Tuesday, 3 December 2013

Moral hazard at Australia’s Top End

We welcome our irregular roving Asian correspondent, Suzuki Samurai, who files this report from in hiding somewhere near Darwin, Australia…

imageDrive 1200km from Darwin along the northern right-hand coastal tip of the Northern Territory of Australia,1 and you will end up in the purpose-built mining town of Gove.

The general area (and sometimes the town) is also known as Nhulunbuy. It is still called that by the Aboriginals and the more historically minded—and Null-And-Void by cunning linguists. It is a surprisingly nice place to look at, blessed with a blue sea the colour of the Skype icon, and sandy beaches as clean and fine as Cate Blanchett's face.

Of course there is a down side. This is Australia, so everything wants to kill you: everything from buffalo, crocodiles, spiders, snakes, sharks, & jellyfish to things you’re bloody sure have still not even been named. So think Whangamata, stuck inside a zoo, and very much closer to the sun.

The bauxite mine & refinery  are operated by Rio Tinto (a sister facility to Tiwai Point you could say), and have been in operation for near-to forty years. Rio leases the area from the local aboriginal clans in exchange for a quarterly royalty which appearances suggest they spend on beer and pizza.

Anyway, Gove has been in the news in the last week both here and in NZ due to the announcement that the refinery will start to shut down and 1500 jobs are to be lost. Added to ancillary losses this will likely reduce the town's population from 4000 down to 1500 or so, the folk remaining likely being a mixture of the retired and retarded; bureau(rats), cops and doctors, and a few (a very few) retailers.

The reason for winding things down is the same as it was in Invercargill: Rio has been losing money here for years – and lots of it.

The good folk here however are pissed off to say the least about the golden goose leaving town, bleating about “destroying our community,” “taking away our children's future...” “This is our town” blah blah blah. No doubt the Aboriginals felt the same way when these white fellas arrived forty years ago.

As you'd expect this is a heavily unionised town, so they are whining about things like a reincarnation of Arthur Scargill2. What’s unusual however is the aren't screeching at Rio Tinto. Instead, they’re laying all the blaming on the Northern Territory government, Chief Minister Adam Giles to be precise.

Why? Because Rio said they'd stay if they could get a cheaper form of fuel, but said they were in no position to pay themselves for the 600km pipeline necessary to deliver this cheaper fuel. (Stop me if you’ve head something like this before.) So they kindly suggested, in cahoots with some tame politicians, that if the government were to pay for the pipeline “then we might be able to stay.” (This should be sounding awfully familiar to Bill English about now.)

So, after more than a year of negotiating, a deal was finally reached. And then is wasn't. And then it was. And then wasn't again. Anyway, Rio has finally decided that they can no longer burn any more capital on this dead loss and they’re taking up their bed and walking away.

Why am I telling you all this?

Well, being a resident here (and in hiding after writing this post) I've watched first hand how moral hazards become expectations, how expectations become entitlements, and how when things go wrong for some folk everyone expects the government will fix whatever it is that's wrong—and go batshit crazy when they don’t3.

Moral Hazard, by by the way can be defined as 

a situation in which a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk.

In business terms you might say it’s the direct consequence of inviting businesses to privatise profits and socialise losses. In this sense, Australia is now built on moral hazard.

Holden can't make money from shit cars? Government will give them enough money so they can continue making shit cars to keep incompetents in work.

Banks are illiquid because they did stupid things? Government will bankroll their losses, fill them with cash, and demand they do the stupid things again.

Your arse is broken? Government will pay you to rest it.

You can't stop breeding? It's ok, the government will pay for you to have more.

Rio can't operate their mine? Hell, get the government to fund a nine hundred million dollar pipeline  so they can keep operating (that’s a nine with eight taxpayer-funded zeroes behind it), just so that people who are comfortable in their lifestyle can remain so.

What started with the expectation of profits being privatised and losses being socialised ends with the creation of the sort of leisure class even John Kenneth Galbraith would be surprised to meet.

And it is this moral hazard of government trying to make everything risk-free that makes people believe they can stop thinking, stop planning their lives, and stop taking responsibility for their own decisions.

It becomes for them an automatic assumption that regardless of what happens, regardless of the morality involved, regardless of the size of the already gargantuan government debt4, government will always make everything better.

Well, on this occasion they can't. And the proletariat everywhere, both white- & blue-collared, had better start getting used to it—because governments everywhere are running out of Other People’s Money.

Having been summarily ejected from China for offending his hosts, Suzuki Samurai is now in hiding at an undisclosed but reportedly very hot and sweaty location in the Northern Territory. Keep up with his (ir)regular reports here at NOT PC.


1. The Northern Territory? Well, ask an Australian to list all eight states, and it will be the one they forget about.   The one where dentists go bankrupt, residents think health cover mean buying crocodile insurance—and pedants point out that technically it’s not a state at all. But who cares about pedants.
2. No, Arthur hasn’t actually died yet. But he is completely braindead.
3. Mind you, those Australians who could find Northern Territory on a map often define the place as “the place where batshit crazy people go to die.” So some/many/all (pick one) residents may have already been batshit crazy before moral hazard arrived.
4. At a public meeting here in Gove an unusually sane NT government minister told the crowd that the government is already “well into the billions” in debt. At which point a screeching harpy responded that “government debt doesn't matter.” For which she received a round of applause.


  1. Thanks for posting this, it illuminates the strategy of Rio Tonto.
    I also think it's only a matter of time before Holden disappears altogether. The big cars aren't favoured anymore & who buys a small Holden? ( The writings already on the wall for the Ford Falcon BTW).

    B Whitehead

  2. Yes it does show Rio's strategy. Firstly they have played the PR marvelously in that most of the blame for the town closer is being put on the NT govt - trying to show what good corporate citizens they are by peddling the 'for common good' mantra. Secondly, if they had of hoodwinked the NT Govt into paying for the pipeline it would have made the mine much more attractive to any potential buyer. Either way they wanted to dump this pup.

  3. Suzuki - I'm living in Darwin - was moderately active with Libertarianz when living in Auckland. Would be keen to catch up if you wish...Peter could act as intermediary. Elliot.

  4. If the Australian government had not collected tax revenues from Rio and its employees and its suppliers and their employees and the suppliers to all of those people as well, then Rio would not be in the position to expect any sort of contribution from the government such as a pipe. As things stand they are. All they are asking for is a little tax recovery! Without having to pay the exhorbitant taxes at all levels, federal, state and local, on all inputs to the business Rio would find the operation viable. As it is much revenues are diverted to coercive government and consumed to no productive end. In the final analysis there are better places to run the operation which do not coerce as much revenue, if any. It is, after all, a competitive world. The same problem is faced by the companies that try to continue to produce cars in Australia. The taxes and other imposts extracted from them render them incapable of competing successfully against imported product from non-Australian low overhead (that is low tax or no tax) sources. Australian weird regulations and legislation does not help either. So of course they are going to depart. With that departure comes the collapse of suppliers and other related businesses and the entry of many, many more people onto the beneficiary rolls- permanently. It was your founder and leader, Ayn Rand, who said that when the producers have to seek permission from the non-producers to produce then the society is in dire trouble. In Australia it is worse than that. The non-producers have said no to the producers.

    The Ford Falcon is not a bad car. The Holden Commodore is not a bad car. Both outperform equivalent European, Japanese or American sedans. They are stronger as well. The trouble for them both is that fuel has become too expensive, again due to government interference, for the average family man to run. Both are deeply unfashionable with the know-nothing idiots who say they are "pieces of shit" or "shit cars" without driving or running one. Recently I wrote a road test of the Falcon for a newpaper at home. They do not have the Falcon there. There was interest in it. We had several automotive journalists come over to Australia to try the Australian cars and they were impressed. Just in case you are bigoted enough to think these journalists were used to low standard of cars since they are ethnics then you should also go and read what European and American writers comment. When you get past the nationalistic snobbery they admit the cars are very good, better in some areas than their own home products.

    This story is really about how government eventually destroys the hosts it parasites on and in doing this they destroy the people they are pretending to serve.



1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.