In the last few weeks it has become clear that Australia is no longer the so-called "lucky country”. It's not that we are about to collapse but our luck has run out – longer term we are going to have to be much smarter.
Of course there are those in Canberra who believe that there is more good luck ahead, usually in the form of another China-led boom that boosts commodity prices.
Another boom is always possible, but a series of events have taken place over the last year that have turned our good fortune and show that we have run out of luck – we are going to need brains.
The likelihood that Europe will face tough times for a decade, the continuation of the Japanese recession and the swing of manufacturing out of China back to the US are obvious signs that our luck is going the wrong way.
But there are many other signs that are perhaps less obvious.
– The discovery of enormous oil and gas reserves in both the US (via shale) and Iraq (Sheikh Kloppers and BHP's 'new Saudi', November 14).
Australia is one of the world’s major energy exporters via coal and gas. The discovery of these reserves and the looming rapid rise in production will reduce the world price of energy and the revenues from our gas and thermal coal fields.
– The high dollar is ravaging our employment creating industries. Normally the dollar would fall with lower commodity prices but, as luck would have it, the Australian dollar is staying high, which is now also ravaging the industry that created the high dollar – mineral and gas production. This is the so-called "double Dutch” disease.
Alan Kohler, writing from New York, explains that we are being hit by a relentless drive by the US to lower its currency (What to do about the US currency war, December 10).
– The Gorgon and Curtis Island LNG developments were symbols of our future. But we tried to do too many projects at once and our luck ran out. These two enormous gas fields gave been plagued by higher costs created by a combination of bad management decisions, bad industrial relations legislation and, in the case if Gorgon, a union movement that exploited the lethal combination.
This rise in the capital costs of extracting minerals created by those three forces has eliminated the vast bulk of the mining projects that were being planned (Miners must fess up on IR dirt, December 5).
The two big ones that might come off are Gina Rinehart’s Roy Hill iron ore project and India’s Adani Group, which is planning a massive metallurgical coal development west of Rockhampton.
As I understand it both these projects have Gorgon style industrial relations agreements, which will almost certainly mean that their construction costs will run way beyond any current estimate.
We might be lucky and be blessed by bankers and owners who are not watching what happens in Australia when you sign bad labour agreements.
– Despite the big risk takers at Roy Hill and in India, capital will be harder to get because global institutions are complaining that Australia’s chief executives did not inform them about the rise in capital spending costs. The simple fact was that the chiefs did not know the mistakes they had made until it was too late. Most of the cost blowouts could have been avoided with sensible labour agreements and less of a frenzy to develop quickly.
– Our governments had no idea what was happening and this was shown in their confused taxing policies. Canberra tried a mining tax that would destroy the mining industry but then, in panic, went for one that would no raise little or no money unless we were lucky and there was another boom. We punted our luck and the government happily spent the money they thought the mining tax might raise, compounding a deficit problem.
On its own the carbon tax and mining add-ons would have been absorbed but they compounded the problems. The final straw was the decision of the Queensland coalition to lift coal royalties, despite the perilous state of the Queensland coal industry. Politicians on both sides do not understand mining and rely on luck.
– Bad industrial relations laws. The Gillard government gave the unions enormous powers at a time when we faced a huge surge in labour demand because there were so many mining projects. At the same time many chief executives delegated industrial relations to local chambers of commerce or industrial relations clubs. The cocktail was lethal as unions exploited the position.
– Australia needs clever manufacturing. CSL is one of our cleverest manufacturers. But the unions decided to give CSL a hard time so given the high dollar, CSL is looking to go offshore with new manufacturing investment.
– Our non-food retailers were asleep and allowed overseas suppliers to take a huge share of the market via the net.
– We have a government that believes we should have a surplus but is not capable of making the decisions that generate a surplus. However, there is no certainty they will lose the next election because at a time when luck has run out, generating a surplus requires unpopular decisions, which the coalition will have to announce in the election campaign.
But it is not all bad. There are signs we are making the decisions to create better fortunes. I will talk about them tomorrow.