Gold sell-off is a timely move
Australian Financial Review July 11/97 Editorial
This week's whining from the gold mining industry has a
familiar ring. Like the wool industry before them, gold
miners consider themselves deserving of subsidy and
succour from Australian taxpayers. That supposedly
makes the Reserve Bank of Australia's sale of two-thirds
of its gold stockpile a betrayal. It supposedly makes
Treasurer Peter Costello's remark that gold no longer
plays a significant role in the international financial system
an outrage.
What tosh. The Treasurer has done nothing more than
correctly and appropriately point out that gold has not
served a major financial purpose since the US dollar's
link to it was severed in 1971. These days it is simply a
commodity, much like any other commodity.
Far from betraying anyone, the RBA has acted in the
interests of the taxpayer -- by selling a basically useless
asset that was falling in value, and so yielding an annual
dividend of $100 million to $150 million to the Budget. If
anything, the Reserve should be asked why it didn't sell
more of its gold earlier, at a higher price.
That forgone $100 million to $150 million a year was the
cost to the nation of owning an excessive amount of gold.
At least this was less than the billions of taxpayer dollars
spent subsidising wool in the late 1980s and early 1990s.
It might have been thought that the disaster of the wool
price support scheme had permanently cured everyone of
the notion that governments should stockpile
commodities. Apparently not. Gold miners have reacted
to the selling down of such a hoard with an indignation
usually reserved for industries about to lose tariff
protection. And this from a bunch who weren't required
to pay tax on their profits between 1924 and 1986.
In reality the RBA has played only a peripheral role in the
steady decline in the gold price over recent times. If
self-serving mining lobby groups are really looking for a
central bank to blame, they should cast their eyes
towards Switzerland. The Swiss take gold more seriously
than most -- holding about 2,600 tonnes of it, compared
to the RBA's 80 tonnes. Until recently, Swiss currency in
circulation was 40 per cent backed by gold. Now that
backing is to be reduced to 25 per cent. Their surplus
gold, inevitably, will creep onto the global market.
Other central banks, mostly in Europe, have also been
bigger sellers than the RBA. Around the world, including
here, a generation of central bankers are concerned with
managing assets efficiently. Aware of the irrelevance of
gold in a world of floating exchange rates and low
inflation, and feeling the metal has no unique qualities,
they have either baled out or are thinking of it.
Gold has no magic. Rather than fret about the RBA and
Mr Costello, rather than search for nonexistent
conspiracies, gold miners should do what all industries
must do: seek new opportunities, focus on lowering costs
and producing efficiently, and ensure they serve their
shareholders capably in a free market.
Demand for labour in Australia remains disappointingly
feeble. Yesterday's small rise in measured employment
for June only partly offset the previous month's
unexpectedly large fall. The jobs market has looked sick
for a year.
The Prime Minister, Mr Howard, this week aired at least
part of the solution -- a deliberate choice in favour of
more jobs and lower (or nonexistent) minimum wages.
Others, including the Secretary of the Treasury and the
Governor of the Reserve Bank, ventilated the same
insight long ago. Unlike these two, Mr Howard has the
power to change policy and shift the balance towards
higher employment -- if he has the political courage.
Some critics of more flexible pay scales claim it is
unconscionable to ask people to work at extremely low
wages. But in the US, where unemployment is 4.8 per
cent, there is evidence that few of those who secure
work at the minimum wage stay on such meagre incomes.
More often, workers trade up to a better-paying job
once they have gained access to work. Getting a foot in
the door is the crucial breakthrough -- and precisely
where low minimum wages help the most.
This should be considered when considering the costs
and benefits of any trade-off between minimum pay and
employment. The Australian "fair go" is a fine concept,
but fairness must extend to those out of work -- society's
poorest group -- as well as those already on the inside.
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