You can listen to The Stutchbury Sessions on Apple, Spotify, Amazon, iHeartRadio, PlayerFM or listen on your browser.
Episode Transcript:
This week, the Stutch sessions has been in the great state of Western Australia, where most of the nation’s envied prosperity is generated.
It got me thinking about the book you might have heard has become the thing in Canberra – Abundance by Democrat aligned American journalists Ezra Klein and Derek Thompson.
Abundance is a book about about what Klein and Thompson call the American progressive left’s ‘supply side mistake’ of choosing scarcity through regulation.
Klein and Thompson write this: We say that housing is a human right. But our richest cities have made it excruciatingly difficult to build new houses.
As I landed in Perth this week, I started thinking about the concept of abundance and Australia’s great iron ore export industry.
In round terms, Australia today exports close to 1000 million tonnes – one billion tonnes if you can believe it – of iron ore a year, mostly from the WA Pilbara region. In the ground, each tonne of that buried iron ore is worthless.
Dug up and transported thousands of kilometres by rail and sea, however, each one of those tonnes of iron ore is worth $100.
Scale it up by 1000 million tonnes – and it generates close $100 billion in annual export earnings from selling this essential ingredient of steel making.
Australia is an abundant iron ore superpower. But during my lifetime what is now Australia’s greatest export industry was banned by government decree.
Many in the West have heard how Lang Hancock flew his light plane low through a Pilbara gorge rainstorm in the early 1950s and spied the rusty coloured oxidised iron on the cliffs around him.
But the iron ore deposits that this freedom-fighting Aussie spied were not worth much back then: because the supply side was closed off.
After Japan’s invasion of China in 1937, the Lyons government banned the export of Australian iron ore in anticipation of the ensuing Pacific War.
That war-related export ban lasted past Victory in the Pacific and well into peace time as it became justified by a form of industry policy, like today’s Future Made in Australia.
Australia was poor in iron ore, it was argued, and needed whatever it had to feed BHP’s steelmaking blast furnaces.
Yet, by 1959, 15 years after the war, a former chief economist at the Bureau of Mineral Resources pointed to the obvious supply side fallacy.
Australia’s known resources of iron ore were so low only because there was no incentive for enterprising mining types to spend the money trying to find them.
Provide an incentive to prospect, Dunne argued, and the “known iron ore reserves in this region will be vastly increased”.
An incentive like allowing whoever found the iron ore to dig it up and sell it to the highest bidder.
By the late 1950s, Australia’s post War economic catch-up seemed to be waning. Riding on the sheep’s back, we struggled to build the export industries to pay for everything we imported.
We were forced to draw on the International Monetary Fund to shore up our foreign currency reserves.
So, in late 1960, the Commonwealth lifted its 22-year ban on the export of iron ore, giving the Minister for National Development discretionary authority to approve the export of 50 per cent of most deposits.
It all moved quickly from there.
By late 1964 came one of the first big long-term iron ore deals with Japanese steel mills and producers led by Hamersley and Conzinc Rio Tinto of Australia.
The lifting of the iron ore export ban turned the 1960s from disappointment into a decade of economic excitement that extended into a nickel boom, the Beatles and the moon landing.
My old paper, the Financial Review said WA was becoming Australia’s California. Australia, like now, became one of the world’s most affluent nations.
Opening up the iron ore export supply side unleased the powerful economic forces of comparative advantage. It allowed the Australian economy to integrate into the newly-industrialising economies of North East Asia. And it was followed, four decades later, by an even bigger Chinese iron ore boom.
Of course, it wouldn’t have happened under the ban on exporting iron ore in the name supporting the local steel industry.
It shows why prospectors, entrepreneurs and investors – rather than politicians, bureaucrats and planners – should be free to work out what Australia does best.
It all underlines, for example, the folly of planning regulations that today choke off the supply of new housing, restrict choice and so make housing unaffordable for young people.
History may similarly judge today’s government ban on zero-emissions baseload nuclear power as we try to decarbonise Australia’s fossil-fuel economy.
Likewise for limiting the domestic supply of gas, a reliable backup for irregular solar and wind.
Anthony Albanese now laughs off journalists’ questions about his 2022 renewables promise to reduce household power bills by $275 a year.
And, as we lose our cheap energy advantage, government bailouts of steel works, lead smelters and copper smelters are locking taxpayers into a loss-making Future Subsidised in Australia.
Back in 1964, WA Premier David Brand and Industry Minister Charles Court said that nothing prevented CRA and Hamersley Iron making an immediate start on building the Pilbara’s massive iron ore mines.
Just think of how hard it is today to build a new mine or even extend an already developed gas field such as the North West Shelf.
Australia is one of the world’s highest income economies. But we’ll lose this prosperity – this supply side abundance – if we forget the lessons of how we got there in the first place.