WA has been shaped by 120 years of boom-bust history, and that mindset still prevails, in damaging ways.
SOON after Colin Barnett won government, he declared that his ministers would not be allowed to use the word ‘boom’.
At the time, I agreed with many people that it was a rather silly and pointless gesture.
After all, you can’t change reality by calling it something different. And what’s wrong with another resources boom anyway?
My thinking has been swayed since then by growing concern over the state’s ability to manage booms, and the bust that inevitably follows.
Mr Barnett, to his credit, is trying to sway the community’s mindset so there is a focus on achieving sustained long-term growth.
He is worried about the state’s boom-bust history and is trying to achieve a superior outcome this time.
It’s a big ask, but it’s certainly a goal worth pursuing.
The core problem with the boom-bust cycle is that it creates unrealistic expectations, and an unhealthy short-term focus.
Workers chase high salaries, often dumping a good job and a loyal employer in the process.
Contractors push up their tendering rates and vigorously pursue contract variations, probably at the expense of good business relationships.
Investors chase speculative stocks in the hope of making a killing, and pour money into the property market, pushing up housing prices for everyone.
The same applies in commercial property, where developers rush to seize a window of opportunity.
The result has been periods where swaths of heritage buildings have been demolished to make way for nondescript glass towers, and city blocks have been razed to make way for towers that don’t proceed for a decade or more.
For government leaders like Mr Barnett, the key objective is to achieve sustained, manageable growth, as opposed to short-lived, runaway growth that inevitably leads to a painful bust.
The optimists would have us believe that we are currently on the path to a period of sustained prosperity, driven by unprecedented investment in multiple, large resources projects.
There is merit to this argument – certainly the outlook in this corner of the globe is much more positive than most other places, the two-speed economy notwithstanding.
But the same line of argument was prosecuted during the last boom, between 2006 and 2008, when it was argued the state had moved beyond the traditional boom-bust cycle.
The argument back then was based on three key legs.
First was the commodity diversification that characterised Western Australia’s resources sector during that period.
Iron ore, gas, oil, nickel and gold were all attracting investment and becoming important components of the state’s resources sector.
Some of these commodities might falter, so the argument went, but surely not all of them.
Second was the balance sheet strength of the companies driving the resources sector.
The likes of BHP Billiton and Rio Tinto were so large, and had such strong balance sheets, that they wouldn’t possibly be troubled by fluctuations in commodity markets or economic conditions.
Third was the belief that China’s growth momentum was unstoppable.
The global financial crisis cut all of those legs out from under the thesis, and left mines mothballed, expansion projects delayed, and a shaky WA economy in its wake. The GFC was a wake-up call for many people, yet here we are again, less than three years later, with many of the boom-time problems re-emerging.
The two-speed economy should help to dampen expectations.
Yet despite the weakness in hospitality, tourism and retail, WA is once again facing a tight labour market, with shortages in many sectors and the prospect of worse to come.
It’s quite easy to see a scenario where the aspirations of resource project developers – from BHP and Rio to Chevron, Woodside, Shell, Aquila, FMG, Gindalbie, Sinosteel, and more – start to outstrip the capacity of the state to deliver.
If that were to happen, just think what might happen to the cost of living.
And would the state (or the country) be ready to import thousands of construction labourers to help us cope?
What would that do to the expectations of ‘ordinary’ Western Australians?