One of the world's top mineral holders, Australia, is proposing a tax on "super profits" of mining companies. The proposal signals a new backdrop for commodities, with far-reaching consequences for resource use, foreign trade and investment, and the global power balance.
Irrespective of all arguments, such a tax would change relative prices in favour of commodities and against manufactured goods. Norway already has such a tax, it has been on the agenda in Canada and in some states of the US, and China contemplates testing the water as the era of scarcities takes over from the era of plenty. But Australia is among the top 10 countries worldwide in production of 13 minerals, among them common iron ore and niobium, a superconductor when lowered to cryogenic temperatures and a metal relied on for scientific breakthroughs such as the Large Hadron Collider.
In the global market for minerals, Australia tends to set the trends and the price. The decision to bring in a super tax triggers political and economic arguments. Resource-rich countries would benefit and worldwide efforts to conserve resources would be more profitable. Both effects are a turnaround from more than 200 years of downward pressure on commodity prices relative to manufactured goods that benefited industrialised countries and encouraged waste of resources.
The emergence of China and India as manufacturing countries increases demand, changing the established supply-demand equation in favour of supply. Even with more efficient technology, the pendulum swings in favour of higher prices. For the long term, this might be exactly what the world needs. Higher commodity prices would spur development to produce methods to reduce the use of commodities. Hitherto, we have measured productivity as production per man hour because manpower was scarce.
In the future, we may measure productivity as the ability to squeeze more output out of one unit of input conserving as much as possible of what will be regarded as the scarce production factor - resources. With luck, rising commodity prices would work their way through the system and through the pricing mechanism, reduce deterioration of the environment and boost efforts to slow climate changes. Global talks have not been up to the task. To ensure conservation, countries should put the burden, and true costs, on the ultimate consumer, regardless of where consumption takes place. And a tax on mining would help to accomplish this.
In the industrial era, the game was about customs duties, and negotiators exchanged gifts called concessions: "You lower your customs duty and I'll lower mine." In the era of scarcities, distribution of benefits will be replaced by burden-sharing. Two groups of countries will emerge as winners. First, those that realise what is happening and consequently switch to a new economic model and production methods focusing on the idea of how to squeeze more output out of one unit of input.
This is not only a question of economic policies and energy conservation but requires a total restructuring of how a country or a society operates, with repercussions on all aspects of society. The educational system will be in the forefront to make sure students understand and can apply new principles as they enter economic life. Second, the countries exporting commodities, raw materials and energy. They will have to husband these resources carefully over the coming decades. Under the current economic model, no longer sustainable, the industrial countries set a price for manufacturers looking for optimal economic gain, and the commodity-exporting countries look for the best price. The difference, however, is that manufacturing countries wanted to sell to create jobs, and a low price to stimulate consumption was the answer.
Commodity-exporting countries are aware that their resources ultimately will be depleted, which explains why their optimal price will be high instead of low. A super tax is attractive, providing these nations with a tool to step in and influence price upwards. Manufacturing countries will try to resist this tidal change. The first battlefield will be inside the global trading system. The players there will try to enact rules, referring to free trade, and gain influence over the behaviour of commodity-exporting countries.
They may go so far as to try to outlaw resource taxes. In the same vein, they will try to get or keep ownership of mining companies and licences to exploit resources, even buy geographical areas. They may succeed for a while, but not for long as realities prevail over formalities. Then they will work in earnest to introduce technology-saving commodities - the new concept of productivity - and adjust their domestic economy by tax systems and other instruments available to rush new production methods into use.
The losers will be those countries not having commodities or late in understanding what is going on. Interestingly, China is trying, at least for the moment, to play both cards. The Chinese government is looking at a resource tax for the north-western part of the country while launching an almost gigantic financial effort to step up use of sustainable energy. It is doubtful whether China will win this race against time in a short-term scenario, but the prospect for a new Chinese economic model taking the changed environment into account offers potential for the long term, not the least because nobody else has started.
Several global heavyweights such as China and the US are manufacturing and mineral-producing countries, with an interest in securing a permanent supply at reasonable, stable prices, which could help move the tax forwards. China's exposure to environmental problems pushes policymakers in that direction. The US, accustomed to ample resources and having implemented the economic model and transportation infrastructure based on old premises, may be less ready. To a certain extent, Europeans may for a variety of reasons - tighter space, fewer resources - be ready for a tax.
Regardless, times have changed. As the global population grows and demands more comforts, as resources decline, new economic patterns are thrust upon the world. Those nations that come to grips with this stark realisation early could fare best. Joergen Oerstroem Moeller is a visiting senior research fellow at the Institute of Southeast Asian Studies, Singapore, and an adjunct professor with Singapore Management University and the Copenhagen Business School
* Yale Global
