The State and the Extractive Industries in Australia: Growth for Whose Benefit?

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Authors: Rachel Parker and Stephen Cox

Queensland University of Technology, GPO Box 2434 Brisbane QLD 4001, Australia

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* Corresponding author The state and the extractive industries in Australia: growth for whose benefit?

Abstract

This paper contributes to an understanding of the state as a critical political-institutional structure that impacts the growth of extractive industries and their share in national economic activity as well as the distribution of economic rewards from extractive industry development. The paper draws on frameworks which distinguish between a neo-liberal state and a developmental state incorporating human capability goals. The paper shows that in

Australia, the neo-liberal state has been highly interventionist in promoting extractive industry growth by forming strong alliances with key resource firms, subsidising mining exploration and providing key capital-intensive infrastructure which has supported the de- risking of mining investment.. However, state activism has not sought to deliver a balanced distribution of benefits and costs from resource industry growth, according to an expanded developmental state concept focused on human capability development.

Keywords: Extractive industry, Developmental state, Human capability development,

Political economy of development, Industrial policy, Neo-liberal state.

1. Introduction

Since the turn of the 21st Century, there has been a major shift in the nature of Australia’s engagement with the global economy. Although Australia was a resource-based economy throughout the 20th Century, over the last decade and a half, there has been an increased concentration of economic activity in the resources sector and a pace of decline in other sectors – notably manufacturing – that exceeds other OECD nations. The result is

1 significantly reduced levels of economic complexity, such that Australia has become an outlier among high-income nations. Australia has a global rank of 21 with respect to income per capita but a rank of 82 with respect to levels of economic complexity; the limited diversity of Australia’s economy now matches that of Qatar, Oman and Kuwait (Hausmann et al., 2017). The diversity and sophistication of Australia’s national product have declined and resulted in an economic profile that reflects that of a poor nation. The growth in the resources economy has not been uncontentious and has been accompanied by growing political contestation regarding the distribution of benefits from the resources boom (Construction

Forestry Mining and Energy Union [CFMEU], 2012; Grundoff, 2013; Peel et al., 2014).

Australia is in the top five exporters in the world for bauxite, alumina, iron ore, zinc, coal and liquefied natural gas (LNG; Department of Industry Innovation and Science, 2017).

Throughout the 20th Century, the resources sector was significant to Australia’s national economy, but since 2000 resources have come to dominate the political-economic system

(Cleary, 2011, 2012). In 2015–2016, resources and energy exports were valued at AU$157 billion, accounting for 51 per cent of Australia’s goods and services exports. The sector employed around 228,000 people, which is more than double the direct employment in the early 2000s, although disproportionately low compared to the sector’s contribution to gross domestic product and exports (Department of Industry, Innovation and Science, 2016).

The potential effects of extractive industry growth are often described with reference to the ‘resource curse’ concept. A wide range of studies have highlighted potential dangers associated with high dependence on extractive industries, including constrained economic growth, civil conflict, corruption, rent-seeking, crowding out of productive sectors, national debt as well as environmental and social impacts (Gilberthorpe and Papyrakis, 2015;

Papyrakis, 2017). However, some literature questions the view that resources are necessarily a curse, with a number of studies showing that some resource-rich nations have experienced

2 growth and development opportunities linked to the resource sector (Arvantis and Weigert

2017; Brunnschweiler and Bulte, 2008; Cavalcanti et al., 2011).

Socio-political institutions have been identified as mediating variables in this process, with a range of studies emphasising the role of ‘good’ institutions in preventing the resource curse (Sarmmidi et al., 2014). Political and institutional factors have been shown to affect whether a concentration of extractive industries in a nation’s economic profile translates into resource dependence (Brunnschweiler and Bulte, 2008), including levels of corruption, the rule of law, local cultural and political practices, authoritarian institutional structures (Lawer et al., 2017) and the significance of governance frameworks in influencing Corporate Social

Responsibility practices (Andrews, 2016; Gilberthorpe and Banks, 2012).

The state is a particularly important set of socio-political institutional arrangements which drive extractive industry development by creating an institutional context that supports resource production, providing the capital-intensive infrastructure necessary to undertake resource extraction, processing and associated export activity (Stephenson & Agnew, 2015).

The state also has a role to manage the distribution of extractive industry benefits across regional communities, the workforce and supply chain industries (Arias et al., 2014; Phelps et al., 2015).

Australia the state has been highly interventionist in promoting extractive industry growth in a manner consistent with the neo-liberal model such that benefits are accrued to a narrow economic elite at the expense of the broader workforce and community. State activism has

3 not extended to the distribution of benefits and costs from resource industry growth, according to an expanded developmental state concept focused on human capability development.

2. The state and the extractive industries

The role of the state is particularly significant in extractive industries, in some cases by directly participating in production but also through taxation, health, safety and environmental regulations, granting exploration licences and mineral rights, and providing specialised infrastructures such as ports (Belyi and Talus, 2015). The state also impacts on conflict over the distribution of rewards from extractive industries. In order to achieve a

‘social licence’ to operate, extractive industries are expected to deliver shared benefits

(Söderholm and Svahn, 2015; Fordham et al., 2017), this includes value-sharing across regional communities, the workforce and supply chain industries (Arias et al., 2014; Phelps et al., 2015).

The developmental state concept is a key lens through which the role of the state in extractive industries can be examined. The developmental state concept traditionally focused on industrial development initiatives coordinated through the bureaucratic apparatus, aligning the interests of national industrial elites with the state’s developmental project. The development state literature analysed the state’s role in interest mediation and coordination of commercial and infrastructure investments towards common goals of industrial development.

Another area of focus has been the underlying technocratic and bureaucratic capability of the state in pursuing its goals (Evans, 1995; Levy, 2015; Wade, 1990). Of particular importance was the capability of the state to constrain private power, so that industrial development objectives were of benefit to broader agendas of economic growth rather than the narrow interests of particular industry segments (Haggard, 2018).

4 As Evans and Heller (2015) have argued, development state success depends on the ability to achieve advances in human capabilities and not just economic growth. This is possible through coherent state apparatuses that are able to deliver collective goals, including health, education and the reduction of poverty and inequality. The ability to deliver these collective goals explains the relatively long-term success of the developmental states of

Korea and Taiwan (Evans and Heller, 2015; Hsu, 2017). This is essential to ensure the prioritisation of human capability development within the context of industrial development.

For example, Döring et al. (2017) have shown how the ‘new developmentalism’ in Brazil is associated with policies which have positioned local industry in local value-added/low- technology segments of global markets. While the state has sought to compensate the losers of the export-oriented internationalisation strategy of development, the social and environmental consequences of the relentless pursuit of global competitiveness are leading to increased political contestation from the social forces that have been marginalised in the development process. Evans and Heller (2015) argue that the state secures social support for industrial development through human capability development. The developmental state has gone well beyond compensating the losers to ensuring broad-based human capability development in health, education, and poverty and inequality reduction, thus ensuring collective outcomes from the trajectory of economic growth.

In contrast, the neo-liberal state’s industrial development objectives are focused on a narrow set of private interests. The neo-liberal state is a strong state, able to mobilise the resources of government to direct and manage the economy. In contrast to the literature which implies neo-liberal economies are those with a relatively limited role for the state in coordinating economic activity (Bell, 1993; Hall, 2015; Levy et. al 2015), this paper extends the work of Baer (2016) and Duck (2019) who show the neo-liberal state has been highly activist across a range of policy dimensions and has engaged in a deliberate and strategic

5 project to develop the mining industry as an increasing share of economic activity in

Australia. However, unlike an expanded developmental state model, incorporating a focus on human capability development, the neo-liberal state has sought to reinforce and extend existing wealth and income inequality rather than manage the distribution of the gains in the interests of the broader community (Duck 2019).

The following discussion aims to use an expanded developmental state model to analyse the role of the state in supporting the growth of extractive industries in Australia. It seeks to analyse whether the state has coordinated extractive industry development in pursuit of goals that extend beyond the narrow interests of particular industrial segments and whether the broader human capability development agenda has been realised. This analysis is critical to understanding the role of the state in delivering the broader benefits of extractive industry growth in Australia.

3. The state and extractive industry development in Australia

A defining feature of the Australian mining industry has been very high levels of foreign ownership and control. The extent of foreign investment in Australian mining grew dramatically from the 1960s (Bryan 1988). For example, he USA firm, Utah Construction

Company developed four mines between 1967 and 1972, a rail link and a port facility in

Queensland. By 1981, they owned a majority share in six mines and produced 50 percent of the state’s coal production (Resource Information Unit 1984). Galligan (1989, p. 28) shows that over a twenty year period between 1965 and 1985, Utah produced sixty six percent of

Queensland coal exports. Utah was a global company whose American shareholders massively benefited from the 1970s growth of the Japanese economy and the OPEC oil crisis.

In 1984, the Australian listed company BHP acquired Utah Development. The acquisition of

Utah by BHP provided BHP with access to Utah’s portfolio of global assets and was a central

6 component of BHPs strategy to transition from ‘the Big Australian steel maker’ to a major global minerals player (Galligan 1989). The state provided extensive support to Utah throughout the development of the coal industry (Baer 2016). More broadly, state investment in electricity generation, ports and harbour developments have been critical throughout

Australia’s history as the basis for encouraging mineral development and export (Fagan et. al.

1991)

The high level of integration of the Australian mining industry with the global economy explains a number of features of its relationship with the state. Baer (2016), drawing on Crough and Wheelright (1983), argues that the state has prioritized foreign corporations and shareholders over the Australian people throughout the history of minerals economic development policy. Baer (2016, p. 195) argues that “while corporations invariably resist governmental intervention if it entails regulation of their labor and environmental practices or profit, they welcome state involvement in situations where it benefits them.” The mining industry has welcomed a role for the state in subsidizing mining exploration and providing infrastructure to de-risk investment, but not in managing the distribution of rewards from minerals extraction.

The nature of the relationship between the state and the mining industry has continued to fit the neo-liberal model throughout the most recent mining boom. In October 2014, Tony

Abbott, Australia’s then prime minister, opened the Caval Ridge Mine in Central

Queensland, a joint venture between BHP and Mitsubishi. The mine was anticipated to produce 5.5 million tonnes of metallurgical coal annually and employ 500 people. At the opening, the prime minister commented:

This is a sign of hope and confidence in the future of the coal industry, it’s a great

industry … Coal is essential for the prosperity of the word … Energy is what sustains

7 our prosperity, and coal is the world’s principal energy source and it will be for many

decades to come. (Massola et al., 2014)

The Commonwealth Government was making it clear that mining was an integral part of

Australia’s natural comparative advantage and would be a key focus for its future economic development. The neo-liberal state agenda, has underpinned the alliance between the state and resources industry elites in providing high levels of government support for the industry.

The Australia Institute, an independent think tank funded by donations from individuals and trusts (not from political parties), has commissioned research on the nature of Australian

State and Commonwealth Government subsidies to the fossil fuel industry. The resulting research of Peel et al. (2014) argues that industry assistance in the big mining states of

Queensland and Western Australia is around 60 per cent of each state’s royalty receipts from mining. Grundoff (2013) estimates that in 2013 Commonwealth Government subsidies to the mining industry amounted to AU$4.5 billion. At the state-government level, major infrastructure, such as rail and ports, accounts for significant spend. With respect to some of this infrastructure, stakeholders other than the mining industry also benefit from use of the infrastructure. In addition, at the state level, government spending is typically on state-owned enterprises, some of which generate a future financial return. With these qualifiers in mind, the estimated expenditures and concessions of each of the Queensland and Western

Australian Governments to the fossil fuel industry was around AU$1.4 billion in 2013–2014

(Peel et al., 2014). Governments take on the risk of this infrastructure spend on behalf of the public, and the de-risking of infrastructure development is typically a necessary pre-condition on which mining majors build profitable mines.

The industry has retaliated against reports of high mining industry subsidies by commissioning its own research. The Minerals Institute of Australia commissioned research by Davidson (2012), which argued that the Australia Institute reports and research

8 commissioned by other ‘environmentally friendly’ groups such as the Australian

Conservation Foundation had adopted ‘extremely broad’ definitions of subsidies. The main complaint is that many of the ‘benefits’ attributed to the fossil-fuel industry were also available ‘across the economy more broadly’, including fuel tax credits (for off-road users) and the lack of indexation of fuel excise (foregone revenue). Davidson points out that the ‘tax concessions that specifically apply to mining are quite small’, although Davidson does not dispute that mining benefits substantially from tax concessions which apply ‘across the economy more broadly’. Davidson also does not address the issue of infrastructure expenditure that supports the mining industry, although it would presumably fall within the category of benefits which are open to use from stakeholders outside the mining industry.

Further evidence of the government’s commitment to supporting the resource industry comes from its desire to attract the Adani mining firm to invest in the Galilee Basin

Carmichael coal mine. The details of government support for the Carmichael coal project have not been fully reported, but it is clear that they involve concessions on royalty payments paid to the state government for access to coal resources and concessions in relation to access to additional resources, including water. Senator Matt Canavan has supported the concept of a government loan to help build the AU$2.5 billion railway integral to the mine’s development, arguing:

It’s perplexing that some find the notion of investing once again in coal infrastructure

as ‘welfare’ … Given the wider benefits to the Australian economy, it makes sense

for the Government to look at its request for a loan to help build the railway … The

development of almost every minerals province in Australia has involved government

investment … The government is focused on supporting a new minerals province that

will generate billions of dollars of wealth, create thousands of jobs and strengthen our

9 ties with an important Asian country that wants the same benefits that Australians

take as a given: affordable and accessible power. (Canavan, 2017)

The framing of the government’s role in resources industry development is, therefore, quite different from the framing of the government’s role in manufacturing industry development (Bell 1997). Adani has sought a concessional loan worth AU$1 billion from the

Northern Australia Infrastructure Facility to help fund a rail line from its proposed

Carmichael mine to the Abbot Point coal-loading terminal near Bowen. Senator Canavan showed strong support for the request, which was different from the government’s negative response to the Holden request for government support for continued car manufacturing in

Australia (Crowe, 2017).

Adani and the Queensland Government have argued that the Adani mine will create

10,000 jobs during the construction phase, which is expected to level off to 1,500 or so employees when the mine is fully operational (McKenzie et al., 2017). In addition, Adani sought a deferral of mine royalties which would be due to the Queensland Government and, following the failure of the Queensland Government to deliver a royalties framework for

Adani, Adani deferred its decision on proceeding with the mine. The Queensland

Government subsequently reached a decision which resulted in a royalty plan being established for the Galilee Basin, Surat Basic and north-west minerals province, which would allow a deferral of mine royalties for the first four years before being ramped up after the fifth year, so that over the life of the mine, the full amount of royalties would be paid

(Ludlow and Tillett, 2017).

When the Board subsequently confirmed that Adani would pursue the Carmichael mine opportunity on 6 June 2017, the Queensland Premier stated:

There will be jobs right across the state, this project will deliver those jobs … We want

to make Queensland the investment choice state of the nation, and that's what we are

10 doing by diversifying our economy. What I'm saying very clearly to the rest of the state

and to other companies, [is] that you're welcome to invest in Queensland, that we have a

government that will back you 100 per cent. (Ludlow and Tillet, 2017)

This follows other initiatives from the Commonwealth Government to support mining industry development. At the Association of Mining and Exploration Companies Convention, the then Minister for Resources, Energy and Northern Australia, Josh Frydenberg, announced that the government would seek to attract further investment in the mining industry by de- risking exploration through the provision of a $100-million ‘Exploring for the Future’ program and would ‘assist industry in better targeting onshore areas likely to contain the next major oil, gas and mineral deposits’. The minister noted ‘we must remember that Australia is competing globally for resource exploration’. The Exploring the Future program injected an additional AU$100 million on top of the existing AU$100 million Exploration Development

Incentive which supported greenfield exploration. This incentive enabled Australian resident shareholders to deduct the expense of greenfield mining exploration against their taxable income (Frydenberg, 2016).

4. The coordination of the distribution of economic rewards

The preceding analysis has shown that the state has been highly interventionist in its support for mining industry development in Australia. The state has formed strong alliances with key resource firms, subsidised mining exploration and provided key capital-intensive infrastructure which has supported the de-risking of mining investment.

The prioritisation of resources industry development has had important implications for human capability development in Australia, which must be interrogated in order to understand the role of the state in managing the trajectory of the nation’s extractive industry

11 development (Evans and Heller, 2015). The following discussion seeks to identify the beneficiaries and unpack the increasing social contestation regarding the distribution of rewards from resource industry growth.

4.1 Foreign shareholders and individual Australians

Shareholders in the major mining firms – the majority of whom are not Australian citizens – have been significant winners from Australia’s mining boom. Mining, despite its connection with the resources base of the nation, is one of the most globalised of all

Australian industries. The internationalisation of the sector began in the 1960s, with high levels of British and American financial capital investing in the sector (Bryan 1988). The

Department of Foreign Affairs and Trade (DFAT, 2016) has provided detailed evidence of the high level of integration of the Australian mining industry in global production. The mining industry had the highest proportion of foreign ownership of all industries, with 17.1 per cent of mining businesses having foreign ownership of greater than 10 per cent. The mining industry comprised the largest share of the stock of foreign direct investment in

Australia in 2016, sitting at 39 per cent of total foreign direct investment (DFAT, 2016). Most importantly, the largest firms in Australia’s resources sector have very high levels of foreign ownership. The high level of foreign ownership of the two largest mining firms listed on the

Australian Stock Exchange (ASX), Rio Tinto and BHP, is such that the Reserve Bank of

Australia (RBA) has reported that ‘most estimates suggested four-fifths of Australian mining operations were effectively owned by foreign interests’ (RBA cited in Duffy, 2011). A major

Australian newspaper concluded ‘yes, the mines are foreign owned’ (FitzGerald, 2011), a notion reiterated by the RBA:

12 The surge in mining profits has also increased income accruing to overseas residents

in the form of dividends and retained earnings, reflecting the high share of foreign

ownership in the mining sector. (RBA cited in Duffy, 2011)

Of particular note is that the rewards to shareholders have continued to accrue, despite the periodic slump in global commodity prices. In 2014, PWC reported that the top 40 mining companies globally (by market capitalisation) had a 72 per cent (or $52 billion) fall in net profits to $20 billion, the lowest it had been for a decade (PWC, 2014, p. 7). However:

… despite the difficult year, the industry’s focus on rewarding shareholders continued

during 2013. The top 40 listened to their shareholders by reigning in spending but

maintaining their track record of paying dividends. (PWC, 2014, p. 13)

As a consequence, the dividend pay-out ratio (measured by dividends divided by adjusted net profits) increased from 40 per cent in 2012 to 95 per cent in 2013. The dividend payments were highly concentrated, with the top five companies paying 50 per cent of the value of total dividends paid by the top 40 companies. Sustaining this level of dividend payments with declining profits has required companies to use retained earnings.

At the same time as maintaining dividend payments during the downturn, mining companies worked hard to slash costs. Rio Tinto had a cost-reduction target of AU$2 billion for 2013, which it exceeded by 15%, while BHP Billiton had as a target efficiency savings totalling AU$5.5 billion through 2014 (PWC, 2014, p. 25). These cost reductions have resulted from cuts along the value chain, much of which are passed on to small and medium- sized firms and workers. However, the rewards to shareholders continue. On Wednesday 2

August 2017, the Australian Financial Review reported that ‘Rio Tinto delivers record interim dividend to shareholder’, with surging earnings from its iron ore division. The interim dividend was US$1.10 – its previous highest interim dividend was US96c, which was

13 delivered at the height of the mining boom. As such, despite tight conditions for the supply chain, cuts in labour and regional decline, shareholder income has been maintained (Thomson and Ingram, 2017).

In addition to shareholders, a small number of individuals have benefited massively from the resources sector boom. In 2017, three of the ten Australian Financial Review Rich List were in the resources sector: Andrew Forrest, Chair Fortesque Metals; Ivan Glasenberg, CEO

Glencore Australia; and Gina Rinehart, Chair Hancock Property – who all personally amassed over AU$6 billion in resources sector wealth.

4.2 The manufacturing supply chain

As explained above, a decline in commodity prices has meant that major mining firms have cut costs along the supply chain in order to sustain dividend payments to shareholders.

Cost-cutting has put pressure on an already under-developed Australian manufacturing industry supply chain. As noted by the RBA, much of the equipment used in the mining industry in Australia is imported rather than manufactured locally, signalling that Australia has failed to capture the value chain benefits of resources industry development (Cleary,

2011, 2012).

Although Australia is one of the top five producers of the world’s minerals, it has a very high presence of foreign-owned technologies in its minerals operations. A study commissioned by IP Australia (Francis, 2015) has shown that of 6,539 Australian mining inventions filed between 1994 and 2011, 4,934 (75%) were filed by METS (mining equipment, technology and service firms, essentially the suppliers to the mining industry),

863 by miners and 742 by public entities. IP Australia then studied the location of the invention and the ownership location of these filed patents. It found that almost all METS patent applications filed by METS firms operating in Australia originated outside of

14 Australia. IP Australia concludes ‘it appears that foreign inventors are developing the majority of technologies, in particular the equipment, used by firms operating mines in

Australia’ (Francis, 2015, p. 30). This aligns with the RBA report on the sector, which indicated that ‘A large share of the inputs used for these projects is imported rather than sourced domestically, due to the type and scale of the mining projects’ (RBA cited in Duffy,

2011). This includes large imports of capital equipment, civil engineering equipment like bulldozers and excavators, rubber tyres and metal structures (Duffy, 2011).

In August 2012, a report by the non-government members of the Prime Minister’s

Manufacturing Taskforce was released and included elements designed to address the under- development of Australian manufacturing opportunities linked to the resources base. The taskforce was established in late-2011 to create a vision for the development of Australia’s manufacturing sector which would take advantage of Australia’s location in the Asia-Pacific region and the opportunities which would arise from the Asian century. The non-government members of the taskforce made several important recommendations designed to build an enduring industrial capacity from the resources boom. These included recommendations to include local content requirements and Australian industry participation provisions in resource industry projects, drawing on the Industry Capability Network and Supplier

Advocate Programs, to facilitate Australian firm competition for supply chain opportunities arising from the resources sector. The Industry Capability Network and Supplier Advocate

Programs were part of the Commonwealth Government’s Buy Australian at Home and

Abroad Initiative. The purpose of these programs was to increase awareness of Australian small and medium-sized enterprises of major projects in the resources sector and assist in linking global resource firms with capabilities in the Australian supply chain.

As explained by the Department of Industry, Innovation and Science (2017), public and private projects with a capital expenditure of AU$500 million or more are required to prepare

15 and implement an Australian Industry Participation (AIP) plan. The objectives of an AIP plan are to demonstrate that opportunities will be provided to Australian businesses to supply goods and services to a project. The 3.5-page AIP plan for the Adani Mining Carmichael

Mine, Rail and Port project phase, which has a project value of almost AU$7.86 billion, demonstrates the limited commitment required from multinational corporation investors to satisfy the AIP requirements (DIIS, 2017). Adani lists 32 categories of products and services for which there will be opportunities both for Australian and non-Australian entities. Only two service categories will provide opportunities for only Australian entities: ‘Camp

Accommodation and Services’ and ‘Road and Bridgeworks’. Adani commits to utilising

‘Australian standards’, ‘wherever possible’ and to adopt a number of actions to ‘provide [a] full, fair and reasonable opportunity to Australian entities to supply key goods and/or services’, including online public listing of opportunities, conducting presentations on project information and linking with industry associations to identify capable and ‘competitive’

Australian entities, and directly contacting Australian entities to register expressions of interest for project contracts. In essence, resources companies focuses are committed to the creation of opportunities, mostly through information sharing, rather than the prioritisation of local supply chains.

4.3 Human development

In addition to concerns about the limited diversification of the national economy resulting from resources industry development, there is increasing discontent regarding the distribution of economic rewards from the resources boom, and in particular its contribution to sustainable national wealth, which can be used to fund human and social development through education, health and community goods expenditures. Critics of the Australian

Government’s approach suggest that the failure to balance resources-based development with

16 broader social development is linked to its failure to establish a Super-Profit Tax and

Sovereign Wealth Fund, despite the recommendation of economists and a range of social groups, including the CFMEU. Norway’s sovereign wealth fund was based on a long-term strategy to manage the profits from North Sea Oil. In Australia, the Rudd Labor Government

(2007–2010) proposed to introduce a Resource Super Profit Tax, which was to be levied at 40 per cent on extractive industries. A subsequent media campaign by the mining industry, which the Australian Electoral Commission reported as costing AU$22 million, preceded the downfall of prime minister Kevin Rudd, which occurred in June 2010. The super tax would have ensured that Australia shifted to a profit-based tax system rather than the production- based royalty system which prevails currently. A modified version of the tax, the Mineral

Resource Rent Tax, was introduced in 2012 but was subsequently repealed. A production- based royalty scheme as currently exists in Australia does not ensure that society captures a share of the profit windfall that arises at a time of high commodity prices because the royalty is linked to the production volume rather than the profit. In addition to providing a basis for capturing higher revenue during mining booms, the super tax, if invested through a sovereign wealth fund, would have enabled the government to hedge against the next commodity downturn. A sovereign wealth fund could have also dampened exchange rate appreciation, with its negative effect on manufactured export competitiveness, by retaining foreign earnings in foreign currency. A 2015 Essential survey showed that 67 per cent of Australians believed that the mining industry did not pay enough tax (Lewis and Woods, 2015), adding weight to a 2014 nation-wide poll by UMR Research which showed that 54 per cent of

Australians believed that multinational mining companies were under-taxed (Dorling, 2014).

As a consequence, following the greatest resources boom in Australian history, which produced massive unexpected revenue, the Commonwealth Government is now in budget crisis mode looking for a range of savings in social expenditure to compensate for declining

17 resource-based revenue. Duck (2019) suggests that during this period, the state engaged in a deliberate strategy to lock Australia in to regressive changes to the tax system under the cover of the windfall revenue generated by the resources boom. The consequence has been to reduce the capacity of the state to “guard against future economic downturns, and to fund health, education and welfare payments” (p. 62).

In this context, there is increasing political discontent regarding the privileging of the resource industry in Australian public policy. In 2013, the CFMEU published a report ‘The

Australian resources boom: sharing the benefits’ (CFMEU, 2012) which suggested that the mining boom had not created a sustainable improvement in national wealth and that disproportionate benefits had gone to shareholders and management, overwhelmingly based overseas (pp. 8–9), and too little had gone to the Australian community that owns the resources. The report highlighted the cost of living pressures for housing, goods and services in mining regions, in addition to the challenges for small businesses in resource regions that had to compete for labour with resource companies, leading to skills and labour shortages and prohibitive remuneration packages. The impact on indigenous communities has also received significant attention, with O’Faircheallaigh suggesting that system-wide approaches are required to enhance the ability of Indigenous people to engage on equal terms with government and industry to provide Indigenous people the power to control the impact of mining on Indigenous interests (O’Faircheallaigh 2018).

The challenges for regions include the massive growth in fly-in fly-out (FIFO) workers that make up both the temporary, semi-permanent and permanent workforce associated with the construction and operational phases of mining projects, with various regional studies showing that around 50 per cent of the mining workforce is FIFO (Regional Australia

Institute, 2013). These workers arrive in mining regions for shift work and have permanent residence outside of the mining region. FIFO workers create pressure on health care and other

18 community infrastructure. For residents in mining regions, housing demand massively increases rental costs and housing prices and, therefore, the cost of living for people in the regions. For example, in 2011, the Pilbara region in Western Australia was Australia’s most expensive region in which to rent a house (CFMEU, 2012, p. 48). As a consequence, ‘many existing residents who are unable to afford high rents or house prices are likely to be displaced; having to move to another community, live within improvised or sub-standard housing or becoming homeless’ (Regional Australia Institute, 2013, p. 4). Local small businesses find it difficult to capture the benefits of an increased population because they are unable to afford the elevated remuneration costs resulting from competition for mining labour and the difficulty of workers finding residence at affordable costs. The massive growth in demand for health services (general practitioners, nurses, hospital beds, paramedics, pharmacists), associated with a rising FIFO workforce, are typically not managed well and create a deficit in health services for the local community.

There have been attempts to address these problems by governments and resource companies, such as the WA Royalties for Regions program, in which a share of the state’s mining royalties was allocated to regional development projects, or the BHP Community

Development Fund and the Rio Clermont Preferred Futures Strategy. However, ongoing political contestation regarding the impacts on regional communities suggests that these problems remain unresolved.

5. Conclusion

The state has been a central actor in the process of extractive industry growth in

Australia, privileging the resources sector in its national economic development strategy and proactively engaging the sector in extractive industry development through the provision of significant economic resources and a positive political climate of support. The approach to

19 industrial development in the extractive industries fits the model of the neo-liberal state in which intervention and management of the economy serves narrow economic interests. As an extended developmental state agenda necessarily incorporates an emphasis on the human capability development components of industrial transformation, the Australian state has fallen far short of the developmental state model (Evans and Heller, 2015). In the absence of economic and human progress accompanying state-coordinated industrial transformation, a state can be regarded as failing to meet the standard of a developmental state.

At the same time that the state has proactively supported the development of the extractive industries, it has not managed the distribution of rewards from resource-based development in ways which have led to broader economic prosperity. There is growing political contestation around the distribution of rewards across the broader society, including concerns regarding wages/skills in the broader workforce, cost-cutting along the supply chain, and regional volatility.

While there has been some effort to manage these issues, for example through the industry participation schemes, regional development initiatives and a resources profits tax, these initiatives are small in comparison to the wealth of the resources sector and the size of the social and distributional challenges. The benefits that accrue from particular trajectories of economic development are subject to political contention, with certain social groups perceived to benefit at the expense of others (Döring et al., 2017). In the case of extractive industry development, major mining firms, CEOs and individuals with significant holdings in minerals licences are beneficiaries of the state’s interventions, with social groups, unions and regional communities increasingly vocal about the need to share the benefits more broadly.

The fixed character of raw materials and the capital-intensive nature of the mining industry make it easier for the state to intervene to support the development of local supply chains in the extractive industries than in other industry sectors because there is a low risk of

20 delocalisation of multinational corporates (Arias et al., 2014). As Ovadia (2016) has argued, requiring lead mining firms to invest in human capability development and provide preferences for quality local suppliers of goods is necessary to achieve economic diversification and broader benefits from extractive industry development. In order to achieve a social licence to operate, resources firms are expected to share the benefits of resource extraction and achieve enduring community value (Fordham et al., 2017; Söderholm and

Svahn, 2015). In Australia, the state has formed an alliance with the resource sector in which benefit sharing has failed to occur.

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