MARCH 1981 - VOLUME 2 - NUMBER 3
A U S T R A L I A
MARCH 1981 - VOLUME 2 - NUMBER 3
The Selling of Australiaby Ted Wheelwright and Greg CroughAustralia was founded as a British colony, and though it was granted independence in 1901, its economy remains largely directed from abroad. Since the second World War, that direction has come increasingly from the boardrooms of multinational corporations in the United States, Japan, and Europe. The multinational invasion came in two waves. The first was in the 1950s, as foreign corporations poured in to take advantage of government-levied tariffs that protected the country's manufacturing industries. Unable to export finished goods to the Australian market, corporations exported capital and began producing and selling within Australia. The 50s was also a period in which over a million Europeans migrated to Australia, eager to work and to join the nation's already-affluent market for manufactured goods. The second wave of investment from abroad came to Australia in the 60s and is still growing today, this time to exploit the huge mineral and energy resources now known to lie within the island-continent. Multinationals are also attracted by the relatively stable political climate, and the failure of local businesses to pool their resources to finance domestic capital-intensive projects. Various estimates put the capital requirement for developing Australia's resources through the 80's from a low of $A29 billion,* (according to the Australian government) to a high of $A80 billion (from the Australian Industries Development Association, an industry group). These estimates are based on the common assumption that the country should proceed with extraction and exports of its natural resources as fast as capital, labor and infrastructure can be put together. In fact, a large number of Australians do not endorse these assumptions; strong opposition to government development plans exists among labor, Aboriginals, environmentalists, and concerned citizens' groups. Despite the opposition, takeovers of Australian corporations by multinationals have continued and in the past five years have involved transfers of ownership in properties valued at over a billion dollars. Most of the buyers have been U.S.-based companies, and some of the largest deals involved U.S. oil companies buying Australian coal operations. The Role of American Corporations American companies have been the largest foreign investors in Australia since the early 60s. The total U.S. share of foreign investment has amounted to over $A5.2 billion out of a total of $A19.2 billion since 1947. Profits and dividends payable on these investments have totalled $A9.3 billion. U.S. corporations were active in the first wave of foreign investment. By the early 70s, U.S. companies controlled over 13 percent of the total value added in Australian manufacturing industries, and by 1976, 35 of the country's 200 largest manufacturing corporations were U.S. companies -including Alcoa, General Motors, Ford, Exxon, Philip Morris, General Electric and International Harvester. Much more U.S. investment has come since the mid-70s, particularly in the minerals, finance and property sectors. The rate of profit outflow is now accelerating since tariff protections for Australian firms are being lowered as part of the multinationals' strategy of turning Australia into a raw materials supplier for industries in Asia. A large proportion of foreign investment in Australia, however, is concentrated in large-scale, capital-intensive industries. U.S. companies dominate chemicals, petroleum and industrial machinery manufacturing. Japan also accounts for much of this foreign investment. Japanese auto makers have recently surpassed the U.S. "big three" as Australia's largest auto producers. Last October, for instance, the controlling interest in Chrysler Australia Ltd. was bought out by Mitsubishi Motors Australia Ltd. The mining industries have nonetheless become the center of investment for U.S. companies. Latest available figures, from July, 1977, indicate U.S. multinationals controlled 37.5 percent of the value added in Australia's mining industry and overall foreign control was 59 percent. Utah Development Company (a subsidiary of General Electric) is Australia's largest coal exporter. Esso (owned by Exxon), in conjunction with Broken Hill Proprietary Company (an Aus tralian corporation which is the nation's largest steel producer) is the largest crude oil producer, and Esso has a 50 percent share of the country's largest oil shale project. Mount Isa Mining (MIM), which the U.S.-based mining giant ASARCO controls, dominates in copper, silver, lead and zinc. And Australia's largest bauxite/alumina projects lie in the hands of U.S. aluminum multinationals. Profits payable to U.S. and British corporations now exceed capital inflow by some A$2 billion annually-a sum equivalent to about 14 percent of the nation's export revenue. To help finance these outflows-as well as the infrastructure used to lure multinationals in the first place-the government has borrowed more than $A4 billion from foreign banks and financial institutions, most of which will have to be repaid within the next 10 years. Government borrowing is not the only source of Australia's indebtedness. As exports have grown, so have Australia's cash outflows for shipping and insurance-also areas in which multinationals prevail. On top of that are royalties and payments for technical know-how, of which 94 percent are made abroad. Of the 11,000 patent applications currently lodged in Australia, all but 1,000 originate through foreign corporations. Australia's state and federal governments rationalize this situation by arguing that multinationals bring employment and possess capital no local investors could muster. In fact, however, mining provides less than two percent of Australia's jobs, and 65 percent of foreign investment in Australia is financed from profits made in the country. Moreover, transnationals operating in Australia, rather than injecting capital into the economy, have actually increased their borrowing from the local capital market five-fold in less than a decade. Australia exhibits, in short, most of the symptoms of a "client state" that are characteristic of many developing countries:
Government Controls Prior to the recent minerals boom, the Australian government limited foreign investment only in banking, airlines, electronic media and uranium mining. The government itself operates a full-service bank, one of the two internal airlines, the only international airline (Qantas), and one of the several radio and television networks. Nevertheless, all of Australia's networks run a majority of foreign programs. By 1972, foreign acquisition of the mineral resources sector was proceeding at such a pace that the LiberalCountry coalition government passed legislation authorizing the nation's Treasurer to prohibit any takeover deemed not "in the national interest." The Labor government elected in December of that year extended controls by freezing all foreign investment in real estate and requiring a proportion of loan funds from abroad to be deposited with the central bank, interest free. In its last year in office, 1975, Labor established a committee to determine which projects were in the national interest, and nominated four new areas for special scrutiny: non-bank financial institutions, life and general insurance, minerals, and real estate. The government mandated that Australians maintain a 50 percent equity share in the mineral industry, and 100 percent in uranium projects. These were hardly draconian measures, even viewed against a background of 25 years of laissez-faire, but they set the stage for a bitter showdown between the government of Labor Prime Minister Gough Whitlam and transnational capital culminating in Whitlam's, and Labor's, removal from office after only three years. Precipitating the showdown was a new resource policy, which the Labor government's minister for minerals and energy, R.F.X. Connor, attempted to execute. Connor; a crusty veteran of the labor movement, had a vision of an Australia owned and operated by Australians, for the benefit of the Australian working people. The essence of his plan was to develop indigenous sources of energy, managed by the government. "Connorism," as it came to be called, was never spelled out in detail. So far as the plans were developed before the fall of the Labor government, they called for a national gas pipeline grid 8,000 miles long, enrichment plants to process uranium, updated port facilities around the country to handle coal exports, the electrification of the nation's railways, and development of solar energy. Government agencies were to finance and manage these projects, and Connor established the Petroleum and Minerals Authority to discover, extract, process, and market. the nation's minerals. Connor understood that the big profits in minerals and energy were to be made in the processing and marketing stages; under his plan, private corporations might be asked to join in these investments, but they would have to operate on the government's terms. Connor contended that private enterprises had been selling Australia's resources too cheaply, had allowed too generous terms to Japanese buyers, and had not paid their fair share of taxes. Foreign corporations responded by severely cutting. back on the level of funding they provided their Australian subsidiaries. Instead of re-investing profits they took them home. In the period 1967 through 1972, the proportion of income payable overseas that was retained in Australia hovered around 50 percent. In 1974-75, after two years of Labor government, that figure had fallen to 33 percent. Connor intended to finance his plans for mining by means of public borrowing of $A4 billion from Arab governments. The Australian media treated this attempt at government borrowing from the Middle East as a "scandal," and this coverage played a part in leading the voters to elect a Liberal-country Party coalition in December, 1975. Led by Malcolm Fraser, the new government abandoned Connor's plans and established a Foreign Investment Review Board. The Fraser government retained the 50 percent Australian equity requirement for minerals projects, but made it subject to waiver if local capital was unavailable; it dropped the uranium local-equity requirement to 75, and later 50, percent; and it extended the 50 percent requirement to cover agriculture, forestry, fishing, and sheep and cattle raising. The Fraser government also introduced a concept known as "naturalization." This deemed a foreign subsidiary to be Australian-controlled if it had 25 percent Australian equity, a majority of Australian citizens on its board of directors, and a commitment to a 51 percent Australian equity over an unspecified period of time. The results of Fraser's policies have been controversial. The Foreign Investment Review Board is known by critics as the Foreign Investment Attraction Board since its chairman toured the globe encouraging foreign investors, assuring them of the Board's every assistance. Through 1979, the board had considered 4437 proposals and rejected only 30 of them. The net result of these foreign investments has been a loss of Australian ownership and control of enterprises valued at close to $A2 billion. The Financial System For many years the Australian banking system has been closed by law to penetration by foreign banks. This has not, however, prevented foreign institutions from taking over other important parts of the financial system, excluding the banks. Finance companies which are foreign-owned have grown extremely rapidly, especially in the fields of consumer credit and leasing, activities largely introduced by U.S. companies using aggressive money-lending techniques and high-powered television advertising campaigns. These companies are contributing to substantial increases in borrowing, mostly by young Australians. Many of the world's largest multinational banks operate finance companies in Australia, often in joint ventures with each other or with Australian financial institutions. Some of the largest include Citicorp, Avco, General Motors Acceptance Corporation, and the British-based Lombard and United Dominions. Another rapidly growing segment of the financial system is merchant banking, and official statistics now show foreign control at over 60 percent. Merchant banking generally means wholesale banking-for corporations, governments and other large clients-and is closely integrated into the international capital markets. The recent collapse of one of Australia's most aggressive and rapidly-growing merchant banks, Nugan Hand Ltd., has rocked the country's banking community. Investigations since the collapse have revealed extensive evidence that the bank and its founders were involved in illegal activities connected to CIA personnel * -possibly including the channelling of CIA money into Australia to finance anti-Labor organizations--and to organized crime in Australia and Southeast Asia. Merchant banks are very loosely regulated and less open to public scrutiny than other commercial organizations. In recent months, multinational banks have begun to expect that they will be allowed greater freedom of entry to the Australian financial system. A federal government committee of inquiry into the financial system, headed by the chairman of one of the country's largest property development companies, is expected to recommend deregulation and the removal of some of the restrictions on foreign banks. Australia's two banking trade unions are worried the entry of multinational banks will lead to greater automation and unemployment, and may force a number of Australian financial institutions out of business, resulting in greater concentration of the industry in the hands of only a small number of banks. Australia's current unprecedented resource boom will provide ample opportunities for profitable, and safe lending by the multinational banks, who are increasingly finding their opportunities for low-risk lending vanishing as many Third World governments who have been major borrowers in recent years run into intractable balance of payments difficulties. Australia is now rated by U.S. bankers as the most creditworthy country in the world. A recent example of multinational bank involvement in massive lending for resources was the U.S.$1.4 billion financing for the operating company of the large North West Shelf natural gas project in Western Australia. Eight of the world's largest multinational banks were involved as managers - including the Bank of Montreal, Barclays, Chase Manhattan and Morgan Guaranty--in what the Financial Times of London described as "the biggest non-recourse loan in history." So long as the country remains divided into localized interests competing to lure such foreign-controlled projects to their territory, the profits made by multinational bankers, miners and manufacturers will continue to mean losses for the majority of Australia's people, and for the country's unique environment. *One partner, Frank Nugan, was found shot to death in his Mercedes Benz on an outback highway in Australia in 1979-in his wallet was the card of his personal lawyer, former CIA director William Colby. The other partner, Mike Hand, is a former Green Beret who worked under Colby in the Phoenix program during the Vietnam war. He disappeared last year during an Australian government investigation into the bank. Professor E.L. Wheelwright and Greg Crough of the Transnational Corporations Research Project at the University of Sydney provided the material for this article Ted Wheelwright Is Associate Professor of Economics at the University of Sydney; his latest book is Capitalism, Socialism or Barbarism? The Australian Predicament. He founded the Transnational Corporations Research Project In 1975. Greg Crough is a Research Assistant with the Project. His latest book is Transnational Banking and the World Economy. Last year they co-edited Australia and World Capitalism; they are currently coauthoring a new book, Australia, the Client State.
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