97: Paul Cleary | How To Beat The 'Resource Curse' - Lessons From Norway, Australia & Norwegian Sovereign Wealth Fund

🎙️: https://atlasgeographica.com/paul-cleary/

The following is a conversation with author and journalist, Paul Cleary.

Paul has authored several books about natural resources and focuses on the differing methods by which governments have either capitalised or squandered their natural resource windfall. 

This is a podcast about Norway’s success, Australia’s failure, and the overall issue of balancing and playing off private and public interests when it comes to a nation’s natural resources.

In This Podcast With Paul Cleary, You Can Expect To Hear About…

• An Explanation Top To Bottom Dutch Disease/Paradox Of Plenty/Resource Curse.
• Norway, Culture Comparison Between Australia & Norway & The Wealth Fund. 
• North Sea Divers.
• How Australia Mishandled Its Natural Resources.
• + My Favourite Part, How Paul Responds To A Conversation Between Any Two People Of History.

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• 00:00 – Introduction.
• 04:04 – Bill Finnegan & Famous Journalists.
• 05:54 – Paradox Of Plenty & Dutch Disease.
• 24:31 – Comparing Norwegian & Australian Culture.
• 27:07 – Trillion Dollar Baby & Norwegian Sovereign Wealth Fund.
• 48:43 – North Sea Divers.
• 50:32 – Australia & East Timor.
• 1:00:34 – How Australia Managed Its Natural Resources.
• 1:17:48 – Ethics Of Resource Extraction.
• 1:22:12 – Country Paul Is Bullish On.
• 1:23:16 – Conversation Between Any Two People Of History.
• 1:24:48 – Ambition For The Podcast.

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Episodes Of The Curious Worldview Podcast Mentioned.

• Norwegian Sovereign Wealth Fund Explained

Links To Paul Cleary

• Paul Cleary – Trillion Dollar Baby

Transcript

SPEAKER_01 0:00

The following is a conversation with author and journalist Paul Cleary. Paul has authored several books about natural resources and focuses on the differing methods by which governments have either capitalized or squandered the natural resource windfall. This was recorded in person, which I absolutely prefer to doing online, um, because as some of you might know, I was in Australia for the past few weeks and managed to hit up in person several people that I've been talking with for a while uh about doing a podcast with. So as this and other episodes come out in the next few weeks, um, those that are done in person at least, I would be very interested to hear from you guys whether you notice a difference or not between the online um, I don't know, audio experience and then the in-person audio experience, whether you notice that the um r relating between the two of us makes any difference, the audio makes any difference, or whether it's really just like uh completely intangible difference. I would just be interested uh to know what you think about that. But now to present Paul and his podcast. Paul authored Too Much Luck, which is a quip on the old uh lucky country adage, and it's a book about Australia's mining boom. He also authored Minefield, which is a book about the dark side of that very same boom. He authored Shakedown, which is a book about Australia's battle with East Timor for some of the slick black buried deep beneath a trench that separates the two countries. Most recently, he authored a book called Title Fight, which is a story about how an indigenous Aboriginal tribe fought off big Australian mining interests for the rights to dig up their land. And then finally, the book which is the subject of this conversation, Paul authored Trillion Dollar Baby, which is an unbelievably amazing accounting for how Noy managed to create maximum value out of the Phillips Petroleum oil discovery made off the southern tip of Noy's frigid North Sea back in 1959, I believe. I thought about giving a long introduction here, summising how Noy managed to fight off the very powerful international government and private interests to create what is likely the most successful case of managing natural resources windfall in history, but just decided against it in the hope that you might instead consume Paul's book, A Trillion Dollar Baby, where the full summation is given. And if you're really, really interested in this topic specifically, um, in addition to Paul's book, I would uh suggest that you consume in tandem the Norwegian TV series Likaland, and as well pay particular attention to the 30 minutes between minute 18 and minute 48 in this podcast. My favorite part of the conversation is this 30-minute stint here, and especially so uh all conversation regarding the Norwegian Sovereign Wealth Fund, which for those unaware is potentially the most successful government program of any country in history. Norway turned a one-time transaction of money, financial resources, into a perennial source of income, protected by that specially rigid flavour of Scandinavian bureaucracy, which today, at a value north of two trillion dollars, is worth twice the value of the oil left on the shelf. From almost any angle you look at the fund, you are left in awe at the scale and the success of it. So this is a podcast about Norway's success, Australia's failure, and the overall issue of balancing and playing off private and public interests when it comes to a nation's natural resources. Specifically in this podcast, you should expect to hear about an explanation top to bottom of the Dutch disease, otherwise known as the paradox of plenty or the resource curse, Norway, culture comparison between Australia and Norway, and the incredible success of the Norwegian Sovereign Wealth Fund, the North Sea divers, and how important a part of the story they are, how Australia has handled its enormous gift of natural resources, and then probably my favorite part of the episode: how Paul responds to the final questions about a conversation between any two people of history. So it's all from me and all from this introduction. Please do stick around to the end to hear my ambition for the podcast. With absolutely no further ado, here is Paul Cleary. And I should also thank you in advance. I um yeah, um the Lickerland in the book really captured m all my attention for a couple of days there. It was really, really interesting. So I've been looking forward to this for a while.

SPEAKER_02 4:19

Yep.

SPEAKER_01 4:20

Alrighty. Um what what about Bill Finnegan? Because he left a review on one of your books. I mean, are you mates with this guy or did he just come across the book?

SPEAKER_00 4:30

No, no, he just came across uh Too Much Luck, actually. Yeah, no, that's a fantastic review. But someone said to me it was it's like win it's like winning an award, having a review like that. Yeah.

SPEAKER_01 4:39

Is there this like special clout amongst New Yorker uh journalists?

SPEAKER_00 4:44

I guess so. I mean, obviously, yeah, I mean a very influential magazine, and he's an amazing uh journalist as well. So uh yeah, I think it does have a lot of clout.

SPEAKER_01 4:53

Do we have that in Australia, like especially famous or super internationally well respected journalists?

SPEAKER_00 5:01

Um, I don't know if we have really at that level. Um, but and I think that um I think in Australia what seems to be lacking is we spend a lot of time getting caught up with the the personalities and as opposed to the you know the real of our journalists. Yeah. The journalists spend a long lot of time, you know, on on personalities and and less less less so on on the the real nitty-gritty policy issues that that are going to affect us uh for the long term.

SPEAKER_01 5:29

Is that something about Australians and our culture?

SPEAKER_00 5:32

Well, I think we you know it is still I think it's the lucky country, and I think we have that mindset that uh that we'll be okay and we've got the these this huge amount of resources to live off, and uh we don't have to worry too much.

SPEAKER_01 5:44

Yeah. Did you ever have a word with Bill after reading his book?

SPEAKER_00 5:48

No, I didn't actually. No, I should have I should have dropped him a line there. Yeah, for sure.

SPEAKER_02 5:52

Yeah, yeah.

SPEAKER_01 5:53

All right, well, the reason why we've gotten together is to discuss the book Trillion Dollar Baby, but then as well, broader, you know, a larger body of work, which looks at this relationship between a nation, a government, and the extraction of the natural resources within that sovereignty. Specifically, you wrote about Australia and East Timor, Australia and Australia, Norway and Norway. Plus, I'm assuming within the research for those books, you learnt a lot about many other countries and how they did it. So if you look to Norway, you can see just how prosperous the natural resources can potentially make you. But then you look to the Congo, you look to Venezuela, you look to Australia, the USA, Russia, plus many other countries worth mentioning that have trillions of dollars of value below their feet, and you see a myriad of different outcomes from the Norway to the Congo to the Venezuela. So it's such a fascinating area of interest, and I just wanted to ask this broadly from the beginning and hopefully narrow in after that. Asking what that that What is the relationship between a nation and the extraction of a natural resource?

SPEAKER_00 7:02

Well, yeah, generally as a general rule, uh a large amount of resources tends to lead to what's known as uh the resource curse, uh Dutch disease, or the paradox of plenty. There's a there's there's a few a few uh few catchy um that you can use. Yeah, that's right. Um and you know, we've got this riot happening at this very moment in Australia where not only have we got a trillion dollars worth of federal debt after the uh pandemic, but where this gas-rich country that actually has a gas shortage, you know, an energy crisis, it's just completely insane. And it shows you the the the the the complete you know short-sidedness of public policy and and and the lack of really good planning around this. That that unfortunately this is found uh all around the world, and and there are very few exceptions, uh, Norway uh be being one of them. But it just seems that um in this country we uh we are just you know ripping up our resources as fast as we can and not really securing control over them uh to serve the national the national interest and also the interest of this country the very long term.

SPEAKER_01 8:16

I had no idea that Australia was a gas-rich country and furthermore had no idea that we were then in short supply of it. I mean, so can you explain that? How is this possible?

SPEAKER_00 8:27

What happened was Australia, um, on the west coast of Australia, when they first started developing gas, um, it was the Labour government led by Alan Carpenter in the mid-2000s that said, we actually need to m ensure that that our own market actually actually is covered. We just don't want to export all our own gas and leave our own industry short. So they developed a reservation policy. But what's interesting is that uh when we developed uh an export industry for the East Coast, uh it was a completely neoliberal mindset. And even with having a Labour government in power federally uh at the time that these big uh export terminals were built uh around Gladstone, there were three massive uh LNG plants that were built from um the um to late 2000s uh late 2000s onwards, uh opening up in around 2015. Um and and that has essentially drained the east coast of Australia of gas. And and and incredibly what we've done is even though we don't have a vast amount of of proven resources, we've actually become the world's biggest exporter of LNG. So we're we're sort of trying to punt, we're like a like a midget that's wanting to be a heavyweight boxer.

SPEAKER_01 9:39

Because we just pulled it out so fast, yeah.

SPEAKER_00 9:40

Because we just rip it out of the ground, is it's just develop, develop, develop. Whereas Qatar, interestingly, with a much larger uh uh proven resource base than what we have, has um in fact actually put on hold some of its development because they want to hold some back for decades and centuries to come in a sense, but we don't have that mindset.

SPEAKER_01 10:01

Yeah, but I guess they also have other very uh lucrative natural resources to lean back on. And they also do we've got coal, iron ore. So maybe then before we talk about more Australians specifically in their natural resources, could you just define for us the Dutch disease, the resource trap, the paradox of plenty? What is it to help us understand?

SPEAKER_00 10:24

Yeah, look, essentially what it what it what it is, and uh the Dutch D's was termed in the in the 1970s with uh with um uh North Sea oil and and how essentially what it what it is that countries get a windfall of revenue, they bring the money on shore and they spend it all. All right, and that creates uh inflation, it also creates a mindset that people think that uh we can just build all these great big edifices and in a sense uh inflate the expectations of the community as as as to what the government can can provide. So that's essentially where Dutch disease um that term has been derived, but also the the resource curse again is is just the idea that having a lot of natural resources doesn't in fact lead to prosperity even in in even in the short to long term. Um and and that is because of all of these um really unhelpful, perverse uh decisions that get made by governments that actually mean the country ends up being worse off.

SPEAKER_01 11:28

Perhaps some archetypal examples of the Dutch disease.

SPEAKER_00 11:32

Well, classic examples, I mean Nigeria is is is is a big one, uh very large uh oil reserves. Um so uh we've seen um Venezuela and I would say Australia is also an example of that in the sense that could you classify us as among the most egregious? Well, I think we I think we're getting there. I mean, I mean I I I I think what's happening with Australia, and we're not gonna see this play out for some time because we do actually have um you know a large amount of resources. But I mean the thing is we we are a country that's gonna be developing all these resources and in a sense have have nothing to show for it. And it's true, we don't have all the really bad macroeconomic and social outcomes that you you find in in places like Nigeria, but um essentially Australia, as I mentioned earlier, is a country that has been through this pandemic and is left with a trillion dollars of of federal debt um and uh and is in a really weak position should we go into a major recession which could be heading our way.

SPEAKER_01 12:39

Can you go back to hone in on one particular example with this as uh more padding? This is from the book, uh, when you define the resource trap. A heavy period of boom and growth followed by a painful bust. So to hone back in on whether it was Nigeria or one of the other examples you want to mention, could you explain the full cycle of the of Dutch disease?

SPEAKER_00 13:03

Yeah, okay. So I mean it starts with it normally starts with uh the the the the both the price and the amount of resource being extracted uh uh rising. And so that creates uh the idea that this is all going to last forever, and that then elevates the amount of spending in in the economy, uh, that increases uh in inflation. Um and then what tends to happen with commodities is that they do tend they do follow this boom-bust cycle. Uh that's a very cyclical uh industry. Uh, it's interesting that uh you look at um Warren Buffett, a key person I quote in my earlier book, uh, doesn't invest in in mining and and energy stocks because he basically believes that they have no uh real fra real sort of franchise value. Like it's not a brand, it's a generic product, and you anyone can can it can dig it up and and and ship it. Um and that those higher prices then induce that supply response. And then when you get that supply response, and inevitably uh booms uh tend tend to lead to slowdowns and then recessions, and the thing that really suffers most in in a recession is is commodity prices. And if you look at the Australian dollar, I mean it's a classic um commodity currency, and so uh when it starts to fall below 70 cents and gets into the low 60s, you know that you that the world economy is in trouble because uh it really is reflecting that weakness in commodity prices. And so then what happens is you're left with this high level of expenditure, uh um slowing economy, weakening government revenues, and then that leads to to debt deficit and then debt and then in a sense um lower living standards.

SPEAKER_01 14:52

So take us back to Nigeria then and play it out fully. They went through this incredible boom. Uh what did it actually look like on the ground? The bust and how did it happen?

SPEAKER_00 15:02

Nigeria probably not.

SPEAKER_01 15:04

Oh well, take whatever example you're familiar with.

SPEAKER_00 15:06

Yeah, um let me think. What's a what's a what's a good example? Um I don't know. Um I didn't think you were gonna go into other countries. So do Australia. Yeah, I mean, um well, I like so Australia, a classic example of Australia, uh, 1970s, uh, there was a lot of talk about the the resources boom. Um, and this was seen as a a way of Australia uh finding its way out of this period of what was known as as stagflation. And so governments, uh particularly the Fraser government didn't really um take the tough decisions that it should have in terms of trying to uh um deal with the with the with the financial problems that it had because it was trying to create these expectations of these large uh resource developments, coal, um iron ore in particular. Um and so that um uh ended ended in pretty much in the in the recession of the early uh 1980s, which was actually a very severe severe recession. Uh for the first time in um in 50 years, unemployment went into double digits, and it took a long time for that for Australia to come out, for the damage done by that recession uh to be repaired. So I think that's that's that's a that's probably a good example, I think, as uh as you get. And that's happening in a first-world country uh like Australia. So what tends to happen in development?

SPEAKER_01 16:32

That has a lot of other services to fall back on.

SPEAKER_00 16:34

Yeah, that's right, and a and a more of a broad-based economy. Uh, you know, at that time in the 70s, resources wasn't as significant uh to the Australian economy as it is now. Um it's uh resources has really grown as a share of uh not just our economy, particularly our exports. Um so but even then in the 70s, uh that the reliance on resources of you know as a as a sort of a false um solution in a sense um led led to some led to some pretty um uh unwanted um outcomes. And what tends to happen also in developing countries is they're even more reliant on the on a single industry like oil, so for example, Nigeria um or Venezuela, the the oil oil has made up a much bigger part of their economy. So by relying on that, it just increases the risk of of things being even more severe when prices come down and and their and their incomes um um begin to crash.

SPEAKER_01 17:37

Am I right in remembering that at one stage Venezuela had the largest oil reserves on the planet?

SPEAKER_00 17:44

I don't think I know if I can give you a definitive answer. I don't know if it would be more it doesn't sound right. I mean it wouldn't be it wouldn't be more than Saudi Arabia. I mean yeah I think Saudi Arabia would actually be be more significant.

SPEAKER_01 17:56

But in um in that country in per capita terms, I don't know, but but in that country there were other factors at play than just the classic sort of Dutch disease, right? That resulted in such a mismanagement, mishandling of the natural resource.

SPEAKER_00 18:12

Yeah, but also I mean I think what tends to happen in these countries is you do uh you know resources sometimes leads to uh resource abundance sometimes leads to uh autocracy and we've clearly uh seen that in in a number of uh developments.

SPEAKER_01 18:27

In a non-generalized economy, especially.

SPEAKER_00 18:30

Yeah, that's right. Because because I mean the stakes are high, and you know, if you can grab onto power uh and then look after your mob in a sense, which tends that's ten tends to be what happens, um, then then so there's a lot a big incentive for people to try to grab power and hold onto it.

SPEAKER_01 18:49

So if this is so explicitly known, this paradox of plenty and so forth, presumably you'd have uh the senior economic advisors at any given country at any given time advising and saying, hey, look, be careful of management here, X, Y, and Z reasons. Why does a nation repeatedly fall into it? What how could Australia, knowing its own history and international history elsewhere, repeatedly make the same mistakes?

SPEAKER_00 19:14

I mean, I think Australia, even though we're a Westminster government, um, but I think we're actually an example of a weak state. Uh, partly I think that's because of uh being a federation, it's easier to sort of to pick off the the states versus the federal uh government. Um we don't actually have very good advice on on how to manage our our resources. Um look at our universities. Uh the major resource schools are actually sponsored by the mining industry. I mean, the influence of the mining industry in this country is is is profound and and very worrying, I think. And it to the point where you you have you it's it's really difficult for government to develop um policy that's robust, that's going to serve Australia's long-term interests, because the resort the resources industry doesn't want that. That those policies would invariably mean uh having having stronger state oversight, uh higher taxes, um, and and you know, looking more also at the environmental impacts as well. But you know, the the industry doesn't want that. And so Australia is left with having major universities like the University of Queensland having schools that are heavily funded by by the resources industry.

SPEAKER_01 20:31

Why is it uh worrying to you that the mining industries would have such a huge influence over Australia?

SPEAKER_00 20:36

Why is it what's worrying?

SPEAKER_01 20:38

Why is it worrying?

SPEAKER_00 20:39

Well, I mean it's worrying because it should be uh the policy should be developed independently and it should be developed in the national interest as opposed to having the influence of the resources sector.

SPEAKER_01 20:49

So I was uh I was shocked to read in your book that the UK had produced as much oil as Norway. But we don't think of UK as an oil-rich nation.

SPEAKER_00 20:59

So what's the Well, it's true that UK's got a bit much bigger population than Norway. I mean, Norway's five million people versus around 60 for the UK. But having said that, I mean the UK should have had a sovereign wealth fund set up as a result, it should have had a super profits tax. Uh, it didn't do any of that because it was all this oil was developed pretty much from the the time of uh of Margaret Thatcher onwards, and uh that was very much a sort of uh neoliberal hands-off, just let it rip and develop it as fast as possible. Whereas the Norwegians also very, very keen to develop, but wanting to ensure that that uh the interests of the people of Norway were paramount and that they exercised very strong uh control over the development for the benefit of all Norwegians.

SPEAKER_01 21:43

There is another good line in the book which I I haven't written down, but it was something along the lines of um it was phenomenal work of the bureaucrats and the politicians, which was couched in kind of ironic terms because typically we wouldn't think that the There is phenomenal work happening from bureaucrats and politicians.

SPEAKER_00 22:03

Well, no, I mean, I think in Norway, particularly you you have a really strong uh uh public service culture, and that is that people really think about the national interest, and you've had uh a public service that you know is really high caliber and has a lot of integrity. Uh, there haven't been uh any major instances, from what I know, of of corruption or industry exercising improper influence over the the government sector and particularly the public service. So they they do have this very strong tradition. Um you would think that a country like Australia would would have that as well, but uh unfortunately, as I say, it's a sort of a much weaker sort of model, but also uh and a mindset that's different as well, a mindset that's not as much about the national interest. How do you explain that one? Well, I think that Norway is a more cohesive society, it is a country um where the left and right um agree on the fundamentals. I mean the conservatives in this country in Norway agree on the need for having high taxes that because this is a non-renewable resource uh and then that they want to see long-term benefits from the development of that of that resource. Um and we don't have that that mindset in the in this country. I think it being a smaller country, uh people kind of know each other really well. It's not like a big family in a sense. Also, the hostile climate as well, I think, is is actually part of it. People say that to me when you live in a in a in a place like that. Uh people really have to look after each other. You've got to look out for your neighbour to make sure that you know that they haven't lost their power or they haven't sort of, you know, they haven't well, if they haven't come out of their house for a few days, there might be something wrong. So there's that much more of that sort of because of the harshness of the environment, I think that does develop that sort of more uh cohesive um society.

SPEAKER_01 23:59

And Australia maybe just has less maybe more individualism and uh less trust in the government and say because there are very tribal differences between, say, a New South Walshman and a Queenslander, which, you know, is obviously uh fun when it comes to sporting contests and so forth. But is it possible that that could also seep into your sort of uh cultural relationship with the federal government to sort of say, well, you know, get your hands off my profits, or I don't want to pay you as much. I don't want to I I just don't accept that I'm gonna pay you tax because you say it's good for the next year.

SPEAKER_00 24:31

Yeah, no, look, I think Australia in particular, there Australia was a country um um that Paul Keating used this term to describe when his upbringing in Bankstown as a place that had what he calls sodality. Um and uh John Doyle, the who is famously known our sports commentator, rampaging Roy Slavon, wrote a book about his upbringing in this little town of Lithgow, a little small mining town, manufacturing town, harsh, a tough place to live, you know, bitterly coal placed at the bottom of the Blue Mountains. Um flooding right now. He described it, yeah. He described it as well. And and there was that idea of looking after your neighbor and really being a cohesive society. And I think we've thrown that out uh out the window, and we've become this country that's just more American, more individualistic. People don't know their neighbors anymore, they don't care about their neighbours, and so we've become this society that's just all about you know what I can get out of it, um, as opposed to you know what the country's getting. So, yeah, the JFK expression has been turned on its head here.

SPEAKER_01 25:36

That's a very bleak picture, Paul. I mean, it it could it be the case that you know this is just um someone reflecting on maybe the childhood and upbringing they had and can you know see a country change in front of their eyes. I mean, like for instance with your own kids and and other people you know who are younger, do they have this sense as well?

SPEAKER_00 25:57

Yeah, look, people have said this to me a lot in in Sydney and particularly where I live, uh, that there's this idea that you know you really don't care too much about your neighbor anymore, people don't talk to each other. Um, um, and this is where I live is sort of an area that's I suppose um, you know, uh sort of uh yeah, becoming more and more affluent as time goes on. Um more and more sort of like supercars turning up in the street, and you know, people wouldn't think that global warming was an issue. Um, and uh friends of mine have actually moved out of this area and moved into more sort of inner-city, you know, green left uh Labour voting areas and say that it's completely different in terms of people being being more of a community. So I suppose it look, it's it's it's kind of it's probably I'm not saying it's universal, but I I think this is the trend. Having said that, I mean I think that the fact that Australia got through COVID so well uh is a really good testament to the people pulling together and and wanting to, you know, and and and listening to to the advice of experts and and you know, yeah, uh doing the right thing in a sense. But clearly I think we are changing as a country, becoming more individual individualistic.

SPEAKER_01 27:07

So the trillion dollar baby is a on a timeline, almost a look at how these Norwegian bureaucrats made incredibly forward-thinking, smart but also difficult decisions, uh competing against mainly US and British oil interests for that natural resource of the uh what is it, the Atlantic? Of the North Sea. The North Sea, exactly. So as I checked before I came in now, and this is after several weeks of a of a market downturn, the Norwegian Sovereign Wealth Fund was worth in Australian dollars 1.7 trillion. Yes. Which I looked it up because I remember always thinking it's the largest individual fund in the world. It's true that it's the largest sovereign wealth fund, um, as was well, it's just individual pool of capital. It is now worth 2x the remaining oil on the shelf. Yeah. So just an unbelievably successful government program. Yes. Can you take us through what Norway did right and why it hasn't been replicated elsewhere?

SPEAKER_00 28:14

Yeah, um, a couple of things that they they they got right, and actually, this is one that's really not well appreciated. Um so firstly, they they they began with this mindset, and and this is this is supported across the political political uh spectrum, that that we own the resource. It is ours, and we are gonna tell you how to do business because the the development of this resource is not all about making some company company super profitable, it is about benefiting the the people of Norway who own the resource for the long term. So that mentality I would say is absolutely pivotal in in understanding everything that happened. Um, so the Norwegian um bureaucrats then came up with this uh this model uh that was they they actually listed what they they called the Ten Commandments, which were all about these key principles. So it's taking a very, very principled approach to achieve that end of uh of maximizing the benefit to the people uh of Norway. And to the point where if people of Vox popped in the street about what the oil has done for the country, uh the average person will actually be able to tell you that 90% of the what's called the value added from from from that that from the oil production has actually accrued to the people of Norway, which is a just a phenomenal uh achievement. However, the Sovereign Wealth Fund, and and the other thing I'd say is that mindset also led to ensuring that they had the sort of the downstream, the the manufacturing onshore benefits uh uh were also a key part of it. So it was both the sort of the industry and the financial, and in fact, they did really well with the industry side first, the financial came later. And the industry side was all about building these pipelines to make sure that the gas came on shore. That was one of the ten the ten commandments that to bring the gas on shore. They just didn't want it developed, put on put on a on a ship and and and taken off to the market. Um, that was really fundamental. When the Americans turned up, uh, I actually say in the book, it was a bit like the way they, you know, had fought um World War I, or you know, the Vietnam, all the wars they'd been in, you know, it's all American material, it's all American stuff. They even stipulated first up that all of the boots to be worn by the oil workers had to be American-made. And the Norwegians just said, no, we're not having any of that. And so it was all about ensuring that Norwegians were skilled up, they set up uh uh institutes to train people, they wanted to make sure that their people got the most out of it. Um the second thing they did, which was really significant, is they decided to have this policy which I call you cake and eat it. And that is they were licensing these developments, but they had an option to to buy into the venture if it turned out to be uh to appear that it was going to be super profitable.

SPEAKER_01 31:20

So it's an amazing way to just offshore risk.

SPEAKER_00 31:23

Exactly. So the the the oil companies would have to spend all their money exploring it, and then if it turned out to be a bonanza, the Norwegians say, okay, thank you, we'll take a 20% stake in that. And so that um that decision has actually been more significant than the taxation.

SPEAKER_01 31:42

Interesting, yeah. Yeah.

SPEAKER_00 31:43

So that's actually if you look at there's a a graph you can find on the uh Norwegian government's uh um the what they they've got this uh uh publication called Facts all about their their development. And it shows that in in in in many years that the the the what's called the state direct financial interest, the the money flowing from the equity has actually been generating a third to a half of the revenue coming to them uh over over the years. But then, of course, significantly on top of that that they that they increased the taxation, adding an extra 50% tax for oil uh developments. And that has then underpinned the revenue. Those those two factors, the equity and the tax, have underpinned this phenomenal uh flow of income, which was then flowed into the Sovereign Wealth Fund, which is now, as you say, yeah, I think about 1.3 trillion US dollars, which is just incredible. And the bottom line in what that fund has done really is it's created, it's transformed a non-renewable resource, something that just gets ripped up, dug up, and one time payment. One time only to something that can actually last for generations and generations, or even like forever, in a sense.

SPEAKER_01 32:58

Yeah, um the you mentioned Warren Buffett before, he's got some of the greatest quotes of all time on the power of compounding. Exactly. You can't compound a one-time transaction, but if you with extremely strict rules, which the Norwegian Sovereign Wealth Fund has, just leave money in different markets and different assets, you know, you can for generations.

SPEAKER_00 33:20

That's right. So even when the oil runs out, that that interest will just be uh accrual.

SPEAKER_01 33:24

They're one of the that the fund is one of the largest real estate holders in the world, I believe. Yeah. Which would, you know, get a lot of Australians quite horny. Um you mentioned specifically how they what of one of the ten one of the ten of the ten commandments, there were several things in there, and one of them was allowing for an option once the private industry has taken the risk in drilling, and if they find something great, Norway's now gonna dip their their hand in the pocket as well. Troll is a great example of that happening, right? Could you describe what happened there as a bit of an archetypal example of one of these Ten Commandments and how it's very different to how many other countries have done it that suffered from the Dutch disease?

SPEAKER_00 34:06

Yeah, so the what troll is uh is a a gas field, um, predominantly gas. And it was it was uh discovered um interesting, it sort of has a sort of a cold war element to it as as as well, uh, because um what's interesting is that it became part of, it caught up with US foreign policy at the time because uh Russia was the Soviet Union was uh was highly dependent on its its gas exports, and so the United States wanted to um uh fast track that development to ensure that uh that that that that it could weaken the United States. Um what the Norwegians did, and again, a bit of a sort of a cake and eat it strategy, is that they didn't really listen to the Americans in in in in because they wanted to ensure that they actually maximized the resource. And in fact, it was through some extra research they did and drilling that they that they managed to to find to find an even bigger resource. But in fact, um what's interesting about it is that by managing to secure the contracts uh early on, um, it actually had the effect of of of of uh um impacting on the the Russian uh gas contracts in any event. So they were actually able to just by proving the resource and showing what was there, they were able to leverage that to actually secure the contracts and then going into that uh and and then bring it bringing the development online actually much later, much later than than than than what would have been hoped for. But even so it was um and that's been a phenomenal development in terms of the the money that that has brought into the country has been incredible.

SPEAKER_01 35:48

But could you describe that as an example of how a private business discovered it, stumbled across you know, the the discovery of a lifetime, which Noy then sort of came over the top with regulation that really hamstrung how much that private business could have taken out of it.

SPEAKER_00 36:04

Yeah, actually, I I'm not sure what you're actually getting at there.

SPEAKER_01 36:07

I think there's like a detail about how there was the gas was under the oil.

SPEAKER_00 36:11

Yep.

SPEAKER_01 36:11

And so the the um the that's right.

SPEAKER_00 36:16

Yeah, no, that's right. So in fact, this was the work um of uh again uh public servants, government employees working in the in the petroleum ministry, um, who could see that there was also oil uh as well as gas. And so the the the um the company the the Shell just wanting to to um make as much money as quickly as possible was thinking that they would just uh go for the gas. But it was it was the sort of the strong tactics of the Norwegians, going back to that point I made as we will tell you how to do business, that then uh extracted um a really significant um sort of windfall amount of of revenue for the country through ensuring that the oil was extracted as well.

SPEAKER_01 37:04

Um it's also remarkable to note just how technically behind the Norwegians were when they first discovered this oil, right? Or I think it was Phillips Petroleum first discovered the oil and sort of notified the Norwegian state that hey, you know, we've got this uh discovery on our hands here. And the TV show that I've spoken to about, which it's a shame you haven't watched, Likalandet, uh really goes into it and highlights how this little historically fishing village of Stavanger became the oil capital um of Norway and you know almost Europe, right? Yeah. So could you just give a few seconds, a minute, to technically where Norway was compared to these big bad private interests. Yeah. Which also adds another layer to how remarkable it was that they staved it off.

SPEAKER_00 37:52

So in 1969, at the time of discovery, uh Norway's per capita GDP was sort of at the lower end of industrial nations, and because it actually wasn't really an industrial nation in a sense. Uh its major export industries were were fisheries, uh uh timber, but also shipping services as well, uh, through uh through mainly through that Wilhelmson uh shipping line. And um they um and their their their GDP was they were actually just above Greece in terms of their per capita GDP. Uh so and and a country that um um you know what what wasn't all that well educated in terms of tertiary qualifications. There were a lot of people with uh with trade qualifications, uh I think, but but not as not as advanced. Yeah, well there were none at all, actually. And and the country was very, very fearful of what would happen. There was this view that this would be like a um, you know, having all these Texans running around after their women, there would be prostitution. And the country at the time was very conservative as well.

SPEAKER_01 38:59

Uh Stavanger, particularly a very Christian village.

SPEAKER_00 39:02

Very, very conservative, that's right. So um so there was that big concern. Um, and this is why uh in terms of the government policy, very early on, pushing the idea of of education, getting people qualified, uh they actually pushed the Norwegian uh the the um Norway pushed the oil companies to to um to send people overseas to so Phillips actually took Norwegians to work on their productions in Texas, for example. I interviewed one guy who who took his wife, uh newly married, turned up there, living in a motel uh for a while when they went in Houston. And um, but this was all about really rapidly upskilling the country. Um, and that certainly um um paid dividends because because it was very shortly within a few years the Norwegians were actually able to get a lot of those really well-paid jobs, and uh they were you know turning out, you know, they had these uh universities that were just churning out um you know significant numbers of petroleum engineers and the like.

SPEAKER_01 40:06

And today uh they're one of the most well-educated per capita countries in the world, surely.

SPEAKER_00 40:11

Yeah, that's right. They would be, yeah, they are right up there.

SPEAKER_01 40:14

It's in one generation.

SPEAKER_00 40:14

That's right, yeah, yeah, one up to one or two generations.

SPEAKER_01 40:17

Which is well, if you want to be um very nitpicky, you can definitely make the claim that they're a much smaller population. Uh they haven't been necessarily threatened by war since this happened. You know, X, Y, and Z example, but it's kind of a you could make the case that this is the upside of really well-managed money that you dig from beneath your feet.

SPEAKER_00 40:38

Yeah, no, that's right. So as I say, it comes back to that mindset that that that that this is all about maximizing the value. And when you think about value, it's not just financial, the human capital uh is a big is a big part of it. And and the view was that we need to ensure that this um uplifts the entire country, both both, both economically, uh, socially, uh, and and in terms of people's uh long-term uh the long-term benefits to the country. So this was it wasn't just a sort of a it wasn't just a financial thing, it was it was sort of holistic in a sense.

SPEAKER_01 41:16

Yeah. And just I forget the name of the company, they recently rebranded, but it was the State Oil Company. Statoil. Stat Oil has rebranded to something else now. Equinal. Equinal, that's the one. Yep. So it's also remarkable to note that this company, which um 50 years ago it was impossible to exist, now is you know, mostly Norwegians employed, Norwegian management, so forth, they are state-of-the-art exploration across many different energy sources as well. They're heavy heavy into the renewables and so forth. And again, just quickly that turnaround. And you can give so much credit to whatever exceptionalism it might be to be a Norwegian and their culture and the homogeneity and everything that we touched on before. There's also an interesting point to make that there, and this is something I'd like to hear you talk on, actually, the difference between 5 million and 10 million in a population is significantly less complex than the difference between 10 and 15 million. So although it might be a five million increment, as a group, as a population, as a sample size gets larger, it inherently adds complexity to the mix. Right. So that you're following me. Yeah. And noise only 5 million people, right? Yep. Compared to Australia's 22.

SPEAKER_00 42:23

Yeah. Yeah, that's right. I think you know the small smaller country like that um it tends to be more uh more more cohesive. Uh, I think there's an idea that people really have to pull together. The it's not as individualistic as as as many Western countries, probably probably the least so. Um, and I think that is a fundamental part of its success. And so we haven't seen the kind of the opportunism uh that that you see in politics in resource-rich countries, particularly like Australia, for example, with you know the conservatives just tearing down the super profits tax that was uh introduced. I think it was a flawed model, but still the way that was torn down was was a real shame. And we haven't seen that kind of opportunism with the conservatives uh in in in Norway. And and really crucial factor there um is is the idea that all of the the savings that that are accumulated are invested offshore. So we haven't seen this sort of populism to oh I'd like a new bridge built in my area and a politician wanting to bring the money on shore to do that. Because once you sort of break that rule, then in a sense you kind of like um you open the floodgates and and it just then becomes you have all these problems with inflation and the like.

SPEAKER_01 43:39

So yeah. I I've I've but so as a listener knows as you know, I live in Sweden, the borders and nation of Oslo. Of Oslo, borders and nation of Norway. And uh I whenever people talk about the fund or Norway generally, I I I have this theory, and I would just like to see whether you think there's any validity to it at all. But it's just That having this Norwegian Sovereign Wealth Fund does make you, I think, kind of uh uh vulnerable to the populist message, you know, because uh you could just theoretically come along as a politician and say, hey, look, this money is ours, it should be yours, we should divide, we should cash it out and divide it and give it to all of you. That's the ticket I'm running on. Extremely populist. It'll make everyone in Norway a millionaire. Yeah. Um, I assume there's barriers against that, but could you just comment on that?

SPEAKER_00 44:29

Um look, I think there's there's actually, in a sense, nothing stopping the Norwegian government doing that. I mean, you can simply change the law if a government wanted to run that um populist agenda. Uh so there's it's there's no constitutional change or anything like that that prevents that happening. I think the thing that does prevent it is simply the mindset that I'm I think as I said earlier, that when oil first happened uh in 1969, people were very fearful. And they weren't just fearful of the society, but they were for fearful of what it would do to the country. They could see they knew of these other countries that have been ruined by oil. And so it's that kind of fear uh that um that really helps drive this great policy outcome in a sense. Um, and in a sense, Norway it's uh sort of a vulnerable country in in a way, it's sort of up there uh towards the Arctic, bordering with Russia. Uh, it it's always had this sense that it has to, you know, really be exemplary to survive, in a sense. And I think that that's underpinned their commitment to NATO, for example. You've now got the former Prime Minister Jens Stoltenberg head of heading NATO. They've always been very, very strong supporters of uh the Western Alliance because they know, in a sense, uh they're vulnerable. And I think that fear sort of drives them to really uh have some of these you know great policy outcomes that in Australia we're not so fearful, unfortunately. I think we probably could could be a bit more fearful in a sense given the uh strategic challenges that we're we're we're facing.

SPEAKER_01 46:10

Yeah, I think Jens I I remember being told this, I didn't do any research, but he also played a hand in the um formation of the wealth fund, right?

SPEAKER_00 46:20

Yeah, that's right. He was prime minister, I think, when the or finance minister when the when the the law was introduced in 1990. What a career. Yeah, that's right. And then what it wasn't until 1990, but they're their their finances were in such a bad way, it wasn't until 1996 they actually started putting money into the fund.

SPEAKER_01 46:38

Oh really? He's got um he's got one of the funniest English accents. I don't know if you watched his press conferences. Right. Um I I just want to not challenge you, but um question this cultural this cultural point, the fact that there might be a gaping difference between the Norwegian culture and the Australian culture. Because living in Sweden, I know that they're not equivalent, but we could broadly agree Scandinavian countries are rather similar. Um I get a sense of more individualism there than I do here in Australia. And I don't know how much I can credit that to me being an immigrant myself there, not necessarily being as much a part of the community. Here I have ex a long net like an older network of friends and so forth. Um, but I just uh because as we move on to Australia, I just want to see if there is actually a cultural reason why we have handled our uh our our resources so badly, or if it's more going to be elsewhere.

SPEAKER_00 47:36

Yeah, no, I really think the cultural reason is is is part of it. I mean, you know, the book by Donald Horn, The Lucky Country, you know, really kind of nailed it, uh and and people have misunderstood actually what he said. Um, you know, that a lucky country um run by run by second rate people in a sense, well no, that's a bit harsh. It is harsh, it's hard. I'd say second rate, we have second rate policy, um, very, very much so. Um particular in relation to the resources sector, especially, I would say it's second rate. Um, so yeah, um I think that um the the cultural differences are uh are a big part of it. And uh I don't think Norwegians, even though they have all this resource, they would not think of themselves as as as as lucky in a in a in a sense.

SPEAKER_01 48:25

So they almost as if they earned it.

SPEAKER_00 48:27

Yeah, I think they have earned it. That's right. That's right. They've worked hard and they've made some really astute decisions to get to where they are. That's not just about the fact that they have all have all that oil, because many other countries, as we said, have been in that position and and and have blown it.

SPEAKER_01 48:42

Yeah. One more on uh Norway and the wealth fund, just about when you were researching your book, any interesting anecdotes or things you learned that surprised you that stick out in the memory.

SPEAKER_00 48:52

One of the things that was surprising in this book is and I didn't realise going into it, was the role of the North Sea divers. Yeah, and and people don't really appreciate it. So the part of the strategy with Norway in bringing the the gas on shore was um to have to um uh um uh create these uh build these pipelines which involved uh literally um divers going down uh to to record levels um and and literally having to sort of build the foundations um uh on on the seabed.

SPEAKER_01 49:31

In the 70s with primitive tech. Yeah, amazing, yeah.

SPEAKER_00 49:35

Yeah, so it's just it's just amazing. And um, you know, this was uh and and I interviewed a um I interviewed one an American guy who who was one of the early early divers, and it was just uh phenomenal. And I think it was actually the first time that anyone had really spoken to him about um what he'd been through and the impact he'd had. Yeah. So that was um that was pretty full on. And you realise that there's a sort of, you know, I mean, I don't want to be jingoistic about it, but there is an element of heroism in in what has gone on here, I think, in in that the country was just so determined despite the costs and despite the fact that they knew probably going into it, this was going to cost lives, you know, and it did. Uh so as well as the having the um the platform collapse very early on, um it was uh a hugely risky uh venture in a sense, yeah.

SPEAKER_01 50:32

Okay, so you've also written a book about how Australia tried meddling with East Timor's discovery of oil. For me, the comparison is is quite large here if if Norway is East Timor and Australia is the US or England. Um can you talk a little bit about what happened here and maybe a broader lesson, you know, about natural resource discovery, developing nations, so forth?

SPEAKER_00 50:57

Yeah, like Australia, unfortunately, from the 70s onwards, in relation to East Timor, just behaved as a as a big bad bully and in a very sort of unprincipled way. Um and that is because um what's interesting is if you compare Norway to the UK, uh there was a very similar uh topography, very similar uh maritime law issues there, in a sense that you had a deep trough that was uh uh actually closer to Norway. Um and uh the law of the sea was a little bit um uh unclear at the time and and uh it was very early days. And uh the Norwegians feared that the uh British would use this trough, use this feature in the seabed to actually get uh a more advantageous settlement. And in fact, the British just walked in and said median line is the default. Uh well that's our starting point for negotiations, and they wrapped it up uh in a period of like 12 to 18 months, absolutely you know, fast track the the negotiation. Uh whereas Australia um, you know, uh allowed Indonesia to walk in to take over the place for 24 years, leading to a dreadful loss of life and human rights violations. Um, and then we sold it on for another uh decade or more after independence, uh trying to again get a more advantageous outcome for Australia. So we've had like 40 years of slogging it out, whereas and and very little development as a result. Uh whereas the Norwegians and the British just sorted it out quickly, you took a principled approach, and uh everyone is better off.

SPEAKER_01 52:37

So, how much oil ended up being extracted? Maybe of a percentage of the total.

SPEAKER_00 52:43

In which area?

SPEAKER_01 52:44

Between Australia and Esther.

SPEAKER_00 52:46

Oh, very, very little, very little. So there's a giant field uh called Greater Sunrise. Uh Woodside is is the operator. That's that was discovered in 1974, it still hasn't been developed. Yeah, yeah. So it's just been an absolute sort of log jam. Um and there's just been a couple of tiny little fields uh that that that have gone ahead, which Australia has managed to get all the revenue from, even though they're close to East Timor. Um so yeah, the whole thing has just been a bit of a disgrace.

SPEAKER_01 53:14

And I believe you you lived in East Timor for a while. Yeah, I lived there for over two years. Yeah, I worked for the government. Try and explain to me this country. As an Australian, it's such a close neighbour, but I admit I know nothing about it.

SPEAKER_00 53:25

Yeah.

SPEAKER_01 53:25

Except a, you know, uh what would you say? Like a caricature of a developing nation.

SPEAKER_00 53:32

So um East Timor, uh former Portuguese colony from early 1700s until uh 19 uh uh seventy-five, when the um Portuguese decided to uh withdraw as a as a policy after the end of the fascist government uh in 1974, they decided to decolonize rapidly. Uh hugely irresponsible thing to do, led to chaos all around the world, Mozambique, uh everywhere else had you know, civil war. Um same thing happened in East Timor and um uh um Indonesia was opportunistic, saw an opportunity to to move in, and Australia essentially uh acquiesced and said go for it, uh, or didn't sort of turn a blind eye and said uh Whitlam, uh Prime Minister Whitlam in a famous meeting with Sahato essentially said that the Australian people, not the government, uh, wouldn't uh tolerate an uh, for want of better words, an armed intervention. But the government was was really quite happy to see Indonesia take over. Really unprincipled given that um uh Indonesia uh in Tim Marie's villagers in 1942, I've written a book about this as well, um, gave huge support to the Australian commandos who were very successful in the way they were able to round up um and keep on the run uh thousands of uh Japanese troops who could have been deployed elsewhere where it really mattered. So very, very successful guerrilla campaign with support of the Timorese people. And uh unfortunately um we never repaid that support and we basically betrayed the the and today uh 2022 what does what does East Timor look like?

SPEAKER_01 55:20

Do they have an economy that sports?

SPEAKER_00 55:23

They're very they're very all dependent. Um true, but they do have a sovereign wealth sovereign wealth fund which is worth close to 20 billion US dollars, so quite a big sovereign wealth fund for a from natural resources. Yeah, from from the oil.

SPEAKER_01 55:35

I'm very surprised to hear that.

SPEAKER_00 55:37

Yeah, really. So quite a big sovereign wealth fund uh because it's a tiny population, yeah. Uh just over one million people, but they have quite a big sovereign wealth fund, uh, which is the result of a Norwegian-style policy that they introduced.

SPEAKER_01 55:49

Um this sounds like a success to me.

SPEAKER_00 55:51

It is, it is, it is successful. They do actually have some of the sort of uh elements of resource curse. You can see it there already. There's a huge uh array of very fancy government buildings in in the capital, so classic, sort of like looking after the elite type of thing, and a kind of a quite sort of Portuguese in in the mindset. I found the place really quite sort of neo-colonial in a sense.

SPEAKER_01 56:18

Is there um uh do they rank high in the corruption index, for example?

SPEAKER_00 56:22

Um I'm not sure about that. Um, but I think they've done I think they've done pretty well, actually, uh overall, and particularly for a country that's got a lot of resources that they've done all right. Yeah.

SPEAKER_01 56:33

Wow, okay. So that's very surprising to hear. So perhaps uh in the future, assuming that we're going to still be drilling oil, which I'm sure we will be, uh East Timor might eventually win this battle with Australia over accessing this uh Oh no, it has now been settled.

SPEAKER_00 56:52

Um partly it was a result of these extraordinary uh revelations around Australia bugging the Prime Minister's office uh during the 2004 negotiations when I was working there. Um, that that that Australia was really pressured to capitulate and and finally uh a maritime boundary um has been agreed between the two countries, so that's essentially resolved now for all time.

SPEAKER_01 57:17

And you also lived in Vietnam for a while. I did. So East Timor, Vietnam written about Norway. Yeah. You know, have strong feelings about the Australian culture. How how did it inform your understanding of Australia living in all these different places?

SPEAKER_00 57:31

Oh, look, I mean Australia is a Australia is a great country. We're very lucky, we're very, we're very very lucky country in the sense that we've um you know we've been through a lot, we've been through two world wars. Um, you know, we certainly haven't got a lot of things right. Um but you know, despite my very negative comments at the beginning, I mean I think we are still a uh, you know, a great country in the sense that that um there is individualism and there is a lot of second-rate policy, but um, but we're a country that does pull together. Uh we've seen that a a few key moments. Um I thought um during the pandemic we did incredibly well. Although I was at a dinner on the weekend and I just couldn't believe why people were complaining about you know government telling me what to do, sort of thing. Um guns, you know, that what happened in 1996 after the Port Arthur massacre was just fantastic that people got it, that we needed to change. And uh, although there still are a lot of guns running around this country at the moment, but we've got rid of those dreadful uh assault rifles. Um, and so we are a country I think that can that can do well. Um and um but I think just particularly I I guess one you know major issue I have is is the resources policy. And that I mean in a way I do see Australia they're having a lot of parallels with Nauru, you know, just this giant quarry that's that's literally being emptied at a very, very rapid rate. Um 20 years ago we were shipping about 200 million tonnes of iron ore from the Pilbara, and uh and now it's uh close to um a billion tons, so like a five-fold increase in the space of 20 years. So, and you know, the the best resources have already been extracted, and we're now sort of getting down to the lower quality stuff. Companies like Fortescue Metals and our and our taking up those opportunities. So, in a sense, um, and the lack of there being a super profits tax and a sovereign wealth fund attached to what's going on is is is a massive uh uh sort of uh missed opportunity for this country.

SPEAKER_01 59:39

So help me understand Australia a little bit more and its relationship with the natural resources because I get the sense that it that and this is as well me coming from a place of no understanding, really. You know, it's I get the sense that we privatized the upside and didn't necessarily pass anything on socially. We don't have a sovereign wealth fund, we're famously a very, very natural resource reliant nation. Yeah. Um help me understand this this picture.

SPEAKER_00 1:00:11

Um so how that came about.

SPEAKER_01 1:00:14

With the context of my understanding of Australia being somewhere where the where we've privatized all the natural resource upside and not pass anything on socially.

SPEAKER_00 1:00:24

Yep.

SPEAKER_01 1:00:24

I mean, one, is that at all an accurate picture? Yeah, it is. But then if so, explain how it's possible. Um why wouldn't we have a sovereign wealth fund? I'm trying to get your, you know, your and admittedly that comes through, this comes through asking the right questions, which I might not have, but your understanding, your worldview, having written, you know, the dark side of Australia's resource rush, and as well just having thought about this quite a lot, yeah. Explaining how Australia's in the position it is.

SPEAKER_00 1:00:51

Well, the two things are, I mean, if you look at um Nor Norway's success, um firstly leaving aside the industrial development, which is again much more um significant than what we've done, they have um introduced the super profits tax, and it's a very simple tax. Basically, you just add 50% on to the corporate tax rate. It's not it hasn't got all of these complicated um offsets and deductions that we have with that. We have a resource rent tax uh for offshore um petroleum. Um so Norway has a very effective super profits tax that's brought in a lot of revenue. But the other significant part of it, which is often overlooked, is that the government also gets a direct uh equity flow from its its the financial interest that it has taken in a number of significant oil and gas fields. Um and that's a policy called the the state direct financial interest, which started in the late 1970s with a field called Stutford, that was sort of the the second big um um mega oil field that was discovered in the North Sea. Um so that's been pretty pretty significant. So it's really been those two factors that have underpinned uh the revenue flow that that has gone into the sovereign wealth fund. Um so Australia, we've tried with a uh the resource super profits tax in uh in 2010 that was killed off um by uh the conservatives, by the mining industry, and by the media as well, Murdoch Media played a big role. Um and we've sort of talked about the idea in the Whitlam government of direct equity in in these projects. That was Rex Connor, the minister, which is what Norway does. Exactly, which then led to the Kamlani loan scandal and essentially was the undoing of the Whitlam government.

SPEAKER_01 1:02:46

Which is a form of corruption?

SPEAKER_00 1:02:48

No, no, a form of investment. Oh, though the Kemlani loan loan loan scandal was essentially. Someone taking advantage of this direct equity. Yeah, it was it was basically the minister off his own bat just decided to start talking to uh a uh a financier in in the Middle East by the name of Kimlani, uh, who he was going to seek to finance this this great uh vision that he had of Australia owning its own resources. So it was a it was a very um it was a dreadful thing uh to you know that in the way that it unfolded and the damage it did to the government and essentially really led to the to the end of the Whitland government.

SPEAKER_01 1:03:27

So this super profits tax sounds like an attempt to try and capture way more value specifically from natural resources. I assume that didn't apply to say Atlassian, a company that's got nothing to do with tech uh nothing to do with natural resources that might operate abroad. Would they also be affected by the super profits tax? Is this specifically natural resources?

SPEAKER_00 1:03:48

For natural for mining and mining and energy. Oh, in a way, it's it's it's but it's a petroleum tax. But in Australia, it would be mining and energy.

SPEAKER_01 1:03:55

So in a very crude summation, and you're talking if it's right or wrong, Australia, the way that we see any upside from our natural resources is just through standard corporate tax on companies.

SPEAKER_00 1:04:10

Standard corporate tax and royalties.

SPEAKER_01 1:04:12

And and what is a how do you measure royalty?

SPEAKER_00 1:04:14

So a royalty is um a really uh old-fashioned uh colonial type of imposse. And essentially what it does is it they're levied by the states and the territories, and they essentially get a direct percentage, typically a very low percentage, of the production value. And the problem Norway's actually phased out royalties because they can see that they don't they actually don't work very well, they don't encourage um startups and and small businesses that are that are trying to take risks and and to find things because you have to pay the the royalty as soon as you produce rather than when you make a profit. So the Norwegians have basically just gone for profits. They used to have royalties that phased them out. In Australia, we still rely on royalties, even though they don't bring in a great deal of revenue, um, and they don't they don't tax profits, and that's the big problem.

SPEAKER_01 1:05:11

So basically, from the perspective of the everyday Australian, they see the same amount of upside from, say, an accounting firm's corporate tax versus a mining firm's corporate tax.

SPEAKER_00 1:05:22

Yeah, no difference aside from the royalty, aside from the royalty, which is generally fairly. Negligent, as you just explained.

SPEAKER_01 1:05:28

So that is um to think about it that way, I mean, obviously we have no claim to the services an accounting firm might do, but as an Australian, you could say we have a claim to the coal in the ground of Australia. Exactly. And therefore this direct equity model that Norway might have done, or something else which people will accuse as very sort of socialistic, very high, you know, non neoliberal, as you say, policy. Um why is is it simply just the case that the lobbyism. And a lack of knowledge in the Australian public as a combination is enough to explain how this is.

SPEAKER_00 1:06:05

I'd say so. I think that's right. I think that look, I think the mining industry in this country is immensely powerful. We've seen in recent years former executives from the mining industry working in the Prime Minister's office. I put something up on LinkedIn the other day to say that ASIO uh vets uh ministerial staffers and looks closely if they've worked for a foreign government. Why aren't we looking at people if they've worked for uh multinational uh resource companies in particular? Um it it is it is really a concern. And we saw that with the super profits tax where the mining industry just spent for a small investment of$22 million and uh running a sort of a war room out of BHP's head office in Melbourne that they were able to uh to kill the profits tax and to essentially essentially bring down a prime minister and then go out there and and and and brag about it.

SPEAKER_01 1:06:59

I admit, and I study economics in this country, I have an interest in this stuff, and I and I and I just don't know, I don't understand. Um and just using that as a simple anecdote, you would assume a lot of people also don't understand. As I say, the average. How can this be? I mean, do the politicians get it fully? Are they fully around the lobbyists though?

SPEAKER_00 1:07:19

We don't have we don't have an institution, you know, like the Reserve Bank. Reserve Bank there is to look after the money supply and to um to to maintain the overall well-being of the Australian economy. We don't have a similar institution that looks after our natural resources, which are a very significant endowment and and belong to responsible for our super high standard of living, you could say. So we have all these research institutes that are basically funded by the mining companies. You know, I mean it's it's extraordinary.

SPEAKER_01 1:07:49

Can you call out the mining companies? What are these companies?

SPEAKER_00 1:07:52

Oh, so Woodside, BHP. Uh so there's one that one of the small uh organization called the Grattan Institute. I was on the website the other day, and they actually they're a bit of a heavy hitter. They do a lot of uh work on resources, um, but they're they're ex they're accepting money from um from I think Woodside and BHP. And those mining those resource companies, they're not charities, they don't give away money just to feel good. They give away money because they know they'll get all about incentive influence. Influence in in what in what they cover. So it's interesting that a lot of these these um so-called uh research centres, there's some one up in the University of Queensland, the Sustainable Minerals Institute. Um, you know, they haven't been calling for policies like gas reservation and the like, um uh because the mining uh the resource companies hate hate those sort of policies. They hate anything that's interventionist and tells them what to do. Um and here we are, a country, as I say, an extreme example of the paradox of plenty, uh running short of gas while we're just exporting it like, you know, there's no tomorrow becoming the world's biggest exporter of LNG while we're we're while our own economy is is starved of gas.

SPEAKER_01 1:09:03

So how much natural resources is left under our feet, which is in international demand, that Australia can still how much is left?

SPEAKER_00 1:09:16

Oh, in terms of years of production and the like.

SPEAKER_01 1:09:18

In terms of what is it? Is it a rare earth? Is it a gas? Basically, what is the map of Australia's natural resources that's still Oh okay that's still uh a worthwhile proposition for an international market?

SPEAKER_00 1:09:31

Okay, well, I mean look, Australia, um I mean we still have uh we still have some um uh areas that are that are undiscovered, and it's true that we could uh find um new uh major discoveries in the future, but um, but for example, you look at our iron ore, that's our single biggest export earner. Um our we used to have something like 130 years of iron ore, and that's come right down very, very quickly to around to around 70. And and the resources that are left are actually of a lower quality. So the really good quality iron ore has has already been mined or is already uh being extracted. So, you know, you can sort of almost start to see that that that you know these are finite resources, and people think oh, we'll always find something else. Um, but you know, we haven't made any major um oil and gas discoveries uh for for for decades. There's a new basin that was found up in the in the Northern Territory, um, on Northern Territory WA. Um, but even so, I mean it's not as though we're anything like Saudi Arabia in terms of the the resources that we have.

SPEAKER_01 1:10:46

I just asked that uh to try and understand whether it was not too late to idealistically institute and idealistically say that there was enough revenue left to turn it into a sovereign wealth fund that was worth anything.

SPEAKER_00 1:11:00

Oh yeah, look, I think no, I see what your point. I think there definitely is. I th I would think that that's something that we should be still looking at. And particularly uh as we stay face pretty serious budget issues. I mean, it's insane that um I mean these resource companies are some of the most profitable businesses in the world. Fortescue Metals, which is solely an iron ore miner, I mean it's it's it's um its profit margin is is bigger than any of these these IT companies like Microsoft and Apple and the like. I mean, these companies are super profitable, and yet all they're paying is corporate tax and a royalty. They're not paying a super profits tax, so we're just letting all that money go.

SPEAKER_01 1:11:45

So a few are getting extraordinarily rich because I'm assuming in Fortescue Medals as well that that income would be sort of distributed uh narrowly towards the top. But a few are getting extremely rich at the opportunity cost of the rest of Australia.

SPEAKER_00 1:12:02

Because it could have been an Yeah, that's a good way of putting it.

SPEAKER_01 1:12:06

Yeah. Okay, well, um there was one other thing you mentioned before that profits were being spent offshore. Is this basically just a commentary on that this same Fortescue Medals, BHP, whatever, they're not necessarily reinvesting back into the communities they're extracting from or into Australia largely? Because that could also be seen as a benefit of natural resources.

SPEAKER_00 1:12:27

I mean, look, they are reinvesting in the sense that Australia is a fantastic place to make money as a resource company. They know they are they are reinvesting, but but not all but not all the profits are coming back. And it is the case that people think I remember having a discussion with a um a previous prime minister who actually thought the BHP was an Australian company. And and it's not. It's a multinational. Um and and and uh and and there is a yeah, there's the lack of understanding the and the misinformation out there is is is pretty concerning. So yeah, it is the case that the uh that m that much of the Rio Tinto, London-based, London-based company, uh, you look at um look at the gas projects. So Woodside is predominantly uh uh Australian. We look at Exxon, it's been a massive beneficiary of our of our resources, um, you know, US company, multinational.

SPEAKER_01 1:13:25

Before I ask the final question, I want to really make sure that I haven't left anything on the table when it comes to Australia, its natural resources, its extraction, so forth. Um, just because I have exhausted the questions I prepare, but I there is a part of me that thinks there is something else that I haven't mentioned.

SPEAKER_00 1:13:45

Yeah, I always ask that question as well. It's a good question to ask. Um yeah, um, I mean, you know, I guess one question now is we have a Labour government, and you know, are they going to be able to do the right thing in a sense and and to to introduce the sort of public policy that we need? And I I think I just go back to what I said earlier is that the the that experience in 2010 and and knocking off a first-term prime minister and just the influence that the miners were able to leverage has left this country country like a frightened nation in in in a sense, but in a really bad way, that we're actually um not able to to to um to make the right decisions about how our resources are extracted and and who benefits. So that is a really that's a really big concern. But um it'd be really great to see uh while Labour's in power, I think they're going to be here for two terms, and I think this is an issue that they really have to tackle if they are serious about looking after Australia's long-term national interests.

SPEAKER_01 1:14:52

Australians need to just be better at understanding what they want, or at least better phrased, the potential that they could have had and they still could have, in terms of having a percentage ownership of this sovereign wealth fund.

SPEAKER_00 1:15:09

Yeah, no, it's interesting. I was at a university conference a while ago, and I had someone from the mining industry, they're they're one of their peak bodies come along, and they begin their sphere by just talking in in gross dollar terms the amount of royalties that uh that the industry has paid. This was in WA to the state of Western Australia. Um and it's um it just they just feel like these and this was in front of academics, and no one challenged it to say, yeah, but what's your effective tax rate? And it's actually pretty low when when you really look at it. Um, and the idea that at a university you can get away with that kind of like, you know, really um uh sort of almost like treating us like kids, you know, these these are all the presents that you get, and you say you should be happy about it, really. You know, it's pretty worrying, but that's the sort of stuff that they get away with.

SPEAKER_01 1:16:02

Sure.

SPEAKER_00 1:16:02

And you you often hear this from I remember talking to some of those ministerial advisors um who were from the mining industry and then worked for the PM, and they just sort of talk about, oh yeah, we delivered jobs and growth, you know, jobs and growth. It's just such a simplistic uh narrative that we have.

SPEAKER_01 1:16:19

Yeah, I think I think generally as well, Australians are they're really allergic to a conversation about politics or a conversation about our economy. You know, everything's very, and this isn't a commentary on Australia, this is humans. Everything is very, very localized. And uh you said earlier with Norway, if you polled them, they would know how important the oil boom was for them specifically, and how important it was that Norway was that that you know, their grandfather and their father and whatever, yeah, they played a role in it, and there's pride that comes with that.

SPEAKER_00 1:16:54

Yeah, that's right. They're very proud of what they've done.

SPEAKER_01 1:16:56

Whereas in Sydney, where I grew up, I actually don't know anyone who's evolved with mining. You know, all my mate's dads were like, you know, I either worked at a law firm or a university or a construction firm, right? So that's probably also a big part of it as well. We're so far removed from anyone who's actually involved in any of this. Yeah. Um I also want to just say on the spectrum, you know, if you have Norway as being the archetypal example of well-managed natural resources, Australia isn't the worst. No, but you've got a place like the Congo.

SPEAKER_00 1:17:33

Yeah, yeah. No, but um for a first world country, um, we're probably, you know, in the we're probably middle of the road, but we could clearly do a lot better.

SPEAKER_01 1:17:44

So one thing we haven't spoken about is sort of the ethics of resource extraction in general, and this is directly in line with a book you just published.

SPEAKER_00 1:17:54

Yeah, Title Fight, which is about the dealings with the traditional owners of of the land from where the the resources come from. So that's um that's a story about uh Fortescue Metals, uh, an emerging um fourth biggest uh iron ore exporter in the world, and how it's dealt with Aboriginal um communities uh around the Pilbora region. And um and you know, it's both about the the sort of deals they've struck in terms of compensation, but also the herit what's known as the heritage, so the the sites where Aboriginal people lived for thousands and thousands of years that have been damaged, mined. Uh, we're talking about um what's likely to have been burial grounds as well. So everybody knows about Jukin Gorge because it's so stark with those before and after photos. But what's happened in some of these mines, and in this case with the Fortescue, is that um uh consultants actually found things. Uh we're talking about archaeologists, anthropologists, and they found sites and they said we should look after these, we should preserve them. And Fortescue was not interested at all in being slowed down in any way. They were in such a mad rush to develop, and uh those consultants were either pressured to change their reports or they were fired. Um there's one case I quote of a of a of a guy by the name of Brad Good, who's uh uh an expert in this area, and he talks about how he was sacked, and it was the worst example he'd ever experienced in dealing with a a mining company. So um, you know, this sort of stuff's going on, and Aboriginal people have suffered a great deal because their you know their land is just being plundered at a at an astronomical rate.

SPEAKER_01 1:19:36

Can I can you um also put on the devil's advocate hat for a minute and um talk about from this perspective? Because right now, coincidentally enough, in Sweden, the same debate is going on right up the top of the country. There's a large iron ore mine which wants to be developed, but the Sami community um in this case actually they're very much for it, and it's Stockholm that's against it. But the argument of all of the money, resources, jobs that the mining company will allow by digging in this area. Does this argument um hold any weight with the community in question? What is it, Pilbara? Pilbara. Pilbara, yeah.

SPEAKER_00 1:20:16

Pilbra. Well, now clearly there are jobs, and um a lot of those jobs are for Aboriginal people, but a lot of them are fly in, fly out. Um, some of the research that's been done um uh over the years has shown that about a third of Aboriginal people from that Pilbara region are better off, but two-thirds are actually worse off because uh the whole region has become much more expensive to live in. Um, not everybody wants to work in the minority. Miniature Dutch disease. Exactly, exactly. That's right. They've really experienced uh the sort of the resource curse in a sense their living standards have gone backwards. Um, so yeah, that that's an example, I think, of where um mining companies will talk up jobs, will talk up those benefits, but I think part of the narrative also needs to be about what are the what do those communities actually want. And they don't all want to just drive a mining truck or or be digging up their digging up their country. And so the narrative should be about uh working in partnership and and and supporting the aspirations of those communities, but that's unfortunately what we're not we're really we're really seeing in the main in Australia.

SPEAKER_01 1:21:23

Yeah, and it's a one-time transaction, no matter how um no matter how prosperous it might be, you know, worth the destruction of an ancient cultural site.

SPEAKER_00 1:21:34

Yeah, that's right.

SPEAKER_01 1:21:35

Especially considering the fact that those profits are going to be very narrowly enjoyed.

SPEAKER_00 1:21:40

That's right. Yeah, well that's well, I think when when someone did the calculation with the Duke and Gorge, that it was uh it was a small amount of money that they decided, and high grade iron ore, so they they just decided to blow it up, even though they knew how how significant it was.

SPEAKER_01 1:21:58

Well, Mr. Cleary, that was absolutely fascinating. I'd like to ask you two more questions unrelated to everything we've spoken about. But I do want to ask that that last question. Is there anything on the table worth mentioning?

SPEAKER_00 1:22:08

No, no, I think we've done it.

SPEAKER_01 1:22:09

Yeah, great. So looking forward, a country that you're particularly bullish on.

SPEAKER_00 1:22:16

Oh, that's a very good question. Um, a country I'm particularly bullish on. Um I really like New Zealand as a place, although I think there's there's elements of state failure there as well. Uh but um I think New Zealand has still got that sort of that ethos that we're all in this together. Um, and uh they do great things with their indigenous people as well. Uh they're a really big part of their country. Um, and uh so yeah, I'm pretty big on New Zealand actually. And uh although from a climate change point of view, uh it's probably gonna be a beneficiary as well, given that it's got a mild climate, and I think we're already seeing that people are moving in and buying up real estate because it's gonna be the place to live in 30 years' time.

SPEAKER_01 1:23:04

Interesting, I didn't know that. Um the final, my favorite question. If you could witness a conversation between any two people, dead or alive, no language barrier, watch a podcast.

SPEAKER_00 1:23:19

I have an uncle who was in the Second World War, who was in D-Day and uh one of the first to land to sure, and uh I would love to uh to begin on you know some of the discussions he had with his men and things like that, you know.

SPEAKER_01 1:23:32

Yeah, that'd be unbelievable. And he made it through. No, he he was killed. Oh, sorry.

SPEAKER_00 1:23:38

Yeah, yeah, he lasted, he survived 17 days, so he was uh yeah.

SPEAKER_01 1:23:42

And did you get um any word back from his experience through those 17 days?

SPEAKER_00 1:23:49

No, the family um sort of this there's letters and stuff around, but uh I haven't seen. But I I mean I talked to his son actually. Um his son was only four years old when when he when he when he was killed. Um but um yeah, there's a bit of that stuff around. But in fact, actually, incredibly, I searched through the British archive um and I found a short um film which he's in. Oh wow, yeah, yeah, but on in in a trench where they're just sort of having a bit of a break, and they've got a captured uh German machine gun, and he's actually explaining to his men how this gun works. It's it's sort of a it's set up as a you know, it's a bit of a war uh propaganda. But um yeah, um it's it's pretty amazing, sort of 15 seconds of footage.

SPEAKER_01 1:24:36

Wow, I can imagine.

SPEAKER_00 1:24:38

And that was actually shot just before he was killed.

SPEAKER_01 1:24:40

Wow.

SPEAKER_00 1:24:40

Yeah.

SPEAKER_01 1:24:42

Well, Paul. Thank you. Fascinating, mate. Thank you very much. Good, good to be here. So thank you again, Paul, uh, for both having him in your house, but as well for agreeing to do the podcast. Um, I sincerely mean what I said about Trillian Dollar Baby. It is an it is such an unbelievable accounting of one of the most amazing periods of, I suppose, modern history, modern wealth creation, at least. I don't want to get too hyperbolic about it all, but amazing. Thank you very much, Paul. My ambition for this podcast. So my hope, my ambition, is to corner the podcast market for eclectic curiosities in whatever country it is that you're listening in from. So the hard part about that is that there isn't an obvious genre or category for eclectic interests or broad curiosities. There is a general interest, but I don't think it quite captures what I'm trying to do here. So that's my ambition for the podcast. How does one get there? Is another question entirely. Um, and unfortunately, a lot of the podcast algorithms are rather stuck in the very, very early days of the internet, and they don't seem to be indexing enough variables. Really, all they're looking at is reviews and ratings. So I would encourage you all to please um support my ambition for the show and leave nice juicy reviews, pump that good juice into the algorithm. Whether it's five stars on Spotify or whether it's five stars and a comment on Apple Podcasts, I will please encourage you to both do that yourself and as well pull out all phones that you see in the day-to-day life and uh leave nice uh healthy reviews on those as well. Um so that's all from me. See you again next week. I'm about to record with John Perkins, the economic hitman himself. So maybe that gives you a bit of a date when it's happening. Actually, uh I'm recording this Monday, twenty five of July, so you'll see. But I'm very excited to do that and as well. Keen um to hear from you. So like I said in the beginning, if you notice a difference between in person and online, but also just, you know, pump that good juice. Cheers all.