[Dave]

Why doesn't Australia insist on adding more value to its iron exports? At the very least couldn't Australia insist that China, Japan, and South Korea accept that Australia will process iron ore into pig iron or sponge iron? Preferably Australia would insist that China and Japan make do with importing finished steel products.

[Notorious B.i.G.]

Welcome to the world of free trade where corporations make the decisions based on profit maximisation. And not forced regulation and trade by Governments.

[Swagman]

where corporations make the decisions based on profit maximisation

...the real world

[Dave]

Welcome to the world of free trade where corporations make the decisions based on profit maximisation. And not forced regulation and trade by Governments.

Adding additional value to iron ore exports is profit maximization.

Profit maximization for the Commonwealth of Australia.

More economic output. More exports. More jobs.

I don't blame the corporations, I blame the government. Corporations have a fiduciary duty to their shareholders to maximize shareholder value. It is the government's role to align corporation's incentives with those of the people and the state.

It's even green, because while South Korea and Japan have highly modern and efficient steel industries China does not. So that means less carbon.

Why does Australia insist on remaining a colonial economy?

...the real world

I live in America, the world's largest economy since 1871.

We developed through an innovative mix of freedom and government intervention. Private business was free to develop as it saw fit and was taxed minimally, but the government kept foreign competition safely at bay while subsidizing projects deemed critical to development (for instance, the railroads).

Of course we are in the 21st century now so the old recipes can't be duplicated with the same effects today.

But the principles are sound. Don't you think Australia should add more value to its exports?

[AVT]

It has been tried many times, the problem is that the cost to produce is just not competitive for a variety of reasons, also we (especially in my state WA) have a major shortage of labour and just do not have the capacity to accomodate the scale the industry would have to be for it to possibly turn a profit.

Australia has always been a commodity based economy, we do it well and will keep doing it well for as long as there are resources left, once they are gone and the the cost of labour is reduced then we may start to see diversifaction.

[GandalfTheGrey]

the problem is that the cost to produce is just not competitive for a variety of reasons

ironically, the exporting of minerals itself is what makes processing uncompetitive by driving up the exchange rate. Basically any industry that incurs significant costs from buying/importing raw materials will suffer - which is basically everything exept for mining. Hence our "two speed" economy. In such a scenario, the less processing the mining industry has to do the better (for them).

[Dave]

It has been tried many times, the problem is that the cost to produce is just not competitive for a variety of reasons, also we (especially in my state WA) have a major shortage of labour and just do not have the capacity to accomodate the scale the industry would have to be for it to possibly turn a profit.

Australia has always been a commodity based economy, we do it well and will keep doing it well for as long as there are resources left, once they are gone and the the cost of labour is reduced then we may start to see diversifaction.

Who has tried and how have they tried?

My suspicion is that all efforts have been private.

Given Australia's primitive industrial base, high wages, and strong currency it is unsurprising that such efforts would not succeed. While a private effort could theoretically succeed, the rate of return would be too low to justify the risk. And no one in Australia has the expertise to do it. The Asian steel producers have no interest as they're focused on home production, so a private solution would rely on US or Western European steel producers who are, naturally, interested in profit maximization.

The solution is government. Australian trade negotiators should directly inform the governments of China, South Korea, and Japan that Australia fully intends to add additional processing to its iron ore production prior to export. They will protest, but there is nothing they can do. They can't make up the shortfall in Australian iron ore from domestic sources or from Brazil.

ironically, the exporting of minerals itself is what makes processing uncompetitive by driving up the exchange rate. Basically any industry that incurs significant costs from buying/importing raw materials will suffer - which is basically everything exept for mining. Hence our "two speed" economy. In such a scenario, the less processing the mining industry has to do the better (for them).

I think this is only partly true. What you're describing is known as the "Dutch disease", but the Netherlands still has a very advanced manufacturing sector despite it. And let us not forget that Australia has a chronic current account deficit despite its success in exporting commodities.

Frankly I think Australia suffers from a lack of imagination. The country hasn't even tried, really. Its efforts at industrial development have been half-assed and driven by labor-focused visions of mediocrity. All successful industrial countries began with state guidance and support, even allegedly free-market Britain and America.

[AVT]

Australia has made a conscious decision to pretty much go the whole hog in terms of the free market, the level of protectionism and government money required to do what you are suggesting is just not politically acceptable anymore, look at the controversy over subsidies given to car manufacturers. This has had a ruthless effect on our economy, where slowly but surely workers have been shifted into sectors where they are more productive (in $AUD terms) and away from sectors that could not survive competition.

[Notorious B.i.G.]

The solution is government. Australian trade negotiators should directly inform the governments of China, South Korea, and Japan that Australia fully intends to add additional processing to its iron ore production prior to export.

That is pure Government intervention and protectionism. A perfect way to start a trade war and have China et. al. seek their resource needs for somewhere else.

As AVT said the level of protectionism and government money required to do what you are suggesting is just not politically acceptable, both on a domestic and internationally level. It’s the kind of policy that a national socialist government would implement.
The only way I could see something like this happening is if the Government opened up their own value adding operations and competed on the open market, and that this organisation was revenue neutral.

[GandalfTheGrey]

The solution is government. Australian trade negotiators should directly inform the governments of China, South Korea, and Japan that Australia fully intends to add additional processing to its iron ore production prior to export. They will protest, but there is nothing they can do. They can't make up the shortfall in Australian iron ore from domestic sources or from Brazil.

Interestingly, I was having a similar conversation with someone about the risks if Australia was more critical of Chinese human-rights abuses. I think in both cases our instinctive reaction is to not want to offend China because they are bigger and stronger than us. Certainly the mining industry themselves, and other vested interests obsess about China abandoning us at the first hint of offending them. According to them China has plenty of other potential trading partners. Though I suspect you are right that China doesn't really have any other viable options.

I think this is only partly true. What you're describing is known as the "Dutch disease", but the Netherlands still has a very advanced manufacturing sector despite it.

There is actually a very obvious correlation with the start of the current mining boom and the fall in the manufacturing and service sectors at the same time. Also the problem is not just the exchange rate, it is also the fact that almost all the profits go offshore. Add to this the fact that the mining sector employs a surprisingly small proportion of the total workforce (even including indirect jobs), then you get a booming industry that is feeding far too little into the overall economy of the country. In light of this, I can't really see a huge amount of difference if you add processing to the industry - the profits will still go offshore, and as AVT points out we don't have the labour to accomodate this scaling-up of the industry - we would have to import much of the workforce. The only significant change in the economy I can see is a massive financial burden to build the necessary infrastructure to get this processing up and running.

[Dave]

Australia has made a conscious decision to pretty much go the whole hog in terms of the free market, the level of protectionism and government money required to do what you are suggesting is just not politically acceptable anymore, look at the controversy over subsidies given to car manufacturers. This has had a ruthless effect on our economy, where slowly but surely workers have been shifted into sectors where they are more productive (in $AUD terms) and away from sectors that could not survive competition.

Forgive my ignorance, but my understanding of Australian economic history is that Australia's postwar industrialization was the crappy, lazy kind designed to appeal to unions. This produced strong living standards and employment (for a time), but at the cost of a totally inefficient and antiquated industrial base. This was dismantled in the 1980s and 1990s to the benefits you suggest.

But there are numerous other advanced countries with sophisticated, competitive manufacturing sectors. Some smaller than Australia--take Sweden for instance. What most of these countries have in common is that from the beginning they set out to make their goods globally competitive. Australia did the exact opposite. I can't think of a single industrial product or company that Australia is notable for. Not one.

I realize that what I'm suggesting is not politically tenable at this time, but many political ideas begin that way. And given your government's insane insistence on rapidly increasing Australia's population, it might become necessary at some time to sustain growth and employment.

That is pure Government intervention and protectionism. A perfect way to start a trade war and have China et. al. seek their resource needs for somewhere else.

There is no other such source of iron ore. Even if one were discovered, it would take years to develop and this against a backdrop of continually increasing Chinese and Indian steel demand.

As AVT said the level of protectionism and government money required to do what you are suggesting is just not politically acceptable, both on a domestic and internationally level. It’s the kind of policy that a national socialist government would implement.
The only way I could see something like this happening is if the Government opened up their own value adding operations and competed on the open market, and that this organisation was revenue neutral.

This sort of market fundamentalism is why Australia will remain a colonial economy for the considerable future.

Interestingly, I was having a similar conversation with someone about the risks if Australia was more critical of Chinese human-rights abuses. I think in both cases our instinctive reaction is to not want to offend China because they are bigger and stronger than us. Certainly the mining industry themselves, and other vested interests obsess about China abandoning us at the first hint of offending them. According to them China has plenty of other potential trading partners. Though I suspect you are right that China doesn't really have any other viable options.

I quite agree with you. It's not the 1980s anymore. We've seen a tremendous run up in commodities prices driven by Asian industrialization with no end in sight. And many high-grade ores in traditional industrial regions like Europe and North America are substantially depleted or exhausted. Many other potential sources are in countries which are politically unstable and have weak, corrupt states. The only other iron ore exporter even close to Australia in scale is Brazil, which produces both less iron ore and consumes more of it internally. This leaves Australia in an enviable position.

Naturally I do not think that Australia should criticize China on human rights, but that is because I think how they treat their own people is irrelevant. But should Australia choose to do so, China's ability to economically retaliate would be limited. In a generation China would be able to retaliate militarily but that is a different story.

There is actually a very obvious correlation with the start of the current mining boom and the fall in the manufacturing and service sectors at the same time. Also the problem is not just the exchange rate, it is also the fact that almost all the profits go offshore. Add to this the fact that the mining sector employs a surprisingly small proportion of the total workforce (even including indirect jobs), then you get a booming industry that is feeding far too little into the overall economy of the country. In light of this, I can't really see a huge amount of difference if you add processing to the industry - the profits will still go offshore, and as AVT points out we don't have the labour to accomodate this scaling-up of the industry - we would have to import much of the workforce. The only significant change in the economy I can see is a massive financial burden to build the necessary infrastructure to get this processing up and running.

Profits going offshore is nothing new. Australia is a colonial economy. The country has run a current-account deficit since its inception, many of the most important industries are owned by foreign capital and always have been. And the sort of market fundamentalism displayed by other posters in this thread means that will not change.

Adding processing to the industry makes an excellent difference. Pig iron (or sponge iron) sells for more than iron ore. You need more workers to produce it than you do just to extract and ship iron ore. And if Australia moved up to exporting finished steel, that's more exports and employment still.

Australia is a natural steel country. Iron ore is abundant. Metallurgical coal is abundant. The resources are close together. The country would be the world's lowest-cost producer of steel.

I don't see any reason why the workforce would have to be imported. One ton of steel can be produced with one man-hour of labor in the most advanced mills. Australia's unemployment rate is 5.1%, so that's not full employment.

I assume you don't buy into Gina's arguments about a labor shortage do you?

You're being too cautious. Where would South Korea be today without the decision to form POSCO?

[AVT]

I don't buy into Gina's rhetoric, I live it, being in the industry myself. There is an acute shortage of technical specialists, especially in the engineer\geosciences background, without immigrants we would have ground to a halt a long time ago, I estimate in my field that 75% of the workers are foreigners, mainly from Europe. Does that justify Gina trying to import her entire workforce enmass? No, but to deny there is an acute skills shortage in WA is sticking your head in the sand.

With social welfare there is always a % of the population that will not work no matter what, the unemployment rate in WA is 3.8%, that is about as low as it will go.

[ness31]

Would it be remiss of me to make a distinction between importing labour for large multinationals that actively create a labour shortage and expect it to be everyone else's problem (who incidentally are not the nicest corporate citizens) and importing labour for the sake of creating another dimension to an industry which could possibly reap rewards for generations to come?

Hope that made sense..

[Dave]

I don't buy into Gina's rhetoric, I live it, being in the industry myself. There is an acute shortage of technical specialists, especially in the engineer\geosciences background, without immigrants we would have ground to a halt a long time ago, I estimate in my field that 75% of the workers are foreigners, mainly from Europe. Does that justify Gina trying to import her entire workforce enmass? No, but to deny there is an acute skills shortage in WA is sticking your head in the sand.

With social welfare there is always a % of the population that will not work no matter what, the unemployment rate in WA is 3.8%, that is about as low as it will go.

We have the same bullshit in America. The press routinely claims that we suffer from dire labor shortages despite a chronically high unemployment rate and one of the lowest rates of workforce mobilization of any advanced industrial country.

Skills shortages are a different matter, but that can be addressed by scaling up vocational and technical training programs.

Would it be remiss of me to make a distinction between importing labour for large multinationals that actively create a labour shortage and expect it to be everyone else's problem (who incidentally are not the nicest corporate citizens) and importing labour for the sake of creating another dimension to an industry which could possibly reap rewards for generations to come?

Hope that made sense..

This idea isn't a bad one, and given economic troubles in Europe there is a ready source of skilled, English-speaking migrants who are culturally and ethnically compatible with Australia.

[Igor Antunov]

Even Australian coal is cheaper than chinese coal for the chinese. This makes sense though, deplete anothers' resource reserves before you deplete your own.

[foxdemon]

Frankly I think Australia suffers from a lack of imagination. The country hasn't even tried, really. Its efforts at industrial development have been half-assed and driven by labor-focused visions of mediocrity. All successful industrial countries began with state guidance and support, even allegedly free-market Britain and America.

Dave, I think you have hit the nail on the head. Australia most definately is a half arsed nation. And the identification of the colonial mentality is quite astute. Australia has traditionally been governed by the rejects from the British ruling class. Here's a famous line from Hallaire Belloc's poem 'Lord Lundy II':

". . . My language fails!
Go out and govern New South Wales!"

http://www.theotherpages.org/poems/belloc02.html


The cretins are able to maintain their hold on power due to the common Australians being complete unable to stop knocking each other long enough to pull together and replace the old colonial reject class. Could be the Irish influence, as Ireland traditionally proved incapable of pulling together against English imperialism.


The lazy coment is just so true. Donald Horne wrote a book 'The Lucky Country, Australia in the 1960's". This term 'lucky country' really took root in the Australian psych, people thinking it mean't Australia was special or exceptional. Actually, anyone who read Horne's book will know he was trying to tell people they were complacent and that their future would be uncertain if their didn't pull the finger out and get a move on. Alas, Australians continue to ride on their nation's resource wealth and fail to develop themselves as a group/nation in any other way (except perhaps in sport).

Similar to Austalia is the oil rich middle east nations (eg: Saudi Arabia) who also ride their resource wealth thinking it will last forever. I guess such short sighted peoples only get what they deserve in the end. Now, look at South Korea. A tiny, rocky, resource sparse penisular. Every cent of their wealth they had to create for themselves. They could not afford the luxury of complacency. Such industrious, drive people will inevitably dominate the complacent, small minded and unimaginative.

Ok, the unimaginantvie comment: yes, this is what I describe as the 'pea-brained philistine' culture. Others have described it as the 'tall poppy syndrome'. Anyone who takes an interest in intellectual matters will find themselves very isolated. Those who can excell in knowledge will move overseas to purse their interests. Thus many talented people from Australia work in NASA and DARPA. The scam jet project has many Australian aero space engineers on it. I think many would be US citizens. If they had stayed in Australia, their talentes would have been completely wasted. Another example is those fellows that deviced a way to enrich uranium using lasers. Absolutly no government support. They sold it to an American firm. It would have gone nowhere if they kept going in Australia.

I could go on, but it is very clear Australia's intellectual resources have been ignored and thus the nation has failed to capitalise on them. South Korea could not afford to be like this. They had to utilise their brains. They have nothing but what they create. Australia's resource wealth has created an easy prosperity, allowing an incompetent poltical establishment to remain in power without challenge. Complacent Australians just haven't been bothered to demand any better.

As Donald Horne pointed out, such 'lucky' can't last forever. Australia will most likely become a US colony. Unless US navy power declines unexpectedly and rapidly, then one of the Asian powers will colonise the place. Most likely China. Australians are losing their independance, but they won't understand the consequences until they experience colonialism. Of course that will be too late for them and their childern.

A few opinions about Australians:

'The white trash of asia' (Lee Kaun Yu)

'Australians are stupid' (Jamie Oliver)

'English good'ol boys' (Robin Williams)


Can they all be wrong?

[foxdemon]

-double post-

[ness31]

We aren't stupid Fox. I think the hung parliament is evidence of this. Voters have forced politicans into the most uncomfortable of positions.

We are either really lazy in our civic duties or we're all pretty happy with life and don't care enough to meddle.
There is always room for improvement in how politically educated a populous is and Australia is still relatively small enough to keep the numbers weighted in favour of high civic participation.

I'd love to see some of the money apparently raised to educate us on what to eat drink and inhale instead going into a politcal education drive, so that we, the dirty masses actually understand that if you want to dampen the fervor of authoritarians one must engage and write a letter to their local MP to voice their concerns. Stage 2 would be teaching them how to vote for a candidate that best shares their values.

Tell me adult Australia couldn't use a bit of a spruce up in the civics department...

[AVT]

Dave, I think you have hit the nail on the head. Australia most definately is a half arsed nation. And the identification of the colonial mentality is quite astute. Australia has traditionally been governed by the rejects from the British ruling class. Here's a famous line from Hallaire Belloc's poem 'Lord Lundy II':

". . . My language fails!
Go out and govern New South Wales!"

http://www.theotherpages.org/poems/belloc02.html


The cretins are able to maintain their hold on power due to the common Australians being complete unable to stop knocking each other long enough to pull together and replace the old colonial reject class. Could be the Irish influence, as Ireland traditionally proved incapable of pulling together against English imperialism.


The lazy coment is just so true. Donald Horne wrote a book 'The Lucky Country, Australia in the 1960's". This term 'lucky country' really took root in the Australian psych, people thinking it mean't Australia was special or exceptional. Actually, anyone who read Horne's book will know he was trying to tell people they were complacent and that their future would be uncertain if their didn't pull the finger out and get a move on. Alas, Australians continue to ride on their nation's resource wealth and fail to develop themselves as a group/nation in any other way (except perhaps in sport).

Similar to Austalia is the oil rich middle east nations (eg: Saudi Arabia) who also ride their resource wealth thinking it will last forever. I guess such short sighted peoples only get what they deserve in the end. Now, look at South Korea. A tiny, rocky, resource sparse penisular. Every cent of their wealth they had to create for themselves. They could not afford the luxury of complacency. Such industrious, drive people will inevitably dominate the complacent, small minded and unimaginative.

Ok, the unimaginantvie comment: yes, this is what I describe as the 'pea-brained philistine' culture. Others have described it as the 'tall poppy syndrome'. Anyone who takes an interest in intellectual matters will find themselves very isolated. Those who can excell in knowledge will move overseas to purse their interests. Thus many talented people from Australia work in NASA and DARPA. The scam jet project has many Australian aero space engineers on it. I think many would be US citizens. If they had stayed in Australia, their talentes would have been completely wasted. Another example is those fellows that deviced a way to enrich uranium using lasers. Absolutly no government support. They sold it to an American firm. It would have gone nowhere if they kept going in Australia.

I could go on, but it is very clear Australia's intellectual resources have been ignored and thus the nation has failed to capitalise on them. South Korea could not afford to be like this. They had to utilise their brains. They have nothing but what they create. Australia's resource wealth has created an easy prosperity, allowing an incompetent poltical establishment to remain in power without challenge. Complacent Australians just haven't been bothered to demand any better.

As Donald Horne pointed out, such 'lucky' can't last forever. Australia will most likely become a US colony. Unless US navy power declines unexpectedly and rapidly, then one of the Asian powers will colonise the place. Most likely China. Australians are losing their independance, but they won't understand the consequences until they experience colonialism. Of course that will be too late for them and their childern.

A few opinions about Australians:

'The white trash of asia' (Lee Kaun Yu)

'Australians are stupid' (Jamie Oliver)

'English good'ol boys' (Robin Williams)


Can they all be wrong?

I find this point of view completely counter-productive and defeatist, it also does not recognise the real achievements of the country. For starters I object to the notion that to be a 'great' country you need to manufacture, manufacturing jobs are some of the most menial and low skilled, that is why we have out sourced them to countries like China and India, that way our workforce (which is highly skilled) is not wasted and is more productive as in Australia our numbers are our limiting factor.

I would say our standard of living shows we have gone down the right path, and it was not blind luck, we made a conscious decision to be a resources supplier when we slashed our subsidies, re-gearing our economy to take advantage of a rising Asia, and as a result we have weathered the GFC and still continue to grow while the rest of the west is stagnating.

That is globalisation, we have become resource suppliers because a) we have far more resources than we would ever use, b) a worker in the resource industry produces more $AUD than those in other industries and c) we have a huge market for our wares. So what happens when the resources run out? We will have a highly skilled workforce that will diversify as the market dictates, to view the workforce as unchanging and stagnant is simplistic, our economy is open enough that we will create our own new industries as others fold.

Also the fear of colonisation is the exact fear that dominated during the 'yellow peril' era, and guess what we are still here. We will continue to be a middle power in our neighbourhood with a unique relationship with both China and the US.