How Australia’s mining barons stole the boom

The resources boom has been the most spectacular of its kind in 150 years, surpassed only by the gold rush of the 1850s. It has created enormous fortunes in the hands of a few, impoverished some and left many isolated from its benefits. Now that we are coming out of the construction phase, the money piling up in the hands of the mining barons will continue to grow as production soars, but the jobs will be far fewer and the aftermath potentially quite painful to many.

In the meantime, the mining boom has scarred the landscape wherever it touches, driven Indigenous communities to despair, raised rents and house prices to punitive levels and created social havoc for fly-in, fly-out workers and their families.

The winners

The mining boom has made Gina Rinehart, Andrew Twiggy Forrest and Clive Palmer household names. They, and their counterparts on the boards and executive committees of BHP Billiton and Rio Tinto, have become richer than Croesus. Rinehart was the wealthiest woman in the world in 2012, with a fortune of $29 billion. Forrest has $3.7 billion, while Palmer’s fortune is valued at about $1 billion. Ivan Glasenberg, chief executive of Glencore Xstrata, is sitting on a nest egg of $5.6 billion. To put these figures into perspective, it would take the average Australian 208,000 years to earn what Gina Rinehart has put away since 2011.

The big institutional shareholders have also flourished, with share prices all substantially higher than at the outset of the boom in 2003. BHP and Newcrest are up 300 percent, Woodside Petroleum 180 percent and Rio Tinto 75 percent. Fortescue Metals Group shares have risen from a lowly 3 cents to more than $4.

Three phases

The resources boom has had three distinct phases. The first was the sharp jump in export prices from 2003, energy resources prices more than tripling over five years. Metals and other minerals have also risen strongly, iron ore and thermal coal prices more than tripling between 2003 and today.

Mining industry profits soared on the back of the price hikes – from around $12 billion to more than $80 billion. This surge in profits shook up the Australian corporate landscape. Mining industry profits rose from only 11 percent of total profits notched up by corporate Australia to 38 percent by 2012.

The surge in prices and profits was responsible for the second phase – the mining construction boom, which kicked in in 2006. Mining, construction and engineering companies threw billions of dollars into the construction of new mines, offshore drilling and associated infrastructure needed to ramp up production to meet soaring demand. The Pilbara has been transformed, but so too has central Queensland around Gladstone and the Bowen Basin and Darwin.

The mining service businesses in WA, Queensland and the Northern Territory have prospered, as have the big financial and legal companies working out of Brisbane, Perth and Darwin. The exploration companies also enjoyed a surge in profits until two or three years ago, while Qantas and Virgin have made big profits from fly-in, fly-out services. Every boss not totally asleep has got in on the game.

The explosive growth of Chinese manufacturing and infrastructure construction has underpinned the boom. China’s share of Australia’s resources exports has risen from 7 percent in 2001-02 to 41 percent 10 years later. Iron ore has been critical, with sales rising astronomically – from $2 billion to $43 billion. Sales of thermal coal, metallurgical coal and oil have also jumped sharply.

Although less heralded, demand from Japan has also played a big part in the boom. Exports to Japan of iron ore, metallurgical coal, thermal coal, oil gas and copper all doubled in value in the decade to 2011-12

With many of the new resource projects coming on stream, the third phase of the boom is now apparent. Modest growth in production in the first two phases is giving way to a sharp jump in output across the board, which is forecast to keep going for another five to 10 years at a rate sufficient to offset the effect of price reductions.

Corporate welfare

The resource industry bosses like to spruik the virtues of “free enterprise” and cutting back “red and green tape”. The truth is that they are the biggest bludgers off state welfare. The Australia Institute has gone through the national accounts and identified billions of dollars in subsidies and tax concessions channelled to the mining companies every year. Last year the total was $4.5 billion.

This figure doesn’t include massive state government subsidies estimated in 2012 at $1.4 billion per year in the case of Queensland alone. Nor does it include the infrastructure provided by state and federal governments – the roads, railways, port development and so forth – that allow the industry to operate. In the Hunter Valley alone, the federal and NSW governments are chipping in $855 million to upgrade the railway line to the port of Newcastle.

The mining industry also benefits from fringe benefits tax exemptions valued at tens of millions of dollars annually. The resources sector will also be a beneficiary of the carbon pricing mechanism as government hands out free permits, while LNG producers will receive large subsidies from the Jobs and Competitiveness package.

Political effects

The bumper profits of the mining industry have made it a more significant player in the ranks of the capitalists; this is also true when it comes to investment and exports. Investment in the sector has risen from 17 percent of all new private capital expenditure in 2003-04 to a whopping 53 percent in 2011-12. By contrast, manufacturing, which was as important as mining in the earlier period, now accounts for only 8 percent of total new investment. Resource exports have increased from 36 percent of the total to 61 percent.

These sectoral shifts have had important political effects. This was obvious in 2010, when the industry mobilised against the Rudd government’s resources super-profits tax. This would have taken money from the mining industry bosses and distributed it to other capitalists through a cut in the company tax rate. The mining bosses put their foot down and brought down Rudd, scuppering the super-profits tax in the process. Subsequently Gillard introduced a much weaker mining tax and watered down the tax cuts for other capitalists. The result is that the mining companies have got away pretty much scot-free.

The mining bosses also weighed in to trash the original carbon pricing mechanism. While this was always a regressive measure in that it shifted the cost of reducing carbon emissions onto the working class, the resource companies have now engineered it to substantially reward them for their pollution.

The mining bosses have had free access to the Rudd and Gillard cabinets because numerous ALP figures are on their payroll, including former national secretaries and ministerial advisers. They know just how to make sure their phone calls to the Lodge are answered – the 2010 media campaign against the mining tax was overseen by Neil Lawrence, the head of Rudd’s successful 2007 election bid!

Not all capitalists are happy about the mining boom, because it has pushed up the dollar and made their businesses less competitive. Trade-exposed sectors such as manufacturing, tourism, education and retail have all suffered in this way. The boom has also pushed up wages for skilled tradespeople in the mining states, adding to the costs of labour for other blue collar industries.

These industries have been screaming blue murder now for some years and demanding government action to protect their interests. Retail and tourism have used their plight to wail about the “onerous” cost of penalty rates, while the car industry has successfully lobbied for big subsidies. With the dollar now in decline, however, don’t expect to see the bleating from these industries grow any less.

Impact on the working class

The mining industry has recruited new workers hand over fist in recent years, mining industry jobs rising from 96,000 in 2003-04 to 249,000 in 2011-12.

Some workers have won big wage rises by moving across the Nullarbor for these jobs, but it’s the bosses who have prospered most from the boom. Profits per worker rose from $131,000 in 2003-04 to $375,000 in 2010-11 and a still respectable $280,000 in 2011-12. This is worth remembering when we read of “overpaid” mining industry workers – in every 12 hour shift, at least 8 hours of production goes back to the mining company in the form of surplus, at most only 4 hours to the worker.

The bosses have used “fly in, fly out” workers to push up their profit margins. Accommodation on sites varies tremendously, from the primitive to the modest, and companies have tried to cut costs wherever they can by skimping on home comforts. Because workers are on changing shifts and are constantly flying into and out of the sites, unionisation in the Pilbara is hard to sustain, particularly in the teeth of hostility from employers, although the CFMEU has had some success. When enjoying home leave in Perth, these workers are demonised as “cashed-up bogans” by the media and “respectable” public opinion.

Workers outside the mining industry have received very few of the benefits from the boom. In the last resources boom of 1979-81, workers in the non-mining regions struck to get their share, pushing wages up dramatically across the board. This time around, the unions have been weakened and there has been no wages “breakout”. Indeed, the ACTU constantly boasts of “responsible” wage bargaining by the trade unions. So even though real wages have risen, they have fallen far behind the growth in profits.

This has had a particularly serious impact in WA, where the boom has pushed up prices of housing and other essentials while wages for most workers have barely kept pace. For those living in the mining regions but not employed by the industry, housing costs have become prohibitive – weekly rents of $1500 for a modest three-bedroom house are not unusual, and a caravan park berth in the Pilbara can cost up to $1000.

Booming government revenues have been wasted on vanity projects such as Perth’s Elizabeth Quay. Public transport and social housing have been neglected.

The natural environment has also taken a beating from the resources boom. James Price Point in the Kimberley may have been the cause celebre and the site of a big victory by the campaign against it centred in Broome, but elsewhere the mining companies have pretty much got their way. The prospect of fracking in the Kimberley is just the latest monstrosity.

Indigenous impact

The mining boom has also passed Indigenous people by, at best. Despite PR fanfare by the mining companies, they employ relatively few Aboriginal workers. Even where they do recruit from local communities, they do very little to help develop the kinds of things that are really required to lift living conditions: health clinics, housing, infrastructure.

Homelessness and youth unemployment rates among the Indigenous people of the Pilbara have not dropped, and poor health, especially among children, is endemic. In the Aboriginal town of Roebourne, close to resources hub Karratha, fully 80 percent of the children cannot pass a simple hearing test due to middle ear infections.

The mining companies hand out a few contracts to Aboriginal organisations, which then hire local workers, but the big money goes to a few well-connected leaders. Where communities try to prevent the mining companies taking over their land, the latter use divide and rule tactics to undermine opposition, buying off supporters and sooling lawyers onto opponents.

The ‘bust’

The mining industry is making bold predictions of continuing profits off the back of rising production in the third phase of the boom. But this all depends on China remaining strong, and there is no certainty of that. Further, it is not only Australian minerals that are now pouring onto world markets. World coal exports in 2012 were up by 42 percent on 2003 and trade in iron ore by 86 percent. World stocks of aluminium, indicating the excess of production over consumption, have more than doubled, while stocks of copper, lead, nickel and zinc are all on the rise

In the event that China slows down markedly, a resources glut could turn all forecasts of prosperity to ashes. Prices could begin to fall much more rapidly than predicted. In the iron ore industry, the result will be further monopolisation and a string of bankruptcies. Even now, just four companies – BHP, Vale, Rio and FMG – dominate 70 percent of world iron ore trade. They will survive any big crunch because their production costs are low; it will be the small producers who will be driven to the wall.

The gradual drying up of new mining mega-projects and the completion of those started in recent years will have a serious impact on investment, possibly halving it within two or three years. Further, production is much less labour intensive than construction of mines, and once construction in existing projects comes to an end, the labour force will be cut across the board.

Exploration will also be pulled back, and a host of companies involved in getting new mines up and running, as well as the companies contracted to build infrastructure, will all have their business slashed. No other sector of the economy appears likely to fill the gap, meaning that unemployment will likely climb steadily. The continuing high profits of the big mining companies won’t have much impact on business in Australia because much of the loot will be repatriated to overseas owners and shareholders.

The big deflationary shock that is on its way is what lies behind Rudd’s recent rhetoric of a post-boom economic adjustment. He is talking of a “productivity revolution” and a “new national competitiveness agenda” if Labor is re-elected; this will mean work intensification for millions of workers.

The ruling class are using this “adjustment” period and the slowdown in tax revenues to demand tougher attacks on welfare, an increase in GST and an end to the “culture of entitlement” – that is, the notion that workers might expect governments to provide decent health, education and social welfare. In WA, the centre of the boom, the Barnett government is now cutting services and attacking public sector workers. Public service retrenchments loom as Barnett cries poor.

If the Coalition wins the federal election, it will abolish even Gillard’s weak mining tax and will introduce a “direct action” plan for carbon abatement that will shovel even more money to the resource companies. Little wonder that they are salivating at the prospect of an Abbott win even though Labor has done so much for them.

The resources boom has been an El Dorado for big and dirty capitalism. Now that the capitalists see the writing on the wall, they are preparing to launch another round of attacks. Our side got nothing from the boom. We sure as hell shouldn’t have to pay for the bust.