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Issue # 1413      03 June 2009

The Great Southern bubble bursts

The failings of big capital’s latest get rich quick dodge, the “managed investment scheme” (MIS) have now been dramatically demonstrated by the collapse of corporations Great Southern and Timbercorp.

These companies claimed that new federal taxation concessions would rapidly bring in untold riches for MIS investors. They also exploited public concern about the environment. The taxation legislation was ostensibly aimed at mitigating climate change by offering concessions for the establishment of tree plantations. The tax breaks were later extended to include olive, orange, mango and almond crops, as well as cattle stations.

Great Southern and Timbercorp attempted to encourage as much extra investment as possible. In doing so, they became vastly overcapitalised, to the point were they could not possibly realise the promises they had made to their shareholders.

Rather than using careful scientific long term planning, (including considerations of rainfall variations), both corporations brought property and commenced operations at a rate of knots.

Timbercorp planted 100,000 hectares of eucalypts. Both companies bought up water licences en masse, forcing up the price of water for struggling farmers. Timbercorp took 150 million litres, more than half of Adelaide’s annual water requirement. And the Rudd government let it happen.

The MIS operations were driven by the tax concessions, not by market demand, which the companies failed to assess: Australia now has the second biggest almond processing facility in the world, but the supply has now outstripped the demand for this product.

The Rudd government decided to terminate the tax breaks, except for timber plantations, but then delayed doing so for a year, during which time more small investors were drawn into the MIS mire.

Since the companies were taken into receivership much of the fruit has been left to rot, and food and olive oil processing facilities have been left standing idle. Thousands of employees have been stood down, and many rural businesses are facing bankruptcy.

Capitalism’s not-so-green future

The huge areas of timber plantation land can no longer produce food. As the Greens noted, if the government’s legislation persists, it is possible that over 40 years Australia could convert 84 million hectares of potentially productive food-producing agricultural land into tree plantations.

There’s certainly nothing wrong with planting trees for timber production, but this should not have been done at the expense of land that is already being used to provide food for a world where food will become increasingly difficult to produce because of climate change.

The tree planting should have been used to reclaim Australia’s vast areas of degraded soil, including land adjacent to the nation’s major water courses, with suitable timber species such as the Murray River Red Gums. That could have happened with a properly-run government works program, but not with profit-hungry corporations like Great Southern and Timbercorp.

Those elusive
carbon sinks

Establishing carbon sinks, for example by carrying out mass permanent forestry plantings, is crucial for the environment. (Inert deposits of coal are the ultimate carbon sinks. That is why we are in such trouble now, after we’ve dug up so much coal, burnt it and released carbon dioxide into the atmosphere over the last two hundred and fifty years.)

The Howard and Rudd governments claimed that the Great Southern or Timbercorp timber plantations would act as carbon sinks. But they don’t.

For a start, the plantations were established by sacrificing the existing plantings or native species. Plants are high in carbon, and the material that was cleared from the areas earmarked for new planting was either burnt or left to rot in the ground, resulting in carbon dioxide being released into the atmosphere.

Moreover, after logging of the planted trees takes place, the tree stumps will be buried, and much of the logged timber will be used to produce woodchips or paper, almost all of which will eventually be burnt or buried, leading to a further release of carbon dioxide.

Corporate greed and gov’t culpability

One MIS opponent recently described them as “inherently unstable and economically corrupt”. That just about sums it up. Among other misdemeanours, the management of Great Southern is being accused of having sold off the company’s cattle stations, the profitability of which was used to attract six hundred investors in those operations.

Great Southern is expected to declare a loss of $120 million for the March half-year, and owes more than $700 million to its creditors. As secured creditors, the banks are expected to get the major part of any compensation, with little if anything left for small investors. Timbercorp owes $900 million. Its 18,000 investors paid $2 billion for shares, but will be asked to pay up more to save the company.

The activities of these avaricious corporations have ruined many rural communities, as well as their investors, and have failed to realise the government’s stated objective of turning back climate change.

The lesson is that “get rich quick” managed investment schemes will not help the environment, and will almost certainly bring economic disaster to the vast majority of the stockholders. Nor will any good come from governments who idolise big business and assume that it will act in the best interests of the public and the environment.

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