What the mining boom did and did not deliver Australia
In 2023 Treasury published its Intergenerational Report projecting the direction of the Australian economy through 2060. Almost three years later during the launch of Understanding Productivity at UTS, Roy Green highlighted a chart from the report showing the components of real income growth per capita (labour productivity, terms of trade, labour utilisation, net foreign income) from the 1980s through to 2050.
As highlighted by Green, the 2000s stand out above all others, with the resources boom looking like a golden age for Australia. The 1990s bar was much smaller by comparison, but as a nation we were far more productive, driven by the reforms of the Hawke-Keating era. The growth of the 2000s was almost entirely from terms of trade, and specifically the global prices for our abundant natural resources. Commodity prices spiked and as a nation we benefited from the value of what we dug and shipped.
When the commodity boom waned in the 2010s, the bar collapsed. It was not that labour productivity failed to recover, it was never there. As Green highlighted the income was borrowed from a price cycle, not earned from a capability base.
What the chart does not show is where the gains occurred, and where they went.
Two types of income
A commodity rent is the return earned from owning something scarce that the world wants, such as iron ore, coal, or lithium. We did not create these, but we do possess them in abundance. The price for them is set by global market demand, not by capability. Our ability to extract them to serve global markets creates enormous economic gains, but these gains evaporate when price cycles turn.
A knowledge rent is the margin that accrues to whoever owns the underlying capability. The company that owns the autonomous haulage system generates income and earns ongoing returns every time a new mine is built, anywhere in the world. The company that enables the minerals to be processed increases profits whenever a new plant is commissioned. Knowledge rents are durable and compound over time.
During the mining boom, Australia captured commodity rents in abundance. These high-profile returns captured the priority of our policy landscape. Today we talk about a critical minerals future, willing on the perpetuation of these economic contributions. The knowledge rents developed locally within the mining boom were less visible and quickly lost to others.
Value chain problem
GDP measures the output produced within Australian borders, regardless of who owns the means or benefits from the production. When Caterpillar sells a five million dollar autonomous truck to a mine in the Pilbara, the productivity contribution of the truck appears in Australian GDP, but the profits flow to Illinois.
GNI (Gross National Income) measures what Australians actually earn, net of the income returns to foreign shareholders. The gap between GDP and GNI is the part of our economy that the mining boom obscured.
The technology layer that made Australia a world-leading mining country; autonomous haulage, precision drilling, fleet optimisation, advanced mineral processing, remote operations, is now predominantly owned, operated, maintained and improved upon by companies headquartered overseas. While Australia earns the commodity rents, those companies own the knowledge rents.
This is why Australia ranks near the bottom of the Economic Complexity Index for a country with our income level; our exports are predominantly commodities, not a value chain of knowledge-intensive goods and services.
What knowledge rents need
Knowledge rents are not generated by innovation alone. They depend upon the translation layer within the economy. Specifically these are the established companies with the commercial maturity, customer relationships, access to markets and the operational capability to translate innovative ideas into products and services to compete.
This is what makes Germany’s Mittelstand so impactful, and what the Swedish mining clusters deliver to their national economy. It enables university IP and research outcomes to be translated within an economy. This capability converts local innovation into knowledge rents that can scale and grow and compound.
Australia’s translation layer was thin going into the mining boom, and thinner coming out of it. Mining companies worked hard to protect IP for their own competitive advantage, leveraging collaborative industry funding programs to prioritise the research and bypass vendors entirely. While this improved the supply side of the innovation system, the commercial infrastructure required to absorb and scale outcomes was left to fend for itself.
As a consequence, bespoke solutions were created to solve a single pain point at a site level, system-level solutions were pushed onto vendors who lacked the buy-in or incentives to adopt them, or new products were acquired by larger international firms who were building portfolios of capability to take on the sector.
The Industry Growth Centres were the one program orientated towards building absorptive capacity, and they measured what mattered. While the results were clear, independently verified and significant, the successor program was absorbed into the department, consolidated, restructured, and ultimately defunded.
The question that remains
Treasury’s forecasts of per capita income growth through to the 2060s are modest. They are almost entirely dependent on a labour productivity base that structurally does not exist. Simply put, the more local companies we have, the greater our absorption capacity, the more productive the economy.
Green highlighted the mining boom provided an opportunity through commodity rents to invest in underlying industrial capability and we did not take it. That task still needs to be done, and the longer we overlook it, the harder it gets. Industrial AI provides the next opportunity to build it.