JOHN MENADUE. Rent-seekers and corruption risks in the Australian mining industry and elsewhere.

In this blog Gigi Foster and Paul Frijters said:  ‘The vast majority of the richest Australians work in property, mining and banking/finance. … Tellingly, the highest earning workers in these industries do not invent or use advanced production or distribution technology… People in these highly regulated industries are handsomely rewarded when they can negotiate special favours, such as property rezonings, planning law exemptions, mining concessions, labour law exemptions or money creation powers.’

Companies and senior executives in these three fields obtain enormous benefits by securing favours from governments.

We thought capitalism was about keeping governments out of business and letting the market decide! These rent seekers believe in small government for other people but  they believe in big government when it comes to serving their own interests.Rupert Murdoch’s commercial ‘success’ has depended overwhelmingly on winning favours from governments in Australia,USA and UK.

So often the public political ‘debate’ is  in terms of the public sector versus the private sector and markets. But in our mixed economy, a more immediate and serious issue is the way that powerful commercial interests can influence and capture governments for their benefit.  Just think of Adani at the moment or the way state governments have given concessions to energy companies to make a ‘success’ of privatisation. The result has been an abuse of market power and high electricity prices arising mainly from vertically integrated private  generators and retailers.

There is a wide range  of powerful industries where we see this regulatory capture – mining concessions, tax concessions, land rezoning, alcohol permits, gambling permits,  restrictions on pharmacy outlets ,restictions on imports of second hand cars and of course the enormous government benefits bestowed on the  power utilities . The list of regulatory capture is almost endless. Australia is infested with lobbyists working for these rent seekers who are well rewarded by securing government  favours for themselves and their principals.

Take the case of our mining sector.

Transparency International (TI) has just released a report on corruption risks in the mining approval processes in Queensland and Western Australia.

TI  referred to the government systems in those states as having high levels of transparency and accountability. Perhaps that might be gilding the lily somewhat. However it went on to highlight some key vulnerabilities to corruption  in the respective approval processes.

Four high risk possible corruption areas were identified by TI

1 Inadequate due diligence

The Department of Natural Resources and Mines (DNRM) investigates an applicant’s past resource authority in Queensland, but does not assess performance in other Australian states or outside of Australia. Applicants are required to declare convictions for environmental offences and the cancellation or suspension of environmental authorities, licences or permits in Australia; however, legislation does not require self-reporting of environmental offences outside Australia.  TI argues that this creates a high risk of leases being granted to operators with a history of non-compliance, citing the example of Adani Mining, which received approval for its Carmichael Coal Mine despite a history of environmental contraventions in India.

Similarly, TI suggests that the Department of Mining & Petroleum (DMP) in Western Australia does not conduct adequate due diligence into the character and integrity of mining companies and their principals.  While mining in Western Australia was previously dominated by Australian, American and Japanese firms, this landscape has changed with the entry of companies based in countries with low scores on TI’s Corruption Perception Index.  The lack of due diligence by the DMP may create opportunities for companies with poor corruption and compliance records to enter the Australian market.

TI also argues that there is a lack of investigation into the beneficial ownership of applicants, which means that the ultimate ownership of companies operating mines in Australia is unknown, opening the possibility for corrupt players to be mining resources in Australia.

2 Industry influence

The report notes that both the frequent movement of staff between government and industry, and the inadequate regulation of political donations and lobbyists may enable inappropriate influence to be exerted in the project approval process.

TI considers the risk of policy influence by mining companies in Queensland to be high, especially considering the wide discretion granted to the Coordinator-General in relation to approving and facilitating large mining and infrastructure projects under the State Development and Public Works Organisation Act 1971 (Qld) (SDPWO).  In Western Australia, Ministerial discretion to grant mining leases and exploration licences under the Mining Act 1978 (WA) may be susceptible to industry influence, but this risk is mitigated by media scrutiny, the presence of integrity bodies, and public reporting requirements.  Industry Influence may however play a more prominent role in the context of State Agreements, which is discussed below.

3 Native Title

In negotiating agreements with mining companies, native title representatives appoint a negotiator who may fail to represent their interests.  Mining agreements with native title parties have limited transparency, and there is a risk that compensation negotiated with mining companies may not be distributed to the wider group in whose name the land use agreement was negotiated.  The implementation of the terms of a land use agreement are not publicly monitored.

4 State Agreements (Western Australia)

A State Agreement Act is a contract between the State and a developer that is ratified by Western Australian legislation.  Over 60 State Agreements have been ratified, usually to enable development in remote regions with limited infrastructure.  State Agreements may contain provisions regarding the nature and size of projects; tax incentives, and royalties; provision of infrastructure and obligations of the State and the miner.

TI is concerned about the lack of transparency in the negotiation of such agreements.  There is no public notification of the terms of negotiation and an agreement is only publicly available upon ratification.  There is no opportunity for public interest groups to have input into the terms of negotiations or challenge the final agreement in court.  TI argues that State Agreements enable direct and undisclosed negotiations between industry and politicians, which creates considerable risk of policy capture and corruption.

 

Rent seekers  in mining along with property and finance, are able to extract major benefits for their industries and senior executives. We need only recall the power they waged with the cooperation of the Coalition and the Murdoch media to defeat action on a super profits mining tax and a carbon tax.

Rio Tinto, the company that led the charge against the mining tax and called the tax a’sovereign risk’ has been charged with fraud in the US.

The defeat of the gold mining tax in WA also comes as no surprise. The powerful and wealthy miners win again and again  by flexing their political muscle.

Given the enormous power and influence of the long  ‘conga line’ of rent-seekers, as described by Graeme Samuel the former head of the ACCC. it is not surprising that Australians are losing confidence in governments and business.  Our democracy is being subverted by politically powerful rent seekers in a wide field.

Both Labor and non-Labor governments have failed to tackle this entrenched corruption and undermining of public confidence. In fact, governments and particularly former senior ministers , even  former prime ministers and senior public servants benefit from joining these rent-seekers on ‘retirement’.

We badly need some moral leadership on this question.  We are not getting it from any of the major political parties.  We need a Royal Commission on regulatory capture by powerful people and organisations, major changes in political donations, tough and transparent regulation of lobbyists and a standing anti-corruption commission – just for starters.

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3 Responses to JOHN MENADUE. Rent-seekers and corruption risks in the Australian mining industry and elsewhere.

  1. DON OWERS says:

    When it comes to corruption the NSW government sold – well gave- the rail corridor into Newcastle center to developers because it was not undermined and had good views. In return they will no doubt get some donations.

  2. Paul Frijters says:

    Hi John,

    I agree with this on all counts (surprise, surprise). The corruption and lack of moral awareness of both major political parties is so blatant!

    I always try to think of ‘what can we do’. In each area, it is not so hard to see what should be done. It is even obvious what initial steps to take in the political arena: have new anti-corruption parties come in and compete in elections, promising to clean up.

    A deeper question is what institutions to devise that would reduce the severity of rent-seeking in the future (one can never truly win. It’s a question of cleaning up faster). In my book with Cameron, I talk about citizen juries appointing top civil servants as a means of strengthening the power and integrity of the civil service.

    I also wonder whether something can be done about the revolving doors of politicians. Time-limits on where they can work are probably going to be very ineffective, and calling for moral revivals is useful in the short-run, but needs to be backed up with new institutions in the longer run.

    I have in particular been thinking what else we can do with ex-PMs and ex-ministers. They are the main ones that are a danger to our democracy, but they are also amongst our greatest assets. They should be kept working for the public good rather than working to drag us all down.

    The Brits have the House of Lords where the former PMs and ministers go to, which preserves them for the public good and from where they can monitor the behaviour of current ministers and party members. Its not perfect, but it does help, I believe.

    In the Netherlands, the former top politicians are made majors of towns, which is not a bad way to go either in terms of preserving them for the public good.

    What can be done like this in Australia? We need some kind of council of elders that has a real role in our democracy and that has real prestige (enough to be worthwhile for former PMs and ministers). Or several councils. Ideas?

  3. michael lacey says:

    Well what does one expect after a rolling back globally of systems put in place by social democracies to insure societies function for all.
    Since 1980 Neoliberalism has had a move towards regressive taxation, have un-taxed the financial sector, un-taxed real estate , un-taxed the wealthy, deregulated the economy permitting monopolies which were privatised and deregulated at the same time, All these things is what social democracies fought against 100 years ago.
    We are embarking on Neo Feudalism a few companies and corporations running the whole economy and all of the growth is centered on the monopolists everywhere from real estate to information technology, to raw materials, to what people need with no growth in living standards. The ideal of classical economists zero growth in wages or consumption and all the economic surplus goes to the fire sector. Wages and underemployment will continue because the internal market is no longer about goods and services that labour produces. More and more of the Australian market and the European market and the American market is spent on paying land rent and debt service. After you pay the compulsory there is to little income, maybe one third of the pay check left to actually buy goods and services. People must realise that the real economy is production of goods and services.
    How far can this go?
    No government at all just corporations running everything especially the foreign owned ones with no regulation! Things like the TPP will make it impossible to regulate
    so the people will have no influence over the activities of corporations at all!
    Please wake up people !

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