--Clyde Russell is a Reuters columnist. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Aug 28 (Reuters) - The resource boom is often cast as both villain and hero in Australia, being simultaneously recognised as a major driver of the country's wealth but also as a destroyer of traditional industries.
Two recent research papers have highlighted this dual nature of investment boom in iron ore, coal and liquefied natural gas (LNG), and taken together show that while Australia has benefited hugely from China-led demand for commodities, the risks seem to be mounting.
First, the good news. Australia has largely avoided the dreaded "Dutch Disease" over the past decade, according to an Aug. 22 research report from the Reserve Bank of Australia.
"Dutch Disease" was coined by The Economist magazine to describe the negative impact of a booming resource sector on other parts of the economy, using the discovery of natural gas off the Netherlands and the subsequent decline of that nation's manufacturing as the eponymous example.
Over the decade to 2013, the resource boom boosted real per capita household disposable income by 13 percent, raised real wages by 6 percent and lowered the unemployment rate by 1-1/4 percentage points, the Reserve Bank researchers said.
While this was the good news from the investment of hundreds of billions of dollars in boosting commodity output, the central bank also found that the appreciation of the Australian dollar weighed on industries exposed to trade, such as manufacturing and agriculture.
"Manufacturing output in 2013 was about 5 percent below what it would have been without the boom," the report said, concluding that the de-industrialisation that sometimes accompanies the development of resources has not been strong.
The Reserve Bank's views present a counterpoint to often repeated claims by Australian politicians and media that the country has "wasted" the resource boom.
These claims often are rooted in political ideology and most often allege that either the proceeds of the boom have been wasted by politicians on feel-good welfare, or alternatively that the government hasn't collected enough revenue and multi-national resource companies have ripped off the populace.
If the Reserve Bank shows that Australia has navigated the investment phase of the resource boom fairly well, consultants Energy Quest show the scale of the challenges ahead.
The investment surge that kept Australia's economy humming along through the 2008 global recession is "fading fast and there are few signs of new projects on the horizon," Energy Quest said in a research report on Thursday.
The report highlights the need for ongoing exploration of new resources and lowering of costs, both labour and others, in order to try and turn around the slide in investment spending.
But it also shows that the next phase of the resources boom will deliver big benefits, with the value of LNG exports rising from A$16.5 billion ($17.6 billion) in the 2013-14 fiscal year to more than A$50 billion a year once the seven projects currently under construction are completed.
What is currently happening is that the investment phase is fading and is unlikely to be replaced given market concerns that most commodities are likely to be in structural oversupply in the next few years.
The end of the investment phase will gradually by replaced by the production phase, which will boost Australia's export earnings, but the question remains as to whether this will be enough to keep the economy's record 23 years of unbroken growth intact.
When the decisions to invest in expanding iron ore, coal and LNG output were made, the general assumption was that commodity prices were in a long-term bull market, led by Chinese demand, and supported by the rising wealth of India and Southeast Asia.
However, as is usually the case with commodity booms, companies across the globe added too much capacity, resulting in too much supply coming online around the same time as China is trying to shift its economic growth to less commodity-intensive services and consumption.
The downgrading of commodity earnings can be seen in the June report from the Bureau of Resources and Energy Economics (BREE), a government forecasting agency.
It expects the total value of Australia's commodity exports to rise to A$201.4 billion in the 2014-15 fiscal year, up 2.7 percent from A$196.1 billion in 2013-14.
However, the volume is expected to surge by 7.3 percent, indicating that overall BREE is expecting, like most other analysts, that major commodity prices will continue to struggle.
Iron ore is Australia's top export earner, followed by coal and then LNG, although the super-cooled gas will overtake coal once the under construction plants start operating.
The prices for all three have been falling, and among major commodities it's possible they have the weakest medium- to long-term outlook, given they are likely to be plagued by oversupply.
While major producers such as BHP Billiton (all three) and Rio Tinto (iron ore and coal) may well be able to survive weak prices and make good profits through cost-cutting and economies of scale, the news isn't that good for the rest of the Australian economy.
Yes, state and federal governments will benefit from increased royalties on resource extraction, but this will likely be more than offset through lower corporate and personal income taxes.
While the Australian dollar may well weaken in this scenario, its unlikely that this will do much to revive manufacturing.
An example of this is no matter how weak the local currency becomes, it's virtually certain General Motors, Ford and Toyota won't reverse their decisions to close Australian vehicle assembly plants in the next few years.
It's become increasingly clear that the risks are mounting for Australia, and a mild case of "Dutch Disease" may still happen.
All three major players in the economy have made mistakes in the investment phase of the boom; companies have over-invested and needlessly competed with each other to build huge projects all at once, labour has cashed in on the good times with little thought to the future and politicians have largely engaged in point-scoring at the expense of sustainable long-term policies.
Transitioning to the production phase presents new challenges and the main risk is that the players haven't yet realised the game has changed. (Editing by Muralikumar Anantharaman)