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

This may be the author’s version of a work that was submitted/accepted for publication in the following source: Parker, Rachel& Cox, Stephen (2020) The state and the extractive industries in Australia:Growth for whose benefit? The Extractive Industries and Society, 7(2), pp. 621-627. This file was downloaded from: https://eprints.qut.edu.au/202302/ c 2020 Elsevier Ltd This work is covered by copyright. Unless the document is being made available under a Creative Commons Licence, you must assume that re-use is limited to personal use and that permission from the copyright owner must be obtained for all other uses. If the document is available under a Creative Commons License (or other specified license) then refer to the Licence for details of permitted re-use. It is a condition of access that users recog- nise and abide by the legal requirements associated with these rights. If you believe that this work infringes copyright please provide details by email to [email protected] License: Creative Commons: Attribution-Noncommercial-No Derivative Works 4.0 Notice: Please note that this document may not be the Version of Record (i.e. published version) of the work. Author manuscript versions (as Sub- mitted for peer review or as Accepted for publication after peer review) can be identified by an absence of publisher branding and/or typeset appear- ance. If there is any doubt, please refer to the published source. https://doi.org/10.1016/j.exis.2020.02.001 The state and the extractive industries in Australia: growth for whose benefit? Corresponding author: Rachel Parker Authors: Rachel Parker and Stephen Cox Queensland University of Technology, GPO Box 2434 Brisbane QLD 4001, Australia Author emails: [email protected]; [email protected] * 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). 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 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

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