by Richard Denniss
[Originally published in The Australian Financial Review, 5 March 2019]
Cultural symbols have replaced price signals at the heart of conservative politics.
There’s now no better way for Australian conservatives to virtue signal than to support the construction of new coal mines. The Coalition is no longer neo, nor liberal – it simply wants to subsidise their friends and regulate their enemies. But as their reaction to mining giant Glencore’s decision to stop building new mines showed, it’s getting harder for the Morrison government to tell friend from foe.
No wonder Jennifer Westacott is frustrated. Last week, the Business Council of Australia CEO let rip at the government for their populism and inability to make and stick to decisions. Sure the BCA has done some flipping and flopping on carbon pricing over the years – but just because those in glass houses shouldn’t throw stones doesn’t mean that Westacott’s targets don’t deserve some rocks being pegged their way.
Take the former Productivity Commission economist and now Minister for Resources, Senator Matt Canavan, for example. When Glencore responded to declining world demand for coal by announcing it would cap its production, he accused one of the world’s largest corporations of – wait for it – acting in their own self-interest!
We are through the looking glass. A Coalition frontbencher and trained economist criticising a private company for the very thing that a private company is supposed to do – and the exact thing economists assume they will do. No wonder the BCA boss has had enough. I’ve had a gutful too!
Economics 101 tells us that increasing the supply of a product will lead to a reduction in its price. And facts 101 tells us that the volume of thermal coal exports peaked around 2015, back when prices were very low. There’s a link between those two things. The reason that the Australian coal industry has been “booming” in recent years has nothing to do with selling more coal and everything to do with the fact that the price of coal surged once the Chinese government restricted its own coal production in December 2015. As OPEC, Apple and even the taxi industry know, restricting supply is a good way to boost profits.
The Coalition’s prioritisation of virtue signalling over value creation means that some of its MPs are not just surprised, but outraged, that a private company would ignore their political strategy and focus instead on maximising profits.
In response to Glencore’s announcement, Assistant Minister Michelle Landry told voters: “I’m very upset and I’ve told [Glencore] so. I told them that I’m very disappointed in what they’ve done. My colleagues have given companies like Glencore a lot of support and I think it’s a kick in the guts for us.”
While it’s not clear whether the “support” Michelle Landry was referring to was financial, emotional, or both, it is clear that Glencore is focused more on long-run profits than the Coalition’s feelings.
Glencore’s decision to place a global cap on its own coal production makes economic and financial sense. Spending billions on a technology no one wants might make sense to the Coalition MPs who built the NBN on a slow copper network, but betting private capital on a rosy future for coal is simply not a risk worth taking.
But because modern conservatives are more interested in identity politics than they are in investment returns, Senator Canavan and his colleagues have decided, yet again, to resort to the “big stick” of government rather than embrace the principles of small government. No wonder it is such a confusing time for the BCA.
One of the few symbols left that can unite Coalition MPs is the determination to build new coal mines. The fact that such mines enrage environmentalists and city slickers is grist for a mill of ministers like Matt Canavan and Michelle Landry. They need vocal opponents to their plans so that they can show their remaining supporters in northern Australia whose “side” they are on.
Support for building new coal mines might be a powerful symbol for Coalition MPs and voters but it is fast becoming a powerful symbol that the Coalition just doesn’t understand business or economics. Hopefully the government will pay more attention to Jennifer Westacott’s warnings about good decision making than Glencore paid to Senator Canavan’s complaints.
Richard Denniss is chief economist at The Australia Institute.