BHP hits the sweet spot with another record profit, but can it learn to share?

Some facts about BHP Billiton.

Its full year annual profit of $US23.6 billion ($A22.46 billion) is the largest ever for an Australian corporation and is double that of last year’s.

It employs close to 100,000 people globally, including 41,000 employees and 58,000 contractors.

In 2002, it spun off BHP Steel, which was renamed BlueScope Steel.

It has previously expressed measured support for the reducing carbon emissions, but chairman Jac Nasser has recently suggested the carbon tax process be slowed down. Chief executive Marius Kloppers this week described the carbon tax as a “dead weight cost” on the coal industry.

BHP was opposed to the first incarnation of the mining tax, the resource super profits tax (RSPT). This was later changed to the currently proposed minerals resource rent tax (MRRT).

Arguably, BHP has unprecedented social, economic and political influence.

How is it using this influence? And how does the Australian Government ensure everyone enjoys the spoils of this remarkable corporate success story?

Does BHP have a legitimate complaint about rising labour costs?

Bradon Ellem, Associate Professor and Chair of Discipline, Work and Organisation Studies, University of Sydney

To some extent, this is a lesson in being careful about what you wish for. Employer groups have been campaigning for a free labour market for the past few decades, and that’s what they’ve got.

The curious thing about this situation is that we are often seeing huge wage increases without union involvement, and we’re seeing them for workers on individual or non-union workplace agreements.

There is a strong historical component in this. Not long after the iron ore industry really took off in the late 1960s in Western Australia, the industry became highly unionised.

The unions were pretty effective in getting wages well above the average – not just above the average across the economy, but also within the mining industry.

Ever since then there has been expectation that iron ore is a high wage sector, and with the massive increases in commodity prices, many people believe that it should stay that way – or that wages should be even higher.

Against that historical background, there has been a de-unionisation strategy in place at BHP from about 1999 onwards.

A central part of this strategy was to offer employees significant wage increases if they abandoned the union and signed individual contracts. Now the massive majority of BHP’s workforce is on individual contracts.

Some employees are still members of unions, especially the train drivers. But most are not. The individual contracts that BHP offered had to be, by definition, higher than the union agreements.

A few years after that, the unions won a significant wage increase for workers on collective agreements in Western Australia on the basis of the increase of wages for workers on individual contracts. This in turn meant that BHP had to increase the wages offered to workers in individual agreements so that they could still convince workers to leave the union.

In the years since then, there has been a phenomenal increase in commodity prices which has led to a curious situation where a non-union workforce in a very flexible labour market is being paid quite extraordinary wages.

But while these wages are extraordinary in comparison to other wages in the mining industry and across the economy, they are not particularly extraordinary when you look at BHP’s massive profit.

It remains the fact that across the economy we are living in a period of near-record highs of profit shares, but near-record lows of the wage share. It’s hard for people to fully understand this when most people feel that they, and the nation as a whole, are generally better off than in the past.

But that shift between wages and profits has been quite marked. In mining, it’s really marked. It could easily be argued that a worker getting paid $150,000 a year for driving around a truck is getting ripped off, but it’s hard for many people to really understand that. The truth is that this worker is working for a company that is making profits that were previously undreamt-off, so proportionally speaking the cost of paying that worker is not particularly significant.

BHP chief executive Marius Kloppers has been reported as saying the carbon tax is a “dead weight cost” when it comes to coal and makes the industry less competitive.

Mahinda Siriwardana, Professor of Economics, School of Business Economics and Public Policy at University of New England

We did some modelling that looked at the impact of the carbon tax on the mining sector. We saw aggregate exports decline in our modelling, a reasonably big reduction in mining exports. So there is some truth in their claim that they will be affected by the carbon tax. There is a negative impact of the carbon tax on mining and they may lose a bit of a competitive edge in the global market.

The carbon tax will increase costs and when you are selling your output to the world consumer you cannot pass it onto the world consumer. The consumer will just go elsewhere.

That is why their profit will be squeezed. You reduce your profit margin because there’s an internal cost increase that you can’t pass onto the international market.

But then again, these profit figures that came out yesterday are huge numbers. I don’t know what percentage goes overseas but we know that 100% is not coming back to the Australian economy. So they should contribute to the environment by putting back some of this profit and one way to get that back is the carbon tax.

The carbon tax will do something for the environment and you will get some of that profit back to the Australian economy indirectly.

They will shout about how their profit will go down but that’s the cost they have to pay for the damage they are doing to the environment.

Paul Burke, Research Fellow at the Australian National University’s Crawford School of Economics & Government

The carbon price is not a tax on coal exports. Most of the emissions associated with coal are released when the coal is actually used. In the case of exported coal this is in other countries, which are of course outside the Australian carbon pricing scheme.

The scheme includes generous transition assistance for the coal sector, and Treasury expects the coal sector to continue to grow strongly even after the introduction of a carbon price.

BHP is the world’s largest mining company and among the world’s largest companies. So what are its global responsibilities?

Thomas Clarke, Professor of Management and Director of the Key University Research Centre for Corporate Governance at the University of Technology, Sydney

BHP Billiton is the largest corporation in Australia, as such it bears wider responsibilities than simply making substantial profits.

Among the responsibilities of BHP, and all large companies, is to be a good corporate citizen: this involves making a responsible contribution to the wider economy and society.

Fundamental to this responsibility is the payment of taxes.

The proposed Australian mining tax was intended to redistribute funding from the booming resources sector to assist those sectors of the economy experiencing difficulty in maintaining viability.

The dark side to the resources boom is a two-speed economy in which industries and companies that will be vital to the future of the Australian economy are being squuzed out of existence by the high dollar and interest rates.

Secondly, the minerals tax was intended to provide a sovereign fund for use when the resources boom is over to sustain the economy.

BHP’s reluctance to pay the full minerals tax that was originally proposed by the Rudd government, is an indication of an unacceptably narrow sense of priorities and interests.

Suzanne Young, Director of Corporate Responsibility, Faculty of Law and Management at La Trobe University

Traditionally, these sorts of companies have understood corporate responsibility in terms of risk. That means risk to access resources and making sure they look after indigenous communities, for example, which gives them access to resources.

I am sometimes surprised that they don’t seem to understand that the general public is also there and needs to grant them their social license. Maybe these companies understand the political process but not that there’s a community of Australians under that as well.

My view is Australia is going through a boom and we have certainly relied on a lot of our growth coming from the mining area. I feel they need to put something back into the development of better infrastructure and more into the broader economy.

People are now starting to see these groups are making all this money so are asking: why can’t they put something back? Other sectors are losing employment and so they may be asking for more from the sectors, like mining, that are booming.

The companies need to take more leadership. They need to understand these resources are not going to last forever and if they want to make sure the community is onside with them, they need to give back. Resources are owned by the Australian people.

I think there’s a bit of raising of public consciousness about this.