits of resource extraction existed.

This said, processes of political and social change that have been in train since the 1980s, but which elsewhere in the world are currently being brought into question, militate against such a progressive shift in Australia.

From the Hawke government onwards, Australia mirrored political and economic tendencies in the US, Britain and Europe towards 'freeing up the market', instilling competition and shifting risk and responsibilities to individuals. This variously took place through processes of deregulation (of banking for instance), the privatisation of government-owned companies and utilities, the liberalisation of trade and the floating of national currencies. The liberation of the market also manifested in a push to wind back collective bargaining and the entitlements and gains won by workers.

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In essence, this process entailed a massive restructuring of the state and state-society relations. The interventionist welfare states that rose to prominence in the post-World War II period – in particular to smooth out big economic dips and spikes and avoid the sort of poverty accompanying the Great Depression and its political effects – were derided by politicians and their economic advisors as unsustainable and, indeed, a burden on entrepreneurialism and, ergo, society.

Concerns of equity, social justice and full employment, gave way to the logic of comparative advantage, sending the 'right incentives', profit and GDP. As a result of these changes, the share of wages in Australian GDP has dropped from a peak of 62.4% in 1974-5 to 53.4% in 2007-8 – not as drastic a decline as witnessed in the US in the same period, but a substantial drop nevertheless. At the same time profits' share has risen exponentially.

The focus upon comparative advantage, corporate profit and GDP – to the exclusion of almost everything else – is now, of course, being blamed for what we see in the northern hemisphere.

In Australia, however, the apparent shelter provided by the resources boom from events in Europe and the US, has been perversely used by the wealthiest, employing the same old language of 'free markets', to argue against state intervention and, in particular, against the redistribution of wealth generated from the massive growth in commodities.

The implications are clear, however. Unless Australian governments, pressured by citizens, take meaningful steps towards redressing rising income and wealth inequalities and harnessing the resources boom towards a better future for the majority of Australians, tensions between the runaway resources sector and everybody else will only rise.

But there are no signs of a serious policy shift at the moment, or of any social movement rallying around these issues. In Western Australia, for example, the State government's development plans seem to indicate that the development of infrastructure for further growth in resource exports is the top priority. In other words, the majority of West Australians, who essentially lose out from the resources boom, watching the real value of their wages decline, are being asked to subsidise future growth in a sector that will likely do considerable damage to their livelihoods.

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But the problems of the resource boom are not simply contained within our borders. The resources boom also creates problems for Australia internationally. The recent Obama visit brought into sharp relief the contradictions between Australia's military alliance with the US and its dependence on China as the main market for Australian mineral exports.

Despite persistent denials from Gillard government ministers, it is clear that the decisions to upgrade US military presence in Australia and sell uranium to India are part of a broader containment strategy towards China. And it remains to be seen how the Chinese government chooses to respond, once the issue goes through its prolonged internal decision-making process. All this suggests that Australia cannot necessarily eat its cake – yellow or otherwise – and have it too.

But even if these tensions will not lead to a worsening strategic environment in the region in the near future, major questions remain over whether Chinese demand is sustainable. The Australian economy has all of its eggs in the China basket, but there are worrying signs that the chickens are coming home to roost.

In an effort to stave off a serious decline in economic activity, many Chinese provincial and municipal governments have borrowed heavily to finance a construction boom. There are whole cities in China that have been built that remain uninhabited, pointing to a massive bubble. If the current crisis taught us one thing it is that construction booms can turn to bust spectacularly and very rapidly – witness the demise of the Irish 'Celtic tiger', now a whimpering pussycat.

Australia is a Lucky Country. However, now is not the moment to bask in the solace largely derived of geographical, geological and historical fortune. Australians need to reengage politically in fostering a new path for the coming decades. To do otherwise will leave us and subsequent generations to grapple with an unfortunate legacy that could have been avoided.

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About the Authors

Shahar Hameiri researches development issues at the Asia Research Centre, Murdoch University.

Senior Research Fellow in the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy, National University of Singapore.

Other articles by these Authors

All articles by Shahar Hameiri
All articles by Toby Carroll

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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