Posted by: graemebird | February 18, 2009

What Are The Benefits Of Resource Selloffs To The Chinese Communists?

Don’t be jabbering away about the benefits of free trade and then automatically infer that these benefits apply here. They apply to free trade. This is not free trade. Free trade is unhampered business-to-business dealings across national borders. It is not business-to-government dealings or government-to-government dealings.

So what are the advantages in this specific category of cases? Don’t talk to me about Rio property rights because this does not apply. Rio took out the leases knowing that their resale had to come before the treasurer and the foreign investment review board.

Let us make an analogy.  I don’t believe in zoning. Zoning is a violation of property rights. But supposing there is zoning and the bigshots can buy things on the cheap and then get the zoning changed enjoying the capital gains when they sell? Supposing thats whats going on? Do I then stick up for the bigshot insiders right to get things rezoned when the rest of us have no such right? Do I specifically stick up for the rights of these bigshots in accordance with some sort of libertarian notion of property rights. No of course not. Its got to be a level playing field more generally. Of course I wouldn’t stick up for a bigshots rezoning scam. Because thats cronytown.

Most of you don’t know it but the entire leasing system is really designed to funnel the value of the resources into the hands of the biggest players. Well if you were a crony-nationalist you are just going to think this is fine. But someone like that is likely to have some irksome feelings about what is going on when it no longer appears to be Rio and BHP getting all the economic rent. But when instead this value seems to be being funnelled to even deeper pockets and these pockets the Chinese Communists.

More about the reasons for this later. But until you understand the dynamics of the industry you should oppose all such selling to the Chinese Communists. A decent small-time Malaysian or Singaporean businessman is fine to be buying small leases but no more selling to international giants and certainly not the Chinese Communists until everyone understands the industry and how its outcomes will differ drastically from the capitalistic model. 

So. Where were we? This isn’t free trade. So no knee-jerk free trade benefits will be considered in this matter. Those free trade benefits are real but they are real under some circumstances only. It does not follow that these benefits will flow, as if by magic, in this case that isn’t about free enterprise. 

  1. “Do any opponents of the takeover have viable alternative?

    Rio at present is roadkill material in view of their debt.”

    What is wrong with Rio selling their assets to many thousands of Australians? Sell a small lease here. Sell another small lease elsewhere.

Supposing a bigshot regional property-developer is struggling under his debts? What is supposed to happen is that he starts selling off his properties. Then other Australians who can do a better job, get the opportunity to gain these assets at a discount price.

But how about instead he goes to the council meetings, bribes some of the guys and gives multiple orgasms to one of the sheilas and we find that he can get out of his difficulties by having all his land purchases rezoned from here on in, so he gets a free capital gain for no reason.

Is that a case of the assets accumulating under the best management? No of course not. Its corruption. Well this is similar to whats going on here. If Rio managment is incompetent and not coping its gear ought to accumulate under other Australian management. People who can do the job. But if the councillers in Canberra are looked after sexually and financially, perhaps they can get the special priviledge of having their leases rezoned and then the most inefficient bunch of drop-kicks still employed can keep on drawing bonuses.

This should all be completely opposed. And Rio has to start selling small bits and pieces locally. This is how you get the best resource allocation. This is how you get the assets being funnelled under the jurisdiction of the most effectual management. Are the communists the most effectual management? I wouldn’t think so. But the market will start funnelling resources into the hands of the more effectual small outfits if we let it.

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Responses

  1. Well thats a real long list of benefits to selling off Australia to China I see you guys have got on the fly here.

    No matter what, our economists appear to be hardwired to do stupid things. Free trade used to be about accepting the uninhibited flow of goods and services. And allowing foreign businessmen to come here and set up a manufacturing outfit. Now its about morons wanting to auction our roads and ports to governments in general and to governments who are a strategic threat in particular.

    The ignorance and lack of capacity for logic in Australian economists is a minute in minute out menace.

    Notice how Orwellian matters have become. Supporting a carbon tax is now being for free enterprise. Whereas it used to be that wanting to get rid of taxes was free enterprise. Wanting communists to own our strategic gear is now free enterprise, whereas it used to be that wanting governments to own next to nothing used to be free enterprise.

    In the economists view establishing good homesteading and royalties norms for unowned resources is not a free enterprise thing. Getting rid of the company tax for fish-farmers and setting up regulations for homesteading small intensively capitalised areas of sea territory…….. thats not an urgent free enterprise priority.

    But selling out Australia to communist interests. Thats a free enterprise commitment of the most highest priority.

    Hence it would be imperative that these dumb economists would have privatised the English Channel and put it all in German hands if they were taking care of business in the late 19th century.

  2. Graeme, you have some good points – things get corrupt when governments control trade. I’m with you on the property rights in oceans too – where there are some are often the only places where resources and water quality are protected.

    I just hadn’t thought of you as a “small is beautiful” kinda guy.

  3. I always was for small business. But being that way is no excuse for persecuting big business. And I would not intend to do that.

    If you set things up right capitalism is an incredibly egalitarian setup I shit you not.

    Take homesteading in the extraction industries. The little guys get to surf off the exploration of the big boys in practice. Since they can set up their drilling rig right next to them and only pay royalties.

  4. So Graeme I presume you disagree with the Mises Institute position on the Dubai ports purchases which raised similar issues

    http://mises.org/story/2078

    What is so special about foreign govt-owned companies? They are subject to exactly the same laws as other foreign companies. They may be owned by governments but they are not governments. We are nationally sovereign over them

  5. Dubai port ownership raised nothing like these sorts of issues. But we ought not be selling our own ports off until we have sorted out a property-rights situation which ensures an oversupply of these ports.

    How many men at arms in the United Arab Emirates armed forces? How much soft power can the UAE project at Washington politicians? It would be unacceptable for Saudi Arabia to own US ports at this point. The Sauds have outsized influence in Washington and the Chinese have way too much influence in Canberra already. Avoiding Australia becoming even more of a Chinese satrapy must be a national obsession to anyone interested in liberty and obviously so. This amounts to a thing of the direst urgency.

    Go back to Catallaxy and admit you are wrong. It is possible for you to admit you are wrong you know. You are simply making an ass of yourself over your refusal to use clear definitions and your default tendency to sail along on the same breeze as your dysfunctional colleagues in Australian economics.

    No one big company gets to rewrite our laws on the fly. This amounts exactly too a corrupt deal where the developer gets an unjust capital gain from rezoning.

    Boris is sound on this one but understates his case. Think of what will happen if only Australians can bid for the leases. Or Australians and individual independent foreign millionaires.

    Marvelous outcomes.

    Rio goes under, and all these cheap resources funnel out at bargain basement prices to Aussie small-caps. Small operators who have their shareholders onside can issue new shares to buy some of these bargains. Bigshot million dollar salaries in Rio are all history and a big company splits up for once. Great. Thats capitalism. The big company being given an arbitrary capital gain by its Canberra mates is crony-socialism.

    Currently the leasing arrangements are designed to funnel up resources to bigshoteria. So its a marvellous thing when we look to be on the verge of a capitalistic reversal. And look yonder. There is the Chinese communists to negate this market-based restructuring. Nothing could be more heart-breaking if you have an affinity for our small-cap adventurers.

    Costello is right and Stutchbury has gone native. Stutchbury thinks we need the communists to alter our debt equity balance. Wrong wrong wrong despite his usual good sense. The best way to sort of a debt equity balance is to escape the debt via bankruptcy. There is nothing more beautiful then debt forgiven via bankruptcy and the destruction of a mighty big fatcat corporation. Thats capitalism.

    Think about it? We lose the debt and keep the resources if only Rio will die and go under?

    Costello right. Stutchbury wrong wrong wrong. But here is what he has to say anyhow:

    http://www.theaustralian.news.com.au/story/0,25197,25074953-5017771,00.html


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