Skip navigation

May 19, 2012
Ian Verrender

I went down to the crossroads, fell down on my knees. Asked the Lord above, have mercy now, save poor Bob if you please. 

 Is this really where we are at, that awful space between heaven and hell, where the legendary Mississippi Delta blues king Robert Johnson found himself shortly before his untimely demise in 1938?

Legend has it that Johnson, one of the greatest guitarists who ever lived and whose skills still are impossible to emulate, sold his soul to the Devil to further his musicianship shortly before being poisoned by a lover’s jealous husband at the tender age of 27.

The road signs are all there. But which direction should we take?

Jac Nasser certainly does not know. He has straddled both sides of the business divide – manufacturing and resources – in a stellar career that began shortly after leaving school.

Emigrating with his family from Lebanon shortly after World War II, he started at the bottom of the line at Melbourne’s Ford factory in Broadmeadows on a 33-year journey that led him to the very top of the global company’s Detroit headquarters, and in more recent times to become chairman of the world’s biggest mining company, BHP Billiton.

This week, in an address to the Australian Institute of Company Directors, he hinted the China-led resources boom was running out of steam. That is bad news for resources groups such as BHP, Rio Tinto and Fortescue.

That has been partly reflected in BHP’s plunging share price, now down 5 per cent this year after a 25 per cent plunge last year, as the company diverts its bumper cash flow to fund massive mine expansions that may not be needed.

Underpinning that was the political calamity unfolding in Europe – China’s biggest export market – with Greece plunging headlong into an economic catastrophe that now seems irreversible and has held forth the stark reality of the European Union and the single currency unravelling. China’s growth, too, is under question, raising doubts about the sustainability of the resources boom.

But then there was the counterbalance, the tantalisingly slim ray of hope to the local manufacturing sector that a permanently weaker Australian dollar could deliver.

Nasser is trapped between the two worlds. For as much as he is a proponent of a free market, and a minimal government intervention model in a booming resources industry, he continues to harbour the belief that governments should intervene to support its fragile and fracturing manufacturing base.

But who should pay? Consumers through the cost of higher protection levels? Or taxpayers generally through direct government support?

From his musings on Wednesday, it is pretty clear Nasser certainly is not keen on the mining industry doling out any extra cash to subsidise manufacturing. He prefers taxpayer handouts.

When asked after his speech whether the government made the right decision to tip even more funds into the ailing auto industry and whether we even should be producing Holdens and Fords, Nasser hesitated only briefly. ”I knew I wouldn’t be able to escape this one,” he said. ”I’d like to think the answer is yes.”

After a blistering attack on the federal government for its heavy handed taxation and industrial relations policies – which he claimed had harmed the national interest and Australia’s competitiveness – Nasser suddenly was transformed into an interventionist and a government supporter.

”You have to give the industry the best chance possible, and I always ask: ‘Is the juice worth the squeeze?”’

Jac says that involves tying management, suppliers and unions to agreements that will help the industry evolve.

It is an arresting philosophy. But in terms of car manufacturing, it does not seem to have worked. The industry has been on the taxpayer teat for seven decades, has paid minimal tax and continues to threaten successive governments, state and federal, almost every other year with a retreat unless more cash is doled out.

Jac’s rationale? ”It’s an industry everyone either loves or loves to hate but if you look around the world, almost every government provides assistance.”

What happened to the concept of laissez-faire and minimal government intervention? Surely if every government around the globe is supporting an industry, those involved are having a lend of taxpayers and pitting nations against one another.

Perhaps the auto industry is not the best case study, given it again has notched up massive losses and never has made a return without government support. But in a perverse kind of way, Nasser may be on to something.

What if we pursued a completely laissez-faire approach and allowed all our industry to move offshore, only to find the resources boom come to an abrupt halt and the dollar collapse.

An economist would rationalise that as: Capital will shift back and the industry once again will be viable. That’s fine in theory. In reality, however, it simply does not work that way. As Nasser pointed out on Wednesday, industry needs certainty, it needs stability particularly those sectors with huge capital costs. Once gone, it could take years to return.

BHP clearly believes the resources boom still has some way to run, that China still has a good deal of growth left in it. But for Australia, it is pretty obvious the best days of the boom are behind us, and the ”stronger for longer” mantra no longer holds sway.

That is a problem for BHP. Having committed itself to massive expansions – delaying returns from this boom to future generations – it is faced with an investor backlash.

Both Nasser, and the chief executive, Marius Kloppers, indicated this week the planned $80 billion investment blitz during the next three years would be scaled back.

And there was a less than subtle message that unless the federal government played ball on tax and industrial relations, the Big Australian could become the Big Foreigner, looking for opportunities elsewhere.

Clearly, it is every company’s duty to direct investment to places and industries that will deliver the best returns. It just so happens the most fertile ground for resources returns has been here.

While there is never a guarantee that will continue forever, the simple fact is that Australia – abundantly rich in resources with a stable democracy, robust legal system and great infrastructure – is the star attraction for a resource-hungry world.

As Nasser mentioned, resource booms do not last forever. And booms, as we are discovering now, can involve painful readjustment.

But if Jac truly believes manufacturing should be supported, that we need to keep an eye on the longer term, then perhaps he should reconsider his views on the taxation side of the industry causing the pain to manufacturing in the first place. Someone has to pay.

You cannot have it both ways.

Read more: http://www.smh.com.au/business/intervention-v-free-market-nasser-digs-himself-into-a-hole-20120518-1yvrj.html#ixzz1vJlVeZq0

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: