Breadtag Sagas ©: Author Tony, 2 November 2020
The Coal Curse Judith Brett, June 2020
Judith Brett The Coal Curse: Resources, climate & Australia’s future, Quarterly Essay 78, 2020. The Coal Curse is the following Quarterly Essay to Cry Me a River by Margaret Simons which I used to give a 2020 update to my essay on the Murray-Darling Catastrophe. Another similar article on the malaise impacting Australia is on the Banking Royal Commission. I am using The Coal Curse by Judith Brett in a different way.
It is not my intention to summarise Judith Brett’s essay but more to highlight the salient issues and to focus on a couple of the corespondent’s responses to the essay in the following Quarterly Essay 79. I gave a general background to the Quarterly Essay and Black Inc. in the 2020 update, if you are interested.
The Coal Curse Judith Brett’s Essay
Judith Brett is emeritus professor of politics at La Trobe University in the essay she says:
I am a historian, so I look for explanations not just in the perfidies of the present, but in the decisions and events of the past. … This essay is about the history of Australia as a commodity-exporting nation and its political consequences. Economic history is unfashionable nowadays… Economic history is dry and hard to narrativise. But how a country makes its living can explain a lot.
Judith Brett says:
In 2018-19, Australia’s top exports were iron ore, coal, natural gas, international education and tourism in that order. Coal became our top-earning export commodity in the mid-1980s and has been at number one or number two ever since, vying with iron ore, which needs metallurgical coal to be transformed into steel. The production of LNG has increased rapidly over the past decade … and it is now our third-largest commodity export and rising fast. Between 2018-19 and the previous financial year, its export value grew by 60.9 per cent. Coal, LNG, iron ore: in 2018-19 these three earned 41.8 per cent of our export income.
This is why Morrison [Australia’s current Prime Minister] brought a lump of lacquered coal into parliament in February 2017. “Don’t be afraid don’t be scared, it won’t hurt you,” … The point was to ridicule the Opposition’s support for renewable energy, and it was a stupid stunt. But it put on full display how impossible it was for many of our political leaders to imagine Australia’s future without fossil fuels.
Politics Since 1996
Jump forward to today. Judith Brett finished her essay after the start of Covid-19. The Morrison Liberal Coalition Government appears to have abandoned coal (the coal price for thermal coal (electricity) has plummeted and several major mines are closing). Yet, they have come out with an energy policy that supports gas over renewables (still no plan for energy or for reducing carbon emissions). Coal is dead but they cannot bring themselves to abandon the fossil fuel industry. Even though this is inevitable.
I’ve despaired over government policy in the national interest ever since John Howard (Liberal) gained power in 1996. Howard was an experienced and cunning politician, a neoliberal, who apparently had a vision of a halcyon Australia in the 1950s. He put much of his energies into turning back progress, introduced Orwellian namings (e.g. Fair Pay Commission, Future Fund etc.) and spin rather than content.
In this he was a sign of the times and in step with Tony Blair in the UK and George W Bush in the USA. Both of the latter may actually have believed in WMD (weapons of mass destruction) Howard never did. Howard was good at winning, at wedging the opposition, good at lying, and good at cowing the civil service and journalism. He did immense harm to Australia.
And, when Howard lost power (including his seat) in 2007, he introduced changes to superannuation and capital gains (with negative gearing) in his last year in office that later governments have found impossible to wind back.
Government after John Howard has been a shambles, particularly the latter half of Kevin Rudd’s first term (Labor) and Tony Abbott (Liberal).
Although Kevin Rudd did introduce a stimulus package in response to the GFC (global financial crisis) that preserved Australia’s prosperity. Until, the recession brought about by Covid-19, Australia has had 30 years of growth and prosperity based heavily on the sale of mineral commodities, but which most economists also attribute to the economic reforms of the Hawke/Keating government 1983 to 1996.
The Federal Government saved no money throughout this boom for future bad times — in marked contrast, for example, to Norway’s oil revenue fund the world’s largest sovereign wealth fund. (The Australian government did set up an Orwellian named the Future Fund under John Howard, but most Australian’s didn’t know that it should have been entitled the unfunded superannuation liabilities fund for public servants and military personnel, and that the funds for other purposes are relatively minor in terms of sovereign wealth.)
Background to the Economic History of Australia
I was a little shocked at myself in my article on the Murray Darling Catastrophe when I quoted the SA Royal Commission: Pioneering was not always splendid and praiseworthy. This was demeaning a sacred cow.
I was too young when The Lucky Country by Donald Horn was published in 1964 to read it or understand it. The book was mentioned frequently when I was growing up and I always thought it was in praise of Australia. The lucky country that was young, free and innovative — the best in the world at almost everything. We were indoctrinated with the brilliance of Australian agriculture. (Unlike agriculture, CSIRO in agricultural research was actually world class at the time.)
In recent years, I get grumpy and boring when anyone ever says that Australia is the best in the world at anything, because it is nearly always untrue and it stifles thought or debate on how we might improve.
When I criticise Australia here, I am talking about governments, the corporate sector and to a lesser extent policy advisors, because what continually amazes me is when one looks deeper into Australia at the smaller enterprise level, innovation and creativity have not been stifled by lack of support from above.
The Lucky Country 1964 was actually an indictment of protectionism and tariffs not praise for the country.
Judith Brett in the bulk of her essay provides a deep survey of Australian economic history from wool (riding on the sheep’s back) to mineral exports. In the 1950s:
Fortuitously, for Australia, as wool was in freefall, the export of minerals began to rise, spurred by post-war demand for uranium and the new metals of aluminium, tungsten and titanium.
Tariffs and Protectionism
Protectionism became important in a new settler society and after federation. However, Brett’s heading tells it all: The tariffs that never ended.
You may remember an earlier article of mine on World Economic History. The article was based on the book: The Great Convergence by Richard Baldwin 2016. I didn’t mention tariffs in the article as the purpose was much broader.
Richard Baldwin in The Great Convergence, however, made me understand succinctly for the first time what GATT (General Agreement on Tariffs and Trade) was all about and how it changed world tariffs and trade post World War II, so that even developing nations joined up after the late 1970s. I knew about GATT, I just didn’t understand it.
To my surprise the USA began lowering tariffs much earlier from 1934 from very high levels though its tariffs did not go below 5% until the mid-1970s. Australia came to the party very late indeed, behind even many developing nations.
It was only in the Hawke/Keating Labor government era 1983 to 1996 that tariffs were finally reduced. Judith Brett covers these issues and GATT.
Hawke/Keating were also responsible for floating the Australian dollar and the pragmatic privatisation of the Commonwealth bank and QANTAS the national airline. The Howard government continued privatisation but critics say that these were tactical (for short-term political gain) and systemic (ideological) rather than pragmatic.
Howard’s privatisation of TELSTRA (communications) and part of State governments’ privatisation of electricity assets were logical, but the privatisation of the electricity infrastructure has been criticised heavily. Howard’s ideological privatisation within the civil service (particularly IT) was also expensive, ideologically driven and problematical.
Judith Brett says in summary for the whole protectionist era:
Protection made local management lazy, with a firm’s survival depending more on its success in maintaining tariffs than on pursuing competitive advantage. Sheltered from competition with the world’s best practice firms were under less pressure to innovate. Foreign-owned companies imported technology and management practices from head office: local research and development was minimal.
An energetic industry minister in the Hawke/Keating government, John Button, reversed all these negative trends in the mid-1980s with several industry plans and some over-arching initiatives to make Australian firms more internationally competitive.
I joined the industry department (DITAC) during this era. An ex-boss of mine Bruce Bryant introduced the 150% tax deduction for research and development (R&D) for large to medium-sized Australian companies during this period. It was an attempt to move away from grants and ‘picking winners’ which governments are very bad at.
I worked in compliance (encouragement) of the 150% tax deduction for R&D later and saw Australia begin to rise up the OECD rankings for private sector R&D. Unfortunately, the election of the Howard government ceased most of these positive industry programs. Howard also slowly strangled the 150% tax deduction for R&D covertly, but Labor was also going to abolish it had they won. Since 1996, nearly all effective innovation in industry policy ceased gradually.
Australia began to drift down the OECD list in private sector R&D. Some positive changes were introduced in more recent years. There is still some tax offset for R&D, but much less and only for firms with a turnover less than $20 million. The major impact on large and medium sized-firms with a turnover of over $20 million has ceased. The current OECD situation is equivocal and complex, but Australia is ill-positioned for restructuring through innovation when mineral exports decline.
Manufacturing and the Car Industry
John Button had several industry plans to help workers retrain from uncompetitive industries one of which was the car plan. The car plan didn’t really come to fruition and subsequent governments of both types subsidised the industry until 2013. Joe Hockey (Treasurer) and Tony Abbot (Prime Minister) in 2014 refused to subsidise car manufacturers any further and said it was time for the car industry to cease to exist in Australia. In this context Hockey and Abbot were probably not wrong but they were precipitate and perhaps didn’t understand the industrial environment, especially in context of increasing defence infrastructure programs that would need skilled manufacturing workers.
Hockey and Abbott’s cavalier attitude to the Australian car industry [in 2014] was evidence of a lack of depth in too many of our political leaders’ understanding of economics.
The key word here is cavalier. There was no plan in place for what to do with the demise of the car industry or for manufacturing in general which was considered ‘rust belt’ or unnecessary to Australia’s future. The above is particularly poignant regarding my time in the industry department in the mid-1980s when the department’s economists knew that services were the coming thing, but remained concentrated on manufacturing because that was all they understood.
The fragile recovery of our manufacturing at the turn of the century could not survive the rise of China, nor Hockey and Abbott’s reckless abandonment of the car industry.
Despite some sabre rattling by politicians, the point is debatable. But, following the Covid-19 recession employment recovery will become paramount.
Brett’s point is mainly about employment. She says:
…there are not many jobs in coal mining at all: 35,638 in June 2018. By comparison, in 2013, the year before Joe Hockey and Tony Abbott closed down Australia’s car industry, about 44,000 people in Australia were employed in manufacture of cars, electrical and other components, as well as trucks, buses and products for the automotive after market.
To put this in context between February 2018 and February 2019 the percentage of the workforce employed in manufacturing was 7.1% and in mining 1.9%. Both are declining. The workers in mining are disappearing primarily because of automation, which will accelerate. (Automation in manufacturing in Australia is slower, but our manufacturing is also becoming a niche industry.)
In contrast, employment in tourism and indirect related industries is accelerating. When politicians talk of the necessity of mining in north Queensland for employment and at the same time ignore the decline in the barrier reef, they are being duplicitous. In 2018 tourism accounted for 9.1% of the workforce in Queensland and is growing rapidly.
After Covid-19, policy on manufacturing will need to be revisited, as will incentives for other major service employers and exports, such as tourism and education.
The Coal Lobby and Climate Change
The remainder of Brett’s essay covers the capture of governments by the mining industry and particularly the coal lobby at the expense of everything else, but in particular any serious mention of or policy to mitigate climate change. To my mind this has been completely detrimental to Australia’s future.
The capture of governments began in 1976 with Hugh Morgan and the growth in power of the Australian Mining Industries Council (AMIC). Guy Pearce’s book High and Dry: John Howard, Climate Change and the Selling of Australia’s Future 2007 documents this for the Howard era. Brett fills in the further entrenchment of the fossil fuel ideology to the present.
Brett says of the coal and fossil fuel lobbyists in the Howard era:
Key players called themselves ‘the greenhouse mafia” and sometimes “the mob”. These names, Pearse wrote, accurately captured their disproportionate behind-the-scenes influence.
Their influence lingers on, which reminds me of the very same tactics used by the tobacco industry worldwide. Brett covers the issues in detail in her essay, more convincingly than is possible here.
Correspondence on The Coal Curse
The following Quarterly Essay #79 by Katharine Murphy is a timeline of Australia’s reaction to Covid-19. Important that we don’t forget it. I have written about Quarterly Essay’s No. 77 & 78. No. 79 is a corker too. It is rare to have three such brilliant essays in a row.
As occurred with my previous article Murray-Darling Basin Update 2020, Essay No. 79 contains the correspondence to Judith Brett’s Essay. There are seven correspondents and Judith Brett’s reply. I haven’t space to deal with them except briefly?
All of the correspondents were positive about The Coal Curse and had excellent points to make except for one. Andy Lloyd was a senior employee of Rio Tinto and representative on national and international coal associations. My previous experience with Rio Tinto and other major mining organisations during my R&D days makes me somewhat suspicious of his input.
Anna Rose is a climate campaigner and author. While Zoe Whitton leads Citi Bank’s ESG (environmental, social and governance) research team in Asia, advising institutional investors globally on issues such as climate change and the energy transition. Although they come to the problem from almost opposite directions their solutions are almost identical. They reflect a consensus amongst most correspondents that governments are stymied and at the moment positive initiatives are coming from elsewhere, particularly the corporate sector here and overseas. All correspondents seem to think that the climate transition is inevitable, but they don’t dwell on what too little too late will mean to humanity’s survival.
Anna Rose says:
The mess Australia is in today did not just happen. It was never inevitable. It came about through particular people’s choices and actions, and through other people choosing to look the other way.
She spent some weeks on a documentary TV project in contact with Nick Minchin an ex-government finance minister. She realised the science of climate change wasn’t the problem, it was what someone else called ‘implicatory denial’. It was impossible for Minchin to accept that the neoliberal project of the free market and small government has produced the ‘greatest market failure ever seen’ (an externality) which governments by definition must step in to fix. To do this for Nick would mean repudiating an ideology that he’d spent his whole working lifetime advancing.
Even if becoming the ‘banana republic’ that Paul Keating loved to advance is inevitable if nothing is done, the stymying of a sensible energy policy and national strategy on climate change is likely to continue. Anna Rose is equally critical of the Labor Party and the corner it has painted itself into. She thinks it unlikely that Labor will rise to the challenge and that the Liberal Coalition is much better placed to resist the pressures of the deniers and the fossil fuel lobby.
Nevertheless, like Zoe Whitton she believes that it is more likely that reforms will come through the corporate sector, superannuation funds and other asset management, banking and insurance in Australia and particularly overseas.
Zoe Whitton mentions a comment by Kingsmill Bond on climate transition at an international conference in 2019:
Bond noted almost as an aside that a few (energy-exporting) nations would of course find it almost impossible to undertake a transition. … [H]e argued that the trajectories of these countries were irrelevant. There were only a few of them, and their populations were small. (The Banana Republic argument in a different form.)
Nevertheless, both Zoe Whitton and Anna Rose have hope that things will improve. There are signs that the Australian community and state governments outside Canberra are progressing on a climate transition path and signs in institutions and the corporate sector are positive. Anna Rose speaks of the ‘Climate Movement 2.0’, which includes the corporate sector, as perhaps changing the information environment and shifting money away from coal and gas.
Who knows if they are right!
It is very painful to see one’s country going down the wrong path for what seems to be decades. How must thoughtful and knowledgeable citizens of the USA feel. …. It is not that there is no hope, but one feels so powerless.
In my articles on the Banking Royal Commission, the Murray Darling Catastrophe and now in response to the coal curse, I try to examine things objectively. I add my analysis in the hope that others will agree and that something might be done. There are plenty of people out there who agree with me, even if only partly. It is breaking through to a solution that seems intractable.
With regard to intractability:
I can’t see a way forward in the Murray Darling Basin but I hope there is one.
The Banking Royal Commission is simple — implement the recommendations. This is perhaps the most integrated solution ever seen in a Royal Commission. It can be implemented. It would work. And, it could easily be extended to the whole of corporate Australia. It could bring the corporate malaise back on track to the benefit of the community. There are equivalent profits to be made, by offering ethical services and benefitting the community.
The profits of malfeasance went into the pockets of the corrupt. They did not improve the bottom line and negatively threatened the survival of the company and the long term interests of shareholders.
The coal curse falls between the two. At the moment, Federal government action is stymied. Yet, the current Coalition government seems better placed in this instance to implement reform and progress to the climate transition than the Labor government does. The corporate sector offers promise both here and overseas. In Australia the corporate sector, small business and the community will progress the renewable energy sector and climate policy in the absence of central government but it will be slower. They have already acted and State governments are getting engaged as well.
It is easy to blame previous governments in Australia in hindsight for what they could have done but didn’t. Hawke/Keating weren’t perfect. Nor were Gough Whitlam, Malcolm Fraser or Robert Menzies.
Because of social media, we seem to be in an age of perpetual outrage. We need to step back from this.
Recently in Australia, the Murdoch press have been targeting Victorian Premier Daniel Andrews mercilessly as ‘Dictator Dan’ with a relentless misinformation campaign, including portraying him in cartoons as Chairman Mao. Social media trolls, sock puppets and the like have also been attacking ‘Dictator Dan’. These are very like and possibly the same as relentless attack campaigns in America, intent on promoting divisiveness wherever social fracture lines occur. These attacks eventuate elsewhere, for example, Russia. Some are state based and some ideology based, for example, alt right extremism and others.
In Australia, because of Covid-19, we may be slowly beginning to be less condemnatory of state government mistakes — the Ruby Princess debacle in NSW and the spread of Covid-19 from hotel quarantine in Victoria. Perhaps, as a community we are beginning to realise that we are all in the same boat and we need to pull together to solve the problems that face us, and try to ignore the chatter and the noise from the sidelines that tries to divide us. Certainly, the Morrison government needs to try to continue with its model of cooperation and not to slip back into the blame game that comes so naturally.
Key Words: Judith Brett, Coal Curse, Bob Hawke, Paul Keating, Gough Whitlam, Malcolm Fraser,Robert Menzies, John Howard, Kevin Rudd, Tony Abbott, Scott Morrison, Guy Pearse, Donald Horn, Lucky Country, Rupert Murdoch, Daniel Andrews, coal, iron ore, natural gas, Anna Rose, Zoe Whitton, Covid-19, Tariffs, Protection, industry policy, manufacturing, car industry, energy policy, climate change, Katharine Murphy, Tony Blair, George W Bush
Judith Brett Background
The Future Fund
Explanation of the Future Fund by David Neal, November 2019. David Neal’s article is overly rosy on the Future Fund but explains the details accurately.
Mining versus Manufacturing Workforce
Tropical North Queensland Tourism Workforce
Anna Rose Background
Zoe Whitton Background