Beginning, Middle and End to Australian Economy is Resources

The message from China seems to be, “Forget the coal seam gas, just give us the coal!”

Clive Palmer’s $70 billion deal with supply coal for 20 years to China Power International Development is a massive boost for the Australian resources sector.

If it ever comes to fruition.

Look, it wouldn’t be the first time a multi-billionaire deal was announced with a fanfare of trumpets only to quietly fade away as the proposed deal never gets off the ground.

However, the thing in its favour is that it’s a simple buy and sell arrangement. We’re not talking about complicated foreign ownership deals that need approval from shareholders and the Foreign Investment Review Board (FIRB).

But as we’re writing in the February issue of Australian Wealth Gameplan today:

“Based on the news over the weekend with Clive Palmer’s $70 billion deal to sell coal to the Chinese, it looks as though the Chinese economy remains Australia’s get-out-of-jail free card – for now.”

The Australian economy is first and foremost a resources economy. I’m not telling you anything you don’t know, but what I’m trying to say is that all these pretensions to Australia being a centre for financial markets or a breeding ground for new technology is just wishful thinking.

The beginning, middle and end to the Australian economy is resources.

And it’s that which is keeping the economy afloat, most certainly not the “robust” Australian financial system.

But aside from that, this deal by Clive Palmer shows how business enterprise and markets work when government interference is either non-existent or at a minimum.

Again for Australian Wealth Gameplan this month we’ve written about the debacle around the ‘Green Loans’ scheme. This was a half-baked idea by the federal government to fund 360,000 assessments on how homes could be made more ‘green.’

The upshot is there has been an overload of assessors paying up to $2,000 to become accredited to carry out these assessments.

While that doesn’t sound bad, the point is that they are now over 4,000 assessors to do assessments on just 360,000 homes – or, 90 homes each. At $200 a pop that’s a total income of just $18,000.

Furthermore, the scheme had envisaged that up to 70,000 households would then apply for a $10,000 interest free Green Loan to carry out the recommendations in the assessment.

So far, only 1,000 people have bothered to do so, even though more than 200,000 assessment have already been carried out. The scheme has already cost taxpayers $72 million. All of it a monumental waste.

But it’s a perfect example of how the public sector ‘creates’ 4,000 unproductive and useless jobs all paid for by the taxpayer, whereas Clive Palmer, in search of a profit is investing millions and billions of dollars of private money to potentially create 6,000 jobs in the near term.

The coercive sector (public sector) sucks resources away from the private sector and costs the taxpayer money. In contrast the private sector takes risks and creates genuine jobs.

But I thought this example of the private sector doing good and the coercive sector doing evil was a good follow on to last Friday’s Money Morning where we looked at how government has a disastrous impact on an economy.

We used the example of the government making it illegal for a young lad to work one-and-a-half hours after school at his local hardware store.

It wasn’t that there was an exploitative evil capitalist rubbing his hands and cackling, having ruthlessly cajoled the youngster into working just 90 minutes a day.

No, the fact was that the young lad could only get there by 4pm after school each day and that the store closed at 5.30pm. Hence a 90-minute shift.

But we were quite surprised to read a number of emails into the Money Morning mailbag that followed the same line as this email from one reader:

“I’m sorry, I totally disagree with your opinion of the poor student who only wants to work an hour or two a day. Forget about him, the reason for a minimum amount of hours a worker gets paid is so the worker doesn’t spend more money going to work than what they will get paid. You might think that the worker has the choice on whether they choose to work or not; but if there wasn’t a minimum amount of hours clause, people would be worse off.”

“Forget about him” – It may have been a throwaway line from the reader but it’s typical of the attitude of many that the sacrifice of a few individuals is fine because it’s in the greater public good.

Of course that’s nonsense. The beauty of capitalism and individualism is that the actions of individuals who act for their own benefit have a knock-on effect to the rest of society.

Think about it, a person doesn’t necessarily work in a supermarket because they believe in helping their fellow human to buy groceries. They work in the supermarket so they can get paid. But that ‘selfish’ action enables the supermarket to open its doors and therefore admit shoppers who can buy groceries.

If those ‘selfish’ individuals did not act in such a way, then people would have to farm, forage and hunt for their food.

But apart from that, there’s a common misconception that working people are so dumb that they’ll work even though it costs them more to work than the wages they earn.

We never cease to be amazed at the patronising tone from those that have a so-called ‘social conscience,’ that they believe the working class are idiots who need to be protected by the nanny state.

I’m sorry but that just doesn’t wash.

The fact is, if it is uneconomical for someone to work then they won’t work. The number of people on government benefits confirms that’s true. If people really were dumb then surely an evil capitalist would be able to convince people to forgo government benefits and instead work for them for less.

So this idea that someone will continue working when it costs them more in travel costs than they earn in wages just isn’t true. Sure, that could happen for a short time until they work out it just isn’t worth it, but soon enough they’ll figure it out and they’ll leave the job.

In fact your editor can remember a stint we had as a pizza delivery driver in our young school days. The pizza shop paid us one pound per delivery. At the time we were happy to accept that.

However, it didn’t take us more than a couple of weeks to figure out that the fuel costs of our petrol guzzling 1977 Mini 750 was more than the money we made as a pizza delivery driver. So we gave up the gig and got a job in a pub instead!

And that’s exactly where the idea of evil exploitative employers just doesn’t make sense.

Because we can also assume the employer isn’t dumb either. If new employees are constantly leaving because it costs them too much to get to work, the employer is going to have to fix things or else eventually go out of business.

Considering even the most basic of jobs can take weeks for an employee to get the full grasp of it and reach their most productive point, it’s important that the employer understand the costs faced by employees of getting to work.

The employer surely doesn’t really want to have to constantly train new staff.

I mean, if it really was to the advantage of an employer to only give people 1 hour shifts per day then why don’t all employers offer this to all staff as the starting point in negotiations? If this is the most profitable arrangement for an employer then offering 40 hour weeks must be the most unprofitable.

If that was the case surely the power of these evil capitalists would have ensured everyone worked minimal hours. And you can’t say “well, the government has prevented that,” because it hasn’t. The minimum shift is three hours so why don’t all employers force employees to only work for the minimum shift?

The obvious answer is that in most cases it isn’t advantageous for an employer to have eight different staff members each working a one hour shift when one staff member can do more work during a single eight hour shift.

The second reason is that it’s not agreeable to most employees to work short shifts because of the fixed costs of travelling to and from work.

In order for the employer to attract and keep workers they know they have to offer longer shifts.

Of course, there are always exceptions to that. Workers that live close to the place of work are more likely to accept shorter shifts as their cost of travel – maybe they can walk or ride a bike to work – is less than those who use public transport or drive.

But if an employer insists on just offering short shifts then he or she is naturally limiting the pool of potential workers to just those in the immediate area. If that strategy works and the employer can fill the vacancies with local workers who are happy to work short shifts who has lost out?

Have these workers been exploited to their detriment? Are they being enslaved by the employer?

From what we can see, the only ones to miss out are those that live further away and who would prefer longer hours. But as with anything, ‘them’s the breaks.’

On the reverse side, if the employer only offers longer shifts, or is forced to by the government, then those that live closer and who only want short shifts will lose out.

And because they may not be able to travel further for work because they can’t drive or don’t have access to public transport or need to pick the kids up from school, then ultimately it is those workers that suffer most from minimum hour and minimum wage legislation.

It’s a fact and not a theory that minimum wage and its sibling, minimum shift legislation not only destroys jobs, but it will always destroy the employment opportunities of those that the ‘socially conscious’ claim to represent.

Cheers.
Kris.

Tagged as: Australian economy, Australian financial system, Australian resources sector, Australian Wealth Gameplan, capitalism, China Power International Development, Clive Palmer, Foreign Investment Review Board, Green loan