MARK BEESON. Western Australia and the resource curse

Oct 25, 2017

 The failure of successive WA governments to tax the resource sector effectively has meant that much of revenue generated by the most recent resource boom was appropriated by the multinational corporations that dominate the sector – more than 80 per cent of them foreign owned, by the way. 

The ‘resource curse’ is a way of describing the potentially paradoxical impact of what ought to be a welcome gift from nature. Countries with an abundance of a natural resource such as oil, iron ore, gold or diamonds can find themselves experiencing slower growth than countries without such assets. In many cases, however, sub-optimal economic performance are the least of such countries problems.

Saudi Arabia demonstrates how the possession of one abundant, easily exploited resource can determine the course of not just economic development, but a country’s entire social and political system, too. The huge royal family that dominates Saudi Arabia has done nothing productive with the equally vast oil wealth that dumb luck dropped in its lap. It has provided the foundation for a system of repressive patronage politics that has – until recently – seemed immune to modernizing influences of any sort.

The historical importance of oil has also meant that the Saudis have been considered as vital and reliable geopolitical allies of the US in a notoriously unstable part of the world.  As a consequence, they have been quite literally able to get away with murder in Yemen, with little international criticism. The unexpected decline in the price of oil may yet unravel the Saudis’ domestic regime and their international significance, however.

The experience and geopolitical importance of other states afflicted by the resource curse can be very different, but no less consequential – at least for the domestic population. For example, despite being Africa’s third biggest economy and enjoying vast resource wealth, the World Bank estimates that 80 per cent of Nigeria’s oil wealth has been appropriated by 1 per cent of the population. Nearly half the population lives below the poverty line and other economic sectors like agriculture have declined or never been developed.

All of this might seem a long way from Australia, literally and metaphorically. Unfortunately, the parallels are rather closer than we might like to think and the impacts of the resource curse are not confined to what is still rather patronisingly known as the ‘developing world’.

In its most benign form the resource curse can be manifest in the so-called ‘Dutch disease’. When Holland discovered and developed a huge gas field on its doorstep in the 1960s, what should have been a blessing became a problem as the rest of the economy became uncompetitive as a consequence of a rapidly appreciating currency. A vicious circle of growing reliance on a single commodity can result if the process is not carefully managed.

Significantly, however, the curse can be a blessing if governments have the requisite competence and capacity to manage it successfully. Norway is the quintessential example of how to take advantage of a resource boom, and not just for the current generation. On the contrary, through the creation of the world’s biggest sovereign wealth fund, and a highly interventionist approach to the multinational corporations that normally dominate resource exploitation, the Norwegians quite literally have more money than they know what to do with.

They have also diversified the economy by insisting much of the infrastructure was manufactured locally. The Norwegians have also ensured that future generations will benefit from the bounty through a range of long-term investments. The contrast with WA’s experience is sobering and instructive.

The failure of successive WA governments to tax the resource sector effectively has meant that much of revenue generated by the most recent resource boom was appropriated by the multinational corporations that dominate the sector – more than 80 per cent of them foreign owned, by the way. But the scale of resource development in WA means that even the relatively modest share that accrued to the state was enough to fund a series of high profile developments of dubious value.

The failure to tax and spend wisely on the part of WA governments over the years is perhaps the least of their problems, though. The continuing inability of leaders from both sides of politics to impose new taxes on the resource sector is testimony to where power lies in this state and even the country more generally. After all, Kevin Rudd’s political demise was largely the result of a lavishly funded, highly effective campaign on the part of the mining lobby.

Former Nationals leader Brendon Grylls met a similar fate on WA’s smaller political stage when he dared to take on the might of the local miners. Recently elected Labor premier Mark McGowan may not have been toppled, but he has received a salutatory reminder of the difficulty-  and possible dangers – of confronting the state’s most powerful vested interests.

Perhaps WA’s geography and demographics make it a special case. But it is remarkable that the state and the nation have lost two leaders – one of them the prime minister, no less – as a direct consequence of the highly effective, self-interested activities of the resource sector.

While Australia is clearly not Nigeria, it’s not a good look for what we like to think of as a successful, competently run liberal democracy to lose leaders in this way – or for policymakers to be unable to implement policies in the broader public interest. Little wonder so many are so disillusioned with the state of politics in WA and the West more generally.

Mark Beeson is Series editor, Critical Studies of the Asia Pacific, University of W.A.

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