"Applied Science, Faculty of"@en . "Community and Regional Planning (SCARP), School of"@en . "DSpace"@en . "UBCV"@en . "Crowley, Michael Daniel"@en . "2010-05-25T02:07:38Z"@en . "1984"@en . "Master of Arts in Planning - MA (Plan)"@en . "University of British Columbia"@en . "The central argument of this thesis is that Australia's economic development can be characterized as a changing pattern of dependency, whereby the nature of Australia's development has been largely determined by forces external to Australia. Consequently this thesis argues that the problems resulting from the current restructuring of the Australian economy can be linked to changes in the organization of the international economic system during the post war period. It is further argued that the failure of the government to recognize this pattern has led to Its actions exacerbating the impact of this readjustment. It is therefore posited that if the social dislocation resulting from this restructuring is to be moderated, an understanding of Australia's process of development must be achieved so that appropriate policies can be derived and implemented. Thus the main focus of this study is a historical analysis of the process of Australia's economic development, taking into account the evolution of the international context in which it unfolded. This general analysis is followed by a case study of the Australian coal industry to examine more closely the impact of this pattern of development.\r\nThe analysis of this thesis was undertaken from a theoretical framework built on Evans' (1979) conception of dependent development. The process of dependent development is described as involving several phases. Beginning with the transition from \"classical dependence\" to industrialization based on import substitution, this phase is quickly followed by the internationalization of the domestic market as transnational corporations penetrate the growth sectors of the economy. The most recent phase has involved the internationalization of the production process under a new international division of labour. This final phase is also linked to increased disarticulation of the dependent economy leading to the marginalization of an increasingly redundant workforce.\r\nThe outcome of the analysis was to conclude that the economic development of Australia could be reasonably described as a process of dependent development, whereby the direction and pace of economic development are determined by the interaction between foreign capital, local capital and the local state. However, foreign capital was found to play a dominant role in shaping the direction of economic development. This is seen as a consequence of Australia's historic pattern of development and the policies of the Australian government in the post war period which gave greater priority to strategic concerns than to issues of economic sovereignty.\r\nPolicy responses to some of the more obvious problems in the minerals and manufacturing sectors were identified. These included the need for greater co-ordination in the minerals sector and the development of an industrial policy for the manufacturing sector. However, it was concluded that the underlying problem confronting the Australian economy was the failure of the federal government to adapt to the changing international context created by the emergence of the modern transnational corporation in the post war period. A brief outline of a national economic planning policy was given and suggested as a potential strategy for dealing with this changing context. This policy involves the co-opting of the corporate plan into the national economic development strategy. While the difficulty of implementing this strategy is acknowledged, it is argued that without some affirmative action there is unlikely to be any long term relief from the current problems confronting the Australian economy."@en . "https://circle.library.ubc.ca/rest/handle/2429/24996?expand=metadata"@en . "PATTERNS OF DEPENDENCY: AN ANALYSIS OF AUSTRALIA'S PATH TO ECONOMIC DEVELOPMENT By MICHAEL DANIEL CROWLEY .A. Hons., The University of New South Wales, 1978 A THESIS SUBMITTED IN PARTIAL FULFILLLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n THE FACULTY OF GRADUATE STUDIES (School of Community and Regional Planning) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA May 1984 \u00C2\u00AE Michael Daniel Crowley I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an advanced degree a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e head o f my department o r by h i s o r h e r r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department o f Community and Regional planning The U n i v e r s i t y o f B r i t i s h C o l u m b i a 1956 Main M a l l V a n c o u v e r , Canada V6T 1Y3 Date May 30,1984. ABSTRACT The central argument of t h i s thesis i s that Australia's economic development can be characterized as a changing pattern of dependency, whereby the nature of Australia's development has been largely determined by forces external to A u s t r a l i a . Consequently this thesis argues that the problems r e s u l t i n g from the current restructuring of the Australian economy can be linked to changes i n the organization of the international economic system during the post war period. I t i s further argued that the f a i l u r e of the government to recognize t h i s pattern has led to Its actions exacerbating the impact of t h i s readjustment. I t i s therefore posited that i f the s o c i a l d i s l o c a t i o n r e s u l t i n g from t h i s restructuring i s to be moderated, an understanding of Australia's process of development must be achieved so that appropriate p o l i c i e s can be derived and implemented. Thus the main focus of t h i s study i s a h i s t o r i c a l analysis of the process of A u s t r a l i a ' s economic development, taking into account the evolution of the i n t e r n a t i o n a l context i n which i t unfolded. This general analysis i s followed by a case study of the Australian coal industry to examine more cl o s e l y the impact of this pattern of development. The analysis of t h i s thesis was undertaken from a theoretical framework b u i l t on Evans' (1979) conception of dependent development. The process of dependent development i s described as involving several phases. Beginning with the t r a n s i t i o n from \" c l a s s i c a l dependence\" to i n d u s t r i a l i z a -t i o n based on import su b s t i t u t i o n , t h i s phase i s quickly followed by the i n t e r n a t i o n a l i z a t i o n of the domestic market as transnational corporations penetrate the growth sectors of the economy. The most recent phase has involved the i n t e r n a t i o n a l i z a t i o n of the production process under a new i n t e r n a t i o n a l d i v i s i o n of labour. This f i n a l phase i s also linked to - i i i -increased d i s a r t i c u l a t i o n of the dependent economy leading to the marginalization of an increasingly redundant workforce. The outcome of the analysis was to conclude that the economic development of A u s t r a l i a could be reasonably described as a process of dependent development, whereby the dire c t i o n and pace of economic development are determined by the interaction between foreign c a p i t a l , l o c a l c a p i t a l and the l o c a l state. However, foreign c a p i t a l was found to play a dominant role i n shaping the d i r e c t i o n of economic development. This i s seen as a consequence of Australia's h i s t o r i c pattern of development and the p o l i c i e s of the Australian government i n the post war period which gave greater p r i o r i t y to strategic concerns than to issues of economic sovereignty. Po l i c y responses to some of the more obvious problems In the minerals and manufacturing sectors were i d e n t i f i e d . These included the need for greater co-ordination i n the minerals sector and the development of an i n d u s t r i a l p o l i c y for the manufacturing sector. However, i t was concluded that the underlying problem confronting the Australian economy was the f a i l u r e of the federal government to adapt to the changing international context created by the emergence of the modern transnational corporation i n the post war period. A brief outline of a national economic planning policy was given and suggested as a potential strategy for dealing with this changing context. This policy involves the co-opting of the corporate plan into the national economic development strategy. While the d i f f i c u l t y of implementing this strategy i s acknowledged, i t i s argued that without some affirmative action there i s u n l i k e l y to be any long term r e l i e f from the current problems confronting the Australian economy. - iv -TABLE OF CONTENTS Page ABSTRACT i i TABLE OF CONTENTS i v LIST OF TABLES v i ACKNOWLEDGEMENT S v i i CHAPTER 1 INTRODUCTION 1 1.1 Introduction and Problem Statement 1 1.2 Context 3 1.3 Method ... 7 1.4 Theory 9 1.4.1 Dependent Development 11 1.5 Austr a l i a : A Case Study of Dependent Development?.. 17 CHAPTER 2 DEPENDENT DEVELOPMENT UNDER BRITAIN: 1788-1939. 20 2.1 1840-1890: Pastoral Expansion 22 2.2 1890-1939: Roots of In d u s t r i a l i z a t i o n 25 2.3 Summary 29 CHAPTER 3 INTEGRATION INTO THE PACIFIC RIM ECONOMY UNDER UNITED STATES HEGEMONY 31 3.1 ANZUS Pact 34 3.2 Post War Expansion and Internalization of the Manufacturing Industry.. 36 3.3 Minerals Boom - Expansion and Internalization of the Mining Industry 40 3.4 Integration into the P a c i f i c Rim Economy 44 - v -Page CHAPTER 4 THE EVOLUTION OF THE AUSTRALIAN-JAPANESE TRADING RELATIONSHIP 57 4.1 H i s t o r i a l Roots 57 4.2 Post War: Rehabilitation of Trade Links 63 4.3 Australia's Incorporation into the Japanese Resource Hinterland 66 4.4 Japanese Business A c t i v i t y i n Aust r a l i a 73 4.5 Current Trends Within the Trading Relationship 76 4.6 Summary 77 CHAPTER 5 THE AUSTRALIAN-COAL INDUSTRY - DEVELOPMENT OR DEPENDENCY 80 5.1 History of the Australian Coal Industry 80 5.2 Post War Restructuring of the Coal Industry 83 5.3 The Re-emergence of the Australian Coal Export Trade.... 85 5.4 Expansion of Steaming Coal Export 98 5.5 Summary 103 CHAPTER 6 CONCLUSION 106 6.1 Overview.. \u00E2\u0080\u00A2 106 6.2 Policy Responses 110 6.3 An Alternative Strategy 113 BIBLIOGRAPHY 116 - v i -LIST OF TABLES Table Page 1 New B r i t i s h P o r t f o l i o Investment Abroad, 1868-1891 24 2 Share of G.D.P. and Workforce for Rural Mining and Manufacturing Sectors, 1910-11 to 1959-60 38 3 Mining Industry Value Added Apportioned to Australian and Foreign Ownership, 1963 to 1974-75 43 4 Australia's Imports and Exports from Selected Countries, 1894-1913 58 5 Australia's Imports and Exports from Selected Countries, 1914-15 to 1938-39 60 6 Rate of Growth of Australian-Japanese Trade, 1957-58 to 1976-77 67 7 Australia's Imports and Exports from Selected Countries, 1949-50 to 1978-78 72 8 Australia's Exports of Coal to Selected Regions, 1861 to 1914-15 82 9 New South Wales and Queensland Coal Production, Exports and Proportion of Exports to Japanese Destinations, 1950-51 to 1981-82 87 10 New South Wales and Queensland Raw Coal Production by Method of Mining, 1960-61 to 1980-81 91 11 Japanese Imports of Bituminous Coal by Source, 1974-75 to 1980-81.... 94 12 Japanese Imports of Bituminous Coal by Type and Value from Selected Sources, 1980-81 97 13 Steaming Coal Exports from Aus t r a l i a by Destination, 1969-70 to 1980-81 99 - v i i -ACKNOWLEDGEMENTS I would l i k e to thank my supervisor, Dr. Clyde Weaver for his support, comments and encouragement which have greatly assisted the completion of this project. I would also l i k e to thank Dr. Terry McGee for his help and assistance. There i s also a long l i s t of family and friends who have provided continuous support and encouragement throughout this long process that I would l i k e to thank. I would l i k e to s p e c i f i c a l l y express my thanks and appreciation to Jean Dejong and Joe Watkins who generously provided me with a warm, supportive environment in which to f i n i s h this project. - 1 -CHAPTER 1 INTRODUCTION 1.1 I n t r o d u c t i o n and Problem Statement A u s t r a l i a began the 1980's with the expectation of entering into a period of economic growth and prosperity fuelled by an energy minerals boom. Though s t i l l only a r e l a t i v e l y small sector within the Australian economy (5% of G.D.P. in 1980-81) the mining industry had assumed a c r u c i a l importance as an earner of foreign exchange (accounting for 38% of export earnings i n 1980-81) (Hunter and Wood, 1981). The rapidness of this r i s e and the dramatic sectoral s h i f t within the economy i t represented i s reflected by the fact that the Vernon Committee, which conducted a major inquiry into the Australian economy in 1965, suggested that the mining industry would not represent a major force in economic growth. Yet by 1980 Au s t r a l i a had become the world's largest exporter of iron ore, the second largest exporter of coal and the dominant world producer of bauxite, alumina, r u t i l e and zircon, as well as a s i g n i f i c a n t producer of n i c k e l , lead, zinc and manganese (Govett and Govett, 1980). The main factor leading to the resurgence 1 of the mining industry i n Australia was the general expansion of demand on the international minerals market which stimulated a massive inflow of Investment capital by transnational corporations (TNCs) seeking to develop Australia's mineral reserves. Of particular importance to this resurgence was the rapid expansion of Japan's i n d u s t r i a l capacity and i t s consequent demand for mineral and energy raw materials. By 1966-67 Japan had become Australia's largest export market with iron ore and coal making up an increasing - 2 -proportion of t o t a l exports. There was another important feature of this period. Concurrent with the expansion of the mining industry, the manufacturing industry was undergoing structural change. As in the case of the mining industry the impetus for this transformation was largely external to Au s t r a l i a . Either through the direct actions of TNCs or in response to import competition, labour intensive operations were moved off-shore to take advantage of cheap, subjugated labour in South-East Asia while other production processes were reorganized by u t i l i z i n g labour replacing technologies (Linge and McKay, 1981). The Fraser government's (Liberal-National Country Party Coalition -1975-83) policy of \"fight i n f l a t i o n f i r s t \" and i t s promotion of a \"minerals-investment led recovery\" as the path to economic prosperity supported the forces acting to restructure the Australian economy. Promises of better times around the corner and a concerted public relations 3 campaign against the unemployed drew public attention away from examining the possible long term implications of the dismantling of the manufacturing sector. However, when the second resources boom stumbled i n 1982 Australia found i t s e l f in the midst of i t s worse economic recession since the depression. The severe impact of the recession focused attention on the wisdom of Australia's economic development strategy, a strategy that has been coming under increasing c r i t i c i s m in recent years (e.g. A.M.W.S.U., 1977, 1979; Corrighan, 1980, 1982; Crough and Wheelwright, 1982b, 1983; and Fagan et a l . , 1981). Thus, the problem that this thesis w i l l address i s whether the current restructuring of the Australian economy with a greater focus on - 3 -the mineral extractive and processing industries i s i n the best interests of most Australians. The argument of this thesis i s twofold. F i r s t l y , that the current focus of development i n Australia can be seen as the most recent phase in a pattern of dependent development that has served to severely r e s t r i c t economic progress. Secondly, that recent changes i n the structure of the / international economy w i l l result in even greater r e s t r i c t i o n s on Australia's development with severe consequences for a large sector of the Australian workforce. 1.2 Context The development of Australia as a s i g n i f i c a n t mineral exporter during the 1960's and 70's re f l e c t s the dramatic change in the structure of the international economy that took place during the post war period. The rapid and sustained increase in consumption in the advanced i n d u s t r i a l economies following the war led to an increased demand for i n d u s t r i a l raw materials. Transnational mining corporations headed out in the late 1950's and early 1960's combing the globe for new mineral producing regions in order to exploit this new demand and to maintain or gain control over mineral supplies. Australia was quickly indentified as a favoured target for TNCs due to i t s r i c h mineral deposits and favourable p o l i t i c a l climate. Thus Australia witnessed a massive infusion of investment by TNCs during the 1960's climaxing in the l a t t e r part of the decade with the so-called \"minerals boom.\" While the bottom f e l l out of the boom by 1970-71, the TNCs had already successfully penetrated the mining industry (See Table 3, p. 43) securing safe and lucrative investments as well as r e l i a b l e sources of supply for the international minerals market - 4 -(Corrighan, 1982; Crough, 1978). Of c r u c i a l importance to the development of the Australian mining industry was the extraordinary resurgence of Japanese industry in the post war period. This resurgence was primarily the result of the American policy to reconstruct Japan as a c a p i t a l i s t stronghold on the edge of Asia. Japan's chronic shortage of natural resources meant that i t required access to s i g n i f i c a n t and r e l i a b l e sources of i n d u s t r i a l raw materials (C a r a i l l e r i , 1980). However, previous important sources of raw materials ( p a r t i c u l a r l y iron ore) were closed off due to the new regimes in China and North Korea. By the late 1950's the Japanese steel industry was searching for new sources of iron ore as i t s current suppliers, Philippines, Malaysia and India were unable to keep pace with Japan's rapidly expanding production. This fact led to a generation of interest in Australia as a supplier of mineral raw materials. As Australia was a major supplier of wool to Japan, a number of Japanese trading corporations were already established i n A u s t r a l i a . Therefore, i t was a r e l a t i v e l y easy matter for these corporations to expand their a c t i v i t i e s into the minerals sector, thereby further incorporating Australia into i t s resource hinterland. Thus, the 1960's and 70's saw a rapid expansion of the trading relationship between Australia and Japan as Australia became Japan's major supplier of a whole range of minerals including, iron ore, coal, n i c k e l , bauxite, and alumina (Corrighan, 1982). The growing trade relationship with Japan was widely considered at the time to be very desirable as i t linked Australia with Japan's growing prosperity. Given that the manufacturing sector had already begun to stagnate by the late 1960's the rapid development of mineral resources was seen as a much needed stimulus for the economy. However, with the collapse - 5 -of the long post war boom in 1974 came the decline of productive a c t i v i t y in Japan. This pattern, which was also seen in other i n d u s t r i a l i z e d countries, led to a tapering off of demand for mineral commodities and the decline of prices on the world market. This exposed Australia's v u l n e r a b i l i t y in depending on Japanese markets and consequently led to some attempts to d i v e r s i f y to export markets. However, the sharp r i s e in o i l prices in the same period focused attention on the potential value of Australia's considerable energy resources (coal, uranium and natural gas) rather than the potential p i t f a l l s of an economic strategy based on resource development. Meanwhile the manufacturing sector began to experience a dramatic decline in the l e v e l of employment. Between December 1973 and December 1978, there was a net loss of 197,200 jobs i n manufacturing industries. Over the same period the unemployment rate rose from 2.3% to 6.2% (Ward, 1979). The cause of this decline i s d i f f i c u l t to establish. The l i t e r a t u r e , however, does point to a number of trends. Marsden and Anderssen (1979) argue that the most si g n i f i c a n t factor has been the f a i l u r e of demand to keep up with the rate of productivity. Fagan et a l . (1981) suggest that the apparent f a i l u r e of demand could be better described as the f a i l u r e of the manufacturing industry to invest in new product lines in response to changing consumer preferences. 4* I t would seem that new Investment within the industry has either focused on i n s t a l l i n g labour-replacing equipment or on c a p i t a l intensive industries (e.g. aluminium smelting) (Alford, 1979; Fagan, 1981; and Donaldson and Donaldson, 1983). The s o c i a l upheaval that this restructuring of the manufacturing industry caused was presented by the government as a necessary process to - 6 -r e v i t a l i z e the industry in the longer term. This view argued that jobs lost in the shake-out of i n e f f i c i e n t manufacturing industries would be absorbed by the expanding minerals and t e r t i a r y sectors. The f l u r r y of interest i n Australia's energy resources following the second o i l c r i s i s i n 1979 lent some timely support to this position. By 1980 Australia's second \"minerals boom\" was in f u l l swing. I t was estimated at the time that mining projects involving investments of over $23 B i l l i o n were either committed or at the stage of f i n a l f e a s i b i l i t y studies; the majority of these being energy related (Corrighan, 1982). In addition various state governments, encouraged by r i s i n g o i l prices and by studies (e.g. Internatonal Energy Agency, 1978; Wilson, 1980) predicting a rapid increase in the demand for coal, were already implementing massive infrastructure development programs (e.g. coal export f a c i l i t i e s and coal-fired power stations) to attract mining corporations and energy-intensive industries (Corrighan, 1980). However, this boom was to be short-lived fading under the weight of the international recession. Thus many of these projects never made i t off the drawing board while others were postponed to wait for a recovery of commodity prices. With the collapse of the boom the impact of the recent restructuring of the economy on employment became f u l l y apparent. Unemployment which had hovered around 6% up u n t i l 1982 rose sharply during the following eighteen months to reach 10.3% i n June 1983. The implications of this restructuring are much more severe than these figures suggest, for they conceal the growth of hidden unemployment and underemployment (Ward, 1979; Windschuttle, 1979). Further, there has been considerable discrepancy in the spatial impact of this recession with the i n d u s t r i a l regions such as Newcastle, Wollongong and Geelong bearing - 7 -the brunt of the economic hardship ( S t i l l w e l l , 1980). If these trends continue then there i s the d i s t i n c t p o s s i b i l i t y that large sectors of the community w i l l become marginalized within declining i n d u s t r i a l centres (Crough and Wheelwright, 1982b). 1.3 Method As already indicated this thesis proposes to provide a broader international and h i s t o r i c a l context in which to evaluate the current restructuring of the Australian economy. As many of the features of the present situation are paralleled in Australian economic history, reference to previous experiences should provide some insights into the present predicament which would assist the formation of alternative economic strategies. However, as some of the factors contributing to the restructuring of the economy are r e l a t i v e l y new (e.g. the rise of importance of TNCs) i t i s considered necessary to also provide a brief overview of recent developments i n the structure of the international economic system. Together these w i l l provide a comprehensive background from which policy recommendations can be drawn. The core of this thesis w i l l be an h i s t o r i c a l analysis of the economic development of A u s t r a l i a . Beginning with Australia's settlement as a penal colony/strategic outpost for the B r i t i s h Empire, i t w i l l trace the major s h i f t s i n Australia's economic development, i d e n t i f y the major forces generating these and examine some of the consequences. Es s e n t i a l l y , \u00E2\u0080\u00A2

8% Ash < 8% Ash > 8% \u00E2\u0080\u00A2000 Tonnes Aust r a l i a 4,627 15,402 1,318 6,333 27,680 5,478 Canada 1,357 8,816 - - 10,173 884 Poland 60 72 - - 132 -U.S.A. 11,026 5,040 2,951 1,706 20,723 1,270 U.S.S.R. 916 506 75 297 1,794 249 South A f r i c a 164 - 2,608 23 2,795 848 China 38 735 25 194 992 965 Others 69 - 133 \u00E2\u0080\u0094 202 -TOTAL 18,257 30,571 7,110 8,553 64,491 9,694 Average C.I.F. Value Per tonne ($A) Australia 55.88 54.87 52.13 49.95 53.78 52.19 Canada 58.25 53.51 - - 54.14 50.24 Poland 55.29 55.16 - - 55.22 -U.S.A. 71.45 71.81 66.27 60.76 69.92 61.03 U.S.S.R. 54.12 53.23 46.01 44.99 52.02 44.11 South Af r i c a 48.55 - 49.36 49.85 49.32 43.11 China 54.50 49.83 49.48 50.19 50.07 48.25 A l l countries 65.33 57.12 57.09 51.94 58.76 51.78 Source: Joint Coal Board, 1982. - 98 -cut back, although not a l l were uniform, and some Australian mines were cut back by as much as ,25-30% (Australian Financial Review, September 2, 1982: 21). With the coming onstream of more new mines at the beginning of 1983 the Japanese steel industry, i n the face of already high stocks of coal, adopted a strategy of accommodating the new mines and therefore cutting back existing producers even further (Australian Financial Review, January 21, 1983). The position of the coking coal industry has worsened considerably during 1983. The Japanese steel industry, facing declining demand and prices has increased i t s use of cheap scrap iron in i t s steel production, thereby decreasing i t s use of coal and iron ore. Suffering losses i n sales revenue, the steel industry has renegotiated lower prices for i t s raw material contracts (The Globe and Mail, November 19, 1983: B21). However, the d i f f i c u l t i e s confronting the coking coal industry and the r e f l e c t i o n this offers on the problems of Australia's dependence on resource exploitation has been obscured by the dramatic r i s e of the export trade i n steaming coal since the second o i l c r i s i s of 1979. 5.4 Expansion of Steaming Coal Exports In the post war period the ready a v a i l a b i l i t y of cheap petroleum products led to a dramatic reduction i n the use of steaming coal as an energy source. The cost of sea transport for steaming coal was high, r e l a t i v e to i t s value and therefore discouraged the development of a large export market. Thus the small though si g n i f i c a n t steaming coal export market that had developed during the 1970's, arose predominantly from mines with spare capacity, that consequently, did not have to provide new infrastructure. For the same reason, N.S.W. mines were the main source of Table 13: Steaming Coal Exports from Australia by Destination, 1969-70 to 1980-81. ('000 Tonnes) Destination 1969-70 1972-73 1975-76 1978-79 1979-80 1980-81 Japan U.K.. Other Europe Taiwan Elsewhere Total Japan Other Europe Taiwan Elsewhere Total Japan U.K. Other Europe Taiwan Elsewhere 793 31 41 865 10 10 173 173 793 31 51 8 173 1 New South Wales 152 2,359 418 41 17 2,987 Queensland 2 7 A u s t r a l i a 157. 2,359 418 41 19 782 985 2,582 156 314 4,819 38 58 80 26 202 820 985 2,640 236 340 1,646 1,125 3,135 740 30 6,676 100 49 159 33 341 1,746 1,125 3,184 899 63 4,503 1,265 2,673 934 69 9,444 988 128 15 1,141 5,501 1,265 2,673 1,062 84 Total 877 181 2,994 5,021 7,017 10,585 Note 1: Includes small quantities from Western Australia. Source: Joint Coal Board, 1981, 1982. - 100 -steaming coal exports during the 1970's. This pattern was reinforced by the sporadic nature of the export market, which also discouraged the development of steaming coal mines s p e c i f i c a l l y for export. More r e l i a b l e markets in Japan and S . E i Asia began to appear around the mid 1970's. However, the price of steaming coal was s t i l l too low to attract the capita l required for new mine and infrastructure development i f the industry was to expand. The second o i l c r i s i s of 1979 led to a dramatic surge in international demand for steaming coal as a number of large energy users changed over from o i l to coal, the Japanese cement industry being one of the major examples. Consequently, there was a rapid r i s e in the price of steaming coal which attracted new investment to the industry. The publication on a number of reports giving coal a prominent role i n future energy requirements (e.g. International Energy Agency,1978; Wilson, 1980) also fuelled considerable interest in the industry. While the expansion of demand into the 1980's has not been as great as expected, due to the continuing economic recession, there has, nevertheless, been a considerable growth in steaming coal exports from Aust r a l i a since 1978. However, the recent stagnation and decline of coking coal exports has eroded much of the benefit of this new growth. The lower value of steaming coal and the recent roll-back of contract prices by the Japanese led the Australian Deputy-Prime Minister, Lionel Bowen to decry the Japanese control of the Australian coal industry as not being i n the long term interests of A u s t r a l i a . This denunciation stemmed from a prediction that the value of export income from coal would decline despite the maintenance of export volumes at the previous year's l e v e l (Coal Age, July 1983). - 101 -The changing pattern of the coal export industry towards greater dependence on steaming coal exports, has both positive and negative implications for the Australian economy. For example, as many mines produce both coking and steaming coal, the expansion of steaming coal markets allows for a more balanced development of these mines. However, specialized coking coal mines producing for the export market have not fared as w e l l . The continued expansion of coal production and exports has obscured dislocations resulting from the changing demands of the market. This i s reflected in,the rapid development of mines i n the Upper Hunter Valley to serve the steaming coal market while mines in other regions are reducing production or shutting down altogether. More insidious and far-reaching are the macro-economic impacts of the rapid development of steaming coal deposits for export. The WOCOL Study (Greene and Gallagher, 1980: 41) estimated that for Australian production to reach the levels envisaged i n the \"High Coal Case\" scenario there would have to be an annual commitment of approximately 6% of Australia's private gross fixed investment to coal production f a c i l i t i e s . While the \"High Coal Case\" i s an improbable scenario, this estimate nevertheless gives an indication of the massive investment of funds required i f the planned expansion of coal exports i s to be achieved (e.g. see Coal Resources Development Committee, 1981). Because the a v a i l a b i l i t y of investment c a p i t a l i n Australia i s quite limited (even with the enormous inflows of overseas c a p i t a l i n recent years) the development of coal resources and related export infrastructure i s only possible i f there i s a diversion of c a p i t a l away from other sectors of the economy such as manufacturing, agriculture, and construction. - 102 -Such a pattern has become increasingly apparent over recent years with major i n d u s t r i a l , a g r i c u l t u r a l and f i n a n c i a l corporations d i v e r s i f y i n g into the minerals industry. This focusing of new investment into the minerals sector has had si g n i f i c a n t consequences for the structure of the Australian.economy. For example, BHP's closure of i t s Whyalla shipyards in 1978 can be linked to i t s general move away from manufacturing and back into the mineral industry from which i t sprang in the 1880's (McQueen, 1982). While BHP has been upgrading i t s iron and steel production f a c i l i t i e s , i t has been widely c r i t i c i z e d for i t s concentration on automating i t s plants rather than attempting to expand i t s profitable steel making operations. There i s some evidence that BHP i s transferring p r o f i t s from i t s iron and steel d i v i s i o n to i t s o i l and gas operations because of the enormous tax concessions available to the l a t t e r . Further, by understating the p r o f i t a b i l i t y of i t s iron and steel operation, i t can squeeze federal and state governments for production subsidies, continued t a r i f f protection, and tax concessions, to finance the introduction of labour-saving technologies (Donaldson and Donaldson, 1983; S t i l w e l l , 1980). Notwithstanding BHP's recent takeover of Utah International Inc., the wisdom of the massive diversion of investment funds into the coal industry i s somewhat questionable. Walker (1982:59), writing at the height of the optimism surrounding the coal industry, concluded that the medium to long-term p r o f i t a b i l i t y looked bleak \". . . as technological change makes coal redundant and the high exit barriers from the industry result in an inevitable squeezing of margins i n the world market.\" These conditions are ba s i c a l l y the same that led to the collapse of the coal export industry following World War I. - 103- -5.5 Summary This review of the development of the Australian coal industry provides potent examples of the influence of foreign c a p i t a l i n the economic development of A u s t r a l i a . It also points to some of the implications of this influence. To begin with, the major periods of expansion of the coal industry have been paralleled by si g n i f i c a n c t involvement of foreign c a p i t a l . For instance, the f i r s t major coal export boom (1860-1914) was primarily a by-product of the operation of the B r i t i s h merchant f l e e t . The coking coal export boom of the 1960's and early 70's was b u i l t almost t o t a l l y on the expansion of the Japanese steel industry, with United States mining TNCs and Japanese trading companies playing a major role i n the development of coal resources for export. F i n a l l y , the expansion of the market for steaming coal exports between 1978-82 was also s i g n i f i c a n t l y tied to the Japanese market. However, this dependence on external markets has l e f t the industry very vulnerable to changes i n international demand, as shown by the decline in the coal industry following World War I. More recently, some of the problems of the coking coal export industry can be linked to Japan's encouraging an oversupply of coal through over-contracting. The subsequent competition between coal exporters has enabled Japan to squeeze the p r o f i t a b i l i t y of the industry. A second feature of Australia's development that can be drawn out from this chapter i s the re-orientation of the Australian economy in the post war period, towards a role of supplier of raw materials to the advanced i n d u s t r i a l countries. This can be viewed as part of the most recent phase of dependent development as described i n Chapter 1. For - 104 -instance, foreign investment within the coal industry has focused mainly on the export industry. This i s consistent both with the general movement of foreign investment away from import substitution and towards export oriented production, and with Australia's p a r a l l e l incorporation into the new international d i v i s i o n of labour. Under the l a t t e r , i t i s argued that Australia's natural resource endowment and i t s s k i l l e d labour force give i t a comparative advantage i n the capital-intensive mining and minerals processing industries. The f i n a l chapter summarizes the findings of this thesis and ties them into the theoretical framework developed at the beginning of this study. Having confirmed the implications suggested by the model of dependent development, i t offers some recommendations for policy responses to the current crises. - 105 -CHAPTER 5 NOTES 1. As Australia only recently converted to the metric system of weights and measures, most h i s t o r i c a l data i s recorded i n imperial units. Conversion of these data was not considered necessary. Therefore, to distinguish between weights recorded i n the two systems this thesis follows the standard practice whereby \"tons\" indicates imperial units, while \"tonnes\" indicates metric units. 2. While coal mining commenced i n Queensland i n 1846 i t was not u n t i l the 1960s that i t s production became a s i g n i f i c a n t factor within the Australian coal industry. 3. The source of coal related s t a t i s t i c s for the rest of this chapter i s the JCB, unless otherwise indicated. 4. The recent sale of Utah Internatonal Inc. by General E l e c t r i c to BHP does not s i g n i f i c a n t l y affect this analysis. Indeed, i t adds further support to the argument that BHP's corporate strategy i s becoming increasingly oriented towards the minerals sector. 5. \"Taxi-cab bargaining\" refers to a s p e c i f i c bargaining technique employed by the Japanese i n contract negotiations. Under this technique, Japanese negotiators w i l l meet representatives from a negotiating coal company at the airport. Subsequently, during the taxi t r i p to the hotel, the Japanese negotiators inform their guests that a competing firm has j u s t lowered their price for their coal. The Japanese then attempt to secure a contract at a favourable price under the threat of buying elsewhere. The coal s e l l e r , quite obviously, has no a b i l i t y to v e r i f y the story and i s consequently placed i n an unenviable position. - 106 -CHAPTER 6 CONCLUSION 6.1 Overview The central argument of this thesis has been that Australia's economic development can be characterized as a changing pattern of dependency, whereby the nature of Australia's development has been largely determined by forces external to A u s t r a l i a . Consequently, t h i s thesis argued that the problems resulting from the current restructuring of the Australian economy can be linked to changes in the organization of the international economic system during the post war period. It was further argued that the f a i l u r e of the government to recognize this pattern has led to i t s actions exacerbating the impact of this readjustment. I t was therefore posited that i f the so c i a l dislocation resulting from t h i s restructuring i s to be moderated, an understanding of Australia's process of development must be achieved so that appropriate p o l i c i e s can be derived and implemented. Thus, the main focus of this study was a review of the process of Australia's economic development, taking into account the evolution of the international context i n which i t unfolded. The conclusion of this analysis was that the economic development of Austr a l i a could be reasonably described i n terms of dependent development, whereby the direction and pace of economic development are determined by the interaction of foreign c a p i t a l , l o c a l c a p i t a l and the l o c a l state. It was argued that the influence of these sector varied over time. However, i n the case of Aus t r a l i a , foreign c a p i t a l has played a dominant role within this a l l i a n c e in shaping the direc t i o n of the economy. This has been - 107 -largely due to the pol i c i e s and p r i o r i t i e s of the Australian government which have allowed, indeed encouraged, foreign ownership and control of many of the key sectors of the economy. Thus many of the most important decisions affecting Australia's economic growth are made outside A u s t r a l i a , i n boardrooms i n Los Angeles, Tokyo, New York and London. The Australian government's h i s t o r i c capitulation to foreign capital has stemmed from two factors. The f i r s t being the economic, p o l i t i c a l and strategic r e a l i t i e s of i t s international relationships. For example, Australia's dependence on B r i t i s h shipping and markets for i t s export-generated growth during the nineteenth and early twentieth centuries l e f t i t vulnerable to pressure from B r i t i s h c a p i t a l . This pressure was used to direct and shape Australia's development so as to ensure that A u s t r a l i a remained dependent on and complementary to B r i t i s h industry (e.g. emphasis on the production of ag r i c u l t u r a l products and the introduction of the imperial system of weights and measures) (Cochrane, 1980a). Following the war the government's pre-occupation with the \"threat of invasion\" and a policy of rapid economic expansion led i t to pursue overseas c a p i t a l ( p a r t i c u l a r l y American), offering almost whatever terms were required to encourage foreign corporations to establish operations in Au s t r a l i a . The second contributing factor was that Australia had experienced enormous prosperity under this pattern of dependent development. Therefore, there was a general b e l i e f that foreign investment was beneficial for the Australian economy. A belief reinforced by the correspondence between periods of economic growth and heavy capital inflow. That this ca p i t a l involved onerous costs to the Australian economy - 108 -was not, however, as well recognized. This was despite the s i g n i f i c a n t pressure placed on the Australian economy by i t s overseas debt repayments. These obligations were responsible for the heavy ca p i t a l drain from the economy prior to the depressions of the 1890's and 1930's and almost cer t a i n l y heightened the severity of these depressions. Thus Australia's present dependent economic position i s partly predetermined by i t s position within the international economic system and partly a consequence of government policy. This policy perceived that the maintenance of the h i s t o r i c pattern of development would continue to prove beneficial to the Australian economy. However changes in the organization of production within the international economic system in the post war period had s i g n i f i c a n t l y changed the context of Australia's economic development. From the 1960's new foreign investment within Australia began to focus on the minerals sector, i n order to service the growing international commodities market. This marked the beginning of a s h i f t from development based on import substitution to development centred on export-oriented production. This restructuring of the domestic economy, however, was not unique to Australia but part of a broader trend of the internationalization of production through what has been commonly referred to as the new international d i v i s i o n of labour. While this phenomenon has been encountered by most in d u s t r i a l i z e d countries, resulting in a common experience of restructuring and de i n d u s t r i a l i z a t i o n , the extent and impact of these changes have varied s i g n i f i c a n t l y from country to country. The main reason for this being the varied natural endowment, h i s t o r i c a l process of development and government - 109 -response to these changes over time. As already discussed, the h i s t o r i a l context of Australia's economic development and the p o l i c i e s and p r i o r i t i e s of previous Australian governments have led to the Australian economy being p a r t i c u l a r l y vulnerable to the stresses caused by the current reorganization of the international economic system. This i s most c l e a r l y seen in the experience of the manufacturing sector during the 1970's and early 1980's. The decline of employment in the manufacturing industry during this period can be linked to the dependent structure of the industry and the f a i l u r e of the Australian government to develop a coherent i n d u s t r i a l p olicy. The dependent structure of the industry refers to the domination of key sectors of manufacturing by TNCs who established subsidiaries during the 1950's and 1960's to service the domestic market. However, with declining p r o f i t a b i l i t y in the 1970's and the emergence of \"world-wide sourcing\" as an alternative production system, some sectors began to apply considerable pressure on governments to a l t e r protectionist p o l i c i e s and encourage the restructuring of domestic industry. The emergence of the \"world car\" concept being one of the clearest examples of this trend. As shown in Chapter 3 the Australian government's economic development policy during this period was almost t o t a l l y centred on expansion of the minerals sector. The only i n d u s t r i a l policy offered by the Fraser government was a commitment to the dismantling of the most i n e f f i c i e n t sectors of the manufacturing industry. This policy was based on the assertion that A u s t r a l i a could not afford to prop up a i l i n g industries and that the minerals sector would more than take up the slack from this dismantling. There i s some element of truth in this assertion as - no -shown by the predicament of the t e x t i l e s , clothing and footwear industries where the cost of'protection can be larger than the wage b i l l for the industry (Peetz 1982:66-7). However, Fagan et a l . (1981) argue that the minerals sector i s not capable of replacing the jobs lost i n manufacturing even should i t achieve the rather optimistic goals of growth. They also dismiss the claim that the t e r t i a r y and quaternary sectors w i l l be able to expand to absorb the unemployed. They argue that this view f a i l s to recognize the tight l i n k between t e r t i a r y and quaternary services and manufacturing a c t i v i t y . Further, manufacturing jobs have a much higher m u l t i p l i e r effect on the service industries than do mining jobs. Thus the negative effect of declining manufacturing jobs and increasing trend to automation i n many service sectors (e.g. word processing and automatic t e l l e r s ) creates considerable doubt concerning the a b i l i t y of the service sectors to expand to f i l l the employment gap. 6.2 Poli c y Responses The question therefore becomes, given the r e a l i t i e s of Australia's position what po l i c i e s can be implemented to lessen the stresses of structural change on the Australian economy. The analysis of this thesis points to the following areas: 1. Minerals: Au s t r a l i a i s obviously committed to the continued development of i t s mineral resources for the international market. However, there i s a need for a re-evaluation of the current focus of economic development on the minerals extraction and processing industries. Both h i s t o r i c and recent experiences have demonstrated the v o l a t i l i t y of the minerals market showing i t to be an unreliable source of either wealth - I l l -or employment generation for the economy as a whole. Indeed the main j u s t i f i c a t i o n of Australia's mineral policy i s that the industry earns valuable foreign exchange earnings. However, the domination of the industry by TNCs has led to a considerable leakage of these earnings through mechanisms such as, transfer p r i c i n g , payment of dividends and licence fees to parent corporations and the purchase of major ca p i t a l equipment from overseas a f f i l i a t e s at i n f l a t e d prices. The experience of the coal industry as described i n Chapter 5 pointed to both the major problems of a minerals based development strategy and to p o l i c i e s that could help minimize some of these. The major problem that the coal industry faces i s the medium to long term tendency towards over-supply i n the international coal market. This tendency comes from both Japan's action to stimulate an over-supply of coal through over-contracting, and the high exit costs from the industry which results in marginal mines producing at a loss i n the hope of a turn-around in the market. This problem comes, i n part, from the process of contract negotiation where Japanese buyers acting as a monopsony have been able to exercise considerable control over the coal market. This has been especially so i n the face of the cut throat tactics practised by competing mines. While the Australian government has previously used export controls to raise coal prices with some success, what i s now required i s an industry or governmental co-ordinating agency. This agency, at a minimum, would act as an information sharing service, p a r t i c u l a r l y for smaller mines, so that the mines would be f u l l y conversant with the market conditions prior to negotiations. Other appropriate roles for this agency would include the i d e n t i f i c a t i o n and development of new markets to enable - 112 -some d i v e r s i f i c a t i o n of markets and reduce dependence on Japanese markets. Although not s p e c i f i c a l l y addressed here, the taxation of the mining industry i n general suffers from the problems of overlapping j u r i s d i c -tions. Consequently, taxes and roy a l t i e s are in the main i n e f f i c i e n t at capturing resource rents and tend to encourage i n e f f i c i e n t mining practices. This problem involves a l l the complexities of state-federal government re l a t i o n s . Nevertheless, i f the wealth that i s to be gained from the exploitation of the nation's resources i s to be equitably distributed then an adequate taxation policy for the mining industry has to be developed. 2. Manufacturing: As discussed e a r l i e r i n this chapter the development of a more v i t a l manufacturing sector i s essential i f the necessary jobs are to be created to relieve the present unemployment si t u a t i o n . However i t i s also clear that this i s not the direction i n which the current forces of change are pushing the Australian manufacturing industry. Therefore, i f such a r e v i t a l i z a t i o n i s to occur i t w i l l depend on the active intervention of the government. This would be achieved through the implementation of an appropriate i n d u s t r i a l policy. The development of such a policy i s c l e a r l y beyond the scope of the present study. Therefore,, comment here w i l l be r e s t r i c t e d to a description of some of the potential components of an i n d u s t r i a l policy appropriate for the present needs of the Australian economy. Looking at successful models of applied i n d u s t r i a l p o l i c i e s such as Japan and Sweden, i t i s evident that the development of new products and industries require j o i n t ventures and partnership arrangements between government and industry especially i n the early stages of development. It - 113 -i s also evident that Australian manufacturing cannot continue as a broad-based industry protected by t a r i f f b a r r i e r s . Apart from growing p o l i t i c a l pressure from the i n d u s t r i a l i z i n g countries of the region, this strategy i s simply becoming too expensive. Therefore growth i n manufacturing w i l l depend on the i d e n t i f i c a t i o n of areas of spec i a l i z a t i o n within the world i n d u s t r i a l system i n which Australia i s able to establish i t s e l f . Given that TNC's control much of the world's technology and that very few pioneering high-technology industries have proven to be commercially vi a b l e , the most appropriate path for Australia would be to iden t i f y medium-technology/medium-capital industries. This strategy should be able to i n i t i a t e enough projects to at least maintain the current le v e l of manufacturing jobs. The introduction of an i n d u s t r i a l policy i s , however, a long term program. In the meantime the process of i n d u s t r i a l restructuring w i l l continue. With i t w i l l continue the economic hardship faced by individuals and regions impacted by this change. As i n d u s t r i a l restructuring i s both necessary and inevitable there needs to be some provision for the support, retraining and relocation of impacted individuals, especially within heavily impacted regions. Such a program would need to be set within a policy of regional development with the f l e x i b i l i t y to respond to a variety of regions. 6.3 An A l t e r n a t i v e Strategy However, these p o l i c i e s offer no more than a starting point. They represent achievable goals that do not require a dramatic change of government policy. Furthermore, they could be usefully complemented by a - 114 -number of similar policy i n i t i a t i v e s such as the-cultivation of more co-operative economic links with some of the smaller economies of the P a c i f i c region. Such po l i c i e s could help to reduce Australia's dependence on Japanese markets and the v u l n e r a b i l i t y that this causes. These p o l i c i e s , however, do not address the underlying problems that have emerged for national economies during the post war period. That i s how to deal with the growing power and influence of TNCs and the impact of their internationalization of the production process. P r i n c i p a l l y , the problem i s that the corporate strategies of TNCs have become de facto economic plans exercising considerable influence over the direction of national development. However the c r i t e r i a of these plans are linked to the interests and aspirations of the corporations and not of the countries i n which they operate. This process has been possible largely due to the tendency of governments to administer rather than direct economic and social a c t i v i t y . However, the corporation i s a construct of the state and recent experience has shown that given s u f f i c i e n t w i l l , governments can exercise considerable power over the operations of corporations. This process can involve simply s t r i k i n g harder bargains over conditions and concessions connected with development projects, or i t could possibly be turned into a new planning process involving TNCs and other corporations as contractual agents of a national economic development plan. This approach would require the government to adopt a much more active role in the economy, gathering and organizing s u f f i c i e n t data and information to enable the development of a comprehensive economic strategy. This would provide a s o l i d base for negotiating with TNCs. - 115 -This strategy would need to be underpinned by some form of federal government chartering whereby incorporation as business operation under Australian law i s seen as a p r i v i l e g e e n t a i l i n g certain obligations. These could include the democratization of management, the greater disclosure of information which could be then u t i l i z e d i n the national planning process and the signing of contracts setting out the details of an agreed corporate plan for a specified period. These contracts would deal with certain c r u c i a l issues of economic management which are currently often unregulated, such as reinvestment p o l i c i e s , repatriation of p r o f i t s , foreign currency flows, employment, minimum export quotas and maximum import l e v e l s , the raising of c a p i t a l especially as related to the use of domestic credits and off-shore operations among others. Clearly such a strategy would require a dramatic change in the role of government i n Australia and would undoubtedly generate considerable opposition. Indeed i t i s unlikely that such a policy w i l l be adopted by the current federal Labor government. However versions of such p o l i c i e s have been implemented elsewhere and given s u f f i c i e n t public support and pressure to make them p o l i t i c a l l y v iable, an appropriate policy could be adpted i n A u s t r a l i a . Hopkins and Curtain (1982) argue that this approach w i l l only be adopted i n Australia i f the i n i t i a t i v e i s taken up by the labour movement and turned into a popular campaign. While this w i l l not be easily achieved, without a widely based movement to challenge i t , the status quo w i l l remain, leaving the control of Australia's economic future to the haphazard combination of corporate strategies and international markets. This future would also certainly involve Increased uncertainty and i n s t a b i l i t y for the Australian economy. - 116 -BIBLIOGRAPHY Aarons, B., 1983, L i f e Under Labor-1, Australian Left Review, No. 86, pp. 18-20. Adam, G., 1975, Multinational Corporations and Worldwide Sourcing, in H. 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"eng"@en . "Planning"@en . "Vancouver : University of British Columbia Library"@en . "University of British Columbia"@en . "For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use."@en . "Graduate"@en . "Patterns of dependency : an analysis of Australia\u00E2\u0080\u0099s path to economic development"@en . "Text"@en . "http://hdl.handle.net/2429/24996"@en .