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Australia + the 'Dutch disease' « Previous | |Next »
August 24, 2011

As we know, the high Australian dollar is caused by the mining boom and it means decline for manufacturing. This relationship is known as the "Dutch disease" and the symptoms of the "disease" are mass job cuts and the loss of skilled and semi-skilled employment in manufacturing and other industries to the booming resource sector.

Conventional economics holds that a country ought to specialise in industries in which it has a comparative advantage, so a country rich in natural resources would be better off specialising in the extraction of natural resources. Thus Treasury, in its submission to the Inquiry into the state of Australia's manufactured export and import competing base now and beyond the resources boom, explicitly says:

Governments are no better placed than firms and investors, responding to signals in the market, to determine whether a shock is temporary. Instead, the government can more effectively help the economy achieve its productive potential by allowing the market to operate unimpeded and allow resources to flow to their most efficient use. This will achieve improved productivity, economic growth and expanded national income in the long term.

The wisdom is that attempting to resist this natural decline in manufacturing’s share of the economy would be a mistake, just as it would have been a mistake to try to have preserved Australia as a predominantly agricultural country. Australia's economy is primarily a services economy.

In the short term that means firstly, the money that we earn from the rivers of cash flowing from the mining boom can be spent on cheaper imports of steel, cars, solar panels--ie., the tradable goods sector; and secondly, that we don't need to continue to make things.

It's called structural adjustment as mining the mining industry becomes a larger share of the economy. and there is a decline in manufacturing, tourism and education exports. Australia's place in the global economy is to be a quarry, and that means ever greater dependence on China and commodities.

What is increasingly clear is that the benefits of the mining boom are not being shared across the population. So what happens to the displaced workers who cannot relocate to work in the mining operations in Western Australia?

What is not being suggested yet are measures to sterilize the boom revenues into a sovereign fund, or investment to boost the competitiveness of the manufacturing sector. What is surfacing is a rise in protectionism in manufacturing along with the expansion in the mining industry. Secondly, Australia is not investing in developing the skills and knowledge base that would help Australia to make makes things that are different tomorrow than the tradeable goods made yesterday.

So the non-mining parts of the economy are being run down, or hollowed out , by the mining industry that only employs around 3% of working Australians. This puts the breaks on the reform programmes because of slower growth in productivity and the economy's growth driving up inflation.

| Posted by Gary Sauer-Thompson at 3:07 PM | | Comments (16)


We've already been told that one-third of our department is going to get the chop. As usual, the "structural adjustment" has a real human cost. I suspect that most of the over 50's (yeh g'day) are going to end up on the scrap heap.

But that's the price of progress, right?

No modernization of the steel works taking place then?

It is hard to blame the current decline in manufacturing on a carbon tax that has not been introduced.

No significant modenisation of the steelworks for the past 5 years. Seems that BlueScope would rather invest capital in their newer, more efficient overseas operations.

They just squeezed what they could from Port Kembla at minimum cost. Makes sense really... there's better bang-for-buck to be had by investing their money in overseas plants.

Well so much for the attempt to improve Australian productivity – education and training, infrastructure and innovation in manufacturing.

BlueScope is a fine example of the dismal record on innovation in manufacturing in Australia. All their rhetoric about the carbon tax destroying them and sending jobs offshore etc etc was an attempt to get more and more handouts.

we have a steel industry crisis. There won't be a in 2011 as there was in 1983.

What we have is an assistance package to ensure to ensure staff have the necessary support and retraining to overcome the job losses.

What's this nonsense about a carbon tax???

I was there, in the thick of it, on Monday.

We were told quite explicitly that the the price of carbon had NOTHING to do with the collapse of BlueScope Steel.

They made very clear that terrible financial losses were due to the high Australian dollar and the rising prices of raw materials in recent years.

Shame on anyone who tries to score political points from this tragedy.

BlueScope Steel---- eg., Graham Kraehe--- has been consistent and public in its opposition to a carbon tax, even though they knew that a high dollar would be a bigger threat to the company than the proposed price on green house emissions.

The Coalition's rhetoric has been to connect the job losses to a carbon tax-- thousands of manufacturing jobs in the Illawarra are under direct threat from a carbon tax.

During question time in the Parliament this week Liberal-National coalition members linked the carbon price to the axing of jobs at BlueScope, Qantas, Westpac and a rise in house construction costs.

They knew that BlueScope had told the ASX that its decision to slash jobs was not related to the proposed carbon tax.

I can tell you Gary, that I have yet to hear any of the people around me blame the carbon tax for this tragedy. They understand that it's entirely due to the $A and raw material prices.... and some foolish decisions by past managers.

What makes this particularly interesting is that, a few weeks ago, just about everyone in that place was slamming the carbon tax and the Gillard government. No doubt they still have reservations about the government, but they are not interested in using the carbon price as a scapegoat.

For the coalition to exploit this event for a few political points in f@&king disgusting. Pure and simple!

Graham Richardson makes a good point in The Australian:

There may well be a resources boom and, if you're lucky enough to be a part of it, it must be wonderful. Most punters in the real world, however, don't own thousands of shares in BHP Billiton and Rio Tinto. They don't work at a remote mine site for lots of money. The benefits of the boom just don't flow to most of us.

Referring to the BlueScope Steel's decision to cut 1000 jobs and Wollongong, where 800 of those jobs will go, he says:
Telling voters that this is part of a painful adjustment in the economy will not cut it. There is a feeling in the real world that this was just the start of announcements by Australian manufacturers on job cuts. A hell of a lot of people wonder if they will have a job next year.Fear of the future is the reason retailers are complaining about a lack of customers.

In the suburbs he adds, nobody feels that things are good. People look at rising costs of living and shake their heads.

As much as I don't trust the man, Rich is right.

"Telling voters that this is part of a painful adjustment in the economy will NOT cut it."

And the meeja doesn't help matters. We has the report that BHP was throwing us a lifeline by offering hundreds on mining jobs in WA and Qld.


What the hell am I supposed to do????

I am raising a teen daughter on my own She is set to start uni next year. She's a smart, sensible kid, but she has a history of psychological and health problems (including anorexia)... and has a tenuous relationship with her mother. Our support base is... us. I've no living family in this country.

Now... how do they expect a middle-aged man in this situation to just pack up and find a job elsewhere???

Oh... but the half-wits among us will still whine and rant about the boat-people, dole-bludgers, gays, unmarried mums, greenies, and shoddy mechanics.

Those people are not the ones who have totally destroyed my life and jeopardized my daughter's future.

There is the Gillard Government's Steel Transformation Plan that is designed to provide practical support to help workers find new jobs and strengthen local economies.

This package of worker and community support includes:

(1) An Investment and Innovation Fund of $30 million to support new business ventures and create innovative, high-skilled jobs, predominantly in manufacturing and manufacturing services in the region. This fund will be made up of $20 million from the Commonwealth Government and further contributions of $5 million from the NSW State Government and $5 million from BlueScope Steel.

(2) Assistance of up to $10 million from the Commonwealth Government for immediate access to intensive services by Job Services Australia providers and training assistance to help affected workers find work in industries where there are more job opportunities.

(3) The appointment of Dr Don Russell, Secretary of the Department of Innovation, Industry, Science and Research, to lead a whole-of-Government response to the BlueScope announcement and to work with local stakeholders on a coordinated structural adjustment strategy for the region.

(4) A Local Employment Coordinator to provide practical advice at the local level and ensure workers get the help they need when they need it. The Local Employment Coordinator will also build partnerships between government, business and the community to generate economic activity and jobs in the local economy.

(5) Onsite visits by Job Services Australia staff, Local Employment Coordinator and Centrelink. In addition, a dedicated hotline to fast-track referrals to Jobs Services Australia or alternative service providers who will help individuals to find new employment, taking into account their specific circumstances.

(6) Fast-tracked relocation assistance for BlueScope workers who have been made redundant and who find employment in another location. Normally, a person must have been unemployed for three months before becoming eligible for this assistance - however BlueScope workers who have been made redundant will be immediately eligible for payments of up to $6000 of relocation assistance, with an additional $3000 in the case of families with dependent children.

(7) Free financial advice provided through Centrelink's network of Financial Information Service Officers, and other personal support through Centrelink's network of Social Workers.

I'd grab the money being offered and use their support services to acquire some educational qualifications. Go to uni with your daughter.

This is similar to what happened under Keating in the 1990s and his Working Nation--many of the laid off workers from the structural adjustment of the economy went to uni.

There is lots of info on the Steel Transformation Plan link.

Bob Gregory, in the mid- 1970s. Gregory suggested that resource discoveries in Australia had, through a relative price change, crowded out activity in the other sectors of the economy.

When a commodities boom ends, an economy is left hollowed out, with its productive capacity permanently lower than it would have been without the commodities boom.

I happened to read that article by Richo while eating a macmuffin this morning. I think he summed up the situation well. I still don't like him though.

Quite often goverment makes grand announcements about what they are going to do for workers from plants when they close or have mass lay-offs. I wonder whether they actually eventuate.

I suspect that most of the money (assuming that it ever really makes it out of the govt coffers) will be chewed up by facilitators, studies, administration and development). I'm not expecting much impact here in the trenches.

there could be free university---fees paid for by the government plus an allowance. Its what happened in 1993. It's worth checking out.