The sinking iron ore price

Robert Johnson writes: Re. “BHP, Rio Tinto deliberately sinking the price of iron ore” (yesterday). The very first Radio National Science Show by Robyn Williams (broadcast on August 30 1975) is worth listening to. A summary version was repeated on the 25th anniversary on 26 Aug 2000, where scientists predicted this very resources glut scenario in Australia (although expecting it a little earlier) and global warming. I recall the original talk being far more detailed and predictive about Australian economic conditions based on primary industries and mining in the year 2000 but I copy the final paragraphs of the abridged talk from their archives:

Robyn Williams: Yes, any specific predictions about Australia?

Herman Kahn: The kinds of problems of lack of in touch with reality seems to me are beginning to be important in Australia too. I’ll take a simple one. I would bet you that any serious study of long term availability of commodities would indicate very likely a collapse of commodity prices in the middle/late 80’s early 90’s and so on.

Robyn Williams: Despite the number of resources we’ve got to sell?

Herman Kahn: Yes, because of the number of resources you have to sell. And other people have resources too. In other words commodity prices collapse because you have a lot, not because you have a little. And I think this is going to be true almost across the board, that there will be the kind of over production we associate with high prices.

Robyn Williams: Watch out Australia, our goodies might well be our downfall. Herman Kahn of the Hudson Institute. And those were the stars of the 13th Pacific Science Congress and that’s the end of the first Science Show. I’d like to thank John Edwards and Ian Steven of the Canadian Broadcasting Corporation for their help in the production of this program, and the University of British Columbia, who were our hosts for the congress.

My conclusion is that we are poorly served by the politicians who are the stewards of our Commonwealth resources. Where the corporations have generational plans, our politicians are happy for a quick exchange of beads and blankets for a four year cycle.

Save money, lose leverage

Bob Groves writes: Re. “Japanese subs: the government makes the right call” (yesterday). It is very unwise, perhaps folly, to forgo our national independence for the sake of an apparently bargain basement-priced fleet of Japanese submarines. I look at the current problems of the European Union dealing with Russian aggression since they compromised their independence when they agreed for Russia to supply Europe with gas, especially for winter heating.

With regard to Japan, what would have happened to the court case relating to the Japanese slaughter of whales in the Antarctic, if Australia was beholding to Japan for the timely delivery and/or servicing of submarines and its parts? I put it to you that the court case would never have eventuated. The selection of submarine purely on initial purchase price is shortsighted and simplistic. There is more to it than that.

In the event that the Japanese submarine was selected, why couldn’t the government demand that Japanese submarines would be required to undergo a schedule of servicing in Australian dockyards, as an act of good faith and mutual reliance?

David Havyatt writes: Great is the folly of believing all the neoliberal bulldust about outsourcing. Writing about submarine contacts Bernard Keane tosses up the favourite canard “shift the risk of delays — and rare are the major defence procurement projects that aren’t beset by delays and cost blowouts — onto the manufacturer.”  The manufacturer is a corporation that seeks to make a return on investment. If costs blow out a manufacturer has two options, either go under as a consequence of the loss or walk away from the contract. In either case the real risk still rests with the purchaser not the vendor. It is a myth that contracts can reduce risk. In fact the whole subject of transaction cost economics is focussed on the costs of contract enforcement. The best way to manage a risk is to manage it directly — but ASC might need a new Chair to do that.