Challenging the Mining Elites

In March, RBA Governor Glen Stevens summarised Australia’s economic performance in cheerful terms:

Just recently, we have been experiencing growth close to trend, relatively low unemployment—about 5 per cent—and moderate inflation, about 2¼ per cent in underlying terms.

Then the first quarter figures showed us how Mother Nature had taken revenge on the Queensland coal industry, and the prospect of GFC2 grew slowly on the international horizon. As in Europe and the United States, a structural growth-through-debt problem exists in Australia. However, the mining boom has allowed the economy to keep up with its interest repayments. This places Australia in a unique position. If the current situation can persist for long enough, there will be a long-term readjustment of house prices and consumer debt, two cornerstones of the neoliberal crisis. The shock of the United States or European Union going under could still trigger the crisis, leading to unpaid debts, a writing-down of assets, and being socialised into a sovereign debt crisis. However, Asian demand mitigated our experience of GFC1, and in the meantime it has given us breathing space to think about a bigger, and in some ways deeper problem (in other ways, it is much simpler). The mining boom underscores the environmentally hazardous character of our economy, and the battle over the mining and carbon taxes has indicated the difficulty of a politics that is seen to threaten growth. Today most of the world is focused on a debt crisis: a crisis of capital accumulation, of demand deficiency, and of internal economic contradiction; of failing growth. The mining boom in Australia gives us insight into the future global crisis: of growth versus the spectre of environmental limits.

The Right adapted well to the post-GFC1 dynamic in Australia. No more talk about the ethics of capitalism, of Gillard or Rudd lamenting CEO bonuses, let alone Abbot. With the average Australian currently geared at around 150 per cent of their income, and more extreme credit expansion no longer possible, the political parties that orchestrated credit-fuelled growth in Australia have dodged a silver bullet. Politicians know that so long as growth keeps ticking over, now thanks to sectors positively exposed to the commodities price hike, the intricacies of debt-fuelled capital accumulation are unlikely to have much impact on Australian politics. The latter has been one of the preoccupations of Marxist economics for some thirty years, as explored by David Harvey in The Enigma of Capital. The problem for the Left in Australia is that the general picture of finance capitalism gone mad seems inapplicable in this peculiar outpost of the world economy, where production capital has come to the fore.

‘The miners’, even if borrowing capital from overseas, advance it in order to produce something. There are no hidden doors; no mind-bending financial calculations: commodity prices go up, the value of mining assets increase, and the physical proportions of production expand. Unlike houses built with debt traded as a security, this growth model makes sense intuitively. It may still vary with booms and busts in faraway places, but commodity prices are unlikely to fall or crash as they have previously—unless we factor in human intervention to prevent climate change (apparently not a big threat). In the twentieth century the debate over the ills of becoming a primary commodities exporter was based on real (stable) prices; the problem being that they tended to fall over time. In today’s world, even in the event of slowing global growth, or crisis, demand for energy resources and iron ore to build steel are likely to remain relatively high. The dynamic of exporting large quantities of raw materials with rigorous capital-intensity, on borrowed money, never left Australia. However, resource exports have increased from 41 to 57 per cent of total exports since 2005 (see the RBA Bulletin for digestible slabs of ABS statistics). Production capital faces a different set of challenges to finance capital abroad. With sufficient external demand, here the biggest threat to capital accumulation is not a crisis of overproduction, but the spectre of environmental limits.

In the Pilbara, iron ore output has grown by ten per cent per annum for the past five years, quadrupling total exports to some 440 million tons each year, and is set to increase another 50 per cent in the next four years. The quantity of ‘waste rock’ that has to be dug up to extract the ore, and which can become an environmental hazard in its own right, at least doubles this earth moving operation. Coal exports have been growing at around five per cent per year, and should increase by another fifth in size in three years. The uranium industry also pushes science, environmental impacts and social relations to extremes. BHP’s Olympic Dam project in South Australia sits on the world’s largest uranium deposit. According to Friends of the Earth it produces ten million tons of radioactive tailings annually, while using 35 million litres of water daily. Roxby Downs, a small town numbering around 4,500 is entirely dependent on the mine, while in the mid-nineties competing native title claims over the area of access to the Great Artesian Basin led to conflict including one death. BHP is waiting for approval, which appears likely, to now expand the mine’s operation four-fold. It will create the world’s largest open pit mine, mainly in order to sell copper and uranium to China. The company has exceptions from parliamentary acts including the SA Environmental Protection Act.

As the juggernaut roles forward, so too does the implicit logic that all this has to end somehow, for better or worse. The Greens call for a degree of sanity in environmental regulation while promising growth and jobs in green industries. This newfound hope for a political Left in parliament conjures up profitable investment in green industries. Outside parliament, the strategy seems to be the same. Before the demise of the last ETS, a range of environmental groups including Greenpeace, Environment Victoria and those to the left of the spectrum like Friends of the Earth, published a ‘Plan B’ for economic development. It also aimed mainly at regulating private capital into greener channels, creating an army of ‘green-collar workers’. In April, Paul Gilding, a former head of Greenpeace, published The Great Disruption, which draws similar conclusions. He cites steady-state economists, who take environmentalism and this type of economics to their logical conclusion, calling for a zero growth economy to be achieved largely through government regulation. Opposition to the miners has been characterised by green-politics, calling to either reinvent a green technological basis for capitalist growth, or to slow growth by regulating the portfolios of capitalists. What is missing in either case is a description of why growth is necessary in the first place, and if it is to be slowed or stopped entirely, what the necessary conditions would be.

In 1954 Sir Arthur Lewis created a dual sector model to explore the effects of investment on wages in a poor economy. In an economic development class some years ago, a modified version was used to explain why foreign investment is good for a poor, underdeveloped economy. The model can also be used, inadvertently, to explain why capitalism must grow. In the model, families own farms collectively as small-holdings, where each family member receives their ‘average product of labour’. A foreign capitalist invests by building, say, a mine, and some farmers migrate to become wage-workers, where the wage is of higher value than the average product of the farm. The capitalist hires labour up to the point that the wage is equal to the excess revenue produced by that final worker hired, which is to say where the ‘marginal benefit’ equals the ‘marginal cost’, beyond which point the capitalist will make no profit. The ‘marginal product of labour’ declines with each new worker added as the mine reaches productive capacity and as labour supply increases its price falls. Equilibrium is therefore found between the wage, the marginal product of labour in the mine, and also the average product of labour on the farms (as farmers will not migrate for lower incomes). Foreign investment has therefore ‘soaked up’ excess labour in the economy, raising productivity and living standards. In economics class, and Australian politics, that’s where the story ends; capitalist investment is good, it increases productivity and remuneration for all.

The problem is that if you then add up remuneration to farmers and workers, the total amount available for consumer demand is no longer sufficient to purchase what has been produced (at prices sufficient to pay those wages and profits). Excess demand is required, perhaps from foreign markets, perhaps from credit growth, migration, or a combination of all three. The capitalist sector charges rent, the ‘marginal product of capital’, and at least some of this return on foreign capital will not be spent inside the home economy, unless it is further investment. Repeating the model in the absence of excess demand will result in a lowering of the optimal investment level for the capitalist, leading to lower remuneration levels, and lower demand. As crisis hits, lower remuneration to workers is expressed as unemployment. Undergraduate economics and the rhetorical liberalism it underpins usually gets around this problem by pretending that the ownership of capital within any economy is completely equal. There are therefore no accumulation problems. However, the Lewis model has a class structure—the monopolised ownership of capital by the foreign capitalist (and in Lewis’ original, an ‘unlimited’ or perfectly competitive supply of labour such that the wage falls to a subsistence level; this is not carried through to the undergraduate version).

If the capitalist can be convinced that there will be an expansion of the market tomorrow, they will reinvest in expanding production today; the solution to this very basic crisis then (this is not Marx’s reasoning for the demise of capitalism) is therefore growth. Capitalist economies are in a permanent state of disequilibrium, where investment in new equipment makes up the shortfall in aggregate demand (demand to build more mines). If over-spending by governments caused the crisis in Greece for example, it is only an expression of this broader problem that the economy requires excess demand to maintain employment. Our own government and many others like it have also purposefully facilitated credit expansion over the past thirty years, replacing government debt with masses of private debt. Debt is only one, temporary, solution; but more broadly, if growth cannot occur the system will crash. At this point workers cannot simply migrate back to the family farm—as some green solutions seem to suggest—as the radical transformation of environment, capital equipment and class structures has simultaneously destroyed, and created a new way of life; the battle going on between farmers in NSW and Queensland and the Coal Seam Gas industry is just one recent example.

Australia is not an underdeveloped economy, but we are a country that is imports over thirty billion net in capital every year. Some of this is used to artificially inflate consumer demand; some is used to build mines. The ABS also says that in Australia the top 20% of households own 62% of household net worth (assets minus liabilities), while the bottom 20% own 1%. Whether viewed nationally or internationally, disequilibrium in wealth is a fundamental aspect of our economy, just as in the Lewis model. Even if the massive wealth accumulated in the system makes higher wages possible, the reality of waged employment remains just as absurd for the worker in the Pilbara on $150,000 a year as it is for the farmer-come-waged-worker in the Lewis model. Perhaps it is more absurd, because it is insufficient growth that will still lead to unemployment, where the wage falls to zero, and therefore real poverty; regardless of the absolute level of material development within the economy. Growth is more important as a distributive mechanism than in a productive sense. It provides the incentive for the super-rich to grace us with employment prospects, while also growing their own wealth. It is the money reinvested in growing capital equipment (not just in mining) that compensates an otherwise shortfall in aggregate demand, thereby preventing the downward cycle. Therefore, a failure in expected growth of the market for iron ore or coal would not only upset that balance with regard to those currently employed in production, but would lead to a complete withdrawal of funds currently invested in expanding production. Within the mining sector, how many workers are employed today not simply to produce, but in this very act of expanding the capital equipment that will be required in the future to produce iron ore and coal at the predicted, astronomical levels? Once that objective is obtained, more growth will be required to keep the same number of people employed.

In the absence of class politics, both sides of today’s debate over the mining and carbon taxes are characterised by the same radical equality at the heart of economic, neoclassical truisms. The language of utility is utilised in order to purport the myth that prices (wages, profits, or of consumer goods) are derived purely from productivity. The ideological implications are not hard to pin down. Faced with Bob Brown’s proposition that the miners should pay a higher rate of tax, mining company BC Iron’s managing director Mike Young simply responded: ‘the reason that the owner of a share gets a return is because they’ve taken a risk… go start your own mining company.’ By placing property rights outside of the equation, on which measures like the marginal product of labour or capital depend, rates of exchange (prices) become pure representations of objective conditions such as the scarcity of goods, consumer preferences, or the entrepreneurial finesse of individual capitalists. Unlike the classical economists of the nineteenth century who admitted class antagonisms, and whom Lewis in the 1950s found it necessarily to follow in order to understand developing economies, in the neoclassical worldview there is simply no structural component to wages or profits to begin with, no class antagonism; so nothing to explain.

Neoclassical economics can only thinly veil the real threat implied in neoliberal politics, which is no profits, no jobs. This is the message of the ‘Australian Trade and Industry Alliance’, which is bankrolling the anti-carbon tax campaign. Abbot is also touring coalfields, his message being that the carbon tax means you will lose your job. The miners candidly threaten their employees with unemployment if they cannot justify their existence. In this sense the miners appeal to their employees through the reality of the condition of employment; they are more pragmatists than academic economists. Whatever CEOs may believe justify their pay-packets, or the stay-at-home rich for that matter, it is secondary in the propaganda that the mining elites are funding in order to appeal to working people and prevent the spectre of environmental limits from becoming a reality.

A purer expression of utopian capitalism is the belief that a moral revolution in consumer demand can re-model supply and transform capitalism into a green economy. Gilding parodies the real economy by telling us that ‘if we all stopped shopping’ we’d be happier in a slow or zero growth economy. In reality this green-capitalist economy would collapse even faster than debt-capitalism is currently doing in Europe. In proportion with the destruction of a credible belief in future market expansion, employment in production would collapse. Consumerism is not the cause of capitalist crises and anti-consumerism is not a solution. If consumer demand really could be curtailed in this way, very quickly the social question ignored by this kind of politics will present itself—what happens when the capitalists go out on strike because they have no incentive to invest in production?

Proposals to coerce capital into green industries are more realistic. However, ‘green-collar workers’ will still need growth to maintain their numbers in employment. It is only the transition phase to green-capitalism that may average-out at zero growth as hazardous industries decline and others emerge. In the long run, a technological basis for growth would be required. Unsurprisingly, Gilding describes this future technological basis in strikingly similar terms as those of neoclassical capitalism; ‘No one can corner the market for sunshine and wind!’ Proposals that seek to encourage investment into renewable energies consistently imagine a utopian, competitive and equitable view of markets. Unfortunately, real markets may well be defined by free exchange, but it is exchange based on the real distribution of wealth, and therefore reflects the social monopoly imposed by that inequality of rights: especially in capital-intensive sectors like the energy sector. In the language of marginal utility, the price we will be asked to pay for environmentally friendly goods will reflect a rate or exchange between society’s desperate desire to survive into the twenty-second century, and a tiny minority’s control over industry, who will have houses on stilts from which they can watch the rest of us drown. Keeping this in mind we can ask more realistic questions about getting capitalism to make better investment choices. If it is necessary to grant exclusive rights to the sun in order to encourage the required level of investment in solar energy, will we refuse the market? This is precisely the logic behind intellectual property rights and investment in pharmaceuticals. Market-based approaches to environmental regulation, which leave private property rights intact, are the perfect mechanisms for transferring a monopoly of wealth from one set of technologies to another. This is what they are designed to do. We will then be asked to believe that the solar-capitalists provide the sun, just as we currently believe that the miners provide coal and iron ore, rather than the people who actually build, and work in, mines.

The environmental crisis appears as an external crisis, of the economy coming up against its physical limits. However if, as many environmentalists have pointed out, it ultimately means the end of growth, then it is also a deep, internal crisis, deeper than the one currently engulfing Europe and the United States. Unfortunately, unlike the neoliberal crisis that has at least raised the question of an internal crisis founded on gross inequality, the environmental crisis seems only to have thrown a number of confused, liberal solutions into the public domain. More often than not these ideas make ‘the system’ a layer of bureaucracy that the state imposes on private capital, rather than the system of property itself. Achieving slower growth and technological transition through secondary layers of state bureaucracy, is an extremely inefficient plan that, as the political Right correctly points out, will lead to economic stagnation and unemployment. It would retain the incentive of private capital and therefore the incessant need for the economy to grow, while denying it that right. More efficient would be simply to remove the disequilibrium in property rights in the first place, by collectivising workplaces. Proposals to divert capital into green channels contain what might be called the shadow of expropriation—to varying degrees, removing the prerogative of capitalists and using capital in the interests of the majority. As environmental conditions become increasingly harsh, and those closest to the bottom pay the highest price, expropriation of some form will be the only form of environmentalism with a hope of remaining popular. Just as the politics of growth-at-all-costs currently does, expropriation relates directly to the lived experience of most of the population, which is dispossession and consequently waged employment. The green-liberal discourse offers no such reassurance, as liberal solutions to capitalist crises past and present have used state power to reassure rather than coerce the wealthiest part of the community, and extract a higher price from those at the bottom—exactly what is happening today in Europe under austerity.

For his part, Lewis rejected the idea that ‘expropriation’ was a solution, based on the observation that in both the Soviet Union and the mixed economies nationalisation had done ‘nothing whatever to transfer this part of the surplus to the workers’. Nevertheless, the farmers in the Lewis model face a different set of costs curves, a different minimum output ‘shut down’ decision, and its members’ capacity to spend grows with their capacity to invest. Removing disequilibrium between investment and demand, and therefore forming an economy that could actually achieve something like the utopian vision of green-politics, does not necessarily imply monopolisation by the state; but it definitely implies collectivised property of some form.

By Conal Thwaite

Conal Thwaite is a Melbourne based writer.

You can find a fuller explanation of the Lewis model at <http://undegraduateeconomics.wordpress.com/>

Categorised: Arena Magazine Feature

Tagged: , , , ,

Comments closed

Support Arena

Independent publications and critical thought are more important than ever. Arena has never relied on or received government funding. It has sustained its activities largely through the voluntary work and funding provided by editors and supporters. If Arena is to continue and to expand its readership, we need your support to do it.