August 2011

Arts & Letters

‘Too Much Luck: The Mining Boom and Australia’s Future’ by Paul Cleary

By Saul Eslake

For commodity-exporting nations such as Australia, the urbanisation and industrialisation of China and India present a once-in-human-history opportunity. There will be no more Chinas or Indias to come. Not only are there no other nations with as many people, but other nations that may pass through the same ‘commodity-intensive’ stage of economic development seem likely to be exporters rather than importers of commodities.

As Australian journalist Paul Cleary argues, the challenge for Australia is how to make the most of this opportunity. Australia hasn’t managed similar challenges well in the past. Each of our three commodities booms in the second half of the twentieth century ended with a burst of high inflation followed by recession. Had the financial crisis not intervened, the present boom could have been heading toward the same conclusion.

Cleary seems to doubt whether it is actually in Australia’s best interests simply to sell as much as possible of the mineral wealth lying under and around the continent at whatever prices China and India are prepared to pay. He makes much of the adverse effects that some aspects of the mining boom – in particular the strong Australian dollar – are having on other parts of the economy, such as tourism and manufacturing.

Like many others who have raised similar concerns, Cleary misses the point that Australia can’t make the most of the opportunities presented by the development of China and India and expect to preserve its industry and employment structure without change. Given the lack of ‘spare capacity’ (for example, under-utilised infrastructure and available labour) in Australia’s economy, any serious attempt to do so would almost inevitably result in the same sort of inflationary surge as has accompanied each of our previous commodities booms.

If we were somehow to hold back the growth of the mining industry with the aim of preserving more of our existing economic structure, we would be forgoing some of the potential gains to be had from China’s and India’s demand. Our exchange rate might be lower and the extent of structural change less, but our economy would be significantly weaker and our national income diminished.

Cleary is on much firmer ground when he ventures that Australia risks failing to maximise its long-term gain from the boom by not capturing a larger share of the profits made by resources companies (through tax), due to the unwillingness of either side of politics to establish a sovereign wealth fund.

This book is a timely and provocative analysis of some of the risks and opportunities associated with the present resources boom, and if it prompts deeper thinking among policy-makers on how to handle the challenges we face, Cleary will have provided a valuable public service.

Saul Eslake
Saul Eslake was the chief economist of ANZ for 14 years. He currently holds a position with the Grattan Institute and is an adviser to PricewaterhouseCoopers.

'Too Much Luck: The Mining Boom and Australia’s Future', By Paul Cleary, Black Inc., 160pp; $24.95
Cover: August 2011

August 2011