The mainstream media is slowly coming to the realisation that the pending huge growth in resource exports will provide the domestic economy with few economic benefits, since most of the profits will flow offshore and few workers will actually be employed.
Professor Ross Garnaut, writing in The AFR, has penned a well-argued piece today warning of “immiserising growth” – a situation whereby a nation’s citizens can actually be made worse-off from an expansion in resource exports:
The growth in mineral exports over the past year has caused a fall in prices large enough to cancel out the volume gains, possibly producing what is known as immiserising growth, where a country’s citizens can actually be worse off from an export expansion.
Add to that problem the highly capital-intensive nature of mine production and the fact that four-fifths of the after-tax mining profits earned in Australia accrue to foreigners and it’s easy to envisage a mining export expansion phase that creates few jobs and not much income for Australians…
Economic modelling for today’s Forum by Victoria University’s Centre of Policy Studies suggests that Australia does indeed have a sizeable problem, with the real prospect of falling living standards to 2020 if nothing is done to avert it.
Economics editor, Ross Gittins, has made similar arguments in the Fairfax dailies:
…the best guess is that mining is about 80 per cent foreign-owned…
High economic rents, few jobs created and the lion’s share of profits going to foreigners mean unless especially high rates of profitability are adequately taxed we don’t have a lot show for the resources boom…
Now the construction phase is ending, more of the (undertaxed) profits will be sent back home. And the capital-intensive production and export phase will mean each $1 billion of growth in gross domestic product now creates fewer jobs than it used to. Thank you Labor, thank you Coalition, thank you economists.
Both are, of course, spot on. As MB has argued repeatedly (most recently here), the boom in export volumes will be great news for headline GDP – which only measures volumes – but very bad news for national income, since it is likely to push down export prices.
Indeed just last week, Goldman Sachs forecast that commodity prices would fall significantly over the next five years as global supplies climb, with Goldmans noting that “a prolonged period of elevated commodity prices has catalysed a supply response” and that “we do anticipate substantial declines”.
Falling commodity prices and the terms-of-trade is also the main reason why the Australian Treasury has forecast the slowest per capita income gains in the decade ahead in at least 50 years:
So, Australia faces the peculiar situation whereby the giant export volume boom will be accompanied by the slowest income growth in at least 50 years!
Now that’s “immiserising growth” writ large.
